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Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2020	Apr. 21, 2020
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2020
Document Transition Report	false
Entity File Number	001-37888
Entity Registrant Name	Tabula Rasa HealthCare, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-5726437
Entity Address, Address Line One	228 Strawbridge Drive, Suite 100
Entity Address, City or Town	Moorestown
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08057
City Area Code	866
Local Phone Number	648 - 2767
Title of 12(b) Security	Common Stock
Trading Symbol	TRHC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		23,020,886
Entity Central Index Key	0001651561
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Current assets:
Cash	$ 38,134	$ 42,478
Restricted cash	3,763	4,103
Accounts receivable, net of allowance of $422 and $386, respectively	36,237	29,123
Inventories	5,135	3,700
Prepaid expenses	4,615	4,299
Other current assets	5,780	10,835
Total current assets	93,664	94,538
Property and equipment, net	15,612	15,798
Operating lease right-of-use assets	23,260	22,100
Software development costs, net	20,906	18,501
Goodwill	150,760	150,760
Intangible assets, net	182,591	189,413
Other assets	1,058	1,281
Total assets	487,851	492,391
Current liabilities:
Current portion of long-term debt and finance leases, net	10	125
Current operating lease liabilities	4,635	4,350
Accounts payable	10,354	8,622
Accrued expenses and other liabilities	25,312	26,906
Total current liabilities	40,311	40,003
Long-term debt and finance leases, net	229,444	226,294
Noncurrent operating lease liabilities	21,853	21,017
Long-term acquisition-related contingent consideration	11,500	10,800
Deferred income tax liability	5,289	8,656
Other long-term liabilities	53	73
Total liabilities	308,450	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 March 31, 2020 and December 31, 2019
Common stock, $0.0001 par value; 100,000,000 shares authorized, 23,015,781 and 22,496,999 shares issued and 22,817,540 and 22,321,310 shares outstanding at March 31, 2020 and December 31, 2019, respectively	2	2
Treasury stock, at cost; 198,241 and 175,689 shares at March 31, 2020 and December 31, 2019, respectively	(3,956)	(3,865)
Additional paid-in capital	296,726	288,345
Accumulated deficit	(113,371)	(98,934)
Total stockholders' equity	179,401	185,548
Total liabilities and stockholders' equity	$ 487,851	$ 492,391

CONSOLIDATED BALANCE SHEETS (parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
CONSOLIDATED BALANCE SHEETS
Allowance for accounts receivable	$ 422	$ 386
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	23,015,781	22,496,999
Common stock, shares outstanding	22,817,540	22,321,310
Treasury stock (in shares)	198,241	175,689

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Revenue:
Total revenue	$ 72,827	$ 60,959
Cost of revenue, exclusive of depreciation and amortization shown below:
Total cost of revenue, exclusive of depreciation and amortization	48,073	41,668
Operating expenses:
Research and development	4,828	5,550
Sales and marketing	5,540	4,850
General and administrative	16,967	13,743
Change in fair value of acquisition-related contingent consideration expense	700	1,176
Depreciation and amortization	9,913	6,299
Total operating expenses	37,948	31,618
Loss from operations	(13,194)	(12,327)
Interest expense, net	4,610	2,693
Loss before income taxes	(17,804)	(15,020)
Income tax benefit	(3,367)	(4,041)
Net loss	$ (14,437)	$ (10,979)
Net loss per share, basic and diluted (in dollars per share)	$ (0.68)	$ (0.54)
Weighted average shares of common stock outstanding, basic and diluted (in shares)	21,374,897	20,384,557
Product
Revenue:
Total revenue	$ 37,087	$ 30,982
Cost of revenue, exclusive of depreciation and amortization shown below:
Total cost of revenue, exclusive of depreciation and amortization	27,199	23,475
Service
Revenue:
Total revenue	35,740	29,977
Cost of revenue, exclusive of depreciation and amortization shown below:
Total cost of revenue, exclusive of depreciation and amortization	$ 20,874	$ 18,193

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Treasury Stock	Additional Paid-in Capital	Accumulated Deficit	Total
Balance at beginning of period at Dec. 31, 2018	$ 2	$ (3,825)	$ 209,330	$ (66,498)	$ 139,009
Balance at beginning of period (in shares) at Dec. 31, 2018	20,719,297	(161,760)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock in connection with acquisition			9,504		9,504
Issuance of common stock in connection with acquisition (in shares)	149,053
Issuance of common stock awards (in shares)	9,547
Issuance of restricted stock (in shares)	565,840
Exercise of stock options		$ (40)	1,077		1,037
Exercise of stock options (in shares)	82,686	(690)
Issuance of common stock in connection with the settlement of acquisition-related contingent consideration			(609)		(609)
Issuance of common stock in connection with the settlement of acquisition-related contingent consideration (in shares)	614,225
Conversion feature of convertible senior subordinated notes, net of allocated debt issuance costs, net of 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 at end of period at Mar. 31, 2019	$ 2	$ (3,865)	264,453	(77,477)	183,113
Balance at end of period (in shares) at Mar. 31, 2019	22,140,648	(162,450)
Balance at beginning of period at Dec. 31, 2019	$ 2	$ (3,865)	288,345	(98,934)	185,548
Balance at beginning of period (in shares) at Dec. 31, 2019	22,496,999	(175,689)
Increase (Decrease) in Stockholders' Equity
Issuance of common stock awards (in shares)	14,386
Issuance of restricted stock (in shares)	388,108
Forfeitures of restricted shares (in shares)		(33,371)
Exercise of stock options		$ (91)	1,244		1,153
Exercise of stock options (in shares)	116,288	(1,681)
Share adjustment		12,500
Stock-based compensation expense			7,137		7,137
Net loss				(14,437)	(14,437)
Balance at end of period at Mar. 31, 2020	$ 2	$ (3,956)	$ 296,726	$ (113,371)	$ 179,401
Balance at end of period (in shares) at Mar. 31, 2020	23,015,781	(198,241)

