Attached files

file filename
EX-32.1 - EX-32.1 - Tabula Rasa HealthCare, Inc.trhc-20180630ex321dd685c.htm
EX-31.2 - EX-31.2 - Tabula Rasa HealthCare, Inc.trhc-20180630ex312b8fbf8.htm
EX-31.1 - EX-31.1 - Tabula Rasa HealthCare, Inc.trhc-20180630ex311cbf6f2.htm
EX-10.1 - EX-10.1 - Tabula Rasa HealthCare, Inc.trhc-20180630ex101bcded3.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, 2018

 

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, a smaller reporting company, or 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   

 

 

(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, 2018, the Registrant had 20,242,892 shares of Common Stock outstanding.

 

 

 

 


 

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2018

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Number

 

 

 

PART I 

Financial Information

3

Item 1. 

Financial Statements

3

 

Unaudited Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 

3

 

Unaudited Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017

4

 

Unaudited Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2018

5

 

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

6

 

Notes to Unaudited Consolidated Financial Statements

7

Item 2. 

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

30

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4. 

Controls and Procedures

48

PART II 

Other Information

49

Item 1. 

Legal Proceedings

49

Item 1A. 

Risk Factors

49

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3. 

Defaults Upon Senior Securities

49

Item 4. 

Mine Safety Disclosures

49

Item 5. 

Other Information

50

Item 6. 

Exhibits

50

Signatures 

51

 

 

 

 

 

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, 

 

    

2018

    

2017

Assets 

 

(unaudited)

 

(as adjusted)*

Current assets: 

 

 

 

 

 

 

Cash

 

$

7,273

 

$

10,430

Accounts receivable, net

 

 

21,282

 

 

17,087

Inventories

 

 

3,388

 

 

2,795

Rebates receivable

 

 

496

 

 

342

Prepaid expenses

 

 

2,744

 

 

2,253

Other current assets

 

 

3,791

 

 

2,544

Total current assets

 

 

38,974

 

 

35,451

Property and equipment, net

 

 

10,866

 

 

9,243

Software development costs, net

 

 

5,921

 

 

5,001

Goodwill

 

 

78,153

 

 

74,613

Intangible assets, net

 

 

63,159

 

 

62,736

Deferred income tax assets

 

 

2,078

 

 

 —

Other assets

 

 

551

 

 

788

Total assets

 

$

199,702

 

$

187,832

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

1,083

 

$

921

Acquisition-related contingent consideration

 

 

82,207

 

 

1,640

Accounts payable

 

 

13,718

 

 

16,218

Accrued expenses and other liabilities

 

 

11,403

 

 

8,988

Total current liabilities

 

 

108,411

 

 

27,767

Line of credit

 

 

8,000

 

 

 —

Long-term debt

 

 

560

 

 

784

Long-term acquisition-related contingent consideration

 

 

 —

 

 

31,789

Deferred income tax liability

 

 

 —

 

 

989

Other long-term liabilities

 

 

2,551

 

 

2,615

Total liabilities

 

 

119,522

 

 

63,944

  

 

 

 

 

 

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at June 30, 2018 and December 31, 2017

 

 

 —

 

 

 —

Common stock, $0.0001 par value; 100,000,000 shares authorized, 20,381,517 and 19,371,005 shares issued and 20,225,577 and 19,297,539 shares outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

 2

 

 

 2

Additional paid-in capital

 

 

150,352

 

 

144,074

Treasury stock, at cost; 155,940 and 73,466 at June 30, 2018 and December 31, 2017, respectively

 

 

(3,825)

 

 

(959)

Accumulated deficit

 

 

(66,349)

 

 

(19,229)

Total stockholders’ equity

 

 

80,180

 

 

123,888

Total liabilities and stockholders’ equity

 

$

199,702

 

$

187,832

 

 

*See Note 3 to accompanying notes to unaudited consolidated financial statements.

