trhc_Current_Folio_10Q_Q1

Table of Contents

 

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 March 31, 2019

 

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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, par value $0.0001 per share

 

TRHC

 

The Nasdaq Stock Market

 

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 April 30, 2019, the Registrant had 21,988,349 shares of Common Stock outstanding.

 

 

 

 


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended March 31, 2019

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Number

 

 

 

PART I 

Financial Information

3

Item 1. 

Financial Statements

3

 

Unaudited Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 

3

 

Unaudited Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018

4

 

Unaudited Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018

5

 

Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

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

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

50

Item 4. 

Mine Safety Disclosures

50

Item 5. 

Other Information

50

Item 6. 

Exhibits

51

Signatures 

53

 

 

 

 

 

2


 

Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

Assets 

 

 

 

 

Current assets: 

 

 

 

 

 

 

Cash

 

$

49,598

 

$

20,278

Restricted cash

 

 

4,281

 

 

4,751

Accounts receivable, net

 

 

33,488

 

 

27,950

Inventories

 

 

3,711

 

 

3,594

Prepaid expenses

 

 

3,529

 

 

2,573

Other current assets

 

 

6,670

 

 

4,165

Total current assets

 

 

101,277

 

 

63,311

Property and equipment, net

 

 

14,481

 

 

11,865

Operating lease right-of-use assets

 

 

23,460

 

 

 —

Software development costs, net

 

 

10,218

 

 

8,248

Goodwill

 

 

166,052

 

 

108,213

Intangible assets, net

 

 

193,617

 

 

77,206

Deferred income tax assets

 

 

 —

 

 

75

Note receivable

 

 

 —

 

 

1,000

Other assets

 

 

1,390

 

 

1,039

Total assets

 

$

510,495

 

$

270,957

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt and finance leases, net

 

$

810

 

$

945

Current operating lease liabilities

 

 

4,058

 

 

 —

Acquisition-related contingent consideration

 

 

9,852

 

 

43,397

Accounts payable

 

 

16,542

 

 

14,830

Accrued expenses and other liabilities

 

 

25,066

 

 

16,556

Total current liabilities

 

 

56,328

 

 

75,728

Line of credit

 

 

 —

 

 

45,000

Long-term debt and finance leases, net

 

 

217,233

 

 

152

Noncurrent operating lease liabilities

 

 

22,560

 

 

 —

Long-term acquisition-related contingent consideration

 

 

8,700

 

 

7,800

Deferred income tax liability

 

 

22,428

 

 

 —

Other long-term liabilities

 

 

133

 

 

3,268

Total liabilities

 

 

327,382

 

 

131,948

  

 

 

 

 

 

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at March 31, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, $0.0001 par value; 100,000,000 shares authorized, 22,140,648 and 20,719,297 shares issued and 21,978,198 and 20,557,537 shares outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

 2

 

 

 2

Additional paid-in capital

 

 

264,453

 

 

209,330

Treasury stock, at cost; 162,450 and 161,760 shares at March 31, 2019 and December 31, 2018, respectively

 

 

(3,865)

 

 

(3,825)

Accumulated deficit

 

 

(77,477)

 

 

(66,498)

Total stockholders’ equity

 

 

183,113

 

 

139,009

Total liabilities and stockholders’ equity

 

$

510,495

 

$

270,957

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

    

    

2019

    

2018

Revenue:

 

 

 

 

 

Product revenue

  

 

$

30,982

 

$

27,180

Service revenue

 

 

 

29,977

 

 

16,764

Total revenue

 

 

 

60,959

 

 

43,944

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

 

 

 

 

 

 

 

Product cost

 

 

 

23,475

 

 

20,832

Service cost

 

 

 

18,193

 

 

10,832

Total cost of revenue, exclusive of depreciation and amortization

 

 

 

41,668

 

 

31,664

Operating expenses: 

 

 

 

 

 

 

 

Research and development 

 

 

 

5,550

 

 

2,213

Sales and marketing

 

 

 

4,850

 

 

2,002

General and administrative 

 

 

 

13,743

 

 

5,877

Change in fair value of acquisition-related contingent consideration expense

 

 

 

