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EX-32.1 - EX-32.1 - Tabula Rasa HealthCare, Inc.trhc-20180930ex32174e996.htm
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EX-31.1 - EX-31.1 - Tabula Rasa HealthCare, Inc.trhc-20180930ex31135aa7b.htm
EX-10.2 - EX-10.2 - Tabula Rasa HealthCare, Inc.trhc-20180930ex102986806.htm
EX-2.1 - EX-2.1 - Tabula Rasa HealthCare, Inc.trhc-20180930ex21823b5bd.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 September 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)

46-5726437
(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  

 

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

 

Large accelerated filer   

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

 

 

 

 

 

 

 

 

Emerging growth company 

 

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

 

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

 

As of October 31, 2018, the Registrant had 20,465,936 shares of Common Stock outstanding.

 

 

 

 


 

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2018

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Number

 

 

 

PART I 

Financial Information

3

Item 1. 

Financial Statements

3

 

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

3

 

Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017

4

 

Unaudited Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2018

5

 

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 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

32

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4. 

Controls and Procedures

51

PART II 

Other Information

52

Item 1. 

Legal Proceedings

52

Item 1A. 

Risk Factors

52

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

53

Item 3. 

Defaults Upon Senior Securities

54

Item 4. 

Mine Safety Disclosures

54

Item 5. 

Other Information

54

Item 6. 

Exhibits

55

Signatures 

56

 

 

 

 

 

2


 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2018

    

2017

Assets 

 

(unaudited)

 

(as adjusted)*

Current assets: 

 

 

 

 

 

 

Cash

 

$

13,947

 

$

10,430

Accounts receivable, net

 

 

25,020

 

 

17,087

Inventories

 

 

3,613

 

 

2,795

Rebates receivable

 

 

242

 

 

342

Prepaid expenses

 

 

2,469

 

 

2,253

Other current assets

 

 

7,269

 

 

2,544

Total current assets

 

 

52,560

 

 

35,451

Property and equipment, net

 

 

11,025

 

 

9,243

Software development costs, net

 

 

6,861

 

 

5,001

Goodwill

 

 

90,919

 

 

74,613

Intangible assets, net

 

 

68,677

 

 

62,736

Deferred income tax assets

 

 

3,938

 

 

 —

Other assets

 

 

556

 

 

788

Total assets

 

$

234,536

 

$

187,832

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

1,028

 

$

921

Acquisition-related contingent consideration ($35,929 payable in common stock as of September 30, 2018)

 

 

73,788

 

 

1,640

Accounts payable

 

 

10,553

 

 

16,218

Accrued expenses and other liabilities

 

 

21,945

 

 

8,988

Total current liabilities

 

 

107,314

 

 

27,767

Line of credit

 

 

26,500

 

 

 —

Long-term debt

 

 

340

 

 

784

Long-term acquisition-related contingent consideration

 

 

 —

 

 

31,789

Deferred income tax liability

 

 

 —

 

 

989

Other long-term liabilities

 

 

2,785

 

 

2,615

Total liabilities

 

 

136,939

 

 

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 September 30, 2018 and December 31, 2017

 

 

 —

 

 

 —

Common stock, $0.0001 par value; 100,000,000 shares authorized, 20,512,499 and 19,371,005 shares issued and 20,356,559 and 19,297,539 shares outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

 2

 

 

 2

Additional paid-in capital

 

 

157,353

 

 

144,074

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

 

 

(3,825)

 

 

(959)

Accumulated deficit

 

 

(55,933)

 

 

(19,229)

Total stockholders’ equity

 

 

97,597

 

 

123,888

Total liabilities and stockholders’ equity

 

$

234,536

 

$

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

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

2018

 

2017

 

2018

 

2017

Revenue:

 

 

 

 

(as adjusted)*

 

 

 

(as adjusted)*

Product revenue

  

$

28,045

 

$

23,780

 

$

82,603

 

$

68,995

Service revenue

 

 

26,373

 

 

8,951

 

 

64,357

 

 

21,150

Total revenue

 

 

54,418

 

 

32,731

 

 

146,960

 

 

90,145

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

 

 

 

 

 

 

 

 

 

 

 

 

Product cost

 

 

21,100

 

 

18,418

 

 

62,007

 

 

53,151

Service cost

 

 

13,958

 

 

5,047

 

 

37,125

 

 

10,937

Total cost of revenue, exclusive of depreciation and amortization

 

 

35,058

 

 

23,465

 

 

99,132

 

 

64,088

Operating expenses: 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development 

 

 

3,380

 

 

1,527

 

 

8,515

 

 

4,037

Sales and marketing

 

 

2,669

 

 

1,325

 

 

6,985

 

 

3,869

General and administrative 

 

 

7,824

 

 

4,098

 

 

20,229

 

 

16,097

Change in fair value of acquisition-related contingent consideration (income) expense

 

 

(8,419)

 

 

923

 

 

40,385

 

 

960

Depreciation and amortization

 

 

4,096

 

 

2,166

 

 

12,110

 

 

5,730

Total operating expenses 

 

 

9,550

 

 

10,039

 

 

88,224

 

 

30,693

Income (loss) from operations

 

 

9,810

 

 

(773)

 

 

(40,396)

 

 

(4,636)

Other expense: 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

232

 

 

174

 

 

415

 

 

327

Total other expense

 

 

232

 

 

174

 

 

415

 

 

327

Income (loss) before income taxes

 

 

9,578

 

 

(947)

 

 

(40,811)

 

 

(4,963)

Income tax (benefit) expense

 

 

(838)

 

 

(7,112)

 

 

(4,107)

 

 

(6,852)

Net income (loss)

 

$

10,416

 

$

6,165

 

$

(36,704)

 

$

1,889

Net income (loss) attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

10,416

 

$

6,165

 

$

(36,704)

 

$

1,889

Diluted

 

$

10,416

 

$

6,165

 

$

(36,704)

 

$

1,889

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.54

 

$

0.37

 

$

(1.93)

 

$

0.11

Diluted

 

$

0.47

 

$

0.33

 

$

(1.93)

 

$

0.10

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,217,623

 

 

16,699,102

 

 

18,989,334

 

 

16,483,169

Diluted

 

 

22,288,873

 

 

18,646,031

 

 

18,989,334

 

 

18,411,800

 

*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

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(9)

 

 

 —

 

 

(9)

Issuance of common stock in connection with acquisition

 

 

 —

 

 

 —

 

45,561

 

 

 —

 

 —

 

 

 —

 

 

3,595

 

 

 —

 

 

3,595

Issuance of restricted stock

 

 

 —

 

 

 —

 

433,459

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares surrendered by stockholder

 

 

 —

 

 

 —

 

 —

 

 

 —

 

(2,474)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares repurchased

 

 

 —

 

 

 —

 

 —

 

 

 —

 

(80,000)

 

 

(2,866)

 

 

 

 

 

 —

 

 

(2,866)

Net exercise of stock options

 

 

 —

 

 

 —

 

258,289

 

 

 —

 

 —

 

 

 —

 

 

(18)

 

 

 —

 

 

(18)

Exercise of stock options

 

 

 —

 

 

 —

 

404,185

 

 

 —

 

 —

 

 

 —

 

 

2,590

 

 

 —

 

 

2,590

Stock-based compensation expense

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

7,121

 

 

 —

 

 

7,121

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(36,704)

 

 

(36,704)

Balance, September 30, 2018

 

 

 —

 

$

 —

 

20,512,499

 

$

 2

 

(155,940)

 

$

(3,825)

 

$

157,353

 

$

(55,933)

 

$

97,597

 

*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)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2017

Cash flows from operating activities:

 

 

 

 

(as adjusted)*

Net (loss) income

 

$

(36,704)

 

$

1,889

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

12,110

 

 

5,730

Amortization of deferred financing costs and debt discount

 

 

66

 

 

72

Deferred taxes

 

 

(4,536)

 

 

(7,144)

Stock-based compensation

 

 

7,121

 

 

7,776

Change in fair value of acquisition-related contingent consideration

 

 

40,385

 

 

960

Other noncash items

 

 

51

 

 

17

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

 

 

 

 

 

 

Accounts receivable, net

 

 

(7,035)

 

 

(1,359)

Inventories

 

 

(818)

 

 

130

Rebates receivable

 

 

100

 

 

(30)

Prepaid expenses and other current assets

 

 

(5,015)

 

 

(18)

Other assets

 

 

267

 

 

(58)

Accounts payable

 

 

(5,163)

 

 

29

Accrued expenses and other liabilities

 

 

8,421

 

 

3,274

Other long-term liabilities

 

 

(7)

 

 

432

Net cash provided by operating activities

 

 

9,243

 

 

11,700

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(3,484)

 

 

(2,618)

Software development costs

 

 

(3,564)

 

 

(2,223)

Purchases of intangible assets

 

 

(29)

 

 

 —

Acquisition of business, net of cash acquired

 

 

(21,981)

 

 

(34,452)

Net cash used in investing activities

 

 

(29,058)

 

 

(39,293)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payments for repurchase of common stock

 

 

(2,866)

 

 

(959)

Proceeds from exercise of stock options

 

 

2,590

 

 

194

Payments for employee taxes for shares withheld

 

 

 —

 

 

(2,123)

Payments for debt financing costs

 

 

(103)

 

 

(220)

Borrowings on line of credit

 

 

26,500

 

 

35,342

Repayments of line of credit

 

 

 —

 

 

(342)

Payments of acquisition-related consideration

 

 

 —

 

 

(550)

Payments of equity offering costs

 

 

(364)

 

 

(132)

Payments of contingent consideration

 

 

(1,646)

 

 

(1,498)

Repayments of long-term debt

 

 

(779)

 

 

(525)

Net cash provided by financing activities

 

 

23,332

 

 

29,187

Net increase in cash

 

 

3,517

 

 

1,594

Cash, beginning of period

 

 

10,430

 

 

4,345

Cash, end of period

 

$

13,947

 

$

5,939

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Acquisition of equipment under capital leases

 

$

442

 

$

 —

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

 

$

390

 

$

50

Deferred offering costs included in accounts payable

 

$

 —

 

$

46

Cash paid for interest

 

$

251

 

$

146

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

 

$

348

 

$

 —

Stock issued in connection with acquisition

 

$

3,595

 

$

11,541

 

*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 to support 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 nine months ended September 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 $13,947 as of September 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 December 31, 2019. See Note 11 for additional information. As of the date of this filing, the Company is in the process of evaluating potential refinancing options in order to increase its borrowing capacity. There are no assurances that the Company will be successful in refinancing its borrowing capacity on terms acceptable to the Company, if at all.

 

(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 evaluates its contractual arrangements to determine the performance obligations and transaction

7


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 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 (“ASU 2014-09”). 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, 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 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, Revenue from Contracts with Customers, 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. 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 nine months ended September 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") and has subsequently issued a number of amendments to 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 of, and ongoing compliance, with the new standard. The Company anticipates that this standard will

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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 and early adoption is permitted. 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, with early adoption permitted. The Company has elected to early adopt ASU 2018-07 as of September 30, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 updates the disclosure requirements for fair value measurements and is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential impact of the adoption of this standard on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

incurred in a hosting arrangement that is a service contract with the requirements for capitalization implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. ASU 2018-15 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company 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.

