Executives
Ben R. Leedle - Chief Executive Officer, President and Executive Director
Alfred Lumsdaine - Chief Financial Officer and Executive Vice President
Analysts
Joshua R. Raskin - Barclays Capital, Research Division
Sean W. Wieland - Piper Jaffray Companies, Research Division
Ryan Daniels - William Blair & Company L.L.C., Research Division
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
Healthways (HWAY) Q2 2013 Earnings Call July 24, 2013 5:00 PM ET
Operator
Good morning, and welcome to Healthways' Second Quarter 2013 Conference Call. Today's call is being recorded and will be available for replay beginning today and through August 2, by dialing (719) 457-0820. The replay passcode is 8508552. The replay may also be accessed for the next 12 months on the company's website.
To the extent any non-GAAP financial measures discussed in this, and you'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP in today's new release, which is also posted on the company's website.
This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Healthways' expected quarterly and annual operating and financial performance for 2013, 2014 and beyond.
For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.
You're hereby cautioned that these statements may be affected by the important factors, among others, set forth in Healthways' filings with the Securities and Exchange Commission and in today's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
At this time, for opening remarks, I'd like to turn the conference over to the company's President and Chief Executive Officer, Mr. Ben Leedle. Please go ahead, sir.
Ben R. Leedle
Good afternoon, everyone, thank you for being with us today for our Second Quarter 2013 Conference Call. I'm here today with Healthways' CFO, Alfred Lumsdaine. We'll both make some remarks about our results for the second quarter, as well as our outlook and guidance for 2013. Following those remarks, we'll open the floor for your questions.
Let me begin by saying we're pleased with our second quarter results. We're on track with the anticipated quarterly progression of our business development and financial results that we expect will enable us to achieve our goals for 2013. We are continuing to advance significant business development opportunities and operations with payers and providers, in both our core domestic and international markets. We continue to see strong demand for our services to sign new, expanded and extended contracts across all our markets. In the second quarter, we completed 25 contract signings which, in addition to contracts in our 3 core health plan and health system, and employer markets domestically, included our new SulAmérica contract in Brazil and the renewal of our HCF contract in Australia. Among the 6 contract signings just since the end of the second quarter, is the new strategic partnership agreement, our 6th in the past 15 months with Beacon Health System. Beacon is the nonprofit parent organization of Elkhart General Hospital and Memorial Hospital of South Bend, providing world-class care throughout North Central Indiana and Southwestern Michigan. With approximately 60% market share, Beacon is the established leader in their market, and we are excited to partner with them in their transformation to the leading model for population health management in their region. We will be issuing a more detailed release on the Beacon agreement in the coming days. Further, we expect to sign additional large, new, expanded and extended contracts during the remainder of 2013. In short, we're halfway through a pivotal year for Healthways and our results are substantially meeting our expectations. Our confidence in achieving our business and financial objectives for the year is fully intact.
As you know, we also completed $150 million convertible notes placement after the end of the second quarter. The successful placement of this new debt increases our flexibility to pursue strategic opportunities that strengthen our value proposition. An example of expanding our value proposition is the new exclusive relationship with Dr. Dean Ornish that we announced yesterday. The Ornish program's effectiveness is backed by over 30 years of world-class scientific research, which proves for the first time that comprehensive lifestyle changes can slow, stop and even reverse the progression of severe coronary heart disease, Type 2 diabetes and early-stage prostate cancer. We believe we have a substantial opportunity to scale to delivery these programs through our exclusive rights to train and certify health systems, health plans, hospitals and physician groups in their use. And by doing so, we'll offer new well-being improvement options to millions of people around the world. We expect our progress in the second quarter and throughout the remainder of the year to strengthen both our prospects for long-term profitable growth and our position as the global well-being improvement leader.
So right now, I want to thank you for interest in Healthways. And I'll ask Alfred to review our second quarter results and our guidance in much more detail. Alfred?
