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EX-31.1 - EX-31.1 - Tabula Rasa HealthCare, Inc.trhc-20170630ex311a87aae.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2017

 

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
(State of incorporation)

45-5726437
(I.R.S. Employer Identification No.)

228 Strawbridge Drive, Suite 100
Moorestown, NJ 08057
(Address of Principal Executive Offices,
including Zip Code)

(866) 648 - 2767
(Registrant’s Telephone Number,
Including Area Code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes     No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

 

 

(Do not check if a

 

 

 

smaller reporting company)

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes   No 

 

As of July 31, 2017, the Registrant had 17,360,202 shares of Common Stock outstanding.

 

 

 

 


 

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2017

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Number

 

 

 

PART I 

Financial Information

3

Item 1. 

Financial Statements

3

 

Unaudited Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 

3

 

Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016

4

 

Unaudited Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2017

5

 

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016

6

 

Notes to Unaudited Consolidated Financial Statements

7

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4. 

Controls and Procedures

41

PART II 

Other Information

42

Item 1. 

Legal Proceedings

42

Item 1A. 

Risk Factors

42

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3. 

Defaults Upon Senior Securities

43

Item 4. 

Mine Safety Disclosures

43

Item 5. 

Other Information.

43

Item 6. 

Exhibits

43

Signatures 

43

Exhibit Index 

44

 

2


 

PART I. – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2017

    

2016

    

Assets 

 

(unaudited)

 

 

 

 

Current assets: 

 

 

 

 

 

 

 

Cash

 

$

2,811

 

$

4,345

 

Accounts receivable, net

 

 

8,547

 

 

6,646

 

Inventories

 

 

3,202

 

 

2,911

 

Rebates receivable

 

 

325

 

 

312

 

Prepaid expenses

 

 

964

 

 

869

 

Other current assets

 

 

354

 

 

581

 

Total current assets

 

 

16,203

 

 

15,664

 

Property and equipment, net

 

 

7,794

 

 

6,409

 

Software development costs, net

 

 

4,026

 

 

3,350

 

Goodwill

 

 

21,686

 

 

21,686

 

Intangible assets, net

 

 

23,400

 

 

25,297

 

Other assets

 

 

308

 

 

333

 

Total assets

 

$

73,417

 

$

72,739

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

686

 

$

674

 

Acquisition-related consideration payable

 

 

590

 

 

568

 

Acquisition-related contingent consideration

 

 

1,547

 

 

1,493

 

Accounts payable

 

 

6,166

 

 

6,115

 

Accrued expenses and other liabilities

 

 

4,129

 

 

2,159

 

Total current liabilities

 

 

13,118

 

 

11,009

 

Long-term debt

 

 

775

 

 

1,072

 

Long-term acquisition-related contingent consideration

 

 

 —

 

 

1,515

 

Deferred income tax liability

 

 

1,070

 

 

832

 

Other long-term liabilities

 

 

2,671

 

 

2,205

 

Total liabilities

 

 

17,634

 

 

16,633

 

  

 

 

 

 

 

 

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2017 and December 31, 2016

 

 

 —

 

 

 —

 

Common stock, $0.0001 par value; 100,000,000 shares authorized, 17,360,302 and 16,628,476 shares issued and 17,286,836 and 16,628,476 shares outstanding at June 30, 2017 and December 31, 2016, respectively

 

 

 2

 

 

 2

 

Additional paid-in capital

 

 

96,008

 

 

91,027

 

Treasury stock, at cost; 73,466 and no shares at June 30, 2017 and December 31, 2016, respectively

 

 

(959)

 

 

 —

 

Accumulated deficit

 

 

(39,268)

 

 

(34,923)

 

Total stockholders’ equity

 

 

55,783

 

 

56,106

 

Total liabilities and stockholders’ equity

 

$

73,417

 

$

72,739

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

  

$

24,074

 

$

20,216

 

$

46,770

 

$

38,001

 

Service revenue

 

 

5,582

 

 

2,202

 

 

10,575

 

 

4,574

 

Total revenue

 

 

29,656

 

 

22,418

 

 

57,345

 

 

42,575

 

Cost of revenue, exclusive of depreciation and amortization shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost

 

 

18,463

 

 

15,170

 

 

35,868

 

 

28,152

 

Service cost

 

 

2,505

 

 

952

 

 

4,755

 

 

1,903

 

Total cost of revenue

 