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities:
Net loss	$ (14,437)	$ (10,979)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	9,913	6,299
Amortization of deferred financing costs and debt discount	3,252	1,575
Deferred taxes	(3,367)	(3,381)
Stock-based compensation	7,137	6,852
Change in fair value of acquisition-related contingent consideration	700	1,176
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	(7,114)	(3,258)
Inventories	(1,435)	(117)
Prepaid expenses and other current assets	4,625	(2,029)
Other assets	54	(354)
Accounts payable	1,528	(1,458)
Accrued expenses and other liabilities	(1,633)	3,464
Other long-term liabilities	(20)	(20)
Net cash used in operating activities	(797)	(26,646)
Cash flows from investing activities:
Purchases of property and equipment	(763)	(1,019)
Software development costs	(4,228)	(2,630)
Proceeds from repayment of note receivable		1,000
Acquisitions of businesses, net of cash acquired		(158,726)
Net cash used in investing activities	(4,991)	(161,375)
Cash flows from financing activities:
Proceeds from exercise of stock options	1,153	1,037
Payments for debt financing costs		(9,418)
Repayments of line of credit		(45,000)
Payments of acquisition-related consideration		(18,722)
Repayments of long-term debt and finance leases	(49)	(276)
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 financing activities	1,104	216,871
Net (decrease) increase in cash and restricted cash	(4,684)	28,850
Cash and restricted cash, beginning of period	46,581	25,029
Cash and restricted cash, end of period	41,897	53,879
Supplemental disclosure of cash flow information:
Purchases of property and equipment and software development included in accounts payable and accrued expenses	223	1,600
Cash paid for interest	2,844	484
Cash paid for taxes	49	$ 4
Interest costs capitalized to property and equipment and software development costs	$ 64
Stock issued in connection with acquisitions		9,504

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019	Dec. 31, 2018
Reconciliation of cash and restricted cash:
Cash	$ 38,134	$ 42,478	$ 49,598
Restricted cash	3,763	4,103	4,281
Total cash and restricted cash	$ 41,897	$ 46,581	$ 53,879	$ 25,029

Nature of Business

3 Months Ended

Mar. 31, 2020

Nature of Business

Nature of Business

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 medication therapy problem, with an estimated cost to the U.S. of more than $528 billion annually and resulting in more than 275,000 deaths per year in 2018. The Company delivers a range of technology-enabled solutions, software, and services including the largest clinical pharmacist telepharmacy network in the country, powered by our proprietary medication science technology, 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.

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

3 Months Ended

Mar. 31, 2020

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

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

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 months ended March 31, 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 to TRHC OpCo, Inc., on December 20, 2019 (“CareKinesis”). As a result thereof, following such reorganization, the Company’s only directly owned subsidiary is CareKinesis, which is the parent of CK Solutions, LLC and of three DoseMe foreign subsidiaries.

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.

Risks Related to the COVID-19 Pandemic

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of 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, it is uncertain as to the full magnitude of the impact that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. 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.

During the first quarter of 2020, the Company has not experienced any material impact to its consolidated financial statements as a result of the COVID-19 pandemic. However, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. 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.

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, modify the accounting for certain income tax transactions, and enhance 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.

Revenue

3 Months Ended

Mar. 31, 2020

Revenue

Revenue

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. 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.

CareVention HealthCare

PACE Product Revenue

The Company provides medication fulfillment pharmacy services to Programs of All-Inclusive Care for the Elderly (“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 and 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, which 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

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. 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

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. Revenues related to these software services primarily consists of monthly subscription fees and are recognized monthly as the Company meets its performance obligation to provide access to the software. The Company generally bills for the software services on a monthly basis.

Disaggregation of Revenue

In the following table, revenue is disaggregated by reportable segment. 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,
		2020		2019
CareVention HealthCare:
PACE product revenue	$	37,087	$	30,982
PACE solutions		11,571		11,174
	$	48,658	$	42,156
MedWise HealthCare:
Medication safety services	$	14,320	$	15,351
Software subscription		9,849		3,452
	$	24,169	$	18,803
Total revenue	$	72,827	$	60,959

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 anticipates that it will satisfy most of its performance obligations associated with its contract liabilities within a year and therefore generally classifies contract liabilities in accrued expenses and other current liabilities on the Company’s consolidated balance sheets.

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


	March 31,		December 31,
	2020		2019
Contract assets	$	3,526	$	6,165
Contract liabilities		7,141		4,930

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


	March 31,
	2020
Contract assets:
Contract assets, beginning of period	$	6,165
Decreases due to cash received		(3,016)
Changes to the contract assets at the beginning of the period as a result of changes in estimates		159
Increases, net of reclassifications to receivables		218
Contract assets, end of period	$	3,526

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		(2,618)
Increases due to cash received, excluding amounts recognized as revenue during the period		4,829
Contract liabilities, end of period	$	7,141

During the three months ended March 31, 2019, the Company recognized $1,160 of revenue that was included in the December 31, 2018 contract liability balance of $1,733.