Alfred Lumsdaine
Thanks, Ben. Good afternoon, everyone. The second quarter revenue was $162 million, approximately $8 million less than revenue of $170 million for the second quarter of 2012. However, if you exclude the impact of the 2 terminated contracts, our revenues increased 12% on a comparable quarter basis. On a sequential quarter basis, revenue declined approximately $3 million, as a result of a slightly larger than normal seasonal decline in our fitness, incentives management and biometrics service lines. The seasonal decline was somewhat offset, though not quite to the extent that we projected, by ramping revenues from growing volumes, and/or from expanding scopes of service under some of our newer contracts. Our net loss of $0.03 per share for the quarter was slightly better than the $0.05 per share loss that we'd anticipated. Earnings per share was positively impacted by the timing of several factors, including earlier than expected performance-based fee recognition, a recoupment of fees from certain supplier service-level agreements, and lower than expected marketing expenses. As expected, EBITDA margins improved on a sequential quarter basis, increasing from 6.5% in the first quarter of 2013 to 8.9% in the second. Overall, our earnings performance was very much in line with our expectations and with the previously provided guidance for the second quarter.
We were pleased with cash flow from operations for the quarter, which totaled $13 million, and now stand at $39 million year-to-date. Capital expenditures for the quarter were $8 million, and now total $20 million year-to-date. As a result of our positive free cash flow, we were able to reduce our long-term debt during the second quarter by $3 million. As expected, the leverage ratio under our credit agreement increased to just under 3.5x at the end of the second quarter. This is up from 3.1x at the end of the first quarter this year. As you're probably aware and it's been referenced earlier this month, we completed a private placement of $150 million of cash convertible senior notes and concurrently amended our existing credit agreement. The purpose of these financing activities was to strengthen our capital structure, while simultaneously increasing our financial flexibility. Given the current transformational environment within the entire healthcare industry, we think it's important for Healthways to be in a position to move rapidly when investment is required to build, buy or partner, to add well-being improvement capabilities that complement, and enhance, our current service line and help to drive our expected growth. By completing these financing activities now, we were able to take advantage of favorable market conditions, completely pay down our revolving credit facility, position ourselves for early repayment of at least a portion of our term loan, increase our borrowing capacity, as measured at the end of our -- at the end of the second quarter by approximately $80 million, and improve our expected future operating cash flows by $5 million to $6 million annually over the term of the notes. We're very pleased with the terms we achieved with the convertible notes placement and related hedge transactions, and believe that these recently completed financing activities have clearly enhanced our capital structure. As noted in our release today, the accounting literature related to convertible debt instruments requires us to recognize a noncash interest charge associated with these convertible notes. Specifically, issuers of these debt instruments must account for the convertible notes liability separately from the liability for the embedded cash conversion feature. The embedded derivative is initially recorded at fair market value, thereby reducing the initial recorded value of the notes. The notes are then accreted to their face value over their term through noncash interest expense by utilizing the effective interest method. Because we believe that investors may find it useful in evaluating the company's operational performance, liquidity and comparison to historical results, we intend to provide the amount of noncash interest expense included in our results for the foreseeable future. And in fact, we'll likely break it out as a separate line item on our statement of cash flows.
So now let's turn to our financial guidance for 2013. As you saw on our earnings release, excluding the impact of the issuance of the convertible notes, we've affirmed our financial guidance for the full year. We expect revenues and earnings to grow sequentially for the third and fourth quarters. Despite the previously noted slightly slower than expected revenue ramp during the second quarter, as we move into the third quarter, we have increased visibility into the ongoing revenue ramp for several of our new and larger health plan and health system contracts, which we expect to largely get back to the pace of ramp we forecasted when we began the year. In addition, we continue to have a number of new business opportunities that can still positively impact 2013 revenue. As a result, we continue to expect 2013 revenues to be in the range of $710 million to $750 million. In addition, we continue to expect our current book of business will provide organic growth of at least $85 million in 2014 over 2013. Similarly, we continue to expect EBITDA margins to grow sequentially in the third and fourth quarters and for full year EBITDA margins to be in a range of 10.5% to 12.5%.
With regards to guidance for earnings per diluted share, our previous guidance for 2013 was in a range of $0.25 to $0.35. As a direct result of the convertible notes placement, which of course was not anticipated in our original guidance, we expect GAAP interest expense and other expenses for 2013 to increase by $0.07 per diluted share, and as a result, we're adjusting our guidance for earnings per diluted share on a GAAP basis from a range of $0.25 to $0.35 to a range of $0.18 to $0.28. Included in the $0.07 per diluted share impact from the convertible notes placement is $3.1 million in noncash imputed interest expense and $1.1 million in offering-related charges.