1,176

 

 

13,521

Depreciation and amortization

 

 

 

6,299

 

 

4,048

Total operating expenses 

 

 

 

31,618

 

 

27,661

Loss from operations

 

 

 

(12,327)

 

 

(15,381)

Other expense: 

 

 

 

 

 

 

 

Interest expense, net

 

 

 

2,693

 

 

63

Total other expense

 

 

 

2,693

 

 

63

Loss before income taxes

 

 

 

(15,020)

 

 

(15,444)

Income tax (benefit) expense

 

 

 

(4,041)

 

 

2,650

Net loss

 

 

$

(10,979)

 

$

(18,094)

Net loss per share, basic and diluted

 

 

$

(0.54)

 

$

(0.96)

Weighted average common shares outstanding, basic and diluted

 

 

 

20,384,557

 

 

18,789,226

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 —

 

$

 —

 

19,371,005

 

$

 2

 

(73,466)

 

$

(959)

 

$

144,074

 

$

(19,229)

 

$

123,888

Common stock offering issuance costs

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(2)

 

 

 —

 

 

(2)

Issuance of restricted stock

 

 —

 

 

 —

 

395,254

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Forfeitures of restricted shares

 

 —

 

 

 —

 

 —

 

 

 —

 

(2,474)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Shares repurchased

 

 —

 

 

 —

 

 —

 

 

 —

 

(80,000)

 

 

(2,866)

 

 

 —

 

 

 —

 

 

(2,866)

Exercise of stock options

 

 —

 

 

 —

 

374,904

 

 

 —

 

 —

 

 

 —

 

 

902

 

 

 —

 

 

902

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

1,945

 

 

 —

 

 

1,945

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(18,094)

 

 

(18,094)

Balance, March 31, 2018

 

 —

 

$

 —

 

20,141,163

 

$

 2

 

(155,940)

 

$

(3,825)

 

$

146,919

 

$

(37,323)

 

$

105,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

Common Stock

 

Treasury Stock

 

Additional

 

Accumulated

 

Stockholders'

 

    

    

Shares

    

Amount

    

Shares

    

Amount

 

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity

Balance, January 1, 2019

 

 

 —

 

$

 —

 

20,719,297

 

$

 2

 

(161,760)

 

$

(3,825)

 

$

209,330

 

$

(66,498)

 

$

139,009

Issuance of common stock in connection with acquisition

 

 

 —

 

 

 —

 

149,053

 

 

 —

 

 —

 

 

 —

 

 

9,504

 

 

 —

 

 

9,504

Issuance of common stock awards

 

 

 —

 

 

 —

 

9,547

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of restricted stock

 

 

 —

 

 

 —

 

565,840

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Exercise of stock options

 

 

 —

 

 

 —

 

82,686

 

 

 —

 

(690)

 

 

(40)

 

 

1,077

 

 

 —

 

 

1,037

Issuance of common stock in connection with the settlement of acquisition-related contingent consideration

 

 

 —

 

 

 —

 

614,225

 

 

 —

 

 —

 

 

 —

 

 

(609)

 

 

 —

 

 

(609)

Conversion feature of convertible senior subordinated notes, net of allocated debt issuance costs and tax effect

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

74,049

 

 

 —

 

 

74,049

Purchase of convertible note hedges

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(101,660)

 

 

 —

 

 

(101,660)

Sale of warrants in connection with convertible senior subordinated notes

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

65,910

 

 

 —

 

 

65,910

Stock-based compensation expense

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

6,852

 

 

 —

 

 

6,852

Net loss

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(10,979)

 

 

(10,979)

Balance, March 31, 2019

 

 

 —

 

$

 —

 

22,140,648

 

$

 2

 

(162,450)

 

$

(3,865)

 

$

264,453

 

$

(77,477)

 

$

183,113

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(10,979)

 

$

(18,094)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

6,299

 

 

4,048

Amortization of deferred financing costs and debt discount

 

 

1,575

 

 

21

Deferred taxes

 

 

(3,381)

 

 

(94)

Stock-based compensation

 

 

6,852

 

 

1,945

Change in fair value of acquisition-related contingent consideration

 

