SEC Filing | Tabula Rasa HealthCare, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ 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 October 23, 2020, the Registrant had 23,827,978 shares of Common Stock outstanding.

Table of Contents

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2020

TABLE OF CONTENTS

		Page
		Number

PART I	Financial Information	3
Item 1.	Financial Statements	3
	Unaudited Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	4
	Unaudited Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	5
	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51
PART II	Other Information	51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
Signatures		57

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)


	September 30,		December 31,
	2020		2019
Assets
Current assets:
Cash	$	28,721	$	42,478
Restricted cash		3,573		4,103
Accounts receivable, net of allowance of $367 and $386, respectively		32,343		29,123
Inventories		4,194		3,700
Prepaid expenses		3,196		4,299
Other current assets		4,162		10,835
Total current assets		76,189		94,538
Property and equipment, net		15,284		15,798
Operating lease right-of-use assets		21,549		22,100
Software development costs, net		25,622		18,501
Goodwill		150,760		150,760
Intangible assets, net		167,477		189,413
Other assets		1,353		1,281
Total assets	$	458,234	$	492,391
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt and finance leases, net	$	6	$	125
Current operating lease liabilities		4,399		4,350
Acquisition-related contingent consideration		658		—
Accounts payable		7,272		8,622
Accrued expenses and other liabilities		21,643		26,906
Total current liabilities		33,978		40,003
Long-term debt and finance leases, net		235,938		226,294
Noncurrent operating lease liabilities		20,273		21,017
Long-term acquisition-related contingent consideration		—		10,800
Deferred income tax liability		2,951		8,656
Other long-term liabilities		388		73
Total liabilities		293,528		306,843

Commitments and contingencies (Note 15)

Stockholders' equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019		—		—
Common stock, $0.0001 par value; 100,000,000 shares authorized, 23,476,589 and 22,496,999 shares issued and 23,264,582 and 22,321,310 shares outstanding at September 30, 2020 and December 31, 2019, respectively		2		2
Treasury stock, at cost; 212,007 and 175,689 shares at September 30, 2020 and December 31, 2019, respectively		(4,018)		(3,865)
Additional paid-in capital		317,992		288,345
Accumulated deficit		(149,270)		(98,934)
Total stockholders’ equity		164,706		185,548
Total liabilities and stockholders’ equity	$	458,234	$	492,391

See accompanying notes to unaudited consolidated financial statements.

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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,
	2020		2019		2020		2019
Revenue:
Product revenue	$	39,365	$	34,966	$	115,825	$	99,320
Service revenue		31,141		39,304		104,342		112,164
Total revenue		70,506		74,270		220,167		211,484
Cost of revenue, exclusive of depreciation and amortization shown below:
Product cost		28,638		25,931		84,879		74,267
Service cost		20,610		20,510		64,140		58,998
Total cost of revenue, exclusive of depreciation and amortization		49,248		46,441		149,019		133,265
Operating expenses:
Research and development		5,101		5,902		13,750		16,649
Sales and marketing		5,030		6,884		15,597		18,605
General and administrative		15,620		12,155		48,914		38,781
Change in fair value of acquisition-related contingent consideration expense		2,005		1,510		2,605		4,516
Depreciation and amortization		12,199		9,142		32,323		24,519
Total operating expenses		39,955		35,593		113,189		103,070
Loss from operations		(18,697)		(7,764)		(42,041)		(24,851)
Interest expense, net		4,722		4,441		14,000		11,442
Loss before income taxes		(23,419)		(12,205)		(56,041)		(36,293)
Income tax benefit		(1,830)		(4,101)		(5,705)		(10,681)
Net loss	$	(21,589)	$	(8,104)	$	(50,336)	$	(25,612)
Net loss per share, basic and diluted	$	(0.99)	$	(0.39)	$	(2.33)	$	(1.25)
Weighted average common shares outstanding, basic and diluted		21,779,808		20,691,112		21,571,214		20,520,357

See accompanying notes to unaudited consolidated financial statements.