So to summarize, we expect revenues and earnings to strengthen each quarter and the back half of the year from ramping revenues on existing contracts, new contract starts and the timing of recognizing performance-based revenues. Following the $0.03 per share loss in the second quarter, we do expect to return to profitability in the third quarter as we move toward achieving our full year earnings guidance. Based upon our current visibility, we would expect that our earnings in the back half of the year would split roughly 1/3, 2/3 between the third and fourth quarters, respectively. Of course, however, that estimate includes many assumptions particularly around the timing of performance-based revenue recognition, which we know can vary depending on availability of data and timing of measurement.
From a cash flow standpoint, we continue to expect operating cash flows for the full year to be in a range of $70 million to $80 million and capital expenditures to total approximately $45 million. We would expect that free cash flow will continue to be applied primarily towards debt repayment and/or targeted strategic investment opportunities.
A few final comments, and these may sound find similar to some of my commentary from our first quarter call. Since the end of the first quarter, we've signed new contracts across all of our markets. We no longer have the historical concentration of higher than average margin business with a few large health plans. Instead, we have a more consistent target margin profile, a more diverse solution set and a significantly broader customer base. In addition, much of our business up for renewal this year has already been successfully renewed, including 2 of our 3 most significant from a revenue perspective. In the case of our contract with Hospital Contributions Fund in Australia, this renewal is for an additional 5-year period. As a result, we continue to believe we're now moving into a period with visibility to sustainable top and bottom line growth.
With that, operator, we'll go to Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] We'll take our first question from Josh Raskin with Barclays.
Joshua R. Raskin - Barclays Capital, Research Division
Just a quick clarification, the $3.1 million of noncash interest expense, that's the sort of recurring, we'll call that $0.05 for half a year, that's what you'll expect the continued GAAP impact to be, right? The other $0.02, the offering charges, I assume none of that continues, right?
Ben R. Leedle
Yes, that's -- you could say that roughly, your interpretation is correct, Josh. With the $3.1 million, though, it's not going to be a straight line. We're using the effective interest method to effectively accrete that debt up, so over time that noncash charge actually grows a little bit. So it wouldn't be simple math. But it's not going to be too far off. But you're thinking about it the right way.
Joshua R. Raskin - Barclays Capital, Research Division
Got you. So maybe it's $0.10, $0.11, $0.12 or something in '14 as we think about a full year annualized, is that fair?
Ben R. Leedle
Yes. I think you're thinking about it completely accurately.
Joshua R. Raskin - Barclays Capital, Research Division
And then I'm just trying to see, is it -- are you guys trying to express a change in tone? It sounded like the press release and your prepared remarks, it sounded like you're a little more open from an M&A perspective. And so, does the converge signal that there's more interest now from an M&A, is there something in the environment or in your pipeline that's making guys think that there is more opportunity now?
Ben R. Leedle
This is Ben, Josh. I would just tell you nothing specific other than the environment itself. We recognize that over the past 18 months, as we've both been involved and watched a lot of change take place in the market, we know that opportunity will come and go quickly. And predicting all possible risks. Also on the other side of that equation, around change in the marketplace is probably impossible to do perfectly as well. I think the steps we've taken have just done exactly what we are trying express in our prepared comments and in the release, which is to provide ourselves some flexibility during a lot of transformation that's going on in the marketplace and to take advantage of that as opportunity presents itself.
Joshua R. Raskin - Barclays Capital, Research Division
Got you. And then just last one for me. On SilverSneakers, have you guys been in dialogue with your Medicare Advantage partners in the SilverSneakers program post their first Monday of June bids, i.e. do guys have sort of visibility into what SilverSneakers is going to look like in '14 and I guess any changes in the landscape, just in light of all the discussion around pressure on rates and things like that.