 

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, 

 

    

2018

    

2017

    

2018

    

2017

Revenue:

 

 

 

 

(as adjusted)*

 

 

 

(as adjusted)*

Product revenue

  

$

27,378

 

$

23,274

 

$

54,558

 

$

45,215

Service revenue

 

 

21,220

 

 

6,163

 

 

37,984

 

 

12,199

Total revenue

 

 

48,598

 

 

29,437

 

 

92,542

 

 

57,414

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

 

 

 

 

 

 

 

 

 

 

 

 

Product cost

 

 

20,075

 

 

17,841

 

 

40,907

 

 

34,733

Service cost

 

 

12,335

 

 

3,127

 

 

23,167

 

 

5,890

Total cost of revenue, exclusive of depreciation and amortization

 

 

32,410

 

 

20,968

 

 

64,074

 

 

40,623

Operating expenses: 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development 

 

 

2,922

 

 

1,291

 

 

5,135

 

 

2,510

Sales and marketing

 

 

2,314

 

 

1,314

 

 

4,316

 

 

2,544

General and administrative 

 

 

6,528

 

 

5,490

 

 

12,405

 

 

11,999

Change in fair value of acquisition-related contingent consideration expense

 

 

35,283

 

 

16

 

 

48,804

 

 

37

Depreciation and amortization

 

 

3,966

 

 

1,799

 

 

8,014

 

 

3,564

Total operating expenses 

 

 

51,013

 

 

9,910

 

 

78,674

 

 

20,654

Loss from operations

 

 

(34,825)

 

 

(1,441)

 

 

(50,206)

 

 

(3,863)

Other expense: 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

120

 

 

77

 

 

183

 

 

153

Total other expense

 

 

120

 

 

77

 

 

183

 

 

153

Loss before income taxes

 

 

(34,945)

 

 

(1,518)

 

 

(50,389)

 

 

(4,016)

Income tax (benefit) expense

 

 

(5,919)

 

 

165

 

 

(3,269)

 

 

260

Net loss

 

$

(29,026)

 

$

(1,683)

 

$

(47,120)

 

$

(4,276)

Net loss attributable to common stockholders, basic and diluted

 

$

(29,026)

 

$

(1,683)

 

$

(47,120)

 

$

(4,276)

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

 

$

(1.53)

 

$

(0.10)

 

$

(2.50)

 

$

(0.26)

Weighted average common shares outstanding, basic and diluted

 

 

18,956,445

 

 

16,506,585

 

 

18,873,297

 

 

16,373,413

 

*See Note 3 to accompanying notes to unaudited consolidated financial statements.

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Treasury Stock

 

Additional

 

Accumulated

 

Stockholders'

 

    

    

Shares

    

Amount

    

Shares

    

Amount

 

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity

Balance, January 1, 2018, as adjusted*

 

 

 —

 

$

 —

 

19,371,005

 

$

 2

 

(73,466)

 

$

(959)

 

$

144,074

 

$

(19,229)

 

$

123,888

Common stock offering issuance costs

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

Issuance of restricted stock

 

 

 —

 

 

 —

 

418,619

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares surrendered by stockholder

 

 

 —

 

 

 —

 

 —

 

 

 —

 

(2,474)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares repurchased

 

 

 —

 

 

 —

 

 —

 

 

 —

 

(80,000)

 

 

(2,866)

 

 

 

 

 

 —

 

 

(2,866)

Net exercise of stock options

 

 

 —

 

 

 —

 

252,588

 

 

 —

 

 —

 

 

 —

 

 

(18)

 

 

 —

 

 

(18)

Exercise of stock options

 

 

 —

 

 

 —

 

339,305

 

 

 —

 

 —

 

 

 —

 

 

2,173

 

 

 —

 

 

2,173

Stock-based compensation expense

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,125

 

 

 —

 

 

4,125

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(47,120)

 

 

(47,120)

Balance, June 30, 2018

 

 

 —

 

$

 —

 

20,381,517

 

$

 2

 

(155,940)

 

$

(3,825)

 

$

150,352

 

$

(66,349)

 

$

80,180

 

*See Note 3 to accompanying notes to unaudited consolidated financial statements.

