Q2 2019 Earnings Call
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As a reminder, this conference is being recorded I would now like to introduce your host for today's call Mr., Kevin do well.
The council for Tabula Rasa healthcare Mr. Dale you may begin.
Thank you and good evening.
Kevin do.
Robert Council for Tabula Rasa healthcare.
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Please refer to our filings with the FCC, including the risk factors section of our most recent annual report on Form 10-K filed with the FCC on March Onest 2019.
Recording of this call is accessible through a link on the Investor Relations page of our website and it will be available for 90 days.
Now I will turn the call over to Dr., Calvin Knowlton, CEO , chairman and founder of Tabula Rasa healthcare.
No.
Thank you Kevin Good evening and thank you for for joining us for our second quarter.
2019 earnings call also with me today or Dr. Roseland open.
Go founder and Chief marketing and business Development Officer, who will provide an update on our markets and new business activity.
And Mr. Bryan Adams, our Chief Financial Officer, who will provide our financial update on the second quarter as well as our latest outlook for fiscal 2019.
A quick glance at the numbers from first quarter revenue was 76.3 million.
Representing 57% growth.
Adjusted EBITDA was 13.7 million representing 88% growth.
Adjusted earnings per share was 35 cents, representing 75% growth.
We had strong performance across all aspects of our business.
We also have a strong pipeline, which of course will I will summarize for you shortly.
Our main value proposition.
He is by using our unique software identifying and mitigating simultaneous multi drug interactions.
Our midwife software is grounded deeply in the science of pharmacokinetics, pharmacogenomics, pharmacodynamics and crying pharmacology.
Which we can pile onto a singular medication risk score.
From zero to 50 for each patient.
In addition to this personalization.
We can run a cohort of patients from thousands to millions.
Overnight and produce a histogram that depicts the medication risk scores on the X axis and the number of patients on the y axis.
Our data Lake exceeds 100 million patients.
Over the past year.
We have grown our internal analytics department to more than a dozen advanced threed data mining analytics personnel.
They have worked extensively with our pace data sets and our CMS sponsored <unk> enhanced medication therapy management data sets.
We both data sets, we have actually access to comp to complete pharmacotherapy information, including prescription over the counter recreational meds and drugs as well as medical spending such as hospitalizations yard visits physician business.
I would like to share with you some of the information we have gleaned from these analytics regarding our CMS enhanced medication therapy management pilot.
We reported on 2017 results this time last year.
We have now received the 2018 results which are embargoed.
However, our analytics Department also tracks our progress month.
That's how we will be reporting from the purview Blaine by our analytics departments.
Which is quite aligned with the embargo good results from CMS actuaries.
The cohort two which we were assigned to each year was approximately 230000 part D patients.
We risk stratify, the group and identified approximately 35000 patients.
Who had a medication risk were about 14.
On the zero to 50 skill.
In 2017.
We were able to conduct.
I'm, sorry to console with 15000 patients.
Of the 35000.
And the 2018, we were able to consult with 28000 patients.
A console means one telephonic 30 minute medication risk review.
And a second follow up 15 minutes telephone contact.
Within 90 days.
Prior to the telephonic contact we prepare a medication safety review.
Along with preliminary reports, we subsequently sent to the patient and to their selected quarterback prescriber.
The telephonic contact time again is limited to 30 to 40 minutes.
And it is retrospective.
In other words, they are already taking their medications.
This contrasts with pace, where our contact is prospected prior to medication being killed.
Now that is ongoing with the touch every month.
So even with that light touch the first year of our Medwise platform and certified Medwise pharmacist.
Reduce medical spend.
By more than 2%, which was CMS target after five years.
Our analytics department determined that once again in 2018.
Our one touch interventions also read reduce medical spend by more than 2%.
This was extracted from patients we consulted only in 2018 and not duplicated patients from 2017.
To switch gears a bit we then looked at the almost 200000 patients for whom we did not intervene.
These were those with the medication risk were below 14.
That is they were less less at risk for an adverse drug events compared to our intervention cohort.
Wed medication risk scores of 14 or higher.
So these patients have not been touched by our Medwise verified pharmacies.
Yep.
Even at the lower medication risk.
What we found was most interesting shopping.
And concerning.
We asked three questions of the data.
First is there a relationship between adverse drug events and hospitalizations in this lower medication risk cohort.
Second.
There's no relationship between adverse drug events and medical expenditures.
And third.
First amid medwise risk score quarterly with hospitalization rate and if so how.
The surprising results.
First is there a relationship between the reported adverse drug events and hospitalizations in the lower medication.
Risk cohort the answer is yes.
One of them were reported adverse drug events correlates with the 3.8 times greater.
Annual attrition rate.
And a 3.5 times greater overall medical spend per member.
Second is there a relationship between adverse drug events and medical expenditures.
In this lower medication risk score cohort again, the answer is yes.
Members with a reported adverse drug events had an increase in 12 month average total.
Additional medication medical cost of $18025 compared with members without reported adverse drug events.
To answer the third question.
So the midwives risk score correlate with hospitalization rate and if so how.
For this analysts we started the entire cohort that is all 200 almost 240000 patients.
The answer a resounding yes.
There's a strong correlation between the average 12 month hospital admission rate.
And part D Medwise risk score.
And here's the harvested data.