Ben R. Leedle
Josh, this is Ben again. I would just tell you we've got pretty darn good visibility in terms of our customer set, and how we go forward with those customers in '14. Obviously, you can appreciate the finer points about what happens with those customers' membership. But region by region, it's something that, at this point, is still going to be harder to perfectly get our arms around. But there's nothing that we're experiencing or engaging in with our conversations with them that would lead us to believe that there's any type of dramatic change in that part of our business, as compared to historical types of trends and behaviors.
Joshua R. Raskin - Barclays Capital, Research Division
Got you. I apologize, Ben. I wasn't thinking necessarily about their plan-specific membership, but more at the customer level for you. Just you guys have really high retention rates for SilverSneakers. I guess...
Ben R. Leedle
We have and in the queue, I'd give you color. There's 3 more extended and expanded relationships just inside the quarter to give you some evidence to that. And since the quarter ended, another one, and actually, those clients -- as part of our business development that has been solely SilverSneaker-scope clients have actually now begun to ask for some of our well-being programs to be added to SilverSneakers Fitness Program for their Medicare Advantage line of business. So actually, we just continue to see this program and its product perform very well for us on a sustainability of client basis and the opportunity to continue to grow directly within that, as you know, the mechanisms of just number of visits and utilization of that program by the eligible members, but also now for them thinking about what else do we have that they could add that helps in the overall health management of that population.
Operator
Our next question comes from Sean Wieland with Piper Jaffray.
Sean W. Wieland - Piper Jaffray Companies, Research Division
Can you give us some sense qualitatively or just comments around your current backlog? Just something to give us some visibility on revenue growth for the rest of the year and into 2014. And then specifically, do you need to sign new business at this point to hit your 2013 revenue targets?
Ben R. Leedle
No, we don't need to sign new business to hit our 2013 revenue targets. Now having said that, we've talked along about the revenue ramp associated with our book of business and so we do still obviously, given that our first half of the year times 2 doesn't equal our revenue guidance, we have to achieve the ramp under our contracts. But you still see, Sean, the width of the revenue range and you can appreciate inside of the width of that range -- as you move through the range, you would have to sign new business at various points. But we really wanted to emphasize that there still is opportunity to add new business within the year -- the breadth of our products at now doesn't tie us specifically to a benefit plan -- a plan year tied to a calendar year, that we have opportunity to certain sets of solutions to go, we'll call it off-cycle, and achieve new sales even inside of the calendar year.
Sean W. Wieland - Piper Jaffray Companies, Research Division
Okay. And then how about speaking more qualitatively about a level of backlog today, maybe, versus the first quarter versus this time last year?
Ben R. Leedle
Yes. It's always a tough thing with backlog, right? You have -- we've somewhat gone away from that as a metric simply because it's not a very good predictor at a point. It's only a point in time and doesn't speak to things we've signed. And gone live with -- and only speaks to what we have signed that has not gone live. So on a sequential quarter basis, we're roughly flat. But again, I wouldn't tell you that, that's a meaningful number or one that I want to focus on. I'd really want to focus on the things we're signing and the contract announcements that we're coming out with.
Sean W. Wieland - Piper Jaffray Companies, Research Division
Okay. And then a follow-up question to the prior one. How is pricing holding up in these renewals that you're doing?
Ben R. Leedle
The pricing is holding up really well. I think the thing to think about is, the marketplace moving to actually even further embrace the idea of value-based type of model. That, as you know, that's how we build our economic engine and that's how we go to market and we've been doing that for a long time. And our pricing standing up is a function of sharing in the value that we're creating. And so, just logically, as long as we continue to perform at or better than the targets, our pricing will hold up even as we go through those renewal processes. And as you would expect, there's always the argument at renewal that the value that's been created ought to be discounted. And there's some aspects of that construct brought into setting the new targets under the renewed agreements, but we also are setting those within the construct that affords us to either maintain or grow our economics on a renewed -- on a renewal basis.
Sean W. Wieland - Piper Jaffray Companies, Research Division
Okay. Just one more quick one. What should we plug in for a fully diluted share count in the third quarter as you flip to a profit?
Ben R. Leedle
I don't have that in front of me, Sean. And obviously, it'll depend on the stock price. But I think if you go back to historical quarters where we had profitability, you'd have a pretty good approximate number. I mean you could probably think in the $34 million to $35 million range, just to give you something rough off the top of my head.