 

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, 

 

    

2018

    

2017

Cash flows from operating activities:

 

 

 

 

(as adjusted)*

Net loss

 

$

(47,120)

 

$

(4,276)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

8,014

 

 

3,564

Amortization of deferred financing costs and debt discount

 

 

41

 

 

46

Deferred taxes

 

 

(3,067)

 

 

238

Stock-based compensation

 

 

4,125

 

 

6,837

Change in fair value of acquisition-related contingent consideration

 

 

48,804

 

 

37

Other noncash items

 

 

29

 

 

12

Changes in operating assets and liabilities, net of effect from acquisition

 

 

 

 

 

 

Accounts receivable, net

 

 

(4,195)

 

 

(2,089)

Inventories

 

 

(593)

 

 

(291)

Rebates receivable

 

 

(154)

 

 

(13)

Prepaid expenses and other current assets

 

 

(1,998)

 

 

224

Other assets

 

 

196

 

 

 —

Accounts payable   

 

 

(2,057)

 

 

91

Accrued expenses and other liabilities

 

 

1,800

 

 

1,970

Other long-term liabilities

 

 

(64)

 

 

466

Net cash provided by operating activities

 

 

3,761

 

 

6,816

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,564)

 

 

(1,950)

Software development costs

 

 

(2,155)

 

 

(1,514)

Purchases of intangible assets

 

 

(30)

 

 

 —

Acquisition of business, net of cash acquired

 

 

(6,957)

 

 

 —

Net cash used in investing activities

 

 

(11,706)

 

 

(3,464)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payments for repurchase of common stock

 

 

(2,866)

 

 

(959)

Proceeds from exercise of stock options

 

 

2,173

 

 

179

Payments for employee taxes for shares withheld

 

 

 —

 

 

(2,123)

Payments for debt financing costs

 

 

(2)

 

 

(18)

Borrowings on line of credit

 

 

8,000

 

 

 —

Payments of equity offering costs

 

 

(357)

 

 

(132)

Payments of contingent consideration

 

 

(1,646)

 

 

(1,498)

Repayments of long-term debt

 

 

(514)

 

 

(335)

Net cash provided by (used in) financing activities

 

 

4,788

 

 

(4,886)

Net decrease in cash

 

 

(3,157)

 

 

(1,534)

Cash, beginning of period

 

 

10,430

 

 

4,345

Cash, end of period

 

$

7,273

 

$

2,811

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Acquisition of equipment under capital leases

 

$

442

 

$

50

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

 

$

452

 

$

553

Cash paid for interest

 

$

121

 

$

106

Employee payroll taxes on net exercise of stock options included in accrued expenses

 

$

291

 

$

 —

 

*See Note 3 to accompanying notes to unaudited consolidated financial statements.

 

 

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 (“MRM”) and health plan management. 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.

 

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, 2017, which are included in the Company’s annual report filed on Form 10-K on March 14, 2018. 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 and six months ended June 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018, 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 $7,273 as of June 30, 2018, cash flows from operations and borrowing availability under the Amended and Restated Loan and Security Agreement (as amended, the “Amended and Restated 2015 Revolving Line”) are sufficient to fund the Company's planned operations through at least September 30, 2019. See Note 11 for additional information.

 

(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.

 

 

 

 

7


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

(d)    Revenue Recognition

 

The Company evaluates its contractual arrangements to determine the performance obligations and transaction prices. Revenue is allocated to each performance obligation and recognized when the related performance obligations are satisfied. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in cost of revenue. See Note 3 for additional information about the adoption of Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. See Note 4 for additional detail about the Company’s products and service lines.

 

(e)    Cost of Product Revenue

 

Cost of product revenue includes all costs directly related to the fulfillment and distribution of prescription drugs as part of the Company’s MRM offerings. Costs consist primarily of the purchase price of the prescription drugs the Company dispenses, expenses to package, dispense and distribute prescription drugs, and expenses associated with the Company's prescription fulfillment centers, including employment costs and stock-based compensation. 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 costs directly related to servicing the Company’s MRM service contracts, which primarily consist of labor costs, outside contractors, technology services, hosting fees and overhead costs. In addition, service costs include all labor costs, including stock-based compensation expense, directly related to the health plan management and pharmacy cost management services and expenses for claims processing, technology services and overhead costs.