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TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share amounts)


	Stockholders' Equity
	Nine Months Ended September 30, 2020
	Common Stock			Treasury Stock			Additional		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Equity
Balance, January 1, 2020	22,496,999	$	2	(175,689)	$	(3,865)	$	288,345	$	(98,934)	$	185,548
Issuance of common stock awards	14,386		—	—		—		—		—		—
Issuance of restricted stock	388,108		—	—		—		—		—		—
Forfeitures of restricted shares	—		—	(33,371)		—		—		—		—
Exercise of stock options, net of shares withheld	116,288		—	(1,681)		(91)		1,244		—		1,153
Share adjustment	—		—	12,500		—		—		—		—
Stock-based compensation expense	—		—	—		—		7,137		—		7,137
Net loss	—		—	—		—		—		(14,437)		(14,437)
Balance, March 31, 2020	23,015,781		2	(198,241)		(3,956)		296,726		(113,371)		179,401
Issuance of restricted stock	37,702		—	—		—		—		—		—
Forfeitures of restricted shares	—		—	(5,807)		—		—		—		—
Exercise of stock options, net of shares withheld	105,828		—	—		—		1,159		—		1,159
Stock-based compensation expense	—		—	—		—		7,173		—		7,173
Net loss	—		—	—		—		—		(14,310)		(14,310)
Balance, June 30, 2020	23,159,311		2	(204,048)		(3,956)		305,058		(127,681)		173,423
Issuance of restricted stock	9,290		—	—		—		—		—		—
Forfeitures of restricted shares	—		—	(6,442)		—		—		—		—
Exercise of stock options, net of shares withheld	172,554		—	(1,517)		(62)		(2,017)		—		(2,079)
Issuance of common stock in connection with the settlement of acquisition-related contingent consideration	135,434		—	—		—		6,853		—		6,853
Stock-based compensation expense	—		—	—		—		8,098		—		8,098
Net loss	—		—	—		—		—		(21,589)		(21,589)
Balance, September 30, 2020	23,476,589	$	2	(212,007)	$	(4,018)	$	317,992	$	(149,270)	$	164,706

See accompanying notes to unaudited consolidated financial statements.

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	Stockholders' Equity
	Nine Months Ended September 30, 2019
	Common Stock			Treasury Stock			Additional		Accumulated		Stockholders'
	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, net of shares withheld	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, net of tax	—		—	—		—		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
Issuance of common stock awards	30,101		—	—		—		—		—		—
Issuance of restricted stock	23,562		—	—		—		—		—		—
Exercise of stock options, net of shares withheld	49,916		—	—		—		499		—		499
Conversion feature of convertible senior subordinated notes, net of allocated debt issuance costs, net of tax	—		—	—		—		(47)		—		(47)
Stock-based compensation expense	—		—	—		—		6,906		—		6,906
Net loss	—		—	—		—		—		(6,529)		(6,529)
Balance, June 30, 2019	22,244,227		2	(162,450)		(3,865)		271,811		(84,006)		183,942
Issuance of common stock awards	13,867		—	—		—		—		—		—
Exercise of stock options, net of shares withheld	96,465		—	—		—		967		—		967
Conversion feature of convertible senior subordinated notes, net of allocated debt issuance costs, net of tax	—		—	—		—		736		—		736
Stock-based compensation expense	—		—	—		—		7,225		—		7,225
Net loss	—		—	—		—		—		(8,104)		(8,104)
Balance, September 30, 2019	22,354,559	$	2	(162,450)	$	(3,865)	$	280,739	$	(92,110)	$	184,766

See accompanying notes to unaudited consolidated financial statements.