Operator
Our next question comes from Ryan Daniels with William Blair.
Ryan Daniels - William Blair & Company L.L.C., Research Division
Just to start on the quarter, you guys indicated that there were a couple of contracts that maybe ramped a little bit slower than you thought. So 2 questions on that. One, will that push out some of the revenues into 2014 or do you think you can recapture that? And then #2, if they did ramp slower into the second period, does that put any risk on recognizing performance-based fees in the back half of the year, could you may have less data in order to recognize those?
Ben R. Leedle
Yes, good questions, Ryan. I think in most cases, and we're only talking a handful of contracts here. We believe we have the opportunity to make up for what we'll call the somewhat slower than expected ramp. So I think we do think that we have the opportunity to recapture, if you will, the small amount of ground that was lost in the quarter. To your second question, there always is, on performance-based revenue, challenges to predicting the timing. But as we look at the contracts and the underlying service sets that are implicated by the somewhat slower revenue ramp, we don't see a lot of what I'll call performance-based revenue recognition risk to that set. So I don't think, as we think about the things that have to happen in terms of ramping revenues and performance-based revenues, I actually would not link those together. I think they're largely separate issues.
Ryan Daniels - William Blair & Company L.L.C., Research Division
Perfect. And you called out lower marketing expenditures, is there anything specific around that? Is that up on marketing around the fitness programs? Or anything you would highlight there?
Ben R. Leedle
There's nothing I would highlight. It's all -- it was, I think in my comments, it was all timing-based, meaning that things that we had originally expected to happen inside of the quarter were pushed out. So it's just a shift of, I'll say, expenses from one quarter to another.
Ryan Daniels - William Blair & Company L.L.C., Research Division
Okay. And then maybe a question for you, a little bit of a follow-up, but a different way of asking it. Can you talk maybe about the RFP pipeline? So you seemed to emphasize in your prepared comments that there's some potential for even larger deals with both plans and providers in the near future, not to put words in your mouth, but in the future. Can you talk a little bit about the pipeline and what you're seeing there as we think about the '14 outlook?
Ben R. Leedle
Yes. I mean the RFP pipeline has remained consistent over the past 18 to 24 months in terms of the volume coming through. The one big change, and I think we've noted it before, is that the average size of the employer inside the RFP pipe has actually gone up. Some of that was early on, in anticipation of the exchanges coming up in the smaller end of the pool of RFP employer size, we think had stepped out of the RFP processes and was contemplating still, moving their business into those exchanges. With some of the delay and the higher skepticism around when and how all that will go, it'll be interesting for us to track to see whether we pick that back up. The comment is, I think, that's also important to understand is when I referenced in my prepared remarks large opportunities that we're working in business development, there are obviously some jumbo RFPs that will be coming to conclusion where we think we've been reasonably well-positioned to win the business. And obviously, that's work that's not done. We're at that part of the season. But as you know, as we move into August and September, throughput from the seasonal part of our business with large self-insured employers will begin to work its way through. The other thing is, and we've commented and probably have spent less time detailing out every micro-aspect of how that RFP pipe is moving like we used to with you guys, because the environment has shifted to less of a mix of things being done by RFP and a whole lot more things being done as a part of strategic business development, even on a straight commercial customer-vendor basis, being driven by non-RFP. And it doesn't mean that they don't have a cycle and a rigor and a process associated with those things. But it's a different sourcing for us in terms of the opportunity for growth. So that was what I was trying to convey as a message with my comments.
Ryan Daniels - William Blair & Company L.L.C., Research Division
That's very helpful. And then I'll ask one last one and hop out. More of a big picture. As we think of the exchanges or the Medicaid expansion, obviously, there's going to be a lot of people who did not previously have insurance and haven't filed claims entering the healthcare system. And the insurance companies, I guess, in particular, are going to want information on them to risk-stratify them, et cetera. Is there anything you can use with your Well-Being Index or your HRA capabilities to provide that data for them? Is that an opportunity you're pursuing at all?