 

20,968

 

 

16,122

 

 

40,623

 

 

30,055

 

Gross profit

 

 

8,688

 

 

6,296

 

 

16,722

 

 

12,520

 

Operating expenses: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development 

 

 

1,291

 

 

961

 

 

2,510

 

 

1,850

 

Sales and marketing

 

 

1,314

 

 

860

 

 

2,544

 

 

1,630

 

General and administrative 

 

 

5,490

 

 

1,816

 

 

11,999

 

 

3,709

 

Change in fair value of acquisition-related contingent consideration expense

 

 

16

 

 

45

 

 

37

 

 

99

 

Depreciation and amortization

 

 

1,799

 

 

1,135

 

 

3,564

 

 

2,139

 

Total operating expenses 

 

 

9,910

 

 

4,817

 

 

20,654

 

 

9,427

 

(Loss) income from operations

 

 

(1,222)

 

 

1,479

 

 

(3,932)

 

 

3,093

 

Other (income) expense: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

 —

 

 

121

 

 

 —

 

 

(13)

 

Interest expense

 

 

77

 

 

1,505

 

 

153

 

 

3,008

 

Total other expense

 

 

77

 

 

1,626

 

 

153

 

 

2,995

 

(Loss) income before income taxes

 

 

(1,299)

 

 

(147)

 

 

(4,085)

 

 

98

 

Income tax expense

 

 

165

 

 

139

 

 

260

 

 

175

 

Net loss

 

$

(1,464)

 

$

(286)

 

$

(4,345)

 

$

(77)

 

Net loss attributable to common stockholders, basic and diluted

 

$

(1,464)

 

$

(890)

 

$

(4,345)

 

$

(279)

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.09)

 

$

(0.18)

 

$

(0.27)

 

$

(0.06)

 

Weighted average common shares outstanding, basic and diluted

 

 

16,506,585

 

 

4,860,758

 

 

16,373,413

 

 

4,765,977

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Treasury Stock

 

Additional

 

Accumulated

 

Stockholders'

 

    

    

Shares

    

Amount

    

Shares

    

Amount

 

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity

Balance, January 1, 2017

 

 

 —

 

$

 —

 

16,628,476

 

$

 2

 

 —

 

$

 —

 

$

91,027

 

$

(34,923)

 

$

56,106

Issuance of restricted stock

 

 

 —

 

 

 —

 

15,596

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares surrendered by stockholder

 

 

 —

 

 

 —

 

(246)

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares repurchased

 

 

 —

 

 

 —

 

 —

 

 

 —

 

(73,466)

 

 

(959)

 

 

 —

 

 

 —

 

 

(959)

Net exercise of stock warrants

 

 

 —

 

 

 —

 

28,431

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net exercise of stock options

 

 

 —

 

 

 —

 

593,409

 

 

 —

 

 —

 

 

 —

 

 

(2,035)

 

 

 —

 

 

(2,035)

Exercise of stock options

 

 

 —

 

 

 —

 

94,636

 

 

 —

 

 —

 

 

 —

 

 

179

 

 

 —

 

 

179

Stock-based compensation expense

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

6,837

 

 

 —

 

 

6,837

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,345)

 

 

(4,345)

Balance, June 30, 2017

 

 

 —

 

$

 —

 

17,360,302

 

$

 2

 

(73,466)

 

$

(959)

 

$

96,008

 

$

(39,268)

 

$

55,783

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

    

2017

    

2016

    

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(4,345)

 

$

(77)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,564

 

 

2,139

 

Amortization of deferred financing costs and debt discount

 

 

46

 

 

1,176

 

Payment of imputed interest on debt

 

 

 —

 

 

(589)

 

Deferred taxes

 

 

238

 

 

133

 

Stock-based compensation

 

 

6,837

 

 

258

 

Change in fair value of warrant liability

 

 

 —

 

 

(13)

 

Change in fair value of acquisition-related contingent consideration

 

 

37

 

 

99

 

Other noncash items

 

 

12

 

 

 —

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(1,901)

 

 

(47)

 

Inventories

 

 

(291)

 

 

(545)

 

Rebates receivable

 

 

(13)

 

 

313

 

Prepaid expenses and other current assets

 

 

105

 

 

(207)

 

Other assets

 

 

 —

 

 

76

 

Accounts payable   

 

 

91

 

 

929

 

Accrued expenses and other liabilities

 