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TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended
	September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(50,336)	$	(25,612)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		32,323		24,519
Amortization of deferred financing costs and debt discount		9,925		7,689
Deferred taxes		(5,705)		(10,749)
Stock-based compensation		22,408		20,983
Change in fair value of acquisition-related contingent consideration		2,605		4,516
Acquisition-related contingent consideration paid		(2,390)		(24,480)
Other noncash items		(70)		12

Changes in operating assets and liabilities, net of effect from acquisitions:
Accounts receivable, net		(3,220)		(417)
Inventories		(494)		(220)
Prepaid expenses and other current assets		7,209		(2,626)
Other assets		(382)		(53)
Accounts payable		(1,432)		(5,787)
Accrued expenses and other liabilities		(5,408)		5,474
Other long-term liabilities		315		(60)
Net cash provided by (used in) operating activities		5,348		(6,811)

Cash flows from investing activities:
Purchases of property and equipment		(2,537)		(5,202)
Software development costs		(13,734)		(10,285)
Purchases of intangible assets		—		(1,202)
Proceeds from repayment of note receivable		—		1,000
Acquisitions of businesses, net of cash acquired		—		(158,762)
Net cash used in investing activities		(16,271)		(174,451)

Cash flows from financing activities:
Proceeds from exercise of stock options		3,225		2,503
Payments for employee taxes for shares withheld		(2,993)		—
Payments for debt financing costs		(38)		(9,632)
Repayments of line of credit		—		(45,000)
Payments of acquisition-related contingent consideration		(3,504)		(29,062)
Repayments of long-term debt and finance leases		(54)		(757)
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 (used in) provided by financing activities		(3,364)		207,302

Net (decrease) increase in cash and restricted cash		(14,287)		26,040
Cash and restricted cash, beginning of period		46,581		25,029
Cash and restricted cash, end of period	$	32,294	$	51,069

Supplemental disclosure of cash flow information:
Purchases of property and equipment and software development included in accounts payable and accrued expenses	$	103	$	803
Cash paid for interest	$	5,690	$	3,177
Cash paid for taxes	$	290	$	317
Interest costs capitalized to property and equipment and software development costs	$	192	$	248
Stock issued in connection with settlement of acquisition-related contingent consideration	$	6,853	$	—
Stock issued in connection with acquisitions	$	—	$	9,504

Reconciliation of cash and restricted cash:
Cash	$	28,721	$	47,302
Restricted cash		3,573		3,767
Total cash and restricted cash	$	32,294	$	51,069

See accompanying notes to unaudited consolidated financial statements.

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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”) focuses on optimizing drug regimens to reduce medication-related risk, specifically targeting adverse drug events, a large and growing problem with medication therapy costing an estimated $528 billion annually in the United States (“U.S.”) and resulting in more than 275,000 deaths per year in the U.S. in 2018. The Company delivers a range of technology-enabled solutions, software, and services including what the Company believes to be the largest clinical tele-pharmacy network in the country, powered by the Company’s proprietary medication science technology, the Medication Risk Mitigation (“MRM”) Matrix, that are targeted at value-based payment models and support both state and federal regulations. The Company serves a number of different organizations within the healthcare industry, including more than 350 health plans, over 15,000 pharmacies and over 100 at-risk provider groups.

2. Basis of Presentation, Summary of Significant Accounting Policies, and Recent Accounting Pronouncements

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 and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, 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 annual report on Form 10-K filed on March 2, 2020 (“2019 Form 10-K”).

Effective January 1, 2020, in order to facilitate the administration, management, and development of the Company’s business and minimize the burden on the Company’s tax and regulatory reporting obligations, the Company implemented a reorganization pursuant to which all of the Company’s domestic subsidiaries, other than CK Solutions, LLC, merged with and into the Company’s wholly-owned subsidiary CareKinesis, Inc., which had previously changed its legal name on December 20, 2019 to TRHC OpCo, Inc. In the second quarter of 2020, TRHC OpCo, Inc. further changed its name to Tabula Rasa HealthCare Group, Inc. (“TRHC Group”). Following such reorganization, the Company’s only directly owned subsidiary is TRHC Group, which is the parent of CK Solutions, LLC, three DoseMe foreign subsidiaries, and, subsequent to the end of the third quarter of 2020, Personica, LLC (“Personica”). Please refer to Note 17 – Subsequent Event for additional information regarding the Personica transaction.