 

1,176

 

 

13,521

Acquisition-related contingent consideration paid

 

 

(24,428)

 

 

 —

Other noncash items

 

 

12

 

 

 —

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

 

 

 

 

 

 

Accounts receivable, net

 

 

(3,258)

 

 

(3,285)

Inventories

 

 

(117)

 

 

124

Prepaid expenses and other current assets

 

 

(2,029)

 

 

(505)

Other assets

 

 

(354)

 

 

282

Accounts payable   

 

 

(1,458)

 

 

(1,770)

Accrued expenses and other liabilities

 

 

3,464

 

 

4,064

Other long-term liabilities

 

 

(20)

 

 

(48)

Net cash (used in) provided by operating activities

 

 

(26,646)

 

 

209

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,019)

 

 

(1,122)

Software development costs

 

 

(2,630)

 

 

(1,060)

Proceeds from repayment of note receivable

 

 

1,000

 

 

 —

Acquisitions of businesses, net of cash acquired

 

 

(158,726)

 

 

 —

Net cash used in investing activities

 

 

(161,375)

 

 

(2,182)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Payments for repurchase of common stock

 

 

 —

 

 

(2,866)

Proceeds from exercise of stock options

 

 

1,037

 

 

920

Payments for debt financing costs

 

 

(9,418)

 

 

(2)

Repayments of line of credit

 

 

(45,000)

 

 

 —

Payments of equity offering costs

 

 

 —

 

 

(357)

Payments of acquisition-related contingent consideration

 

 

(18,722)

 

 

(1,646)

Repayments of long-term debt and finance leases

 

 

(276)

 

 

(254)

Proceeds from issuance of convertible senior subordinated notes

 

 

325,000

 

 

 —

Proceeds from sale of warrants

 

 

65,910

 

 

 —

Purchase of convertible note hedges

 

 

(101,660)

 

 

 —

Net cash provided by (used in) financing activities

 

 

216,871

 

 

(4,205)

Net increase (decrease) in cash and restricted cash

 

 

28,850

 

 

(6,178)

Cash and restricted cash, beginning of period

 

 

25,029

 

 

10,430

Cash and restricted cash, end of period

 

$

53,879

 

$

4,252

 

 

 

 

 

 

 

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

 

$

1,600

 

$

390

Cash paid for interest

 

$

484

 

$

43

Cash paid for taxes

 

$

 4

 

$

 —

Stock issued in connection with acquisitions

 

$

9,504

 

$

 —

 

 

 

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 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 cloud-based software solutions provide prescribers, pharmacists, pharmacies 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, 2018, which are included in the Company’s annual report on Form 10-K filed on March 1, 2019 (“2018 Form 10-K”). 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 to present fairly the Company's interim consolidated financial position for the periods indicated. The interim results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s 2018 Form 10-K.

 

(b)    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.

 

On an ongoing basis, management evaluates its estimates and assumptions, including, but not limited to, those related to: (i) the fair value of assets acquired and liabilities assumed for business combinations, (ii) the recognition and disclosure of contingent liabilities, (iii) the useful lives of long-lived assets (including definite-lived intangible assets), (iv) the evaluation of revenue recognition criteria, (v) assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock-based compensation instruments, (vi) the realizability of long-lived assets including goodwill and intangible assets, (vii) the assumptions used to determine the fair value of right-of-use assets and liabilities for the Company’s leases, and (viii) the assumptions used to determine the fair value of convertible debt instruments and related equity-classified conversion option. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company has engaged and may, in the future, engage third-party valuation specialists to assist with estimates related to the valuation of assets and liabilities acquired. Such estimates often require the selection of appropriate valuation methodologies and models, and significant judgment in evaluating ranges of assumptions and financial inputs. Actual results may differ from those estimates under different assumptions or circumstances.

7


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

(c)    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 included in cost of revenue. See Note 3 for additional detail about the Company’s products and service lines.

 

(d)    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 platforms. 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.

 

(e)    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, data acquisition, 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.