Ben R. Leedle
It is. That's a great question. So for so long, the entire healthcare industry in the constructs around disease management and wellness and total population health, were kind of bound by the data and the parameters of people who filed claims. And as you know, Ryan, and as we've shared repeatedly, less than half the population in any given year is going to file a claim, which means if you're really trying to truly do total population health and drive a value proposition by helping the healthy people stay healthy and not migrate to risk and the people that have risks that are mounting, but not yet a diagnosis of disease and be able to affect and mitigate those risks, and then for those with a disease, obviously, the claims database is a rich source for you to do lots of different things. We stepped back 6, 7 years ago and moved to a construct of well-being and built kind of the empiric data set on holistic health, the Well-Being Index and Well-Being Assessment in our partnership with Gallup. And we've worked hard to be able to position our value to still be created, measured and shared, if you get a non-claims based model approach. So what we can bring is a bona fide instrument method and science to baseline and provide them clarity a very distinct and specific map and forecast for future costs, future compromise of workforce performance, based solely off of our Well-Being Assessment. So we think we are uniquely positioned on the analytics front with a database, as well as a capability to leverage it for purpose of diagnosing how to move forward with population health interventions and be able to measure progress and hold accountability for economic benefit at the back end of that. So we, at a big picture level, believe that, that investment which may have been curious to a lot of people 5 years ago, is suddenly showing up as a true competitive differentiator for us in the work that we're doing and in the arena population health.
Operator
We'll go next to Brooks O'Neil with Dougherty & Company.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
I'm just curious, if I have my recollection correct, historically, you've kind of provided sort of forward one quarter specific earnings guidance. And I'm just trying to calibrate it a little bit, if I were to read through it just a little bit, I might guess that the current consensus might be a little bit strong for the third quarter, while the outlook for the year, I think, as you said, excluding the expenses related to the offering, is probably pretty much on target?
Ben R. Leedle
Yes. Well, Brooks, I said historically, meaning that the first 2 quarters of this year we've provided what our own internal expectations were. We moved away from quarterly guidance some time ago, but given the slope of this year, we thought it'd be helpful to sort of communicate our own internal expectation. And I think we've done that in terms of rough justice. I mentioned that as we look at it, we think the earnings will fall roughly 1/3, 2/3 between Q3 and Q4, respectively, for the back half of the year. But, having said that, I caveated my prepared comments with the fact that there's a lot of performance-based revenue. We've been clear that the predominant portion of our performance-based revenue will be recognized in the back half of the year. And that has the most tricky predictability in terms of timing. And so 1/3, 2/3 is where we have our expectations set internally. But most importantly, our expectations for the full year are intact.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
Sure, that's good. And then I guess I couldn't read through it very well from the press release, but my sense is from the offering that the cash interest expense should be down going forward based on a significantly lower interest rate on the new debt relative to the debt you have been carrying. Is that a reasonable way to think about it?
Ben R. Leedle
Yes. Clearly, the cash coupon is much -- significantly lower than our existing credit facility. And that's certainly a contributor to that $5 million to $6 million annually in operating cash flow that we expect to benefit from this offering compared to our existing facility.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
Yes. That's good. And then, I'm not trying to nitpick here, but I'm just trying to read through the lines a little bit. If I remember previous commentary about the outlook for '14, you kind of said specifically that you thought the contracts signed in '12 would add incrementally in the range of $85 million of revenue. If I'm reading this release, it is worded a little bit differently and I just want make sure I'm understanding the message you're trying to send us.
Ben R. Leedle
Well, I think our metric there was obviously too early to be giving '14 guidance. And the way we view that $85 million is simply on our existing -- it's almost a same-store number, Brooks. On our existing contract base, we expect x in '13 and we expect x plus at least $85 million in '14. So it's not...
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
So no change? No change from what you...
Ben R. Leedle
Yes. I would say it probably always changes a little bit here or there, but our expectations are fully intact from what we had set coming into this year.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
Good. That's great. And then, Ben referenced some jumbo contracts, I'm just curious if you could describe in a general sense the competitive set, who you're seeing out there in the marketplace? Are they competing with you on some of those bigger deals and...
