Q2 2022 Tabula Rasa HealthCare Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good day and welcome to the second quarter 2022, Tabula Rasa Healthcare, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session. As a reminder, this call is being recorded I would like to turn the call over to Kevin Dill General Counsel you may begin.
Thank you and good morning.
I'm, Kevin Dill corporate counsel for Tabula Rasa healthcare.
The company intends to avail itself of the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Certain statements made during this call will be forward looking statements within the meaning of that law.
These forward looking statements are subject to risks uncertainties and other factors that could cause tabula rasa healthcare's actual results to differ materially from those expressed or implied by the forward looking statements.
These risks and uncertainties include the developing nature of the market for technology enabled healthcare products and services.
And potential changes to laws and regulations that may impact our clients.
For additional information on the risks facing tabula Rasa healthcare, please refer to our filings with the SEC.
<unk> the risk factors section of our 10-K filed on February 25 2022.
A recording of this call is accessible through a link on the Investor Relations page of our website.
I will turn the call over to Dr. Calvin Knowlton, CEO , chairman and founder of Tabula Rasa healthcare.
Thank you Kevin.
Good morning, and thank you for joining us.
Insistent with our pre announcement on July 20th we delivered better than expected second quarter revenue of $72 6 million, which was 13% higher versus a year ago.
We continue to execute on our planned divestitures and strategy to refocus the company and a few large markets led by pace.
And Brian will expand further on this topic in a minute.
A key part of our growth is dependent on our existing base and as such I wanted to highlight last week's announcement of a five year contract renewal with Trinity health pace for our care Kinesis pharmacy services trended.
Trinity.
As the largest non for profit pace provider with approximately 3500 participants across nine states and was our largest client as measured by revenue in 2021.
Pace is one of only a few models that provides an integrated care offering for more than 12 million individuals who qualify for both Medicare and Medicaid known as dual eligible beneficiaries.
This segment of the population is a major focus for CMS and state give.
Giving that does account for a disproportionate share of Medicare and Medicaid spending for example, based on 2020 data dual eligible individuals represented 15% of Medicaid enrollment, but accounted for 33% of Medicaid expenditures.
Despite federal and state policy actions to date.
Only 12% were about $1 million of full benefit duly eligible individuals in 2020 were enrolled in an integrated program such as pace.
As a reminder.
In its recently released fiscal year 2022 annual report the National Pace Association cited a community of 146 pace organizations, serving more than 60000 individuals and their families and 31 states.
And now I'd like to turn the call over to Oyesola, who will expand on our pace business.
Thank you in early June we hosted our fourth annual care bench in healthcare Advisory summit.
I want to highlight two key takeaways from this event first there is a growing demand in moving from personalized precision medicine through pharmacogenetics or PGS testing in pace during.
During the first half of 2022, we began to deliver a growing number of tests and consoles for pace participants.
There is an exciting level of startup pace programs projected to open in the next two years.
We have an increasing number of pace partners, who plan to expand outside of their home state and have already won new state request for applications.
Given our existing footprint and proven outcomes documented in peer reviewed publications, we feel confident in our ability to win future sales opportunities.
Also it is important to note that our 17% revenue growth this quarter with intervention remains driven by organic growth.
As Kevin noted there is significant growth ahead of us given the low market penetration rates among the pace eligible population across the existing 31 states with pace programs today.
Finally, we view the flurry of federal and state legislative activity and heightened interest in delivering integrated care programs.
Our dual eligible individuals as a potential positive future development.
The most recent example is bipartisan legislation titled comprehensive care for dual eligible individuals act of 2022 inch.
Introduced last week on July 27.
This bill support.
Efforts to offer integrated coordinated care options, including pace with funding of up to $10 million per state.
This adds to the seven distinct active bill in the U S Congress aiming to grow pace right now.
The pace market relies on tier AC as they explore potential opportunities build new programs and growing existing ones.
At these three stages, our clients need a variety of services that tabula rasa delivered to start or continue their journey.
We are simplifying our branding messaging and how we sell these integrated pace services and this refresh will be completed by the end of 2022.
Our solution will become even more accessible.
Easier to adopt and to integrate.
Now I'd like to turn it over to Brian .
Thank you Ursula with the sale of prescribe wellness is behind US. We are focused on the remaining planned divestitures that symphony Rx and dosed me as well as positioning med wise or simultaneous multi drug clinical decision support tool for growth in 2023.
As part of the Tds announcement on June 21, we signed a strategic partnership to offer our med why science as part of Tds's Pharmacy management systems, which represents one of the largest retail pharmacy networks in the country.
We plan to share further details around this important relationship in the coming quarters.
Last quarter, I highlighted our solid base of clients outside of pace, including at risk provider organizations.
We have a compelling value proposition that addresses revenue and profitability the ladder through our ability to reduce the total cost of care.