 

(g)    Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 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. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company adopted ASU-2014-09 as of January 1, 2018 using the full retrospective method. As a result, the Company revised the consolidated balance sheets as of December 31, 2017, and the consolidated statements of operations and cash flows for the three and six months ended June 30, 2017, and related notes to the unaudited consolidated financial statements for the effects of adoption. See Note 3 for additional information.

 

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 analyzing its leasing arrangements and evaluating the practical expedients and accounting policy elections to determine the potential impact of the adoption of this standard. The Company is also in the process of assessing any potential impacts on its internal controls, business processes, and accounting policies related to both the implementation and ongoing compliance of the new standard. The Company

8


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 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 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 has adopted ASU 2016-15 effective January 1, 2018. The adoption of this standard did not have a material impact 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 has adopted ASU 2017-01 effective January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill to measure an impairment charge. Instead, entities will be required to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. ASU 2017-04 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company believes the adoption of ASU 2017-04 will not have a material effect 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 has adopted ASU 2017-09 effective January 1, 2018. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounts (“ASU 2018-07”). ASU 2018-07 simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns such payments to nonemployees with the current accounting requirements for share-based payments to employees. ASU 2018-07 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 this standard on the Company’s consolidated financial statements.

 

 

3. Adoption of New Accounting Policy

 

As described in Note 2, the Company adopted ASU 2014-09 on January 1, 2018 using the full retrospective method and applying the practical expedient in paragraph 606-10-65-1(f)(2) of the FASB Accounting Standards Codification (“ASC”), under which the Company used the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods for those completed contracts with variable consideration. The following is a summary of the changes in accounting policies and presentation resulting from the adoption of ASU 2014-09 on the Company’s consolidated unaudited financial statements.

 

9


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

MRM services

 

Per member per month fees bundled with prescription fulfillment services fees in the Company’s MRM contracts were previously classified as product revenues. Under ASU 2014-09, the per member per month fees are classified as service revenue and based on relative stand-alone selling prices. The Company continues to recognize the per member per month fees as the services are provided.

 

Health plan management services

 

Certain contracts for the Company’s health plan management services include fees based on the gains recognized by customers as a result of services provided. Revenue for these contracts was historically recognized when billed because the price was not fixed or determinable. Under ASU 2014-09, revenue from these contracts is recognized monthly as the health plan management services are provided. The revenue includes the contractual per member per month rate and an estimated gain earned during each reporting period.

 

Pharmacy cost management services

 

Data and statistics fees from drug manufacturers were previously recognized as revenue when received due to the unpredictable nature of the payment amounts and because fees were not fixed and determinable until received. Under ASU 2014-09, these fees are recognized when the data is submitted to the drug manufacturers. The fees recognized are estimated using historical data, and adjusted as necessary to reflect new information. The estimated fees are recorded as data analytics related contract assets and are included in other current assets on the consolidated balance sheets. As of June 30, 2018 and December 31, 2017, the balance of the data analytics contract asset was $1,873 and $1,842, respectively.

 

Impact on financial statements

 

The following tables summarize the impact of the adoption of ASU 2014-09 on the previously reported consolidated balance sheets as of December 31, 2017 and consolidated statements of operations for the three and six months ended June 30, 2017. Financial statement line items that were not materially affected by the adoption of ASU 2014-09 are excluded. The adoption of ASU 2014-09 had no impact on cash provided by or used in operating, investing or financing activities in the consolidated statements of cash flows for the six months ended June 30, 2017.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended

 

 

 

December 31, 

 

 

 

2017

 

 

 

As Previously Reported

 

 

Adjustment for ASU on Revenue Recognition

 

 

As Adjusted

Assets 

 

 

 

 

 

 

 

 

 

Current assets: 

 

 

 

 

 

 

 

 

 

Other current assets

 

$

702

 

$

1,842

 

$

2,544

Total current assets

 