In conjunction with the Company’s reorganization, the Company now operates its business through two segments, CareVention HealthCare and MedWise HealthCare, effective January 1, 2020. Prior comparative periods have been revised to conform with the current period segment presentation. See Note 16 for a discussion of the Company’s reportable segments.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Risks Related to the COVID-19 Pandemic

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report on Form 10-Q. As such, the full magnitude of the impact that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations remains uncertain. Management is actively monitoring the global situation and the ramification on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects that the COVID-19 outbreak may have on the Company’s results of operations, financial condition, or liquidity for 2020. However, the Company is dependent on its workforce to sell and deliver its products and services. Developments such as social distancing and shelter-in-place directives could impact the Company’s ability to deploy its workforce effectively. These same developments may affect the operations of the Company’s suppliers and customers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus.

As a result of the ongoing COVID-19 pandemic, the Company has experienced challenges with revenue growth. The pandemic has delayed the closing of contracts across both the Company’s CareVention HealthCare and MedWise HealthCare segments and, in some cases, shifted project timelines to 2021, which management believes resulted in fewer new business wins during the first three quarters of 2020. Overall census growth for Programs of All-Inclusive Care for the Elderly (“PACE”) has remained below historical levels, which has affected the Company’s CareVention HealthCare segment growth. The Company’s MedWise HealthCare segment also has experienced delays in the timing of implementation and closing of new business and a negative impact from COVID-19 on medication adherence initiatives, which are seasonally weighted toward the second half of the calendar year. The Company does not yet know the full extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which it relies.

Summary of Significant Accounting Policies

There have been no changes to the Company's significant accounting policies described in the 2019 Form 10-K that have had a material impact on the consolidated financial statements and related notes.

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, and thereafter, has subsequently provided updates and improvements (as so updated and improved, “ASU 2016-13”). ASU 2016-13 requires entities to estimate expected lifetime credit losses on financial assets including (1) loans, accounts receivable, trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance-sheet credit exposures, (3) debt securities and other financial assets measured at fair value through other comprehensive income, and (4) beneficial interests in securitized financial assets. ASU 2016-13 is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company adopted ASU 2016-13 on January 1, 2020 using the prospective transition method. The implementation of this guidance requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates on the Company’s trade receivables and contract assets. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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 adopted ASU 2017-04 on January 1, 2020. The adoption of ASU 2017-04 did not 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 adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact 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 adopted ASU 2018-15 during the fourth quarter of 2019 using the prospective transition method. The adoption of ASU 2018-15 did not have a material effect on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 provides new guidance to simplify accounting for income taxes, modifies the accounting for certain income tax transactions, and enhances existing guidance. ASU 2019-12 is effective for financial statements issued for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 provides new guidance to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for financial statements issued for fiscal years beginning after December 15, 2021 and early adoption is permitted. 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 generates revenue from its CareVention HealthCare and MedWise HealthCare segments. See Note 16 for additional discussion of the Company’s reportable segments.

Client 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 provided. Generally, there are not significant differences between the timing of revenue recognition and billing. Consequently, the Company has determined that client contracts do not include a financing component.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

CareVention HealthCare

PACE Product Revenue

The Company provides medication fulfillment pharmacy services to PACE, and, while the majority of medications are routinely filled in order to treat chronic conditions, the mix and quantity of medications can vary. Revenue from medication fulfillment services is generally billed monthly and recognized when medications are delivered and control has passed to the client. At the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts. The Company does not experience a significant level of returns or reshipments.

PACE Solutions

The Company provides medication safety services and health plan management services to PACE organizations. These services include risk adjustment services, third party administration services, and electronic health records software. Revenue related to these services primarily consists of a fixed monthly fee assessed based on number of members served (“per member per month”) and subscription fees, which are recognized when the Company satisfies its performance obligation to stand ready to provide PACE services, which occurs when the Company’s clients have access to the PACE services. The Company generally bills for PACE services on a monthly basis.

