UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-37888
Tabula Rasa HealthCare, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 46-5726437 |
228 Strawbridge Drive, Suite 100 | (866) 648 - 2767 |
Securities registered pursuant to Section 12(b) of the Act:
| | | | | |
Title of each class: | |
| Trading Symbol |
| Name of each exchange on which registered: |
Common Stock, par value $0.0001 per share | | | TRHC | | The Nasdaq Stock Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ |
| | | |
| | | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 24, 2020,April 23, 2021, the Registrant had 22,960,40724,843,284 shares of Common Stock outstanding.
TABULA RASA HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
For the period ended June 30, 2020March 31, 2021
TABLE OF CONTENTS
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Unaudited Consolidated Balance Sheets as of | 3 | |
4 | ||
5 | ||
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
TABULA RASA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
Assets | | | | | ||
Current assets: | | | | | | |
Cash | | $ | 38,752 | | $ | 42,478 |
Restricted cash | | | 3,132 | | | 4,103 |
Accounts receivable, net of allowance of $482 and $386, respectively | | | 36,896 | | | 29,123 |
Inventories | | | 4,103 | | | 3,700 |
Prepaid expenses | | | 4,173 | | | 4,299 |
Other current assets | | | 6,577 | | | 10,835 |
Total current assets | | | 93,633 | | | 94,538 |
Property and equipment, net | | | 15,531 | | | 15,798 |
Operating lease right-of-use assets | | | 22,411 | | | 22,100 |
Software development costs, net | | | 23,422 | | | 18,501 |
Goodwill | | | 150,760 | | | 150,760 |
Intangible assets, net | | | 175,768 | | | 189,413 |
Other assets | | | 1,017 | | | 1,281 |
Total assets | | $ | 482,542 | | $ | 492,391 |
Liabilities and stockholders’ equity | | | | | | |
Current liabilities: | | | | | | |
Current portion of long-term debt and finance leases, net | | $ | 8 | | $ | 125 |
Current operating lease liabilities | | | 4,579 | | | 4,350 |
Accounts payable | | | 7,253 | | | 8,622 |
Accrued expenses and other liabilities | | | 26,944 | | | 26,906 |
Total current liabilities | | | 38,784 | | | 40,003 |
Long-term debt and finance leases, net | | | 232,658 | | | 226,294 |
Noncurrent operating lease liabilities | | | 21,011 | | | 21,017 |
Long-term acquisition-related contingent consideration | | | 11,400 | | | 10,800 |
Deferred income tax liability | | | 4,781 | | | 8,656 |
Other long-term liabilities | | | 485 | | | 73 |
Total liabilities | | | 309,119 | | | 306,843 |
| | | | | | |
Commitments and contingencies (Note 15) | | | | | | |
| | | | | | |
Stockholders' equity: | | | | | | |
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2020 and December 31, 2019 | | | — | | | — |
Common stock, $0.0001 par value; 100,000,000 shares authorized, 23,159,311 and 22,496,999 shares issued and 22,955,263 and 22,321,310 shares outstanding at June 30, 2020 and December 31, 2019, respectively | | | 2 | | | 2 |
Treasury stock, at cost; 204,048 and 175,689 shares at June 30, 2020 and December 31, 2019, respectively | | | (3,956) | | | (3,865) |
Additional paid-in capital | | | 305,058 | | | 288,345 |
Accumulated deficit | | | (127,681) | | | (98,934) |
Total stockholders’ equity | | | 173,423 | | | 185,548 |
Total liabilities and stockholders’ equity | | $ | 482,542 | | $ | 492,391 |
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Assets | | | | | ||
Current assets: | | | | | | |
Cash | | $ | 16,899 | | $ | 23,362 |
Restricted cash | | | 3,294 | | | 5,170 |
Accounts receivable, net of allowance of $324 and $224, respectively | | | 29,365 | | | 32,516 |
Inventories | | | 4,084 | | | 4,261 |
Prepaid expenses | | | 3,933 | | | 3,739 |
Client claims receivable | | | 15,336 | | | 14,412 |
Other current assets | | | 11,972 | | | 9,752 |
Total current assets | | | 84,883 | | | 93,212 |
Property and equipment, net | | | 14,240 | | | 15,070 |
Operating lease right-of-use assets | | | 21,047 | | | 21,711 |
Software development costs, net | | | 30,745 | | | 27,882 |
Goodwill | | | 170,835 | | | 170,862 |
Intangible assets, net | | | 175,755 | | | 183,094 |
Other assets | | | 5,085 | | | 2,609 |
Total assets | | $ | 502,590 | | $ | 514,440 |
Liabilities and stockholders’ equity | | | | | | |
Current liabilities: | | | | | | |
Current portion of finance leases | | $ | 1 | | $ | 4 |
Current operating lease liabilities | | | 4,238 | | | 4,402 |
Acquisition-related contingent consideration | | | — | | | 166 |
Acquisition-related notes payable | | | 9,340 | | | 16,662 |
Accounts payable | | | 6,730 | | | 11,245 |
Client claims payable | | | 6,075 | | | 7,773 |
Accrued expenses and other liabilities | | | 35,164 | | | 31,968 |
Total current liabilities | | | 61,548 | | | 72,220 |
Line of credit | | | 17,500 | | | 10,000 |
Long-term debt, net | | | 318,316 | | | 239,285 |
Noncurrent operating lease liabilities | | | 19,836 | | | 20,381 |
Deferred income tax liability, net | | | 1,063 | | | 3,354 |
Other long-term liabilities | | | 703 | | | 671 |
Total liabilities | | | 418,966 | | | 345,911 |
| | | | | | |
Commitments and contingencies (Note 16) | | | | | | |
| | | | | | |
Stockholders' equity: | | | | | | |
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2021 and December 31, 2020 | | | — | | | — |
Common stock, $0.0001 par value; 100,000,000 shares authorized, 25,077,681 and 24,222,674 shares issued and 24,840,805 and 24,004,896 shares outstanding at March 31, 2021 and December 31, 2020, respectively | | | 2 | | | 2 |
Treasury stock, at cost; 236,876 and 217,778 shares at March 31, 2021 and December 31, 2020, respectively | | | (4,292) | | | (4,018) |
Additional paid-in capital | | | 288,698 | | | 352,445 |
Accumulated deficit | | | (200,784) | | | (179,900) |
Total stockholders’ equity | | | 83,624 | | | 168,529 |
Total liabilities and stockholders’ equity | | $ | 502,590 | | $ | 514,440 |
See accompanying notes to unaudited consolidated financial statements.
3
TABULA RASA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
Revenue: | | | | | | | | | | | | | | |||||
Product revenue |
| $ | 39,373 | | $ | 33,372 | | $ | 76,460 | | $ | 64,354 | | $ | 41,978 | | $ | 37,087 |
Service revenue | | | 37,461 | | | 42,883 | | | 73,201 | | | 72,860 | | | 34,702 | | | 35,740 |
Total revenue | | | 76,834 | | | 76,255 | | | 149,661 | | | 137,214 | | | 76,680 | | | 72,827 |
Cost of revenue, exclusive of depreciation and amortization shown below: | | | | | | | | | | | | | | | | | | |
Product cost | | | 29,042 | | | 24,861 | | | 56,241 | | | 48,336 | | | 31,471 | | | 27,199 |
Service cost | | | 22,656 | | | 20,295 | | | 43,530 | | | 38,488 | | | 22,556 | | | 20,874 |
Total cost of revenue, exclusive of depreciation and amortization | | | 51,698 | | | 45,156 | | | 99,771 | | | 86,824 | | | 54,027 | | | 48,073 |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Research and development | | | 3,821 | | | 5,197 | | | 8,649 | | | 10,747 | | | 3,987 | | | 4,828 |
Sales and marketing | | | 5,027 | | | 6,871 | | | 10,567 | | | 11,721 | | | 6,245 | | | 5,540 |
General and administrative | | | 16,327 | | | 12,883 | | | 33,294 | | | 26,626 | | | 17,542 | | | 16,967 |
Change in fair value of acquisition-related contingent consideration (income) expense | | | (100) | | | 1,830 | | | 600 | | | 3,006 | ||||||
Change in fair value of acquisition-related contingent consideration expense | | | — | | | 700 | ||||||||||||
Depreciation and amortization | | | 10,211 | | | 9,078 | | | 20,124 | | | 15,377 | | | 11,625 | | | 9,913 |
Total operating expenses | | | 35,286 | | | 35,859 | | | 73,234 | | | 67,477 | | | 39,399 | | | 37,948 |
Loss from operations | | | (10,150) | | | (4,760) | | | (23,344) | | | (17,087) | | | (16,746) | | | (13,194) |
Interest expense, net | | | 4,668 | | | 4,308 | | | 9,278 | | | 7,001 | | | 2,547 | | | 4,610 |
Loss before income taxes | | | (14,818) | | | (9,068) | | | (32,622) | | | (24,088) | | | (19,293) | | | (17,804) |
Income tax benefit | | | (508) | | | (2,539) | | | (3,875) | | | (6,580) | ||||||
Income tax expense (benefit) | | | 199 | | | (3,367) | ||||||||||||
Net loss | | $ | (14,310) | | $ | (6,529) | | $ | (28,747) | | $ | (17,508) | | $ | (19,492) | | $ | (14,437) |
Net loss per share, basic and diluted | | $ | (0.66) | | $ | (0.32) | | $ | (1.34) | | $ | (0.86) | | $ | (0.85) | | $ | (0.68) |
Weighted average common shares outstanding, basic and diluted | | | 21,556,646 | | | 20,482,032 | | | 21,465,772 | | | 20,433,564 | | | 23,010,531 | | | 21,374,897 |
See accompanying notes to unaudited consolidated financial statements.
4
TABULA RASA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | Stockholders' Equity | ||||||||||||||||||||||||||||||||||
| | Six Months Ended June 30, 2020 | | Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||||||||
| | Common Stock | | Treasury Stock | | Additional | | Accumulated | | Stockholders' | | Common Stock | | Treasury Stock | | Additional | | Accumulated | | Stockholders' | ||||||||||||||||||
|
| Shares |
| Amount | | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity |
| Shares |
| Amount | | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity | ||||||||||
Balance, January 1, 2020 | | 22,496,999 | | $ | 2 | | (175,689) | | $ | (3,865) | | $ | 288,345 | | $ | (98,934) | | $ | 185,548 | |||||||||||||||||||
Balance, January 1, 2021 | | 24,222,674 | | $ | 2 | | (217,778) | | $ | (4,018) | | $ | 352,445 | | $ | (179,900) | | $ | 168,529 | |||||||||||||||||||
Cumulative effect of change in accounting policy | | — | | | — | | — | | | — | | | (74,850) | | | (1,392) | | | (76,242) | |||||||||||||||||||
Issuance of common stock awards | | 14,386 | | | — | | — | | | — | | | — | | | — | | | — | | 1,416 | | | — | | — | | | — | | | — | | | — | | | — |
Issuance of restricted stock | | 388,108 | | | — | | — | | | — | | | — | | | — | | | — | | 629,088 | | | — | | — | | | — | | | — | | | — | | | — |
Forfeitures of restricted shares | | — | | | — | | (33,371) | | | — | | | — | | | — | | | — | | — | | | — | | (12,880) | | | — | | | — | | | — | | | — |
Exercise of stock options | | 116,288 | | | — | | (1,681) | | | (91) | | | 1,244 | | | — | | | 1,153 | |||||||||||||||||||
Share adjustment | | — | | | — | | 12,500 | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options, net of shares withheld | | 224,503 | | | — | | (6,218) | | | (274) | | | 2,501 | | | — | | | 2,227 | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 7,137 | | | — | | | 7,137 | | — | | | — | | — | | | — | | | 8,602 | | | — | | | 8,602 |
Net loss | | — | | | — | | — | | | — | | | — | | | (14,437) | | | (14,437) | | — | | | — | | — | | | — | | | — | | | (19,492) | | | (19,492) |
Balance, March 31, 2020 | | 23,015,781 | | | 2 | | (198,241) | | | (3,956) | | | 296,726 | | | (113,371) | | | 179,401 | |||||||||||||||||||
Issuance of restricted stock | | 37,702 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Forfeitures of restricted shares | | — | | | — | | (5,807) | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options | | 105,828 | | | — | | — | | | — | | | 1,159 | | | — | | | 1,159 | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 7,173 | | | — | | | 7,173 | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (14,310) | | | (14,310) | |||||||||||||||||||
Balance, June 30, 2020 | | 23,159,311 | | $ | 2 | | (204,048) | | $ | (3,956) | | $ | 305,058 | | $ | (127,681) | | $ | 173,423 | |||||||||||||||||||
Balance, March 31, 2021 | | 25,077,681 | | $ | 2 | | (236,876) | | $ | (4,292) | | $ | 288,698 | | $ | (200,784) | | $ | 83,624 |
See accompanying notes to unaudited consolidated financial statements.
5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | Stockholders' Equity | ||||||||||||||||||||||||||||||||||
| | Six Months Ended June 30, 2019 | | Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||||||||
| | Common Stock | | Treasury Stock | | Additional | | Accumulated | | Stockholders' | | Common Stock | | Treasury Stock | | Additional | | Accumulated | | Stockholders' | ||||||||||||||||||
| | Shares |
| Amount | | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity | | Shares |
| Amount | | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity | ||||||||||
Balance, January 1, 2019 | | 20,719,297 | | $ | 2 | | (161,760) | | $ | (3,825) | | $ | 209,330 | | $ | (66,498) | | $ | 139,009 | |||||||||||||||||||
Issuance of common stock in connection with acquisition | | 149,053 | | | — | | — | | | — | | | 9,504 | | | — | | | 9,504 | |||||||||||||||||||
Balance, January 1, 2020 | | 22,496,999 | | $ | 2 | | (175,689) | | $ | (3,865) | | $ | 288,345 | | $ | (98,934) | | $ | 185,548 | |||||||||||||||||||
Issuance of common stock awards | | 9,547 | | | — | | — | | | — | | | — | | | — | | | — | | 14,386 | | | — | | — | | | — | | | — | | | — | | | — |
Issuance of restricted stock | | 565,840 | | | — | | — | | | — | | | — | | | — | | | — | | 388,108 | | | — | | — | | | — | | | — | | | — | | | — |
Forfeitures of restricted shares | | — | | | — | | (33,371) | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options | | 82,686 | | | — | | (690) | | | (40) | | | 1,077 | | | — | | | 1,037 | | 116,288 | | | — | | (1,681) | | | (91) | | | 1,244 | | | — | | | 1,153 |
Issuance of common stock in connection with the settlement of acquisition-related contingent consideration | | 614,225 | | | — | | — | | | — | | | (609) | | | — | | | (609) | |||||||||||||||||||
Conversion feature of convertible senior subordinated notes, net of allocated debt issuance costs, net of tax | | — | | | — | | — | | | — | | | 74,049 | | | — | | | 74,049 | |||||||||||||||||||
Purchase of convertible note hedges | | — | | | — | | — | | | — | | | (101,660) | | | — | | | (101,660) | |||||||||||||||||||
Sale of warrants in connection with convertible senior subordinated notes | | — | | | — | | — | | | — | | | 65,910 | | | — | | | 65,910 | |||||||||||||||||||
Share adjustment | | — | | | — | | 12,500 | | | — | | | — | | | — | | | — | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 6,852 | | | — | | | 6,852 | | — | | | — | | — | | | — | | | 7,137 | | | — | | | 7,137 |
Net loss | | — | | | — | | — | | | — | | | — | | | (10,979) | | | (10,979) | | — | | | — | | — | | | — | | | — | | | (14,437) | | | (14,437) |
Balance, March 31, 2019 | | 22,140,648 | | | 2 | | (162,450) | | | (3,865) | | | 264,453 | �� | | (77,477) | | | 183,113 | |||||||||||||||||||
Issuance of common stock awards | | 30,101 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Issuance of restricted stock | | 23,562 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options | | 49,916 | | | — | | — | | | — | | | 499 | | | — | | | 499 | |||||||||||||||||||
Conversion feature of convertible senior subordinated notes, net of allocated debt issuance costs, net of tax | | — | | | — | | — | | | — | | | (47) | | | — | | | (47) | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 6,906 | | | — | | | 6,906 | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (6,529) | | | (6,529) | |||||||||||||||||||
Balance, June 30, 2019 | | 22,244,227 | | $ | 2 | | (162,450) | | $ | (3,865) | | $ | 271,811 | | $ | (84,006) | | $ | 183,942 | |||||||||||||||||||
Balance, March 31, 2020 | | 23,015,781 | | $ | 2 | | (198,241) | | $ | (3,956) | | $ | 296,726 | | $ | (113,371) | | $ | 179,401 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
65
TABULA RASA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | |
| | Six Months Ended | | Three Months Ended | ||||||||
| | June 30, | | March 31, | ||||||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Cash flows from operating activities: | | | | | | | | | | | ||
Net loss | | $ | (28,747) | | $ | (17,508) | | $ | (19,492) | | $ | (14,437) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | ||||||
Depreciation and amortization | | | 20,124 | | | 15,377 | | | 11,625 | | | 9,913 |
Amortization of deferred financing costs and debt discount | | | 6,566 | | | 4,603 | | | 635 | | | 3,252 |
Deferred taxes | | | (3,875) | | | (6,633) | | | 174 | | | (3,367) |
Stock-based compensation | | | 14,310 | | | 13,758 | | | 8,602 | | | 7,137 |
Change in fair value of acquisition-related contingent consideration | | | 600 | | | 3,006 | | | — | | | 700 |
Acquisition-related contingent consideration paid | | | — | | | (24,450) | | | (67) | | | — |
Other noncash items | | | — | | | 12 | ||||||
| | | | | | | ||||||
Changes in operating assets and liabilities, net of effect from acquisitions: | | | | | | | | | | | | |
Accounts receivable, net | | | (7,773) | | | (2,383) | | | 3,151 | | | (7,114) |
Inventories | | | (403) | | | (89) | | | 177 | | | (1,435) |
Prepaid expenses and other current assets | | | 3,815 | | | (1,468) | | | (1,247) | | | 4,625 |
Client claims receivables | | | (924) | | | — | ||||||
Other assets | | | (4) | | | (140) | | | (2,610) | | | 54 |
Accounts payable | | | (1,588) | | | (5,571) | | | (4,448) | | | 1,528 |
Accrued expenses and other liabilities | | | (49) | | | 5,661 | | | 2,012 | | | (1,633) |
Client claims payables | | | (1,698) | | | — | ||||||
Other long-term liabilities | | | 412 | | | (40) | | | 32 | | | (20) |
Net cash provided by (used in) operating activities | | | 3,388 | | | (15,865) | ||||||
Net cash used in operating activities | | | (4,078) | | | (797) | ||||||
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property and equipment | | | (1,447) | | | (3,508) | | | (522) | | | (763) |
Software development costs | | | (8,898) | | | (6,618) | | | (5,863) | | | (4,228) |
Proceeds from repayment of note receivable | | | — | | | 1,000 | ||||||
Acquisitions of businesses, net of cash acquired | | | — | | | (158,762) | ||||||
Net cash used in investing activities | | | (10,345) | | | (167,888) | | | (6,385) | | | (4,991) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 2,312 | | | 1,536 | | | 2,226 | | | 1,153 |
Payments for debt financing costs | | | — | | | (9,477) | ||||||
Repayments of line of credit | | | — | | | (45,000) | ||||||
Borrowings on line of credit | | | 7,500 | | | — | ||||||
Payment of acquisition-related notes payable | | | (7,500) | | | — | ||||||
Payments of acquisition-related contingent consideration | | | — | | | (20,342) | | | (99) | | | — |
Repayments of long-term debt and finance leases | | | (52) | | | (541) | | | (3) | | | (49) |
Proceeds from issuance of convertible senior subordinated notes | | | — | | | 325,000 | ||||||
Proceeds from sale of warrants | | | — | | | 65,910 | ||||||
Purchase of convertible note hedges | | | — | | | (101,660) | ||||||
Net cash provided by financing activities | | | 2,260 | | | 215,426 | | | 2,124 | | | 1,104 |
| | | | | | | | | | | | |
Net (decrease) increase in cash and restricted cash | | | (4,697) | | | 31,673 | ||||||
Net decrease in cash and restricted cash | | | (8,339) | | | (4,684) | ||||||
Cash and restricted cash, beginning of period | | | 46,581 | | | 25,029 | | | 28,532 | | | 46,581 |
Cash and restricted cash, end of period | | $ | 41,884 | | $ | 56,702 | | $ | 20,193 | | $ | 41,897 |
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Purchases of property and equipment and software development included in accounts payable and accrued expenses | | $ | 239 | | $ | 291 | | $ | 116 | | $ | 223 |
Cash paid for interest | | $ | 2,846 | | $ | 364 | | $ | 3,045 | | $ | 2,844 |
Cash paid for taxes | | $ | 228 | | $ | 279 | | $ | 3 | | $ | 49 |
Interest costs capitalized to property and equipment and software development costs | | $ | 132 | | $ | 148 | | $ | 57 | | $ | 64 |
Stock issued in connection with acquisitions | | $ | — | | $ | 9,504 | ||||||
| | | | | | | | | | | | |
Reconciliation of cash and restricted cash: | | | | | | | | | | | | |
Cash | | $ | 38,752 | | $ | 52,137 | | $ | 16,899 | | $ | 38,134 |
Restricted cash | | | 3,132 | | | 4,565 | | | 3,294 | | | 3,763 |
Total cash and restricted cash | | $ | 41,884 | | $ | 56,702 | | $ | 20,193 | | $ | 41,897 |
See accompanying notes to unaudited consolidated financial statements.