 

1,970

 

 

(754)

 

Other long-term liabilities

 

 

466

 

 

4,023

 

Net cash provided by operating activities

 

 

6,816

 

 

6,914

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,950)

 

 

(2,901)

 

Software development costs

 

 

(1,514)

 

 

(576)

 

Purchases of intangible assets

 

 

 —

 

 

(29)

 

Change in restricted cash

 

 

 —

 

 

200

 

Net cash used in investing activities

 

 

(3,464)

 

 

(3,306)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments for repurchase of common stock

 

 

(959)

 

 

 —

 

Proceeds from exercise of stock options

 

 

179

 

 

 —

 

Payments for employee taxes for shares withheld

 

 

(2,123)

 

 

 —

 

Payments for debt financing costs

 

 

(18)

 

 

(113)

 

Borrowings on line of credit

 

 

 —

 

 

4,500

 

Payments of acquisition-related consideration

 

 

 —

 

 

(180)

 

Payments of initial public offering costs

 

 

(132)

 

 

(982)

 

Payments of contingent consideration

 

 

(1,498)

 

 

(1,895)

 

Repayments of long-term debt

 

 

(335)

 

 

(2,665)

 

Net cash used in financing activities

 

 

(4,886)

 

 

(1,335)

 

Net (decrease) increase in cash

 

 

(1,534)

 

 

2,273

 

Cash, beginning of period

 

 

4,345

 

 

2,026

 

Cash, end of period

 

$

2,811

 

$

4,299

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Acquisition of equipment under capital leases

 

$

50

 

$

1,081

 

Additions to property, equipment, and software development purchases included in accounts payable

 

$

553

 

$

186

 

Deferred offering costs included in accounts payable

 

$

 —

 

$

1,291

 

Cash paid for interest

 

$

106

 

$

1,615

 

Accretion of redeemable convertible preferred stock to redemption value

 

$

 —

 

$

202

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6


 

Table of Contents

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”) provides patient-specific, data-driven technology and solutions that enable healthcare organizations to optimize medication regimens to improve patient outcomes, reduce hospitalizations, lower healthcare costs and manage risk. The Company delivers its solutions through a comprehensive suite of technology-enabled products and services for medication risk management and risk adjustment. The Company serves healthcare organizations that focus on populations with complex healthcare needs and extensive medication requirements. The Company's suite of cloud-based software solutions provides prescribers, pharmacists and healthcare organizations with sophisticated and innovative tools to better manage the medication-related needs of patients.

 

On October 4, 2016, the Company closed its initial public offering (the “IPO”) in which the Company issued and sold 4,300,000 shares of common stock, plus the exercise of the underwriters’ option to purchase an additional 645,000 shares of common stock, at an issuance price of $12.00 per share. The Company received net proceeds of $55,186 after deducting underwriting discounts and commissions of $4,154 but before deducting other offering expenses. In addition, upon the closing of the IPO, all of the Company’s then outstanding Class A Non-Voting common stock and Class B Voting common stock, totaling 5,583,405 shares, were automatically redesignated into shares of common stock, and all of the Company’s then outstanding convertible preferred stock converted into an aggregate of 5,089,436 shares of common stock. In addition, 202,061 shares of common stock were issued upon the automatic net exercise of outstanding warrants to purchase common stock that would have otherwise terminated immediately prior to the closing of the IPO. Additionally, in connection with the closing of the IPO, outstanding warrants to purchase shares of preferred stock converted into warrants to purchase an aggregate of 463,589 shares of common stock.

 

 

2.      Summary of Significant Accounting Policies

 

The Company's significant accounting policies are disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2016, which are included in the Company’s annual report filed on Form 10-K on March 14, 2017. Since the date of those audited consolidated financial statements, there have been no changes to the Company's significant accounting policies, including the status of recent accounting pronouncements, other than those detailed below.

 

(a)    Basis of Presentation

 

              The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals and adjustments), necessary for the fair statement of the Company's interim consolidated financial position for the periods indicated. The interim results for the three months and six months ended June 30, 2017 are not necessarily indicative of results to be expected for the year ending December 31, 2017, 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 consolidated financial statements and accompanying notes included in the Company’s annual report as filed on Form 10-K.

 

(b)    Liquidity

 

              The Company's unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Management believes that the Company's cash on hand of $2,811 as of June 30, 2017, cash flows from operations and borrowing availability under the Amended 2015 Revolving Line (Note 10) are sufficient to fund the Company's planned operations through at least June 30, 2018.