Net Loss per Share

3 Months Ended

Mar. 31, 2020

Net (Loss) Income per Share

Net (Loss) Income per Share

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
	March 31,
	2020		2019
Numerator (basic and diluted):
Net loss	$	(14,437)	$	(10,979)
Denominator (basic and diluted):
Weighted average shares of common stock outstanding, basic and diluted		21,374,897		20,384,557
Net loss per share, basic and diluted	$	(0.68)	$	(0.54)

The following potential common shares, presented based on amounts outstanding for the three months ended March 31, 2020 and 2019, were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect.



	March 31,
	2020	2019
Stock options to purchase common stock	2,627,493	3,041,855
Unvested restricted stock	1,314,635	1,531,785
Common stock warrants	4,646,393	4,646,393
Contingently issuable shares	63,320	20,000
	8,651,841	9,240,033

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

Acquisitions

3 Months Ended

Mar. 31, 2020

Acquisitions

Acquisitions

5. 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 was a standalone entity and was a leading cloud-based patient engagement solutions company that facilitated collaboration between more than 12,000 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 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. The acquisition was considered an asset acquisition for tax purposes and accordingly, the goodwill and amortization of intangible assets resulting from the acquisition is deductible for tax purposes. See Note 5 set forth in the Company’s audited financial statements included as part of the 2019 Form 10-K for additional information on the PrescribeWellness acquisition.

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 was recorded, net of a reduction of $203 due to the purchase accounting effects of recording deferred revenue at fair value. Net loss of $871, which included amortization of $874 associated with acquired intangible assets, from PrescribeWellness, was included in the Company’s consolidated statement of operations for the three months ended March 31, 2019.

DoseMe

On January 2, 2019, the Company completed the acquisition of all of the outstanding share capital and options to purchase the 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, based on the financial performance of DoseMe. During the third quarter of 2019, the Company paid $8,750 in cash in full satisfaction of the

contingent purchase price consideration. 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. The acquisition was considered an asset acquisition for tax purposes and accordingly, the goodwill and amortization of intangible assets resulting from the acquisition is deductible for U.S. tax purposes. See Note 5 set forth in the Company’s audited financial statements included as part of the 2019 Form 10-K for additional information on the DoseMe acquisition

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, which included amortization of $25 associated with acquired intangible assets, from DoseMe were included in the Company’s consolidated statement of operations.

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-based 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
Revenue	$	66,706
Net loss		(13,831)

Property and Equipment

3 Months Ended

Mar. 31, 2020

Property and Equipment.

Property and Equipment

6. Property and Equipment

Accumulated depreciation was $14,466 and $13,728 as of March 31, 2020 and December 31, 2019, respectively. Depreciation expense on property and equipment for the three months ended March 31, 2020 and 2019 was $1,268 and $1,008, respectively.

Software Development Costs

3 Months Ended

Mar. 31, 2020

Software Development Costs

Software Development Costs

7. Software Development Costs

The Company capitalizes certain costs incurred in connection with obtaining or developing its proprietary software platforms, which are used to support its service contracts, including external direct costs of material and services, payroll costs for employees directly involved with the software development, and interest expense related to the

borrowings attributable to software development. As of March 31, 2020 and December 31, 2019, capitalized software costs consisted of the following:


	March 31, 2020		December 31, 2019
Software development costs	$	33,936	$	29,714
Less: accumulated amortization		(13,030)		(11,213)
Software development costs, net	$	20,906	$	18,501

Capitalized software development costs included above not yet subject to amortization	$	3,927	$	3,294

Amortization expense for the three months ended March 31, 2020 and 2019 was $1,823 and $624, respectively.

Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets

Goodwill and Intangible Assets

8. Goodwill and Intangible Assets

The Company maintained goodwill of $150,760 as of March 31, 2020 and December 31, 2019. Management has not identified any triggering events during the three months ended March 31, 2020.

Intangible assets consisted of the following as of March 31, 2020 and December 31, 2019:


	Weighted Average
	Amortization Period			Accumulated		Intangible
	(in years)	Gross Value		Amortization		Assets, net
March 31, 2020
Trade names	7.1	$	11,255	$	(4,211)	$	7,044
Client relationships	12.2		128,169		(23,753)		104,416
Non-competition agreements	5.0		6,602		(2,971)		3,631
Developed technology	8.0		68,593		(18,134)		50,459
Patient database	5.0		21,700		(4,702)		16,998
Domain name	10.0		59		(16)		43
Total intangible assets		$	236,378	$	(53,787)	$	182,591


	Weighted Average
	Amortization Period			Accumulated		Intangible
	(in years)	Gross Value		Amortization		Assets, net
December 31, 2019
Trade names	7.1	$	11,255	$	(3,845)	$	7,410
Client relationships	12.2		128,169		(20,977)		107,192
Non-competition agreements	5.0		6,602		(2,641)		3,961
Developed technology	8.0		68,593		(15,870)		52,723
Patient database	5.0		21,700		(3,617)		18,083
Domain name	10.0		59		(15)		44
Total intangible assets		$	236,378	$	(46,965)	$	189,413

Amortization expense for intangible assets for the three months ended March 31, 2020 and 2019 was $6,822 and $4,667, respectively.