MedWise HealthCare

Product Revenue

The Company provides COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed when test kits are shipped and is recognized as the Company satisfies its performance obligations to deliver the test kits and provide the test results. The Company does not experience a significant level of returns or reshipments.

Medication Safety Services

The Company provides medication safety services, which include identification of high-risk individuals, medication regimen reviews including patient and prescriber counseling, and targeted interventions to increase adherence and close gaps in care. Revenue related to these services primarily consists of per member per month fees and fees for each medication review and assessment completed. Revenue is recognized when the Company satisfies its performance obligation to stand ready to provide medication safety services, which occurs when the Company’s clients have access to the medication safety service, and when medication reviews and assessments are completed. The Company generally bills for the medication safety services on a monthly basis.

Software Subscription and Services

The Company provides software as a service (“SaaS”) solutions, which allow for the identification of individuals with high medication-related risk, for patient communication and engagement, for documentation of clinical interventions, for optimizing medication therapy, for targeting adherence improvement, and for precision dosing. In addition, the Company provides implementation and set up assistance services related to the SaaS solutions. Revenues related to these software services primarily consist of monthly subscription fees and are recognized monthly as the Company meets its performance obligation to provide access to the software. Revenue for implementation and set up services is generally recognized when the services are provided. The Company generally bills for the software services on a monthly basis.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Disaggregation of Revenue

In the following table, revenue is disaggregated by reportable segment. Substantially all of the Company’s revenue is recognized in the U.S. and substantially all of the Company’s assets are located in the U.S.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
		2020		2019		2020		2019
CareVention HealthCare:
PACE product revenue	$	39,086	$	34,966	$	115,103	$	99,320
PACE solutions		11,214		11,276		34,307		33,887
	$	50,300	$	46,242	$	149,410	$	133,207
MedWise HealthCare:
Product revenue	$	279	$	—	$	722	$	—
Medication safety services		9,817		18,706		39,844		56,555
Software subscription and services		10,110		9,322		30,191		21,722
	$	20,206	$	28,028	$	70,757	$	78,277
Total revenue	$	70,506	$	74,270	$	220,167	$	211,484

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. Contract balances consist of contract assets and contract liabilities. Contract assets are recorded when the right to consideration for services is conditional on something other than the passage of time. Contract assets relating to unbilled receivables are transferred to accounts receivable when the right to consideration becomes unconditional. Contract assets are classified as current or non-current based on the timing of the Company’s rights to the unconditional payments. Contract assets are generally classified as current and recorded within other current assets on the Company’s consolidated balance sheets.

Contract liabilities include advance customer payments and billings in excess of revenue recognized. The Company generally classifies contract liabilities 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 one year.

The following table provides information about the Company’s contract assets and contract liabilities from contracts with clients as of September 30, 2020 and December 31, 2019.


	September 30,		December 31,
	2020		2019
Contract assets	$	2,250	$	6,165
Contract liabilities		5,774		4,930

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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 nine months ended September 30, 2020 are as follows:


	September 30,
	2020
Contract assets:
Contract assets, beginning of period	$	6,165
Decreases due to cash received		(4,359)
Changes to the contract assets at the beginning of the period as a result of changes in estimates		499
Changes during the period, net of reclassifications to receivables		(55)
Contract assets, end of period	$	2,250

Contract liabilities:
Contract liabilities, beginning of period	$	4,930
Revenue recognized that was included in the contract liabilities balance at the beginning of the period		(3,783)
Increases due to cash received, excluding amounts recognized as revenue during the period		4,627
Contract liabilities, end of period	$	5,774

During the nine months ended September 30, 2019, the Company recognized $1,497 of revenue that was included in the December 31, 2018 contract liability balance of $1,733.

4. Net Loss per Share

Basic net loss per share is computed by dividing net loss 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 by the weighted average number of shares of common stock outstanding during the period plus the impact of dilutive securities using the treasury stock method, 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

Nine Months Ended

September 30,