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 September 30, 2022March 31, 2023
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 |
Preferred Stock Purchase Rights | | | | | 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 October 15, 2022,April 30, 2023, the Registrant had 27,124,28726,851,311 shares of Common Stock outstanding.
TABULA RASA HEALTHCARE, INC.
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 30, 2022March 31, 2023
TABLE OF CONTENTS
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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)
| | | | | | | | | | | | |
| | September 30, | | December 31, | | March 31, | | December 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Assets | | | | | | | | | ||||
Current assets: | | | | | | | | | | | | |
Cash | | $ | 80,783 | | $ | 9,395 | ||||||
Cash and cash equivalents | | $ | 67,190 | | $ | 70,017 | ||||||
Restricted cash | | | 7,389 | | | 6,038 | | | 6,240 | | 12,372 | |
Accounts receivable, net of allowance of $107 and $110, respectively | | | 18,960 | | | 21,405 | ||||||
Accounts receivable, net of allowance of $699 and $368, respectively | | | 19,143 | | 19,252 | |||||||
Inventories | | | 5,735 | | | 5,444 | | | 7,390 | | 6,566 | |
Prepaid expenses | | | 3,484 | | | 3,812 | | | 4,313 | | 4,664 | |
Client claims receivable | | | 16,193 | | | 11,257 | | | 14,441 | | 16,377 | |
Divestiture-related note receivable | | | 3,492 | | — | |||||||
Other current assets | | | 20,439 | | | 18,033 | | | 20,744 | | 18,187 | |
Current assets of discontinued operations | | | 26,861 | | | 14,511 | | | — | | | 22,825 |
Total current assets | | | 179,844 | | | 89,895 | | | 142,953 | | 170,260 | |
Contingent consideration receivable | | | 7,000 | | | — | ||||||
Property and equipment, net | | | 10,038 | | | 11,778 | | | 9,408 | | 9,158 | |
Operating lease right-of-use assets | | | 14,069 | | | 16,323 | | | 10,079 | | 10,483 | |
Software development costs, net | | | 32,606 | | | 29,254 | | | 32,432 | | 32,592 | |
Goodwill | | | 115,323 | | | 115,323 | | | 115,323 | | 115,323 | |
Intangible assets, net | | | 40,275 | | | 45,358 | | | 36,727 | | 38,326 | |
Contingent consideration receivable | | | 2,550 | | 3,350 | |||||||
Other assets | | | 4,691 | | | 3,929 | | | 6,125 | | | 4,657 |
Noncurrent assets of discontinued operations | | | — | | | 187,558 | ||||||
Total assets | | $ | 403,846 | | $ | 499,418 | | $ | 355,597 | | $ | 384,149 |
| | | | | | | | | | | | |
Liabilities and stockholders’ equity (deficit) | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Current operating lease liabilities | | $ | 3,195 | | $ | 3,275 | | $ | 2,798 | | $ | 2,708 |
Accounts payable | | | 14,685 | | | 8,870 | | | 21,906 | | 19,459 | |
Client claims payable | | | 9,537 | | | 8,398 | | | 11,453 | | 10,781 | |
Accrued expenses and other liabilities | | | 59,507 | | | 40,997 | | | 49,719 | | 55,745 | |
Current liabilities of discontinued operations | | | 11,132 | | | 12,380 | | | 458 | | | 13,389 |
Total current liabilities | | | 98,056 | | | 73,920 | | | 86,334 | | 102,082 | |
Line of credit | | | — | | | 29,500 | ||||||
Long-term debt, net of discount of $3,404 and $5,701, respectively | | | 231,868 | | | 319,299 | ||||||
Long-term debt – related party, net of discount of $1,299 and $0, respectively | | | 88,429 | | | — | ||||||
Long-term debt, net of discount of $2,915 and $3,160, respectively | | | 232,357 | | 232,112 | |||||||
Long-term debt – related party, net of discount of $1,113 and $1,206, respectively | | | 88,615 | | 88,522 | |||||||
Noncurrent operating lease liabilities | | | 13,223 | | | 15,792 | | | 12,395 | | 12,786 | |
Deferred income tax liability, net | | | 889 | | | 1,402 | | | 1,492 | | 1,380 | |
Other long-term liabilities | | | 3,032 | | | 176 | | | 5,268 | | | 4,298 |
Noncurrent liabilities of discontinued operations | | | — | | | 3,573 | ||||||
Total liabilities | | | 435,497 | | | 443,662 | | | 426,461 | | | 441,180 |
| | | | | | | | | | | | |
Commitments and contingencies (Note 15) | | | | | | | ||||||
Commitments and contingencies (Note 16) | | | | | | |||||||
| | | | | | | | | | | | |
Stockholders’ equity (deficit): | | | | | | | | | | | | |
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021 | | | — | | | — | ||||||
Common stock, $0.0001 par value; 100,000,000 shares authorized, 27,967,305 and 26,036,236 shares issued and 27,081,443 and 25,666,434 shares outstanding at September 30, 2022 and December 31, 2021, respectively | | | 3 | | | 3 | ||||||
Treasury stock, at cost; 885,862 and 369,802 shares at September 30, 2022 and December 31, 2021, respectively | | | (3,350) | | | (4,292) | ||||||
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2023 and December 31, 2022 | | | — | | — | |||||||
Common stock, $0.0001 par value; 100,000,000 shares authorized, 28,128,345 and 28,031,616 shares issued and 26,868,529 and 27,129,096 shares outstanding at March 31, 2023 and December 31, 2022, respectively | | | 3 | | 3 | |||||||
Treasury stock, at cost; 1,259,816 and 902,520 shares at March 31, 2023 and December 31, 2022, respectively | | | (4,013) | | (3,391) | |||||||
Additional paid-in capital | | | 349,911 | | | 320,392 | | | 356,901 | | 354,214 | |
Accumulated deficit | | | (378,215) | | | (260,347) | | | (423,755) | | | (407,857) |
Total stockholders’ equity (deficit) | | | (31,651) | | | 55,756 | | | (70,864) | | | (57,031) |
Total liabilities and stockholders’ equity (deficit) | | $ | 403,846 | | $ | 499,418 | | $ | 355,597 | | $ | 384,149 |
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 | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Revenue: | | | | | | | | | | | | | ||||||
Product revenue |
| $ | 59,780 | | $ | 50,321 | | $ | 166,645 | | $ | 139,021 | ||||||
Service revenue | | | 17,321 | | | 17,589 | | | 50,163 | | | 51,964 | ||||||
Medication revenue |
| $ | 68,750 | | $ | 50,973 | ||||||||||||
Technology-enabled solutions revenue | | | 19,527 | | | 16,137 | ||||||||||||
Total revenue | | | 77,101 | | | 67,910 | | | 216,808 | | | 190,985 | | | 88,277 | | | 67,110 |
Cost of revenue, exclusive of depreciation and amortization shown below: | | | | | | | | | | | | | | | | | | |
Product cost | | | 46,221 | | | 38,518 | | | 129,157 | | | 104,939 | ||||||
Service cost | | | 14,014 | | | 12,697 | | | 40,430 | | | 37,875 | ||||||
Cost of medication revenue | | | 53,082 | | | 39,552 | ||||||||||||
Cost of technology-enabled solutions revenue | | | 14,442 | | | 13,169 | ||||||||||||
Total cost of revenue, exclusive of depreciation and amortization | | | 60,235 | | | 51,215 | | | 169,587 | | | 142,814 | | | 67,524 | | | 52,721 |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Research and development | | | 4,018 | | | 3,699 | | | 11,226 | | | 11,069 | | | 1,279 | | | 3,965 |
Sales and marketing | | | 2,857 | | | 2,719 | | | 7,678 | | | 8,225 | | | 2,453 | | | 2,649 |
General and administrative | | | 27,917 | | | 14,393 | | | 58,945 | | | 45,725 | | | 16,577 | | | 15,878 |
Change in fair value of contingent consideration receivable | | | 400 | | | — | ||||||||||||
Long-lived asset impairment charge | | | — | | | — | | | 4,062 | | | — | | | — | | | 4,062 |
Depreciation and amortization | | | 5,723 | | | 5,328 | | | 16,954 | | | 15,109 | | | 6,200 | | | 5,742 |
Total operating expenses | | | 40,515 | | | 26,139 | | | 98,865 | | | 80,128 | | | 26,909 | | | 32,296 |
Loss from operations | | | (23,649) | | | (9,444) | | | (51,644) | | | (31,957) | | | (6,156) | | | (17,907) |
Other income (expense): | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | (2,717) | | | (2,230) | | | (7,430) | | | (6,959) | | | (1,265) | | | (2,269) |
Other income | | | 479 | | | — | | | 479 | | | — | | | 452 | | | — |
Total other expense, net | | | (2,238) | | | (2,230) | | | (6,951) | | | (6,959) | | | (813) | | | (2,269) |
Loss from continuing operations before income taxes | | | (25,887) | | | (11,674) | | | (58,595) | | | (38,916) | | | (6,969) | | | (20,176) |
Income tax (benefit) expense | | | (7) | | | 82 | | | 368 | | | 284 | ||||||
Income tax expense | | | 105 | | | 216 | ||||||||||||
Net loss from continuing operations | | | (25,880) | | | (11,756) | | | (58,963) | | | (39,200) | | | (7,074) | | | (20,392) |
Net loss from discontinued operations, net of tax | | | (14,185) | | | (5,355) | | | (58,905) | | | (18,484) | | | (8,824) | | | (7,801) |
Net loss | | $ | (40,065) | | $ | (17,111) | | $ | (117,868) | | $ | (57,684) | | $ | (15,898) | | $ | (28,193) |
| | | | | | | | | | | | | | | | | | |
Net loss per share: | | | | | | | | | | | | | | | | | | |
Net loss per share from continuing operations, basic and diluted | | $ | (1.07) | | $ | (0.50) | | $ | (2.45) | | $ | (1.68) | | $ | (0.28) | | $ | (0.85) |
Net loss per share from discontinued operations, basic and diluted | | | (0.58) | | | (0.23) | | | (2.45) | | | (0.80) | | | (0.35) | | | (0.33) |
Total net loss per share, basic and diluted | | $ | (1.65) | | $ | (0.73) | | $ | (4.90) | | $ | (2.48) | | $ | (0.63) | | $ | (1.18) |
| | | | | | | | | | | | | | | | | | |
Weighted average common shares outstanding, basic and diluted | | | 24,350,182 | | | 23,407,391 | | | 24,075,666 | | | 23,230,138 | | | 25,244,720 | | | 23,865,801 |
See accompanying notes to unaudited consolidated financial statements.
4
TABULA RASA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity (Deficit) | | Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| | Nine Months Ended September 30, 2022 | | Three Months Ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
| | Common Stock | | Treasury Stock | | Additional | | Accumulated | | Stockholders' | | Common Stock | | Treasury Stock | | Additional | | Accumulated | | Stockholders' | ||||||||||||||||||
|
| Shares |
| Amount | | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity (Deficit) |
| Shares |
| Amount | | Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Equity (Deficit) | ||||||||||
Balance, January 1, 2022 | | 26,036,236 | | $ | 3 | | (369,802) | | $ | (4,292) | | $ | 320,392 | | $ | (260,347) | | $ | 55,756 | |||||||||||||||||||
Issuance of common stock awards | | 16,471 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Issuance of restricted stock | | 297,434 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Forfeitures of restricted shares | | — | | | — | | (138,882) | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options, net of shares withheld | | 11,646 | | | — | | — | | | — | | | 60 | | | — | | | 60 | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 8,609 | | | — | | | 8,609 | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (28,193) | | | (28,193) | |||||||||||||||||||
Balance, March 31, 2022 | | 26,361,787 | | | 3 | | (508,684) | | | (4,292) | | | 329,061 | | | (288,540) | | | 36,232 | |||||||||||||||||||
Issuance of common stock awards | | 12,262 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Issuance of restricted stock | | 424,540 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Forfeitures of restricted shares | | — | | | — | | (30,542) | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options, net of shares withheld | | 927 | | | — | | (109) | | | — | | | 3 | | | — | | | 3 | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 6,692 | | | — | | | 6,692 | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (49,610) | | | (49,610) | |||||||||||||||||||
Balance, June 30, 2022 | | 26,799,516 | | | 3 | | (539,335) | | | (4,292) | | | 335,756 | | | (338,150) | | | (6,683) | |||||||||||||||||||
Issuance of common stock awards | | — | | | — | | 615,066 | | | 3,082 | | | (3,082) | | | — | | | — | |||||||||||||||||||
Balance, January 1, 2023 | | 28,031,616 | | $ | 3 | | (902,520) | | $ | (3,391) | | $ | 354,214 | | $ | (407,857) | | $ | (57,031) | |||||||||||||||||||
Issuance of restricted stock | | 1,167,532 | | | — | | — | | | — | | | — | | | — | | | — | | 25,167 | | | — | | — | | | — | | | — | | | — | | | — |
Forfeitures of restricted shares | | — | | | — | | (507,299) | | | — | | | — | | | — | | | — | | — | | | — | | (232,208) | | | — | | | — | | | — | | | — |
Exercise of stock options, net of shares withheld | | 257 | | | — | | — | | | — | | | 1 | | | — | | | 1 | | 71,562 | | | — | | — | | | — | | | 219 | | | — | | | 219 |
Shares withheld for payment of employee taxes | | — | | | — | | (454,294) | | | (2,140) | | | — | | | — | | | (2,140) | | — | | | — | | (125,088) | | | (622) | | | — | | | — | | | (622) |
Stock-based compensation expense | | — | | | — | | — | | | — | | | 17,236 | | | — | | | 17,236 | | — | | | — | | — | | | — | | | 2,468 | | | — | | | 2,468 |
Net loss | | — | | | — | | — | | | — | | | — | | | (40,065) | | | (40,065) | | — | | | — | | — | | | — | | | — | | | (15,898) | | | (15,898) |
Balance, September 30, 2022 | | 27,967,305 | | $ | 3 | | (885,862) | | $ | (3,350) | | $ | 349,911 | | $ | (378,215) | | $ | (31,651) | |||||||||||||||||||
Balance, March 31, 2023 | | 28,128,345 | | $ | 3 | | (1,259,816) | | $ | (4,013) | | $ | 356,901 | | $ | (423,755) | | $ | (70,864) |
See accompanying notes to unaudited consolidated financial statements.
5
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stockholders' Equity | | Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||||||
| | Nine Months Ended September 30, 2021 | | Three Months Ended March 31, 2022 | ||||||||||||||||||||||||||||||||||
| | 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 (Deficit) | ||||||||||
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) | |||||||||||||||||||
Balance, January 1, 2022 | | 26,036,236 | | $ | 3 | | (369,802) | | $ | (4,292) | | $ | 320,392 | | $ | (260,347) | | $ | 55,756 | |||||||||||||||||||
Issuance of common stock awards | | 1,416 | | | — | | — | | | — | | | — | | | — | | | — | | 16,471 | | | — | | — | | | — | | | — | | | — | | | — |
Issuance of restricted stock | | 629,088 | | | — | | — | | | — | | | — | | | — | | | — | | 297,434 | | | — | | — | | | — | | | — | | | — | | | — |
Forfeitures of restricted shares | | — | | | — | | (12,880) | | | — | | | — | | | — | | | — | | — | | | — | | (138,882) | | | — | | | — | | | — | | | — |
Exercise of stock options, net of shares withheld | | 224,503 | | | — | | (6,218) | | | (274) | | | 2,501 | | | — | | | 2,227 | | 11,646 | | | — | | — | | | — | | | 60 | | | — | | | 60 |
Stock-based compensation expense | | — | | | — | | — | | | — | | | 8,602 | | | — | | | 8,602 | | — | | | — | | — | | | — | | | 8,609 | | | — | | | 8,609 |
Net loss | | — | | | — | | — | | | — | | | — | | | (19,492) | | | (19,492) | | — | | | — | | — | | | — | | | — | | | (28,193) | | | (28,193) |
Balance, March 31, 2021 | | 25,077,681 | | | 2 | | (236,876) | | | (4,292) | | | 288,698 | | | (200,784) | | | 83,624 | |||||||||||||||||||
Issuance of restricted stock | | 120,598 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Forfeitures of restricted shares | | — | | | — | | (22,913) | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options, net of shares withheld | | 84,396 | | | — | | — | | | — | | | 885 | | | — | | | 885 | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 12,349 | | | — | | | 12,349 | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (21,081) | | | (21,081) | |||||||||||||||||||
Balance, June 30, 2021 | | 25,282,675 | | | 2 | | (259,789) | | | (4,292) | | | 301,932 | | | (221,865) | | | 75,777 | |||||||||||||||||||
Issuance of restricted stock | | 13,290 | | | — | | — | | | — | | | — | | | — | | | — | |||||||||||||||||||
Forfeitures of restricted shares | | — | | | — | | (30,986) | | | — | | | — | | | — | | | — | |||||||||||||||||||
Exercise of stock options, net of shares withheld | | 27,122 | | | — | | — | | | — | | | 571 | | | — | | | 571 | |||||||||||||||||||
Stock-based compensation expense | | — | | | — | | — | | | — | | | 8,011 | | | — | | | 8,011 | |||||||||||||||||||
Net loss | | — | | | — | | — | | | — | | | — | | | (17,111) | | | (17,111) | |||||||||||||||||||
Balance, September 30, 2021 | | 25,323,087 | | $ | 2 | | (290,775) | | $ | (4,292) | | $ | 310,514 | | $ | (238,976) | | $ | 67,248 | |||||||||||||||||||
Balance, March 31, 2022 | | 26,361,787 | | $ | 3 | | (508,684) | | $ | (4,292) | | $ | 329,061 | | $ | (288,540) | | $ | 36,232 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
65
TABULA RASA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended | ||||||||
| | September 30, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Cash flows from operating activities: | | | | | | | | | | | ||
Net loss | | $ | (117,868) | | $ | (57,684) | | $ | (15,898) | | $ | (28,193) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | ||||||
Depreciation and amortization | | | 24,285 | | | 35,343 | | | 6,200 | | | 13,073 |
Amortization of deferred financing costs and debt discount | | | 1,972 | | | 1,714 | | | 338 | | | 468 |
Deferred taxes | | | (513) | | | 337 | | | 112 | | | 276 |
Stock-based compensation | | | 32,537 | | | 28,962 | | | 2,468 | | | 8,609 |
Acquisition-related contingent consideration paid | | | — | | | (67) | ||||||
Change in fair value of contingent consideration receivable | | | 400 | | | — | ||||||
Impairment charges | | | 46,355 | | | — | | | 363 | | | 4,902 |
Loss on divestiture of business | | | 2,879 | | | — | ||||||
Net loss on disposal of businesses | | | 4,736 | | | — | ||||||
Other noncash items | | | (9) | | | 9 | | | 246 | | | (95) |
Changes in operating assets and liabilities, net of effect of divestiture: | | | | | | | ||||||
Changes in operating assets and liabilities, net of effect of divestitures: | | | | | | | ||||||
Accounts receivable, net | | | 5,107 | | | 789 | | | (19) | | | (5,570) |
Inventories | | | (291) | | | (866) | | | (824) | | | 544 |
Prepaid expenses and other current assets | | | (1,375) | | | (6,084) | | | (1,878) | | | (7,131) |
Client claims receivables | | | (4,936) | | | (872) | | | 1,936 | | | (1,679) |
Other assets | | | (1,357) | | | (2,604) | | | 61 | | | (374) |
Accounts payable | | | 5,074 | | | 1,587 | | | 111 | | | 80 |
Accrued expenses and other liabilities | | | 13,534 | | | 2,138 | | | (8,115) | | | (2,274) |
Client claims payables | | | 1,139 | | | 423 | | | 672 | | | 391 |
Other long-term liabilities | | | 3,220 | | | (108) | | | 337 | | | 1,238 |
Net cash provided by operating activities | | | 9,753 | | | 3,017 | ||||||
Net cash used in operating activities | | | (8,754) | | | (15,735) | ||||||
| | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | | |
Purchases of property and equipment | | | (1,021) | | | (1,611) | | | (719) | | | (217) |
Software development costs | | | (23,860) | | | (22,649) | | | (2,485) | | | (8,749) |
Proceeds from divestiture of business (1) | | | 118,561 | | | — | ||||||
Proceeds from divestitures of businesses | | | 3,384 | | | — | ||||||
Net cash provided by (used in) investing activities | | | 93,680 | | | (24,260) | | | 180 | | | (8,966) |
| | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | | |
Proceeds from exercise of stock options | | | 64 | | | 3,683 | | | 219 | | | 60 |
Payments for employee taxes for shares withheld | | | (1,112) | | | — | | | (622) | | | — |
Payments for debt financing costs | | | (350) | | | (8) | | | — | | | (350) |
Borrowings on line of credit | | | 27,700 | | | 17,500 | | | — | | | 27,700 |
Repayments of line of credit | | | (57,200) | | | — | ||||||
Payment of acquisition-related notes payable | | | — | | | (13,000) | ||||||
Payments of acquisition-related contingent consideration | | | — | | | (99) | ||||||
Repayments of long-term debt and finance leases | | | — | | | (4) | ||||||
Net cash (used in) provided by financing activities | | | (30,898) | | | 8,072 | | | (403) | | | 27,410 |
| | | | | | | | | | | | |
Net increase (decrease) in cash and restricted cash | | | 72,535 | | | (13,171) | ||||||
Cash and restricted cash, beginning of period | | | 15,706 | | | 28,532 | ||||||
Cash and restricted cash, end of period (2) | | $ | 88,241 | | $ | 15,361 | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | | | (8,977) | | | 2,709 | ||||||
Cash, cash equivalents and restricted cash, beginning of period | | | 82,407 | | | 15,706 | ||||||
Cash, cash equivalents and restricted cash, end of period (1) | | $ | 73,430 | | $ | 18,415 | ||||||
| | | | | | | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | | | | | | |
Purchases of property and equipment and software development included in accounts payable and accrued expenses | | $ | 1,082 | | $ | 370 | | $ | 2,858 | | $ | — |
Purchases of property and equipment and software development through vendor financing arrangements | | $ | 968 | | $ | — | ||||||
Cash paid for interest | | $ | 7,204 | | $ | 8,169 | | $ | 2,844 | | $ | 3,269 |
Cash paid for taxes | | $ | 137 | | $ | 44 | ||||||
Cash paid for taxes (income tax refund) | | $ | (28) | | $ | 8 | ||||||
Interest costs capitalized to software development costs | | $ | 257 | | $ | 216 | | $ | 11 | | $ | 87 |
Employee taxes for shares withheld included in accrued expenses | | $ | 1,028 | | $ | — | ||||||
| | | | | | | | | | | | |
Reconciliation of cash and restricted cash: | | | | | | | ||||||
Cash | | $ | 80,783 | | $ | 10,757 | ||||||
Reconciliation of cash, cash equivalents and restricted cash: | | | | | | | ||||||
Cash and cash equivalents | | $ | 67,190 | | $ | 14,449 | ||||||
Restricted cash | | | 7,389 | | | 4,014 | | | 6,240 | | | 3,839 |
Cash from discontinued operations | | | 69 | | | 590 | | | — | | | 127 |
Total cash and restricted cash | | $ | 88,241 | | $ | 15,361 | ||||||
Total cash, cash equivalents and restricted cash | | $ | 73,430 | | $ | 18,415 |
The cash flows related to discontinued operations have not been segregated. Accordingly, the unaudited consolidated statements of cash flows include the results of continuing and discontinued operations. |
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”) is a healthcare technology company advancing the safe use of medications by creating solutions designed to empower pharmacists, providers, and patients to optimize medication regimens, combating medication overload and reducing adverse drug events. The Company’s advanced proprietary technology solutions, including MedWise®, identify causes of and risks for medication-related problems so that healthcare professionals can minimize harm and reduce medication-related risks. The Company’s software and services help improvedrive value-based care by improving patient outcomes and lowerlowering healthcare costs through reduced hospitalizations, emergency department visits, and healthcare utilization. The Company serves a number of different organizations within the healthcare industry, including health plans and at-risk provider groups, the majority of which are organizations with Programs of All-Inclusive Care for the Elderly (“PACE”).