 

MRM services

 

Per member per month fees bundled with prescription fulfillment services fees in the Company’s MRM contracts were previously classified as product revenue. 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 clients 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 September 30, 2018 and December 31, 2017, the balance of the data analytics contract asset was $4,732 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 nine months ended September 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 nine months ended September 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

September 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

 

$

24,621

 

$

(841)

 

$

23,780

 

$

71,391

 

$

(2,396)

 

$

68,995

Service revenue

 

 

8,647

 

 

304

 

 

8,951

 

 

19,222

 

 

1,928

 

 

21,150

Total revenue

 

 

33,268

 

 

(537)

 

 

32,731

 

 

90,613

 

 

(468)

 

 

90,145

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost

 

 

18,979

 

 

(561)

 

 

18,418

 

 

54,847

 

 

(1,696)

 

 

53,151

Service cost

 

 

4,486

 

 

561

 

 

5,047

 

 

9,241

 

 

1,696

 

 

10,937

Total cost of revenue, exclusive of depreciation and amortization

 

 

23,465

 

 

 —

 

 

23,465

 

 

64,088

 

 

 —

 

 

64,088

Loss from operations

 

 

(236)

 

 

(537)

 

 

(773)

 

 

(4,168)

 

 

(468)

 

 

(4,636)

Net income

 

$

7,695

 

$

(1,530)

 

$

6,165

 

$

3,350

 

$

(1,461)

 

$

1,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders, basic

 

$

7,695

 

$

(1,530)

 

$

6,165

 

$

3,350

 

$

(1,461)

 

$

1,889

Net income attributable to common stockholders, diluted

 

$

7,695

 

$

(1,530)

 

$

6,165

 

$

3,350

 

$

(1,461)

 

$

1,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to common stockholders, basic

 

$

0.46

 

$

(0.09)

 

$

0.37

 

$

0.20

 

$

(0.09)

 

$

0.11

Net income per share attributable to common stockholders, diluted

 

$

0.41

 

$

(0.08)

 

$

0.33

 

$

0.18

 

$

(0.08)

 

$

0.10

 

 

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 for most of the Company’s contracts.

 

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,

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

directly to healthcare organizations. Revenue from MRM prescription fulfillment services is recognized when medications are shipped and control has generally passed to the client and is 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 and provide medication risk alerts and intervention tracking that enable pharmacists to optimize medication therapy. Revenue related to these performance obligations primarily consists 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 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 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, electronic health records solutions, 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 consists 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 estimated fair value of the data. The drug utilization fees recognized are estimated using historical data, and are 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 its 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.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

Major service lines

 

 

 

 

 

 

 

 

 

 

 

 

MRM prescription fulfillment services

 

$

28,045

 

$

23,780

 

$

82,603

 

$

68,995

MRM services

 

 

15,467

 

 

6,138

 

 

45,821

 

 

12,526

Health plan management services

 

 

5,383

 

 

1,466

 

 

10,220

 

 

4,204

Pharmacy cost management services

 

 

5,412

 

 

1,289

 

 

8,073

 

 

4,264

Other services

 

 

111

 

 

58

 

 

243

 

 

156

 

 

$

54,418

 

$

32,731

 

$

146,960

 

$

90,145

 

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 clients as of September 30, 2018 and December 31, 2017.

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

2018

    

2017

 

 

(unaudited)

 

 

(as adjusted)*

Contract assets

 

$

6,857

 

$

1,842

Contract liabilities

 

 

4,240

 

 

1,350

 

*See Note 3 for additional information.

 

Contract assets as of September 30, 2018 consisted of $4,732 related to data analytics contract assets, $2,030 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, and $95 related to the gain-share component of completed health plan management services contracts. 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 Company’s 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 advanced billings for prescription medications not yet fulfilled or dispensed, advanced payments received for service obligations on MRM performance guaranteed contracts, acquired performance obligations related to software maintenance contracts associated with our Mediture acquisition (see Note 6), and unamortized setup fees on health plan management contracts. Contract liabilities are included in accrued expenses and other current liabilities and in other long-term liabilities on the Company’s consolidated balance sheets. The Company anticipates that it will satisfy most of its performance obligations associated with its contract liabilities within a year.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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

 

 

 

 

 

 

 

September 30, 

 

 

2018

 

 

(unaudited)

Contract asset:

 

 

 

Contract asset, beginning of period

 

$

1,842

Decreases due to cash received

 

 

(1,949)

Increases, net of reclassifications to receivables

 

 

6,964

Contract asset, end of period

 

$

6,857

 

 

 

 

Contract liability