 

(f)    Restricted Cash

 

Cash and cash equivalents that are restricted as to withdrawal or use under certain contractual agreements are recorded in restricted cash on the Company’s consolidated balance sheet. As part of the Company’s third party administrative services, which fall under the Company’s health plan management services, the Company holds funds on behalf of its clients. These amounts are recorded as restricted cash with an offsetting liability recorded in accrued expenses and other liabilities on the Company’s consolidated balance sheet.

 

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total cash and restricted cash as reported in the consolidated statements of cash flows.

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

 

 

2019

 

 

2018

Cash

 

$

49,598

 

$

4,252

Restricted cash

 

 

4,281

 

 

 —

Total cash and restricted cash as presented in the consolidated statement of cash flows

 

$

53,879

 

$

4,252

 

(g) Accounts Receivable, net

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and the Company’s clients’ financial condition, the amount of receivables in dispute and the current receivables aging and current payment patterns. The Company reviews its allowance for doubtful accounts monthly. The allowance for doubtful accounts was $763 and $528 as of March 31, 2019 and December 31, 2018, respectively.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

(h)    Leases

 

The Company determines if an arrangement is a lease at inception. As of January 1, 2019, operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and noncurrent operating lease liabilities in the consolidated balance sheets.  Finance leases are included in property and equipment, net, current portion of long-term debt and finance leases, and long-term debt and finance leases in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

 

ROU assets and liabilities are recognized at the lease commencement date based on the estimated net present value of lease payments over the lease term. The Company uses its estimated incremental borrowing rate in determining the net present value of lease payments. The estimated incremental borrowing rate is derived from relevant market information and other publicly available data for instruments with similar characteristics at the lease commencement date.

 

Leases with an initial term of 12 months or less are not recorded on the balance sheet.  The lease expense for short-term leases is recognized on a straight-line basis over the lease term.  Many leases include options to renew, with the exercise of lease renewal options at the Company’s sole discretion.  The lease terms that include options to renew the lease require such renewal to be included when it is reasonably certain that the Company will exercise such option. The depreciable life of assets and leasehold improvements is limited by the expected lease term.

 

The Company’s lease agreements do not contain any residual value guarantees. The Company has elected to include both lease and nonlease components as a single lease component for its operating leases.

 

(i)    Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). The new standard establishes a 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 was effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU No. 2018-11”), which provides an additional modified transition method by which entities may elect to initially apply the transition requirements in ASU 2016-02 at the effective date with the effects of initial application recognized as a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption, and without retrospective application to any comparative prior periods presented. The Company adopted ASU 2016-02 on January 1, 2019 using the modified transition method permitted by ASU No. 2018-11.

The Company elected the package of practical expedients permitted under the transition guidance, which permits the Company to carry forward its prior conclusions about lease identification, lease classification, and initial direct costs, but did not elect the hindsight practical expedient. ROU assets and liabilities for the Company’ existing leases were recognized on January 1, 2019 based on the estimated net present value of lease payments over the remaining lease term. The adoption of ASU 2016-02 resulted in the recording of lease assets and lease liabilities of $18,469 and $21,173, respectively, as of January 1, 2019.  The standard had no impact on the Company’s opening balance of retained earnings, consolidated net earnings or cash flows. See Note 7 for additional information on the Company’s leases.

 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

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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 effect 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 incurred in a hosting arrangement that is a service contract with the requirements for capitalization of 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.     Revenue

 

The Company provides 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, directly to healthcare organizations. Revenue from MRM prescription fulfillment services is generally recognized when medications are shipped and control has 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 identification of high risk individuals, patient engagement, medication regimen reviews, and software for pharmacists to track clinical interventions regarding optimizing medication therapy, including dosing, and methodologies to increase adherence. 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.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

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. Fees for these services are generally billed monthly. 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. Set-up activities that do not have value apart from the broader health plan management services provided to the client and that do not represent a separate performance obligation are recognized over the contract term as services are provided. Set-up activities that have value apart from the services provided to the client represent a separate performance obligation and as such, are recognized as performed.

 

Pharmacy cost management services. The Company has a stand ready obligation to provide monthly pharmacy cost management services which include 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. The Company's MRM and health plan management clients consist primarily of healthcare payors, providers, and pharmacies. The Company’s pharmacy cost management clients consist primarily of post-acute care facilities. Substantially all of the Company’s revenue is recognized in the United States (“U.S.”) and substantially all of the Company’s assets are located in the U.S.