Earlier caller cited the millions of dual eligible individuals that represent the majority of pace participants today roughly 90%.
As population also represents the largest percentage of the individual served by at risk provider organizations that are existing tier HD clients today or a future prospect.
In recent months, we have worked to refine and validate our return on investment or ROI model with existing <unk> clients.
And we recently presented our ROI analysis to a large national provider of complex chronic condition management that went live in the second half of 2021.
Our services include identifying their high risk members across both government sponsored and commercial populations to perform medication safety reviews through our New Jersey call Center.
In addition, we're running a medication surveillance program that provides alert around medication adherence medication safety and medication related care gap.
Our success with this client we were able to deliver a ROI ranging from three to 401 and numerous other med wise engagements strengthens our confidence in going at risk with an ROI guarantee.
I will now turn it over to Tom.
Thank you, Brian and good morning, everyone I'd like to focus my comments on three areas second quarter.
Our results are.
Our balance sheet and guidance.
Second quarter revenue of $72 6 million increased 13% versus a year ago, and 8% on a sequential basis versus the first quarter of 2022.
Our revenue performance versus our guidance range of <unk> $66 million to $69 million.
Was attributable.
Two accelerating pace enrollment growth.
The onboarding of a new large pace client in California.
And all this resulted in product revenue growth of 19% versus a year ago.
10% growth on a sequential basis.
Versus the first quarter of 2022.
Excluding MTM service revenue increased 10% versus a year ago, and 4% on a sequential basis, driven by our <unk> services, which increased 44% during the quarter versus the year ago quarter.
Gross margin of 22% is down versus 25, 9% a year ago, but improved by 60 basis points versus the first quarter of 2022.
There are a few headwinds we are facing this year and distribution costs and we expect that to normalize in the coming quarters.
Within product revenue higher shipping fees due to rising fuel prices as well as a change in product mix towards community pharmacy network or CPN revenue are the major drivers within service revenue the ongoing bto transition.
<unk> elevated expense levels, including higher consulting and professional services.
Adjusted EBITDA of $2 1 million from continuing operations.
Down from $3 3 million, a year ago, but nearly $1 million higher versus the first quarter of 2022.
We made meaningful progress during the second quarter in reducing operating expenses and expect continued improvement in cost structure with the sale of prescribed Helms.
And the additional planned divestitures of Symphony Rx and dosing.
During the second quarter, R&D sales and marketing and G&A and aggregate.
<unk> totaled $20 6 million.
A decrease of 12% versus a year ago.
And a decrease of 9% on a sequential basis versus the first quarter of 2022.
Moving to cash we ended the second quarter with $26 5 million of cash.
Which is $12 1 million higher than March 31, 2022.
We remain committed to producing positive free cash flow on a sustained basis heading into 2023.
Turning to the liability side of the balance sheet.
I'm closing the prescribed wellness sale, we immediately paid down our existing line of credit, which totaled $57 2 million as of June 32022.
Our debt now is solely our convertible bonds maturing in 2026.
Now turning to guidance for continuing operations.
We are introducing third quarter 2022 revenue guidance as follows.
Revenue of 72, and a half to $75 million, which represents growth of 7% to 10%.
Including <unk> health care growth of 11% to 14%.
Excluding MTM the midpoint of our revenue guidance for the third quarter, which represented 12% of growth.
For the full year of 2022, we are raising our revenue guidance on continuing operations.
To a range of $286 million to 292 million.
Which represents growth of 10% to 12%, including care pension healthcare growth of 14% to 16%.
The midpoint of our new range of $7 million higher than our prior guidance.
With that I will turn it back to the operator for Q&A.
As a reminder to ask a question. Please press star one one.
Our first question comes from Sean Dodge with RBC. Your line is open.
Hey, Good morning. This is Thomas Keller and one for Sean Thanks for taking the question.
Want to start off on the recent contract extension with Trinity Health pace.
A simple extension or was there any expansion or cross selling that went along with it and was there any change in pricing related that good or bad on a same store basis that you can comment on.
Good morning, Thomas This is our slide yes.
We have been partnering with Trinity health since actually we started the company. So they are extremely positive and they are seeing a tremendous return on their investments. So there were no change in the pricing.
And we did.
Likely for any contract that's all cleaned up a few areas of expanded some areas nothing really relevant from that perspective, except that we continue to partner with them all new programs that there'll be starting which include winning the RFP.
Western Maryland.
Also in Florida, and Louisiana date will be added to our services.
Okay, great. Thanks.
Then I guess on cash flow are you guys expecting to in 2000 22 million positive.
Positive free cash flow for the full year.
I guess, if so what makes that happen to get there.
Yes, Hi, this is Tom.
For the full year.
Well.
The first half of the year. It was slightly negative right first quarter's negative second quarter is positive.