 

33,609

 

 

1,842

 

 

35,451

Total assets

 

$

185,990

 

$

1,842

 

$

187,832

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

Deferred income tax liability

 

$

545

 

$

444

 

$

989

Total liabilities

 

 

63,500

 

 

444

 

 

63,944

Stockholders' equity:

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(20,627)

 

 

1,398

 

 

(19,229)

Total stockholders’ equity

 

 

122,490

 

 

1,398

 

 

123,888

Total liabilities and stockholders’ equity

 

$

185,990

 

$

1,842

 

$

187,832

 

10


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 

 

 

June 30, 

 

 

 

2017

 

 

2017

 

 

 

As Previously Reported

 

 

Adjustment for ASU on Revenue Recognition

 

 

As Adjusted

 

 

As Previously Reported

 

 

Adjustment for ASU on Revenue Recognition

 

 

As Adjusted

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

24,074

 

$

(800)

 

$

23,274

 

$

46,770

 

$

(1,555)

 

$

45,215

Service revenue

 

 

5,582

 

 

581

 

 

6,163

 

 

10,575

 

 

1,624

 

 

12,199

Total revenue

 

 

29,656

 

 

(219)

 

 

29,437

 

 

57,345

 

 

69

 

 

57,414

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost

 

 

18,463

 

 

(622)

 

 

17,841

 

 

35,868

 

 

(1,135)

 

 

34,733

Service cost

 

 

2,505

 

 

622

 

 

3,127

 

 

4,755

 

 

1,135

 

 

5,890

Total cost of revenue, exclusive of depreciation and amortization

 

 

20,968

 

 

 —

 

 

20,968

 

 

40,623

 

 

 —

 

 

40,623

Loss from operations

 

 

(1,222)

 

 

(219)

 

 

(1,441)

 

 

(3,932)

 

 

69

 

 

(3,863)

Net loss

 

$

(1,464)

 

$

(219)

 

$

(1,683)

 

$

(4,345)

 

$

69

 

$

(4,276)

Net loss attributable to common stockholders, basic and diluted

 

$

(1,464)

 

$

(219)

 

$

(1,683)

 

$

(4,345)

 

$

69

 

$

(4,276)

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

 

$

(0.09)

 

$

(0.01)

 

$

(0.10)

 

$

(0.27)

 

$

0.01

 

$

(0.26)

 

 

4.     Revenue

 

The Company provides a comprehensive suite of technology-enabled solutions tailored toward the specific needs of the healthcare organizations and health plans it serves. These solutions can be integrated or provided on a standalone basis. Contracts generally have a term of one to five years and in some cases automatically renew at the end of the initial term. In most cases, clients may terminate their contracts with a notice period ranging from 0 to 180 days without cause, thereby limiting the term in which the Company has enforceable rights and obligations. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the goods or services. The Company uses the practical expedient not to account for significant financing components because the period between recognition and collection does not exceed one year in any contract.

 

Product Revenue

 

MRM prescription fulfillment services. The Company has a stand ready obligation to provide prescription fulfillment pharmacy services, including dispensing and delivery of an unknown mix and quantity of medications, directly to healthcare organizations. Revenue from MRM prescription fulfillment services is recognized when medications are shipped and control has generally passed to the customer and are generally billed monthly. At the time of shipment, the Company has performed substantially all of its performance obligations under its client contracts and does not experience a significant level of returns or reshipments.

 

Service Revenue

 

MRM services. The Company provides an array of MRM services. These services include enrollment, medication regimen reviews, and software to identify high risk members as well as provide medication risk alerts and intervention tracking that enable pharmacists to optimize medication therapy. Revenue related to these performance obligations primarily consist of per member per month fees, monthly subscription fees, and per comprehensive medication review fees. MRM per member per month fees and monthly subscription fees are recognized based on their relative stand-alone selling prices as the services are provided. Additionally, certain of the Company’s MRM service contracts include a performance guarantee based on the number of comprehensive medication reviews to be completed and guarantees by the Company for specific service level performance. For these contracts, revenue is recognized as comprehensive medication reviews are completed at their relative stand-alone selling price which is estimated based on the Company’s assessment of the total transaction price under each contract. The stand-alone selling price and amount of variable consideration recognized are adjusted as necessary at the end of each reporting period. If client performance

11


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

guarantees are not being realized, the Company records, as a reduction to revenue, an estimate of the amount that will be due at the end of the respective client’s contractual period. Fees for these services are generally billed monthly.