The estimated amortization expense for the remainder of 2020 and each of the next five years and thereafter is as follows:


Years Ending December 31,
2020 (April 1 - December 31)	$	20,467
2021		27,185
2022		26,123
2023		24,913
2024		17,912
2025		12,042
Thereafter		53,949
Total estimated amortization expense	$	182,591

Accrued Expenses and Other Liabilities

3 Months Ended

Mar. 31, 2020

Accrued Expenses and Other Liabilities

Accrued Expenses and Other Liabilities

9. Accrued Expenses and Other Liabilities

As of March 31, 2020 and December 31, 2019, accrued expenses and other liabilities consisted of the following:


	March 31, 2020		December 31, 2019
Employee related expenses	$	10,141	$	12,582
Contract liability		7,087		4,857
Client funds obligations*		3,763		4,106
Contract labor		415		329
Interest		711		2,133
Professional fees		368		337
Royalties expense		128		17
Non-income taxes payable		942		898
Other expenses		1,757		1,647
Total accrued expenses and other liabilities	$	25,312	$	26,906

*This amount represents clients’ funds held by the Company, with an offsetting amount included in restricted cash.

Lines of Credit and Long-Term Debt

3 Months Ended

Mar. 31, 2020

Lines of Credit and Long-Term Debt

Lines of Credit and Long-Term Debt

10. Lines of Credit and Long-Term Debt

(a) Lines of Credit

On September 6, 2017, the Company entered into an Amended and Restated Loan and Security Agreement (as subsequently amended, the “Amended and Restated 2015 Line of Credit”), whereby the Company amended and restated its revolving line of credit, originally entered into with Bridge Bank (now Western Alliance Bank) in 2015. The Amended and Restated 2015 Line of Credit provides for borrowing availability in an aggregate amount up to $60,000 to be used for general corporate purposes, with a $1,000 sublimit for cash management services, letters of credit and foreign exchange transactions. The Amended and Restated 2015 Line of Credit matures on September 6, 2020.

Interest on the Amended and Restated 2015 Revolving Line is calculated at a variable rate based upon Western Alliance Bank's prime rate plus an applicable margin which will range from (0.25%) to 0.25% depending on the Company’s leverage ratio, with Western Alliance Bank's prime rate having a floor of 3.5%. Financial covenants under the Amended and Restated 2015 Revolving Line require that the Company (i) maintain an unrestricted cash and unused availability balance under the Amended and Restated 2015 Revolving Line of at least $1,500 at all times (the liquidity covenant), (ii) maintain a leverage ratio of less than 2.50:1.00, on a trailing twelve-month basis measured quarterly, and (iii) maintain a minimum quarterly EBITDA of at least 75% of the plan approved by the Company’s Board of Directors (“Board”). In addition, the Company may not contract to make capital expenditures, excluding capitalized software development costs and tenant leasehold improvements, greater than $5,000 in any fiscal year without the consent of Western Alliance Bank.

As of March 31, 2020, the Company was in compliance with all covenants related to the Amended and Restated 2015 Revolving Line, and management expects that the Company will be able to maintain compliance with its covenants.

As of March 31, 2020, the Company has an outstanding letter of credit of $200 issued pursuant to the Amended and Restated 2015 Line of Credit in connection with the Company’s lease agreement for the office space in Moorestown, NJ. The letter of credit renews annually and expires in September 2027 and reduces amounts available under the Amended and Restated 2015 Revolving Line.

As of March 31, 2020 and December 31, 2019, there were no amounts outstanding under the Amended and Restated 2015 Revolving Line. Amounts available for borrowings under the Amended and Restated 2015 Revolving Line were $59,800 as of March 31, 2020.

As of March 31, 2020, the interest rate on the Amended and Restated 2015 Revolving Line was 5.58%. No interest expense was incurred for the three months ended March 31, 2020 as there were no aggregate borrowings outstanding during the three months ended March 31, 2020. As of March 31, 2019, the interest rate on the Amended and Restated 2015 Revolving Line was 5.58% and interest expense was $351 for the three months ended March 31, 2019. In connection with the Amended and Restated 2015 Revolving Line (and all predecessor agreements prior to the amendment or the amendment and restatement thereof), the Company recorded deferred financing costs of $793. The Company is amortizing the deferred financing costs to interest expense using the effective-interest method over the term of the Amended and Restated 2015 Revolving Line and amortized $100 and $48 to interest expense for the three months ended March 31, 2020 and 2019, respectively. Deferred financing costs of $166 and $266, net of accumulated amortization, are included in other assets on the accompanying consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.

(b) Convertible Senior Subordinated Notes

On February 12, 2019, the Company issued and sold an aggregate principal amount of $325,000 of 1.75% convertible senior subordinated notes (the “2026 Notes”) in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2026 Notes bear interest at a rate of 1.75% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The notes will mature on February 15, 2026, unless earlier converted or repurchased. The initial conversion rate for the notes is 14.2966 shares of the Company’s common stock per $1 principal amount of notes. This conversion rate is equal to an initial conversion price of approximately $69.95 per share of the Company’s common stock.

Holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the business day immediately preceding August 15, 2025 only under the following circumstances: (1) during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the 2026 Notes) per $1 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change or make-whole fundamental change (as defined in the indenture governing the 2026 Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets. On or after August 15, 2025 until the close of business on the first scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2026 Notes regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver shares of our common stock, cash or a combination thereof at the Company’s option. As of March 31, 2020, none of the conditions allowing holders of the 2026 Notes to convert had been met.

In accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components. The carrying amount of the equity component representing the conversion option was $102,900 and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The initial associated deferred tax effect of $25,884 was recorded as a reduction of additional paid-in capital because the equity component is not currently expected to be deductible for income tax purposes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2026 Notes at an effective interest rate of 8.05% over the contractual term.

Debt issuance costs related to the 2026 Notes of $9,372 and were allocated to the liability and equity components of the 2026 Notes based on their relative values. Issuance costs attributable to the liability component were $6,405 and will be amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were netted with the equity component in stockholders’ equity.

During the three months ended March 31, 2020, the Company recognized $4,573 of interest expense related to the 2026 Notes, of which $1,421 was accrued and $3,152 was non-cash accretion of the debt discounts recorded. During the three months ended March 31, 2019, the Company recognized $2,269 of interest expense related to the 2026 Notes, of which $743 was accrued and $1,527 was non-cash accretion of the debt discounts recorded. The 2026 Notes have been, and will be, classified as long-term debt on the Company’s consolidated balance sheets until such 2026 Notes are within one year of maturity. The 2026 Notes have a carrying value of $229,442 as of March 31, 2020. Accrued interest payable on the 2026 Notes of $711 as of March 31, 2020 is included in accrued expenses and other liabilities on the consolidated balance sheets.

In connection with the offering of the 2026 Notes, the Company entered into convertible note hedge transactions with affiliates of certain of the initial purchasers (the “option counterparties”) of the 2026 Notes pursuant to the terms of call option confirmations. The Company has the option to purchase a total of 4,646,393 shares of its common stock at a price of approximately $69.95 per share. The total premiums paid for the note hedges were $101,660. The Company also entered into warrant transactions with the option counterparties whereby they have the option to purchase 4,646,393 shares of the Company’s common stock at a price of $105.58 per share. The Company received $65,910 in cash proceeds from the sale of the warrants. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheets.

The convertible note hedge transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the 2026 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2026 Notes, as the case may be. The warrant transactions could separately have a dilutive effect on the Company’s common stock to the extent that the market price per share of the Company’s common stock exceeds the strike price of the warrants.

(d) Long-Term Debt

The following table represents the total long-term debt obligations of the Company at March 31, 2020 and December 31, 2019:


	March 31, 2020		December 31, 2019
Convertible senior subordinated notes	$	325,000	$	325,000
Unamortized discount, including debt issuance costs, on convertible senior subordinated notes		(95,558)		(98,709)
Convertible senior subordinated notes, net		229,442		226,291
Finance leases		12		128
Total long-term debt and finance leases, net		229,454		226,419
Less current portion, net		(10)		(125)
Total long-term debt and finance leases, less current portion, net	$	229,444	$	226,294

Income Taxes

3 Months Ended

Mar. 31, 2020

Income Taxes

Income Taxes

11. Income Taxes

For the three months ended March 31, 2020, the Company recorded an income tax benefit of $3,367, which resulted in an effective tax rate of 18.9%. The tax benefit primarily consists of $3,031 based on the estimated effective tax rate for the full year and $336 of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period.

For the three months ended March 31, 2019, the Company recorded an income tax benefit of $4,041, which resulted in an effective tax rate of 26.9%. The tax benefit primarily consists of $2,200 based on the estimated effective tax rate for the full year and $1,061 of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period.

Stockholders' Equity

3 Months Ended

Mar. 31, 2020

Stockholders' Equity

Stockholders' Equity

12. Stockholders' Equity

In connection with the offering of the 2026 Notes, the Company issued warrants to purchase 4,646,393 shares of the Company’s common stock at a price of $105.58 per share. As of March 31, 2020, no warrants have been exercised and all warrants to purchase shares of the Company’s common stock were outstanding. See Note 10 for additional information related to the 2026 Notes.

Stock-Based Compensation

3 Months Ended

Mar. 31, 2020

Stock-Based Compensation

Stock-Based Compensation

13. Stock-Based Compensation

In September 2016, the Company adopted the 2016 Equity Compensation Plan (“2016 Plan”). During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year by an amount equal to the lesser of 5% of the total number of outstanding shares of common stock on the last trading day in December of the prior calendar year or such other number set by the Board. In accordance with the terms of the 2016 Plan, the share reserve increased by 1,116,065 shares on January 2, 2020. As of March 31, 2020, 1,139,858 shares were available for future grants under the 2016 Plan.

Restricted Common Stock

The following table summarizes the restricted stock award activity under the 2016 Plan for the three months ended March 31, 2020:


		Weighted
		average
	Number	grant-date
	of shares	fair value
Outstanding at December 31, 2019	1,213,581	$	37.69
Granted	388,108		67.91
Vested	(253,683)		45.23
Forfeited	(33,371)		54.96
Outstanding at March 31, 2020	1,314,635	$	44.72

For the three months ended March 31, 2020 and 2019, $4,139 and $2,725 of expense was recognized related to restricted stock awards, respectively. As of March 31, 2020, there was unrecognized compensation expense of $50,368 related to non-vested restricted stock awards under the 2016 Plan, which is expected to be recognized over a weighted average period of 3.15 years.