76
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
1. Nature of Business
Tabula Rasa HealthCare, Inc. (the “Company”) focuses on optimizingis a healthcare technology company advancing the safe use of medications by creating solutions designed to empower pharmacists, providers, and patients to optimize medication regimens. The Company’s advanced proprietary technology, MedWise®, identifies the cause of medication-related problems, including adverse drug regimens toevents, so healthcare professionals can minimize harm and reduce medication-related risk, specifically targeting adverserisks. Adverse drug events are a large and growing problem with medication therapy, problem withcosting an estimated cost of more than $528 billion annually in the United States (“U.S.”) and resulting in more than 275,000 deaths per year in the U.S. in 2018. The Company delivers a range of technology-enabled solutions,Company’s software and services including whathelp improve patient outcomes and lower healthcare costs through reduced hospitalizations, emergency department visits, and healthcare utilization. In order to deliver its services, the Company believes to be the largesthas developed an extensive clinical tele-pharmacy network, inwith 7 call centers across the country, powered by the Company’s proprietary medication science technology, the Medication Risk Mitigation (“MRM”) Matrix, thatU.S., a number of which are targeted at value-based payment models and support both state and federal regulations.tethered to academic institutions. The Company serves a number of different organizations within the healthcare industry, including more than 350280 health plans, over 15,000nearly 14,000 pharmacies, nearly 300 hospitals, and over 100more than 130 at-risk provider groups.groups, the majority of which are PACE organizations.
2. Basis of Presentation, Summary of Significant Accounting Policies, and Recent Accounting Pronouncements
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the Company's interim consolidated financial position for the periods indicated. The interim results for the three and six months ended June 30, 2020March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2020,2021, any other interim periods, or any future year or period. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K filed on March 2, February 26, 2021 (“2020 (“2019 Form 10-K”).
Effective January 1, 2020, in order to facilitate the administration, management, and development of the Company’s business and minimize the burden on the Company’s tax and regulatory reporting obligations, theThe Company implemented a reorganization pursuant to which all of the Company’s domestic subsidiaries, other than CK Solutions, LLC, merged with and into the Company’s wholly-owned subsidiary CareKinesis, Inc., which had previously changed its legal name on December 20, 2019 to TRHC OpCo, Inc. In the second quarter of 2020, TRHC OpCo, Inc. further changed its name to Tabula Rasa HealthCare Group, Inc. (“TRHC Group”). Following such reorganization, the Company’s only directly owned subsidiary is TRHC Group, which is the parent of CK Solutions, LLC and of three DoseMe foreign subsidiaries.
In conjunction with the Company’s reorganization, the Company now operates its business through 2 segments, CareVention HealthCare and MedWise HealthCare, effective January 1, 2020. Prior comparative periods have been revised to conform with the current period segment presentation.HealthCare. See Note 1617 for a discussion of the Company’s reportable segments.
Risks Related to the COVID-19 Pandemic
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of coronavirus (“COVID-19”), originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin.community. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic (“COVID-19 pandemic), based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreakpandemic continues to evolve as of the date of this Quarterly Report on Form 10-Q.these consolidated financial statements were issued. As such, it is uncertain as to the full magnitude of the impact that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations.operations remains uncertain. Management is actively monitoring the global situation and the ramification on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreakpandemic and the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreakpandemic may have on the Company’s results of operations, financial condition, or liquidity for 2021. However, the Company is dependent on its workforce to sell and deliver its products and services. Social distancing and shelter-in-place directives could impact the Company’s ability to deploy its workforce effectively. These same developments may affect the operations of the Company’s suppliers and customers, as their own workforces and operations are disrupted by this virus.
7
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
As a result of the ongoing COVID-19 pandemic, the Company has experienced challenges with revenue growth. During 2020, the pandemic had delayed the closing of contracts across both the Company’s CareVention HealthCare and MedWise HealthCare segments and, in some cases, shifted project priorities and timelines, which management believed resulted in fewer business wins during 2020 and reduced future revenue. Overall census growth for Programs of All-Inclusive Care for the Elderly (“PACE”) had remained below historical levels during 2020 and into the first quarter of 2021, which has affected the Company’s CareVention HealthCare segment growth. During 2020, the Company’s MedWise HealthCare segment had experienced delays in the timing of implementation and closing of new business and a negative impact from COVID-19 on medication adherence initiatives. The Company does not yet know the full extent of potential delays or impacts on its business, financing or other activities, or on the broader healthcare industry or the global economy as a whole. These effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which it relies.
Summary of Significant Accounting Policies
There have been no changes to the Company's significant accounting policies described in the 2020 Form 10-K that have had a material impact on the consolidated financial statements and related notes.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 provides new guidance to simplify the accounting for convertible instruments by eliminating the cash conversion model. As compared with the current accounting standards, more convertible debt instruments will be reported as a single liability instrument and the interest rate of more convertible debt instruments will be closer to the coupon interest rate. ASU 2020-06 also aligns the consistency of diluted earnings per share calculations for convertible instruments by requiring that (1) an entity use the if-converted method and (2) share settlement be included in the diluted earnings per share calculation for both convertible instruments and equity contracts when those contracts include an option of cash settlement or share settlement. The treasury stock method will no longer be permitted. ASU 2020-06 is effective for financial statements issued for fiscal years beginning after December 15, 2021 and early adoption is permitted.
Under ASC 470-20 Debt with Conversion and Other Options (“ASC 470-20”), the Company separately accounted for the liability and equity components of its 1.75% convertible senior subordinated notes (the “2026 Notes”), which may be settled entirely or partly in cash upon conversion. The equity component was required to be included in the additional paid-in capital section of stockholders’ equity on the Company’s consolidated balance sheet, and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component of the 2026 Notes. As a result, the Company was required to record a greater amount of non-cash interest expense in previous periods presented related to the amortization of the discounted carrying value of the 2026 Notes to their face amount over the term of the 2026 Notes. Because the Company intends to settle the 2026 Notes entirely or partly in cash, the Company had used the treasury stock method when calculating their potential dilutive effect, if any.
ASU 2020-06 allows adoption through either a modified retrospective method or fully retrospective method of transition. The Company early adopted ASU 2020-06 effective January 1, 2021 using the modified retrospective method. In applying the modified retrospective transition method, the cumulative effect of the accounting change is recognized as an adjustment to the opening balance of retained earnings at the date of adoption. Upon adoption, the Company recorded a $74,850 decrease to additional paid-in capital, a $78,707 increase to the carrying value of its convertible notes, a $2,465 decrease to the net deferred tax liability, and a $1,392 increase in accumulated deficit. See Note 12 for further details on the 2026 Notes.
8
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
may have on the Company’s results of operations, financial condition, or liquidity for 2020. However, the Company is dependent on its workforce to sell and deliver its products and services. Developments such as social distancing and shelter-in-place directives could impact the Company’s ability to deploy its workforce effectively. These same developments may affect the operations of the Company’s suppliers and customers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus.
As a result of the ongoing COVID-19 pandemic, the Company has experienced challenges with revenue growth. The pandemic has delayed the closing of contracts across both the Company’s CareVention HealthCare and MedWise HealthCare segments and, in some cases, shifted project timelines to 2021, resulting in fewer new business wins during the second quarter of 2020. Overall census growth for Programs of All-Inclusive Care for the Elderly (“PACE”) has remained below historical levels, which has affected the Company’s CareVention HealthCare segment growth. The Company’s MedWise HealthCare segment has also experienced delays in the timing of implementation and closing of new business. In addition, all major pharmacy tradeshows for the third quarter of 2020 have been cancelled, negatively impacting a key selling season for the Company’s PrescribeWellness business. However, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which it relies.
Summary of Significant Accounting Policies
There have been no changes to the Company's significant accounting policies described in the 2019 Form 10-K that have had a material impact on the consolidated financial statements and related notes.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, and thereafter, has subsequently provided updates and improvements (as so updated and improved, “ASU 2016-13”). ASU 2016-13 requires entities to estimate expected lifetime credit losses on financial assets including (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance-sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company adopted ASU 2016-13 on January 1, 2020 using the prospective transition method. The implementation of this guidance requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates on the Company’s trade receivables and contract assets. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure an impairment charge. Instead, entities will be required to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. ASU 2017-04 is effective for financial statements issued for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company adopted ASU 2017-04 on January 1, 2020. The adoption of ASU 2017-04 did not have a material effect on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 updates the disclosure requirements for fair value measurements and is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
9
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalization of implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company adopted ASU 2018-15 during the fourth quarter of 2019 using the prospective transition method. The adoption of ASU 2018-15 did not have a material effect on the Company's consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 provides new guidance to simplify accounting for income taxes, modifies the accounting for certain income tax transactions, and enhances existing guidance. ASU 2019-12 is effective for financial statements issued for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on the Company’s consolidated financial statements.
3. Revenue
The Company generates revenue from its CareVention HealthCare and MedWise HealthCare segments. See Note 1617 for additional discussion of the Company’s reportable segments.
Client contracts generally have a term of one to five years and in some cases, automaticallygenerally renew at the end of the initial term. In most cases, clients may terminate their contracts with a notice period ranging from 0 to 180 days without cause, thereby limiting the term in which the Company has enforceable rights and obligations. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the goods or services provided.services. Generally, there are not significant differences between the timing of revenue recognition and billing. Consequently, the Company has determined that client contracts do not include a financing component.
The Company does not disclose the amount of variable consideration that the Company expects to recognize in future periods as the variable consideration in the Company’s contracts is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to the Company’s efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. The Company’s contracts primarily include monthly fees associated with unspecified quantities of members, claims, medication safety reviews, or user subscriptions that fluctuate throughout the contract. See below for a description of the Company’s revenues by segment.
CareVention HealthCare
PACE Product Revenue
The Company provides medication fulfillment pharmacy services to PACE, and, while the majority of medications are routinely filled in order to treat chronic conditions, the mix and quantity of medications can vary. Revenue from medication fulfillment services is generally billed monthly or weekly, depending on whether the PACE organization is contracted with a pharmacy benefit manager, and recognized when medications are delivered and control has passed to the client. At the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts. The Company does not experience a significant level of returns or reshipments.
PACE Solutions
The Company provides medication safety services and health plan management services to PACE organizations. These services include risk adjustment services, third party administration services, pharmacy benefit management (“PBM”) solutions, and electronic health records software. Revenue related to these services primarily consists of a fixed monthly fee assessed based on number of members served (“per member per month”), a fee for each claim adjudicated, and subscription fees. These fees which are recognized when the Company satisfies its performance obligation to stand ready to provide PACE services, which occurs when the Company’s clients have access to the PACE services. The Company generally bills for PACE services on a monthly basis.
MedWise HealthCare
Product Revenue
The Company provides COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed when test kits are shipped and is recognized as the Company satisfies its performance obligations to deliver the test kits and provide the test results. The Company does not experience a significant level of returns or reshipments.
109
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
MedWise HealthCare
Product Revenue
The Company provides COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed monthly and is recognized as the Company satisfies its performance obligations to deliver the test kits and provide the test results to the pharmacies. The Company does not experience a significant level of returns or reshipments.
Medication Safety Services
The Company provides medication safety services, which include identification of high-risk individuals, medication regimen reviews including patient and prescriber counseling, and targeted interventions to increase adherence and close gaps in care. Revenue related to these services primarily consists of per member per month fees and fees for each medication review and assessment completed. Revenue is recognized when the Company satisfies its performance obligation to stand ready to provide medication safety services, which occurs when the Company’s clients have access to the medication safety service,services, and when medication reviews and assessments are completed. The Company generally bills for the medication safety services on a monthly basis.
Software Subscription and Services
The Company provides software as a service (“SaaS”) solutions, which allow for the identification of individuals with high medication-related risk, for patient communication and engagement, for documentation of clinical interventions, for optimizing medication therapy, for targeting adherence improvement, and for precision dosing. In addition, the Company provides implementation and set up assistance services related to the SaaS solutions. Revenues related to these software services primarily consist of monthly subscription fees and are recognized monthly as the Company meets its performance obligation to provide access to the software. Revenue for implementation and set up services is generally recognized whenover the contract term as the software services are provided. The Company generally bills for the software services on a monthly basis.
Disaggregation of Revenue
In the following table, revenue is disaggregated by reportable segment. Substantially all of the Company’s revenue is recognized in the U.S. and substantially all of the Company’s assets are located in the U.S.
| | | | | | | | | | | | | | | | |||
| | Three Months Ended | | Six Months Ended | | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
| | | 2020 | | | 2019 | | | 2020 | | | 2019 | | | 2021 | | | 2020 |
CareVention HealthCare: | | | | | | | | | | | | | | | | |||
PACE product revenue | | $ | 38,930 | | $ | 33,372 | | $ | 76,017 | | $ | 64,354 | | $ | 41,842 | | $ | 37,087 |
PACE solutions | | | 11,522 | | | 11,437 | | | 23,093 | | | 22,611 | | | 13,919 | | | 11,571 |
| | $ | 50,452 | | $ | 44,809 | | $ | 99,110 | | $ | 86,965 | | $ | 55,761 | | $ | 48,658 |
MedWise HealthCare: | | | | | | | | | | | | | | | | |||
Product revenue | | $ | 443 | | $ | — | | $ | 443 | | $ | — | | $ | 136 | | $ | — |
Medication safety services | | 15,707 | | | 22,498 | | $ | 30,027 | | | 37,849 | | 10,725 | | | 14,320 | ||
Software subscription and services | | | 10,232 | | | 8,948 | | | 20,081 | | | 12,400 | | | 10,058 | | | 9,849 |
| | $ | 26,382 | | $ | 31,446 | | $ | 50,551 | | $ | 50,249 | | $ | 20,919 | | $ | 24,169 |
Total revenue | | $ | 76,834 | | $ | 76,255 | | $ | 149,661 | | $ | 137,214 | | $ | 76,680 | | $ | 72,827 |
1110
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Contract Balances
Assets and liabilities related to the Company’s contracts are reported on a contract-by-contract basis at the end of each reporting period. Contract balances consist of contract assets and contract liabilities. Contract assets are recorded when the right to consideration for services is conditional on something other than the passage of time. Contract assets relating to unbilled receivables are transferred to accounts receivable when the right to consideration becomes unconditional. Contract assets are classified as current or non-current based on the timing of the Company’s rights to the unconditional payments. Contract assets are generally classified as current and recorded within other current assets on the Company’s consolidated balance sheets.
Contract liabilities include advance customer payments and billings in excess of revenue recognized. The Company generally classifies contract liabilities in accrued expenses and other current liabilities and in other long-term liabilities on the Company’s consolidated balance sheets. The Company anticipates that it will satisfy most of its performance obligations associated with its contract liabilities within aone year.
The following table provides information about the Company’s contract assets and contract liabilities from contracts with clients as of June 30, 2020March 31, 2021 and December 31, 2019.2020.
| | | | | | | | | | | | |
| | June 30, | | December 31, | | March 31, | | December 31, | ||||
| | 2020 |
| 2019 | | 2021 |
| 2020 | ||||
Contract assets | | $ | 3,595 | | $ | 6,165 | | $ | 8,948 | | $ | 7,601 |
Contract liabilities | | | 6,719 | | | 4,930 | | | 5,287 | | | 3,876 |
Significant changes in the contract assets and the contract liabilities balances during the six months ended June 30, 2020period are as follows:
| | | | | | |
| | June 30, | | March 31, | ||
| | 2020 | | 2021 | ||
Contract assets: | | | | | | |
Contract assets, beginning of period | | $ | 6,165 | | $ | 7,601 |
Decreases due to cash received | | | (4,147) | | | (6,121) |
Changes to the contract assets at the beginning of the period as a result of changes in estimates | | | 394 | | | 2,654 |
Increases, net of reclassifications to receivables | | | 1,183 | |||
Changes during the period, net of reclassifications to receivables | | | 4,814 | |||
Contract assets, end of period | | $ | 3,595 | | $ | 8,948 |
| | | | | | |
Contract liabilities: | | | | | | |
Contract liabilities, beginning of period | | $ | 4,930 | | $ | 3,876 |
Revenue recognized that was included in the contract liabilities balance at the beginning of the period | | | (3,614) | | (2,288) | |
Increases due to cash received, excluding amounts recognized as revenue during the period | | | 5,403 | | | 3,699 |
Contract liabilities, end of period | | $ | 6,719 | | $ | 5,287 |
During the sixthree months ended June 30, 2019,March 31, 2020, the Company recognized $1,408$2,618 of revenue that was included in the December 31, 20182019 contract liability balance of $1,733.
$4,930.
1211
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
4. Net Loss per Share
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period plus the impact of dilutive securities using the treasury stock method, to the extent that they are not anti-dilutive.
The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | | March 31, | ||||||||||||
| | 2020 | | 2019 | | 2020 | | 2019 |
| 2021 |
| 2020 | ||||||
Numerator (basic and diluted): | | | | | | | | | | | | | | | | | ||
Net loss | | $ | (14,310) | | $ | (6,529) | | $ | (28,747) | | $ | (17,508) | | $ | (19,492) | | $ | (14,437) |
Denominator (basic and diluted): | | | | | | | | | | | | | | | | | | |
Weighted average shares of common stock outstanding, basic and diluted | | | 21,556,646 | | | 20,482,032 | | | 21,465,772 | | | 20,433,564 | | | 23,010,531 | | | 21,374,897 |
Net loss per share, basic and diluted | | $ | (0.66) | | $ | (0.32) | | $ | (1.34) | | $ | (0.86) | | $ | (0.85) | | $ | (0.68) |
The following potential common shares, presented based on amounts outstanding for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, were excluded from the calculation of diluted net loss per share for three and six months ended June 30, 2020 and 2019the periods indicated because including them would have had an anti-dilutive effect.
| | | | | | | | |
| | | | | ||||
| | June 30, | | March 31, | ||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 |
Stock options to purchase common stock | | 2,498,663 | | 2,948,279 | | 1,846,707 | | 2,627,493 |
Unvested restricted stock | | 1,322,064 | | 1,445,817 | | 1,651,806 | | 1,314,635 |
Common stock warrants | | 4,646,393 | | 4,646,393 | | 4,646,393 | | 4,646,393 |
Conversion of convertible senior subordinated notes | | 4,646,393 | | — | ||||
Contingently issuable shares | | 58,409 | | 5,000 | | — | | 63,320 |
| | 8,525,529 | | 9,045,489 | | 12,791,299 | | 8,651,841 |
SharesFor the three months ended March 31, 2021, shares related to the conversion of the convertible senior subordinated notes were included in the table above under the if-converted method. For the three months ended March 31, 2020, shares associated with the conversion of the convertible senior subordinated notes have beenwere excluded from the table above.above as the Company assumed the notes would be settled entirely or partly in cash.
5. Acquisitions
PrescribeWellnessPersonica
On MarchOctober 5, 2019,2020, the Company entered into and consummated the transactions contemplated by, a MergerMembership Interest Purchase Agreement (the “Merger“Purchase Agreement”) with Prescribe Wellness, LLC,TRHC Group, Personica Holdings, Inc., a Nevada limited liability company (“PrescribeWellness”),Wisconsin corporation, and Fortis Advisorsother seller parties, whereby the Company completed the acquisition of all the issued and outstanding membership interests of Personica, LLC, a Delaware limited liability company solely in(“Personica”), and its capacity assubsidiaries, a provider of PBM solutions and pharmacy services, including 340B and Medicare Part D administration solutions to the initial Holder Representative. PrescribeWellness was a standalone entity and was a leading cloud-based patient engagement solutions company that facilitated collaboration for more than 12,000 pharmacies with patients, payers, providers, and pharmaceutical companies.PACE market. The Company paid $150,000 inpurchase price consisted of (i) cash consideration upon closing,of $10,000, subject to certain customary post-closing adjustments, as set forth in(ii) the Merger Agreement. The acquisition was considered an asset acquisition for tax purposes and accordingly, the goodwill and amortizationissuance of intangible assets resulting from the acquisition is deductible for tax purposes. See Note 5 set forth in555,555 shares of the Company’s audited financial statements included as partcommon stock valued at $23,589, and (iii) the delivery of promissory notes (collectively, the 2019 Form 10-K“Notes”) for additional information on the PrescribeWellness acquisition.
Revenue from PrescribeWellnesspayment of (a) $7,500 in cash paid in January 2021, (b) $5,500 in cash paid in April 2021, and (c) $4,000 in cash within 2 business days following October 5, 2021. The Company may set off amounts due under the Notes to the extent the Company is primarily comprisedentitled to indemnification under the Purchase Agreement or in respect of subscription fees for its cloud-based patient engagement solutions. Revenue for these services, andadjustments to the related costs, is recognized each month as performancepurchase price.
1312
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
obligations
Revenue from Personica includes medication fulfillment pharmacy services to PACE organizations. Revenue for these services, and the related costs, is recognized when medications are satisfieddelivered and costs are incurred,control has passed to the client, and is included in serviceproduct revenue and cost of revenue – serviceproduct cost, respectively, in the Company’s consolidated statements of operations. For the three and six months ended June 30, 2019, service revenue of $7,919 and $10,110, respectively,Revenue from PrescribeWellness was included in the Company’s consolidated statements of operations. Service revenue was recorded net of a reduction of $544 and $747 for the three and six months ended June 30, 2019, respectively, due to the purchase accounting effects of recording deferred revenue at fair value. Net loss of $2,925 and $3,796, which included amortization of $3,277 and $4,151 associated with acquired intangible assets, from PrescribeWellness, was included in the Company’s consolidated statements of operations for the three and six months ended June 30, 2019, respectively.
DoseMe
On January 2, 2019, the Company completed the acquisition of all of the outstanding share capital and options to purchase the share capital of DoseMe Holdings Pty Ltd, a proprietary company limited by shares organized under the Laws of Australia (“DoseMe”). DoseMePersonica is the developer of DoseMeRx, an advanced precision dosing tool that helps physicians and pharmacists accurately dose patients’ high-risk parenteral (intravenous) medications based on individual needs. The acquisition was made pursuant to a Share Purchase Deed, made and entered into as of November 30, 2018. The consideration for the acquisition wasalso comprised of (i) cash consideration of $10,000 paid at closing, subject to certain customary post-closing adjustments as set forth in the Share Purchase Deed, (ii) the issuance of 149,053 shares of the Company’s common stock, and (iii) the potentialmonthly fees per adjudicated claim for a contingent earn-out payment, based on the financial performance of DoseMe. During the third quarter of 2019, the Company paid $8,750 in cash in full satisfaction of the contingent purchase price consideration. The acquisition was considered an asset acquisition for tax purposes and accordingly, the goodwill and amortization of intangible assets resulting from the acquisition is deductible for U.S. tax purposes. See Note 5 set forth in the Company’s audited financial statements included as part of the 2019 Form 10-K for additional information on the DoseMe acquisition.
Revenue from DoseMe is primarily comprised of subscription and license fees for use of DoseMe’s advanced precision dosing software tool.PBM solutions. Revenue for these services, and the related costs, is recognized each month as performance obligations are satisfied and costs are incurred, and is included in service revenue and cost of revenue – service cost, respectively, in the Company’s consolidated statements of operations. Service revenue
The Company continues to evaluate the fair value of $72certain assets acquired and $138liabilities assumed related to the acquisition. Additional information, which existed as of the acquisition date, but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as a result of the final determination may result in a corresponding adjustment to these assets and net lossliabilities, including goodwill. The determination of $769 and $1,995, which included amortizationthe estimated fair values of $579 and $1,141 associated withall assets acquired intangible assets,is expected to be completed within one year from DoseMe were included in the Company’s consolidated statementsdate of operations for the three and six months ended June 30, 2019, respectively.acquisition.
Pro forma
The unaudited pro forma results presented below include the results of the aforementioned acquisitionsPersonica acquisition as if theyit had been consummated as of January 1, 2018.2019. The unaudited pro forma results include the amortization associated with acquired intangible assets, interest expense on the debt incurred to fund these acquisitions, insurance expense for additional required business insurance coverage, stock-based compensation expense related to equity awards granted to employees of the acquired companies, adjustments to revenue for the purchase accounting effects of recording deferred revenue at fair value, and the estimated tax effect of adjustments to income (loss) before income taxes. Material nonrecurring charges, including direct acquisition costs, directly attributable to the transactions are excluded. In addition, the unaudited pro forma results do not include any expected benefits of the acquisitions. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitionsacquisition been consummated as of January 1, 2018.2019.
| | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | |||
| | June 30, | | June 30, | | March 31, | |||
|
| 2019 | | 2019 |
| 2020 | |||
Revenue | | $ | 76,255 | | $ | 142,961 | | $ | 75,671 |
Net loss | | | (6,395) | | | (18,104) | | | (14,206) |
6. Other Current Assets
As of March 31, 2021 and December 31, 2020, other current assets consisted of the following:
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Contract assets | | $ | 8,948 | | $ | 7,601 |
Non-trade receivables | | | 1,421 | | | 647 |
Other | | | 1,603 | | | 1,504 |
Total other current assets | | $ | 11,972 | | $ | 9,752 |
7. Property and Equipment
Accumulated depreciation was $19,205 and $17,922 as of March 31, 2021 and December 31, 2020, respectively. Depreciation expense on property and equipment for the three months ended March 31, 2021 and 2020 was $1,283 and $1,268, respectively.
1413
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
6. Property and Equipment
Accumulated depreciation was $15,701 and $13,728 as of June 30, 2020 and December 31, 2019, respectively. Depreciation expense on property and equipment for the three months ended June 30, 2020 and 2019 was $1,234 and $1,089, respectively. Depreciation expense on property and equipment for the six months ended June 30, 2020 and 2019 was $2,502 and $2,097, respectively.
7.8. Software Development Costs
The Company capitalizes certain costs incurred in connection with obtaining or developing its proprietary software platforms, which are used to support its service contracts, including external direct costs of material and services, payroll costs for employees directly involved with the software development, and interest expense related to the borrowings attributable to software development. As of June 30,March 31, 20202021 and December 31, 2019,2020, capitalized software costs consisted of the following:
| | | | | | | | | | |
| June 30, 2020 |
| December 31, 2019 | March 31, 2021 |
| December 31, 2020 | ||||
Software development costs | $ | 38,607 | | $ | 29,714 | $ | 54,414 | | $ | 48,548 |
Less: accumulated amortization | | (15,185) | | | (11,213) | | (23,669) | | | (20,666) |
Software development costs, net | $ | 23,422 | | $ | 18,501 | $ | 30,745 | | $ | 27,882 |
| | | | | | | | | | |
Capitalized software development costs included above not yet subject to amortization | $ | 2,148 | | $ | 3,294 | $ | 5,823 | | $ | 4,382 |
Amortization expense for the three months ended June 30,March 31, 2021 and 2020 was $3,003 and 2019 was $2,154 and $905,$1,823, respectively. Amortization expense for the six months ended June 30, 2020 and 2019 was $3,977 and $1,529, respectively.
8.9. Goodwill and Intangible Assets
The Company’s goodwill and related changes during the three months ended of March 31, 2021 were as follows:
| | | | | | | | |
| | CareVention HealthCare | | | MedWise HealthCare | | | Total |
Balance at January 1, 2021 | $ | 115,350 | | $ | 55,512 | | $ | 170,862 |
Adjustments to goodwill related to prior year acquisition | | (27) | | | — | | | (27) |
Balance at March 31, 2021 | $ | 115,323 | | $ | 55,512 | | $ | 170,835 |
Intangible assets consisted of the following as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average | | | | | | | | | | | Weighted Average | | | | | | | | | |
| | Amortization Period | | | | | Accumulated | | Intangible | | Amortization Period | | | | | Accumulated | | Intangible | ||||
|
| (in years) |
| Gross Value |
| Amortization |
| Assets, net |
| (in years) |
| Gross Value |
| Amortization |
| Assets, net | ||||||
June 30, 2020 | | | | | | | | | | | | |||||||||||
March 31, 2021 | | | | | | | | | | | | |||||||||||
Trade names | | 3.5 | | $ | 11,255 | | $ | (4,577) | | $ | 6,678 | | 3.6 | | $ | 11,955 | | $ | (8,844) | | $ | 3,111 |
Client relationships | | 12.2 | | | 128,169 | | | (26,528) | | | 101,641 | | 12.2 | | | 152,654 | | | (35,591) | | | 117,063 |
Non-competition agreements | | 5.0 | | | 6,602 | | | (3,302) | | | 3,300 | | 5.0 | | | 6,892 | | | (4,321) | | | 2,571 |
Developed technology | | 8.0 | | | 68,593 | | | (20,398) | | | 48,195 | | 8.0 | | | 67,369 | | | (27,054) | | | 40,315 |
Patient database | | 5.0 | | | 21,700 | | | (5,787) | | | 15,913 | | 5.0 | | | 21,700 | | | (9,042) | | | 12,658 |
Domain name | | 10.0 | | | 59 | | | (18) | | | 41 | | 10.0 | | | 59 | | | (22) | | | 37 |
Total intangible assets | | | | $ | 236,378 | | $ | (60,610) | | $ | 175,768 | | | | $ | 260,629 | | $ | (84,874) | | $ | 175,755 |
1514
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | |
| | Weighted Average | | | | | | | | | | | Weighted Average | | | | | | | | | |
| | Amortization Period | | | | | Accumulated | | Intangible | | Amortization Period | | | | | Accumulated | | Intangible | ||||
|
| (in years) |
| Gross Value |
| Amortization |
| Assets, net |
| (in years) |
| Gross Value |
| Amortization |
| Assets, net | ||||||
December 31, 2019 | | | | | | | | | | | | |||||||||||
December 31, 2020 | | | | | | | | | | | | |||||||||||
Trade names | | 7.1 | | $ | 11,255 | | $ | (3,845) | | $ | 7,410 | | 3.7 | | $ | 11,955 | | $ | (8,286) | | $ | 3,669 |
Client relationships | | 12.2 | | | 128,169 | | | (20,977) | | | 107,192 | | 12.2 | | | 152,654 | | | (32,437) | | | 120,217 |
Non-competition agreements | | 5.0 | | | 6,602 | | | (2,641) | | | 3,961 | | 5.0 | | | 6,892 | | | (3,976) | | | 2,916 |
Developed technology | | 8.0 | | | 68,593 | | | (15,870) | | | 52,723 | | 8.0 | | | 67,369 | | | (24,858) | | | 42,511 |
Patient database | | 5.0 | | | 21,700 | | | (3,617) | | | 18,083 | | 5.0 | | | 21,700 | | | (7,957) | | | 13,743 |
Domain name | | 10.0 | | | 59 | | | (15) | | | 44 | | 10.0 | | | 59 | | | (21) | | | 38 |
Total intangible assets | | | | $ | 236,378 | | $ | (46,965) | | $ | 189,413 | | | | $ | 260,629 | | $ | (77,535) | | $ | 183,094 |
Amortization expense for intangible assets for the three months ended June 30,March 31, 2021 and 2020 was $7,339 and 2019 was $6,823 and $7,084, respectively. Amortization expense for intangible assets for the six months ended June 30, 2020 and 2019 was $13,645 and $11,751,$6,822, respectively.
The estimated amortization expense for the remainder of 20202021 and each of the next five years and thereafter is as follows:
| | | | | | |
Years Ending December 31, |
| | |
| | |
2020 (July 1 - December 31) |
| $ | 16,584 | |||
2021 | | | 26,972 | |||
2021 (April 1 - December 31) |
| $ | 21,105 | |||
2022 | | | 25,646 | | | 27,089 |
2023 | | | 24,436 | | | 25,804 |
2024 | | | 17,433 | | | 18,521 |
2025 | | | 11,565 | | | 14,038 |
2026 | | | 12,830 | |||
Thereafter | | | 53,132 | | | 56,368 |
Total estimated amortization expense | | $ | 175,768 | | $ | 175,755 |
9. Accrued Expenses and Other Liabilities10. Notes Payable Related to Acquisition
On October 5, 2020, as part of the consideration of the Personica acquisition, the Company entered into promissory notes in the aggregate principal amount of $17,000 payable to the owners of Personica (see Note 5). The Notes bear an interest rate of 3.25% and are payable as follows: (a) $7,500 in cash, which was paid in January 2021, (b) $5,500 in cash, which was paid in April 2021, and (c) $4,000 in cash within 2 business days following October 5, 2021. The Notes were recorded at their aggregate acquisition-date fair value of $16,355 and are being accreted up to their face values over their respective terms using the effective-interest method. For the three months ended March 31, 2021, the Company recognized $254 of interest expense related to the Notes, of which $76 was paid or accrued and $178 was the non-cash accretion of the discounts recorded. As of June 30, 2020March 31, 2021 and December 31, 2019, accrued expenses2020, the Notes had a fair value of $9,340 and other liabilities consisted of the following:
| | | | | | |
|
| June 30, 2020 |
| December 31, 2019 | ||
Employee related expenses | | $ | 9,122 | | $ | 12,582 |
Contract liability | | | 6,234 | | | 4,857 |
Client funds obligations* | | | 3,132 | | | 4,106 |
Contract labor | | | 2,143 | | | 329 |
Interest | | | 2,133 | | | 2,133 |
Professional fees | | | 247 | | | 337 |
Royalties expense | | | 180 | | | 17 |
Non-income taxes payable | | | 1,043 | | | 898 |
Other expenses | | | 2,710 | | | 1,647 |
Total accrued expenses and other liabilities | | $ | 26,944 | | $ | 26,906 |
*This amount represents clients’ funds held by the Company, with an offsetting amount included in restricted cash.
$16,662, respectively.
1615
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
10.11. Accrued Expenses and Other Liabilities
As of March 31, 2021 and December 31, 2020, accrued expenses and other liabilities consisted of the following:
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Employee related expenses | | $ | 8,260 | | $ | 8,218 |
Contract liability | | | 4,584 | | | 3,205 |
Customer deposits | | | 904 | | | 904 |
Client funds obligations* | | | 3,294 | | | 5,170 |
Contract labor | | | 1,644 | | | 1,374 |
Interest | | | 2,637 | | | 3,690 |
Professional fees | | | 533 | | | 572 |
Consideration payable to customer | | | 9,921 | | | 5,968 |
Non-income taxes payable | | | 161 | | | 151 |
Other expenses | | | 3,226 | | | 2,716 |
Total accrued expenses and other liabilities | | $ | 35,164 | | $ | 31,968 |
*This amount represents clients’ funds held by the Company, with an offsetting amount included in restricted cash.
12. Lines of Credit and Long-Term Debt
(a) Lines of Credit
On September 6, 2017, the Company entered into an Amended and Restated Loan and Security Agreement (as subsequently amended, the “Amended and Restated 2015(the “2015 Line of Credit”), whereby the Company amended and restated its revolving line of credit, originally entered into with Bridge Bank (now Western Alliance Bank) in 2015.2015 and had subsequently amended. The Amended and Restated 2015 Line of Credit providesprovided for borrowing availability in an aggregate amount up to $60,000 to be used for general corporate purposes, with a $1,000 sublimit for cash management services, letters of credit and foreign exchange transactions. The Amended and Restated 2015 Line of Credit maturesmatured pursuant to its terms on SeptemberDecember 6, 2020.
Interest onOn December 18, 2020, the AmendedCompany and Restatedits subsidiaries entered into a Loan and Security Agreement with Western Alliance Bank, which provides for a $120,000 secured revolving credit facility, with a $1,000 sublimit for cash management services and letters of credit and foreign exchange transactions (the “2020 Credit Facility”), and replaced the 2015 Line of Credit.
Amounts under the 2020 Credit is calculatedFacility may be borrowed, repaid, and re-borrowed from time to time until the maturity date on May 16, 2025, and may be used for, among other things, working capital and other general corporate purposes. Loans under the 2020 Credit Facility will bear interest at a variable rate based upon Western Alliance Bank's primeequal to the LIBOR rate plus an applicable margin which will range from (0.25%)3.25%. The obligations under the 2020 Credit Facility are secured by all of the Company’s assets, subject to 0.25% dependingcertain exceptions and exclusions as set forth in the Loan and Security Agreement.
The Loan and Security Agreement contains certain affirmative and negative covenants that are binding on the Company, including, but not limited to, restrictions (subject to specified exceptions and qualifications) on the Company’s leverage ratio,ability to incur indebtedness, create liens, merge or consolidate, make dispositions, pay dividends or make distributions, make investments, pay any subordinated indebtedness, enter into certain transactions with affiliates, or make capital expenditures. In addition, the Loan and Security Agreement imposes certain financial covenants, including that the Company (i) maintain unrestricted cash balances with Western Alliance Bank's prime rate havingBank, plus amounts available for draw under the 2020 Credit Facility of at least $10,000 at all times, and (ii) maintain a floorleverage ratio of 3.5%.less than 3.00:1.00, on a trailing twelve-month basis, measured quarterly. The 2020 Credit Facility is subject to a commitment fee of 0.50% of the total commitment under the 2020 Credit Facility payable on the closing date, and 0.25% of the total commitment under the 2020 Credit Facility payable on each anniversary thereafter. Additionally, the 2020 Credit Facility is subject to an unused line fee.
16
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
As of June 30, 2020,March 31, 2021, the Company was in compliance with all of the financial covenants related to the Amended2020 Credit Facility, and Restated 2015 Line of Credit.management expects that the Company will be able to maintain compliance with its covenants.
As of June 30, 2020,March 31, 2021, the Company hashad $17,500 outstanding under the 2020 Credit Facility, plus an outstanding letter of credit of $200$100 issued pursuant to the Amended and Restated 2015 Line of Credit in connection with the Company’s lease agreement for theits office space in Moorestown, NJ. The letter of credit renews annually and expires in September 2027, and reduces amounts available under the Amended and Restated 2015 Line2020 Credit Facility. As of Credit.March 31, 2021, amounts available for borrowings under the 2020 Credit Facility were $102,400.
As of June 30,March 31, 2021, the interest rate on the 2020 Credit Facility was 3.36% and Decemberthe effective rate for the unused line fee was 0.45%. Interest expense on the 2020 Credit Facility was $261 for the three months ended March 31, 2019, there were 0 amounts outstanding under the Amended and Restated 2015 Line of Credit. Amounts available for borrowings under the Amended and Restated 2015 Line of Credit were $59,800 as of June 30, 2020.
2021. As of June 30,March 31, 2020, the interest rate on the Amended and Restated 2015 Line of Credit was 5.58%. NaN interest expense was incurred for the three and six months ended June 30,March 31, 2020 as there were 0 aggregate borrowings outstanding during the three and six months ended June 30,March 31, 2020. As of June 30, 2019, the interest rate on the Amended and Restated 2015 Line of Credit was 5.58% and interest expense was $351 for the six months ended June 30, 2019. NaN interest expense was incurred for the three months ended June 30, 2019 as there were 0 aggregate borrowings outstanding related to the Amended and Restated 2015 Line of Credit for the three months ended June 30, 2019.
In connection with the Amended and Restated 2015 Line of2020 Credit (and all predecessor agreements prior to the amendment or the amendment and restatement thereof),Facility, the Company recorded deferred financing costs of $793.$1,176. The Company is amortizing the deferred financing costs associated with the 2020 Credit Facility to interest expense using the effective-interest method over the term of the Amended and Restated 2015 Line of2020 Credit andFacility. The Company amortized $99 and $61$133 to interest expense for the three months ended June 30, 2020 and 2019, respectively, and $199 and $109 forMarch 31, 2021. During the sixthree months ended June 30,March 31, 2020, and 2019, respectively.the Company amortized $100 to interest expense for deferred financing costs related to the 2015 Line of Credit. Deferred financing costs of $67$1,005 and $266,$1,156, net of accumulated amortization, are included in other assets on the accompanying consolidated balance sheets as of June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively.
(b) Convertible Senior Subordinated Notes
On February 12, 2019, the Company issued and sold an aggregate principal amount of $325,000 of 1.75% convertible senior subordinated notes (the “2026 Notes”) in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2026 Notes bear interest at a rate of 1.75% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The notes will mature on February 15, 2026, unless earlier converted or repurchased. The initial conversion rate for the notes is 14.2966 shares of the Company’s common stock per $1 principal amount of notes. This conversion rate is equal to an initial conversion price of approximately $69.95 per share of the Company’s common stock.
17
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the business day immediately preceding August 15, 2025 only under the following circumstances: (1) during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the 2026 Notes) per $1 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change or make-whole fundamental change (as defined in the indenture governing the 2026 Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets. On or after August 15, 2025 until the close of business on the first scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2026 Notes regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver shares of our common stock, cash or a combination thereof at the Company’s option. As of June 30, 2020,March 31, 2021, none of the conditions allowing holders of the 2026 Notes to convert had been met.
17
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
In the initial accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components. The carrying amount of the equity component representing the conversion option was $102,900 and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component iswas not remeasured as long as it continuescontinued to meet the conditions for equity classification. The initial associated deferred tax effect of $25,884 was recorded as a reduction of additional paid-in capital because the equity component iswas not currently expected to be deductible for income tax purposes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) iswas amortized to interest expense over the term of the 2026 Notes at an effective interest rate of 8.05% over the contractual term.
Debt issuance costs related to the 2026 Notes of $9,372 were allocated to the liability and equity components of the 2026 Notes based on their relative values. Issuance costs attributable to the liability component were $6,405 and will bewere amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.
As described in Note 2, the Company adopted ASU 2020-06 using the modified retrospective method effective January 1, 2021. Upon adoption, the Company recorded a $74,850 decrease to additional paid-in capital, a $78,707 increase to the carrying value of its convertible notes, a $2,465 decrease to the net deferred tax liability, and a $1,392 increase in accumulated deficit. Effective on January 1, 2021, debt issuance costs related to the 2026 Notes of $7,008 were allocated to the liability component of the 2026 Notes and will be amortized to interest expense using the effective interest method over the contractual term, resulting in an effective interest rate of 2.20%.
During the three months ended June 30, 2020,March 31, 2021, the Company recognized $4,638$1,746 of interest expense related to the 2026 Notes, of which $1,423$1,422 was paid or accrued, and $3,215$324 was non-cash accretion of the debt discounts recorded. During the sixthree months ended June 30,March 31, 2020, under the previous accounting standard, the Company recognized $9,211$4,573 of interest expense related to the 2026 Notes, of which $2,844$1,421 was paid or accrued, and $6,367$3,152 was non-cash accretion of the debt discounts recorded.
DuringIn addition, unpaid additional interest payable as a result of the failure to remove the restrictive legend on the 2026 Convertible Notes had accrued on the 2026 Convertible Notes from and including February 17, 2020, but ceased accruing on February 16, 2021 as a result of the restrictive legend being removed. The Company recorded $212 of additional interest expense for the three months ended June 30, 2019,March 31, 2021 and the Company recognized $4,389total amount of accrued additional interest expensewas $1,625 as of March 31, 2021. As a result, total accrued interest payable related to the 2026 Notes of which $1,422 was accrued and $2,967 was non-cash accretion of the debt discounts recorded. During the six months ended June 30, 2019, the Company recognized $6,659 of interest expense related to the 2026 Notes, of which $2,164 was accrued and $4,494 was non-cash accretion of the debt discounts recorded.
The 2026 Notes have been, and will be, classified as long-term debt on the Company’s consolidated balance sheets until such 2026 Notes are within one year of maturity. The 2026 Notes have a carrying value of $232,658$2,336 as of June 30, 2020. Accrued interest payable on the 2026 Notes of $2,133 as of June 30, 2020March 31, 2021, which is included in accrued expenses and other liabilities on the consolidated balance sheet.sheets. The 2026 Notes have a carrying value of $318,316 as of March 31, 2021.
The 2026 Notes are classified as long-term debt on the Company’s consolidated balance sheets, and will be until such Notes are within one year of maturity
(c) Convertible Note Hedge and Warrant Transactions
In connection with the offering of the 2026 Notes, the Company entered into convertible note hedge transactions with affiliates of certain of the initial purchasers (the “option counterparties”) of the 2026 Notes pursuant to the terms of call option confirmations. The Company has the option to purchase a total of 4,646,393 shares of its
18
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
common stock at a price of approximately $69.95 per share. The total premiums paid for the note hedges were $101,660. The Company also entered into warrant transactions with the option counterparties whereby they have the option to purchase 4,646,393 shares of the Company’s common stock at a price of $105.58 per share. The Company received $65,910 in cash proceeds from the sale of the warrants. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheets.
18
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The convertible note hedge transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the 2026 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2026 Notes, as the case may be. The warrant transactions could separately have a dilutive effect on the Company’s common stock to the extent that the market price per share of the Company’s common stock exceeds the strike price of the warrants.
As of March 31, 2021, 0 warrants have been exercised and all warrants to purchase shares of the Company’s common stock were outstanding.
(d) Long-Term Debt
The following table represents the total long-term debt obligations of the Company at June 30, 2020March 31, 2021 and December 31, 2019:2020:
| | | | | | |
|
| June 30, 2020 |
| December 31, 2019 | ||
Convertible senior subordinated notes | | $ | 325,000 | | $ | 325,000 |
Unamortized discount, including debt issuance costs, on convertible senior subordinated notes | | | (92,342) | | | (98,709) |
Convertible senior subordinated notes, net | | | 232,658 | | | 226,291 |
Finance leases | | | 8 | | | 128 |
Total long-term debt and finance leases, net | | | 232,666 | | | 226,419 |
Less current portion, net | | | (8) | | | (125) |
Total long-term debt and finance leases, less current portion, net | | $ | 232,658 | | $ | 226,294 |
| | | | | | |
|
| March 31, 2021 |
| December 31, 2020 | ||
Convertible senior subordinated notes | | $ | 325,000 | | $ | 325,000 |
Unamortized discount, including debt issuance costs, on convertible senior subordinated notes | | | (6,684) | | | (85,715) |
Convertible senior subordinated notes, net | | | 318,316 | | | 239,285 |
Finance leases | | | 1 | | | 4 |
Total long-term debt and finance leases, net | | | 318,317 | | | 239,289 |
Less current portion of finance leases | | | (1) | | | (4) |
Total long-term debt, net | | $ | 318,316 | | $ | 239,285 |
11.13. Income Taxes
ForOn February 12, 2021, the sixCompany received a private letter ruling from the Internal Revenue Service, which determined, based on information submitted and representations made by the Company, that the Company met the requirements to deduct the interest expense resulting from the amortization of the debt discount associated with the 2026 Notes. As a result, during the three months ended June 30, 2020,March 31, 2021, the Company recorded ana deferred tax asset of $23,628 and a corresponding $23,628 increase to its valuation allowance. As of March 31, 2021, the Company has recorded a full valuation allowance against its deferred tax assets.
For the three months ended March 31, 2021, the Company recorded income tax benefitexpense of $3,875,$199 primarily related to indefinite-lived deferred tax liabilities for goodwill amortization, which resulted in an effective tax rate of 11.9%(1.0)%. The effective tax rate differs from the U.S. statutory tax rate primarily due to an increase in the full valuation allowance recorded that is currently limiting the realizability of the Company’sour net deferred tax assets as of June 30, 2020.March 31, 2021. Accordingly, the year to date tax benefit was limited due to unbenefited losses in the sixthree months ended June 30, 2020. March 31, 2021. The Company calculates its provision for income taxes during its interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year to date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.
For the sixthree months ended June 30, 2019,March 31, 2020, the Company recorded an income tax benefit of $6,580,$3,367, which resulted in an effective tax rate of 27.3%18.9%. The tax benefit primarily consistsconsisted of $3,884$3,031 based on the estimated effective tax rate for the full year and $2,186$336 of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period.
12. Stockholders' Equity
In connection with the offering of the 2026 Notes, the Company issued warrants to purchase 4,646,393 shares of the Company’s common stock at a price of $105.58 per share. As of June 30, 2020, 0 warrants have been exercised and all warrants to purchase shares of the Company’s common stock were outstanding. See Note 10 for additional information related to the 2026 Notes.
19
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
13.14. Stock-Based Compensation
In September 2016, the Company adopted the 2016 Equity Compensation Plan (“(“2016 Plan”). During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year by an amount equal to the lesser of 5% of the total number of outstanding shares of common stock on the last trading day in December of the prior calendar year or such other number set by the Company’s Board of Directors (the “Board”).Board. In accordance with the terms of the 2016 Plan, the share reserve increased by 1,116,0651,200,244 shares on January 2, 2020.2021. As of June 30, 2020, 1,128,118March 31, 2021, 1,785,765 shares were available for future grants under the 2016 Plan.
Restricted Common Stock
The following table summarizes the restricted stock award activity under the 2016 Plan for the sixthree months ended June 30, 2020:March 31, 2021:
| | | | | | | | | | |
| | | | Weighted | | | | Weighted | ||
| | | | average | | | | average | ||
| | Number | | grant-date | | Number | | grant-date | ||
|
| of shares |
| fair value |
| of shares |
| fair value | ||
Outstanding at December 31, 2019 | | 1,213,581 | | $ | 37.69 | |||||
Outstanding at December 31, 2020 | | 1,386,908 | | | 44.14 | |||||
Granted | | 428,656 | | | 66.65 | | 629,088 | | | 54.92 |
Vested | | (280,995) | | | 45.39 | | (351,310) | | | 49.42 |
Forfeited | | (39,178) | | | 55.72 | | (12,880) | | | 57.48 |
Outstanding at June 30, 2020 | | 1,322,064 | | $ | 44.91 | |||||
Outstanding at March 31, 2021 | | 1,651,806 | | $ | 47.02 |
For the three months ended June 30,March 31, 2021 and 2020, $6,275 and 2019, $4,809 and $3,361$4,139 of expense was recognized related to restricted stock awards, respectively. For the six months ended June 30, 2020 and 2019, $8,948 and $6,086 of expense was recognized related toexcluding performance-based restricted stock awards described below, respectively. As of June 30, 2020,March 31, 2021, there was unrecognized compensation expense of $47,428$65,755 related to non-vested restricted stock awards, excluding performance-based restricted stock awards described below, under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.93.1 years.
Performance-Based Equity AwardsStock Award
On August 6, 2018, the Board approved the grant of a performance-based stock award to a consultant pursuant to the 2016 Plan. The award provided that 50,000 shares of common stock would be issued based on the achievement of certain milestones. The award had a grant-date fair value of $61.85 per share based on the Company’s closing stock price on the grant date. Compensation cost was recognized over the service period based on management’s determination that it was probable that the milestones would be achieved. As of December 31, 2019, all milestones were achieved and there was 0 unrecognized compensation expense related to the performance-based stock award. During the first quarter of 2020, the Company issued 5,000 shares of common stock related to this award for the achievement of the final milestone. For the three and six months ended June 30, 2019, the Company recorded $399 and $1,314 of expense related to the performance-based stock award.
On May 4, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 10,686 shares of restricted stock to an employee. The grants vest subject to certain performance conditions being achieved during the two-year period ending March 2, 2022. The awards have a grant-date fair value of $56.14 per share based on the Company’s closing stock price on the grant date. StockStock-based compensation costs associated with these grants are recognized over the service period based upon the Company’s assessment of the probability that the performance conditions will be achieved. The Company recognized 0 stockstock-based compensation expense related to these grants for the three and six months ended June 30, 2020March 31, 2021 as the achievement of the underlying performance conditions was considered unlikely. As of June 30, 2020,March 31, 2021, there was $600 of cumulativeunrecognized compensation expense related to these performance-based restricted stock awards.
On October 29, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 26,400 shares of restricted stock to certain employees. The grants vest subject to the achievement of certain milestones. The awards have a grant-date fair value of $35.95 per share based on the Company’s closing stock price on the grant date. Stock-based compensation costs associated with these grants are recognized over the service period based upon the Company’s assessment of the probability that the performance conditions will be achieved. The Company recognized $214 of stock-based compensation expense related to these grants for the three months ended March 31, 2021. As of March 31, 2021, there was $583 of unrecognized compensation expense related to these performance-based restricted stock awards.
20
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Other Stock Awards
During the first quarter of 2020, the Board approved the grant of stock awards to select employees pursuant to the 2016 Plan. The awards provided for the issuance of 9,386 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $52.29 per share. For the six months ended June 30, 2020, the Company recorded $491 of expense related to these stock awards.
During the six months ended June 30, 2019, the Board approved the grant of stock awards to select employees and a non-employee director pursuant to the 2016 Plan. The awards provide for the issuance of 19,648 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $53.03 per share. For the three and six months ended June 30, 2019, the Company recorded $504 and $1,042 of expense related to these stock awards.
Stock Options
The Company recorded $2,364 and $2,642 of stock-based compensation expense related to employee and non-employee stock options for the three months ended June 30, 2020 and 2019, respectively. The Company recorded $4,871 and $5,316 of stock-based compensation expense related to employee and non-employee stock options for the six months ended June 30, 2020 and 2019, respectively. The Company records forfeitures as they occur.
The estimated fair value of options granted was calculated using a Black-Scholes option-pricing model. The computation of expected life for employees was determined based on the simplified method. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. The Company's common stock had not been publicly traded until its IPO commenced on September 29, 2016; therefore, expected volatility is based on a combination of the historical volatilities of the Company’s common stock and the historical volatilities of selected public companies whose services are comparable to that of the Company. The table below sets forth the weighted average assumptions for employee grants during the six months ended June 30, 2020 and 2019:
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
Valuation assumptions: |
| 2020 |
| 2019 | ||
Expected volatility | | 56.10 | % | | 69.60 | % |
Expected term (years) | | 5.25 | | | 6.02 | |
Risk-free interest rate | | 1.22 | % | | 2.50 | % |
Dividend yield | | — | | | — | |
The weighted average grant date fair value of employee options granted during the six months ended June 30, 2020 and 2019 was $33.78 and $34.94 per share, respectively.
21
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Other Stock Awards
During the first quarter of 2021, the Board approved the grant of stock awards to certain non-employee directors and to a consultant pursuant to the 2016 Plan. The awards provided for the issuance of 1,416 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $40.85 per share. For the three months ended March 31, 2021, the Company recorded $58 of expense related to these stock awards.
During the first quarter of 2020, the Board approved the grant of stock awards to select employees pursuant to the 2016 Plan. The awards provided for the issuance of 9,386 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $52.29 per share. For the three months ended March 31, 2020, the Company recorded $491 of expense related to these stock awards.
Stock Options
The Company recorded $2,055 and $2,507 of stock-based compensation expense related to employee and non-employee stock options for the three months ended March 31, 2021 and 2020, respectively. The Company records forfeitures as they occur.
The table below sets forth the weighted average assumptions for employee grants during the three months ended March 31, 2021 and 2020:
| | | | | | |
| | Three Months Ended | ||||
| | March 31, | ||||
Valuation assumptions: |
| 2021 |
| 2020 | ||
Expected volatility | | 58.57 | % | | 56.10 | % |
Expected term (years) | | 5.48 | | | 5.25 | |
Risk-free interest rate | | 0.50 | % | | 1.22 | % |
Dividend yield | | — | | | — | |
The weighted average grant date fair value of employee options granted during the three months ended March 31, 2021 and 2020 was $28.26 and $33.78 per share, respectively.
The following table summarizes stock option activity under the 2016 Plan for the sixthree months ended June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted | | | | | | | | | | Weighted | | | |
| | | | Weighted | | average | | | | | | | Weighted | | average | | | | ||
| | | | average | | remaining | | Aggregate | | | | average | | remaining | | Aggregate | ||||
| | Number | | exercise | | contractual | | intrinsic | | Number | | exercise | | contractual | | intrinsic | ||||
|
| of shares |
| price |
| term |
| value |
| of shares |
| price |
| term |
| value | ||||
Outstanding at December 31, 2019 | | 2,755,343 | | $ | 25.10 | | |
| | | ||||||||||
Outstanding at December 31, 2020 | | 2,096,556 | | | 27.74 | | |
| | | ||||||||||
Granted | | 5,000 | | | 68.10 | | | | | | | 2,500 | | | 55.01 | | | | | |
Exercised | | (223,980) | | | 11.11 | | | | | | | (224,503) | | | 11.14 | | | | | |
Forfeited | | (37,700) | | | 48.73 | | | | | | | (27,846) | | | 39.51 | | | | | |
Outstanding at June 30, 2020 | | 2,498,663 | | $ | 26.08 | | 6.6 | | $ | 73,296 | ||||||||||
Options vested and expected to vest at June 30, 2020 | | 2,498,663 | | $ | 26.08 | | 6.6 | | $ | 73,296 | ||||||||||
Exercisable at June 30, 2020 | | 1,715,578 | | $ | 18.48 | | 5.9 | | $ | 62,853 | ||||||||||
Outstanding at March 31, 2021 | | 1,846,707 | | $ | 29.62 | | 6.1 | | $ | 37,286 | ||||||||||
Options vested and expected to vest at March 31, 2021 | | 1,846,707 | | $ | 29.62 | | 6.1 | | $ | 37,286 | ||||||||||
Exercisable at March 31, 2021 | | 1,479,329 | | $ | 24.29 | | 5.7 | | $ | 36,092 |
21
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the Company’s closing stock price or estimated fair value on the last trading day of the fiscal quarter for those stock options that had exercise prices lower than the fair value of the Company's common stock. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the sixthree months ended June 30,March 31, 2021 and 2020 was $7,768 and 2019 was $9,656 and $5,959,$4,581, respectively.
As of June 30, 2020,March 31, 2021, there was $19,044$10,833 of total unrecognized compensation cost related to nonvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.31.7 years.
Cash received from option exercises for the sixthree months ended June 30,March 31, 2021 and 2020 was $2,226 and 2019 was $2,312 and $1,536,$1,153, respectively.
The Company recorded total stock-based compensation expense for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 in the following expense categories of its consolidated statements of operations:
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | Three Months Ended | ||||||||||||
| | June 30, | | June 30, | March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | 2021 |
| 2020 | ||||||
Cost of revenue - product | | $ | 193 | | $ | 313 | | $ | 375 | | $ | 622 | $ | 259 | | $ | 182 |
Cost of revenue - service | | | 839 | | | 994 | | | 1,602 | | | 1,978 | | 1,079 | | | 763 |
Research and development | | | 1,071 | | | 1,806 | | | 2,480 | | | 4,088 | | 1,435 | | | 1,409 |
Sales and marketing | | | 523 | | | 1,105 | | | 1,051 | | | 2,092 | | 1,068 | | | 528 |
General and administrative | | | 4,547 | | | 2,688 | | | 8,802 | | | 4,978 | | 4,761 | | | 4,255 |
Total stock-based compensation expense | | $ | 7,173 | | $ | 6,906 | | $ | 14,310 | | $ | 13,758 | $ | 8,602 | | $ | 7,137 |
14.15. Fair Value Measurements
The Company’s financial instruments consist of accounts receivable, contract assets, accounts payable, contract liabilities, accrued expenses, acquisition-related contingent consideration, acquisition-related notes payable, line of credit, and long-term debt, which includes the Company’s convertible senior subordinated notes and finance leases. The carrying values of accounts receivable, contract assets, accounts payable, contract liabilities, and accrued expenses, and acquisition-related notes payable are representative of their fair value due to the relatively short-term nature of those instruments. See below for additional information on the Company’s convertible senior subordinated notes.
22
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The Company has classified liabilities measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 as follows:
| | | | | | | | | | | | |
| | Fair Value Measurement | ||||||||||
| | at Reporting Date Using | ||||||||||
| | | | | | | | | | | Balance as of | |
|
| Level 1 |
| Level 2 |
| Level 3 |
| June 30, 2020 | ||||
Liabilities | | | | | | | | | | | | |
Acquisition-related contingent consideration - long-term | | $ | — | | $ | — | | $ | 11,400 | | $ | 11,400 |
| | | | | | | | | | | | |
| | Fair Value Measurement | ||||||||||
| | at Reporting Date Using | ||||||||||
| | | | | | | | | | | Balance as of | |
|
| Level 1 |
| Level 2 |
| Level 3 |
| December 31, 2019 | ||||
Liabilities | | | | | | | | | | | | |
Acquisition-related contingent consideration - long-term | | $ | — | | $ | — | | $ | 10,800 | | $ | 10,800 |
Acquisition-related contingent consideration is measured at fair value on a recurring basis using unobservable inputs, hence these instruments represent Level 3 measurements within the fair value hierarchy. The acquisition-related contingent consideration liability represents the estimated fair value of the additional cash and equity consideration payable that is contingent upon the achievement of certain financial and performance milestones. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, all changes in liability-classified contingent consideration subsequent to the initial acquisition-date measurement are recorded in net income or loss.
In connection with the 2018 acquisition of the Cognify business, additional consideration may bewas payable by the Company based on a multiple of the excess of certain PACE solutions’ 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement. The Cognify acquisition-related contingent consideration, which iswas liability-classified, was recorded at the estimated fair value at the acquisition date of October 19, 2018. The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent reporting period.
The acquisition-related contingent consideration liability represented the estimated fair value of the additional cash and equity consideration payable that was contingent upon the achievement of certain financial and performance milestones. In accordance with ASC 805, Business Combinations, all changes in liability-classified contingent consideration subsequent to the initial acquisition-date measurement were recorded in net income or loss.
The acquisition-related contingent consideration was measured at fair value on a recurring basis and included the use of significant unobservable inputs, hence, these instruments represented Level 3 measurements within the fair value hierarchy. During the three months ended June 30,third quarter of 2020, pursuant to the terms of the stock purchase agreement, the Company recorded a $100 remeasurement gainelected to accelerate the payment of the acquisition-related contingent consideration for an aggregate payment amount of $13,413. Due to the change in the fair valueaccelerated payment of the Cognify acquisition-related contingent consideration, liability primarily due to a decrease in the forecasted Adjusted EBITDA used in theacquisition-related contingent consideration payment calculation, whichamount was offset by the impact of a decreased discount period to the final measurement date. During the six months ended June 30, 2020, the Company recorded a $600 charge for the change infixed and was no longer classified within the fair value of Cognify acquisition-related contingent consideration primarily due to a decreased discount period to the final measurement date. During the three and six months ended June 30, 2019, the Company recorded a $1,500 and $2,400 charge, respectively, for the change in the fair value of Cognify acquisition-related contingent consideration primarily due to a decreased discount period to the final measurement date.
hierarchy. The fair value of the Cognify acquisition-related contingent consideration was calculated to be $11,400partially paid during 2020 by cash payments of $6,394 and $10,800 as of June 30, 2020 and December 31, 2019, respectively. The final amount of the contingent consideration liability will be fixed as of December 31, 2021. The maximum contingent consideration amount that could be earned under the stock purchase agreement is $14,000.
The changes in fair value of the Company’s acquisition-related contingent consideration for the six months ended June 30, 2020 were as follows:
| | | |
Balance at December 31, 2019 |
| $ | 10,800 |
Adjustments to fair value measurement | | | 600 |
Balance at June 30, 2020 | | $ | 11,400 |
2322
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
issuance of 135,434 shares of the Company’s common stock, with a fair value of $6,853. The Company made the final cash payment of $166 in full satisfaction of the remaining acquisition-related contingent consideration liability in January 2021.
During the three months ended March 31, 2020, the Company recorded a $700 charge for the change in the fair value of Cognify acquisition-related contingent consideration primarily due to a decreased discount period to the final measurement date.
The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of June 30, 2020:March 31, 2021:
| | | | | | | | | | | | | | | | | | |
| | Face Value |
| Carrying Value |
| Fair Value | | Face Value |
| Carrying Value |
| Fair Value | ||||||
1.75% Convertible Senior Subordinated Notes due 2026 | | $ | 325,000 | | $ | 232,658 | | $ | 332,111 | | $ | 325,000 | | $ | 318,316 | | $ | 325,133 |
The fair value of the 2026 Notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a Level 2 measurement. As discussed in Note 10,12, the 2026 Notes are carried at their aggregate face value of $325,000, less any unaccreted debt discount and unamortized debt issuance costs.
15.16. Commitments and Contingencies
(a) Legal Proceedings
The Company is not currently involved in any significant claims or legal actions that, in the opinion of management, are expected to have a material adverse impact on the Company.
(b) Vendor Purchase Agreements
In May 2016, the Company signed a prime vendor agreement with AmerisourceBergen Drug Corporation (“AmerisourceBergen”). The agreement was not renewed upon expiration in April 2019, but the Company continues to purchase from AmerisourceBergen from time to time on a purchase order basis. Pursuant to the terms of a security agreement entered into in connection with the prime vendor agreement, which still remains in place, AmerisourceBergen also holds a subordinated security interest in all of the Company’s assets.
On March 29, 2019, the Company entered into an Affiliated Pharmacy Agreement and Pharmaceutical Program Supply Agreement (the “Prior Thrifty Drug Agreements”) with Thrifty Drug Stores, Inc. (“Thrifty Drug”) to replace the prime vendor agreement with AmerisourceBergen.. On July 1, 2020, the Company entered into a new Affiliated Pharmacy Agreement and Pharmaceutical Program Supply Agreement with Thrifty Drug (the “Thrifty Drug Agreements”) to replace the Prior Thrifty Drug Agreements, which, among other things, extended the Company’s agreement with Thrifty Drug through September 30, 2023. Pursuant to the terms of the Thrifty Drug Agreements, the Company has agreed to purchase not less than 98% of the Company’s total prescription product requirements from Thrifty Drug. The Company commenced purchasing prescription products under the Prior Thrifty Drug Agreements in May 2019 and has continued to do so under the Thrifty Drug Agreements beginning in July 2020. Both the Prior Thrifty Drug Agreements and the Thrifty Drug Agreements authorize Thrifty Drug to hold a security interest in all of the products purchased by the Company under the respective agreements.
As of June 30,March 31, 2021 and December 31, 2020 the Company had $2,399$1,285 and $1,985 due to AmerisourceBergen and Thrifty Drug as a result of prescription drug purchases. As of December 31, 2019, the Company had $2,465 due to AmerisourceBergen and Thrifty Drug as a result of prescription drug purchases.
In December 2019, the Company entered into an updated agreement with its data aggregation partner related to the Company’s pharmacy cost management services. The agreement is effective January 1, 2020 with a three-year term expiring December 31, 2022 and commits the Company to a monthly minimum purchase obligation of $30.
2423
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
16.17. Segment Reporting
The Company operates its business through 2 segments. The Company's chief operating decision maker (“CODM”), the Chief Executive Officer, allocates resources and assesses performance based upon financial information at the reportable segment level. Substantially all revenues are generated and substantially all tangible assets are held in the U.S. The Company classifies its operations into 2 reportable segments as follows:
CareVention HealthCare primarily provides services to PACE organizations that include medication fulfillment pharmacy services and PACE solutions such as medication safety services, pharmacy benefit management solutions, and health plan management services.
MedWise HealthCare clients include health plans, pharmacies, and non-PACE healthcare providers. Services provided to these clients include medication safety services and software subscription solutions, which allow for the identification ofidentify individuals with high medication-related risk, improve patient communication and engagement, and allow for documentation of clinical interventions regarding optimizinginterventions. These services optimize medication therapy, targetingimprove adherence, improvement and enable precision dosing.
Shared services primarily consist of unallocated corporate sales and marketing expenses and general and administrative expenses associated with the management and administration of the Company’s business objectives.
The CODM uses revenue in accordance with U.S. GAAP and Adjusted EBITDA as the relevant segment performance measures to evaluate the performance of the segments and allocate resources.
Adjusted EBITDA is a segment performance financial measure that offers a useful view of the overall operation of the Company’s businesses and may be different than similarly-titledfrom similarly titled segment performance financial measures used by other companies.
Adjusted EBITDA is defined asconsists of net income (loss)loss plus certain other expenses, which includes interest expense, provision (benefit) for income tax expense or benefit, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense, (income), acquisition-related expense, and stock-based compensation expense. The Company considers acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue.
Management considers revenue and Adjusted EBITDA to be the appropriate metricmetrics to evaluate and compare the ongoing operating performance of the Company’s segments on a consistent basis across reporting periods as they eliminate the effect of items which are not indicative of each segment's core operating performance.
2524
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The following tables present the Company’s segment information:
| | | | | | | | | | | | | | | | | | |
| | CareVention HealthCare | | MedWise HealthCare | | Consolidated | | CareVention HealthCare | | MedWise HealthCare | | Consolidated | ||||||
Revenue: | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 | | | | | | | | | | |||||||||
Three Months Ended March 31, 2021 | | | | | | | | | | |||||||||
Product revenue | | $ | 38,930 | | $ | 443 | | $ | 39,373 | | $ | 41,842 | | $ | 136 | | $ | 41,978 |
Service revenue | | | | | | | | | | | | | | | | | | |
PACE solutions | | | 11,522 | | | — | | | 11,522 | | | 13,919 | | | — | | | 13,919 |
Medication safety services | | | — | | | 15,707 | | | 15,707 | | | — | | | 10,725 | | | 10,725 |
Software subscription and services | | | — | | | 10,232 | | | 10,232 | | | — | | | 10,058 | | | 10,058 |
Total service revenue | | | 11,522 | | | 25,939 | | | 37,461 | | | 13,919 | | | 20,783 | | | 34,702 |
Total revenue | | $ | 50,452 | | $ | 26,382 | | $ | 76,834 | | $ | 55,761 | | $ | 20,919 | | $ | 76,680 |
| | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2019 | | | | | | | | | | |||||||||
Three Months Ended March 31, 2020 | | | | | | | | | | |||||||||
Product revenue | | $ | 33,372 | | $ | — | | $ | 33,372 | | $ | 37,087 | | $ | — | | $ | 37,087 |
Service revenue | | | | | | | | | | | | | | | | | | |
PACE solutions | | | 11,437 | | | — | | | 11,437 | | | 11,571 | | | — | | | 11,571 |
Medication safety services | | | — | | | 22,498 | | | 22,498 | | | — | | | 14,320 | | | 14,320 |
Software subscription and services | | | — | | | 8,948 | | | 8,948 | | | — | | | 9,849 | | | 9,849 |
Total service revenue | | | 11,437 | | | 31,446 | | | 42,883 | | | 11,571 | | | 24,169 | | | 35,740 |
Total revenue | | $ | 44,809 | | $ | 31,446 | | $ | 76,255 | | $ | 48,658 | | $ | 24,169 | | $ | 72,827 |
| | | | | | | | | | |||||||||
Six Months Ended June 30, 2020 | | | | | | | | | | |||||||||
Product revenue | | $ | 76,017 | | $ | 443 | | $ | 76,460 | |||||||||
Service revenue | | | | | | | | | | |||||||||
PACE solutions | | | 23,093 | | | — | | | 23,093 | |||||||||
Medication safety services | | | — | | | 30,027 | | | 30,027 | |||||||||
Software subscription and services | | | — | | | 20,081 | | | 20,081 | |||||||||
Total service revenue | | | 23,093 | | | 50,108 | | | 73,201 | |||||||||
Total revenue | | $ | 99,110 | | $ | 50,551 | | $ | 149,661 | |||||||||
| | | | | | | | | | |||||||||
Six Months Ended June 30, 2019 | | | | | | | | | | |||||||||
Product revenue | | $ | 64,354 | | $ | — | | $ | 64,354 | |||||||||
Service revenue | | | | | | | | | | |||||||||
PACE solutions | | | 22,611 | | | — | | | 22,611 | |||||||||
Medication safety services | | | — | | | 37,849 | | | 37,849 | |||||||||
Software subscription and services | | | — | | | 12,400 | | | 12,400 | |||||||||
Total service revenue | | | 22,611 | | | 50,249 | | | 72,860 | |||||||||
Total revenue | | $ | 86,965 | | $ | 50,249 | | $ | 137,214 |
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TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | CareVention HealthCare | | MedWise HealthCare | | Shared Services | | Consolidated | | CareVention HealthCare | | MedWise HealthCare | | Shared Services | | Consolidated | ||||||||
Adjusted EBITDA (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2020 | | | | | | | | | | | | | ||||||||||||
Three Months Ended March 31, 2021 | | | | | | | | | | | | | ||||||||||||
Adjusted EBITDA (loss) | | $ | 12,077 | | $ | 4,697 | | $ | (9,640) | | $ | 7,134 | | $ | 12,910 | | $ | 1,864 | | $ | (11,175) | | $ | 3,599 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, 2019 | | | | | | | | | | | | | ||||||||||||
Three Months Ended March 31, 2020 | | | | | | | | | | | | | ||||||||||||
Adjusted EBITDA (loss) | | $ | 11,466 | | $ | 9,059 | | $ | (6,873) | | $ | 13,652 | | $ | 11,748 | | $ | 2,831 | | $ | (9,772) | | $ | 4,807 |
| | | | | | | | | | | | | ||||||||||||
Six Months Ended June 30, 2020 | | | | | | | | | | | | | ||||||||||||
Adjusted EBITDA (loss) | | $ | 23,825 | | $ | 7,528 | | $ | (19,412) | | $ | 11,941 | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
Six Months Ended June 30, 2019 | | | | | | | | | | | | | ||||||||||||
Adjusted EBITDA (loss) | | $ | 22,086 | | $ | 10,707 | | $ | (13,450) | | $ | 19,343 |
The following table presents the Company’s reconciliation of the segments’ total Adjusted EBITDA to net loss as presented in the consolidated statements of operations:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
Reconciliation of net loss to Adjusted EBITDA | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (14,310) | | $ | (6,529) | | $ | (28,747) | | $ | (17,508) | | $ | (19,492) | | $ | (14,437) |
Add: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | 4,668 | | | 4,308 | | | 9,278 | | | 7,001 | | | 2,547 | | | 4,610 |
Income tax benefit | | | (508) | | | (2,539) | | | (3,875) | | | (6,580) | ||||||
Income tax expense (benefit) | | | 199 | | | (3,367) | ||||||||||||
Depreciation and amortization | | | 10,211 | | | 9,078 | | | 20,124 | | | 15,377 | | | 11,625 | | | 9,913 |
Change in fair value of acquisition-related contingent consideration (income) expense | | | (100) | | | 1,830 | | | 600 | | | 3,006 | ||||||
Change in fair value of acquisition-related contingent consideration expense | | | — | | | 700 | ||||||||||||
Acquisition-related expense | | | — | | | 598 | | | 251 | | | 4,289 | | | 118 | | | 251 |
Stock-based compensation expense | | | 7,173 | | | 6,906 | | | 14,310 | | | 13,758 | | | 8,602 | | | 7,137 |
Adjusted EBITDA | | $ | 7,134 | | $ | 13,652 | | $ | 11,941 | | $ | 19,343 | | $ | 3,599 | | $ | 4,807 |
Asset information by segment is not a key measure of performance used by the CODM. Accordingly, the Company has not disclosed asset information by segment.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and related notes and other financial information included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2019,2020, included in our 20192020 Form 10-K.
Forward-Looking Statements
This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, (i) the impacts of the current COVID-19 pandemic and other health epidemics; (ii) our ability to adapt to changes or trends within the market for healthcare in the U.S.; (iii) a significant increase in competition from a variety of companies in the health care industry; (iv) developments and changes in laws and regulations, including increased regulation of the healthcare industry through legislative action and revised rules and standards; (v) the extent to which we are successful in gaining new long-term relationships with clients or retaining existing clients; (vi) the growth and success of our clients, which is difficult to predict and is subject to factors outside of our control; (vii) our ability to maintain relationships with a specified drug wholesaler; (viii) increasing consolidation in the healthcare industry; (ix) managing our growth effectively; (x) fluctuations in operating results; (xi) failure or disruption of our information technology and security systems; (xii) dependence on our senior management and key employees; (xiii) our future indebtedness and our ability to obtain additional financing, reduce expenses or generate funds when necessary; and (xiv) the risks described in Part I, Item 1A of our 20192020 Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q.10-K. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by applicable law. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
Overview
We are innovatingTabula Rasa HealthCare, Inc. is a healthcare technology company advancing the next frontiersafe use of medication safety,medications by creating solutions designed to empower pharmacists, providers, and providerspatients to optimize medication regimens. Our advanced proprietary technology, MedWise™MedWise®, identifies the cause of medication-related problems, including adverse drug events, so healthcare professionals can minimize harm and reduce medication-related risks. Our software and services help improve patient outcomes reduce hospitalizations and lower healthcare costs.costs through reduced hospitalizations, emergency department visits, and healthcare utilization. We also believe we have the most extensive clinical tele-pharmacy network in the United States. Our suiteStates, or U.S., with seven call centers across the country, a number of solutions is trusted by healthwhich are tethered to academic institutions. Health plans and pharmacies nationwide use our solutions to assist them in meeting a range of value-based payment requirements. Our vision and mission are supported by our industry-recognized leadership team, our significant investments and collaborations to advance medication safety-relatedprecision pharmacotherapy research and its application in clinical practice, and our culture, best captured in the 32 “Fundamentals” known as “The TRHC Way.”culture.
We operate our business through two segments, CareVention HealthCare and MedWise HealthCare, which accounted for 66%73% and 34%27% of revenue respectively, for both the three and six months ended June 30, 2020.March 31, 2021, respectively, and for 67% and 33% of revenue for the three months ended March 31, 2020, respectively. Our CareVention HealthCare segment provides our clients, primarily PACE programs, with medication fulfillment services, cloud-based software, pharmacy benefit management solutions, and clinical pharmacist services at the point-of-care.point of care. Our MedWise HealthCare segment provides our clients with cloud-based pharmacy software and full-service clinical pharmacy programs. Substantially all of our revenue is recognized in the U.S. and substantially all of our long-lived assets are located in the U.S.
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OurFor the three months ended March 31, 2021, our total revenues for the three and six months ended June 30, 2020 were $76.8$76.7 million and $149.7 million, respectively, compared to $76.3 million and $137.2$72.8 million for the three and six months ended June 30, 2019, respectively.March 31, 2020. We incurred a net loss of $14.3$19.5 million and a net loss of $28.7$14.4 million for the three and six months ended June 30,March 31, 2021 and 2020, respectively, compared to a net loss of $6.5 million and $17.5 million for the three and six months ended June 30, 2019, respectively. Adjusted EBITDA for the three and six months ended June 30, 2020March 31, 2021 was $7.1$3.6 million, and $11.9 million, respectively, compared to $13.7 million and $19.3$4.8 million for the three and six months ended June 30, 2019, respectively. March 31, 2020. See “Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures — Adjusted EBITDA” for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA.
Substantially all of our revenue is recognized in the U.S. and substantially all of our long-lived assets are located in the U.S.
CareVention HealthCare
CareVention HealthCare primarily services Programs of All-Inclusive Care for the Elderly, or PACE, which is a Centers for Medicare & Medicaid Services, or CMS, sponsored program providing comprehensive medical and social services to adults age 55 and older who need a nursing facility level of care but can live safely in community settings. Our clients include ArchcareArchCare Senior Life, Trinity Health, Palm Beach PACE, and St. Paul’s PACE. Within our CareVention HealthCare segment, we offer our medication fulfillment services, clinical pharmacist services at the point-of-care, cloud-based software, and health plan management servicesWe go to market through a number of different brands, including:including CareKinesis, Capstone Performance Systems,Risk Adjustment Services, PACElogic, TruChart, PeakTPA, Mediture,PersonifilRx, and Cognify.Pharmastar.
The majority of ourOur largest CareVention HealthCare product and service offeringsoffering is our medication fulfillment services, which are fortified bybuilt around our novel and proprietary Medication Risk Mitigation Matrix, or MRM Matrix, designed to enable clinicians to increase patient safety, create andindividualized medication regimens, promote adherence, to individualized medication regimen, and reduce the total medication burden by eliminatingeliminate unnecessary prescriptions. Our medication fulfillment and reminder packaging services utilize the MRM Matrix technology to reduce medication-related risk for the high-cost, high-risk PACE population. The CareVention HealthCare suite of offerings also includes risk adjustment services, pharmacy benefit management, or PBM, solutions, cloud-based electronic health records solutions and third partythird-party administration services, which are all specifically tailored to the PACE market. Our CareVention HealthCare segment serves more than 130 healthcare organizations.
The CareVention HealthCare segment revenue model is primarily based on payments on a per-member per-month, or PMPM, basis, payments on a subscription basis, payments on a transaction basis, and charges and dispensing fees for medication fulfillment.
MedWise HealthCare
Our MedWise HealthCare segment is primarily comprised of service offerings from our acquisitions of SinfoníaRx in September 2017 and PrescribeWellness in March 2019. As a result of these acquisitions, we believe we are a leading provider of Medication Therapy Management, or MTM, software and services for Medicare, Medicaid, and commercial health plans, and we are also a leading provider of cloud-based patient engagement software and services to more than 15,00014,000 pharmacies nationwide. More
Approximately 14,000 retail pharmacies and more than 350280 health plans, including several Blue Cross Blue Shield organizations, Express Scripts, Humana, UnitedHealth Group, and CVS HealthWellCare, utilize our MedWise HealthCare solutions to execute a range of clinical programs. These programs support MTM, Enhanced MTM (a five-year CenterCenters for Medicare & Medicaid Services Innovation Part D pilot that began January 1, 2017), Medicare Part D Star Ratings, Healthcare Effectiveness Data and Information Set (HEDIS) quality measures, and post-hospital discharge care transitions through a combination of our nearly 30,000 PrescribeWellness network pharmacists and/or our clinical tele-pharmacy call centers across the country employing nearly 500400 pharmacists. Within our MedWise HealthCare business unit,segment, we offer our cloud-based software and clinical pharmacist services through a number of different brands, including MedWise,MedWise®, SinfoníaRx, RxCompanion, PrescribeWellness, and DoseMeRx.
The MedWise HealthCare segment revenue model is primarily based on payments on a PMPM basis, payments on a subscription basis, and payments on a fee-for-service basis for each clinical intervention.
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Our Strategy
In early 2020, we articulated a long-term growth strategy based on three key tenets:
1) | Further penetration of the PACE market by leveraging our existing CareVention HealthCare client base (90% of all PACE organizations utilize at least one of our solutions) and cross-selling to increase our average PMPM fee; organic member growth within our existing clients in part due to the acceleration of the National PACE Association’s PACE 2.0 initiative designed to significantly increase enrollment to 200,000 by 2028; and continued investments in our offerings to attract new PACE clients and, more broadly, Medicare Advantage organizations. |
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2) | Accelerating the adoption of our MedWise software and clinical pharmacy programs by health plans across all lines of business, including Medicare Part C and Part D, Medicaid managed care, and commercial clients with a focus on self-insured employer groups. |
We believe demographic, legislative, and industry trends support our long-term growth targets. According to data from the U.S. Census Bureau, the number of Americans age 65 and older is expected to reach 74.1 million by 2030, which will represent more than one in five Americans. An April 2020 report from the Lown Institute noted polypharmacy (defined as five or more medications) has reached “epidemic proportions”. The Institute stated that 40% of seniors (age 65+) are taking five or more prescription medications to treat the growing prevalence of multiple chronic conditions including heart disease, diabetes, asthma, high blood pressure, and cancer.
From a legislative perspective, important drivers that will support our growth are: the long-term transition to value-based care; CMS Medicare Part C and Part D regulations governing Star Ratings; the ongoing Enhanced MTM pilot, and a changing pharmacy landscape, including the expanding scope and role of community pharmacists as highlighted by new state laws, for example, Ohio SB 265; and the April 8, 2020 announcement from the U.S. Department of Health & Human Services authorizing licensed pharmacists to order and administer COVID-19 tests as part of the federal government’s response to the pandemic.
From an industry perspective, we are addressing a large and growing medication therapy problem, which encompasses adverse drug events, or ADEs, compounded by the demographic trends described above. In 2018, there were 5.8 billion prescriptions dispensed in the U.S. per IQVIA Institute, an increase of 2.7% from 2017, and prescriptions for chronic, persistent conditions accounted for more than two-thirds of the total dispensed prescriptions in 2018. In 2018, a review published in the Annals of Pharmacology estimated the annual cost of prescription-related morbidity and mortality resulting from non-optimized medication therapy at $528.4 billion including 275,689 deaths per year.
3) | Increasing the number of pharmacies licensing the entire PrescribeWellness solution set, including our MedWise platform module launched in July 2020, across our growing pharmacy footprint of more than 14,000 pharmacies nationwide. |
To supplement our organic growth, we made a total of fiveseven acquisitions duringfrom the beginning of 2018 and 2019through 2020, and we continue to evaluate strategic acquisitions across both segments of our business. Our March 2019As a result of our most recent acquisition, of PrescribeWellness allowed us to expandPersonica, in October 2020 and our target markets fororganic member growth, our MedWise HealthCare technology to include 61,800 pharmacy practice settings across America. In addition to enhancing our capacity, PrescribeWellness’s pharmacy customers, which are located within five miles of 300 million people in the U.S., also created a local setting to deliver more clinical programs such as MTM for our health plan clients. Our 2018 acquisitions of Cognify (a provider of electronic health record solutions), Mediture (a provider of electronic health record solutions and third-party administrative services), and PeakTPA (a provider of third-party administrative services) have broadened our portfolio of CareVention HealthCare solutions to sell to our existing PACE clients withhad a combined patient census of 44,947 at the end of 2020, which compares with 31,820 and 27,690 patients at the end of 2019 which represented an increase of 15% from 27,690 at the end of 2018.and 2018, respectively.
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Key Business Metrics
We continually monitor certain corporate metrics, including the following key metrics, that are useful in evaluating and managing our operating performance compared to that of other companies in our industry.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | | Three Months Ended | | | | | | | ||||||||
| | June 30, | | Change | | March 31, | | Change | ||||||||||||||||
|
| 2020 |
| 2019 |
| $ |
| % | | 2021 | | 2020 | | $ | | % | ||||||||
| | | (Dollars in thousands) | | | | (Dollars in thousands) | | ||||||||||||||||
Revenues | | $ | 76,834 | | $ | 76,255 | | $ | 579 | | 1 | % | | $ | 76,680 | | $ | 72,827 | | $ | 3,853 | | 5 | % |
Net loss | | | (14,310) | | | (6,529) | | | (7,781) | | (119) | | | | (19,492) | | | (14,437) | | | (5,055) | | (35) | |
Adjusted EBITDA | | | 7,134 | | | 13,652 | | | (6,518) | | (48) | | | | 3,599 | | | 4,807 | | | (1,208) | | (25) | |
| | | | | | | | | | | | | ||||||||||||
| | Six Months Ended | | | | | | | ||||||||||||||||
| | June 30, | | Change | ||||||||||||||||||||
| | 2020 | | 2019 | | $ | | % | ||||||||||||||||
| | | (Dollars in thousands) | | ||||||||||||||||||||
Revenues | | $ | 149,661 | | $ | 137,214 | | $ | 12,447 | | 9 | % | ||||||||||||
Net loss | �� | | (28,747) | | | (17,508) | | | (11,239) | | (64) | | ||||||||||||
Adjusted EBITDA | | | 11,941 | | | 19,343 | | | (7,402) | | (38) | |
We monitor the key metrics set forth in the preceding table to help us evaluate trends, establish budgets, measure the effectiveness and efficiency of our operations and gauge our cash generation. We discuss Adjusted EBITDA in more detail in “Non-GAAP"Non-GAAP Financial Measures — Adjusted EBITDA.”" We also monitor revenue retention rate and client retention rate on an annual basis, which areis described in our 20192020 Form 10-K.
Factors Affecting our Future Performance
General
We believe that our future success will be dependentdepends on many factors, including our ability to maintain and grow our relationships with existing clients, expand our client base, continue to enter new markets, and expand our offerings to meet evolving market needs. While these areas present significant opportunity, they also present risks that we must manage to ensure successful results. Please refer to “Item 1A – Risk Factors” in our 2019 Annual Report and this Quarterly Report on2020 Form 10-Q10-K for a discussion of certain risks and uncertainties that may impact our future success.
Recent Developments
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Effective January 1, 2020, in order to facilitate the administration, management and developmentTable of our business and minimize the burden on our tax and regulatory reporting obligations, we implemented a reorganization pursuant to which all of our domestic subsidiaries, other than CK Solutions, LLC, merged with and into our wholly-owned subsidiary CareKinesis, Inc., which had previously changed its legal name on December 20, 2019 to TRHC OpCo, Inc. In the second quarter of 2020, TRHC OpCo, Inc. further changed its name to Tabula Rasa HealthCare Group, Inc., or the TRHC Group. Following such reorganization, our only directly owned subsidiary is TRHC Group, which is the parent of CK Solutions, LLC and of three DoseMe foreign subsidiariesContents
COVID-19 Pandemic
On January 30, 2020, the World Health Organization, or the WHO, announced a global health emergency caused by a new strain of coronavirus, or COVID-19, originating in Wuhan, China or the COVID-19 outbreak, and the risks to the international community as the virus spreads globally beyond its point of origin.community. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, or the COVID-19 pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreakpandemic continues to evolve as of the date of this Quarterly Report on Form 10-Q.these consolidated financial statements were issued. As such, it is uncertain as to the full magnitude of the impact that the pandemic will have on our financial condition, liquidity, and future results of operations.operations remains uncertain. Management is actively monitoring the global situation and the ramification on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreakpandemic and the global responses to curb its spread, we are not able to estimate the effects that the COVID-19 outbreakpandemic may have on our results of operations, financial condition, or liquidity for 2020.2021. However, we are dependent on our workforce to sell and
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deliver our products and services. Developments such as socialSocial distancing and shelter-in-place directives could impact our ability to deploy ourits workforce effectively. These same developments may affect the operations of our suppliers and customers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus.
As a result of the ongoing COVID-19 pandemic, we have experienced challenges with revenue growth. The pandemic has delayed the closing of contracts across both our CareVention HealthCare and MedWise HealthCare segments and, in some cases, shifted project priorities and timelines, to 2021, resultingwhich we believe resulted in fewer new business wins during the second quarter of 2020.2020 and reduced future revenue. Overall PACE census growth hasfor PACE had remained below historical levels during 2020 and into the first quarter of 2021, which has affected our CareVention HealthCare segment growth. OurDuring 2020, our MedWise HealthCare segment has also had experienced delays in the timing of implementation and closing of new business. In addition, all major pharmacy tradeshows for the third quarter of 2020 have been cancelled, negatively impactingbusiness and a key selling season for our PrescribeWellness business. However, the ultimatenegative impact of thefrom COVID-19 pandemic is highly uncertain and subject to change.on medication adherence initiatives. We do not yet know the full extent of potential delays or impacts on our business, financing, or other activities, or on the broader healthcare systemsindustry or the global economy as a whole. However, theseThese effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely.
Components of Our Results of Operations
Revenue
Our revenue is derived from our product sales and service activities under our CareVention HealthCare and MedWise HealthCare segments. For the three months ended June 30,March 31, 2021 and 2020, and 2019, product sales represented 51%55% and 44% of our total revenue, and service revenue represented 49% and 56% of our total revenue, respectively. For the six months ended June 30, 2020 and 2019, product sales represented 51% and 47% our total revenue, respectively, and service revenue represented 49%45% and 53%49% of our total revenue, respectively.
CareVention HealthCare
PACE Product Revenue
We provide medication fulfillment pharmacy services to PACE organizations, and, while the majority of medications are routinely filled in order to treat chronic conditions, the mix and quantity of medications can vary. Revenue from medication fulfillment services is generally billed monthly or weekly, depending on whether the PACE organization is contracted with a pharmacy benefit manager, and recognized when medications are delivered and control has passed to the client. At the time of delivery, we have performed substantially all of our performance obligations under our client contracts. We do not experience a significant level of returns or reshipments.
PACE Solutions
We provide services to PACE organizations, and these services primarily include medication safety services and health plan management services, which consist of risk adjustment services, PBM solutions, electronic health records solutions, and third party administration services. Revenue related to these services primarily consists of a fixed monthly fee assessed based on number of members served, or per member per month, a fee for each claim adjudicated, and subscription fees. These fees which are recognized when we satisfy our performance obligation to stand ready to provide PACE services, which occurs when our clients have access to the PACE services. We generally bill for PACE services on a monthly basis as the services are provided.
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MedWise HealthCare
Product Revenue
We provide COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed monthlywhen test kits are shipped and is recognized as we satisfy our performance obligations to deliver the test kits and provide the results to the pharmacies.test results. We do not experience a significant level of returns or reshipments.
Medication Safety Services
We provide medication safety services, which include identification of high-risk individuals, medication regimen reviews including patient and prescriber counseling, and targeted interventions to increase adherence and close
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gaps in care. Revenue related to these services primarily consists of per member per month fees and fees for each medication review and assessment completed. Revenue is recognized when we satisfy our performance obligation to stand ready to provide medication safety services, which occurs when our clients have access to the medication safety service,services, and when medication reviews and assessments are completed. We generally bill for the medication safety services on a monthly basis.
Software Subscription and Services
We provide software as a service, or SaaS, solutions, which allow for the identification of individuals with high medication-related risk;risk, for patient communication and engagement;engagement, for documentation of clinical interventions;interventions, for optimizing medication therapy;therapy, for targeting adherence improvement;improvement, and for precision dosing. In addition, we provide implementation and set up assistance services related to the SaaS solutions. Revenues related to these software services primarily consistsconsist of monthly subscription fees and are recognized monthly as we meet our performance obligation to provide access to the software. Revenue for implementation and set up services is generally recognized whenover the contract term as the software services are provided. We generally bill for the software services on a monthly basis.
Cost of Revenue (exclusive of depreciation and amortization)
Product Cost
Cost of product revenue includes all costs directly related to the fulfillment and distribution of medications under our CareVention HealthCare offerings. Costs consist primarily of the purchase price of the prescription medications we dispense. Fordispense, which for the three months ended June 30,March 31, 2021 and 2020, and 2019, medication costs represented 77% and 79% of our total product costs, respectively. For the six months ended June 30, 2020 and 2019, medication costs represented 79%80% of our total product costs. In addition to costs incurred to purchase the medications we dispense, other costs include shipping; packaging; expenses associated with operating our medication fulfillment centers, including salaries and related costs, such as stock-based compensation for personnel; and technology expenses. Such costs also includeexpenses; direct overhead expenses, as well asexpenses; and allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount.
Service Cost
Cost of service revenue includes all costs directly related to servicing our CareVention HealthCare and MedWise HealthCare service contracts, whichcontracts. These costs primarily consist of labor costs, including stock-based compensation;compensation, outside contractors; andcontractors, expenses related to supporting our technology platforms. Cost of service revenue also includessoftware platforms, direct overhead expenses, as well asand allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount.
Research and Development Expenses
Our research and development expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our research and development functions, which include software engineers andfunctions. These personnel includes employees engaged in scientific research, healthcare analytics, and the design and development of new scientific algorithms and the enhancement of our software and technology platforms;platforms. Research and development expenses also include fees paid to third-party consultants;consultants, costs related to quality assurance and testing;testing, and other allocated facility-related overhead and expenses.
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We capitalize certain costs incurred in connection with obtaining or developing the proprietary software platforms that support our product and service contracts, including third-party contractors and payroll costs for employees directly involved with the software development. Capitalized software development costs are amortized beginning when the software project is substantially complete and the asset is ready for its intended use. Costs incurred during the preliminary project stage and post implementation stage, as well as maintenance and training costs, are expensed as incurred. We continue to focus our research and development efforts on adding new features and applications to increase the functionality of, and enhancingenhance the ease of use of our existing suite of software solutions.
We expect our research and development expenses will increase in absolute dollars as we increase our research and development efforts to further strengthen and enhance our software solutions and service offerings, but will decrease as a percentage of revenue in the long term as we expect our revenue to increase at a greater rate than such expenses.
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Sales and Marketing Expenses
Sales and marketing expenses consist principally of salaries, commissions, bonuses, and stock-based compensation and employee benefits for sales, marketing, and marketingaccount management personnel, as well as travel costs related to sales, marketing, and client serviceaccount management activities. Marketing costs also include costs for communication and branding materials, conferences, trade shows, public relations, and allocated overhead.
We expect our sales and marketing expenses to increase in absolute dollars as we strategically invest to grow our sales, account management, and marketing infrastructure as we introduce new products and enter new markets, but decrease as a percentage of revenue in the long term.
General and Administrative Expenses
General and administrative expenses consist principally of employee-related expenses, including salaries, benefits, and stock-based compensation, for employees who are responsible for information systems, administration, human resources, finance, strategy, legal and executive management as well as other corporate expenses associated with these functional areas. General and administrative expenses also include professional fees for legal, consulting and accounting services and allocated overhead. General and administrative expenses are expensed when incurred.
We expect that our general and administrative expenses will increase in absolute dollars as we expand our infrastructure and continue to comply with the requirements applicable to public companies, but decrease as a percentage of revenue in the long term.
Change in Fair Value of Acquisition-related Contingent Consideration
We classify our acquisition-related contingent consideration as a liability. Acquisition-related contingent consideration is subject to remeasurement at each balance sheet date. Any change in the fair value of such acquisition-related contingent consideration is reflected in our consolidated statements of operations as a change in fair value of the liability. We will continue to adjust the carrying value of the acquisition-related contingent consideration until the contingency is finally determined.
Depreciation and Amortization Expenses
Depreciation and amortization expenses are primarily attributable to our capital investment in equipment, and our capitalized software, and acquisition-related intangibles.
Interest Expense
Interest expense is primarily attributable to interest expense associated with our 2026 Convertible Notes, our revolving credit facility,2020 Credit Facility, the promissory notes related to the Personica acquisition purchase consideration, and our finance lease obligations. ItInterest expense also includes the amortization of debt discount and debt issuance costs related to theseour various debt arrangements.
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Results of Operations
The following table summarizes our results of operations for the three and six months ended June 30,March 31, 2021 and 2020 and 2019 (in thousands):
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| | Three Months Ended | | | | | | | | Six Months Ended | | | | | | | | Three Months Ended | | | | | | | ||||||||||||
| | June 30, | | Change | | June 30, | | Change | | March 31, | | Change | ||||||||||||||||||||||||
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| 2019 |
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| 2020 |
| 2019 |
| $ |
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| 2021 |
| 2020 |
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Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Product revenue | | $ | 39,373 | | $ | 33,372 | | $ | 6,001 | | 18 | % | | $ | 76,460 | | $ | 64,354 | | $ | 12,106 | | 19 | % | | $ | 41,978 | | $ | 37,087 | | $ | 4,891 | | 13 | % |
Service revenue | | | 37,461 | | | 42,883 | | | (5,422) | | (13) | | | | 73,201 | | | 72,860 | | | 341 | | — | | | | 34,702 | | | 35,740 | | | (1,038) | | (3) | |
Total revenue | | | 76,834 | | | 76,255 | | | 579 | | 1 | | | | 149,661 | | | 137,214 | | | 12,447 | | 9 | | | | 76,680 | | | 72,827 | | | 3,853 | | 5 | |
Cost of revenue, exclusive of depreciation and amortization shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product cost | | | 29,042 | | | 24,861 | | | 4,181 | | 17 | | | | 56,241 | | | 48,336 | | | 7,905 | | 16 | | | | 31,471 | | | 27,199 | | | 4,272 | | 16 | |
Service cost | | | 22,656 | | | 20,295 | | | 2,361 | | 12 | | | | 43,530 | | | 38,488 | | | 5,042 | | 13 | | | | 22,556 | | | 20,874 | | | 1,682 | | 8 | |
Total cost of revenue, exclusive of depreciation and amortization | | | 51,698 | | | 45,156 | | | 6,542 | | 14 | | | | 99,771 | | | 86,824 | | | 12,947 | | 15 | | | | 54,027 | | | 48,073 | | | 5,954 | | 12 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | | 3,821 | | | 5,197 | | | (1,376) | | (26) | | | | 8,649 | | | 10,747 | | | (2,098) | | (20) | | | | 3,987 | | | 4,828 | | | (841) | | (17) | |
Sales and marketing | | | 5,027 | | | 6,871 | | | (1,844) | | (27) | | | | 10,567 | | | 11,721 | | | (1,154) | | (10) | | | | 6,245 | | | 5,540 | | | 705 | | 13 | |
General and administrative | | | 16,327 | | | 12,883 | | | 3,444 | | 27 | | | | 33,294 | | | 26,626 | | | 6,668 | | 25 | | | | 17,542 | | | 16,967 | | | 575 | | 3 | |
Change in fair value of acquisition-related contingent consideration (income) expense | | | (100) | | | 1,830 | | | (1,930) | | 105 | | | | 600 | | | 3,006 | | | (2,406) | | (80) | | ||||||||||||
Change in fair value of acquisition-related contingent consideration expense | | | — | | | 700 | | | (700) | | (100) | | ||||||||||||||||||||||||
Depreciation and amortization | | | 10,211 | | | 9,078 | | | 1,133 | | 12 | | | | 20,124 | | | 15,377 | | | 4,747 | | 31 | | | | 11,625 | | | 9,913 | | | 1,712 | | 17 | |
Total operating expenses | | | 35,286 | | | 35,859 | | | (573) | | (2) | | | | 73,234 | | | 67,477 | | | 5,757 | | 9 | | | | 39,399 | | | 37,948 | | | 1,451 | | 4 | |
Loss from operations | | | (10,150) | | | (4,760) | | | (5,390) | | (113) | | | | (23,344) | | | (17,087) | | | (6,257) | | (37) | | | | (16,746) | | | (13,194) | | | (3,552) | | (27) | |
Interest expense, net | | | 4,668 | | | 4,308 | | | 360 | | 8 | | | | 9,278 | | | 7,001 | | | 2,277 | | 33 | | | | 2,547 | | | 4,610 | | | (2,063) | | (45) | |
Loss before income taxes | | | (14,818) | | | (9,068) | | | (5,750) | | (63) | | | | (32,622) | | | (24,088) | | | (8,534) | | (35) | | | | (19,293) | | | (17,804) | | | (1,489) | | (8) | |
Income tax benefit | | | (508) | | | (2,539) | | | 2,031 | | 80 | | | | (3,875) | | | (6,580) | | | 2,705 | | 41 | | ||||||||||||
Income tax expense (benefit) | | | 199 | | | (3,367) | | | 3,566 | | 106 | | ||||||||||||||||||||||||
Net loss | | $ | (14,310) | | $ | (6,529) | | $ | (7,781) | | (119) | | | $ | (28,747) | | $ | (17,508) | | $ | (11,239) | | (64) | | | $ | (19,492) | | $ | (14,437) | | $ | (5,055) | | (35) | |
Comparison of the Three Months Ended June 30,March 31, 2021 and 2020 and 2019
Product Revenue
Product revenue increased $6.0$4.9 million, or 18%13%, to $39.4$42.0 million for the three months ended June 30, 2020March 31, 2021 compared to the same period in 2019.2020. New business acquired from the October 2020 Personica acquisition contributed approximately $2.1 million to this increase. New CareVention HealthCare clients that started services after the end of the secondfirst quarter in 20192020 contributed $1.7$1.1 million to the increase. Increased medication fulfillment volume from growth in the number of patients served by our existing clients, medication mix of prescriptions filled, and payer mix contributed to $3.6$1.7 million ofto the increase. The increase in product revenue was also due to $677 thousand of revenue generated from the initial sale of COVID-19 test kits during the second quarter of 2020 through our CareVention HealthCare segment and PrecribeWellness pharmacy network.
Service Revenue
Service revenue decreased $5.4$1.0 million, or 13%3%, from $42.9to $34.7 million for the three months ended June 30, 2019 to $37.5March 31, 2021 from $35.7 million for the second quarter ofthree months ended March 31, 2020.
Service revenues generated by our MedWise HealthCare segment decreased by $5.5approximately $3.4 million, or 18%14%, to $25.9$20.8 million for the three months ended June 30, 2020,March 31, 2021, as compared to the same period in 2019. The decrease was primarily due to a $4.2 million decrease in medication2020. Medication safety services decreased $3.6 million primarily as a result of fewer comprehensive medication reviews completed during the three months ended June 30, 2020 due to CMS Star Rating changes and a large client contract client that boosted our 2019 results to record levels. In addition, data analytic fees decreased $2.6 million due todid not renew in 2021 and a new contract with our data aggregation partner, which beganshift in the first quartertiming of 2020. These decreases were positively impacteddelivery of MTM clinical interventions to be more balanced throughout the year. This decrease was offset by an increase in software subscriptionssubscription and software-related services revenue of $1.3 million.$209 thousand due to growth within existing clients.
CareVention HealthCare service revenues increased by $85 thousand,approximately $2.3 million, or 1%20%, to $11.6$13.9 million for the three months ended June 30, 2020March 31, 2021 as compared to the same period in 2019. Lower fees from our data analytics contract negatively impacted revenue by $969 thousand. Excluding this impact, CareVention HealthCare service revenues increased $1.0 million.2020. The acquisition of Personica in October 2020 contributed $2.1 million to the increase. The remaining increase was attributable to growth in our PACE services as a result of new clients added and growth withinwith existing clients added since the secondfirst quarter of 2019.2020.
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Cost of Product Revenue
Cost of product revenue increased $4.2$4.3 million, or 17%16%, to $29.0$31.5 million for the three months ended June 30, 2020March 31, 2021 as compared to the same period in 2019.2020. New business acquired from the Personica acquisition contributed approximately $2.0 million to the increase. New clients in our CareVention HealthCare segment added since the secondfirst quarter of 20192020 contributed $1.0 million$552 thousand to the increase. In addition, increased medication volume from growth in the number of patients served by our existing customers and manufacturer price increases and medication mix of prescriptions filled for our clients contributed approximately $1.7$1.1 million to the change. The increase in cost of product revenue was also due to a $689$201 thousand increase in distribution charges related to higher shipping volume for the medications we fulfilled, and $583 thousandfulfilled. The remaining increase in cost of COVID-19 test kits sold during the second quarter of 2020. In addition, personnelproduct revenue was primarily attributable to an increase in employee compensation costs, increased $263 thousand dueincluding stock-based compensation, to additional headcount as well as increases in salary and benefits for existing employees related to market adjustments and performance-based increases.support our overall growth.
Cost of Service Revenue
Cost of service revenue increased $2.4$1.7 million, or 12%8%, from $20.3to $22.6 million for the three months ended June 30, 2019 to $22.7March 31, 2021 from $20.9 million for the three months ended June 30,March 31, 2020.
Cost of service revenue related to our CareVention HealthCare segment increased $2.8 million, or 40%, to $9.8 million for the three months ended March 31, 2021, as compared to the same period in 2020. Of the total increase, $1.1 million related to the acquisition of Personica in October 2020. The remaining increase was primarily attributable to investments in infrastructure in order to better scale the delivery of third party administrative services into markets outside of PACE.
Cost of service revenue related to our MedWise HealthCare segment increased $895 thousand,decreased $1.1 million, or 6%8%, to $15.0$12.8 million for the three months ended June 30, 2020,March 31, 2021, as compared to the same period in 2019.2020. This increasedecrease is primarily attributabledriven by fewer clinical interventions performed, and comprised of lower employee compensation costs due to an increaseda decrease in headcount, a decrease in the use of community pharmaciescontracted resources to perform clinical interventions services to support ourdeliver medication safety services.
Cost of service revenue related to our CareVention HealthCare segment increased $1.5 million, or 24%, to $7.7 million for the three months ended June 30, 2020, as compared to the same period in 2019. The increase is attributable to additional costs to support our PACE services, primarily related to increased headcount to support growth in our third party administration services, and technology related costs.reduced printing and postage expenses.
Research and Development Expenses
Research and development expenses decreased $1.4 million,$841 thousand, or 26%17%, to $3.8$4.0 million for the three months ended June 30, 2020March 31, 2021 as compared to the same period in 2019. The decrease includes a reduction2020. Employee compensation costs decreased $561 thousand and professional services decreased $308 thousand primarily due to the capitalization of $735 thousand in stock-based compensation expense, primarily relatedadditional development initiatives to performance-based equity awards and common stock awarded duringenhance our software, specifically the second quarter of 2019. The remaining decrease is primarily attributable to lower payroll costs resulting from the realignment of resources associated withsoftware supporting our Company’s reorganization in January 2020 to better support customer and business initiatives.CareVention offerings.
Sales and Marketing Expenses
Sales and marketing expenses decreased $1.9 million,increased $705 thousand, or 27%13%, from $6.9to $6.2 million for the three months ended June 30, 2020 to $5.0March 31, 2021 from $5.5 million for the comparable period inthree months ended March 31, 2020. The decrease includes $1.3 million ofincrease is primarily attributable to a $704 thousand increase in employee compensation costs, includingof which $540 thousand relates to an increase in stock-based compensation for personnel previously included in sales and marketing, who are now dedicatedexpense compared to corporate strategy initiatives and recorded in general and administrative expenses. The change in allocation resulted from our Company’s reorganization in January 2020 to better align resources in order to support the achievement of our business objectives. Excluding the impact of the change in resource allocation, sales and marketing expenses decreased $573 thousand primarily due to a decrease in conference and travel-related expenses as a result of the COVID-19 pandemic.2020.
General and Administrative Expenses
General and administrative expenses increased $3.4 million,$575 thousand, or 27%3%, to $16.3$17.5 million for the three months ended June 30, 2020March 31, 2021 as compared to the same period in 2019.2020. The acquisition of Personica contributed $174 thousand to the increase in expenses, which consisted primarily of employee compensation costs, including stock-based compensation, and consulting expenses. Excluding costs related to the acquisition, general and administrative expenses increased by approximately $401 thousand.
The increase in general and administrative expenses was primarily attributable to higher employee compensation costs of $3.7 million,an increase in professional fees, which included audit and consulting services, acquisition-related expenses for the Personica integration, and higher business insurance premiums to support our business growth. Together, these expenses represented an increase of approximately $628 thousand. This increase was partially offset by a $1.9 million increasedecrease in stock-based compensation expenseconference and other travel-related expenses primarily related to equity awards granted during the first and second quarters of 2020. The increase in employee compensation costs was also due to the realignment of resources dedicated to serving administrative functions to support the achievement of our business goals as a result of our Company’s reorganization in January 2020. These included moving resourcesCOVID-19 pandemic.
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accounting for $1.3 million to corporate strategy from sales and marketing, and $677 thousand from the transition of key employees, previously included in cost of revenues, to executive roles. The increase in general and administrative expenses was partially offset by a decrease in travel and meeting costs as a result of the COVID-19 pandemic.
Acquisition-related Contingent Consideration Expense
During the three months ended June 30, 2020 and 2019, we recorded a $100 thousand gain and a $1.8 million charge, respectively, related to the fair value adjustments of our acquisition-related contingent consideration liabilities.
The Cognify contingent consideration is based on a multiple of the excess of certain PACE solutions’ 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement. During the three months ended June 30,March 31, 2020, we recorded a $100$700 thousand remeasurement gain to decrease the fair value of the Cognify acquisition-related contingent consideration primarily due to a decrease in the forecasted Adjusted EBITDA used in the contingent consideration payment calculation, which was offset by the impact of a decreased discount period to the final measurement date. During the three months ended June 30, 2019, we recorded a $1.5 million charge to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to a decreased discount period to the final measurement date.
As of June 30, 2020, No charges were incurred during the Cognify contingent consideration liability was $11.4 million withthree months ended March 31, 2021 as the potential for up to an additional $2.6 million to be earned if the maximum contingent amount is earned, which would flow through as a charge to GAAP net income or loss. The final amount of the Cognify acquisition-related contingent consideration liability will bewas determined and fixed as of December 31, 2021.
During2020. In the three months ended June 30, 2019,first quarter of 2021, we recorded a $330made the final cash payment of $166 thousand charge to increase the fair valuein full satisfaction of the DoseMeremaining acquisition-related contingent consideration liability primarily due to an increase in the projected incremental revenues to be added during 2019. The DoseMe acquisition-related contingent considerations was subsequently paid in full during the third quarter of 2019.liability.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $1.1$1.7 million, or 12%17%, from $9.1to $11.6 million for the three months ended June 30, 2019 to $10.2March 31, 2021 from $9.9 million for the three months ended June 30,March 31, 2020. This increase was primarily due to ana $1.2 million increase in the amortization of capitalized software related to new software functionality placed into service since 20192020 to support our CareVention HealthCare and MedWise HealthCare segments. Amortization expense also increased by $517 thousand primarily due to intangible assets from the Personica acquisition.
Interest Expense
Interest expense for the three months ended June 30, 2020March 31, 2021 was $4.7$2.5 million, an increasea decrease of $360 thousand$2.1 million compared to the three months ended June 30, 2019.March 31, 2020. Of the total decrease, approximately $2.8 million relates to the adoption of ASU 2020-06 on January 1, 2021, which significantly reduced the amount of debt discount to be amortized. The increase is primarily due an increase of $249decrease was partially offset by $261 thousand of interest expense on the 2026 Notes, which were issued in February 2019. The remaining increase in2020 Credit Facility and $254 thousand of interest expense is mostly attributable to an increase in amortization expense related to deferred financing costs and a decrease in interest capitalizedon the acquisition-related notes payable related to the borrowings attributed to software development projects.Personica acquisition.
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Income Taxes
On February 12, 2021, we received a private letter ruling from the Internal Revenue Service, which determined, based on information submitted and representations made by us, that we met the requirements to deduct the interest expense resulting from the amortization of the debt discount associated with the 2026 Notes. As a result, during the three months ended March 31, 2021, we recorded a deferred tax asset of $23.6 million and a corresponding $23.6 million increase to our valuation allowance. As of March 31, 2021, we have recorded a full valuation allowance against our deferred tax assets.
For the three months ended June 30, 2020,March 31, 2021, we recorded an income tax benefitexpense of $508$199 thousand primarily related to indefinite-lived deferred tax liabilities for goodwill amortization, which resulted in an effective tax rate of 3.4%(1.0)%. The effective tax rate differs from the U.S. statutory tax rate primarily due to an increase in the full valuation allowance recorded that is currently limiting the realizability of our net deferred tax assets as of June 30, 2020.March 31, 2021. Accordingly, the tax benefit was limited due to unbenefited losses in the three months ended June 30, 2020.March 31, 2021. We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year to dateyear-to-date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.
For the three months ended June 30, 2019,March 31, 2020, we recorded an income tax benefit of $2.5$3.4 million, which resulted in an effective tax rate of 28.0%18.9%. The tax benefit primarily consistsconsisted of $1.7$3.1 million based on the estimated effective tax rate for the full year and $1.1$0.3 million of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period.
Comparison of the Six Months Ended June 30, 2020 and 2019
Product Revenue
Product revenue increased $12.1 million, or 19%, to $76.5 million for the six months ended June 30, 2020 compared to the same period in 2019. New CareVention HealthCare clients that started services after the end of the first quarter in 2019 contributed $3.9 million to the increase. Increased medication fulfillment volume from growth in the number of patients served by our existing clients, medication mix of prescriptions filled and payer mix contributed to $7.5 million of the increase. The increase in product revenue was also due to $677 thousand of revenue generated from the initial sale of COVID-19 test kits during the second quarter of 2020 through our CareVention HealthCare segment and PrecribeWellness pharmacy network.
Service Revenue
Service revenue increased slightly from $72.9 million for the six months ended June 30, 2019 to $73.2 million for the six months ended June 30, 2020.
Service revenues generated by our MedWise HealthCare segment decreased by $141 thousand to $50.1 million for the six months ended June 30, 2020, as compared to $50.2 million for the same period in 2019. We experienced a $5.9 million decrease in medication safety services as a result of fewer comprehensive medication reviews completed during the six months ended June 30, 2020 due to CMS Star Rating changes and a large client contract that boosted our 2019 results to record levels. In addition, data analytic fees were down $1.9 million due to a new contract with our data aggregation partner, which began in the first quarter of 2020. These decreases were offset by an increase in software subscription and services revenue of $7.7 million, which was primarily attributable to the PrescribeWellness acquisition completed on March 5, 2019.
CareVention HealthCare service revenues increased by $482 thousand, or 2%, to $23.1 million for the six months ended June 30, 2020 as compared to the same period in 2019. Lower fees from our data analytics contract negatively impacted revenue by $2.0 million. Excluding this impact, CareVention HealthCare service revenues increased $2.5 million. The increase was attributable to growth in our PACE services as a result of new clients and growth with existing clients added since the first quarter of 2019.
Cost of Product Revenue
Cost of product revenue increased $7.9 million, or 16%, to $56.2 million for the six months ended June 30, 2020, as compared to the same period in 2019. New clients in our CareVention HealthCare segment added since the first quarter of 2019 contributed $2.4 million to the increase. In addition, increased medication volume from growth in the number of patients served by our existing customers and manufacturer price increases and medication mix of prescriptions filled for our clients contributed approximately $3.7 million to the change. The increase in cost of product revenue was also due to a $1.1 million increase in distribution charges related to higher shipping volume for the medications we fulfilled and $583 thousand of COVID-19 test kits sold to clients during the second quarter of 2020. The
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remaining increase was due to additional headcount as well as increases in salary and benefits for existing employees related to market adjustments and performance-based increases.
Cost of Service Revenue
Cost of service revenue increased $5.0 million, or 13%, from $38.5 million for the six months ended June 30, 2019 to $43.5 million for the six months ended June 30, 2020.
Cost of service revenue related to our MedWise HealthCare segment increased $2.7 million, or 11%, to $28.9 million for the six months ended June 30, 2020, as compared to the same period in 2019. The acquisition of PrescribeWellness contributed $2.4 million to the total increase and primarily consisted of employee compensation and technology costs. The remaining increase was due to a $1.0 million increase in the use of community pharmacies to perform clinical interventions services, partially offset by a $733 thousand decrease in printing and postage for our medication safety services primarily as a result of fewer members qualifying for medication therapy management services.
Cost of service revenue related to our CareVention HealthCare segment increased $2.3 million, or 19%, to $14.6 million for the six months ended June 30, 2020, as compared to the same period in 2019. The increase was attributable to an increase in costs to support our PACE services, primarily related to additional headcount to support growth in our third party administration services and technology related costs.
Research and Development Expenses
Research and development expenses decreased $2.1 million, or 20%, to $8.6 million for the six months ended June 30, 2020, as compared to the same period in 2019. The decrease was mostly due to a reduction of $1.6 million in stock-based compensation expense, primarily related to performance-based equity awards and common stock awarded during 2019. The remaining decrease is primarily attributable to lower payroll costs resulting from the realignment of resources associated with our Company’s reorganization in January 2020 to better support customer and business initiatives.
Sales and Marketing Expenses
Sales and marketing expenses decreased $1.1 million, or 10%, from $11.7 million for the six months ended June 30, 2019 to $10.6 million for the comparable period in 2020. The decrease includes $2.5 million of employee compensation costs, including stock-based compensation, for personnel previously included in sales and marketing, who are now dedicated to corporate strategy initiatives and recorded in general and administrative expenses. The change in allocation resulted from our Company’s reorganization in January 2020 to better align resources in order to support the achievement of our business objectives. This decrease was offset by an increase of $1.3 million as a result of the acquisition of PrescribeWellness, which primarily related to employee compensation costs.
General and Administrative Expenses
General and administrative expenses increased $6.7 million, or 25%, to $33.3 million for the six months ended June 30, 2020, as compared to the same period in 2019. The acquisition of PrescribeWellness contributed $387 thousand to the increase in expenses, which consisted primarily of employee compensation costs, including stock-based compensation, and technology costs. Excluding costs related to the acquisition, general and administrative expenses increased by approximately $6.3 million.
The increase in general and administrative expenses was primarily attributable to higher employee compensation costs of $8.8 million, which included a $3.8 million increase in stock-based compensation expense related to equity awards granted during the first quarter of 2020. The increase in employee compensation costs was also due to the realignment of resources dedicated to serving administrative functions to support the achievement of our business goals as a result of our Company’s reorganization in January 2020. These included moving resources accounting for $2.5 million to corporate strategy from sales and marketing, and $1.2 million from the transition of key employees, previously included in cost of revenues, to executive roles. The remaining increase in employee compensation costs was due to an increase in headcount to support the overall growth of our operations, and increases in salaries and benefits for existing employees related to market adjustments and performance-based increases.
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The increase in general and administrative expenses was also due to higher technology related expenses of $1.2 million to support the overall growth of business. These increases were partially offset by a $3.4 million decrease in acquisition related costs as result of the acquisition of PrescribeWellness in the first quarter of 2019.
Acquisition-related Contingent Consideration Expense
During the six months ended June 30, 2020 and 2019, we recorded a $600 thousand and a $3.0 million charge, respectively, related to the fair value adjustments of our acquisition-related contingent consideration liabilities.
During the six months ended June 30, 2020 and 2019, we recorded $600 thousand and $2.4 million charge, respectively, to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to a decreased discount period to the final measurement date. The Cognify contingent consideration is based on a multiple of the excess of certain PACE solutions’ 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement. As of June 30, 2020, the Cognify contingent consideration liability was $11.4 million with the potential for up to an additional $2.6 million to be earned if the maximum contingent amount is earned, which would flow through as a charge to GAAP net income or loss. The final amount of the Cognify acquisition-related contingent consideration liability will be fixed as of December 31, 2021.
During the six months ended June 30, 2019, we recognized an aggregate $606 charge related to fair value adjustments for the SinfoníaRx, Peak PACE, and DoseMe acquisition-related contingent considerations, which were all subsequently paid in full during 2019.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $4.7 million, or 31%, from $15.4 million for the six months ended June 30, 2019 to $20.1 million for the six months ended June 30, 2020. This increase was primarily due to a $2.4 million increase in the amortization of capitalized software related to new software functionality placed into service since 2019 to support our CareVention HealthCare and MedWise HealthCare segments. The increase in amortization expense was also due to a $1.9 million increase in amortization expense of intangible assets as a result of intangible assets acquired from PrescribeWellness in March 2019. Depreciation expense increased by $405 thousand primarily related to the completion of expanded office space at our Moorestown, New Jersey headquarters and our new research facility in Lake Nona, Florida.
Interest Expense
Interest expense for the six months ended June 30, 2020 was $9.3 million, an increase of $2.3 million compared to the six months ended June 30, 2019. The increase is primarily due an increase of $2.6 million of interest expense on the 2026 Notes, which were issued in February 2019. The increase was partially offset by a decrease in interest expense on the Amended and Restated 2015 Line of Credit of $351 thousand and a decrease in interest expense on finance leases.
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Income Taxes
For the six months ended June 30, 2020, we recorded an income tax benefit of $3.9 million, which resulted in an effective tax rate of 11.9%. The effective tax rate differs from the U.S. statutory tax rate primarily due to an increase in the valuation allowance that is currently limiting the realizability of our net deferred tax assets as of June 30, 2020. Accordingly, the year to date tax benefit was limited due to unbenefited losses in the six months ended June 30, 2020. We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year to date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.
For the six months ended June 30, 2019, we recorded an income tax benefit of $6.6 million, which resulted in an effective tax rate of 27.3%. The tax benefit primarily consists of $3.9 million based on the estimated effective tax rate for the full year and $2.2 million of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period.
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NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
To provide investors with additional information about our financial results, we disclose Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA consists of net income (loss)loss plus certain other expenses, which includes interest expense, provision (benefit) for income tax, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense, (income), acquisition-related expense, and stock-based compensation expense. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue. We present Adjusted EBITDA because it is one of the measures used by our management and board of directors to understand and evaluate our core operating performance, and we consider it an important supplemental measure of performance. We believe this metric is commonly used by the financial community, and we present it to enhance investors' understanding of our operating performance and cash flows. We believe Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations.
Our management uses Adjusted EBITDA:
● | as a measure of operating performance to assist in comparing performance from period to period on a consistent basis; |
● | to prepare and approve our annual budget; and |
● | to develop short- and long-term operational plans. |
Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. In particular:
● | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
● | Adjusted EBITDA does not reflect cash interest income or expense; |
● | Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
● | Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation; |
● | Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and |
● | other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure. |
Because of these and other limitations, you should consider Adjusted EBITDA alongside other GAAP-based financial performance measures, including various cash flow metrics, net income (loss)loss and our other GAAP financial results and not in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not intend to imply that our future results will be unaffected by unusual or non-recurring items.
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The following is a reconciliation of Adjusted EBITDA to our net loss for the periods presented:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | ||||||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||||
Reconciliation of net loss to Adjusted EBITDA | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (14,310) | | $ | (6,529) | | $ | (28,747) | | $ | (17,508) | | $ | (19,492) | | $ | (14,437) |
Add: | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | 4,668 | | | 4,308 | | | 9,278 | | | 7,001 | | | 2,547 | | | 4,610 |
Income tax benefit | | | (508) | | | (2,539) | | | (3,875) | | | (6,580) | ||||||
Income tax expense (benefit) | | | 199 | | | (3,367) | ||||||||||||
Depreciation and amortization | | | 10,211 | | | 9,078 | | | 20,124 | | | 15,377 | | | 11,625 | | | 9,913 |
Change in fair value of acquisition-related contingent consideration (income) expense | | | (100) | | | 1,830 | | | 600 | | | 3,006 | ||||||
Change in fair value of acquisition-related contingent consideration expense | | | — | | | 700 | ||||||||||||
Acquisition-related expense | | | — | | | 598 | | | 251 | | | 4,289 | | | 118 | | | 251 |
Stock-based compensation expense | | | 7,173 | | | 6,906 | | | 14,310 | | | 13,758 | | | 8,602 | | | 7,137 |
Adjusted EBITDA | | $ | 7,134 | | $ | 13,652 | | $ | 11,941 | | $ | 19,343 | | $ | 3,599 | | $ | 4,807 |
Adjusted Diluted Net Income (Loss) Per Share, or Adjusted Diluted EPS
Adjusted Diluted EPS excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. We believe the exclusion of these items assists in providing a more complete understanding of our underlying operations, results and trends and allows for comparability with our peer company index and industry and to be more consistent with our expected capital structure on a going forward basis. Our management uses this measure along with corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define Adjusted Diluted EPS as net loss before fair value adjustments for acquisition-related contingent consideration, amortization of acquired intangibles, amortization of debt discount and issuance costs, acquisition-related expense, stock-based compensation expense, and the tax impact using a normalized tax rate on pre-tax income adjusted for those items expressed on a per share basis using weighted average diluted shares outstanding. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue.
Adjusted Diluted EPS is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. In the future, we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not intend to imply that our future results will be unaffected by unusual or non-recurring items.