2. Basis of Presentation, Summary of Significant Accounting Policies, and Recent Accounting Pronouncements
(a)Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with United States (“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 nine months ended September 30, 2022March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2022,2023, 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 Reportannual report on Form 10-K filed with the SEC on February 25, 2022March 10, 2023 (the “2021“2022 Form 10-K”).
Except as described below, there have been no material changes to the Company’s significant accounting policies described in the 20212022 Form 10-K that have a material impact on the Company’s accompanying unaudited consolidated financial statements and related notes.
(b)Segment Reporting
The Company previously operated its business through two segments, CareVention HealthCare and MedWise HealthCare. During the first quarter of 2022, the Company announced plans to evaluate non-core assets, refocus its corporate strategy, and increase stockholder value. As a result, the Company commenced plans to sell the SinfoníaRx, DoseMe, and PrescribeWellness businesses, which the Company acquired in September 2017, January 2019, and March 2019, respectively. The Company completed the sales of its unincorporated PrescribeWellness business (the “PrescribeWellness Business”), DoseMe business (the “DoseMe Business”), and SinfoníaRx business (the “SinfoníaRx Business”) in August 2022, January 2023, and March 2023, respectively. The completed sales of these businesses represented a strategic business shift, having a significant effect on the Company’s operations and financial results. As a result, the Company determined that these businesses met such requirements to be classified as held for sale and discontinued operations as of March 31, 2022, and subsequently continued to meet the requirements through their respective sale dates. Accordingly, unless otherwise indicated, the accompanying consolidated financial statements reflect the assets, liabilities, revenue, and expenses related to these businesses as discontinued operations for all periods presented. Unless otherwise noted, amounts and disclosures throughout the notes to the consolidated financial statements relate to the Company’s continuing operations.
The PrescribeWellness, DoseMe, and SinfoníaRx businesses collectively comprised the majority of the Company’s MedWise HealthCare segment. As a result of the sales of these businesses, the Company reevaluated its operating segments with respect to the CareVention HealthCare segment and the remaining MedWise HealthCare segment. Subsequent to the sales of these businesses, the Company’s chief operating decision maker (“CODM”), who is the Chief Executive Officer, evaluates performance and allocates resources based on the consolidated results of the
7
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Company. Therefore, the Company consolidated its two operating segments to one segment by merging the CareVention HealthCare segment and the remaining MedWise HealthCare segment. The Company now operates its business as one segment as of March 31, 2023. Prior comparative periods have been revised to conform with the current period segment presentation.
See Note 3 for further information on the Company’s discontinued operations and the Company’s sales of the PrescribeWellness, DoseMe, and SinfoníaRx businesses.
(c)Assets and Liabilities Held for Sale and Discontinued Operations
A long-lived asset (or disposal group) is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable within a year. A long-lived asset (or disposal group) classified as held for sale is initially measured at the lower of its carrying amount or fair value less costs to sell. An impairment loss is recognized for any initial or subsequent write-down of the long-lived asset (or disposal group) to fair value less costs to sell. A gain or loss not previously recognized by the date of the sale of the long-lived asset (or disposal group) is recognized at the date of derecognition.
Long-lived assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Long-lived assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.
Unless otherwise noted, amounts and disclosures throughout the notes to the unaudited consolidated financial statements relate to the Company’s continuing operations.
Additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations are included in Note 3.
8
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(c)(d)Cloud Computing Arrangements
Costs to implement cloud computing arrangements that are hosted by third-party vendors are capitalized when incurred during the application development phase. Capitalized implementation costs are amortized on a straight-line basis over the reasonably certain term of the hosting arrangement, beginning when the service is ready for its intended use. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, capitalized implementation costs of $882 and $747,$882, respectively, were included in prepaid expenses,expenses. As of March 31, 2023 and December 31, 2022, $1,276 and $0,$1,276, respectively, were included in other assets on the Company’s consolidated balance sheets. Accumulated amortization for these arrangements was $554$712 and $398$590 as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Amortization expense for the three months ended September 30,March 31, 2023 and 2022 and 2021, was $51$122 and $53, respectively. Amortization expense for the nine months ended September 30, 2022 and 2021, was $156 and $155, respectively.
(d)(e)Vendor Financing Arrangements
On February 24, 2022, the Company expanded its existing relationship with a third-party service provider for business process outsourcing and technology services for its third-party administration services and electronic health records solutions. As a result, the third-party provider hired approximately 180 employees from the Company, hired to fill existing open positions, and will augmenthave augmented with additional resources to meet client demand. The agreement term is seven years and includes total estimated fees of $115,300.
The arrangement includes extended payment terms for cloud computing implementation costs, internally developed software support, and business process support. In order to determine the present value of the commitment, the Company used an imputed interest rate of 9.5%, which was reflective of its estimated uncollateralized borrowing rate at signing. As of September 30,March 31, 2023 and December 31, 2022, the outstanding principal balance of the financing arrangement was $3,772$6,160 and $5,169, respectively, with an unamortized discount of $876,$1,502 and $1,239, respectively, which was included in accrued expenses and other liabilities and other long-term liabilities on the Company’s consolidated balance sheet. sheets.
8
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
On October 1, 2022, the Company entered into a purchase arrangement with a third-party software support and service provider to purchase software licenses for total fees of $1,065. The purchased software licenses were delivered to the Company on the purchase date. The arrangement allows the Company to pay the fees over 36 monthly installment payments. The Company used an imputed interest rate of 10.0%, which was reflective of its estimated collateralized borrowing rate on purchase date. As of March 31, 2023 and December 31, 2022, the outstanding principal balance of the financing arrangement was $832 and $916, respectively, with an unamortized discount of $135 and $138, respectively, which was included in accrued expenses and other liabilities and other long-term liabilities on the Company’s consolidated balance sheets.
Imputed interest expense from the arrangementvendor financing arrangements was $53$104 and $89$6 for the three and nine months ended September 30,March 31, 2023 and 2022, respectively.
(e)(f)Allowance for Credit Losses
The Company maintains an allowance for credit losses to provide for expected credit losses on its divestiture-related notes receivable. The allowance for credit losses is based on the Company’s analysis of the expected future cash flows, as well as an assessment of the debtor’s credit quality. All losses are charged to the allowance when the loss occurs or when a determination is made that such a loss is likely and can be reasonably estimated. Recoveries are credited to the allowance at the time of recovery. The Company evaluates its allowance for credit losses quarterly. As of March 31, 2023, the allowance for credit losses on the divestiture-related notes receivable was $151. See Note 7 for additional information on the Company’s divestiture-related notes receivable.
(g)Concentrations of Credit Risk
The Company is subject to concentrations of credit risk related to cash, cash equivalents, restricted cash, accounts receivable, and client claims receivable. While the Company maintains its cash, cash equivalents and restricted cash with financial institutions with high credit ratings, it often maintains these deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any realized losses on cash, cash equivalents or restricted cash to date.
The Company’s medication fulfillment services clients are sponsors of the federal Medicare Part D plan (prescription drug coverage plan) and, therefore, subject to the payment regulations established by the Centers for Medicare & Medicaid Services (“CMS”). Under CMS guidelines, Medicare Part D sponsors are required to remit payment for claims within 14 calendar days of the date on which an electronically-submittedelectronically submitted claim is received and within 30 days of the date on which non-electronically-submitted claims are received. The Company extends credit to clients based upon such terms, as well as management’s evaluation of creditworthiness, and generally collateral is not required.
The Company’s clients also include health plans and other healthcare providers. Credit associated with these accounts is extended based upon management’s evaluation of creditworthiness and is monitored on an on-going basis.
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, no client represented more than 10% of net accounts receivable.
As of September 30, 2022March 31, 2023, one client represented 21%16% of client claims receivable. As of December 31, 2021, two clients2022, one client represented 13% and 11%, respectively,14% of client claims receivable.
For the three months ended March 31, 2023 and 2022, one client accounted for 14% and 16% of total revenue, respectively.
9
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
One client accounted for 15% and 13% of total revenue for the three months ended September 30, 2022 and 2021, respectively, and 16% and 14% of total revenue for the nine months ended September 30, 2022 and 2021, respectively.
(f)(h)Recent Accounting PronouncementPronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under ASCFASB Accounting Standards Codification Topic 606 (Revenue from Contracts with Customers) in order to align the recognition of a contract liability with the definition of performance obligation. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 is effective for financial statements issued for fiscal years beginning after December 15, 2022; early adoption is permitted. The Company plans to adoptadopted ASU 2021-08 on January 1, 2023 and doesdetermined that it did not expect it to have a significant impact on the consolidated financial statements.
3. Discontinued Operations
In February 2022, the Company announced plans to evaluate non-core assets, refocus its corporate strategy, and increase stockholder value, and the Company commenced a plan to sell the DoseMe business, which the Company acquired in January 2019. In March 2022, the Company completed its evaluation of additional divestiture opportunities and commenced plans to sell the SinfoníaRx and PrescribeWellness businesses, which were acquired in September 2017 and March 2019, respectively. As described below, the Company completed the sale of its unincorporated PrescribeWellness business division (the “PrescribeWellness Business”) in August 2022.
The DoseMe, SinfoníaRx, and PrescribeWellness businesses comprised the majorityDivestiture of the Company’s MedWise HealthCare segment. The Company’s completed sale of the PrescribeWellness Business and plan of sale with respect to DoseMe and SinfoníaRx represent a strategic business shift having a significant effect on the Company’s operations and financial results. As a result, the Company determined that these businesses met such requirements to be classified as held for sale and discontinued operations as of March 31, 2022 and continued to meet the requirements as of September 30, 2022. Accordingly, unless otherwise indicated, the accompanying consolidated financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue, and expenses related to these businesses as discontinued operations.
Divestiture of Business
On August 1, 2022 (the “Sale“PW Sale Date”), the Company completed the sale of its PrescribeWellness Business, including the assets, properties, and rights that were primarily used or held for use in connection with the PrescribeWellness Business, as well as the KD Assets (as defined below) to Transaction Data Systems, Inc. (“TDS”). On the PW Sale Date, the Company also completed the acquisition of certain intellectual property from karmadata, Inc. (“KD”) that had historically been licensed to the Company, (the “KD Assets”). The KD Assets acquired were simultaneously transferred to TDS on the PW Sale Date. The purchase consideration included $125,000 in cash, subject to certain customary post-closing adjustments, of which $118,561 was paid directly to the Company and $5,900 was paid to KD on the PW Sale Date. In October 2022, TDS also paid the Company $1,477 for certain customary post-closing adjustments subsequent toafter the PW Sale Date. The Company is also entitled to receive up to $15,000 of contingent consideration to be paid by TDS based upon the PrescribeWellness Business’s achievement of certain performance-based metrics during the fiscal years ending December 31, 2023 and 2024. The contingent consideration had an estimated fair value of $7,000 on the PW Sale Date. See Note 1415 for additional discussion on the fair value assessment of the contingent consideration receivable.
10
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
In connection with the sale of the PrescribeWellness Business, the Company entered into a transition services agreement (“TSA)”PW TSA”) with TDS, pursuant to which the Company is providingprovided services, including, but not limited to, business support services for the PrescribeWellness businessBusiness after the sale through AprilJanuary 2023. The Company recognized $479$4 of income related to the PW TSA for the three and nine months ended September 2022,March 31, 2023, which is reported in other income onin the Company’s consolidated statement of operations.
During the six months ended June 30,first quarter of 2022, as a result of the Company’s intention to sell the PrescribeWellness Business, the Company prepared an impairment test on the related net assets held for sale. Using a market approach to determine fair value, the Company concludeddetermined that there was an excess of fair value less costs to sell over the carrying value of the net assets held for sale for the PrescribeWellness Business did not exceed its fair value, less costs to sell.Business. As a result, the Company recorded goodwillno impairment charges of $12,145 and impairment charges of $8,500were recorded on goodwill or net assets held for sale summarized in the results of the PrescribeWellness business presented below. On August 1, 2022, the Company recorded an additional $2,879 for the final loss on the sale of the PrescribeWellness Business, resulting in an aggregate loss of $11,379 on the net assets sold for the ninethree months ended September 30,March 31, 2022.
The following table summarizes the net assets sold as finally reported on the sale date of August 1, 2022 and as of December 31, 2021, classified as discontinued operations on the consolidated balance sheets as of December 31, 2021:
| | | | | |
| August 1, | | December 31, | ||
| 2022 |
| 2021 | ||
Accounts receivable, net | $ | 5,020 | | | 8,002 |
Prepaid expenses and other assets | | 1,751 | | | 1,038 |
Property and equipment, net | | 371 | | | — |
Operating lease right-of-use assets | | 1,252 | | | — |
Software development costs, net | | 14,536 | | | — |
Goodwill | | 35,314 | | | — |
Intangible assets, net | | 81,504 | | | — |
Impairment of carrying value | | (8,500) | | | — |
Total current assets of discontinued operations | $ | 131,248 | | $ | 9,040 |
| | | | | |
Property and equipment, net | $ | — | | $ | 412 |
Operating lease right-of-use assets | | — | | | 1,434 |
Software development costs, net | | — | | | 11,474 |
Goodwill | | — | | | 47,459 |
Intangible assets, net | | — | | | 84,617 |
Other assets | | — | | | 64 |
Total noncurrent assets of discontinued operations | $ | — | | $ | 145,460 |
| | | | | |
Operating lease liabilities | $ | 1,086 | | $ | 620 |
Accounts payable | | 491 | | | 913 |
Accrued expenses and other liabilities | | 2,754 | | | 3,529 |
Total current liabilities of discontinued operations | $ | 4,331 | | $ | 5,062 |
| | | | | |
Noncurrent operating lease liabilities | $ | — | | $ | 830 |
Other long-term liabilities | | — | | | 135 |
Total noncurrent liabilities of discontinued operations | $ | — | | $ | 965 |
1110
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The following table summarizes the results of operations of the PrescribeWellness Business, which are included in loss from discontinued operations, net of tax in the consolidated statements of operations:
| | |
| Three Months Ended | |
| March 31, 2022 | |
Revenue | $ | 8,884 |
Cost of revenue, exclusive of depreciation and amortization | | 3,170 |
Operating expenses | | 7,490 |
Loss from discontinued operations before income taxes | | (1,776) |
Income tax expense | | 27 |
Net loss from discontinued operations, net of tax | $ | (1,803) |
The following table summarizes the significant operating noncash items and investing activities of the PrescribeWellness Business:
| | | |
| | Three Months Ended | |
|
| March 31, 2022 | |
Depreciation and amortization | | $ | 4,551 |
Stock-based compensation | | | 267 |
Purchases of property and equipment | | | (9) |
Software development costs | | | (1,902) |
Divestiture of the DoseMe Business
On January 20, 2023 (the “DoseMe Sale Date”), the Company completed the sale of its DoseMe Business, including the assets, properties, and rights that were primarily used or held for use in connection with the DoseMe Business, to DoseMe Operations Inc. (“DoseMe Operations”). The purchase consideration included $2,000 in cash, subject to certain customary post-closing adjustments, of which $1,984 was paid directly to the Company on the DoseMe Sale Date. The purchase consideration also includes a note receivable of $3,000 with an annual interest rate of 7%, which matures on January 20, 2027. See Note 7 for additional information on the divestiture-related note receivable.
In connection with the sale of the DoseMe Business, the Company entered into a transition services agreement (“DoseMe TSA”) with DoseMe Operations, pursuant to which the Company is providing services, including, but not limited to, business support services for the DoseMe business after the sale through October 2023. The Company recognized $50 of income related to the DoseMe TSA for the three months ended March 31, 2023, which is reported in other income in the Company’s consolidated statement of operations.
During the first quarter of 2022, as a result of the Company’s intention to sell the DoseMe Business, the Company prepared an impairment test on the related net assets held for sale. Using a market approach to determine fair value, the Company concluded that the fair value less costs to sell did not exceed the carrying value of the net assets held for sale for the DoseMe Business. As a result, the Company recorded goodwill impairment charges of $740 and impairment charges of $100 on net assets held for sale, summarized in the results of the DoseMe Business presented below. On January 20, 2023, the Company recorded a final gain of $222 on the sale of the DoseMe Business.
11
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The following table summarizes the net assets sold as finally reported on the DoseMe Sale Date of January 20, 2023 and as classified as discontinued operations on the consolidated balance sheets as of December 31, 2022:
| | | | | |
| January 20, | | December 31, | ||
| 2023 |
| 2022 | ||
Cash | $ | 200 | | $ | 18 |
Accounts receivable, net | | 407 | | | 530 |
Prepaid expenses and other assets | | 57 | | | 43 |
Property and equipment, net | | 30 | | | 30 |
Software development costs, net | | 421 | | | 421 |
Goodwill | | 1,927 | | | 1,927 |
Intangible assets, net | | 9,372 | | | 9,372 |
Impairment of carrying value | | (7,730) | | | (7,730) |
Total current assets of discontinued operations | $ | 4,684 | | $ | 4,611 |
| | | | | |
Accounts payable | $ | 47 | | $ | 42 |
Accrued expenses and other liabilities | | 1,214 | | | 1,231 |
Total current liabilities of discontinued operations | $ | 1,261 | | $ | 1,273 |
The following table summarizes the results of operations of the PrescribeWellnessDoseMe Business, which are included in loss from discontinued operations, net of tax in the consolidated statements of operations for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | Three Months Ended | ||||||||||||
| September 30, | | September 30, | March 31, | ||||||||||||
| 2022 |
| 2021 | | 2022 |
| 2021 | 2023 |
| 2022 | ||||||
Revenue | $ | 2,537 | | $ | 10,533 | | $ | 19,306 | | $ | 27,629 | $ | 64 | | $ | 371 |
Cost of revenue, exclusive of depreciation and amortization | | 1,229 | | | 3,426 | | | 7,747 | | | 9,883 | | 3 | | | 41 |
Operating expenses | | 2,336 | | | 8,373 | | | 14,930 | | | 24,427 | | 432 | | | 1,383 |
Impairment charges | | — | | | — | | | 20,645 | | | — | | — | | | 840 |
Loss on disposal of business | | 2,879 | | | — | | | 2,879 | | | — | |||||
Gain on disposal of business | | 222 | | | — | |||||||||||
Loss from discontinued operations before income taxes | | (3,907) | | | (1,266) | | | (26,895) | | | (6,681) | | (149) | | | (1,893) |
Income tax (benefit) expense | | (11) | | | 12 | | | (299) | | | 66 | |||||
Income tax expense | | 54 | | | 29 | |||||||||||
Net loss from discontinued operations, net of tax | $ | (3,896) | | $ | (1,278) | | $ | (26,596) | | $ | (6,747) | $ | (203) | | $ | (1,922) |
The following table summarizes the significant operating non-cashnoncash items and investing activities of PrescribeWellnessthe DoseMe Business:
| | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended | ||||||||
| | September 30, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Depreciation and amortization | | $ | 4,551 | | $ | 12,059 | | $ | — | | $ | 655 |
Impairment charges | | | 20,645 | | | — | | | — | | | 840 |
Stock-based compensation | | | 1,697 | | | 2,352 | | | 1 | | | 179 |
Loss on disposal of business | | | 2,879 | | | — | ||||||
Purchases of property and equipment | | | (22) | | | (305) | ||||||
Gain on disposal of business | | | 222 | | | — | ||||||
Software development costs | | | (4,443) | | | (9,783) | | | — | | | (85) |
Held for SaleDivestiture of the SinfoníaRx Business
On March 2, 2023 (the “SinfoníaRx Sale Date”), the Company completed the sale of its SinfoníaRx Business, including the assets, properties, and rights that were primarily used or held for use in connection with the SinfoníaRx
12
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Business to Symphony Clinic, LLC (“Symphony”). The purchase consideration included $1,400 in cash, subject to certain customary post-closing adjustments, which was paid directly to the Company on the SinfoníaRx Sale Date. The purchase consideration also includes a note receivable of $3,600 with an annual interest rate of 3%, which matures on December 31, 2023. The Company considersmay also be entitled to receive up to $1,000 in contingent consideration based upon potential regulatory changes affecting the SinfoníaRx Business. The contingent consideration had an estimated fair value of $500 on the SinfoníaRx Sale Date. See Note 7 for additional discussion on the divestiture-related note receivable and Note 15 for additional discussion on the fair value assessment of the contingent consideration receivable.
In connection with the sale of the DoseMe and SinfoníaRx businessesBusiness, the Company entered into a transition services agreement (“SinfoníaRx TSA”) with Symphony, pursuant to be highly probable within one year. which the Company is providing services, including, but not limited to, business support services for the SinfoníaRx Business after the sale through December 2023. The Company recognized $398 of income related to the SinfoníaRx TSA for the three months ended March 31, 2023, which is reported in other income in the Company’s consolidated statement of operations.
During the three and nine months ended September 30,first quarter of 2022, as a result of the Company’s intention to sell the DoseMe and SinfoníaRx businesses,Business, the Company prepared an impairment test on the related net assets held for sale. Using a market approach to determine fair value, the Company concludeddetermined that there was an excess of fair value less costs to sell over the carrying valuesvalue of the net assets held for sale for the SinfoníaRx and DoseMe businesses did not exceed their fair values, less costs to sell.Business. As a result, the Company recorded goodwillno impairment charges of $6,127 and $15,521 of impairment chargeswere recorded on thegoodwill or net assets held for sale related to the DoseMe and SinfoníaRx businesses for the nine months ended September 30, 2022. For the three months ended September 30, 2022, the Company recorded $5,845 of impairment charges on the net assets held for sale related to the DoseMe and SinfoníaRx businesses. No goodwill impairment charges related to the DoseMe and SinfoníaRx businesses were recorded for the three months ended September 30,March 31, 2022. On March 2, 2023, the Company recorded an additional $4,958 for the final loss on the sale of the SinfoníaRx Business.
The following table summarizessummarizes the resultsnet assets sold as finally reported on the SinfoníaRx Sale Date of operations of the DoseMeMarch 2, 2023, and SinfoníaRx businesses, which are included in loss fromas classified as discontinued operations net of tax inon the consolidated statementsbalance sheets as of operations for the three and nine months ended September 30, 2022 and 2021:December 31, 2022:
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| September 30, | | September 30, | ||||||||
| 2022 |
| 2021 | | 2022 |
| 2021 | ||||
Revenue | $ | 6,407 | | $ | 8,143 | | $ | 23,094 | | $ | 26,961 |
Cost of revenue, exclusive of depreciation and amortization | | 7,055 | | | 6,521 | | | 20,479 | | | 19,755 |
Operating expenses | | 3,879 | | | 5,659 | | | 13,639 | | | 18,827 |
Impairment charges | | 5,845 | | | — | | | 21,648 | | | — |
Loss from discontinued operations before income taxes | | (10,372) | | | (4,037) | | | (32,672) | | | (11,621) |
Income tax (benefit) expense | | (83) | | | 40 | | | (363) | | | 116 |
Net loss from discontinued operations, net of tax | $ | (10,289) | | $ | (4,077) | | $ | (32,309) | | $ | (11,737) |
| | | | | |
| March 2, | | December 31, | ||
| 2023 |
| 2022 | ||
Accounts receivable, net | $ | 3,958 | | $ | 3,707 |
Prepaid expenses and other assets | | 2,228 | | | 2,174 |
Property and equipment, net | | 1,279 | | | 1,320 |
Operating lease right-of-use assets | | 2,213 | | | 3,991 |
Software development costs, net | | 7,500 | | | 7,142 |
Intangible assets, net | | 13,263 | | | 13,263 |
Impairment of carrying value | | (13,383) | | | (13,383) |
Total current assets of discontinued operations | $ | 17,058 | | $ | 18,214 |
| | | | | |
Operating lease liabilities | $ | 1,928 | | $ | 3,525 |
Accounts payable | | 1,159 | | | 3,188 |
Accrued expenses and other liabilities | | 3,684 | | | 5,403 |
Total current liabilities of discontinued operations | $ | 6,771 | | $ | 12,116 |
1213
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The following table summarizes the DoseMe and SinfoníaRx businesses’ current and noncurrent assets and liabilities classified as discontinued operations on the consolidated balance sheets as of September 30, 2022 and December 31, 2021:
| | | | | |
| September 30, | | December 31, | ||
| 2022 |
| 2021 | ||
Cash | $ | 69 | | $ | 273 |
Accounts receivable, net | | 4,964 | | | 4,644 |
Prepaid expenses and other assets | | 796 | | | 554 |
Property and equipment, net | | 1,349 | | | — |
Operating lease right-of-use assets | | 3,732 | | | — |
Software development costs, net | | 6,910 | | | — |
Goodwill | | 1,927 | | | — |
Intangible assets, net | | 22,635 | | | — |
Impairment of carrying value | | (15,521) | | | — |
Total current assets of discontinued operations | $ | 26,861 | | $ | 5,471 |
| | | | | |
Property and equipment, net | $ | — | | $ | 1,485 |
Operating lease right-of-use assets | | — | | | 3,296 |
Software development costs, net | | — | | | 4,466 |
Goodwill | | — | | | 8,053 |
Intangible assets, net | | — | | | 24,675 |
Other assets | | — | | | 123 |
Total noncurrent assets of discontinued operations | $ | — | | $ | 42,098 |
| | | | | |
Operating lease liabilities | $ | 3,458 | | $ | 793 |
Accounts payable | | 3,077 | | | 3,395 |
Accrued expenses and other liabilities | | 4,597 | | | 3,130 |
Total current liabilities of discontinued operations | $ | 11,132 | | $ | 7,318 |
| | | | | |
Noncurrent operating lease liabilities | | — | | $ | 2,608 |
Other long-term liabilities | | — | | | — |
Total noncurrent liabilities of discontinued operations | $ | — | | $ | 2,608 |
The following table summarizes the DoseMeresults of operations of the SinfoníaRx Business, which are included in loss from discontinued operations, net of tax in the consolidated statements of operations for the three months ended March 31, 2023 and SinfoníaRx businesses’2022:
| | | | | |
| Three Months Ended | ||||
| March 31, | ||||
| 2023 |
| 2022 | ||
Revenue | $ | 3,536 | | $ | 7,240 |
Cost of revenue, exclusive of depreciation and amortization | | 4,919 | | | 6,534 |
Operating expenses | | 1,917 | | | 4,720 |
Impairment charges | | 363 | | | — |
Loss on disposal of business | | 4,958 | | | — |
Loss from discontinued operations before income taxes | | (8,621) | | | (4,014) |
Income tax expense | | — | | | 62 |
Net loss from discontinued operations, net of tax | $ | (8,621) | | $ | (4,076) |
The following table summarizes the significant operating non-cashnoncash items and investing activities of discontinued operations:the SinfoníaRx Business:
| | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended | ||||||||
| | September 30, | | March 31, | ||||||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Depreciation and amortization | | $ | 2,780 | | $ | 8,175 | | $ | — | | $ | 2,125 |
Impairment charges | | | 21,648 | | | — | | | 363 | | | — |
Stock-based compensation | | | 2,667 | | | 2,510 | | | 37 | | | 460 |
Loss on disposal of business | | | 4,958 | | | — | ||||||
Purchases of property and equipment | | | (50) | | | (1,323) | | | — | | | (1) |
Software development costs | | | (2,998) | | | (6,155) | | | (358) | | | (1,043) |
4. Revenue
The Company generates the majority of its revenue from its CareVention HealthCare segment.medication fulfillment pharmacy services provided to PACE organizations and technology-enabled solutions tailored to the specific needs of the healthcare organizations that it serves.
Client contracts generally have a term of one to five years and generally renew at the end of the initial term. In most cases, clients may terminate their contracts with a notice period ranging from 0zero 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.services provided. 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
13
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
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 medications, members, claims, medication safety reviews, or user subscriptions that fluctuate throughout the contract. See below for a description of the Company’s revenues.
CareVention HealthCare14
PACE ProductTABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Medication Revenue
The Company provides medication fulfillment pharmacy services to PACE organizations. 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 is 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.
Technology-Enabled Solutions Revenue
PACEValue-Based Care Solutions
The Company provides medication safety services and health plan management services to PACE organizations. These services primarily include medication reviews, risk adjustment services, third-party administration services, and pharmacy benefit management (“PBM”) solutions, and electronic health records software.solutions. 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 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.
For client contracts for which the Company performs both medication fulfillment and PBM services, the Company recognizes revenue using the gross method at the contract price negotiated with its clients and when the Company has concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescription drugs dispensed indirectly through its retail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction, and assumes primary responsibility for fulfilling the promise to provide prescription drugs to its client plan members while performing the related PBM services. These factors indicate that the Company is the principal and, as such, the Company recognizes the total prescription price contracted with clients in revenue.
MedWise HealthCare
Medication Safety Services
The Company also provides medication safety services to other healthcare organizations, 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 clinical 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 services and when medication reviews and clinical assessments are completed. The Company generally bills for the medication reviews and clinical assessments when they are completed. The Company generally bills for the medication safety services on a monthly basis.
14
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Software Subscription and Services
The Company provides software as a service (“SaaS”) solutions which include electronic health records software and solutions that allow for the identification of individuals with high medication-related risk and for optimizing medication therapy. Revenues related to these software servicesSaaS solutions 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 over the contract term as the software services are provided. The Company generally bills for the software services on a monthly basis.
15
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Disaggregation of Revenue
In theThe following table disaggregates the Company’s revenue is disaggregated by operating segment.major revenue category. Substantially all of the Company’s revenue is recognized in the U.S.
| | | | | | | | | | | | | | | | |||
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
| | | 2022 | | | 2021 | | | 2022 | | | 2021 | | | 2023 | | | 2022 |
CareVention HealthCare: | | | | | | | | | | | ||||||||
PACE product revenue | | $ | 59,780 | | $ | 50,321 | | $ | 166,645 | | $ | 139,021 | ||||||
PACE solutions | | | 16,416 | | | 14,707 | | | 47,604 | | | 42,973 | ||||||
| | $ | 76,196 | | $ | 65,028 | | $ | 214,249 | | $ | 181,994 | ||||||
MedWise HealthCare: | | | | | | | | | | | ||||||||
Medication safety services | | $ | 843 | | $ | 2,820 | | $ | 2,336 | | $ | 8,817 | ||||||
Medication revenue | | $ | 68,750 | | $ | 50,973 | ||||||||||||
Technology-enabled solutions revenue: | | | | | | |||||||||||||
Value-based care solutions | | | 15,311 | | 12,769 | |||||||||||||
Software subscription and services | | | 62 | | | 62 | | | 223 | | | 174 | | | 4,216 | | | 3,368 |
| | $ | 905 | | $ | 2,882 | | $ | 2,559 | | $ | 8,991 | ||||||
Total revenue | | $ | 77,101 | | $ | 67,910 | | $ | 216,808 | | $ | 190,985 | | $ | 88,277 | | $ | 67,110 |
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 one year.
The following table provides information about the Company’s contract assets and contract liabilities from contracts with clients as of September 30, 2022March 31, 2023 and December 31, 2021.2022.
| | | | | | | | | | | | |
| | September 30, | | December 31, | | March 31, | | December 31, | ||||
| | 2022 |
| 2021 | | 2023 |
| 2022 | ||||
Contract assets | | $ | 15,072 | | $ | 12,695 | | $ | 16,643 | | $ | 15,115 |
Contract liabilities | | | 4,110 | | | 2,191 | | | 3,115 | | | 3,435 |
1516
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Significant changes in the contract assets and the contract liabilities balances during the period are as follows:
| | | | | | |
| | September 30, | | March 31, | ||
| | 2022 | | 2023 | ||
Contract assets: | | | | | | |
Contract assets, beginning of period | | $ | 12,695 | | $ | 15,115 |
Decreases due to cash received | | | (12,466) | | | (9,001) |
Changes to the contract assets at the beginning of the period as a result of changes in estimates | | | 451 | | | 643 |
Changes during the year, net of reclassifications to receivables | | | 14,392 | |||
Changes during the period, net of reclassifications to receivables | | | 9,886 | |||
Contract assets, end of period | | $ | 15,072 | | $ | 16,643 |
| | | | | | |
Contract liabilities: | | | | | | |
Contract liabilities, beginning of period | | $ | 2,191 | | $ | 3,435 |
Revenue recognized that was included in the contract liabilities balance at the beginning of the period | | | (1,903) | | (1,497) | |
Increases due to cash received, excluding amounts recognized as revenue during the year | | | 3,822 | |||
Increases due to cash received, excluding amounts recognized as revenue during the period | | | 1,177 | |||
Contract liabilities, end of period | | $ | 4,110 | | $ | 3,115 |
During the ninethree months ended September 30, 2021,March 31, 2022, the Company recognized $1,404$1,432 of revenue that was included in the December 31, 20202021 contract liability balance of $1,982.$2,191.
5. 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.
The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Numerator (basic and diluted): | | | | | | | | | | | | | | | | | | |
Net loss from continuing operations | | $ | (25,880) | | $ | (11,756) | | $ | (58,963) | | $ | (39,200) | | $ | (7,074) | | $ | (20,392) |
Net loss from discontinued operations | | | (14,185) | | | (5,355) | | | (58,905) | | | (18,484) | | | (8,824) | | | (7,801) |
Net loss | | $ | (40,065) | | $ | (17,111) | | $ | (117,868) | | $ | (57,684) | | $ | (15,898) | | $ | (28,193) |
Denominator (basic and diluted): | | | | | | | | | | | | | | | | | | |
Weighted average shares of common stock outstanding, basic and diluted | | | 24,350,182 | | | 23,407,391 | | | 24,075,666 | | | 23,230,138 | | | 25,244,720 | | | 23,865,801 |
| | | | | | | | | | | | | | | | | | |
Net loss per share from continuing operations, basic and diluted | | $ | (1.07) | | $ | (0.50) | | $ | (2.45) | | $ | (1.68) | | $ | (0.28) | | $ | (0.85) |
Net loss per share from discontinued operations, basic and diluted | | | (0.58) | | | (0.23) | | | (2.45) | | | (0.80) | | | (0.35) | | | (0.33) |
Total net loss per share, basic and diluted | | $ | (1.65) | | $ | (0.73) | | $ | (4.90) | | $ | (2.48) | | $ | (0.63) | | $ | (1.18) |
1617
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The following potential common shares, presented based on amounts outstanding as of September 30,March 31, 2023 and 2022, and 2021, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect.
| | | | | | | | |
| | September 30, | | March 31, | ||||
|
| 2022 |
| 2021 |
| 2023 |
| 2022 |
Stock options to purchase common stock | | 1,402,931 | | 1,671,680 | | 981,476 | | 1,538,993 |
Unvested restricted stock and restricted stock units | | 2,217,033 | | 1,624,523 | | 1,624,848 | | 1,938,780 |
Common stock warrants | | 4,646,393 | | 4,646,393 | | 4,646,393 | | 4,646,393 |
Conversion of convertible senior subordinated notes | | 4,646,393 | | 4,646,393 | | 4,646,393 | | 4,646,393 |
| | 12,912,750 | | 12,588,989 | | 11,899,110 | | 12,770,559 |
For the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, shares related to the conversion of the convertible senior subordinated notes were included in the table above using the if-converted method.
For the threeperiod ended March 31, 2023 and nine months ended September 30, 2022, shares related to performance stock units were excluded from the table above, as the performance conditions were unmet as of September 30,March 31, 2023 and 2022 (see Note 13)14).
6. Other Current Assets
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, other current assets consisted of the following:
| | | | | | |
| | September 30, 2022 |
| December 31, 2021 | ||
Contract assets | | $ | 15,072 | | $ | 12,695 |
Non-trade receivables | | | 1,235 | | | 3,289 |
Divestiture related consideration receivables | | | 1,477 | | | — |
Other | | | 2,655 | | | 2,049 |
Total other current assets | | $ | 20,439 | | $ | 18,033 |
| | | | | | |
| | March 31, 2023 |
| December 31, 2022 | ||
Contract assets | | $ | 16,643 | | $ | 15,115 |
Divestiture-related contingent consideration receivables | | | 900 | | | — |
Non-trade receivables | | | 665 | | | 719 |
Other | | | 2,536 | | | 2,353 |
Total other current assets | | $ | 20,744 | | $ | 18,187 |
7. Property and EquipmentDivestiture-Related Notes Receivable
Accumulated depreciationIn connection with the sale of the DoseMe Business on January 20, 2023, the Company and DoseMe Operations executed a note receivable with principal of $3,000 and an annual interest rate of 7.0%, which matures on January 20, 2027. Pursuant to the terms of the sale agreement, the principal of the note receivable was $18,890 and $17,427adjusted for certain customary post-closing adjustments to $2,905 as of September 30, 2022March 31, 2023. The note receivable was recorded at the estimated fair value of $1,610 on the DoseMe Sale Date of January 20, 2023 utilizing an imputed interest rate of 21.2%, which considers the risk-free rate corresponding to the term of the note receivable and risk premium attributed to the buyer’s credit rating for a secured or collateralized instrument. The divestiture-related note receivable is recorded in other assets on the Company’s consolidated balance sheet.
In connection with the sale of the SinfoníaRx Business on March 2, 2023, the Company and Symphony executed a note receivable with principal of $3,600 and an annual interest rate of 3.0%, which matures on December 31, 2021, respectively. Depreciation expense2023. The note receivable was recorded at the estimated fair value of $3,480 on propertythe SinfoníaRx Sale Date of March 2, 2023 utilizing an imputed interest rate of 7.0%, which considers the risk-free rate corresponding to the term of the note receivable and equipmentrisk premium attributed to the buyer’s credit rating for a secured or collateralized instrument.
On the DoseMe Sale Date and SinfoníaRx Sale Date, the Company estimated an aggregate allowance for credit losses of $151 on divestiture-related notes receivable based on the expected future cash flows and assessment of debtor’s credit quality. No additional amounts were charged to the allowance for credit losses for the three months ended September 30, 2022 and 2021 was $801 and $825, respectively. Depreciation expense on property and equipment for the nine months ended September 30, 2022 and 2021 was $2,862 and $2,672, respectively.
8. Software Development Costs
The Company capitalizes certain costs incurred in connection with obtaining or developing its proprietary software platforms, which support its product and service contracts. These costs include third-party contractors and payroll for employees directly involved with the software development, including external direct costs of material and services, and interest expense related to the borrowings attributable to software development. As of September 30, 2022 and DecemberMarch 31, 2021, capitalized software costs consisted of the following:
| | | | | |
| September 30, 2022 |
| December 31, 2021 | ||
Software development costs | $ | 51,305 | | $ | 49,481 |
Less: accumulated amortization | | (18,699) | | | (20,227) |
Software development costs, net | $ | 32,606 | | $ | 29,254 |
| | | | | |
Capitalized software development costs included above not yet subject to amortization | $ | 4,505 | | $ | 5,328 |
2023.
1718
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The following summarizes the divestiture-related notes receivable balances as of March 31, 2023:
| | | | | | | | | |
| | | | | Allowance for | | Balance as of | ||
| | Amortized Cost |
| Credit Losses |
| March 31, 2023 | |||
Divestiture-related note receivable current | | $ | 3,492 | | $ | — | | $ | 3,492 |
Divestiture-related note receivable long-term | | | 1,629 | | | (151) | | | 1,478 |
Total | | $ | 5,121 | | $ | (151) | | $ | 4,970 |
8. Property and Equipment
Accumulated depreciation was $20,112 and $19,024 as of March 31, 2023 and December 31, 2022, respectively. Depreciation expense on property and equipment for the three months ended March 31, 2023 and 2022 was $926 and $847, respectively.
9. 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 third-party professional services, payroll costs for employees directly involved with the software development, and interest expense related to the borrowings attributable to software development. As of March 31, 2023 and December 31, 2022, capitalized software costs consisted of the following:
| | | | | |
| March 31, 2023 |
| December 31, 2022 | ||
Software development costs | $ | 58,368 | | $ | 54,853 |
Less: accumulated amortization | | (25,936) | | | (22,261) |
Software development costs, net | $ | 32,432 | | $ | 32,592 |
| | | | | |
Capitalized software development costs included above not yet subject to amortization | $ | 6,173 | | $ | 4,997 |
Amortization expense for the three months ended September 30,March 31, 2023 and 2022 was $3,675 and 2021 was $3,224 and $2,579, respectively. Amortization expense for the nine months ended September 30, 2022 and 2021 was $9,005 and $6,682,$3,200, respectively.
During the first quarter of 2022, the Company became aware of changes in circumstances impacting the future functionalityapplication of certain capitalized software development costs in the MedWise HealthCare segment and determined an indicator of impairment was present. The Company evaluated the recoverability of the related long-lived assets by comparing their carrying amount to the future net undiscounted cash flows expected to be generated by the assets to determine if the carrying value was not recoverable. The recoverability test indicated that certain capitalized software development costs were impaired and, asimpaired. As a result, the Company usedrecognized an income approachimpairment charge equal to measure the fair value of the assets and recognized non-cash impairment charges of $4,062 for the nine monthsperiod ended September 30, 2022. There were no identified circumstances that would impact the future functionality of capitalized software development costs during the three months ended September 30,March 31, 2022.
9.10. Goodwill and Intangible Assets
The Company’s goodwill as of September 30, 2022March 31, 2023 and December 31, 20212022 was $115,323, which relates to the Company’s CareVention HealthCare segment.$115,323.
During the first and second quartersquarter of 2022, the Company experienced a sustained decline in the market price of its common stock and determined that an indicator of impairment was present. The Company performed a quantitative goodwill impairment assessment as of June 30,March 31, 2022, estimating the fair value of the Company’s reporting unit using a market approach. Based on the analysis performed, the Company determined that the estimated fair value of the Company’s reporting unit exceeded its carrying value, and, as a result, goodwill was not impaired as of June 30,March 31, 2022. No indicators of impairment were identified for the three months ended September 30, 2022.
Intangible assets consisted of the following as of September 30, 2022 and DecemberMarch 31, 2021:
| | | | | | | | | | | |
| | Weighted Average | | | | | | | | | |
| | Amortization Period | | | | | Accumulated | | Intangible | ||
|
| (in years) |
| Gross Value |
| Amortization |
| Assets, net | |||
September 30, 2022 | | | | | | | | | | | |
Trade names | | 2.6 | | $ | 1,340 | | $ | (982) | | $ | 358 |
Client relationships | | 11.7 | | | 51,264 | | | (14,438) | | | 36,826 |
Non-competition agreements | | 5.0 | | | 1,640 | | | (1,221) | | | 419 |
Developed technology | | 6.2 | | | 14,720 | | | (12,076) | | | 2,644 |
Domain name | | 10.0 | | | 59 | | | (31) | | | 28 |
Total intangible assets | | | | $ | 69,023 | | $ | (28,748) | | $ | 40,275 |
| | | | | | | | | | | |
| | Weighted Average | | | | | | | | | |
| | Amortization Period | | | | | Accumulated | | Intangible | ||
|
| (in years) |
| Gross Value |
| Amortization |
| Assets, net | |||
December 31, 2021 | | | | | | | | | | | |
Trade names | | 2.9 | | $ | 1,340 | | $ | (853) | | $ | 487 |
Client relationships | | 11.7 | | | 51,264 | | | (11,042) | | | 40,222 |
Non-competition agreements | | 5.0 | | | 1,640 | | | (975) | | | 665 |
Developed technology | | 6.2 | | | 14,720 | | | (10,768) | | | 3,952 |
Domain name | | 10.0 | | | 59 | | | (27) | | | 32 |
Total intangible assets | | | | $ | 69,023 | | $ | (23,665) | | $ | 45,358 |
Amortization expense for intangible assets for the three months ended September 30, 2022 and 2021 was $1,694 and $1,907, respectively. Amortization expense for intangible assets for the nine months ended September 30, 2022 and 2021 was $5,083 and $5,738, respectively.2023.
1819
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The estimated amortization expense for the remainder of 2022 and each of the next five years and thereafter is as follows:
| | | |
Years Ending December 31, |
| | |
2022 (October 1 – December 31) | | $ | 1,669 |
2023 | | | 6,162 |
2024 | | | 4,684 |
2025 | | | 4,466 |
2026 | | | 4,338 |
2027 | | | 4,271 |
Thereafter | | | 14,685 |
Total estimated amortization expense | | $ | 40,275 |
Intangible assets consisted of the following as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| | Weighted Average | | | | | | | | | |
| | Amortization Period | | | | | Accumulated | | Intangible | ||
|
| (in years) |
| Gross Value |
| Amortization |
| Assets, net | |||
March 31, 2023 | | | | | | | | | | | |
Trade names | | 2.6 | | $ | 1,340 | | $ | (1,018) | | $ | 322 |
Client relationships | | 11.7 | | | 51,264 | | | (16,860) | | | 34,404 |
Non-competition agreements | | 5.0 | | | 1,640 | | | (1,385) | | | 255 |
Developed technology | | 6.2 | | | 14,720 | | | (12,999) | | | 1,721 |
Domain name | | 10.0 | | | 59 | | | (34) | | | 25 |
Total intangible assets | | | | $ | 69,023 | | $ | (32,296) | | $ | 36,727 |
| | | | | | | | | | | |
| | Weighted Average | | | | | | | | | |
| | Amortization Period | | | | | Accumulated | | Intangible | ||
|
| (in years) |
| Gross Value |
| Amortization |
| Assets, net | |||
December 31, 2022 | | | | | | | | | | | |
Trade names | | 2.6 | | $ | 1,340 | | $ | (1,000) | | $ | 340 |
Client relationships | | 11.7 | | | 51,264 | | | (15,781) | | | 35,483 |
Non-competition agreements | | 5.0 | | | 1,640 | | | (1,303) | | | 337 |
Developed technology | | 6.2 | | | 14,720 | | | (12,580) | | | 2,140 |
Domain name | | 10.0 | | | 59 | | | (33) | | | 26 |
Total intangible assets | | | | $ | 69,023 | | $ | (30,697) | | $ | 38,326 |
Amortization expense for intangible assets for the three months ended March 31, 2023 and 2022 was $1,599 and $1,694, respectively.
The estimated amortization expense for the remainder of 2023 and each of the next five years and thereafter is as follows:
| | | |
Years Ending December 31, |
| | |
2023 (April 1 – December 31) | | $ | 4,283 |
2024 | | | 4,684 |
2025 | | | 4,466 |
2026 | | | 4,338 |
2027 | | | 4,271 |
2028 | | | 3,681 |
Thereafter | | | 11,004 |
Total estimated amortization expense | | $ | 36,727 |
20
10.TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
11. Accrued Expenses and Other Liabilities
As of September 30, 2022March 31, 2023 and December 31, 2021,2022, accrued expenses and other liabilities consisted of the following:
| | | | | | | | | | | | |
|
| September 30, 2022 |
| December 31, 2021 |
| March 31, 2023 |
| December 31, 2022 | ||||
Employee related expenses | | $ | 8,961 | | $ | 8,595 | | $ | 9,851 | | $ | 10,780 |
Contract liability | | | 3,864 | | | 2,015 | | | 2,576 | | | 3,309 |
Customer deposits | | | 903 | | | 904 | | | 904 | | | 904 |
Client funds obligations* | | | 7,389 | | | 6,038 | | | 6,240 | | | 12,372 |
Contract labor | | | 2,852 | | | 838 | ||||||
Divestiture closing fees | | | 3,000 | | | — | ||||||
Interest | | | 711 | | | 2,281 | | | 711 | | | 2,133 |
Vendor financing arrangements | | | 176 | | | — | | | 627 | | | 568 |
Professional fees | | | 2,161 | | | 1,327 | ||||||
Professional fees and contract labor | | | 1,194 | | | 751 | ||||||
Consideration payable to customer | | | 24,500 | | | 15,971 | | | 22,047 | | | 20,311 |
Income and non-income taxes payable | | | 95 | | | 15 | | | 100 | | | 8 |
Other expenses | | | 4,895 | | | 3,013 | | | 5,469 | | | 4,609 |
Total accrued expenses and other liabilities | | $ | 59,507 | | $ | 40,997 | | $ | 49,719 | | $ | 55,745 |
*This amount represents client funds held by the Company, with an offsetting amount included in restricted cash.
11. Line12. Lines of Credit and Long-Term Debt
(a) LineLines of Credit
On December 18, 2020, the Company and its subsidiaries entered into a Loan and Security Agreement (the “2020 Credit Facility”), with Western Alliance Bank (“WAB”). The 2020 Credit Facility provided 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.
Amounts under the 2020 Credit Facility could be borrowed, repaid, and re-borrowed from time to time until the maturity date on May 16, 2025, and were permitted to be used for, among other things, working capital and other general corporate purposes. Loans under the 2020 Credit Facility bore interest at a rate equal to the LIBOR rate plus 3.25%. The obligations under the 2020 Credit Facility were secured by all of the assets of the borrowers, subject to certain exceptions and exclusions as set forth in the 2020 Credit Facility. The 2020 Credit Facility was subject to a commitment fee of 0.50% of the total commitment amount payable on the closing date and 0.25% of the total commitment amount payable on each anniversary thereafter. Additionally, the 2020 Credit Facility was subject to an unused line fee.
19
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
On August 1, 2022, the Company entered into a payoff letter with WAB with respect to the 2020 Credit Facility, pursuant to which the Company voluntarily elected to pay all amounts outstanding, including principal and interest, under the 2020 Credit Facility and related loan documents (the “Pay Off”) using cash on hand and proceeds from the sale of the PrescribeWellness Business. Accordingly, the Company paid a total of $57,406 to WAB for the Pay Off and terminated the 2020 Credit Facility and related loan documents (the “Termination”). The Company did not incur any prepayment or early termination penalties in connection with either the Pay Off or the Termination. Upon the Termination and in connection with the Pay Off, all security interests and pledges granted to the secured parties thereunder were terminated and released.
Interest expense on the 2020 Credit Facility was $266 and $1,363 for the three and nine months ended September 30, 2022, respectively. Interest expense on the 2020 Credit Facility was $314 and $842 for the three and nine months ended September 30, 2021, respectively.
In connection with the 2020 Credit Facility, the Company recorded deferred financing costs of $1,534. The Company amortized the associated deferred financing costs associated with the 2020 Credit Facility to interest expense using the effective-interest method over the term ofterm. The Company amortized $137 to interest expense for the agreement.three months ended March 31, 2022 for deferred financing costs. On August 1, 2022, in connection with the Termination, the remaining balance of deferred financing costs was amortized to interest expense. The Company amortized $698 and $973 to interestInterest expense on the 2020 Credit Facility was $460 for the three and nine months ended September 30, 2022, respectively, for deferred financing costs. The Company amortized $136March 31, 2022.
21
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and $404 to interest expense during the three and nine months ended September 30, 2021, respectively, for deferred financing costs.per share data)
(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 2026 Notes will mature on February 15, 2026, unless earlier converted or repurchased. The initial conversion rate for the notes2026 Notes is 14.2966 shares of the Company’s common stock per $1 principal amount of the 2026 Notes. This conversion rate is equal to an initial conversion price of approximately $69.95 per share of the Company’s common stock. Net proceeds from the 2026 Notes were used to pay the cost of convertible note hedge transactions (described below), repay amounts outstanding under the Company’s 2015 Line of Credit, fund the PrescribeWellness acquisition, fund the payment of the acquisition-related contingent consideration liabilities, and for general corporate purposes.
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 five business day period after any five 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 ourits common stock, cash, or a combination thereof at the Company’s option. As of September 30, 2022,March 31, 2023, none of the conditions allowing holders of the 2026 Notes to convert had been met. Debt issuance costs related to the 2026 Notes of $9,372 are being amortized to interest expense using the effective interest method over the contractual term, resulting in an effective interest rate of 2.20%.
20
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
During the three months ended September 30, 2022,March 31, 2023, the Company recognized $1,757$1,760 of interest expense related to the 2026 Notes, of which $1,422 was paid or accrued and $335$338 was non-cashnoncash accretion of the debt discounts recorded.
During the ninethree months ended September 30,March 31, 2022, the Company recognized $5,265$1,753 of interest expense related to the 2026 Notes, of which $4,266$1,422 was paid or accrued and $999$331 was non-cashnoncash accretion of the debt discounts recorded.
During the three months ended September 30, 2021, the Company recognized $1,750 of interest expense related to the 2026 Notes, of which $1,423 was paid or accrued, and $327 was non-cash accretion of the debt discounts recorded. During the nine months ended September 30, 2021, the Company recognized $5,243 of interest expense related to the 2026 Notes, of which $4,266 was paid or accrued, and $977 was non-cash accretion of the debt discounts recorded. In addition, unpaid additional interest payable as a result of the failure to remove the restrictive legend on the 2026 Notes had accrued on the 2026 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 nine months ended September 30, 2021.
As of September 30, 2022,March 31, 2023, total accrued interest payable related to the 2026 Notes was $711, which is included in accrued expenses and other liabilities on the consolidated balance sheets. The 2026 Notes havehad a carrying value of $320,297$320,972 as of September 30, 2022. March 31, 2023. The 2026 Notes are classified as long-term debt on the Company’s consolidated balance sheets, and will be until such 2026 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 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
22
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
own stock and are considered equity classified, the convertible note hedges and warrants are recorded in stockholders’ equity (deficit), 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.
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 September 30, 2022,March 31, 2023, no warrants havehad been exercised and all warrants to purchase shares of the Company’s common stock were outstanding.
21
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
(d) Long-Term Debt
The following table represents the total long-term debt obligations of the Company at September 30, 2022March 31, 2023 and December 31, 2021:2022:
| | | | | | | | | | | | |
|
| September 30, 2022 |
| December 31, 2021 |
| March 31, 2023 |
| December 31, 2022 | ||||
Convertible senior subordinated notes | | $ | 235,272 | | $ | 325,000 | | $ | 235,272 | | $ | 235,272 |
Convertible senior subordinated notes - related party | | | 89,728 | | | — | | | 89,728 | | | 89,728 |
Unamortized discount, including debt issuance costs, on convertible senior subordinated notes | | | (4,703) | | | (5,701) | | | (4,028) | | | (4,366) |
Total long-term debt, net | | $ | 320,297 | | $ | 319,299 | | $ | 320,972 | | $ | 320,634 |
12.13. Income Taxes
For the three months ended September 30,March 31, 2023 and 2022, and 2021, the Company recorded income tax benefit of $7 and income tax expense of $82,$105 and $216, respectively, which resulted in effective tax rates of 0.0% and (0.7)%, respectively.
For the nine months ended September 30, 2022 and 2021, the Company recorded income tax expense of $368 and $284, respectively, which resulted in effective tax rates of (0.6)(1.5)% and (0.7)(1.1)%, respectively.
The effective tax rates differ from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that is currently limiting the realizability of the Company’s net deferred tax assets as of the end of the periods presented. As of September 30,March 31, 2023 and 2022, the Company has recorded a full valuation allowance against its deferred tax assets. Accordingly, the tax benefit was limited due to unbenefited losses in the three and nine months ended September 30,March 31, 2023 and 2022, and 2021, respectively. 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.
On February 12, 2021, the Company 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, the Company recorded a deferred tax asset of $26,313 and a corresponding $26,313 increase to its valuation allowance.
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”). In accordance with the terms of the 2016 Plan, the share reserve increased by 1,283,3211,356,454 shares on February 25, 2022.March 10, 2023. As of September 30, 2022, 1,123,371March 31, 2023, 3,092,240 shares were available for future grants under the 2016 Plan.
The following stock-based compensation information disclosed below includes results of both continuing and discontinued operations.
2223
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Restricted Common Stock and Restricted Stock UnitsAwards
The Company issues restricted stock awards and restricted stock units pursuant to the 2016 Plan to employees and non-employee directors. Restricted stock awards and restricted stock units generally vest over a one- to four-year period and the unvested portion of these awards is forfeited if the employee or non-employee director leaves the Company before the vesting period is completed. The grant-date fair value of restricted stock awards and restricted stock units is determined using the Company’s closing stock price at grant date.
The following table summarizes the aggregate restricted stock award activity, inclusive of performance basedperformance-based restricted stock awards under the 2016 Plan for the three months ended March 31, 2023:
| | | | | |
| | | | Weighted | |
| | | | average | |
| | Number | | grant-date | |
|
| of shares |
| fair value | |
Outstanding at December 31, 2022 | | 2,193,444 | | $ | 18.33 |
Granted | | 25,167 | | | 5.16 |
Vested | | (465,824) | | | 28.83 |
Forfeited | | (232,208) | | | 32.28 |
Outstanding at March 31, 2023 | | 1,520,579 | | $ | 12.77 |
For the three months ended March 31, 2023 and 2022, $2,200 and $7,269, respectively, of expense was recognized related to restricted stock awards, excluding performance-based restricted stock awards described below. As of March 31, 2023, there was unrecognized compensation expense of $16,285 related to unvested restricted stock awards, excluding performance-based restricted stock awards described below, under the 2016 Plan, which are expected to be recognized over a weighted average period of 2.1 years.
Restricted Stock Units
The Company issues restricted stock units pursuant to the 2016 Plan to employees and non-employee directors. Restricted stock units generally vest over a one to four-year period and the unvested portion of these awards is forfeited if the employee or non-employee director leaves the Company before the vesting period is completed. The grant-date fair value of restricted stock units is determined using the Company’s closing stock price at the grant date.
The following table summarizes the aggregate restricted stock unit activity under the 2016 Plan for the ninethree months ended September 30, 2022:March 31, 2023:
| | | | | | | | | | |
| | | | Weighted | | | | Weighted | ||
| | | | average | | | | average | ||
| | Number | | grant-date | | Number | | grant-date | ||
|
| of shares |
| fair value | | of shares |
| fair value | ||
Outstanding at December 31, 2021 | | 2,196,566 | | $ | 40.19 | |||||
Outstanding at December 31, 2022 | | 109,453 | | $ | 6.71 | |||||
Granted | | 1,935,883 | | | 4.44 | | 2,400 | | | 5.57 |
Vested | | (1,224,471) | | | 34.32 | |||||
Forfeited | | (676,723) | | | 16.40 | |||||
Outstanding at September 30, 2022 | | 2,231,255 | | $ | 19.61 | |||||
Outstanding at March 31, 2023 | | 111,853 | | $ | 6.69 |
The table above includes 14,2227,584 restricted stock units which had vested but had not been issued as of September 30, 2022.March 31, 2023.
For the three months ended September 30,March 31, 2023 and 2022, $57 and 2021, an aggregate of $13,061 and $6,447$118, respectively, of expense respectively, was recognized related to restricted stock awards and restricted stock units, excluding performance-based restricted stock awards described below.
For the nine months ended September 30, 2022 and 2021, an aggregate of $26,129 and $22,846 of expense, respectively, was recognized related to restricted stock awards and restricted stock units, excluding performance-based restricted stock awards as described below.units. As of September 30, 2022,March 31, 2023, there was unrecognized compensation expense of $30,976$274 related to unvested restricted stock awards and unvested restricted stock units, excluding performance-based restricted stock awards described below, under the 2016 Plan, which isare expected to be recognized over a weighted average period of 2.43.3 years.
Expense related to restricted stock awards for the three and nine months ended September 30, 2022 includes $8,143 for the accelerated vesting of unvested shares of restricted stock related to separation agreements with two retired named executive officers. See Note 17 for additional information.
Performance-Based Equity Awards
On October 29, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 26,400 shares of restricted stock to certain employees, of which 1,400 expired on April 30, 2021 and 12,500 expired on December 31, 2021. The remaining 12,500 shares fully vested subject to the achievement of certain milestones on December 31, 2021. The awards had 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 were recognized over the service period based upon the Company’s assessment of the probability that the performance conditions would be achieved. The Company recognized $194 and $556 of stock-based compensation expense related to these grants for the three and nine months ended September 30, 2021, respectively.
2324
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Performance-Based Equity Awards
On April 27, 2021, pursuant to the 2016 Plan, the Board approved awards of performance stock units to certain employees. Each award reflects a target number of shares (“Target 2021 Shares”) that may be issued to the award recipient. The awards are earned upon the Company’s achievement of certain revenue performance targets during the three-year performance period ending December 31, 2023. Depending on the results achieved during the performance period, the actual number of shares that a grant recipient may receive at the end of the performance period may range from 0% to 200% of the Target 2021 Shares granted. The performance stock unit awards have a grant-date fair value of $44.13 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 performance period based upon the Company’s assessment of the probability that the performance targets will be achieved. The Company did not recognize any stock-based compensation expense related to the performance stock units for the three and nine months ended September 30,March 31, 2023 and 2022, as the achievement of the underlying performance targets was considered unlikely. During the ninethree months ended September 30, 2022, 47,175March 31, 2023, 14,650 performance stock units expired. As of September 30, 2022,March 31, 2023, the number of Target 2021 Shares was 45,550 shares. As of September 30, 2022,30,900 shares, the maximum number of achievable performance stock units was 91,10061,800, and the maximum unrecognized compensation expense was $4,020.$2,727.
On August 22, 2022, pursuant to the 2016 Plan, the Board approved awards of performance stock units to certain executives. Each award reflects a target number of shares (“Target 2022 Shares”) that may be issued to the award recipient. The awards are earned upon the Company’s achievement of certain market performance targets during the three-year performance period ending December 31, 2024. Depending on the results achieved during the performance period, the actual number of shares that a grant recipient may receive at the end of the performance period may range from 0% to 200% of the Target 2022 Shares granted. The performance stock unit awards have a grant-date fair value of $4.38 per share based on the fair value of the Company’s stock price at grant date and the expected vesting units, taking into consideration the possibilities of all possible performance achievement levels. Stock-based compensation costs associated with these grants are recognized over the performance period. The Company recognized $69$160 of stock-based compensation expense related to the performance stock units for the three and nine months ended September 30, 2022.March 31, 2023. As of September 30, 2022,March 31, 2023, the number of Target 2022 Shares was 350,000 shares. As of September 30, 2022,shares, the maximum number of achievable performance stock units was 700,000, and the remaining unrecognized compensation expense was $1,463.$1,139.
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 nine months ended September 30, 2021, the Company recorded $58 of expense related to these stock awards.
During the first quarter of 2022, the Board approved grants of stock awards to certain non-employee directors and employees pursuant to the 2016 Plan. The awards provided for the issuance of 16,471 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 $5.57 per share. For the ninethree months ended September 30,March 31, 2022, the Company recorded $92 of expense related to these stock awards.