Performance-Based Stock Award

On August 6, 2018, the Board approved the grant of a performance-based stock award to a consultant pursuant to the 2016 Plan. The award provided that 50,000 shares of common stock would be issued based on the achievement of certain milestones. The award had a grant-date fair value of $61.85 per share based on the Company’s closing stock price on the grant date. Compensation cost was recognized over the service period based on management’s determination that it was probable that the milestones would be achieved. As of December 31, 2019, all milestones were achieved and there was no unrecognized compensation expense related to the performance-based stock award. During the three months ended March 31, 2020, the Company issued 5,000 shares of common stock related to this award for the achievement of the final milestone. For the three months ended March 31, 2019, the Company recorded $915 of expense related to performance-based stock award.

Other Stock Awards

During the first quarter of 2020, the Board approved the grant of stock awards to select employees pursuant to the 2016 Plan. The awards provided for the issuance of 9,386 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $52.29 per share. For the three months ended March 31, 2020, the Company recorded $491 of expense related to these stock awards.

During the first quarter of 2019, the Board approved the grant of stock awards to select employees and a non-employee director pursuant to the 2016 Plan. The awards provide for the issuance of 9,547 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $56.31 per share. For the three months ended March 31, 2019, the Company recorded $538 of expense related to these stock awards.

Stock Options

The Company recorded $2,507 and $2,674 of stock-based compensation expense related to employee and non-employee stock options for the three months ended March 31, 2020 and 2019, respectively. The Company records forfeitures as they occur.

The estimated fair value of options granted was calculated using a Black-Scholes option-pricing model. The computation of expected life for employees was determined based on the simplified method. The risk-free rate is based on the U.S. Treasury security with terms equal to the expected time of exercise as of the grant date. The Company's common stock had not been publicly traded until its IPO commenced on September 29, 2016; therefore, expected volatility is based on a combination of the historical volatilities of the Company’s common stock and the historical volatilities of selected public companies whose services are comparable to that of the Company. The table below sets forth the weighted average assumptions for employee grants during the three months ended March 31, 2020 and 2019:


	Three Months Ended
	March 31,
Valuation assumptions:	2020		2019
Expected volatility	56.10	%	69.70	%
Expected term (years)	5.25		6.02
Risk-free interest rate	1.22	%	2.50	%
Dividend yield	—		—

The weighted average grant date fair value of employee options granted during the three months ended March 31, 2020 and 2019 was $33.78 and $34.98 per share, respectively.

The following table summarizes stock option activity under the 2016 Plan for the three months ended March 31, 2020:


				Weighted
		Weighted		average
		average		remaining	Aggregate
	Number	exercise		contractual	intrinsic
	of shares	price		term	value
Outstanding at December 31, 2019	2,755,343	$	25.10
Granted	5,000		68.10
Exercised	(117,755)		11.09
Forfeited	(15,095)		49.88
Outstanding at March 31, 2020	2,627,493	$	25.66	6.7	$	73,345
Options vested and expected to vest at March 31, 2020	2,627,493	$	25.66	6.7	$	73,345
Exercisable at March 31, 2020	1,703,465	$	17.11	5.9	$	60,994

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the Company’s closing stock price or estimated fair value on the last trading day of the fiscal quarter for those stock options that had exercise prices lower than the fair value of the Company's common stock. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the three months ended March 31, 2020 and 2019 was $4,581 and $3,971, respectively.

As of March 31, 2020, there was $22,007 of total unrecognized compensation cost related to nonvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.5 years.

Cash received from option exercises for the three months ended March 31, 2020 and 2019 was $1,153 and $1,037, respectively.

The Company recorded total stock-based compensation expense for the three months ended March 31, 2020 and 2019 in the following expense categories of its consolidated statements of operations:


	Three Months Ended
	March 31,
	2020		2019
Cost of revenue - product	$	182	$	309
Cost of revenue - service		763		984
Research and development		1,409		2,282
Sales and marketing		528		987
General and administrative		4,255		2,290
Total stock-based compensation expense	$	7,137	$	6,852

Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Fair Value Measurements

Fair Value Measurements

14. Fair Value Measurements

The Company’s financial instruments consist of accounts receivable, contract assets, accounts payable, contract liabilities, accrued expenses, acquisition-related contingent consideration, and long-term debt, which includes the Company’s convertible senior subordinated notes and finance leases. The carrying values of accounts receivable, contract assets, accounts payable, contract liabilities, and accrued expenses are representative of their fair value due to the relatively short-term nature of those instruments. See below for additional information on the Company’s convertible senior subordinated notes.

The Company has classified liabilities measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 as follows:


	Fair Value Measurement
	at Reporting Date Using
							Balance as of
	Level 1		Level 2		Level 3		March 31, 2020
Liabilities
Acquisition-related contingent consideration - long-term	$	—	$	—	$	11,500	$	11,500


	Fair Value Measurement
	at Reporting Date Using
							Balance as of
	Level 1		Level 2		Level 3		December 31, 2019
Liabilities
Acquisition-related contingent consideration - long-term	$	—	$	—	$	10,800	$	10,800

Acquisition-related contingent consideration is measured at fair value on a recurring basis using unobservable inputs, hence these instruments represent Level 3 measurements within the fair value hierarchy. The acquisition-related contingent consideration liability represents the estimated fair value of the additional cash and equity consideration payable that is contingent upon the achievement of certain financial and performance milestones. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, all changes in liability-classified contingent consideration subsequent to the initial acquisition-date measurement are recorded in net income or loss.