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

 

2019

 

 

2018

Major service lines:

 

 

 

 

 

 

MRM prescription fulfillment services

 

$

30,982

 

$

27,180

MRM services

 

 

19,958

 

 

13,695

Health plan management services

 

 

8,983

 

 

1,705

Pharmacy cost management services

 

 

1,008

 

 

1,295

Other services

 

 

28

 

 

69

 

 

$

60,959

 

$

43,944

 

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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 clients as of March 31, 2019 and December 31, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

2019

    

2018

Contract assets

 

$

4,718

 

$

3,075

Contract liabilities

 

 

6,093

 

 

1,733

 

Contract assets as of March 31, 2019 consisted of $3,617 related to data analytics contract assets, $904 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 $197 related to the gain-share component of completed health plan management services contracts. Contract assets as of December 31, 2018 consisted of $2,913 related to the data analytics contract asset and $162 related to the gain-share component of completed health plan management services contracts. 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 as of March 31, 2019 consisted of $3,245 related to acquired performance obligations for software services contracts associated with the Company’s acquisition of DoseMe and PrescribeWellness in the first quarter of 2019 (see Note 5), $1,303 related to advanced payments received for service obligations on MRM performance guaranteed contracts, $789 related to advanced billings for prescription medications not yet fulfilled or dispensed, $618 related to performance obligations related to software maintenance contracts for electronic health records solutions, and $138 related to unamortized setup fees on health plan management contracts. The contract liabilities as of December 31, 2018 consisted of $858 related to advanced billings for prescription medications not yet fulfilled or dispensed, $730 related to performance obligations related to software maintenance contracts for electronic health records solutions, and $145 related to 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.

 

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

 

 

 

 

 

 

 

March 31, 

 

 

2019

Contract assets:

 

 

 

Contract assets, beginning of period

 

$

3,075

Changes to the contract assets at the beginning of the period as a result of changes in estimates

 

 

(321)

Increases, net of reclassifications to receivables

 

 

1,964

Contract assets, end of period

 

$

4,718

 

 

 

 

Contract liabilities:

 

 

 

Contract liabilities, beginning of period

 

$

1,733

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

 

 

(1,160)

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

 

 

2,323

Increases due to business combination, excluding amounts recognized as revenue during the period

 

 

3,197

Contract liabilities, end of period

 

$

6,093

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

During the three months ended March 31, 2018, the Company recognized $1,224 of revenue that was included in the December 31, 2017 contract liability balance of $1,350.

 

 

 

 

 

4.     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. 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 outstanding 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:

 

 

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

 

2018

Numerator:

 

 

 

 

Net loss attributable to common stockholders, basic and diluted

$

(10,979)

 

$

(18,094)

Denominator (basic and diluted):

 

 

 

 

 

Weighted average shares of common stock outstanding, basic and diluted

 

20,384,557

 

 

18,789,226

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

$

(0.54)

 

$

(0.96)

 

The following potential common shares, presented based on amounts outstanding for the three months ended March 31, 2019 and 2018 were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect.

 

 

 

 

 

 

Three Months Ended

 

March 31, 

 

2019

    

2018

Stock options to purchase common stock

3,041,855

 

2,809,641

Unvested restricted stock

1,531,785

 

1,144,709

Common stock warrants

4,646,393

 

 —

Contingently issuable shares

20,000

 

 —

 

9,240,033

 

3,954,350

 

 

 

Shares associated with the conversion of the convertible senior subordinated notes have been excluded in the table above.

 

 

 

 

5.     Acquisitions

 

2019 Acquisitions

 

PrescribeWellness

 

On March 5, 2019, the Company entered into, and consummated the transactions contemplated by, a Merger Agreement (the “Merger Agreement”) with Prescribe Wellness, LLC, a Nevada limited liability company (“PrescribeWellness”) and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the initial Holder Representative. PrescribeWellness is a leading cloud-based patient engagement solutions company that facilitates collaboration between more than 10,000 pharmacies with patients, payers, providers, and pharmaceutical companies. The Company paid $150,000 in cash consideration upon closing, subject to certain customary adjustments as set forth in

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

the Merger Agreement. A portion of the closing consideration is being held in escrow to secure potential claims for indemnification under the Merger Agreement and in respect of adjustments to the consideration under the Merger Agreement.