So you've got to dig out from that but I guess the way I would answer it this way over the entirety of the last half of the year I believe we will be positive we have positive adjusted EBITDA.
Thing to remember is there's ebbs and flows and working capital that can make any one quarter positive or negative.
Sure.
So you can't ever really control weather.
Receivable comes in December 2008 for January 2nd.
And that can influence it too but.
Directionally.
It'd be flat to positive over the second half of the year.
Understood I appreciate it. Thank you that's all for me.
Thank you.
Our next question comes from Jared <unk> with William Blair. Your line is open.
Yes, hi, good morning, and thanks for taking the questions I guess I just wanted to ask one on guidance and maybe a point of clarification on how I should interpret things.
So if I look at the outperformance in the second quarter. It sounds like that was a lot of that was driven by.
More favorable pace census trends that maybe what was expected and that favorability was sort of run out for the rest of the year, which kind of contributed to the increased guidance, but when I look at revenue on a sequential basis in Q3 and Q4, it looks like you're kind of implying a fairly flat. So only a modest increase on a sequential basis. So.
I guess just sort of curious how much should we interpret that as just more conservatism in the second half of the year versus any other puts and takes that I might be overlooking.
I mean, a slight this is Tom it's slightly up in the second half of the year.
So there is some sequential growth there and it's consistent with the <unk>.
9%, we modeled it out.
In our growth rate.
Okay fair enough.
I guess, then just as a quick follow up.
If I if I look at the disclosures in the press release for the quarter. It looks like growth for the pace business was fairly balanced between enrollment growth in <unk> right I think both were up by 8%.
So I guess looking forward over the next couple of years do you feel like you.
We should see kind of a similar relative mix of kind of even contribution to growth from both the census.
P. M. P. M right I know you kind of have levers to grow both just obviously with the overall market growing and your ability to exceed the market sort of census, right and then obviously you have a lot of upsell opportunity for PMT and so I guess, just how should we think more broadly about the balance between those two drivers longer term.
Hi, Jared this is Bryan. Thanks for the question I do think that Youre going to continue to see a pretty balanced growth in both of those throughout the future years.
The average <unk> uptick is really reflective of the continued cross sell within the customer base. So that is that as part of our growth strategy and we continue to.
The evidence of that play out in our average <unk>. So we do believe that thats going to be a pretty balanced.
Part of our growth in the.
Future years.
Okay. Thanks for taking my questions and I'll hop back in the queue.
Our next question comes from Jessica Tucson, with Piper Sandler Your line is open.
Hi, Thank you so much for taking my questions I appreciate it.
Hoping just to the extent that you guys can comment on that can you just walk us through kind of where management call management's goals are kind of continue with that.
Filed intention Zavon Youre Actavis and just kind of what led you to undertake the recent actions.
Two diluted control thanks.
Well I don't know that the this.
This is Tom by the way I don't know that.
Our actions are inconsistent with our actavis.
As far as the shareholder rights plan, that's pretty common thing that a lot of companies have.
I guess I'd go back to what.
We said last quarter.
Which is we encourage and lead investor feedback.
All of our shareholders.
We're not going to comment specifically on that matter.
Okay got it and then can you just remind us kind of.
What the math.
Per member per month sort of pace number might be excluding the divested assets and then just how you are trending in terms.
In terms of that.
That level on what Youre seeing in the contracts that you are expanding or renewing for 2023. Thank you.
I'm happy to start to comment on the maximum amount in terms of the <unk>, but what we're seeing is about $1300 <unk>. If somebody were to sign up for all of our services today.
I'll turn it to <unk>, but just to comment specifically on what we're seeing from a renewal perspective.
Absolutely.
Definitely seen up close to 100% renewal the ones that we've been able to renew so far this year and anticipate that ongoing rate, we've had client retention of 96% or higher.
And with the acquisition of pharma Star that has really.
An excellent opportunity for us to share the value of our medication risk mitigation services in particular, using our risk stratification engine of <unk>.
We're seeing more opportunities to close deals.
I believe that will continue to increase on the average.
Thank you. Thank you that's helpful. I just have one.
One quick follow up can you guys, just or I guess and elaborate on the recent contract that you signed with CBS I think you mentioned on the software our software sale into.
Cvs retail but.
If you could elaborate on that.
Thank you.
Sure. This is Brian I'm happy to take that.
Really excited about the partnership with Tds that goes well beyond just the transaction, where they acquired the prescribe wellness business. We continue to see an opportunity to provide clinical services through their network and so today they will be licensing.
Our med why its risk score as well as our clinical decision support tools to be used across their installed pharmacy base.
And we hope in the future that we're going to be leveraging that network to support a number of our payer customers. So a really exciting opportunity I think for both companies.
Got it thanks again.
Great question Jessica.
As a reminder to ask a question. Please press Star then one.
One star one one.