The following table reconciles net loss per share on a diluted basis, the most directly comparable GAAP measure, to Adjusted Diluted EPS:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | Three Months Ended March 31, | ||||||||||||||||||||||||||||||
|
| 2020 |
| 2019 |
| 2020 | | 2019 |
| 2021 | | 2020 | ||||||||||||||||||||||||
| | (In thousands except per share amounts) | | (In thousands except per share amounts) | | (In thousands except per share amounts) | ||||||||||||||||||||||||||||||
Reconciliation of diluted net loss per share to Adjusted Diluted EPS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
GAAP net loss, basic and diluted, and net loss per share, basic and diluted | | $ | (14,310) | | $ | (0.66) | | $ | (6,529) | | $ | (0.32) | | $ | (28,747) | | $ | (1.34) | | $ | (17,508) | | $ | (0.86) | | $ | (19,492) | | $ | (0.85) | | $ | (14,437) | | $ | (0.68) |
Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change in fair value of acquisition-related contingent consideration (income) expense | | | (100) | | | | | | 1,830 | | | | | | 600 | | | | | | 3,006 | | | | ||||||||||||
Change in fair value of acquisition-related contingent consideration expense | | | — | | | | | | 700 | | | | ||||||||||||||||||||||||
Amortization of acquired intangibles | | | 6,823 | | | | | | 7,084 | | | | | | 13,645 | | | | | | 11,751 | | | | | | 7,339 | | | | | | 6,822 | | | |
Amortization of debt discount and issuance costs | | | 3,215 | | | | | | 2,967 | | | | | | 6,367 | | | | | | 4,494 | | | | | | 502 | | | | | | 3,152 | | | |
Acquisition-related expense | | | — | | | | | | 598 | | | | | | 251 | | | | | | 4,289 | | | | | | 118 | | | | | | 251 | | | |
Stock-based compensation expense | | | 7,173 | | | | | | 6,906 | | | | | | 14,310 | | | | | | 13,758 | | | | | | 8,602 | | | | | | 7,137 | | | |
Impact to income taxes (1) | | | (1,109) | | | | | | (4,931) | | | | | | (4,544) | | | | | | (9,666) | | | | | | 920 | | | | | | (3,435) | | | |
Adjusted net income and Adjusted Diluted EPS | | $ | 1,692 | | $ | 0.07 | | $ | 7,925 | | $ | 0.35 | | $ | 1,882 | | $ | 0.08 | | $ | 10,124 | | $ | 0.44 | ||||||||||||
Adjusted net (loss) income and Adjusted Diluted EPS | | $ | (2,011) | | $ | (0.09) | | $ | 190 | | $ | 0.01 |
(1) | The impact to taxes was calculated using a normalized statutory tax rate applied to pre-tax income or loss adjusted for the respective items above and then subtracting the tax provision as determined for GAAP purposes. |
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The following table reconciles the diluted weighted average shares of common stock outstanding used to calculate net loss per share on a diluted basis for GAAP purposes to the diluted weighted average shares of common stock outstanding used to calculate Adjusted Diluted EPS:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | ||||||
| | June 30, | | June 30, | | March 31, | ||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
| 2021 |
| 2020 |
Reconciliation of weighted average shares of common stock outstanding, diluted, to weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS | | | | | | | | | | | | |
Weighted average shares of common stock outstanding, basic and diluted for GAAP | | 21,556,646 | | 20,482,032 | | 21,465,772 | | 20,433,564 | | 23,010,531 | | 21,374,897 |
Adjustments: | | | | | | | | | | | | |
Weighted average dilutive effect of stock options | | 1,332,551 | | 1,500,839 | | 1,358,715 | | 1,587,926 | | — | | 1,384,878 |
Weighted average dilutive effect of restricted stock | | 510,783 | | 759,118 | | 497,881 | | 800,626 | | — | | 484,979 |
Weighted average dilutive effect of contingent shares | | 58,409 | | 21,946 | | 66,989 | | 25,305 | | — | | 75,569 |
Weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS (1) | | 23,458,389 | | 22,763,935 | | 23,389,357 | | 22,847,421 | | 23,010,531 | | 23,320,323 |
(1) |
For the three months ended March 31, 2020, under the previous accounting standard, we accounted for the convertible senior subordinated notes utilizing the treasury stock method. Under this method, we presumed that we would settle the notes entirely or partly in cash. The underlying shares issuable upon conversion of the notes were excluded from the calculation of diluted EPS, except to the extent that the average stock price for the reporting period exceeded their conversion price of $69.95 per share. For the three months ended March 31, 2020, there was no impact on diluted EPS from the convertible senior subordinated notes as the conversion price exceeded our average stock price.
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Liquidity and Capital Resources
We incurred a net loss of $28.7$19.5 million and $17.5$14.4 million for the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. Our primary liquidity and capital requirements are for research and development, sales and marketing, general and administrative expenses, debt service obligations, and strategic business acquisitions. We have funded our operations, working capital needs, and investments with cash generated through operations, issuance of stock, and borrowings under our credit facilities. At June 30, 2020,March 31, 2021, we had unrestricted cash of $38.8$16.9 million.
Summary of Cash Flows
The following table shows a summary of our cash flows for the sixthree months ended June 30, 2020March 31, 2021 and 2019:2020:
| | | | | | | | | | | | |
| | Six Months Ended | | Three Months Ended | ||||||||
| | June 30, | | March 31, | ||||||||
|
| 2020 |
| 2019 |
| 2021 |
| 2020 | ||||
Net cash provided by (used in) operating activities | | $ | 3,388 | | $ | (15,865) | ||||||
Net cash used in operating activities | | $ | (4,078) | | $ | (797) | ||||||
Net cash used in investing activities | | | (10,345) | | | (167,888) | | | (6,385) | | | (4,991) |
Net cash provided by financing activities | | | 2,260 | | | 215,426 | | | 2,124 | | | 1,104 |
Net (decrease) increase in cash and restricted cash | | $ | (4,697) | | $ | 31,673 | ||||||
Net decrease in cash and restricted cash | | $ | (8,339) | | $ | (4,684) |
Operating Activities
Net cash provided byused in operating activities was $3.4$4.1 million for the sixthree months ended June 30, 2020March 31, 2021 and consisted primarily of our net loss of $28.7$19.5 million and changes in our operating assets and liabilities totaling $5.6 million, offset by the addition of noncash items of $37.7$21.0 million. The noncash items primarily included $20.1$11.6 million of depreciation and amortization expense; $14.3expense, $8.6 million of stock-based compensation expense, which was$635 thousand of amortization of deferred financing costs and debt discounts primarily related to equity awards grantedthe 2026 Notes and acquisition-related notes payable, and a $174 thousand change in net deferred taxes, offset by acquisition-related contingent consideration paid of $67 thousand related to employeesthe Cognify acquisition. The change in operating assets and non-employees from 2018liabilities was primarily due to 2020; $6.6a decrease in accounts payable, an increase in other assets, an increase in prepaid expenses and other current assets, and a decrease in client claims payable. The decrease in accounts payable was primarily due to the timing of vendor payments. The increase in other assets was primarily due to an increase in nontrade receivables. The increase in prepaid expenses and other current assets was primarily due to an increase in contract assets related to rebate administration services under our pharmacy benefit management solutions. The change in operating assets and liabilities was partially offset by an increase in accrued expenses and other liabilities and a decrease in accounts receivable.
Net cash used in operating activities was $797 thousand for the three months ended March 31, 2020 and consisted primarily of our net loss of $14.4 million and changes in our operating assets and liabilities totaling $4.0 million, offset by the addition of noncash items of $17.6 million. The noncash items primarily included $9.9 million of depreciation and amortization expense, $7.1 million of stock-based compensation expense, $3.3 million of amortization of deferred financing costs and debt discounts primarily related to the 2026 Notes;Notes, and $600$700 thousand related to the change in fair value of the Cognify acquisition-related contingent consideration, offset by changes in net deferred taxes of $3.9$3.4 million. The change in operating assets and liabilities was primarily due to an increase in accounts receivable, an increase in inventory, and a decrease in accounts payable and accrued expenses and other liabilities. The increase in accounts receivable was attributable to growth across our business lines as a result of new clients and growth in existing clients as well as timing of client payments. The decrease in accounts payable and accrued expenses and other liabilities was primarily due to timing of vendorinterest payments made related to the 2026 Notes and lower accrued employee compensation, costs, partially offset by an increase in accrued contract labor and an increase inincreased contract liability balances related to performance obligations for our services. The change in operating assets and liabilities was partially offset by a decrease in prepaid expenses and other current assets due to payments received related to prior year contract asset balances.
Net cash used in operating activities was $15.9 million for the six months ended June 30, 2019balances, and consisted primarily of $24.4 million in payments for the contingent purchase price consideration related to the SinfoníaRx acquisition, our net loss of $17.5 million, changes in net deferred taxes of $6.6 million and changes in our operating assets and liabilities totaling $4.0 million, offset by the addition of noncash items of $36.7 million. The noncash items primarily included $15.4 million of depreciation and amortization expense; $13.8 million of stock-based compensation expense, which was primarily related to equity awards granted to employees and non-employees in the third quarter of 2018 and in 2019; $4.6 million of amortization of deferred financing costs and debt discount primarily related to the 2026 Notes; and $3.0 million in the aggregate related to the change in the fair value of the acquisition-related contingent considerations for SinfoníaRx, Peak PACE, Cognify, and DoseMe. The significant factors that contributed to the change in operating assets and liabilities included an increase in accounts receivable primarily due to revenues generated as a result of the acquisitions completed in 2018 and 2019 and a decrease in accounts payable, which were partially offset by an increase in accrued expenses and other liabilities as a result of higher accrued employee compensation, contract labor, contract liability balances related to performance obligations for our services, and interest expense.payable.
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Investing Activities
Net cash used in investing activities was $10.3$6.4 million for the sixthree months ended June 30, 2020March 31, 2021 and $167.9$5.0 million for the sixthree months ended June 30, 2019.March 31, 2020. Net cash used in investing activities for the sixthree months ended June 30, 2020March 31, 2021 reflected $8.9$5.9 million in software development costs for our CareVention HealthcareHealthCare and MedWise HealthCare technologies. The netNet cash used in investing activities also reflected $1.4 millionincluded $522 thousand in purchases of property, equipment, and leasehold improvements for our new office space in Eden Prairie, Minnesota to support our health plan management services and for our Moorestown, New Jersey headquarters to support growth in corporate operations.
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equipment and leasehold improvements primarily related to equipment and improvements for our new call center space in Tucson, Arizona to support our medication safety services, improvements for our expanded office space at our Moorestown, New Jersey headquarters, and equipment to support the pharmacy at our Moorestown, New Jersey location.services.
Net cash used in investing activities for the six months ended June 30, 2019 reflected $158.8 million paid in connection with the acquisitions of DoseMe and PrescribeWellness, net of cash acquired. In addition, net cash used in investing activities consisted of $6.6 million in software development costs and $3.5 million in purchases of property, equipment and leasehold improvements, primarily related to purchases of equipment and improvements for our expanded office space at our Moorestown, New Jersey headquarters. Net cash used in investing activities was offset by proceeds received from the repayment of the $1.0 million note receivable issued to DoseMe Holdings Pty Ltd in 2018.
Financing Activities
Net cash provided by financing activities was $2.3$2.1 million for the sixthree months ended June 30, 2020March 31, 2021 compared to $215.4net cash provided by financing activities of $1.1 million for the sixthree months ended June 30, 2019.March 31, 2020. Financing activities for the sixthree months ended June 30, 2020March 31, 2021 primarily reflected $2.3$7.5 million of proceeds received fromborrowings on our 2020 Credit Facility to fund the exercise of stock options, which was offset by $52 thousand in payments of long-term debt and finance leases.
Financing activities for the six months ended June 30, 2019 primarily reflected gross proceeds of $325.0 million from the issuancerepayment of the 2026 Notes, $65.9 million fromfirst promissory note in connection with the proceeds of the warrant transactionsPersonica acquisition, and $1.5$2.2 million of proceeds received from the exercise of stock options. Net cash provided by financing activities for the sixthree months ended June 30, 2019March 31, 2021 was partially offset by a payment$7.5 million repayment of $101.7 million for the convertible hedge options entered intofirst promissory note in connection with the offeringPersonica acquisition and $99 thousand for the payment of the 2026 Notes, a payment of $45.0 million to repay the amounts outstanding on the Amended and Restated 2015 Line of Credit, $20.3 million in payments for theCognify acquisition-related contingent purchase price consideration related toconsideration.
Financing activities for the SinfoníaRx acquisition and Peak PACE acquisition, and $9.5three months ended March 31, 2020 primarily reflected $1.2 million of proceeds received from the exercise of stock options, which was partially offset by $49 thousand in payments for debt financing costs.of long-term debt.
Funding Requirements
On December 18, 2020, we entered into a Loan and Security Agreement with Western Alliance Bank, or the 2020 Credit Facility, which provides for a $120.0 million secured revolving credit facility, with a $1.0 million sublimit for cash management services and letters of credit and foreign exchange transactions. The 2020 Credit Facility matures on May 16, 2025. We have $59.8$102.4 million available for borrowings under our Amended and Restated 2015 Line ofthe 2020 Credit Facility, and we were in compliance with all financial and operating covenants related to the Amended and Restated 2015 Line of2020 Credit Facility as of June 30,March 31, 2020. We currently expect to extend the maturity date of the Amended and Restated 2015 Line of Credit or enter into a new credit facility with Western Alliance Bank or another lender prior to the Amended and Restated 2015 Line of Credit’s maturity date on September 6, 2020. However, there is no assurance that we will be able to extend the Amended and Restated 2015 Line of Credit or obtain a new credit facility on terms that are reasonable and acceptable to us or at all.
We believe that our unrestricted cash of $38.8$16.9 million as of June 30,March 31, 2021, borrowing capacity under our 2020 Credit Facility, and cash flows from continuing operations will be sufficient to fund our planned operations through at least August 2021.May 2022. Our ability to maintain successful operations will depend on, among other things, new business, the retention of clients, and the effectiveness of sales and marketing initiatives.
We may seek additional funding through public or private debt or equity financings.equity. There can be no assurance that additional capital resources, including debt and equity financing, will be available to us on terms that we find acceptable, or at all.
Contractual Obligations and Commitments
During the three and six months ended June 30, 2020,March 31, 2021, there were no material changes to our contractual obligations and commitments as compared to those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.10-K.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any off-balance sheet arrangements, as defined by applicable SEC rules and regulations.
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Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes in our critical accounting policies during the three and six months ended June 30, 2020,March 31, 2021, as compared to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.10-K.
Recent Accounting Pronouncements
See Note 2 in this Quarterly Report on Form 10-Q and Note 2 in the Annual Financial Statements in our Annual Report on2020 Form 10-K for the year ended December 31, 20192020 for a description of new accounting pronouncements. As of January 1, 2021, we adopted Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).
Item 3. Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverseThere have been no material changes in financial market prices and rates. Our market risks are principally limited to interest rate fluctuations.
As of June 30, 2020, there were no amounts outstanding under our Amended and Restated 2015 Line of Credit. Interest on the Amended and Restated 2015 Line of Credit is based on the lender's prime rate plus an applicable margin which will range from (0.25%) to 0.25% depending on our leverage ratio, with the lender's prime rate having a floor of 3.5%, which exposes us toprimary market risk due to changesexposures or how those exposures are managed from the information disclosed in interest rates. This means that a change in the prevailing interest rates may cause our periodic interest payment obligations to fluctuate if we had made borrowings under the Amended and Restated 2015 Line of Credit during the three and six months ended June 30, 2020.2020 Form 10-K.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2020,March 31, 2021, our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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Inherent Limitations on Effectiveness of Controls and Procedures
Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.
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Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the secondfirst quarter of fiscal 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently party to any material legal proceedings. From time to time, however, we may be a party to litigation and subject to claims in the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Stockholders and potential investors in our securities should carefully consider the risk factors set forth in Part I, “Item 1A. Risk Factors” of our Annual Report on2020 Form 10-K for the year ended December 31, 2019,2020, which was filed with the Securities and Exchange Commission on March 2, 2020.February 26, 2021. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf. Other than as set forth below, thereThere have been no material changes to such risk factors previously disclosed in our Annual Report.
The recent COVID-19 pandemic could have a material adverse effect on our business operations, results of operations, cash flows and financial position.
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including its impact on our clients and their patients, employees, suppliers, and other business partners. The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption, which will continue to adversely affect our business operations and may materially and adversely affect our results of operations, cash flows, and financial position.
The COVID-19 pandemic has negatively impacted our revenue growth during the first half of 2020 and we expect it will continue to impact our revenue growth for the remainder of 2020. For example, the pandemic has delayed the closing of certain health plan deals and, in some cases, shifted project timelines to 2021, resulting in fewer new business wins to date. Overall census growth for Programs of All-Inclusive Care for the Elderly has remained below historical levels. In addition, all major pharmacy tradeshows for the third quarter of 2020 have been cancelled, which will negatively impact a key selling season for our PrescribeWellness business. The ultimate impact of the COVID-19 pandemic on our revenue and financial performance is highly uncertain and subject to change.
We have incurred, and expect to continue to incur, additional costs resulting from our efforts to protect the health and well-being of our employees. Our three prescription fulfillment pharmacies provide essential services that require employees to continue to work on-site during the COVID-19 pandemic. We have implemented physical distancing for all employees at our prescription fulfillment pharmacies, provided pharmacy-appropriate protective equipment, instituted additional cleaning protocols, provided additional cleaning materials and encouraged the practice of frequent hand-washing. If the procedures we implement are ineffective or are not followed by our employees, or if we fail to implement procedures, our employees and others may experience illness which has the potential to increase
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employee turnover, expose us to litigation, and raise our operating costs. We expect to continue to incur additional costs, which may be significant, as we continue to implement operational changes in response to this pandemic.
In addition, we have instituted work-from-home guidelines for all employees who can work remotely. An extended period of remote work arrangements could strain our business plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. Further, our management is focused on mitigating the spread of COVID-19, which has required and will continue to require a substantial investment of time and resources across our business and could delay other company initiatives.
COVID-19 may also adversely impact our ability to purchase or obtain pharmaceutical products which may result in higher supply chain costs and otherwise disrupt our operations. If we do not respond appropriately to the pandemic, or if customers perceive our response to be inadequate, we could suffer damage to our reputation and our brand, which could adversely affect our business.
The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity of the virus; the duration of the outbreak; governmental, business, and other actions (which could include limitations on our operations or mandates to provide products or services); the impacts on our supply chain; the impact of the pandemic on economic activity; the health of and the effect on our workforce and our ability to meet staffing needs in our prescription fulfillment pharmacies and other critical functions, particularly if members of our work force are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our team members and business partners, among others. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, or impacts our credit ratings, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
How quickly, and to what extent, normal economic and operating conditions can resume is difficult to predict, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic. Some jurisdictions have eased government-mandated restrictions to business operations. However, a “second wave” or recurrence of COVID-19 cases could cause state and local governments to reinstate restrictions which could further limit our operations. We cannot predict the likelihood, frequency, or nature of future governmental initiatives, policies, and restrictions and such future initiatives may or may not have material adverse impacts on the company.
In addition, we cannot predict the impact that COVID-19 will have on our clients and their patients, suppliers, and other business partners, and each of their financial conditions; however, any material effect on these parties could adversely impact us. The impact of COVID-19 may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.
We will purchase a significant portion of our pharmaceutical products from a group purchasing organization which receives discounts from a primary supplier.
On June 30, 2020, we entered into an Affiliated Pharmacy Agreement and Pharmaceutical Program Supply Agreement, including an associated High Volume Retailer Addendum, or the Pharmaceutical Supply Agreements, with Thrifty Drug Stores, Inc, or Thrifty Drug. Pursuant to the terms of the Pharmaceutical Supply Agreements, which have a term lasting through September 30, 2023, subject to renewal under certain circumstances, we agree to purchase not less than 98% of our total prescription product requirements from Thrifty Drug. The Pharmaceutical Supply Agreements can be terminated solely by Thrifty Drug for, among other things, a payment default that continues for ten days after notice thereof and our failure to maintain credit worthiness. If we are no longer able to purchase our pharmaceutical products from a group purchasing organization, there can be no assurance that our operations would not be disrupted or that we could obtain the necessary pharmaceutical products at similar cost or at all. In this event, failure to satisfy our clients' requirements would result in defaults under client contracts subjecting us to damages and the potential termination of those contracts.
10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.There were no unregistered sales of equity securities during the three months ended March 31, 2021.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
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Exhibit No. |
| Exhibit Description |
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3.1 |
| Amended and Restated Certificate of Incorporation of Tabula Rasa HealthCare, Inc. |
| 8-K |
| 8/4/2016 |
| 3.1 |
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3.2 |
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| 8-K |
| 8/4/2016 |
| 3.2 |
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10.1 | | | | | | | | | X | |
10.2 | | | | | | | | | X | |
10.3 | | | | | | | | | X | |
31.1 | | | | | | | | | X | |
31.2 | | | | | | X | ||||
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32.1** | | | | | | X | ||||
101.INS |
| XBRL Instance Document |
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101.SCH |
| XBRL Taxonomy Extension Schema Document |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
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104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL (contained in Exhibit 101) | | | | | | | | X |
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Exhibit No. |
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3.1 |
| Amended and Restated Certificate of Incorporation of Tabula Rasa HealthCare, Inc. |
| 8-K |
| 8/4/2016 |
| 3.1 |
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3.2 |
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| 8-K |
| 8/4/2016 |
| 3.2 |
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31.1 | | | | | | | | | X | |
31.2 | | | | | | X | ||||
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32.1** | | | | | | X | ||||
101.INS |
| XBRL Instance Document |
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| X |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase |
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| X |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase |
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104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31 2021, formatted in Inline XBRL (contained in Exhibit 101) | | | | | | | | X |
** This certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Tabula Rasa HealthCare, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-Q), irrespective of any general incorporation language contained in such filing.
+ Certain confidential provisions of this Exhibit were omitted by means of marking such portions with an asterisk because the identified confidential portions are (i) not material and (ii) would be competitively harmful if publicly disclosed.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| TABULA RASA HEALTHCARE, INC. | |
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Date: | By: | /s/ DR. CALVIN H. KNOWLTON |
| Name: | Dr. Calvin H. Knowlton |
| Title: | Chief Executive Officer (Principal Executive Officer) |
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Date: | By: | /s/ BRIAN W. ADAMS |
| Name: | Brian W. Adams |
| Title: | Chief Financial Officer |
| | (Principal Financial Officer) |
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Date: | By: | /s/ ANDREA C. SPEERS |
| Name: | Andrea C. Speers |
| Title: | Chief Accounting Officer |
| | (Principal Accounting Officer) |
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