 

Health plan management services. The Company has a stand ready obligation to provide risk adjustment services and third party administration services, which the Company collectively refers to as health plan management services. The performance obligations are a series of distinct services that are substantially the same and have the same pattern of transfer. Revenue related to these performance obligations primarily consist of setup fees, per member per month fees, and in certain contracts a gain-share component. Revenue from these contracts is recognized monthly as the health plan management services are provided. The revenue includes the contractual per member per month rate and an estimated gain earned during each reporting period. Set-up fees related to health plan management contracts represent an upfront fee from the client to compensate the Company for its efforts to prepare the client and configure its system for the data collection process. The set-up activities do not have value apart from the broader health plan management services provided to the client and do not represent a separate performance obligation and as such, setup fees are recognized over the contract term as services are provided. Fees for these services are generally billed monthly.

 

Pharmacy cost management services. The Company has a stand ready obligation to provide monthly pharmacy cost management services which includes adjudication, pricing validation, utilization analysis and pharmacy transaction review services. The performance obligation is a series of distinct services that are substantially the same and have the same pattern of transfer. Revenue related to this performance obligation primarily consists of subscription fees based on a monthly flat fee or as a percentage of monthly transactions incurred and revenue generated from drug manufacturers for the sale of drug utilization data. Revenue from these services is recognized monthly as the pharmacy cost management services are provided at the contractual subscription fee rate and when the data is submitted to the drug manufacturers based on the fair value of the data. The drug utilization fees recognized are estimated using historical data, and adjusted as necessary to reflect new information. Drug utilization data is generally submitted monthly and collected 180 days after submission.

 

Disaggregation of revenue

 

In the following table, revenue is disaggregated by major service line. The Company manages its operations and allocates it resources as a single reportable segment. All of the Company’s revenue is recognized in the United States and all of the Company’s assets are located in the United States.

 

The Company's MRM and health plan management clients consist primarily of healthcare organizations, commercial health plans, and pharmacies. The Company’s pharmacy cost management clients consist primarily of post-acute care facilities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

Major service lines

 

 

 

 

 

 

 

 

 

 

 

 

MRM prescription fulfillment services

 

$

27,378

 

$

23,274

 

$

54,558

 

$

45,215

MRM services

 

 

16,659

 

 

3,229

 

 

30,354

 

 

6,388

Health plan management services

 

 

3,132

 

 

1,285

 

 

4,837

 

 

2,738

Pharmacy cost management services

 

 

1,366

 

 

1,604

 

 

2,661

 

 

2,975

Other services

 

 

63

 

 

45

 

 

132

 

 

98

 

 

$

48,598

 

$

29,437

 

$

92,542

 

$

57,414

 

12


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Contract balances

 

Assets and liabilities related to the Company’s contracts are reported on a contract-by-contract basis at the end of each reporting period. The following table provides information about the Company’s contract assets and contract liabilities from contracts with customers as of June 30, 2018 and December 31, 2017.

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2018

    

2017

 

 

(unaudited)

 

 

(as adjusted)*

Contract assets

 

$

3,427

 

$

1,842

Contract liabilities

 

 

2,212

 

 

1,350

 

*See Note 3.

 

Contract assets as of June 30, 2018 consisted of $1,873 related to data analytics contract assets and $1,554 related to consideration for performance obligations completed related to MRM service contracts but which the Company does not have an unconditional right to the consideration. Contract assets as of December 31, 2017 consisted of $1,842 related to the data analytics contract asset. Contract assets are included in other current assets on the consolidated balance sheets. The contract assets are transferred to receivables when the rights to the additional consideration becomes unconditional. The contract liabilities primarily relate to advance billings for prescription medications not yet fulfilled or dispensed, advance payments received for service obligations on MRM performance guaranteed contracts and unamortized setup fees on health plan management contracts. Contract liabilities are included in accrued expenses and other current liabilities on the consolidated balance sheets. The Company anticipates that it will satisfy most of its performance obligations associated with its contract liabilities within the prospective fiscal year.