In connection with the acquisition of the Cognify business, additional consideration may be payable by the Company based on a multiple of the excess of certain PACE solutions’ 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement. The Cognify acquisition-related contingent consideration, which is liability-classified, was recorded at the estimated fair value at the acquisition date of October 19, 2018. The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent period. During the three months ended March 31, 2020 and 2019, the Company recorded a $700 and $900 charge, respectively, for the change in the fair value of Cognify acquisition-related contingent consideration primarily due to a decreased

discount period to the final measurement date. The fair value of the Cognify acquisition-related contingent consideration was calculated to be $11,500 and $10,800 as of March 31, 2020 and December 31, 2019, respectively. The final amount of the contingent consideration liability will be fixed as of December 31, 2021. The maximum contingent consideration amount that could be earned under the stock purchase agreement is $14,000.

The changes in fair value of the Company’s acquisition-related contingent consideration for the three months ended March 31, 2020 were as follows:


Balance at December 31, 2019	$	10,800
Adjustments to fair value measurement		700
Balance at March 31, 2020	$	11,500

The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of March 31, 2020:


	Face Value		Carrying Value		Fair Value
1.75% Convertible Senior Subordinated Notes due 2026 (the "2026 Notes")	$	325,000	$	229,442	$	322,667

The fair value of the 2026 Notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a Level 2 measurement. As discussed in Note 10, the 2026 Notes are carried at their aggregate face value of $325,000, less any unaccreted debt discount and unamortized debt issuance costs.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies

Commitments and Contingencies

15. Commitments and Contingencies

(a) Legal Proceedings

The Company is not currently involved in any significant claims or legal actions that, in the opinion of management, are expected to have a material adverse impact on the Company.

(b) Vendor Purchase Agreements

In May 2016, the Company signed a prime vendor agreement with AmerisourceBergen Drug Corporation (“AmerisourceBergen”), which required a monthly minimum purchase obligation of approximately $1,750. This agreement was effective May 1, 2016 with a three-year term expiring April 2019. The agreement was not renewed upon expiration in April 2019, but the Company continues to purchase from AmerisourceBergen from time to time on a purchase order basis. Pursuant to the terms of a security agreement entered into in connection with the prime vendor agreement, which still remains in place, AmerisourceBergen also holds a subordinated security interest in all of the Company’s assets.

On March 29, 2019, the Company entered into an Affiliated Pharmacy Agreement and Pharmaceutical Program Supply Agreement with Thrifty Drug Stores, Inc. (“Thrifty Drug Agreements”) to replace the prime vendor agreement with AmerisourceBergen. Pursuant to the terms of the Thrifty Drug Agreements, which are in effect through September 30, 2020, the Company has agreed to purchase not less than 98% of the Company’s total prescription product requirements from Thrifty Drug Stores, Inc. The Company commenced purchasing prescription products under the Thrifty Drug Agreements in May 2019. The Thrifty Drug Agreements authorize Thrifty Drug Stores, Inc. to hold a security interest in all of the products purchased by the Company under the Thrifty Drug Agreements.

As of March 31, 2020, the Company had $3,559 due to AmerisourceBergen and Thrifty Drug Stores as a result of prescription drug purchases. As of December 31, 2019, the Company had $2,465 due to AmerisourceBergen and Thrifty Drug Stores as a result of prescription drug purchases.

In December 2019, the Company entered into an updated agreement with its data aggregation partner related to the Company’s pharmacy cost management services. The agreement is effective January 1, 2020 with a three-year term expiring December 31, 2022 and commits the Company to a monthly minimum purchase obligation of $30.

Segment Reporting

3 Months Ended

Mar. 31, 2020

Segment Reporting

Segment Reporting

16. Segment Reporting

The Company operates its business through two segments. The Company's chief operating decision maker (“CODM”), the Chief Executive Officer, allocates resources and assesses performance based upon financial information at the reportable segment level. Substantially all revenues are generated and substantially all tangible assets are held in the U.S. The Company classifies its operations into two reportable segments as follows:

CareVention HealthCare provides services to PACE organizations, including medication fulfillment pharmacy services, and PACE solutions, such as medication safety services and health plan management services.

MedWise HealthCare provides services to health plans, pharmacies, and healthcare providers, including medication safety services and software subscription solutions, which allow for the identification of individuals with high medication-related risk, patient communication and engagement, documentation of clinical interventions regarding optimizing medication therapy, targeting adherence improvement and precision dosing.

Shared services primarily consist of unallocated corporate sales and marketing expenses and general and administrative expenses associated with the management and administration of the Company’s business objectives.

The CODM uses revenue in accordance with U.S. GAAP and Adjusted EBITDA as the relevant segment performance measures to evaluate the performance of the segments and allocate resources.

Adjusted EBITDA is a segment performance financial measure that offers a useful view of the overall operation of the Company’s businesses and may be different than similarly-titled segment performance financial measures used by other companies.

Adjusted EBITDA is defined as net income (loss) plus certain other expenses, which includes interest expense, provision (benefit) for income tax, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense (income), acquisition-related expense and stock-based compensation related expense. The Company considers acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue.

Management considers revenue and Adjusted EBITDA to be the appropriate metric to evaluate and compare the ongoing operating performance of the Company’s segments on a consistent basis across reporting periods as they eliminate the effect of items which are not indicative of each segment's core operating performance.