 

In connection with the acquisition of PrescribeWellness, the Company incurred direct acquisition costs of $3,171 during the three months ended March 31, 2019, which were recorded in general and administrative expenses in the consolidated statements of operations.

 

The fair value of the acquisition consideration, net of post-closing adjustments, was $148,590 paid in cash.

 

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

 

 

 

 

 

Accounts receivable

    

$

2,271

Prepaid expenses and other current assets

 

 

1,322

Property and equipment

 

 

1,155

Operating lease right-of-use-assets

 

 

1,467

Trade name

 

 

4,100

Developed technology

 

 

19,500

Patient database

 

 

15,100

Client relationships

 

 

65,800

Goodwill

 

 

45,797

Total assets acquired 

 

$

156,512

 

 

 

 

Operating lease liabilities

 

 

(1,467)

Trade accounts payable

 

 

(1,742)

Accrued expenses and other liabilities

 

 

(4,713)

Total purchase price

 

$

148,590

 

The purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their acquisition-date estimated fair values. The identifiable intangible assets principally included a trade name, developed technology, patient database, and client relationships, all of which are subject to amortization on a straight-line basis and are being amortized over a weighted average of 5, 10, 5, and 14 years, respectively. The weighted average amortization period for acquired intangible assets as of the date of acquisition is 11.60 years.

 

The Company, with the assistance of a third-party appraiser, assessed the fair value of the assets of PrescribeWellness. The fair value of the trade name and developed technology was estimated using the relief from royalty method. The Company derived the hypothetical royalty income from the projected revenues of PrescribeWellness. The fair value of client relationships was estimated using a multi period excess earnings method. To calculate fair value, the Company used cash flows discounted at a rate considered appropriate given the inherent risks associated with each client grouping. The fair value of the patient database was estimated using a cost to replace method.

 

The useful lives of the intangible assets were estimated based on the expected future economic benefit of the assets and are being amortized over the estimated useful life in proportion to the economic benefits consumed using the straight-line method.

 

The amortization of intangible assets is deductible for income tax purposes.

 

The Company believes the goodwill related to the acquisition of PrescribeWellness resulted from the establishment of new market opportunities while at the same time expanding its service offering to its existing customer base. The goodwill is deductible for income tax purposes.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Revenue from PrescribeWellness is primarily comprised of subscription fees for its cloud-based patient engagement solutions. Revenue for these services, and the related costs, is recognized each month as performance obligations are satisfied and costs are incurred, and is included in service revenue and cost of revenue – service cost, respectively, in the Company’s consolidated statement of operations. For the three months ended March 31, 2019, service revenue of $2,191 and a net loss of $871 from PrescribeWellness were included in the Company’s consolidated statements of operations. Service revenue was recorded net of a reduction of $203 due to the purchase accounting effects of recording deferred revenue at fair value.

 

The Company continues to evaluate the fair value of certain assets acquired and liabilities assumed related to the acquisition. Additional information, which existed as of the acquisition date, but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as a result of the final determination may result in a corresponding adjustment to these assets and liabilities, including goodwill. The determination of the estimated fair values of all assets acquired is expected to be completed within one year from the date of acquisition

 

DoseMe

 

On January 2, 2019, the Company completed the acquisition of all of the outstanding share capital and options to purchase share capital of DoseMe Holdings Pty Ltd, a proprietary company limited by shares organized under the Laws of Australia (“DoseMe”). DoseMe is the developer of DoseMeRx, an advanced precision dosing tool to help physicians and pharmacists accurately dose patients’ high-risk parenteral (intravenous) medications based on individual needs. The acquisition was made pursuant to a Share Purchase Deed, made and entered into as of November 30, 2018. The consideration for the acquisition was comprised of (i) cash consideration of up to $10,000 paid at closing, subject to certain customary post-closing adjustments as set forth in the Share Purchase Deed, (ii) the issuance of 149,053 shares of the Company’s common stock, and (iii) the potential for a contingent earn out payment of up to $10,000, to be paid in 50% cash and 50% of the Company’s common stock, based on the financial performance of DoseMe. The Company is not obligated to pay more than $10,000 in cash and common stock for the contingent earn out payment. 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 and in respect of adjustments to the purchase price.