Our next question comes from David Grossman with Stifel. Your line is open.
Thank you and good morning.
I wanted to go back to Tom your comments about the balance sheet the cash burn.
Can you share with us just.
When it's all said and done after all fees and taxes are looking for what.
We should use for net proceeds or if you have it just what the pro forma balance sheet would have looked like at 630.
The transaction has been completed.
$57 million that had been paid down.
Sure and good morning, David.
So the cash proceeds enclose a $125 million. There is as you know another $15 million in earn out that will come in sort of that may come in the future.
Some friction cost to take that down to about 120, and then almost 60 on the revolver rate $57 four so your net.
Proceeds if you will a little bit over $60 million from the transaction. We had 27 ish cash at June 30.
So pro forma your June 30, cash position would be a little under $90 million.
That's exactly where it is today by the way.
And then just the balance sheet include the payment.
For the technology piece that was part of the transaction or was that after the end of the quarter.
No. It does include that.
That's reflected in the 630 balance sheet.
Yes, Sir.
Okay. Thank you.
And then on the cash burn comments.
In the back half of the year it sounds like.
Call it breakeven to us.
Modestly positive depending on timing of.
Collections et cetera, so if we.
I assume that includes the discontinued ops as well is that correct.
If it does.
They're a material cash burn or contribution from.
Either of those businesses.
That's really good point and I'm glad you raised it.
Some of the.
Cash result from the second half of the year is going to depend on the timing of the close of the Sinfonia sale. So remember that prescribed wellness generated a bit of cash.
Sinfonia.
In some quarters as slightly cash flow negative so with prescribe wellness gone we've got the benefits of that through the sale of that $90 million on our balance sheet solves our short term liquidity issues.
De Levered.
That was starting to get expensive at a floating rate environment, but you lose the cash inflow of that.
So depending on how far into fourth quarter, our symphony to close goes you could see a little negative cash flow in any one quarter, but I think the key thing is that we exit the year cash flowing and then once you have all of these assets off the balance sheet.
Your ability to get synergy to improve your cost structure really starts to take shape.
Youre talking about going from 600 employees at the start of the year to less than 1000, when sinfonia closes and Thats just the direct cost as we talked about on the last call. There is all the indirect savings we can push on.
Things like business services that are tied to head count legal fees insurance real estate and other areas of cost that should scale with a smaller organization.
So the timing of the symphony of close will greatly impact our ability or the timing of when we'll start to see savings from that and Thats really the reason we haven't projected.
Adjusted EBITDA is that.
Any one month three month quarter can have a real impact on your cash flow. So be closed in the first month of the quarter versus the third month of the quarter. It can have a big impact.
And can you dimension it all kind of.
What the magnitude of symphony as cash burn holes.
Just give us a rough sense of what it's for.
Oh, I think there are quarters, where it was.
Roughly $1 million or so in the quarters, where it was flattish on average probably averages half a million to a $1 million.
Got it okay, maybe a landmark.
Yes.
Great and then just going back to <unk>.
Earlier question that was asked about that.
I guess, the Tam really four P.
Pmt's within your installed base and pace.
I think Brian you said $3500, if they took everything so what.
Can you give us a sense within the installed base.
Averages today, and Thats kind of what the renewals start looking like.
I guess renewals probably isn't the right way to ask it but just some idea of how that average has been trending over the last couple of years.
Well we've been trending.
95% since we started the company last year were 100% renewal. So we expect to be very close to that this year as well.
No actually the question Im sorry, maybe I wasn't very clear.
Brian said that the.
What's giving us an idea.
If a client so called the services.
I think you said $1300 did I get if I got that right and just curious how.
That number has been trending within the installed base of any of that.
<unk> hundred dollars.
So David we only disclose that on an annual basis, but if you look at Q4.
$426 27 P. M. P M. So theres still a very significant runway for us there.
And that was up about 8%.
Over the prior year.
We continue to see similar growth trajectory.
And as I said, 8%, what you been getting historically Brian .
Yes, I think that's a fair fair.
A fair way to think about it.
Great and just one last question I saw the form fours that were filed I guess, a couple of days ago.
Is that can you maybe explain the context of those.
They are <unk> grants, if I may that correctly by the way so which is one of the reasons I'm asking the question just what those were.
Okay got it.
Perfect that quickly.
Yes. This is Brian I'll take that one that was related to the 2022 long term incentive grants for the named executive officers to those had not been granted.
To date, so that's what that relates to typically those are granted much earlier in the year.
Those.
So those grants just happened.
So those grants relate to 2021.
2022.
Long term incentive.
I would say, yes, okay great.
Very much thank you.
You.
There are no further questions at this time. Thank you for your participation. This does conclude the program and you may now disconnect everyone have a great day.
Okay.
The conference will begin shortly to raise Johan during Q&A you can dial one one.