During the second quarter of 2022, the Board approved grants of stock awards to certain non-employee directors pursuant to the 2016 Plan. Stock Options
The awards provided for the issuance of 12,262 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 $3.64 per share. For the nine months ended September 30, 2022, the Company recorded $45$51 and $1,130 of stock-based compensation expense related to thesethe vesting of employee and non-employee director stock awards.options for the three months ended March 31, 2023 and 2022, respectively. The Company records forfeitures as they occur.
During the third quarter of 2022, the Board approvedNo grants offor employee and non-employee director stock awards to certain employees pursuant to the 2016 Plan. The awards provided for the issuance of 615,066 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 $5.01 per share. Foroptions were made during the three and nine months ended September 30, 2022, the Company recorded $3,081 of expense related to these stock awards.March 31, 2023 and 2022.
2425
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Stock Options
The Company recorded $1,025 and $1,586 of stock-based compensation expense related to employee and non-employee director stock options for the three months ended September 30, 2022 and 2021, respectively. The Company recorded $3,121 and $5,502 of stock-based compensation expense related to employee and non-employee stock options for the nine months ended September 30, 2022 and 2021, respectively. The Company records forfeitures as they occur.
No grants for employee and non-employee stock options were made during the nine months ended September 30, 2022. The table below sets forth the weighted average assumptions for employee grants during the nine months ended September 30, 2021:
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The weighted average grant date fair value of employee options granted during the nine months ended September 30, 2021 was $28.26 per share.
The following table summarizes stock option activity under the 2016 Plan for the ninethree months ended September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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, 2021 | | 1,604,226 | | $ | 29.90 | | |
| | | ||||||||||
Outstanding at December 31, 2022 | | 1,177,805 | | $ | 28.39 | | |
| | | ||||||||||
Exercised | | (12,830) | | | 4.96 | | | | | | | (71,562) | | | 3.11 | | | | | |
Forfeited | | (188,465) | | | 44.18 | | | | | | | (124,767) | | | 20.97 | | | | | |
Outstanding at September 30, 2022 | | 1,402,931 | | $ | 28.21 | | 3.8 | | $ | 260 | ||||||||||
Options vested and expected to vest at September 30, 2022 | | 1,402,931 | | $ | 28.21 | | 3.8 | | $ | 260 | ||||||||||
Exercisable at September 30, 2022 | | 1,370,302 | | $ | 27.57 | | 3.8 | | $ | 260 | ||||||||||
Outstanding at March 31, 2023 | | 981,476 | | $ | 31.17 | | 3.8 | | $ | 171 | ||||||||||
Options vested and expected to vest at March 31, 2023 | | 981,476 | | $ | 31.17 | | 3.8 | | $ | 171 | ||||||||||
Exercisable at March 31, 2023 | | 980,475 | | $ | 31.15 | | 3.8 | | $ | 171 |
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 ninethree months ended September,March 31, 2023 and 2022 was $150 and 2021 was $109 and $11,113,$106, respectively.
As of September 30, 2022,March 31, 2023, there was $867$22 of total unrecognized compensation cost related to nonvestedunvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 0.40.5 years.
Cash received from option exercises for the ninethree months ended September 30,March 31, 2023 and 2022 was $219 and 2021 was $64 and $3,683,$60, respectively.
25
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)common stock, with a fair value of $622 for employee payroll taxes owed for the vesting of restricted stock awards.
The Company recorded total stock-based compensation expense for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 in the following expense categories of its consolidated statements of operations:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | ||||||||||||
| | September 30, | | September 30, | | March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Cost of revenue - product | | $ | 331 | | $ | 256 | | $ | 778 | | $ | 852 | ||||||
Cost of revenue - service | | | 793 | | | 883 | | | 2,264 | | | 2,631 | ||||||
Cost of medication revenue | | $ | 112 | | $ | 224 | ||||||||||||
Cost of technology-enabled solutions revenue | | | 367 | | | 901 | ||||||||||||
Research and development | | | 1,741 | | | 1,261 | | | 4,021 | | | 4,533 | | | 201 | | | 1,519 |
Sales and marketing | | | 285 | | | 209 | | | 593 | | | 1,251 | | | 86 | | | 258 |
General and administrative | | | 12,228 | | | 4,292 | | | 20,517 | | | 14,833 | | | 1,664 | | | 4,801 |
Discontinued operations | | | 1,858 | | | 1,110 | | | 4,364 | | | 4,862 | | | 38 | | | 906 |
Total stock-based compensation expense | | $ | 17,236 | | $ | 8,011 | | $ | 32,537 | | $ | 28,962 | | $ | 2,468 | | $ | 8,609 |
Employee Stock Purchase Plan
In February 2021, the Board, subject to stockholder approval, adopted the Tabula Rasa HealthCare, Inc. Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase common shares of Company stock through payroll deductions at a 15% discount off the lower of (i) the fair market value per share of common stock on the start date of the applicable offering period or (ii) the fair market value per share of common stock on the purchase date. The ESPP was approved by the Company’s stockholders at the 2021 annual meeting of stockholders in June 2021.
26
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
The number of shares of common stock reserved for issuance under the ESPP will initially be 480,097 shares, subject to adjustment as provided in the ESPP, all of which remained available as of September 30, 2022.March 31, 2023.
14.15. Fair Value Measurements
The Company’s financial instruments consist of money market funds, accounts receivable, client claims receivables, contract assets, contingent consideration receivable, accounts payable, client claims payable, contract liabilities, accrued expenses, vendor financing arrangements, and long-term debt, which includes the Company’s convertible senior subordinated notes. The carrying values of accounts receivable, client claims receivables, contract assets, accounts payable, client claims payable, contract liabilities, and accrued expenses are representative of their fair values due to the relatively short-term nature of those instruments. Vendor financing arrangements are recorded at net carrying value, which approximates fair value. See below for additional information on the Company’s contingent consideration receivable and convertible senior subordinated notes.
The Company had classified assets measured at fair value on a recurring basis at September 30, 2022March 31, 2023 as follows:
| | | | | | | | | | | | | | | | | | | | | | |||
| | Fair Value Measurement | | Fair Value Measurement | ||||||||||||||||||||
| | at Reporting Date Using | | at Reporting Date Using | ||||||||||||||||||||
| | | | | | | | | | | Balance as of | | | | | | | | | Balance as of | ||||
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| Level 1 |
| Level 2 |
| Level 3 |
| September 30, 2022 |
| Level 1 |
| Level 2 |
| Level 3 |
| March 31, 2023 | ||||||||
Assets | | | | | | | | | | | | | | | | | | | | | | |||
Money market funds | | $ | 57,189 | | $ | — | | $ | — | | $ | 57,189 | ||||||||||||
Contingent consideration receivable - current | | | — | | — | | 900 | | 900 | |||||||||||||||
Contingent consideration receivable - long-term | | $ | — | | $ | — | | $ | 7,000 | | $ | 7,000 | | | — | | | — | | | 2,550 | | | 2,550 |
Total | | $ | 57,189 | | $ | — | | $ | 3,450 | | $ | 60,639 |
Level 1 instruments include investments in money market funds with an original maturity of three months or less and are valued based on quoted prices in active markets at the measurement date.
In connection with the sale of the PrescribeWellness Business on August 1, 2022, additional consideration (“PW Contingent Consideration Receivable”) may be payable to the Company based on the achievement of certain customer and revenue metrics, as defined in the corresponding purchase agreement, for the periodsyears ending December 31, 2023 and 2024. See Note 3 for additional information regarding the sale of the PrescribeWellness Business.
In connection with the sale of the SinfoníaRx Business on March 2, 2023, additional consideration (“SinfoníaRx Contingent Consideration Receivable”) may be payable to the Company based upon potential regulatory changes affecting the business, as defined in the corresponding purchase agreement. See Note 3 for additional information regarding the sale of the SinfoníaRx Business.
The contingent consideration isreceivables are classified as a current or noncurrent asset based on their expected payment dates, and they are subject to remeasurement at each balance sheet date. The contingent consideration receivables are measured at fair value on a recurring basis and may include the use of significant unobservable inputs, hence these instruments represent Level 3 measurements within the fair value hierarchy. All changes in contingent consideration subsequent to the initial sale-date measurement are recorded in net income or loss.
The fair value of the PW Contingent Consideration Receivable was determined using a Monte Carlo simulation with the assistance of a third-party appraiser. The contingent consideration receivable was recorded at the estimated fair value of $7,000 at the sale date of August 1, 2022. The estimated fair value of the PW Contingent Consideration Receivable was $3,350 as of March 31, 2023, of which $800 was included in other current assets on the Company’s consolidated balance sheet.
The fair value of the SinfoníaRx Contingent Consideration Receivable was determined using a scenario-based method. The contingent consideration receivable was recorded at the estimated fair value of $500 at the sale date of March 2, 2023. During the three months ended March 31, 2023, the Company recorded a $400 charge to decrease the
2627
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
fair value of the SinfoníaRx Contingent Consideration Receivable primarily due to updated estimates used in the contingent consideration valuation. The estimated fair value of the SinfoníaRx Contingent Consideration Receivable was $100 as of March 31, 2023 and was included in other current assets on the Company’s consolidated balance sheet.
The changes in fair value of the Company’s contingent consideration receivable was determined using an income-approach based on projections for the achievement of the performance metrics. Changes in the projected customer and revenue metrics or discount rate may result in higher or lower fair value measurements.The contingent consideration receivablethree months ended March 31, 2023 was recorded at the estimated fair value of $7,000 at the sale date of August 1, 2022, and the estimated fair value remained $7,000 as of September 30, 2022.follows:
| | | |
Balance at December 31, 2022 |
| $ | 3,350 |
Fair value of SinfoníaRx contingent consideration receivable | | | 500 |
Adjustments to fair value measurement | | | (400) |
Balance at March 31, 2023 |
| $ | 3,450 |
The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of September 30, 2022:March 31, 2023:
| | | | | | | | | | | | | | | | | | |
| | Face Value |
| Carrying Value |
| Fair Value | | Face Value |
| Carrying Value |
| Fair Value | ||||||
1.75% Convertible Senior Subordinated Notes due 2026 | | $ | 325,000 | | $ | 320,297 | | $ | 258,131 | | $ | 325,000 | | $ | 320,972 | | $ | 265,967 |
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 11,12, the 2026 Notes are carried at their aggregate face value of $325,000, less any unamortized debt issuance costs.
15.16. Commitments and Contingencies
(a) Employment Agreements
The Company has change-in-control and severance agreements with each of the Company’s named executive officers and other key members of management that provide for, among other things, salary, performance bonuses, or other incentive compensation, payments in the event of termination of the executives upon the occurrence of a change in control, and restrictive covenants pursuant to which the employees have agreed to refrain from competing with the Company or soliciting the Company’s employees or clients for a period following the employee’s termination of employment.
(b) Legal Proceedings
TheAs of March 31, 2023, the Company iswas not currently involved in any significant claims or legal actions that, in the opinion of management, are expected towould have a material adverse impact on the Company.
(c) Vendor Purchase Agreements
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”). 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.March 31, 2024. 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 September 30, 2022 and December 31, 2021 the Company had $1,993 and $1,854, respectively, due to 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.
2728
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
As of March 31, 2023 and December 31, 2022 the Company had $2,081 and $ 4,608, respectively, due to Thrifty Drug for prescription drug purchases.
In June 2021 and October 2021, the Company entered into agreements with a provider for cloud hosting and support services. The June 2021 agreement was effective as of June 3, 2021 and expireswill expire on April 28, 2024. Pursuant to the June 2021 agreement, the Company is committed to a minimum purchase obligation of $1,272 over the term of the agreement. The October 2021 agreement was effective as of October 1, 2021 and expireswill expire on September 30, 2024. Pursuant to the October 2021 agreement, the Company is committed to a minimum purchase obligation of $7,050 over the term of the agreement. Commitments under the October 2021 agreement are inclusive of commitments under the June 2021 agreement. As of September 30, 2022,March 31, 2023, the Company had a remaining commitment of $4,700$2,860 under the October 2021 agreement, of which $691$473 pertained to the June 2021 agreement.
In August 2021, the Company entered into an agreement with a third party to provide enterprise support and information technology services. The agreement iswas effective as of November 1, 2021 and expireswill expire on October 31, 2026 and commits the Company to a minimum purchase obligation of $8,960 through October 31, 2024. As of September 30, 2022,March 31, 2023, the Company had a remaining commitment of $6,222.$4,668.
In November 2021, the Company entered into an agreement with a provider for cloud hosting services. The agreement is effective November 25, 2021 and expires on November 25, 2022 and commits the Company to a minimum purchase obligation of $1,598 over the contract term. As of September 30, 2022, the Company had a remaining commitment of $243.
16. Segment Reporting
The Company operates its business through two segments. As discussed in Note 3 above, the divestiture of the PrescribeWellness Business and the planned divestitures of the DoseMe and SinfoníaRx businesses, which collectively comprised the majority of the Company’s MedWise HealthCare segment, represent a strategic business shift in the Company’s operations. The Company determined that these businesses met the requirements of discontinued operations as of March 31, 2022 and continued to meet the requirements as of September 30, 2022. As a result, these businesses are excluded from the Company’s segment reporting. The Company presents continuing operations of the remaining components of the MedWise HealthCare segment combined with its shared services as Shared Services and Other.
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.
CareVention HealthCare primarily provides services to PACE organizations that include medication fulfillment pharmacy services and PACE solutions, such as medication safety services, PBM solutions, and health plan management services.
MedWise HealthCare primarily generates revenues from medication safety services and software subscription solutions, which identify individuals with high medication-related risk and optimize medication therapy.
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 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 from similarly titled segment performance financial measures used by other companies.
28
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
Adjusted EBITDA consists of net loss plus certain other expenses, which include interest expense, provision for income taxes, depreciation and amortization, impairment charges, business optimization expenses, severance costs, executive transition costs, cooperation agreement costs, divestiture-related expense, acquisition-related expense, stock-based compensation expense, loss on disposal of business, and settlement costs. The Company considers business optimization expenses to include contract termination payments, severance, retention payments, and other employee and non-recurring vendor costs incurred related to its business optimization initiatives during 2022. The Company considers severance costs to include severance payments related to the realignment of its resources. The Company considers executive transition costs to include nonrecurring costs related to the hiring and onboarding of new named executive officers and separation costs related to former named executive officers. The Company considers cooperation agreement costs to include legal, professional services, and other non-recurring costs related to the Company’s cooperation agreement with Indaba Capital Management. The Company considers divestiture-related expense to include nonrecurring direct transaction costs. The Company considers acquisition-related expense to include nonrecurring direct transaction and integration costs. The Company considers loss on disposal of business to include nonrecurring loss resulting from the sale of PrescribeWellness Business. The Company considers settlement costs to include amounts payable by the Company or reductions to amounts owed to the Company as a result of a contractual settlement.
Management considers revenue and Adjusted EBITDA to be the appropriate metric to evaluate and compare the ongoing operating performance of the Company’s segments on a consistent basis across reporting periods as it eliminates the effect of items which are not indicative of each segment’s core operating performance.
29
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 | | Shared Services and Other | | Consolidated | |||
Revenue: | | | | | | | | | |
Three Months Ended September 30, 2022 | | | | | | | | | |
Product revenue | | $ | 59,780 | | $ | — | | $ | 59,780 |
Service revenue | | | | | | | | | |
PACE solutions | | | 16,416 | | | — | | | 16,416 |
Medication safety services | | | — | | | 843 | | | 843 |
Software subscription and services | | | — | | | 62 | | | 62 |
Total service revenue | | | 16,416 | | | 905 | | | 17,321 |
Total revenue | | $ | 76,196 | | $ | 905 | | $ | 77,101 |
| | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | |
Product revenue | | $ | 50,321 | | $ | — | | $ | 50,321 |
Service revenue | | | | | | | | | |
PACE solutions | | | 14,707 | | | — | | | 14,707 |
Medication safety services | | | — | | | 2,820 | | | 2,820 |
Software subscription and services | | | — | | | 62 | | | 62 |
Total service revenue | | | 14,707 | | | 2,882 | | | 17,589 |
Total revenue | | $ | 65,028 | | $ | 2,882 | | $ | 67,910 |
| | | | | | | | | |
Nine Months Ended September 30, 2022 | | | | | | | | | |
Product revenue | | $ | 166,645 | | $ | — | | $ | 166,645 |
Service revenue | | | | | | | | | |
PACE solutions | | | 47,604 | | | — | | | 47,604 |
Medication safety services | | | — | | | 2,336 | | | 2,336 |
Software subscription and services | | | — | | | 223 | | | 223 |
Total service revenue | | | 47,604 | | | 2,559 | | | 50,163 |
Total revenue | | $ | 214,249 | | $ | 2,559 | | $ | 216,808 |
| | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | |
Product revenue | | $ | 139,021 | | $ | — | | $ | 139,021 |
Service revenue | | | | | | | | | |
PACE solutions | | | 42,973 | | | — | | | 42,973 |
Medication safety services | | | — | | | 8,817 | | | 8,817 |
Software subscription and services | | | — | | | 174 | | | 174 |
Total service revenue | | | 42,973 | | | 8,991 | | | 51,964 |
Total revenue | | $ | 181,994 | | $ | 8,991 | | $ | 190,985 |
30
TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
| | | | | | | | | |
| | CareVention HealthCare | | Shared Services and Other | | Consolidated | |||
Adjusted EBITDA (loss) from Continuing Operations: | | | | | | | | | |
Three Months Ended September 30, 2022 | | | | | | | | | |
Adjusted EBITDA (loss) | | $ | 14,051 | | $ | (11,998) | | $ | 2,053 |
| | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | |
Adjusted EBITDA (loss) | | $ | 14,014 | | $ | (10,875) | | $ | 3,139 |
| | | | | | | | | |
Nine Months Ended September 30, 2022 | | | | | | | | | |
Adjusted EBITDA (loss) | | $ | 39,531 | | $ | (34,339) | | $ | 5,192 |
| | | | | | | | | |
Nine Months Ended September 30, 2021 | | | | | | | | | |
Adjusted EBITDA (loss) | | $ | 40,983 | | $ | (32,998) | | $ | 7,985 |
The following table presents the Company’s reconciliation net loss as presented in the consolidated statements of operations to the segments’ total Adjusted EBITDA:
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Reconciliation of Net Loss to Adjusted EBITDA from Continuing Operations | | | | | | | | | | | | |
Net loss | | $ | (40,065) | | $ | (17,111) | | $ | (117,868) | | $ | (57,684) |
Add: | | | | | | | | | | | | |
Interest expense, net | | | 2,717 | | | 2,230 | | | 7,430 | | | 6,959 |
Income tax (benefit) expense | | | (7) | | | 82 | | | 368 | | | 284 |
Depreciation and amortization | | | 5,723 | | | 5,328 | | | 16,954 | | | 15,109 |
Impairment charges | | | — | | | — | | | 4,062 | | | — |
Business optimization expenses | | | — | | | — | | | 787 | | | — |
Severance costs | | | 122 | | | 354 | | | 697 | | | 516 |
Executive transition | | | 1,821 | | | — | | | 1,971 | | | — |
Cooperation agreement costs | | | 1,122 | | | — | | | 1,122 | | | — |
Divestiture-related expense | | | 1,057 | | | — | | | 2,591 | | | — |
Acquisition-related expense | | | — | | | — | | | — | | | 217 |
Stock-based compensation expense | | | 15,378 | | | 6,901 | | | 28,173 | | | 24,100 |
Loss from discontinued operations | | | 14,185 | | | 5,355 | | | 58,905 | | | 18,484 |
Adjusted EBITDA from continuing operations | | $ | 2,053 | | $ | 3,139 | | $ | 5,192 | | $ | 7,985 |
Adjusted EBITDA (loss) from discontinued operations | | | (3,593) | | | 2,578 | | | (1,036) | | | 7,294 |
Total Adjusted EBITDA (loss) | | $ | (1,540) | | $ | 5,717 | | $ | 4,156 | | $ | 15,279 |
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TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Reconciliation of Net Loss from Discontinued Operations, net of tax to Adjusted EBITDA (Loss) from Discontinued Operations | | | | | | | | | | | | |
Net loss from discontinued operations, net of tax | | $ | (14,185) | | $ | (5,355) | | $ | (58,905) | | $ | (18,484) |
Add: | | | | | | | | | | | | |
Income tax (benefit) expense | | | (94) | | | 52 | | | (662) | | | 182 |
Depreciation and amortization | | | — | | | 6,771 | | | 7,331 | | | 20,234 |
Impairment charges | | | 5,845 | | | — | | | 42,293 | | | — |
Loss on disposal of business | | | 2,879 | | | — | | | 2,879 | | | — |
Settlement | | | — | | | — | | | 1,448 | | | 500 |
Divestiture-related expense | | | 104 | | | — | | | 216 | | | — |
Stock-based compensation expense | | | 1,858 | | | 1,110 | | | 4,364 | | | 4,862 |
Adjusted EBITDA (loss) from discontinued operations | | $ | (3,593) | | $ | 2,578 | | $ | (1,036) | | $ | 7,294 |
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.
17. Related Party Transactions
The Company’s CareVention HealthCare segmentCompany provides medication fulfillment pharmacy services and certain PACE solutions services to a client whose Chief Executive Officer is a member of the Board. For the three months ended September 30,March 31, 2023 and 2022, $1,876 and 2021, $1,894 and $1,679,$1,759, respectively, of revenue related to this client was included in the Company’s consolidated statements of operations. For the nine months ended September 30, 2022operations, and 2021, $5,541approximately $197 and $4,834, respectively, of revenue related to this client was included in the Company’s consolidated statements of operations. As of September 30, 2022 and December 31, 2021, $225 and $67, respectively,$145 was included in accounts receivable, net, as of March 31, 2023 and December 31, 2022, respectively, on the Company’s consolidated balance sheets.