 

In connection with the acquisition of DoseMe, the Company incurred direct acquisition costs of $63 during the three months ended March 31, 2019, which were recorded in general and administrative expenses in the consolidated statements of operations.

 

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

 

$

10,136

Stock consideration at closing

 

 

9,504

Estimated fair value of contingent consideration

 

 

8,720

Total fair value of acquisition consideration

 

$

28,360

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

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:

 

 

 

 

 

Accounts receivable

 

$

 9

Prepaid expenses and other current assets

 

 

110

Trade name

 

 

88

Developed technology

 

 

16,100

Non-competition agreements

 

 

390

Goodwill

 

 

12,042

Total assets acquired 

 

$

28,739

 

 

 

 

Trade accounts payable

 

 

(17)

Accrued expenses and other liabilities

 

 

(362)

Total purchase price, including contingent consideration of $8,720

 

$

28,360

 

The purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their acquisition-date estimated fair values. The identifiable intangible assets principally included a trade name, developed technology and non-competition agreements, all of which are subject to amortization on a straight-line basis and are being amortized over a weighted average of 4, 7.5 and 5 years, respectively. The weighted average amortization period for acquired intangible assets as of the date of acquisition is 7.42 years.

 

The Company, with the assistance of a third-party appraiser, assessed the fair value of the assets of DoseMe. The fair value of the trade name was estimated using the relief from royalty method. The Company derived the hypothetical royalty income from the projected revenues of DoseMe. The fair value of the developed technology was estimated using a multi period excess earnings method. To calculate fair value, the Company used cash flows discounted at a rate considered appropriate given the inherent risks associated with the economic return on contributory assets and estimated revenues generated. The fair value of the non-competition agreements was estimated using the discounted earnings method by estimating the potential loss of earnings absent the non-competition agreements, assuming the covenantor competes at different time periods during the life of the agreements. See Note 16 for additional discussion of the fair value assessment of the acquisition-related contingent consideration.

 

The useful lives of the intangible assets were estimated based on the expected future economic benefit of the assets and are being amortized over the estimated useful life in proportion to the economic benefits consumed using the straight-line method.

 

The amortization of intangible assets is deductible for U.S. income tax purposes.

 

The Company believes the goodwill related to the acquisition of DoseMe resulted from gaining a complementary capability that, when combined with the Company’s existing platform, will create significant market opportunity. The goodwill is deductible for U.S. income tax purposes.

 

Revenue from DoseMe is primarily comprised of subscription and license fees for use of DoseMe’s advanced precision dosing software tool. Revenue for these services, and the related costs, is recognized each month as performance obligations are satisfied and costs are incurred, and is included in service revenue and cost of revenue – service cost, respectively, in the Company’s consolidated statements of operations. For the three months ended March 31, 2019, service revenue of $66 and net loss of $1,226 from DoseMe were included in the Company’s consolidated statement of operations.

 

The Company continues to evaluate the fair value of certain assets acquired and liabilities assumed related to the acquisition. Additional information, which existed as of the acquisition date, but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as a result of the final determination may result in a corresponding adjustment to these assets and liabilities, including

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

goodwill. The determination of the estimated fair values of all assets acquired is expected to be completed within one year from the date of acquisition.

 

2018 Acquisitions

 

Cognify

 

On October 19, 2018, the Company entered into and consummated the transactions contemplated by a Stock Purchase Agreement with each stockholder of Cognify, Inc., (“Cognify”), and Mace Wolf, solely in his capacity as the Sellers’ Representative, to acquire all of the issued and outstanding capital stock of Cognify. Cognify is a provider of electronic health record solutions in the Programs of All-Inclusive Care for the Elderly (“PACE”) market and to managed long-term care and medical home providers. See Note 6 set forth in the Company’s audited financial statements included as part of the 2018 Form 10-K for additional information on the Cognify acquisition.