 

7


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

(c)    Use of Estimates

 

              The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates or assumptions.

 

(d)    Revenue Recognition

 

The Company recognizes revenue from product sales or services rendered when (i) persuasive evidence of an arrangement exists, (ii) services have been rendered, (iii) the price to its client is fixed or determinable and (iv) collectability is reasonably assured.

 

When the Company enters into arrangements with multiple deliverables, it applies the accounting guidance for revenue arrangements with multiple deliverables and evaluates each deliverable to determine whether it represents a separate unit of accounting based on the following criteria: (i) whether the delivered item has value to the customer on a standalone basis, and (ii) if the contract includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. Revenue is allocated to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on estimated selling prices ("ESP") as vendor specific objective evidence or third party evidence is not available. The Company establishes ESP for the elements of its arrangements based upon its pricing practices and class of customers. The stated prices for the various deliverables of the Company's contracts are consistent across classes of customers.

 

Product Revenue

 

The Company enters into multiple-element arrangements with healthcare organizations to provide software enabled medication risk management solutions. Under these contracts, revenue is generated through the components listed below.

 

Prescription medication revenue

 

The Company sells prescription medications directly to healthcare organizations through its prescription fulfillment pharmacies. Prescription medication fees are based upon the prices stated in customer contracts for the prescription and include a dispensing fee. Prescription medication revenue, including dispensing fees, is recognized when the product is shipped to the customer. Prescription medications are considered a separate unit of accounting.

 

Per member per month fees — medication risk management services

 

The Company receives a fixed monthly administrative fee for each member in the program contracted for medication risk management services. This fee, which is included in product revenue in the consolidated statement of operations, is recognized on a monthly basis as medication risk management services are provided. The services associated with the per member per month fees are considered a separate unit of accounting.

 

Service Revenue

 

The Company provides medication risk management services utilizing the Medication Risk Mitigation Matrix (“MRM Matrix”) technology alone, without the related fulfillment services, which are referred to as MRM Service Contracts. The Company began entering into these MRM Service Contracts in the third quarter of 2016. The Company also enters into contracts with healthcare organizations to provide (i) risk adjustment and (ii) pharmacy cost management services, which include training client staff and providers about documentation and diagnosis coding, analyzing clients'

8


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

data collection and submission processes, and delivering meaningful analytics for understanding reimbursement complexities.

 

Under the MRM Service Contracts and risk adjustment contracts, there are generally three revenue generating components:

 

Set up fees:

 

The Company's contracts with its MRM Service Contract and risk adjustment customers often require customers to pay non-refundable set up fees, which are deferred and recognized over the estimated term of the contract. These fees are charged at the beginning of the customer relationship as compensation for the Company's efforts to prepare the customer and configure its system for the data collection process. The set up activities do not represent a separate unit of accounting as they do not have value apart from the broader MRM Service Contracts and risk adjustment contracts. Incremental direct costs associated with such set up activities are also deferred and amortized over the shorter of the estimated customer life or stated contract period.

 

Per member per month fees

 

The Company receives a fixed monthly fee for each member in the respective programs. These services represent a separate unit of accounting and are offered independently from any other services. Revenue for these services is recognized each month as the services are performed.

 

Hourly consulting fees

 

The Company sometimes contracts with customers to perform various other services. Such services are billed on a time and materials basis, at agreed hourly rates. Consulting services represent a separate unit of accounting and are offered independently from any other services. Revenue for these services is recognized as time is incurred on the project.

 

The Company's pharmacy cost management services include subscription revenue from customers and revenues from drug manufacturers for the sale of drug utilization data. Subscription revenue is recognized monthly as either a flat fee or as a percentage of monthly transactions incurred. Data and statistics fees from drug manufacturers are recognized as revenue when received due to the unpredictable nature of the payments and because fees are not fixed and determinable until received.

 

(e)    Cost of Product Revenue

 

Cost of product revenue includes all costs directly related to the medication risk management offering, including costs relating to the Company's pharmacists' collaboration on a patient's medication management, clinical analysis of the results and, when necessary, offering guidance to the prescriber based upon the review of the medication risk mitigation matrix and the individual patient's medical history, as well as the fulfillment and distribution of prescription drugs. Costs consist primarily of the purchase price of the prescription drugs the Company dispenses, expenses to package, dispense and distribute prescription drugs, expenses associated with the Company's medication care plan support centers and prescription fulfillment centers, including employment costs and stock-based compensation, and expenses related to the hosting of the Company's technology platform. Such costs also include direct overhead expenses, as well as allocated miscellaneous overhead costs. The Company allocates miscellaneous overhead costs among functions based on employee headcount.