During the second quarter of 2022, a holder of the Company’s convertible senior subordinated notes became a significant stockholder. The stockholder held approximately $88,429$88,615 and $88,522 of the Company’s convertible senior subordinated notes, net of discount, which is presented on the Company’s consolidated balance sheetsheets as of September 30, 2022.March 31, 2023 and December 31, 2022, respectively. See Note 1112 for more information on the Company’s convertible senior subordinated notes.
On September 13, 2022, the Company entered into a cooperation agreement (the “Cooperation Agreement”) with a significant stockholder of the Company, pursuant to which, among other matters, the Company agreed to effect certain changes to its management team and the composition of the Board of Directors and implement certain corporate governance changes. In connection with the Cooperation Agreement, the Company agreed to reimburse the stockholder $464 of fees incurred, which are included within the accrued expenses and other liabilities on the Company’s consolidated balance sheet as of September 30, 2022.
On September 13, 2022, in connection with the entry into separation agreements with two retired named executive officers, the Company incurred $9,927 of separation costs, which included stock-based compensation related to the accelerated vesting of unvested shares of restricted stock, severance payments and benefits, relevant payroll taxes, and outplacement services. These costs arewere included within general and administrative expenses onin the Company’s consolidated statement of operations during the third quarter of which $1,616 are2022. As of March 31, 2023, $1,031 is included within accrued expenses and other liabilities on the Company’s consolidated balance sheet as of September 30, 2022.sheets.
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TABULA RASA HEALTHCARE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
On September 13, 2022, the Company entered into consulting services agreements with two retired named executive officers to provide certain consulting and advisory services to the Company, including assisting with the transition of key client relationships and strategic business partners and prospects. The consulting services agreements expire on December 31, 2022. The Company did not incur costs pursuant to these consulting services agreements during the three and nine months ended September 30, 2022.
18. Rights Plan
On July 25, 2022, the Board approved and adopted a Rights Agreement (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent. Pursuant to the Rights Agreement, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of common stock. The Rights are distributable to stockholders of record as of the close of business on August 5, 2022 and are not exercisable initially. If the Rights become exercisable, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of a newly-designated series of preferred stock, Series A Junior Participating Preferred Stock, par value $0.0001 per share, of the Company, at an exercise price of $26.00, subject to adjustment. The Rights expire at the earlier of (a) the redemption or exchange of the Rights as provided in the Rights Agreement or (b) July 25, 2023.
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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, 2021,2022, included in our 20212022 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 may be identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially”“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, without limitation, our future plans, objectives, expectations, intentions, the potential sales of the SinfoníaRx and DoseMe businesses of the Company and the timing and benefits thereof, 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 overall macroeconomic environment,our expectations regarding industry and market trends, including the effects of inflation, supply chain constraints,expected growth and the impact of changescontinued structural change and consolidation in interest rates, on our business and results of operations; (ii) our ability to adapt to changes or trends within the market for healthcare in the U.S.;United States; (ii) our expectations about the growth of Programs of All-Inclusive Care for the Elderly (“PACE”) organizations; (iii) a significant increase in competitionour expectations about private payers establishing their own at-risk programs; (iv) the advantages of our solutions as compared to those of competitors; (v) our estimates about our financial performance; (vi) the visibility into future cash flows from a variety of companies in the healthcare 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) clients demands for our services andbusiness model; (vii) our ability to fulfill client demands; (vii) the growth and success of our clients, which is difficult to predict and is subject to factors outside of our control; (viii) our ability to maintain relationships with a specified drug wholesaler; (ix) increasing consolidation in the healthcare industry; (x) managing our growth effectively; (xi) fluctuations in operating results; (xii) our ability to manage our cash flows; (xiii) failure or disruption of our information technology and security systems; (xiv) dependence on or changes to our senior management and key employees; (xv) changes in our strategyreduce expenses as a result of our entry into the Cooperation Agreement with Indaba; (xvi)disposition of non-core businesses; (viii) our future indebtedness andgrowth strategy, including our ability to obtain additional financing, reduce expenses, or generate funds when necessary; (xvii)grow our client base; (ix) our plans to further penetrate existing markets and enter new markets; (x) expectations of earnings, revenue, and other financial items; (xi) plans, strategies, and objectives of management for future operations; (xii) our ability to execute onestablish and maintain intellectual property rights; (xiii) our planned divestitures ofability to retain and hire necessary associates and appropriately staff our SinfoníaRxoperations; (xiv) future capital expenditures; (xv) future economic conditions or performance; (xvi) our plans to pursue strategic acquisitions and DoseMe businesses, the costs associated therewith,partnerships; (xvii) our plans to expand and risks related to diverting management’s attention fromenhance our ongoing business operations;solutions; and (xviii) risks related to the volatility in our stock price;estimates regarding capital requirements and needs for additional financing; and (xix) the impacts of the ongoing COVID-19 pandemic and other health epidemics; and (xx) the risks described in Part I, Item 1A of our 20212022 Form 10-K and our other filings and reports filed with or furnished to the Securities and Exchange Commission. 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
Tabula Rasa HealthCare, Inc. (the “Company,” “we,” “us,” and “our”) is a healthcare technology company advancing the safe use of medications by creating solutions designed to empower pharmacists, providers, and patients to optimize medication regimens. Our advanced proprietary technology, MedWise®, identifies causes of and risks for medication-related problems, including adverse drug events (“ADEs”), so that healthcare professionals can minimize harm and reduce medication-related risks. Our software and services help improvedrive valued-based care by improving patient outcomes and lowerlowering healthcare costs through reduced hospitalizations, emergency department visits, and healthcare utilization. Our vision and mission are supported by our experienced leadership team, our significant investments in our technology, services, and collaborationspeople, and partnerships with our healthcare clients, including health plans and provider organizations, to advance precision pharmacotherapy researchmanage the most complex and its application in clinical practice, and our culture.vulnerable individuals.
We operateprovide our business through two segments, CareVention HealthCareclients, primarily organizations with PACE, with medication fulfillment services, cloud-based software, pharmacy benefit management (“PBM”) solutions, and MedWise HealthCare.
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CareVention HealthCare primarilyclinical pharmacist services at the point-of-care. PACE which is a Centers for Medicare & Medicaid Services (“CMS”) sponsored program providing comprehensive medical and social services to adults ageaged 55 and older who need a nursing facility level of care but can live safely in community settings. Our clients include ArchCare Senior Life, Trinity Health, Palm Beach PACE, St. Paul’s PACE, and Welbe
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Health. We access the market through a number of different service lines and brands, including CareKinesis®, Capstone Risk Adjustment Services, CareVention Consulting™, PACElogic™, TruChart®, PeakTPA, PersonifilRx®, and Pharmastar®. We serve more than 150 healthcare organizations.
Our largest CareVention HealthCare revenueservice offering is our medication fulfillment services, which isare built around our novel andadvanced proprietary MedWise®MedWise technology, designed to enable clinicians to increase patient safety, create individualized medication regimens, promote adherence, and eliminate unnecessary prescriptions.Our medication fulfillment and adherence packaging services utilize MedWise technology to reduce medication-related risk for the high-cost, high-risk PACE population. The CareVention HealthCare suite of offeringsOur medication revenue model is primarily based on payments for charges and dispensing fees for medication fulfillment.
We also includesoffer technology-enabled solutions, which include risk adjustment services, pharmacy benefit management (“PBM”)PBM solutions, cloud-based electronic health records (“EHR”) solutions, and third-party administration services which are all specifically tailored to the PACE market. Our CareVention HealthCare segment serves more than 150We also provide technology-enabled solutions that promote medication safety and adherence to improve patient outcomes and reduce healthcare organizations.
costs. The CareVention HealthCare segmenttechnology-enabled solutions revenue model is primarily based on payments on a per-member, per-month (“PMPM”) basis, payments on a subscription basis, payments on a transactionper claim basis, or payments on a fee-for-service basis for each medication safety review and payments for medication charges and dispensing fees for medication fulfillment.clinical assessment completed.
Divestiture of Non-Core Businesses and Segment Change
In FebruaryDuring first quarter of 2022, we announced plans to evaluate non-core assets to refocus our corporate strategy and increase stockholder value, and we commenced an initial planplans to sell the PrescribeWellness, DoseMe business,and SinfoníaRx businesses, which we acquired in January 2019. In2019, March 2022,2019, and September 2017, respectively. As described further below, we completed our evaluationsales of additional divestiture opportunitiesthe PrescribeWellness, DoseMe and commenced plans to sell the SinfoníaRx and PrescribeWellness businesses acquired in September 2017August 2022, January 2023, and March 2019,2023, respectively. We determined that these businesses met the requirements to be classified as held for sale and discontinued operations as of March 31, 2022 and continued to meet the requirements through the dates of their respective sales. Accordingly, the assets, liabilities, revenue, and expenses related to these businesses are reflected as discontinued operations in the accompanying consolidated financial statements for all periods presented in this Quarterly Report on Form 10-Q.
On August 1, 2022 (the “Sale“PW Sale Date”), we completed the sale of our unincorporated PrescribeWellness business division (the “PrescribeWellness Business”), and the assets, properties, and rights that were primarily used or held for use in connection with the PrescribeWellness Business, and the KD Assets (as defined below), to Transaction Data Systems, Inc. (“TDS”). On the PW Sale Date, we also completed the acquisition of certain intellectual property from karmadata, Inc. (“KD”), which had historically been licensed to the Companyus (the “KD Assets”). The KD Assets acquired were simultaneously transferred to TDS on the PW Sale Date. The purchase consideration included $125 million in cash, subject to certain customary post-closing adjustments, of which $118.6 million was paid directly to us and $5.9 million was paid to KD on the PW Sale Date. In October 2022, TDS also paid us $1.5 million for certain customary post-closing adjustments. We are also entitled to receive up to $15.0 million in contingent consideration to be paid by TDS based upon the PrescribeWellness Business’s achievement of certain performance-based metrics during the fiscal years ending December 31, 2023 and 2024.
On January 20, 2023 (the “DoseMe Sale Date”), we entered into a Share and Asset Purchase Agreement with DoseMe Operations Inc. (“DoseMe Operations”) and completed the Sale Date, wesale of our unincorporated DoseMe business (the “DoseMe Business”), and the assets, properties, and rights that are primarily used or held for use in connection with the DoseMe Business. The purchase consideration included $2.0 million in cash, subject to certain customary post-closing adjustments, which was paid directly to us in January 2023. The purchase consideration also announcedincluded a strategic partnership to offer our proprietary MedWise® Science,note receivable of $3.0 million with an accumulative, simultaneous, multi-drug analysis tool that identifies medication related risk, into TDS’s pharmacy management systems.annual interest rate of 7.0%, which matures on January 20, 2027.
On March 2, 2023 (the “SinfoníaRx Sale Date”), we entered into an Asset Purchase Agreement with Symphony Clinic, LLC (“Symphony”) and completed the sale of our unincorporated SinfoníaRx business (the “SinfoníaRx Business”), and the assets, properties, and rights that are primarily used or held for use in connection with the SinfoníaRx Business. The purchase consideration included $1.4 million in cash, subject to certain customary post-closing adjustments, which was paid directly to us on the SinfoníaRx Sale Date. The purchase consideration also included a note receivable of $3.6 million with an annual interest rate of 3.0%, which matures on December 31, 2023. We may also be entitled to receive up to $1.0 million in contingent consideration based upon potential regulatory changes affecting the SinfoníaRx Business.
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We previously operated our business through two segments, CareVention HealthCare and MedWise HealthCare. When the Companywe commenced plans to sell the PrescribeWellness, DoseMe and SinfoníaRx and PrescribeWellness businesses, these businesses collectively comprised the majority of our MedWise HealthCare segment, with PrescribeWellness Business representing the most significant portion of this segment. Our saleThe disposition of these non-core businesses represented the completion of our previously-announced strategic business shift. Subsequent to the sales of these business, our chief operating decision maker (“CODM”), who is our Chief Executive Officer, evaluates performance and allocates resources based on the consolidated results of the PrescribeWellness BusinessCompany. Therefore, we consolidated our two operating segments to one segment by merging the CareVention HealthCare segment and plans to sell the DoseMe and SinfoníaRx businesses represent a strategicremaining MedWise HealthCare segment. We now operate our business shift having a significant effect on our Company’s operations and financial results. As a result, we determined that these businesses met the requirements to be classified as held for sale and discontinued operationsone segment as of March 31, 2022, and the remaining two businesses continued to meet such requirements as of September 30, 2022. Accordingly, the accompanying consolidated financial statements in this Quarterly Report on Form 10-Q2023. Prior comparative periods have been recast for all periods presentedrevised to reflectconform with the assets, liabilities, revenue, and expenses related to these businesses as discontinued operations.current period segment presentation.
The continuing operations of the remaining components of our MedWise HealthCare segment promote medication safety and adherence to improve patient outcomes and reduce healthcare costs. 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 medication safety review and clinical assessment completed.
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Unless otherwise noted, management’s discussion and analysis of our Company’s results of operations relate to our Company’s continuing operations.
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.
Key Business Metrics
We continually monitor certain corporate metrics, including the following key metrics, that we believe are useful in evaluating and managing our operating performance as compared to that of other companies in our industry.
| | | | | | | | | | | | | | | | | | | | | | |||
| | Three Months Ended | | | | | | | | Three Months Ended | | | | | | |||||||||
| | September 30, | | Change | | March 31, | | Change | ||||||||||||||||
|
| 2022 |
| 2021 |
| $ |
| % | | 2023 | | 2022 | | $ | | % | ||||||||
| | | (Dollars in thousands) | | | (Dollars in thousands) | | |||||||||||||||||
Revenues from continuing operations | | $ | 77,101 | | $ | 67,910 | | $ | 9,191 | | 14 | % | | $ | 88,277 | | $ | 67,110 | | $ | 21,167 | | 32 | % |
Net loss from continuing operations | | | (25,880) | | | (11,756) | | | (14,124) | | 120 | | | (7,074) | | (20,392) | | 13,318 | | 65 | | |||
Adjusted EBITDA from continuing operations | | | 2,053 | | | 3,139 | | | (1,086) | | (35) | | ||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Nine Months Ended | | | | | | | ||||||||||||||||
| | September 30, | | Change | ||||||||||||||||||||
| | 2022 | | 2021 | | $ | | % | ||||||||||||||||
| | | (Dollars in thousands) | | ||||||||||||||||||||
Revenues from continuing operations | | $ | 216,808 | | $ | 190,985 | | $ | 25,823 | | 14 | % | ||||||||||||
Net loss from continuing operations | | | (58,963) | | | (39,200) | | | (19,763) | | 50 | | ||||||||||||
Adjusted EBITDA from continuing operations | | | 5,192 | | | 7,985 | | | (2,793) | | (35) | |
We monitor the key metrics set forth in the preceding table to help us evaluate trends, establish budgets, and measure the effectiveness and efficiency of our operations, and gauge our cash generation. We discuss Adjusted EBITDA in more detail in “Non-GAAP Financial Measures.”operations. We also monitor revenue retention rate on an annual basis, which is described in our 20212022 Form 10-K.
Factors Affecting our Future Performance
General
We believe that our future success depends 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,opportunities, they also present risks that we must manage to ensure successful results. Please refer to “Item 1A – Risk Factors” in our 20212022 Form 10-K for a discussion of certain risks and uncertainties that may impact our future success.
Divestitures of Non-Core Businesses
As described above, on August 1, 2022 we completed the salesales of the PrescribeWellness, Business and are engaged in efforts to sell the DoseMe and SinfoníaRx businesses.businesses in 2022 and the first quarter of 2023. We used the cash proceeds from the sale of the PrescribeWellness Business to pay off our line of credit with Western Alliance Bank (the “2020 Credit Facility”) and increase our liquidity, and theliquidity. The remaining cash proceeds, along with those anticipatedcash proceeds received and promissory notes from divestiturethe divestitures of the remaining twoDoseMe and SinfoníaRx businesses, will provide our Companyus with the financial flexibility to optimize our capital structure, as well as to focus on our core value-based care business and our MedWise science, including our offerings targeted at the PACE market and our MedWise science.market.
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Components of Our Results of Operations
Revenue
Our revenue is derived from our product salesmedication revenue and service activities under our CareVention HealthCare and MedWise HealthCare segments.technology-enabled solutions revenue. For the three months ended September 30,March 31, 2023 and 2022, and 2021, productmedication revenue represented 78% and 74%76%, respectively, of our total revenue respectively,from continuing operations. For the three months ended March 31, 2023 and service2022, technology-enabled solutions revenue represented 22% and 26%24%, respectively, of our total revenue
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respectively. For the nine months ended September 30, 2022 and 2021, product revenue represented 77% and 73% of our total revenue, respectively, and service revenue represented 23% and 27% of our total revenue, respectively. from continuing operations.
CareVention HealthCareMedication Revenue
PACE Product Revenue
We provide medication fulfillment pharmacy services to PACE organizations. 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 is 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.
Technology-Enabled Solutions Revenue
PACEValue-Based Care Solutions
We provide medication safety services and health plan management services to PACE organizations. These services primarily include medication safety services, risk adjustment services, PBM solutions, EHR solutions, and third-party administration services. Revenue related to these services primarily consists of a fixed monthly fee assessed on a PMPM basis, a fee for each claim adjudicated, and subscription fees. These fees 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.
MedWise HealthCare
Medication Safety Services
We also provide medication safety services to other healthcare organizations, 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 PMPM fees and fees for each medication review and clinical 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 services and when medication reviews and clinical 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 (“SaaS”) solutions, which include electronic health records software and solutions which allow for the identification of individuals with high medication-related risk. Revenues related to these software servicesSaaS solutions primarily consist 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 over 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 of Medication Revenue
Cost of productmedication revenue includes all costs directly related to the fulfillment and distribution of medications under our CareVention HealthCare offerings. Costsmedications. These costs consist primarily of the purchase price of the prescription medications we dispense, which for the three months ended September 30, 2022 and 2021, represented 81% and 82%, respectively, of our total product costs. For each of the nine months ended September 30, 2022 and 2021, medication costs represented 81% of our total product costs. In addition to costs incurred to purchase the medications we dispense, other costs include shipping; packaging;shipping, packaging, expenses associated with operating our medication fulfillment centers, including salariesemployment costs and related costs, such as stock-based compensation, for personnel;and technology expenses;expenses. Such costs also include direct overhead expenses;expenses and allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount.
The purchase price of medications represented 82% and 81%, respectively, of our total cost of medication revenue for the three months ended March 31, 2023 and 2022.
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Service Cost of Technology-Enabled Solutions Revenue
Cost of servicetechnology-enabled solutions revenue includes all costs directly related to servicing our CareVention HealthCaretechnology service contracts and MedWise HealthCare service contracts. These costs primarily consistconsists of laboremployment costs, including stock-based compensation, outside contractors, expenses related to supporting our software platforms, direct overhead expenses, and 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 relatedemployment costs, including stock-based compensation, for personnel in our research and development functions. This personnel includes employees engaged in scientific research, healthcare analytics, the design and development of new scientific algorithms, and the enhancement of our software and technology platforms. Research and development expenses also include fees paid to third-party consultants, costs related to quality assurance and testing, and other allocated facility-related overhead and expenses.
We capitalize certain costs incurred in connection with obtaining or developing the proprietary software platforms that support our productmedication and technology 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 completed and when the asset is ready for its intended use. Costs incurred during the preliminary project stage and post implementationpost-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 and enhance the ease of use of our existing suite of software solutions.
We believe that continued investment in our software solutions is important for our future growth. We expect that our research and development expenses will fluctuate in the near termshort-term as we refocus on our core business but will decrease as a percentage of revenue in the long term.long-term.
Sales and Marketing Expenses
Sales and marketing expenses consist principally of salaries, commissions, bonuses, andemployment costs, including stock-based compensation, and employee benefits for sales, marketing, and account management personnel, as well as travel costs related to sales, marketing, and account 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 fluctuate in the near termshort-term as we refocus on our core business but decrease as a percentage of revenue in the long term.long-term.
General and Administrative Expenses
General and administrative expenses consist principally of employee-related expenses,employment costs, 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 fluctuate in the near termshort-term as we refocus on our core business but decrease as a percentage of revenue in the long term.long-term.
Change in Fair Value of Contingent Consideration Receivable
In connection with the sales of the PrescribeWellness Business on August 1, 2022and the SinfoníaRx Business on March 2, 2023, we may be entitled to additional consideration based on the achievement of certain customer and revenue metrics and based upon potential regulatory changes affecting the business, respectively. The contingent consideration receivables are classified as a current or noncurrent asset based on their expected payment dates, and they
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are subject to remeasurement at each balance sheet date. Any change in the fair value of the contingent consideration receivables is reflected in our consolidated statements of operations as a change in fair value of the receivables. We adjust the carrying value of the contingent consideration receivables until the contingencies are finally determined or final payment is received.
Long-Lived Asset Impairment ChargeCharges
Long-lived assets consist of property and equipment, operating lease right-of-use assets, software development costs, and definite-lived intangible assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, we compare forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying
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value. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use and disposition of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows or a combination of income and market approaches.
Depreciation and Amortization Expenses
Depreciation and amortization expenses are primarily attributable to our capital investment in equipment, our capitalized software, and our acquisition-related intangibles.
Interest Expense, Net
Interest expense, net is primarily attributable to interest expense associated with our convertible senior subordinated notes (the “2026 Notes”), and interest expense associated with our Loan and Security Agreement with Western Alliance Bank (the “2020 Credit Facility”) prior to its termination on August 1, 2022, and the promissory notes related to the purchase consideration for the acquisition of Personica, LLC.2022. Interest expense also includes the amortization of debt discount and debt issuance costs related to our various debt arrangements and imputed interest.
interest on our vendor financing arrangements. Interest expense, net includes interest income earned on cash equivalents and interest earned on our divestiture-related notes receivable.