 

Significant changes in the contract assets and the contract liabilities balances during the period are as follows.

 

 

 

 

 

 

 

June 30, 

 

 

2018

 

 

(unaudited)

Contract asset:

 

 

 

Contract asset, beginning of period

 

$

1,842

Decreases due to cash received

 

 

(1,949)

Increases, excluding amounts transferred to receivables during the period

 

 

3,534

Contract asset, end of period

 

$

3,427

 

 

 

 

Contract liability

 

 

 

Contract liability, beginning of period

 

$

1,350

Revenue recognized that was included in the contract liability balance at the beginning of the period

 

 

(1,257)

Increases due to cash received, excluding amounts recognized as revenue during the period

 

 

2,119

Contract liability, end of period

 

$

2,212

 

 

 

5.     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, 2018 and 2017. 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-dilutive. The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:

13


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2018

    

2017*

    

2018

    

2017*

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders, basic and diluted

 

$

(29,026)

 

$

(1,683)

 

$

(47,120)

 

$

(4,276)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding, basic

 

 

18,956,445

 

 

16,506,585

 

 

18,873,297

 

 

16,373,413

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

 

$

(1.53)

 

$

(0.10)

 

$

(2.50)

 

$

(0.26)

 

*As adjusted. See Note 3.

 

The following potential common shares, presented based on amounts outstanding or shares contingently issuable for the three and six months ended June 30, 2018 and 2017, 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:

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

    

2018

    

2017

Stock options to purchase common stock

 

2,602,641

 

2,957,302

Unvested restricted stock

 

1,061,879

 

730,822

Contingently issuable shares

 

154,150

 

 —

 

 

3,818,670

 

3,688,124

 

 

 

6.     Acquisitions

 

Peak PACE Solutions

 

On May 1, 2018, the Company entered into an asset purchase agreement with Peak PACE Solutions, LLC (“Peak PACE”) and certain other parties thereto pursuant to which the Company acquired substantially all of the assets, and assumed certain enumerated liabilities, of Peak PACE, an organization that helps PACE organizations manage the business functions that drive the major sources of reimbursement revenue and utilization costs. The acquisition consideration was comprised of cash consideration consisting of (i) $7,719 payable upon the closing of the acquisition, subject to certain customary post-closing adjustments, upon the terms and subject to the conditions contained in the asset purchase agreement, and (ii) contingent purchase price with a preliminary estimated acquisition-date fair value of $1,620 to be paid in cash based on the achievement of certain performance goals for the twelve-month period ended December 31, 2018. In no event is the Company obligated to pay more than $10,000 in cash purchase price for the entire transaction and a portion of the cash consideration paid at closing is being held in escrow to secure potential claims by the Company for indemnification under the agreement.

 

In connection with the acquisition of Peak PACE, the Company incurred direct acquisition and integration costs of $262 during the three and six months ended June 30, 2018, which were recorded in general and administrative expenses in the consolidated statements of operations.

 

The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to determine the estimated acquisition-date fair value of the acquisition-related contingent consideration of $1,620. The fair value measurement was based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. See Note 16 for additional information.

14


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

The following table summarizes the purchase price consideration based on the estimated acquisition-date fair value of the acquisition consideration:

 

 

 

 

 

Cash consideration at closing, net of post-closing adjustments

 

$

7,563

Estimated fair value of contingent consideration

 

 

1,620

Total fair value of acquisition consideration

 

$

9,183

 

The following table summarizes the preliminary allocation of the purchase price based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

 

 

 

 

Cash

 

$

606

Property and equipment

 

 

84

Trade name

 

 

290

Client relationships

 

 

5,220

Non-competition agreement

 

 

50

Goodwill