 

(f)    Cost of Service Revenue

 

Cost of service revenue includes all labor costs, including stock-based compensation expense, directly related to the risk adjustment and pharmacy cost management services and expenses for claims processing, technology services

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

and overhead costs. In addition, service costs include all costs directly related to servicing the Company’s MRM Service Contracts which primarily consist of labor costs, consultant fees, technology services and overhead costs.

 

(g)    Recent Accounting Pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") and has subsequently issued a number of amendments to ASU 2014-09. ASU 2014-09, as amended, represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. ASU 2014-09 sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. For public companies, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016; however, the Company does not intend to early adopt the new standard. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09.

 

The Company intends to adopt the new standard effective January 1, 2018 but has not yet determined which transition method will be used. The Company is currently analyzing significant contracts with customers to determine the impact of the adoption of ASU 2014-09 on the Company’s consolidated financial statements and disclosures. The Company will continue to assess all potential impacts of the standard on existing and new customer contracts during 2017, with a final evaluation of the impact of the adoption of the new standard expected to be completed by the end of 2017.

 

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory ("ASU 2015-11"), which simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost and net realizable value test. ASU 2015-11 is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company has adopted ASU 2015-11 effective January 1, 2017. The adoption of this standard did not have any impact on the Company's consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the potential impact of the adoption of this standard and anticipates that this standard will have a material impact on the Company’s consolidated financial statements, as all long-term leases will be capitalized on the consolidated balance sheet.

 

In March 2016, the FASB issued ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). The amendments in this update simplify certain aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance requires excess tax benefits and tax deficiencies be recorded as an income tax benefit or expense in the statement of operations when the awards vest or are settled and as operating cash flows when realized. The excess tax benefits are recognized regardless of whether the benefit reduces income taxes payable in the current period. It also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-09 effective January 1, 2017 and the adoption of this new standard did not have a material impact on the Company's consolidated financial statements in the first six months of 2017. The Company elected to

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

record forfeitures as they occur. There was no impact of this election because prior to the adoption, the Company’s historical forfeitures were de minimus. Excess tax benefits generated in the six months ended June 30, 2017 totaled $8,118 and unrecognized tax benefits were $108 at December 31, 2016, however, there was no impact on the Company’s consolidated financial statements because of a full valuation allowance against deferred tax assets.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 provides new guidance to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the potential impact of the adoption of ASU 2016-15 on the Company's consolidated financial statements.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (“ASU 2017-01”). ASU 2017-01 provides guidance for evaluating whether a set of transferred assets and activities (the “set”) should be accounted for as an acquisition of a business or group of assets. The guidance provides a screen to determine when a set does not qualify to be a business. When substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in an identifiable asset or a group of similar assets, the set is not a business. Also to be considered a business, the set would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. ASU 2017-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017. The Company is currently evaluating the potential impact of the adoption of ASU 2017-01 on the Company's consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure an impairment charge. Instead, entities will be required to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. ASU 2017-04 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact of the adoption of ASU 2017-04 on the Company's consolidated financial statements.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements. The guidance requires modification accounting only if the fair value, vesting conditions, or the classification of the award (as equity or liability) changes as a result of a change in terms or conditions. ASU 2017-09 is effective for financial statements issued for fiscal years beginning after December 15, 2017. The Company is currently evaluating the potential impact of the adoption of ASU 2017-09 on the Company's consolidated financial statements.

 

 

3.     Net Loss per Share

 

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock of the Company outstanding during the period. The Company computed net loss per share of common stock using the treasury stock method for the three and six months ended June 30, 2017, and using the two-class method required for participating securities for the three and six months ended June 30, 2016. The Company considered its redeemable convertible preferred stock to be participating securities as the holders of the preferred stock were entitled to receive a dividend in the event that a dividend was paid on common stock. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock during the period plus the impact of dilutive securities, to the extent that they are not anti-

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

dilutive. The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,464)

 

$

(286)

 

$

(4,345)

 

$

(77)

 

Accretion of redeemable convertible preferred stock

 

 

 —

 

 

(604)

 

 

 —

 

 

(202)

 

Net loss attributable to common stockholders, basic and diluted

 

$

(1,464)

 

$

(890)

 

$

(4,345)

 

$

(279)

 

Denominator (basic and diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding, basic and diluted

 

 

16,506,585

 

 

4,860,758

 

 

16,373,413

 

 

4,765,977

 

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.09)

 

$

(0.18)

 

$

(0.27)

 

$

(0.06)

 

 

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2017

    

2016

    

2017

    

2016

    

Stock options to purchase common stock

 

2,957,302

 

2,724,783

 

2,957,302

 

2,724,783

 

Restricted stock

 

730,822

 

 —

 

730,822

 

 —

 

Common stock warrants

 

 —

 

213,806

 

 —

 

213,806

 

Preferred stock warrants (as converted to common stock)

 

 —

 

463,589

 

 —

 

463,589

 

Redeemable convertible preferred stock (as converted to common stock)

 

 —

 

5,089,436

 

 —

 

5,089,436

 

 

 

3,688,124

 

8,491,614

 

3,688,124

 

8,491,614

 

 

On October 4, 2016, the Company closed its IPO in which the Company issued and sold 4,300,000 shares of common stock, plus the exercise of the underwriters’ option to purchase an additional 645,000 shares, at an issuance price of $12.00 per share. See Notes 1 and 13 for additional information.

 

 

 

 

4.     Acquisition

 

On September 15, 2016, the Company acquired certain assets, consisting primarily of intellectual property and software assets of 9176-1916 Quebec Inc. (an entity indirectly controlled by our Chief Scientific Officer, Jacques Turgeon). The intellectual property and software assets were previously licensed by us and are integrated into the Company’s Medication Risk Mitigation Matrix. The purchase price consisted of cash consideration of up to $6,000, consisting of $1,000 which was paid upon closing, $4,400 paid during the fourth quarter of 2016, and $600 following the 12-month anniversary of the closing date of the acquisition, which is contingent upon no claims for indemnification being made pursuant to the purchase agreement. In addition to the cash consideration, the purchase price included an aggregate of $5,000 worth of common stock, which amounted to the issuance of 395,407 shares of common stock during the fourth quarter of 2016.

 

The deferred acquisition cash consideration of $5,000 was recorded at its acquisition-date fair value of $4,955, using an assumed cost of debt of 7.8%. The $45 discount is being amortized to interest expense using the effective interest method through the consideration payment date. The Company amortized $11 and $22 of the discount to interest expense for the three and six months ended June 30, 2017, respectively. These amounts are included in acquisition-

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

related consideration payable in the consolidated balance sheets as of June 30, 2017. As of June 30, 2017, the acquisition-related consideration payable balance was $590.

 

The unaudited pro forma results presented below include the results of the 9176-1916 Quebec Inc. acquisition as if it had been consummated as of January 1, 2016. The unaudited pro forma results include the amortization associated with acquired intangible assets. Material nonrecurring charges directly attributable to the transactions are excluded. In addition, the unaudited pro forma results do not include any expected benefits of the acquisitions. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2016.

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

June 30, 

 

 

    

2016

    

Revenue

 

$

42,638

 

Net loss

 

 

(783)

 

Net loss per share attributable to common stockholders, basic and diluted

 

 

(0.18)

 

 

 

 

5.       Property and Equipment

 

              Depreciation and amortization expense on property and equipment for the three months ended June 30, 2017 and 2016 was $439 and $307, respectively. Depreciation and amortization expense on property and equipment for the six months ended June 30, 2017 and 2016 was $854 and $530, respectively

 

 

6.       Software Development Costs

 

              The Company capitalizes certain costs incurred in connection with obtaining or developing internal-use software, including external direct costs of material and services and payroll costs for employees directly involved with the software development. As of June 30, 2017 and December 31, 2016, gross capitalized software costs were $7,988 and $6,501 and accumulated amortization was $3,962 and $3,151, respectively. Amortization expense for the three months ended June 30, 2017 and 2016 was $411 and $250, respectively. Amortization expense for the six months ended June 30, 2017 and 2016 was $811 and $455, respectively. As of June 30, 2017 and December 31, 2016, there was $2,124 and $911, respectively, of capitalized software costs that were not yet subject to amortization.

 

 

7.      Goodwill and Intangible Assets

 

The Company’s goodwill as of June 30, 2017 and December 31, 2016 was $21,686. Goodwill is not amortized, but instead tested for impairment annually. The Company conducted its annual impairment test as of October 1, 2016 and determined that there were no indicators of impairment during 2016. The next annual impairment test will be conducted as of October 1, 2017, unless the Company identifies a triggering event in the interim. Management has not identified any triggering events during the six months ended June 30, 2017.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

Intangible assets consisted of the following as of June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

Amortization Period

 

 

 

 

Accumulated

 

Intangible

 

 

    

(in years)

    

Gross Value

    

Amortization

    

Assets, net

 

June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

5.00

 

$

1,940

 

$

(987)

 

$

953

 

Client relationships

 

10.02

 

 

14,684

 

 

(4,029)

 

 

10,655

 

Non-competition agreements

 

4.64

 

 

652

 

 

(394)

 

 

258

 

Developed technology

 

7.76

 

 

13,500

 

 

(1,992)

 

 

11,508

 

Domain name

 

10.00

 

 

29

 

 

(3)

 

 

26

 

Total intangible assets

 

 

 

$

30,805

 

$

(7,405)

 

$

23,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

 

 

 

Amortization Period

 

 

 

 

Accumulated

 

Intangible

 

 

    

(in years)

    

Gross Value

    

Amortization

    

Assets, net

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

Trade names

 

5.00

 

$

1,940

 

$

(791)

 

$

1,149

 

Client relationships

 

10.02

 

 

14,684

 

 

(3,289)

 

 

11,395

 

Non-competition agreements

 

4.64

 

 

652

 

 

(326)

 

 

326

 

Developed technology

 

7.76

 

 

13,500

 

 

(1,101)

 

 

12,399

 

Domain name

 

10.00

 

 

29

 

 

(1)

 

 

28

 

Total intangible assets

 

 

 

$

30,805

 

$

(5,508)

 

$

25,297

 

 

Amortization expense for intangible assets for the three months ended June 30, 2017 and 2016 was $947 and $577, respectively. Amortization expense for intangible assets for the six months ended June 30, 2017 and 2016 was $1,897 and $1,153, respectively.

 

The estimated amortization expense for each of the next five years and thereafter is as follows:

 

 

 

 

 

Years Ending December 31, 

    

 

 

2017 (July 1 - December 31)

    

$

1,895

2018

 

 

3,755

2019

 

 

3,649

2020

 

 

3,309

2021

 

 

3,169

Thereafter

 

 

7,623

 

 

$

23,400

 

 

 

 

8.       Accrued Expenses and Other Liabilities

 

At June 30, 2017 and December 31, 2016, accrued expenses and other liabilities consisted of the following:

 

 

 

 

 

 

 

 

 

 

    

June 30, 2017

    

December 31, 2016

 

Employee related expenses

 

$

2,748

 

$

1,174

 

Deferred revenue

 

 

761

 

 

851

 

Interest

 

 

17

 

 

16

 

Deferred rent

 

 

145

 

 

13

 

Professional fees

 

 

279

 

 

 —

 

Other expenses

 

 

179

 

 

105

 

Total accrued expenses and other liabilities

 

$

4,129

 

$

2,159

 

 

 

 

 

 

 

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

 

9.      Notes Payable Related to Acquisition

 

In December 2014, the Company acquired all of the authorized, issued and outstanding equity interests of Medliance LLC ("Medliance"), which provides pharmacy cost management services through data analytics. As part of the acquisition-related consideration of the Medliance acquisition, the Company issued multiple subordinated convertible promissory notes (the "Medliance Notes") to the owners of Medliance for aggregate borrowings of $16,385. Interest was 8% and compounded annually. On July 1, 2016, the Company repaid the Medliance Notes with the proceeds from a long-term credit facility. Interest expense was $353 and $706 for the three and six months ended June 30, 2016, respectively.

 

The Company recorded the Medliance Notes at their aggregate acquisition date fair values of $14,347 and the notes were accreted up to their face values of $16,385 over the 18 month term using the effective-interest method. For the three and six months ended June 30, 2016, the Company amortized $392 and $755 of the discount to interest expense, respectively.

 

 

10.      Lines of Credit and Long-Term Debt

 

(a)    Lines of Credit

 

On July 1, 2016, the Company entered into a Loan and Security Modification Agreement (the "Amended 2015 Revolving Line") with Western Alliance Bank, successor in interest to Bridge Bank, National Association (“Bridge Bank”), whereby the Company’s revolving line of credit, entered into with Bridge Bank in 2015 was amended to increase the Company's borrowing availability to up to $25,000 and extend the maturity date to July 1, 2018. The Company's ability to borrow under the Amended 2015 Revolving Line is based upon a specified borrowing base equal to the Company's trailing four months of monthly recurring revenue, as defined, from eligible recurring revenue contracts, as defined, through March 31, 2017 and based upon the Company's trailing three months of monthly recurring revenue, as defined, from eligible recurring revenue contracts, as defined, thereafter. Interest on the Amended 2015 Revolving Line was also amended to be calculated at a variable rate based upon Western Alliance Bank's prime rate plus 0.5%, with Western Alliance Bank's prime rate having a floor of 3.5%. Financial covenants under the Amended 2015 Revolving Line require that the Company (i) maintain an unrestricted cash and unused availability balance under the Amended 2015 Revolving Line of at least $3,000 at all times (the liquidity covenant), (ii) maintain a minimum EBITDA, as defined, of $2,500 for the quarter ending December 31, 2016 and thereafter, and (iii) maintain a minimum monthly recurring revenue retention rate of at least 90%, measured quarterly. As of June 30, 2017, the Company was in compliance with all of the financial covenants related to the Amended 2015 Revolving Line, and management expects that the Company will be able to maintain compliance with the financial covenants.

 

In September 2015, the Company arranged for Bridge Bank to issue a $500 letter of credit on its behalf in connection with the Company’s lease agreement for the office space in Moorestown, NJ (see Note 16). The letter of credit was issued under the Amended 2015 Revolving Line. The letter of credit renews annually and expires in September 2027 and reduces amounts available on the line of credit.

 

As of June 30, 2017, there were no aggregate borrowings outstanding under the Amended 2015 Revolving Line, and amounts available for borrowings under the Amended 2015 Revolving Line was $24,500.

 

As of June 30, 2017, the interest rate on the Amended 2015 Revolving Line was 4.82% and no interest expense was incurred for the three and six months ended June 30, 2017 as there were no aggregate borrowings outstanding during the three and six months ended June 30, 2017. As of June 30, 2016, the interest rate on the Amended 2015 Revolving Line was 4.56% and interest expense was $147 and $280 for the three and six months ended June 30, 2016, respectively. In connection with the 2015 Revolving Line and the Amended 2015 Revolving Line, the Company recorded deferred financing costs of $159. The Company is amortizing the deferred financing costs to interest expense using the effective-interest method over the term of the Amended 2015 Revolving Line and amortized $13 and $14 to

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share data)

 

interest expense for the three months ended June 30, 2017 and 2016, respectively, and $24 and $27 to interest expense for the six months ended June 30, 2017 and 2016, respectively.

 

(b)    Capital Lease Obligations

 

The following table represents the total capital lease obligations of the Company at June 30, 2017 and December 31, 2016:

 

 

 

 

 

 

 

 

 

 

    

June 30, 2017

    

December 31, 2016

 

Capital leases

 

$

1,461

 

$

1,746

 

Less current portion, net

 

 

(686)

 

 

(674)

 

Total capital leases, less current portion, net

 

$

775

 

$

1,072

 

 

The Company has entered into leases for certain equipment and software, which are recorded as capital lease obligations. These leases have interest rates ranging from 7% to 19%. Interest expense related to the capital leases was $52 and $49 for the three months ended June 30, 2017 and 2016, respectively. Interest expense related to the capital leases was $109 and $92 for the six months ended June 30, 2017 and 2016, respectively.

 

Amortization of assets held under capital leases is included in depreciation and amortization expense. The net book value of equipment and software acquired under capital lease was $2,189 and $2,364 as of June 30, 2017 and December 31, 2016, respectively, and are reflected in property and equipment on the consolidated balance sheets.

 

(c)    Long-Term Debt Maturities

 

As of June 30, 2017, the Company's long-term debt consisted of capital lease obligations and is payable as follows:

 

 

 

 

 

Total

 

long-term

 

debt

Remainder of 2017

$

443

2018

 

779

2019

 

439

2020

 

31

2021

 

 3

 

 

1,695

Less amount representing interest

 

(234)

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