 

Revenue from Cognify is primarily composed of per member per month fees and annual subscription fees for electronic health record solutions. Revenue for these services and the related costs is recognized each month as performance obligations are satisfied and costs are incurred, and is included in service revenue and cost of revenue – service cost, respectively, in the Company’s consolidated statements of operations. For the three months ended March 31, 2019, service revenue of $949 and a net loss of $106 from Cognify were included in the Company’s consolidated statement of operations.

 

Mediture

 

On August 31, 2018, the Company entered into a membership interest purchase agreement with each member of Mediture LLC and eClusive L.L.C. (collectively, “Mediture”) and Kelley Business Law, PLLc, solely in this capacity as the seller representative, pursuant to which the Company acquired all of the issued and outstanding membership and/or economic interests of Mediture. Mediture is a provider of electronic health record solutions and third party administrator services in the PACE market and also services several managed long-term care organizations in the State of New York. See Note 6 set forth in the Company’s audited financial statements included as part of the 2018 Form 10-K for additional information on the Mediture acquisition.

 

Revenue from Mediture is primarily comprised of per member per month fees and annual subscription fees for electronic health record solutions and third party administration services. Revenue for these services and the related costs are recognized each month as performance obligations are satisfied and costs are incurred, and is included in service revenue and cost of revenue – service cost, respectively, in the Company’s consolidated statements of operations. For the three months ended March 31, 2019, service revenue of $3,473 and net income of $821 from Mediture were included in the Company’s consolidated statement of operations.

 

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. See Note 6 set forth in the Company’s audited financial statements included as part of the 2018 Form 10-K for additional information on the Peak PACE acquisition.

 

Revenue from Peak PACE is primarily comprised of per member per month fees for third party administration services. Revenue for these services and the related costs are recognized each month as performance obligations are satisfied and costs are incurred, and is included in service revenue and cost of revenue – service cost, respectively, in the consolidated statements of operations. For the three months ended March 31, 2019, service revenue of $2,213 and net income of $171 from Peak PACE were included in the Company’s consolidated statement of operations.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Pro forma

 

The unaudited pro forma results presented below include the results of the aforementioned acquisitions as if they had been consummated as of January 1, 2018. The unaudited pro forma results include the amortization associated with acquired intangible assets, interest expense on the debt incurred to fund these acquisitions, insurance expense for additional required business insurance coverage, stock compensation expense related to equity awards granted to employees of the acquired companies, adjustments to revenue for the purchase accounting effects of recording deferred revenue at fair value, and the estimated tax effect of adjustments to income (loss) before income taxes. Material nonrecurring charges, including direct acquisition costs, directly attributable to the transactions are excluded. In addition, the unaudited pro forma results do not include any expected benefits of the acquisitions. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2018.

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

    

 

2019

 

2018

Revenue

 

 

$

66,706

 

$

50,170

Net loss

 

 

 

(13,831)

 

 

(23,141)

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

 

 

 

(0.68)

 

 

(1.21)

 

 

6.       Property and Equipment

 

Depreciation expense on property and equipment for the three months ended March 31, 2019 and 2018 was $1,008 and $834, respectively.

 

 

7.       Leases

 

The Company has entered into various operating and finance leases for office space and equipment. The operating leases expire on various dates through 2030, and certain of such leases also contain renewal options and escalation clauses. In addition to the base rent payments, the Company will be obligated to pay a pro rata share of operating expenses and taxes.

 

The components of lease expense were as follows:

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

2019

    

2018

Operating lease cost

$

1,115

 

$

691

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

Amortization of leased assets

 

225

 

 

326

Interest on lease liabilities

 

16

 

 

39

Total finance lease cost

 

241

 

 

365

Total lease cost

$

1,356

 

$

1,056

 

Operating lease cost includes short-term lease payments and variable lease payments, which are immaterial.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

Supplemental balance sheet information related to leases was as follows:

 

 

 

 

 

 

March 31, 2019

    

Operating leases: