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Tabula Rasa HealthCare Announces Second Quarter 2018 Operating Results

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MOORESTOWN, N.J., Aug. 07, 2018 (GLOBE NEWSWIRE) -- Tabula Rasa HealthCare, Inc. ("TRHC") (NASDAQ:TRHC), a healthcare technology company advancing the field of medication safety, today announced its financial results for the second quarter ended June 30, 2018.

"Tabula Rasa saw another strong quarter financially and operationally, with revenues and Adjusted EBITDA ahead of our guidance," said Calvin H. Knowlton, PhD, TRHC's Chairman and Chief Executive Officer. "We continued to expand our footprint in the PACE market, we evolved to meet our partners' demands, and we now have an initial plan to implement our medication safety platform internationally" 

Dr. Knowlton continued, "Our organization has grown and changed dramatically during our first two years in the public markets. We're extremely pleased with the promising outcomes we've delivered to our partners and we're excited about the multitude of opportunities that we expect to be available to us in our future. As we continue to evolve, we will focus on enhancing our analytics platform and scaling our business to ensure we continue to empower clinicians to take action based on our powerful MRM Matrix quickly and efficiently at the point of care, an initiative we are calling TRHC 2.0. We believe the results of TRHC 2.0 will be transformational and provide clinicians with a science-based platform delivering actionable data analytics to optimize medication therapy and manage medication risk. This will enhance our offerings in our existing markets and open new markets to support long term growth for the company."

Financial Performance for the Three Months Ended June 30, 2018

All comparisons, unless otherwise noted, are to the three months ended June 30, 2017.

  • Total revenue was $48.6 million, an increase of 65%. Total revenue included product revenue of $27.4 million, an increase of 18% largely driven by expansion from existing clients and the onboarding of new clients in the first quarter and second quarter. Service revenue was $21.2 million, an increase of 244% that was driven by expanded services offered to existing clients as well as the contribution of the SinfoníaRx ("SRx") business which was acquired in September of 2017 as well as the Peak PACE health plan management business acquired in May of 2018.
  • Gross margin, excluding depreciation and amortization expense, was 33.3% compared to 28.8% in 2017. The year-over-year increase was in line with management's expectations due in part to the seasonality of the SRx business which historically has experienced higher gross margins in the second and third quarters of each fiscal year. The SRx business had a gross margin of approximately 45% in the second quarter which is consistent with its past performance. TRHC maintains a long-term gross margin target, excluding depreciation and amortization expense, of 35% to 40% over the next three to five years.
  • Non-GAAP Adjusted EBITDA was $7.3 million compared to $3.4 million, an increase of 114%. The increase in Non-GAAP Adjusted EBITDA was primarily driven by new and existing client growth in both the PACE market and health plan market.
  • Non-GAAP Adjusted EBITDA margin was 15.0%, up from 11.6%, and was in line with management's expectation given the enhanced margin contribution from the SRx business in the second quarter.
  • Net loss of $29.0 million compared to a net loss of $1.7 million. This net loss was significantly impacted by a charge of $34.9 million due to the change in fair value of acquisition-related contingent consideration for the SRx acquisition. Under Accounting Standards Codification 805, "Business Combinations", contingent consideration liabilities are remeasured at the end of each reporting period to their respective fair values until the contingency is resolved with those changes flowing through earnings. Given the sensitivity of the SRx contingent consideration payment calculation, this remeasurement can produce significant impacts to GAAP net income (loss) that are not reflective of current operating results. The charge recognized in the second quarter of 2018 increased the amount of contingent consideration TRHC expects to pay in connection with the acquisition. This was the result of an increase in the projected 2018 EBITDA for SRx as well as the EBITDA multiple used to calculate the contingent consideration which may be earned based on SRx's 2018 financial results and varies based on TRHC's EBITDA trading multiple. As of June, 30 2018, the SRx contingent consideration liability was $80.2 million with the potential for up to an additional $4.8 million to be earned if the maximum contingent amount is earned, which would flow through as a charge to GAAP net income (loss). Any decreases in the contingent amount will be recorded as GAAP net income. The actual amount of the contingent consideration will be known as of December 31, 2018.
  • Net loss per diluted share was $1.53, compared to net loss per diluted share of $0.10. The net loss per share calculations were based on a diluted share count of 19.0 million for the second quarter of 2018, compared to 16.5 million shares for the same period in 2017.
  • Non-GAAP Adjusted net income per diluted share was $0.20, compared to Non-GAAP Adjusted net income per diluted share of $0.08.
  • Cash at the end of the second quarter was $7.3 million compared to $10.4 million at December 31, 2017. Two factors contributing to the decrease in cash were the final contingent consideration payment made in connection with the 2014 acquisition of Medliance of $1.6 million and $2.9 million used in the share repurchase program during the first quarter of 2018. TRHC had $31.6 million available under its line of credit at the end of the second quarter.

A reconciliation of generally accepted accounting principles ("GAAP") in the United States to non-GAAP results has been provided in this press release in the accompanying tables. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures".