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Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022 (Continuing Operations)
The following table summarizes our results of operations for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021 (in thousands):
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| | September 30, | | Change | | September 30, | | Change | | | March 31, | | Change | ||||||||||||||||||||||||
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| 2021 |
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Revenue: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |||
Product revenue | | $ | 59,780 | | $ | 50,321 | | $ | 9,459 | | 19 | % | | $ | 166,645 | | $ | 139,021 | | $ | 27,624 | | 20 | % | | ||||||||||||
Service revenue | | | 17,321 | | | 17,589 | | | (268) | | (2) | | | | 50,163 | | | 51,964 | | | (1,801) | | (3) | | | ||||||||||||
Medication revenue | | $ | 68,750 | | $ | 50,973 | | $ | 17,777 | | 35 | % | |||||||||||||||||||||||||
Technology-enabled solutions revenue | | | 19,527 | | | 16,137 | | | 3,390 | | 21 | | |||||||||||||||||||||||||
Total revenue | | | 77,101 | | | 67,910 | | | 9,191 | | 14 | | | | 216,808 | | | 190,985 | | | 25,823 | | 14 | | | | | 88,277 | | | 67,110 | | | 21,167 | | 32 | |
Cost of revenue, exclusive of depreciation and amortization shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Product cost | | | 46,221 | | | 38,518 | | | 7,703 | | 20 | | | | 129,157 | | | 104,939 | | | 24,218 | | 23 | | | ||||||||||||
Service cost | | | 14,014 | | | 12,697 | | | 1,317 | | 10 | | | | 40,430 | | | 37,875 | | | 2,555 | | 7 | | | ||||||||||||
Cost of medication revenue | | | 53,082 | | | 39,552 | | | 13,530 | | 34 | | |||||||||||||||||||||||||
Cost of technology-enabled solutions revenue | | | 14,442 | | | 13,169 | | | 1,273 | | 10 | | |||||||||||||||||||||||||
Total cost of revenue, exclusive of depreciation and amortization | | | 60,235 | | | 51,215 | | | 9,020 | | 18 | | | | 169,587 | | | 142,814 | | | 26,773 | | 19 | | | | | 67,524 | | | 52,721 | | | 14,803 | | 28 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | | 4,018 | | | 3,699 | | | 319 | | 9 | | | | 11,226 | | | 11,069 | | | 157 | | 1 | | | | | 1,279 | | | 3,965 | | | (2,686) | | (68) | |
Sales and marketing | | | 2,857 | | | 2,719 | | | 138 | | 5 | | | | 7,678 | | | 8,225 | | | (547) | | (7) | | | | | 2,453 | | | 2,649 | | | (196) | | (7) | |
General and administrative | | | 27,917 | | | 14,393 | | | 13,524 | | 94 | | | | 58,945 | | | 45,725 | | | 13,220 | | 29 | | | | | 16,577 | | | 15,878 | | | 699 | | 4 | |
Change in fair value of contingent consideration receivable | | | 400 | | | — | | | 400 | | 100 | | |||||||||||||||||||||||||
Long-lived asset impairment charge | | | — | | | — | | | — | | — | | | | 4,062 | | | — | | | 4,062 | | 100 | | | | | — | | | 4,062 | | | (4,062) | | (100) | |
Depreciation and amortization | | | 5,723 | | | 5,328 | | | 395 | | 7 | | | | 16,954 | | | 15,109 | | | 1,845 | | 12 | | | | | 6,200 | | | 5,742 | | | 458 | | 8 | |
Total operating expenses | | | 40,515 | | | 26,139 | | | 14,376 | | 55 | | | | 98,865 | | | 80,128 | | | 18,737 | | 23 | | | | | 26,909 | | | 32,296 | | | (5,387) | | (17) | |
Loss from operations | | | (23,649) | | | (9,444) | | | (14,205) | | 150 | | | | (51,644) | | | (31,957) | | | (19,687) | | 62 | | | | | (6,156) | | | (17,907) | | | 11,751 | | 66 | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense, net | | | (2,717) | | | (2,230) | | | (487) | | 22 | | | | (7,430) | | | (6,959) | | | (471) | | 7 | | | | | (1,265) | | | (2,269) | | | (1,004) | | (44) | |
Other income | | | 479 | | | — | | | 479 | | 100 | | | | 479 | | | — | | | 479 | | 100 | | | | | 452 | | | — | | | 452 | | 100 | |
Total other expense | | | (2,238) | | | (2,230) | | | (8) | | — | | | | (6,951) | | | (6,959) | | | 8 | | — | | | ||||||||||||
Total other expense, net | | | (813) | | | (2,269) | | | 1,456 | | 64 | | |||||||||||||||||||||||||
Loss from continuing operations before income taxes | | | (25,887) | | | (11,674) | | | (14,213) | | 122 | | | | (58,595) | | | (38,916) | | | (19,679) | | 51 | | | | | (6,969) | | | (20,176) | | | 13,207 | | 65 | |
Income tax (benefit) expense | | | (7) | | | 82 | | | (89) | | (109) | | | | 368 | | | 284 | | | 84 | | 30 | | | ||||||||||||
Income tax expense | | | 105 | | | 216 | | | (111) | | (51) | | |||||||||||||||||||||||||
Net loss from continuing operations | | | (25,880) | | | (11,756) | | | (14,124) | | 120 | | | | (58,963) | | | (39,200) | | | (19,763) | | 50 | | | | | (7,074) | | | (20,392) | | | 13,318 | | 65 | |
Net loss from discontinued operations, net of tax | | | (14,185) | | | (5,355) | | | (8,830) | | 165 | | | | (58,905) | | | (18,484) | | | (40,421) | | 219 | | | | | (8,824) | | | (7,801) | | | (1,023) | | (13) | |
Net loss | | $ | (40,065) | | $ | (17,111) | | $ | (22,954) | | 134 | | | $ | (117,868) | | $ | (57,684) | | $ | (60,184) | | 104 | | | | $ | (15,898) | | $ | (28,193) | | $ | 12,295 | | 44 | % |
Comparison of the Three Months Ended September 30, 2022 and 2021 (Continuing Operations)
ProductMedication Revenue
ProductMedication revenue increased $9.5$17.8 million, or 19%35%, to $59.8$68.8 million for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021.2022. 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 $4.8$12.0 million to the increase. New CareVention HealthCareIn addition, new clients that started services after the end of the thirdfirst quarter in 2021of 2022 contributed $4.0$5.8 million to the increase. The remaining increase in productmedication revenue was due to medications dispensed by our community pharmacy network on behalf of CareVention HealthCare as a result of amended client agreements.during 2023.
ServiceTechnology-Enabled Solutions Revenue
Service revenue decreased $0.3Revenue generated from technology-enabled solutions increased $3.4 million, or 2%21%, to $17.3$19.5 million for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021.
Medication safety services2022. During the first quarter of 2023, value-based care solutions revenue decreased $2.0increased $2.5 million, or 70%20%, during the three months ended September 30, 2022, as compared to the same period in 2021. The decrease was primarily due to the conclusion of the Enhanced Medication Therapy Management (“EMTM”) pilot program on December 31, 2021, which contributed $2.3 million of revenue during the three months ended September 31, 2021. As a result, no revenues related to the EMTM program were recognized after December 31, 2021. This decrease was partially offset by the addition of new clients since the third quarter of 2021, which contributed $0.3 million of revenue during the nine months ended September 30, 2022.
The decrease in medication safety services was partially offset by an increase in CareVention HealthCare PACE solutions revenue of approximately $1.7 million, or 12%, to $16.4 million for the three months ended September 30, 2022, as compared to the same period in 2021. The increase was attributable to the addition of new clients and growth with existing clients since the third quarter of 2021, primarily withinin our PBM solutions, third-party administration services, and risk adjustment services. The increase in technology-enabled solutions revenue was also due to a $0.8 million increase in software subscription services revenue primarily due to new clients added after the end of the first quarter of 2022.
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Cost of ProductMedication Revenue
Cost of productmedication revenue increased $7.7$13.5 million, or 20%34%, to $46.2$53.1 million for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021.2022. Increased medication volume from growth in the number of patients served by our existing customers contributed approximately $5.7$11.4 million to the change, of which $2.6 million was attributable to new clients and $0.7M was attributablecontributed $3.8 million. Cost of medication revenue also increased $1.1 million due to medications dispensed by our community pharmacy network on behalf of CareVention HealthCare as a result of amended client agreements.employee compensation costs, including stock-based compensation expense, due to an increase in employee headcount to support revenue growth. The increase in cost of productmedication revenue was also due to a $1.0 million increase in distribution charges related to higher shipping costs and volume for the medications we fulfilled. The remaining $1.0 million increase was primarily due to employee compensation costs, including stock-based compensation, due to an increase in employee headcount.
Cost of ServiceTechnology-Enabled Solutions Revenue
Cost of servicetechnology-enabled solutions revenue increased $1.3 million, or 10%, to $14.0$14.4 million for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021.2022. The increase was primarily comprised of $3.4a $2.5 million ofincrease in professional services primarily due to increased costs related to a newour vendor arrangement for business process support and technology services. These increases wereservices for our third-party administration services and electronic health records solutions. This increase was partially offset by a $1.4$1.6 million reduction in employee compensation costs, including stock-based compensation, for the employees hired by the third-party provider and a $0.6 million reduction in resources contracted to deliver medication safety services due to the conclusion of the EMTM program on December 31, 2021.provider.
Research and Development Expenses
Research and development expenses increased $0.3decreased by $2.7 million, or 9%68%, to $4.0$1.3 million for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021.2022. The increasedecrease was primarily relateddue to a $0.5$1.5 million increasedecrease in employee compensation costs, of which $1.3 million related to stock-based compensation expense, due to decreased headcount during 2023 compared to 2022. The decrease in research and development expenses was also due to a $0.6 million decrease in rent and overhead as a result of more outstanding awardsa decreased real estate footprint in our development centers in New Jersey, South Carolina, and Florida. The remaining decrease was due to $0.4 million of expenses related to non-recurring business optimization initiatives during 2022, compared to 2021. This increase was partially offset by a $0.1 million decrease in publication expenses and $0.1 million decrease in rent expense.specifically efforts associated with consolidating our electronic health records solutions platforms.
Sales and Marketing Expenses
Sales and marketing expenses increased $0.1decreased $0.2 million, or 5%7%, to $2.9$2.5 million for the three months ended September 30, 2022,March 31, 2023, as compared to the same period in 2021.2022. The increasedecrease was primarily attributable to a $0.3 million increase in employee compensation costs, which included $0.1 million in stock-based compensation expense. This increase was partially offset by a $0.2 million decrease in professional consulting services related to executing our branding and marketing strategies.strategies, public relations costs, and advertising costs.
General and Administrative Expenses
General and administrative expenses increased $13.5$0.7 million, or 94%4%, to $27.9$16.6 million for the three months ended September 30, 2022,March 31, 2023 as compared to the same period in 2021. The increase was primarily attributable to a $8.7 million increase in employee compensation costs compared to 2021, of which $7.9 million was stock-based compensation primarily due to vesting of restricted stock awards related to the retirement of former named executive officers as well as additional grants outstanding during 2022 as compared to 2021. 2022.
The increase in general and administrative expenses also included executive transition expenses of $1.8 million incurred during 2022 related to the separation and transition of retired named executive officers and $1.1 million of legal and advisory costs related to a stockholder cooperation agreement. The remaining increase in general and administrative costs was primarily due to $0.9 million of divestiture related costs and a $0.8 million increase in professional services, primarily related to a new provider of enterprise support services we engaged during the fourth quarter of 2021 as part of business optimization initiatives.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $0.4 million, or 7%, to $5.7 million for the three months ended September 30, 2022, as compared to the same period in 2021. This increase was primarily due to a $0.6$0.9 million increase in the amortization of capitalized softwaredivestiture-related costs related to new software functionality placed into service after the endsales of the third quarterDoseMe and SinfoníaRx businesses, a $0.5 million increase in 2021 to support our business. Thelegal costs and professional services, a $0.3 million increase was offset byin bad debt expense, and a $0.2 million decrease in amortization
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expense related to definite-lived intangible assets which have been fully amortized since the end of the first quarter in 2021.
Interest Expense
Interest expense for the three months ended September 30, 2022 was $2.7 million, an increase of $0.5 million, or 22%, as compared to the same period in 2021. The increase was primarily attributable to a $0.6 million increase in interest expense on the 2020 Credit Facility due to increased borrowings and an increase in interest rates in 2022 compared to 2021. The increase in interest expense was also due to amortization of the remaining balance of deferred financing costs to interest expense as a result of terminating the 2020 Credit Facility. As discussed under Liquidity and Capital Resources below, the Company fully repaid and terminated the 2020 Credit Facility on August 1, 2022.
The increase in interest expense was partially offset by the full satisfaction of the acquisition-related notes payable in October 2021 related to the October 2020 acquisition of Personica, LLC. Approximately $0.1 million of interest expense was recognized for the three months ended September 30, 2021 related to the acquisition-related notes payable.
Income Taxes
For the three months ended September 30, 2022 and 2021, we recorded income tax benefit of $7 thousand and income tax expense of $82 thousand, respectively, which resulted in effective tax rates of 0.0% and (0.7%), respectively. Income tax expense was primarily related to indefinite-lived deferred tax liabilities for goodwill amortization. The effective tax rates differ from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that was currently limiting the realizability of our net deferred tax assets as of September 30, 2022 and 2021. Accordingly, the tax benefit was limited due to unbenefited losses in the three months ended September 30, 2022 and 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-date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.
Other Income
In connection with the sale of the PrescribeWellness Business, we entered into a transition services agreement (“TSA)” with TDS pursuant to which we are providing business support services for the PrescribeWellness Business after the sale. We recognized $479 of income related to the TSA for the three months ended September 2022, which is reported in other income on our consolidated statement of operation.
Net Loss from Discontinued Operations, Net of Tax
During the first quarter of 2022, we announced plans to evaluate non-core assets and commenced plans to sell the SinfoníaRx, PrescribeWellness, and DoseMe businesses, which were acquired in September 2017, March 2019, and January 2019, respectively. On August 1, 2022, we completed the sale of the PrescribeWellness Business. Our completed sale of the PrescribeWellness Business and plan of sale with respect to DoseMe and SinfoníaRx represent a strategic business shift having a significant effect on our operations and financial results. As a result, we determined that these businesses met such requirements to be classified as held for sale and discontinued operations as of March 31, 2022 and continued to meet the requirements as of September 30, 2022. Accordingly, all related assets and liabilities and the results of operations for all periods presented are classified as discontinued operations in the consolidated financial statements.
Net loss from discontinued operations, net of tax, for the SinfoníaRx and DoseMe businesses was $10.3 million and $4.1 million for the three months ended September 30, 2022 and 2021, respectively. Net loss from discontinued operations, net of tax, for the PrescribeWellness Business was $3.9 million and $1.3 million for the three months ended September 30, 2022 and 2021, respectively. See Note 3 in the notes to our consolidated financial statements as reported in this Quarterly Report on Form 10-Q for additional information.
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Comparison of the Nine Months Ended September 30, 2022 and 2021 (Continuing Operations)
Product Revenue
Product revenue increased $27.6 million, or 20%, to $166.6 million for the nine months ended September 30, 2022, as compared to the same period in 2021. 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 $17.1 million to the increase. Medications dispensed on behalf of CareVention HealthCare by our community pharmacy network increased $5.4 million resulting from amended client agreements. In addition, new CareVention HealthCare clients that started services after the end of the third quarter in 2021 contributed $5.1 million to the increase in product revenue during 2022.
Service Revenue
Service revenue decreased $1.8 million, or 3%, to $50.2 million for the nine months ended September 30, 2022, as compared to the same period in 2021.
Medication safety services revenue decreased $6.5 million, or 74%, during the nine months ended September 30, 2022, as compared to the same period in 2021. The decrease was primarily due to the conclusion of the EMTM pilot program on December 31, 2021, which contributed $6.9 million of revenues during the nine months ended September 30, 2021. As a result, no revenues related to the EMTM program were recognized after December 31, 2021. This decrease was partially offset by the addition of new clients since the third quarter of 2021, which contributed $0.8 million of revenue during the nine months ended September 30, 2022.
The decrease in medication safety services was partially offset by a $4.6 million, or 11%, increase in CareVention HealthCare PACE solutions revenue to $47.6 million for the nine months ended September 30, 2022, as compared to the same period in 2021. The increase was attributable to the addition of new clients and growth with existing clients since the third quarter of 2021, primarily within our PBM solutions, third-party administration services, and risk adjustment services.
Cost of Product Revenue
Cost of product revenue increased $24.2 million, or 23%, to $129.2 million for the nine months ended September 30, 2022, as compared to the same period in 2021. Increased medication volume from growth in the number of patients served by our customers contributed approximately $19.2 million to the change, of which new clients contributed $3.2 million and $5.4 million was attributable to medications dispensed by our community pharmacy network on behalf of CareVention HealthCare as a result of amended client agreements. The increase in cost of product revenue was also due to a $3.0 million increase in distribution charges related to higher shipping costs and volume for the medications we fulfilled. Cost of product revenue also increased $1.8 million due to employee compensation costs, including stock-based compensation, due to an increase in employee headcount.
Cost of Service Revenue
Cost of service revenue increased $2.6 million, or 7%, to $40.4 million for the nine months ended September 30, 2022 compared to the same period in 2021. The increase was primarily comprised of $8.3 million of costs related to a new vendor arrangement for business process support and technology services and an increase in information technology expenses of $0.7 million.insurance costs. These increases were partially offset by a $4.7 million reduction in employee compensation costs, including stock-based compensation, for the employees hired by the third-party provider and a $1.7 million reduction in resources contracted to deliver medication safety services due to the conclusion of the EMTM program on December 31, 2021.
Research and Development Expenses
Research and development expenses increased $0.1 million, or 1%, to $11.2 million for the nine months ended September 30, 2022 as compared to the same period in 2021. The increase was primarily attributable to investments in information technology spend of $0.4 million and $0.4 million of expenses related to non-recurring business
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optimization initiatives during 2022, specifically efforts associated with consolidating our electronic health records solutions platforms. The increase in research and development expenses was partially offset by a $0.7 million decrease in employee compensation costs compared to 2021, of which $0.5 million represented stock-based compensation expense.
Sales and Marketing Expenses
Sales and marketing expenses decreased $0.5 million, or 7%, to $7.7 million for the nine months ended September 30, 2022 as compared to the same period in 2021. The decrease was primarily attributable to a $0.7 million decrease in stock-based compensation expense compared to 2021. This decrease was partially offset by an aggregate increase of $0.2 million in conference related travel expenses and professional consulting services related to executing our branding and marketing strategies.
General and Administrative Expenses
General and administrative expenses increased $13.2 million, or 29%, to $58.9 million for the nine months ended September 30, 2022 as compared to the same period in 2021. The increase was primarily attributable to a $5.7 million increase in stock-based compensation expense compared to 2021 as a result of vesting of restricted stock awards related to the retirement of former named executive officers and additional grants outstanding during 2022 as compared to 2021. Professional services expense increased by $2.3 million related to a new provider of enterprise support services we engaged during the fourth quarter of 2021 as part of our business optimization initiatives and $0.7 million related to other professional services. The increase in general and administrative expenses also included $2.3 million of divestiture related costs, $2.0 million of executive transition costs primarily related to the retirement and transition of former named executive officers, and $1.1 million of legal and advisory costs related to a stockholder cooperation agreement. Additionally, the increase in general and administrative expenses was partially offset by a $1.1$1.6 million decrease in employee compensation costs primarily due to a decrease in employee headcount as a resultstock-based compensation expense related to the retirement of former named executive officers during the Company’s business optimization initiative to outsource the enterprise support services previously mentioned.third quarter of 2022.
Change in Fair Value of Contingent Consideration Receivable
In connection with the sale of the SinfoníaRx Business on March 2, 2023, we may be entitled to receive additional consideration based upon the potential regulatory changes affecting the SinfoníaRx Business. The contingent consideration receivable was recorded at an estimated fair value of $0.5 million on the SinfoníaRx Sale Date of March 2, 2023. During the three months ended March 31, 2023, we recorded a $0.4 million charge to decrease the fair value of the contingent consideration receivable. The fair value of the contingent consideration receivable was $0.1 million as of March 31, 2023.
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In connection with the sale of the PrescribeWellness Business on August 1, 2022, we may be entitled to receive additional consideration based on the achievement of certain customer and revenue metrics for the years ending December 31, 2023 and 2024. The contingent consideration receivable was recorded at the estimated fair value of $7.0 million on the PrescribeWellness Sale Date of August 1, 2022 and the fair value of the contingent consideration receivable was $3.3 million as of March 31, 2023 and December 31, 2022.
Long-Lived Asset Impairment Charge
During the ninethree months ended September 30,March 31, 2022, we recorded a $4.1 million long-lived asset impairment charge related to certain capitalized software development costs. During the first quarter of 2022, we became aware of changes in circumstances impacting the future application of certain capitalized software development costs and evaluated the recoverability of the related long-lived assets by comparing their carrying amount to the future net undiscounted cash flows expected to be generated by the assets to determine if the carrying value was not recoverable. The recoverability test indicated that certain capitalized software development costs were impaired. As a result, we recognized an impairment loss equal to $4.1 million for the ninethree months ended September 30,March 31, 2022. We did not record any long-lived asset impairment charges in 2021.for the three months ended March 31, 2023.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased $1.8$0.5 million, or 12%8%, to $16.9$6.2 million for the ninethree months ended September 30, 2022 from $15.1 million forMarch 31, 2023, as compared to the nine months ended September 30, 2021.same period in 2022. This increase was primarily due to a $2.3$0.5 million increase in the amortization of capitalized software related to new software functionality placed into service after the end of the secondfirst quarter of 2021in 2022 to support our business. This increase was partially offset by a decrease in amortization expense of $0.7 million primarily due to definite-lived intangible assets which have been fully amortized since the end of the first quarter in 2022.
Interest Expense, Net
Interest expense increased $0.5 million to approximately $7.4 million for the ninethree months ended September 30, 2022,March 31, 2023 was $1.3 million, a decrease of $1.0 million, or 44%, as compared to the same period in 2021.2022. The increase was primarily attributable to a $1.1 million increasedecrease in interest expense onwas primarily due to the repayment and termination of the 2020 Credit Facility dueon August 1, 2022. For the three months ended March 31, 2022, we incurred $0.6 million of interest expense related to an increase in borrowingsthe 2020 Credit Facility and interest rates in 2022 compared to 2021.amortization of associated deferred financing costs. The increasedecrease in interest expense was also due to amortization$0.5 million of the remaining balance of deferred financing costs to interest expense as a result of terminating the 2020 Credit Facility. As discussed under Liquidity and Capital Resources below, the Company repaid and terminated the 2020 Credit Facilityincome earned on August 1, 2022.
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our investments in money market funds. The increasedecrease in interest expense was partially offset by the full satisfaction of the acquisition-related notes payablean increase in October 2021imputed interest expense related to the October 2020 acquisition of Personica, LLC. Approximately $0.5 million of interest expense was recognized for the nine months ended September 30, 2021 related to the acquisition-related notes payable.our vendor financing arrangements.
Other Income
In connection with the salesales of the PrescribeWellness Business, DoseMe Business, and SinfoníaRx Business, we entered into a transition services agreementagreements (“TSA)” with TDSTSAs”), pursuant to which we provided or are providing business support services for the PrescribeWellness, BusinessDoseMe, and SinfoníaRx businesses after the sale.their sales. We recognized $479$0.5 million of income related to the TSATSAs for the ninethree months ended September 2022,March 31, 2023, which is reported in other income onin our consolidated statement of operation.operations.
Income Taxes
For the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, we recorded income tax expense of $0.4$0.1 million and $0.3$0.2 million, respectively, which resulted in effective tax rates of (0.6%)(1.5)% and (0.7%)(1.1)%, respectively. Income tax expense was primarily related to indefinite-lived deferred tax liabilities for goodwill amortization. The effective tax rates differ from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that was currently limitinglimited the realizability of our net deferred tax assets as of September 30, 2022March 31, 2023 and 2021.2022. Accordingly, the tax benefit was limited due to unbenefited losses in the ninethree months ended September 30, 2022March 31, 2023 and 2021.2022. 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.
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Net Loss from Discontinued Operations, Net of Tax
During the first quarter of 2022, we announced plans to evaluate non-core assets and commenced plans to sell the SinfoníaRx, PrescribeWellness, and DoseMe businesses, which were acquired in September 2017, March 2019, and January 2019, respectively. We completed the sales of the PrescribeWellnessOn, DoseMe,and SinfoníaRx businesses on August 1, 2022, we completed the saleJanuary 20, 2023 and March 2, 2023, respectively. Our sales of the PrescribeWellness Business. Our completed sale of the PrescribeWellness Business and plan of sale with respect to DoseMe and SinfoníaRx representthese businesses represented a strategic business shift having a significant effect on our operations and financial results. As a result, we determined that these businesses met such requirements to be classified as held for sale and discontinued operations as of March 31, 2022 and continued to meet the requirements as of September 30, 2022.through their respective sale dates. Accordingly, alalll related assets and liabilities and the results of operations for all periods presented are classified as discontinued operations in the consolidated financial statements.
Net loss from discontinued operations, net of tax, for the DoseMeand SinfoníaRx and DoseMe businesses was $32.3$0.2 million and $11.7$8.6 million, respectively, for the ninethree months ended September 30, 2022 and 2021, respectively.March 31, 2023. Net loss from discontinued operations, net of tax, for the PrescribeWellness, DoseMe,PrescribeWellnessand SinfoníaRx businesses Business was $26.6$1.8 million, $1.9 million, and $6.7$4.1 million, respectively, for the ninethree months ended September 30, 2022 and 2021, respectively.March 31, 2022. See Note 3 in the notes to our consolidated financial statements as reported in this Quarterly Report on Form 10-Q for additional information.
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NON-GAAP FINANCIAL MEASURES
Adjusted EBITDA
To provide investors with additional information about our financial results, we disclose Adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA consists of net loss plus certain other expenses, which include interest expense, provision for income taxes, depreciation and amortization, impairment charges, settlement costs, business optimization expenses, severance costs, executive transition costs, cooperation agreement costs, divestiture-related expense, acquisition-related expense, loss on disposal of business, and stock-based compensation expense. We consider settlement costs to include amounts payable by us or reductions to amounts owed to us as a result of a contractual settlement. We consider business optimization expenses to include contract termination payments, severance, retention payments, and other employee and non-recurring vendor costs incurred related to our business optimization initiatives during 2022. We consider severance costs to include severance payments related to the realignment of our resources. We consider executive transition costs to include nonrecurring costs related to the hiring and onboarding of new named executive officers and separation costs related to former named executive officers. We consider cooperation agreement costs to include legal, professional services, and other non-recurring costs related to our cooperation agreement with Indaba Capital Management. We consider divestiture-related expense to include nonrecurring direct transaction costs. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs. We consider loss on disposal of business to include the nonrecurring loss resulting from the sale of the PrescribeWellness Business. 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. We believe Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance.
Our management uses Adjusted EBITDA:
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 the amounts associated with our results of operations as determined in accordance with GAAP. In particular:
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Because of these and other limitations, you should consider Adjusted EBITDA alongside GAAP-based financial performance measures, including various cash flow metrics, net 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.
The following is a reconciliation of our net loss to Adjusted EBITDA for the periods presented:
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| 2022 |
| 2021 |
| 2022 |
| 2021 | |
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Reconciliation of Net Loss to Adjusted EBITDA (loss) | | | | | | | | | | | | | | |
Net loss | | $ | (40,065) | | $ | (17,111) | | $ | (117,868) | | $ | (57,684) | | |
Add: | | | | | | | | | | | | | | |
Interest expense, net | | | 2,717 | | | 2,230 | | | 7,430 | | | 6,959 | | |
Income tax (benefit) expense | | | (101) | | | 134 | | | (294) | | | 466 | | |
Depreciation and amortization | | | 5,723 | | | 12,099 | | | 24,285 | | | 35,343 | | |
Impairment charges | | | 5,845 | | | — | | | 46,355 | | | — | | |
Settlement | | | — | | | — | | | 1,448 | | | 500 | | |
Business optimization expenses | | | — | | | — | | | 787 | | | — | | |
Severance costs | | | 122 | | | 354 | | | 697 | | | 516 | | |
Executive transition | | | 1,821 | | | — | | | 1,971 | | | — | | |
Cooperation agreement costs | | | 1,122 | | | — | | | 1,122 | | | — | | |
Divestiture-related expense | | | 1,161 | | | — | | | 2,807 | | | — | | |
Loss on disposal of business | | | 2,879 | | | — | | | 2,879 | | | — | | |
Acquisition-related expense | | | — | | | — | | | — | | | 217 | | |
Stock-based compensation expense | | | 17,236 | | | 8,011 | | | 32,537 | | | 28,962 | | |
Adjusted EBITDA (loss) (1) | | $ | (1,540) | | $ | 5,717 | | $ | 4,156 | | $ | 15,279 | | |
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Liquidity and Capital Resources
We incurred a net loss of $117.9$15.9 million and $57.7$28.2 million for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Our primary liquidity and capital requirements are for software development, research and development, sales and marketing, general and administrative expenses, and debt service obligations. We have funded our operations, working capital needs, and investments with cash generated through operations, proceeds from the divestiture of a non-core business,businesses, issuance of stock, and prior borrowings under the terminated 2020 Credit Facility. At September 30, 2022,our credit facilities. As of March 31, 2023, we had unrestricted cash and cash equivalents of $80.8$67.2 million.
Summary of Cash Flows
The following table shows a summary of our cash flows for the ninethree months ended September 30, 2022March 31, 2023 and 2021:2022:
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| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||
Net cash provided by operating activities | | $ | 9,753 | | $ | 3,017 | ||||||
Net cash used in operating activities | | $ | (8,754) | | $ | (15,735) | ||||||
Net cash provided by (used in) investing activities | | | 93,680 | | | (24,260) | | | 180 | | | (8,966) |
Net cash (used in) provided by financing activities | | | (30,898) | | | 8,072 | | | (403) | | | 27,410 |
Net increase (decrease) in cash and restricted cash (1) | | $ | 72,535 | | $ | (13,171) | ||||||
Net increase (decrease) in cash, cash equivalents and restricted cash (1) | | $ | (8,977) | | $ | 2,709 |
(1) | The cash flows related to discontinued operations have not been segregated. Accordingly, the consolidated statements of cash flows and the following discussions include the results of continuing and discontinued operations. See Note 3 in the notes to the consolidated financial statements |
Operating Activities
Net cash provided byused in operating activities was $9.8$8.8 million for the ninethree months ended September 30,March 31, 2023 and consisted of our net loss of $15.9 million and changes in our operating assets and liabilities totaling $7.7 million, offset by the addition of noncash items of $14.8 million. The noncash items primarily included $6.2 million of depreciation and amortization expense, a $4.7 million net loss related to the sales of the DoseMe and SinfoníaRx businesses, $2.5 million of stock-based compensation expense, a $0.4 million change in fair value of contingent consideration receivable, a $0.4 million impairment charge related to our operating lease right-of-use assets, and $0.3 million of amortization of deferred financing costs and debt discounts related to the 2026 Notes. The change in operating assets and liabilities was primarily due to a decrease in accrued expenses and other liabilities and an increase in prepaid expenses and other current assets. The decrease in accrued expenses and other liabilities was primarily due to a decrease in client funds obligations and the offsetting balance in restricted cash, a decrease in accrued interest expense, and a decrease in accrued employee related expenses, which were partially offset by an increase in consideration payable to customers under our PBM solutions. The increase in prepaid expenses and other current assets was primarily due to an increase in contract assets related to
39
rebate administration services under our PBM solutions. The change in operating assets and liabilities was partially offset by a decrease in client claims receivables due to the timing of customer payments.
Net cash used in operating activities was $15.7 million for the three months ended March 31, 2022 and consisted of our net loss of $117.9$28.2 million offset byand changes in our operating assets and liabilities totaling $20.1$14.8 million, andoffset by the addition of noncash items of $107.5$27.2 million. The noncash items primarily included $46.4$13.1 million of depreciation and amortization expense, $8.6 million of stock-based compensation expense, $4.9 million of impairment charges primarily related to our long-lived assets and goodwill, $32.5 million of stock-based compensation expense, $24.3 million of depreciation and amortization expense, a $2.9 million loss related to the sale of the PrescribeWellness Business, and $2.0$0.5 million of amortization of deferred financing costs and debt discounts primarily related to the 2026 Notes, partially offset byand a $0.5$0.3 million change in net deferred taxes. The change in operating assets and liabilities was primarily due to an increase in accrued expenses and other liabilities and increase in accounts payable due to the timing of vendor payments and an increase in consideration payable to customers of our PBM solutions. The change in operating assets and liabilities was also due to a decrease in accounts receivable, primarily as a result of improved collections, and an increase in long-term liabilities due to the vendor financing arrangement entered into in February 2022 related to business process outsourcing and technology services for our third-party administration services and electronic health records solutions. The change in operating assets and liabilities was partially offset by an increase in client claims receivable due to increased growth in PBM services utilized by our pharmacy clients.
Net cash provided by operating activities was $3.0 million for the nine months ended September 30, 2021 and consisted primarily of our net loss of $57.7 million and changes in our operating assets and liabilities totaling $5.6 million, offset by the addition of noncash items of $66.3 million. The noncash items primarily included $35.3 million of depreciation and amortization expense, $29.0 million of stock-based compensation expense, $1.7 million of amortization of deferred financing costs and debt discounts primarily related to the 2026 Notes and acquisition-related notes payable, and a $0.3 million change in net deferred taxes, offset by acquisition-related contingent consideration paid of $0.1 million related to the acquisition of Cognify in 2018. The change in operating assets and liabilities was primarily due to an increase in prepaid expenses and other current assets, and an increase in accounts receivable and client claims receivables, and a decrease in accrued expenses and other assets.liabilities. 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 PBM solutions. The increaseincreases in accounts receivable and client claims receivable were primarily due to the timing of customer payments. The decrease in accrued expenses and other assetsliabilities was primarily due to an increasea decrease in nontrade receivables. The changeaccrued employee related expenses and a decrease in operating assets and liabilitiesaccrued interest expense, which was partially offset by an increase in accountsconsideration payable and accrued expenses and other liabilities.to customers under our PBM solutions.
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Investing Activities
Net cash provided by investing activities was $93.7$0.2 million for the ninethree months ended September 30, 2022March 31, 2023 and consisted primarily of $118.6$3.4 million of proceedscash received from the salesales of PrescribeWellness Business,the DoseMe and SinfoníaRx businesses, which werewas offset by $23.9$2.5 million in software development costs for our CareVention HealthCare and MedWise HealthCare technologies and $1.0$0.7 million in purchases of property and equipment to support technology-related needs and infrastructure for our pharmacies and health plan managementmedication fulfillment services.
Net cash used in investing activities was $24.3$9.0 million for the ninethree months ended September 30, 2021, whichMarch 31, 2022 and included $22.6$8.8 million in software development costs for our CareVention HealthCare and MedWise HealthCare technologies. Net cash used in investing activities also included $1.6$0.2 million in purchases of property and equipment primarily to support technology-related needs and infrastructure at our pharmacies, call center locations, and Moorestown, New Jersey headquarters, and improvements for our office space in Eden Prairie, Minnesota to support our health plan management services.operations.
Financing Activities
Net cash used in financing activities was $30.9$0.4 million for the ninethree months ended September 30, 2022March 31, 2023 and consisted primarily of $57.2 million of principal repayments on our 2020 Credit Facility, which was terminated on August 1, 2022, $1.1$0.6 million of payments on employee taxes for shares withheld, and $0.4 million of payments of debt financing costs. The cash used in financing activities for the nine months ended September 30, 2022 was partially offset by $27.7 million of borrowings on our 2020 Credit Facility to support business operations and initiatives and $0.1$0.2 million of proceeds received from the exercise of stock options.
Net cash provided by financing activities was $8.1$27.4 million for the ninethree months ended September 30, 2021March 31, 2022 and included $17.5primarily consisted of $27.7 million of borrowings on our 2020 Credit Facility to fund the repayment of the firstsupport business operations and second promissory notes in connection with the October 2020 acquisition of Personica, LLC and $3.7 million of proceeds received from the exercise of stock options.initiatives. Net cash provided by financing activities for the three months ended March 31, 2022 was partially offset by repayments$0.4 million of $13.0 millionpayments of debt financing costs related to the first and second promissory notes in connection with the Personica, LLC acquisition and $0.1 million for the final payment of the contingent purchase price consideration in connection with the 2018 acquisition of the Cognify business.2020 Credit Facility.
Funding Requirements
On December 18, 2020, we entered into the 2020 Credit Facility with Western Alliance Bank (“WAB”), which provided 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 was scheduled to mature on May 16, 2025.
On August 1, 2022, we entered into a payoff letter with WAB with respect to the 2020 Credit Facility, pursuant to which we voluntarily elected to pay all amounts outstanding, including principal and interest, under the 2020 Credit Facility and related loan documents (the “Pay Off”) using cash on hand and proceeds from the sale of PrescribeWellness Business. Accordingly, on August 1, 2022, we paid a total of $57.4 million to WAB for the Pay Off, and terminated the 2020 Credit Facility and related loan documents.
We believe that our unrestricted cash and cash equivalents of $80.8$67.2 million as of September 30, 2022,March 31, 2023 and expected cash flows from continuing operations and anticipated proceeds from the sales of the SinfoníaRx and DoseMe businesses will be sufficient to fund our planned operations through at least November 2023.May 2024. 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. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect our stockholders. If we are unable to obtain funding, we could be forced to delay, reduce, or eliminate our research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect our business prospects. There is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
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Contractual Obligations and Commitments
During the three and nine months ended September 30, 2022,March 31, 2023, 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 20212022 Form 10-K.
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.
Except as disclosed in Note 2 in the notes to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes in our critical accounting policies during the three and nine months ended September 30, 2022March 31, 2023 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 20212022 Form 10-K.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed in our 20212022 Form 10-K for the three and nine months ended September 30, 2022.March 31, 2023.
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 Securities Exchange Act of 1934, as amended (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 September 30, 2022,March 31, 2023, 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 Securities and Exchange Commission’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.
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 thirdfirst quarter of fiscal 20222023 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 20212022 Form 10-K for the year ended December 31, 2021,2022, which was filed with the Securities and Exchange Commission on February 25, 2022.March 10, 2023. 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. Except as set forth below, thereThere have been no material changes to such risk factors previously disclosed in our 20212022 Form 10-K.
Actions of activist stockholders against us could be disruptive and costly. The possibility that activist stockholders may wage proxy contests or seek representation on our Board could cause uncertainty about the strategic direction of our business.
Stockholders may from time to time engage in proxy solicitations, advance stockholder proposals or board nominations or otherwise attempt to effect changes, assert influence or acquire some level of control over us.
We recently engaged in a process with one of our significant stockholders, which culminated in our entering into a cooperation agreement (the “Cooperation Agreement”) with that stockholder and several resulting changes in our management and corporate governance. The stockholder also agreed to customary standstill provisions during the term of the Cooperation Agreement which extends until the date that is forty-five (45) days before the nomination window closes under the Bylaws for the Company’s 2023 Annual Meeting.
That stockholder, following the termination of the standstill provisions in the Cooperation Agreement, or another activist stockholder, may attempt to effect additional changes in our strategic direction, and in furtherance thereof, seek changes in how our company is governed, through further changes to our Board of Directors or otherwise. While our Board and management team will continue to strive to maintain constructive, ongoing communications with our stockholders, including Indaba Capital Management, and welcomes their views and opinions with the goal of enhancing value for all stockholders, if that stockholder takes further action, or if another stockholder were to launch an activist campaign that seeks to further replace members of our Board or changes in our strategic direction, it could have an adverse effect on us because:
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Our stockholder rights plan, or “poison pill,” includes terms and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.
On July 25, 2022, our Board approved and adopted a Rights Agreement, dated as of July 25, 2022 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. Pursuant to the Rights Agreement, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of our common stock (the “Common Shares”). The Rights are distributable to stockholders of record as of the close of business on August 5, 2022 (the “Record Date”). One Right also will be issued together with each Common Share issued by the Company after the Record Date, but before the Distribution Date (as defined in the Rights Agreement) (or the earlier redemption or expiration of the Rights) and, in certain circumstances, after the Distribution Date.
Generally, the Rights Agreement works by causing substantial dilution to any person or group that acquires beneficial ownership of ten percent (10%) or more of the Common Shares without the approval of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender, or exchange offer or other business combination involving the Company that is not approved by the Board. The Rights Agreement is not intended to interfere with any merger, tender, or exchange offer or other business combination approved by the Board. The Rights Agreement also does not prevent the Board from considering any offer that it considers to be in the best interest of its stockholders. The description and terms of the Rights are set forth in the Rights Agreement, which has previously been filed as an exhibit to our public reports.
As discussed above, the Rights have certain anti-takeover effects, including potentially discouraging a takeover that stockholders may consider favorable. The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the Board.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the three months ended September 30, 2022.March 31, 2023.
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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| Amended and Restated Certificate of Incorporation of Tabula Rasa HealthCare, Inc. |
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3.2 | | | 8-K | | 7/26/2022 | | 3.1 | | | |
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10.1†† | | | 8-K | | 6/21/2022 | | 2.1 | | | |
10.2†† | | | 8-K | | 6/21/2022 | | 2.2 | | | |
10.3 | | | 8-K | | 9/14/2022 | | 10.1 | | | |
10.4 | | | 8-K | | 9/14/2022 | | 10.2 | | | |
10.5 | | | 8-K | | 9/14/2022 | | 10.3 | | | |
10.6 | | | 8-K | | 9/14/2022 | | 10.4 | | | |
10.7 | | | 8-K | | 9/14/2022 | | 10.5 | | | |
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104 | | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (contained in Exhibit 101) | | | | | | | | X |
* Represents management contract or compensatory plan or arrangement.
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10.1 | | | 8-K | | 6/21/2022 | | 2.1 | | | |
10.2 | | | 8-K | | 6/21/2022 | | 2.2 | | | |
10.3# | | | 10-K | | 3/10/2023 | | 10.59 | | | |
10.4# | | | 10-K | | 3/10/2023 | | 10.60 | | | |
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** 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
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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 of theschedules and exhibits and schedules to this exhibit arehave been omitted pursuant to Item 601(a)(5) or 601(b)(2) of Regulation S-K.S-K, as applicable. The Company agrees towill furnish supplementallythe omitted schedules and exhibits to the SEC,Securities and Exchange Commission upon request, a copy of any omitted schedule or exhibit.request.
5443
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/ BRIAN W. ADAMS |
| Name: | Brian W. Adams |
| Title: |
(Principal Executive Officer) |
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Date: | By: | /s/ THOMAS J. CANCRO |
| Name: | Thomas J. Cancro |
| Title: | Chief Financial Officer |
| | (Principal Financial Officer and Accounting Officer) |
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5544