The following tables present the Company’s segment information:


	CareVention HealthCare		MedWise HealthCare		Consolidated
Revenue:
Three Months Ended March 31, 2020
Product revenue		37,087		—		37,087
Service revenue
PACE solutions		11,571		—		11,571
Medication safety services		—		14,320		14,320
Software subscription		—		9,849		9,849
Total service revenue		11,571		24,169		35,740
Total revenue	$	48,658	$	24,169	$	72,827

Three Months Ended March 31, 2019
Product revenue		30,982		—		30,982
Service revenue
PACE solutions		11,174		—		11,174
Medication safety services		—		15,351		15,351
Software subscription		—		3,452		3,452
Total service revenue		11,174		18,803		29,977
Total revenue	$	42,156	$	18,803	$	60,959


	CareVention HealthCare		MedWise HealthCare		Shared Services		Consolidated
Adjusted EBITDA (loss):
Three Months Ended March 31, 2020
Adjusted EBITDA (loss)	$	11,748	$	2,831	$	(9,772)	$	4,807

Three Months Ended March 31, 2019
Adjusted EBITDA (loss)	$	10,620	$	1,648	$	(6,577)	$	5,691

The following table presents the Company’s reconciliation of the segments’ total Adjusted EBITDA to net loss as presented in the consolidated statements of operations:


	Three Months Ended March 31,
	2020		2019
Reconciliation of net loss to Adjusted EBITDA
Net loss	$	(14,437)	$	(10,979)
Add:
Interest expense, net		4,610		2,693
Income tax benefit		(3,367)		(4,041)
Depreciation and amortization		9,913		6,299
Change in fair value of acquisition-related contingent consideration expense		700		1,176
Acquisition-related expense		251		3,691
Stock-based compensation expense		7,137		6,852
Adjusted EBITDA	$	4,807	$	5,691

Asset information by segment is not a key measure of performance used by the CODM. Accordingly, the Company has not disclosed asset information by segment.

Basis of Presentation, Summary of Significant Accounting Policies, and Recent Accounting Pronouncements (Policies)	3 Months Ended
	Mar. 31, 2020
Basis of Presentation, Summary of Significant Accounting Policies, and Recent Accounting Pronouncements
Basis of Presentation	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, 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 to TRHC OpCo, Inc., on December 20, 2019 (“CareKinesis”). As a result thereof, following such reorganization, the Company’s only directly owned subsidiary is CareKinesis, which is the parent of CK Solutions, LLC and of three DoseMe foreign subsidiaries. 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. Risks Related to the COVID-19 Pandemic On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of 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, it is uncertain as to the full magnitude of the impact that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. 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. During the first quarter of 2020, the Company has not experienced any material impact to its consolidated financial statements as a result of the COVID-19 pandemic. However, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. 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.
Recent Accounting Pronouncements	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. 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, modify the accounting for certain income tax transactions, and enhance 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.

Revenue (Tables)

3 Months Ended

Mar. 31, 2020

Revenue

Schedule of disaggregation of revenue


	Three Months Ended
	March 31,
		2020		2019
CareVention HealthCare:
PACE product revenue	$	37,087	$	30,982
PACE solutions		11,571		11,174
	$	48,658	$	42,156
MedWise HealthCare:
Medication safety services	$	14,320	$	15,351
Software subscription		9,849		3,452
	$	24,169	$	18,803
Total revenue	$	72,827	$	60,959

Schedule of contract assets and contract liabilities from contracts with customers


	March 31,		December 31,
	2020		2019
Contract assets	$	3,526	$	6,165
Contract liabilities		7,141		4,930

Schedule of significant changes in the contract assets and the contract liabilities balances


	March 31,
	2020
Contract assets:
Contract assets, beginning of period	$	6,165
Decreases due to cash received		(3,016)
Changes to the contract assets at the beginning of the period as a result of changes in estimates		159
Increases, net of reclassifications to receivables		218
Contract assets, end of period	$	3,526

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		(2,618)
Increases due to cash received, excluding amounts recognized as revenue during the period		4,829
Contract liabilities, end of period	$	7,141

Net Loss per Share (Tables)

3 Months Ended

Mar. 31, 2020

Net (Loss) Income per Share

Schedule of calculation of basic and diluted net (loss) income per share


	Three Months Ended
	March 31,
	2020		2019
Numerator (basic and diluted):
Net loss	$	(14,437)	$	(10,979)
Denominator (basic and diluted):
Weighted average shares of common stock outstanding, basic and diluted		21,374,897		20,384,557
Net loss per share, basic and diluted	$	(0.68)	$	(0.54)

Schedule of shares excluded from the calculation of diluted net loss per share attributable to common stockholders



	March 31,
	2020	2019
Stock options to purchase common stock	2,627,493	3,041,855
Unvested restricted stock	1,314,635	1,531,785
Common stock warrants	4,646,393	4,646,393
Contingently issuable shares	63,320	20,000
	8,651,841	9,240,033

Acquisitions (Tables)

3 Months Ended

Mar. 31, 2020

Acquisitions

Schedule of proforma results


	Three Months Ended
	March 31,
	2019
Revenue	$	66,706
Net loss		(13,831)

Software Development Costs (Tables)

3 Months Ended

Mar. 31, 2020

Software Development Costs

Schedule of capitalized software costs