Financial Outlook
Third Quarter 2018 Guidance: Revenue for TRHC's third quarter in 2018 is expected to be in the range of $52.0 million to $53.0 million. Net income is expected to be in the range of $1.8 million to $2.8 million. Adjusted EBITDA is expected to be in the range of $8.5 million to $9.5 million.

Full Year 2018 Guidance: Revenue for fiscal year 2018 is now expected to be in the range of $190 million to $200 million. TRHC now expects a net loss in the range of $41.8 million to $43.8 million. Any further charges or benefits related to adjustments in contingent consideration with respect to the SRx acquisition are not factored in this guidance. Adjusted EBITDA is now expected to be in the range of $28.0 million to $30.0 million after accounting for the additional investment for TRHC 2.0 initiatives and costs related to becoming a large accelerated filer which TRHC expects to become in the 2019 fiscal year. Full year guidance is reflective of the seasonality of the SRx business which has historically realized stronger financial performance in the second and third quarters of the fiscal year.

Quarterly Conference Call
As previously announced, TRHC will hold a conference call with members of executive management to discuss its second quarter 2018 performance today, Tuesday, August 7, 2018, at 6:00 p.m. ET. Stockholders and interested participants may listen to a live broadcast of the conference call by dialing 844-413-0947 or 216-562-0423 for international callers, and referencing participant code 5099721 approximately 15 minutes prior to the call. A live webcast of the conference call will be available on the investor relations section of TRHC's website (ir.trhc.com) and an audio file of the call will also be archived and available for replay approximately two hours after the live event for a period of 90 days thereafter at ir.trhc.com. After the conference call, a replay will be available until August 14, 2018 and can be accessed by dialing 855-859-2056 or 404-537-3406 for international callers, and referencing participant code 5099721.

About Tabula Rasa HealthCare

Tabula Rasa HealthCare (NASDAQ:TRHC) is a leader in providing 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.  Medication risk management is TRHC's lead offering, and its cloud-based software applications provide solutions for a range of payers, providers and other healthcare organizations. For more information, visit: www.TRHC.com.

Non-GAAP Financial Measures
In addition to reporting all financial information required in accordance with accounting principles generally accepted in the United States of America ("GAAP"), TRHC is also reporting gross margin excluding depreciation and amortization expense, Adjusted EBITDA and Adjusted Diluted EPS, each of which is a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company's performance or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. 

Adjusted EBITDA consists of net loss plus certain other expenses, which includes interest expense, provision (benefit) for income tax, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense, acquisition-related expense, severance expense related to the termination of two members of senior management, payroll tax expense related to stock option exercises and stock-based compensation expense. TRHC defines Adjusted Diluted EPS as net loss attributable to common stockholders before fair value adjustments for acquisition-related contingent consideration, amortization of acquired intangibles, severance expense related to the termination of two members of senior management, acquisition-related expense, payroll tax expense related to stock option exercises, stock-based compensation expense, and the tax impact of those items as well as adjustments for tax benefits related to the recognition of tax windfall benefits expressed on a per share basis using weighted average diluted shares outstanding. TRHC believes the exclusion of these items assists in providing a more complete understanding of the company's underlying operations results and trends and allows for comparability with TRHC's peer company index and industry and to be more consistent with TRHC's expected capital structure on a going forward basis. Please note that other companies might define their non-GAAP financial measures differently than TRHC does.

TRHC presents these non-GAAP financial measures in this release because it considers them to be important supplemental measures of performance. TRHC uses these non-GAAP financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and determination of appropriate levels of operating and capital investments. TRHC believes that these non-GAAP financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. TRHC also intends to provide these non-GAAP financial measures as part of the company's future earnings discussions and, therefore, their inclusion should provide consistency in the company's financial reporting.

Non-GAAP financial measures have limitations as an analytical tool. Investors are encouraged to review the reconciliation of the non-GAAP measures to their most directly comparable GAAP measures provided in this release, including in the accompanying tables.

Safe Harbor Statement
This press release includes forward-looking statements that we believe to be reasonable as of today's date.  Forward-looking statements give current expectation or forecasts of future events or our future financial or operating performance, and include TRHC's expectations regarding healthcare regulations, industry trends, available opportunities to TRHC and the financial and operating performance of TRHC, including with respect to international expansion and the success of TRHC 2.0. Such statements are identified by use of the words "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "should," and similar expressions.  These forward-looking statements are based on management's good-faith expectations, judgements and assumptions as of the date of this press release.  Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include: our continuing losses and need to achieve profitability; fluctuations in our financial results; the acceptance and use of our products and services by PACE organizations; the need to innovate and provide useful products and services; risks related to changing healthcare and other applicable regulations; our ability to maintain relationships with a specified drug wholesaler; increasing consolidation in the healthcare industry; managing our growth effectively; our ability to adequately protect our intellectual property; the requirements of being a public company; our ability to recognize the expected benefits from acquisitions on a timely basis or at all; our status as an "emerging growth company"; and the other risk factors set forth from time to time in our filings with the Securities and Exchange Commission ("SEC"),  including those factors discussed under the caption "Risk Factors" in our most recent annual report on Form 10-K, filed with the SEC on March 14, 2018, and in subsequent reports filed with or furnished to the SEC, copies of which are available free of charge within the Investor Relations section of the Tabula Rasa HealthCare website http://ir.trhc.com or upon request from our Investor Relations Department. Tabula Rasa HealthCare assumes no obligation and does not intend to update these forward-looking statements, except as required by law, to reflect events or circumstances occurring after today's date.