Ben R. Leedle
Yes. So on the really large employer opportunities, we are competing directly with the non-blue national health plans. And their component subsets of their organization, like in Optum and Active Health, Cigna's internal efforts. That is kind of the cornerstone competition and the primary source of competition for us. As we get down to finalist bid, final 3, it's constantly those entities for business competition for us in that marketplace. If you were to step away from kind of an integrated total population health RFP and move further across different lines of business, you start to see some different companies show up. Not different from a historic standpoint, but different from the national health plans, like a Web MD that might compete with us head-to-head for scopes of service, where an RFP might simply just be for wellness or might not be an employer, might be a line of business at a health plan. The thing that I would add -- so I don't think that there's a real change in the competitive landscape at the primary source of competition on large formal bids or even kind of subsets of services that might be a component of the total population health approach in those secondary competitive settings. I don't think either the players or the number of players is changing in any kind of fashion there. What obviously is going up, and I hope it's coming through with my comments, is the stakes and the intensity around that competition are increasing, particularly at the largest order. They become have-to-have wins for all parties that are in the process, so the competition heats up. I think one category of competition that obviously we keep a very close eye on, because all competitive is relative, we, as a smaller company than those big national health plans, are probably seen as a purely focused and independently smaller, more nimble and driving innovation. There's a whole set of companies that are coming out of the ground, that on a relative basis as we look at them, are startups with no legacy revenues and profits or models to have to worry about transitioning but just simply can start anew on a very specific component or process or technology, as a part of servicing a marketplace that's clamoring to build, prepare, integrate, coordinate, collaborate, buy population health capabilities. And so, out of that, only spells a potential disruption in this whole process. So it's a highly competitive marketplace. I think we are uniquely positioned on a comparative basis. First and foremost in terms of historical performance, around producing the value of what everybody wants, which is to change the longitudinal health and well-being of populations, and to drive and capture the associated economic benefits that's released when you do that, which is to produce improved performance, higher productivity and higher engagement from those people in the businesses and organizations that they participate in. So that, I think, will continue to be the tipping point of the competitive landscape. When it was producing outcomes in a fee-for-service marketplace, I think it's easier for the competition just to simply try to put process and activity that looks a whole lot like the things that we do. I think this environment calls for not just putting together activity, but being assured that, that will result for certain in a value threshold being produced that is going to be attractive to the buyers. So it's still shifting, moving around, but you can be assured, the intensity of our competition is going up just by the sheer nature of the adoptive patterns of the buyers demanding what it is that we and others who are trying to deliver on that value proposition are trying to bring to the market.
Brooks G. O'Neil - Dougherty & Company LLC, Research Division
All that makes sense and I just have one last question. I'm curious, I mean, historically, I've seen some of the big integrated health plans have success when they have a client relationship already, for example, with United, if they've got the health insurance business from a client. Are you seeing them have particular success in those situations or have you seen any success from those competitors when they don't have the established relationship so that they could offer some kind of integrated platform?
Ben R. Leedle
I mean, I think for a larger organization like United, when they can leverage a whole lot of service and value across a very broad spectrum and a component of that, mirrored up to the types of things that we do, they're certainly a part of the market that will want to buy that integrated model. And so, I do think that their relationships provide them advantage. I think when you look at an Active Health or an Optum uncoupled and competing for business, where United or Aetna is not the carrier, I think, obviously, that's going to be a bigger challenge because they don't have all the other components into that broader value proposition and it requires and creates a lot of transparency around a very discrete set of services, which is a different sales process than when it can be integrated, offset and combined with a lot of other levers. So I just think, naturally, that's a tougher thing for them to do. Doesn't mean that they can't be successful or haven't had wins in that nature. But I do think that there's a difference between the relative prospects of throughput when you compare those 2 situations.
Operator
And ladies and gentlemen, that's all the questions we have today. I'll turn the call back over to Mr. Leedle for additional or closing comments.
Ben R. Leedle
Just appreciate everybody's time today. Alfred and I, along with Chip, we heads our Investor Relations, are here. We look forward to anybody that has any need or desire to want to talk this evening or, obviously, tomorrow. We look forward to seeing you guys out there in the market. Thanks for being on the call.
Operator
Once again, that does conclude today's conference. We thank you for you for your participation.
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