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    
               
Stockholders' equity:              
Preferred stock      —        —    
Common stock      2        2    
Additional paid-in capital      150,352        144,074    
Treasury stock      (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    


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  



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    


 TABULA RASA HEALTHCARE, INC.  
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP MEASURES  
(In thousands except share and per share amounts)  
   
    Three Months Ended June 30,    Six Months Ended June 30,   
    2018     2017     2018     2017    
Reconciliation of net loss to Adjusted EBITDA                    
Net loss   $  (29,026 )   $  (1,683 )   $  (47,120 )   $  (4,276 )  
Add:                          
Interest expense      120        77        183        153    
Income tax (benefit) expense      (5,919 )      165        (3,269 )      260    
Depreciation and amortization      3,966        1,799        8,014        3,564    
Change in fair value of acquisition-related contingent consideration expense      35,283        16        48,804        37    
Severance expense      390        —        390        —    
Acquisition-related expense      176        —        340        —    
Payroll tax expense related to stock option exercises      99        12        99        95    
Stock-based compensation expense      2,180        3,016        4,125        6,837    
Adjusted EBITDA   $  7,269     $  3,402     $  11,566     $  6,670    


                                                   
    Three Months Ended June 30,    Six Months Ended June 30,   
    2018     2017     2018     2017    
    (In thousands except per share amounts)  
Reconciliation of diluted net loss per share attributable to common shareholders to Adjusted Diluted EPS                                                  
GAAP net loss attributable to common stockholders, diluted, and net loss per share attributable to common stockholders, basic and diluted   $  (29,026 )   $  (1.53 )   $  (1,683 )   $  (0.10 )   $  (47,120 )   $  (2.50 )   $  (4,276 )   $  (0.26 )  
Adjustments:                                                  
Change in fair value of acquisition-related contingent consideration expense      35,283              16              48,804              37          
Amortization of acquired intangibles      2,639              947              5,167              1,897          
Acquisition-related expense      176              —              340              —          
Payroll tax expense on stock option exercises      99              12              99              95          
Stock-based compensation expense      2,180              3,016              4,125              6,837          
Severance expense      390              —              390              —          
Impact to income taxes (1)      (7,360 )            (761 )            (5,405 )            (1,556 )        
Adjusted net income attributable to common stockholders and Adjusted Diluted EPS   $  4,381     $  0.20     $  1,547     $  0.08     $  6,400     $  0.30     $  3,034     $  0.17    
  1.        The impact to taxes was calculated using a normalized statutory tax rate applied to pre-tax income (loss) adjusted for the respective items above and then subtracting the tax provision as determined for GAAP purposes.
                 
    Three Months Ended   Six Months Ended
    June 30,    June 30, 
    2018   2017   2018   2017
Reconciliation of weighted average shares of common stock outstanding, diluted, to weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS                
Weighted average shares of common stock outstanding, basic and diluted for GAAP    18,956,445    16,506,585    18,873,297    16,373,413
Adjustments:                
Weighted average dilutive effect of stock options    1,674,094    1,190,161    1,615,991    1,344,361
Weighted average dilutive effect of common shares from stock warrants    —    8,551    —    18,662
Weighted average dilutive effect of restricted stock    851,287    651,448    820,792    556,459
Weighted average dilutive effect of contingent shares    77,075    —    38,538    —
Weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS    21,558,901    18,356,745    21,348,618    18,292,895


TABULA RASA HEALTHCARE, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE RANGES
(In millions)
                         
    LOW   HIGH   LOW   HIGH
    Three Months Ended September 30, 2018   Year Ended December 31, 2018
Reconciliation from Net Income (Loss) Guidance to Adjusted EBITDA Guidance                        
Net income (loss):   $  1.8   $  2.8   $  (43.8 )   $  (41.8 )
Add:                        
Interest expense      0.2      0.2      0.6        0.6  
Income tax expense (benefit)      0.2      0.2      (3.3 )      (3.3 )
Depreciation and amortization      4.1      4.1      16.2        16.2  
Stock-based compensation expense      2.2      2.2      8.7        8.7  
Change in fair value of contingent consideration      —      —      48.8        48.8  
Severance expense      —      —      0.4        0.4  
Transaction based costs      —      —      0.4        0.4  
Adjusted EBITDA   $  8.5   $  9.5   $  28.0     $  30.0  

Contact:

Investors
Bob East or Asher Dewhurst
Westwicke Partners
443-213-0500
tabularasa@westwicke.com

Media
Dianne Semingson
dsemingson@TRHC.com
T: 215-870-0829

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