Okay.
Medwise.
C.
The medwise risk, where it was 30.
And the annual admin rate to the hospital is 64%.
Furthermore, while the data tell us is that with each unit reduction of the Netwise risk score for example from 15 to 14 or 14 13.
Each single point drop corresponds to $683 of annual medical spend reduction.
The take home from what was that is this number one adverse drug events are Legion.
And caused quite a bit of mortality.
And degradation of quality of life.
We expect also but the data was not sufficient to indicate.
That adverse drug events in this cohort were also.
The cause of preventative mortality.
Number two.
Using new technology.
Most adverse drug events, especially those caused by simultaneous multi drug interactions can be prevented.
And number three.
Our unique medwise risk score.
To rot derived from deep science regarding how medications work and interact predicts adverse drug events.
Which are a serious medical and quality of life hazard for the patient.
Preventable adverse drug events also result in unnecessary material expense for the healthcare system.
So with that uplifting news I'll now turn it over to Ursula for her update.
Thank you count.
We are delighted to have had such a strong quarter in all areas of the business.
I'm going to take a closer look at Cincinnati solid performance this quarter.
Provide an update regarding prescribe wellness and touch on our pace market, along with our care mentioned healthcare brand platform.
First during the second quarter. Since then is dedicated team of inter professional clinical providers reached a record breaking number of direct patient contacts for comprehensive medication reviews are seeing smart.
Through the first half of the year the number of CMR Qiasymphony team completed increased nearly 40%.
This group is performing very well and we expect them to continue to do so.
With regard to prescribe wellness. We are pleased that they have seen great success of selling their new B R X assist product to the tune of 200, new customers on this module over the past two months, which is about $2 million of incremental topline annual revenue upon implementation.
Acting as an extension of pharmacy staff to be our excesses virtual team expand services optimizes quality measures workflow efficiency improve outcomes and capitalizes on new revenue opportunities, all while minimizing direct and indirect remuneration or ERP for the client.
To see is in the process of integrating these services and Qiasymphony as call center operations to support the expansion needs.
Currently prescribed wellness is using outside vendors.
Also prescribed bonus had recent success with Highmark one of their first address payer contracts in which they achieved their value based goals.
So far over the course of the summer, which has prescribed bonuses selling season, they developed and even stronger pipeline of future business.
Our integration of Med wise on the prescribed wellness patient and get engagement Center platform is on track for the first quarter of 2020.
We are entering into pilot engagements with a half dozen prescribe wellness clients to develop and launch our Medwise advisor concierge pharmacists platform offerings.
During the recent prescribed wellness advisory panel meeting held at Purion XE headquarters, we found meaningful interest in hosting medwise on the prescribe on its platform.
As one pharmacists, but I cant believe we haven't had this type of medication decision support to help our patients avoid adverse drug events.
It is humbling to realize how much pharmacists providers could engage patients improve outcomes of care and overall health with medication decision support tools like Medwise.
Symphony Rx and prescribed wellness are now collaborating to provide an integrated solution to independent pharmacies.
This extends our model with prescribed wellness community pharmacy network, providing local support and Symphony Rx, providing call center telephonic support.
To an even broader market.
The centralized call Center services, which were previously only available to large chains result in more pharmacies in the community across the country delivering efficient and effective healthcare to consumers.
Just to mention our recent acquisition dose me.
The company has had great success, bringing on several new hospital clients.
They also launched their new clinical dashboard known as co here, which is being written into existing contracts in their pipelines.
Next I want to provide an update about pace and our new brand care bench in health care.
Karen mentioned is our collective service offering we provide the pace.
Including care can you assist capstone peak pace manager and COGNA pie.
From a market perspective.
The good news is that the news pace conditions of participation took effect on August the second.
This shows continued support from the federal government for the pace program and willingness to encourage growth.
Recall that pays participants crossed the federal government $2000 less per month compared to if they were in a nursing home.
It is believed that these new regulations will help pace programs grow faster operate more efficiently and at the same time enhance care delivery.
Some of the changes while outpaced organizations more operational flexibility.
We believe our convention platform will help piece organizations more easily achieved.
These growth goal.
Although with the new pace rules, we're seeing organic expansion in multiple states.
From our perspective in addition to the ongoing new business, we are adding pace, we have a strong pipeline and plant expansions that run through 2020 and the start of 2021.
Certainly we are seeing strength and growth in the market.
We're also excited about our convention healthcare platform selling success.
Sure mentioned healthcare paced companies had a great second quarter.
Have contract starting in the third quarter and look forward to continued growth with existing and new pace organization, starting in the fourth quarter as well.
In fact since launching the care mentioned concept last fall, we have experienced success up selling services to our existing customers.
And as a result, we have added approximately $13 million in incremental revenue on an annualized basis.
We also signed new agreements in the quarter to provide some of our care management services outside of pace to do different Medicare advantage plans.
So lease located in Florida, and Treehouse in North Carolina.
Both are fairly new plan.
Certainly it is also currently using since Nairac for MTS.
Trey health is unique and that it is a community pharmacy care delivery model.
This is right in our sweet spot in particular to partner for other services, including medication risk mitigation.
We view this notable expansion outside of pace as proof of the immense potential for the care mentioned platforms market opportunity.
With that I'd like to turn the call over to Brian for a closer look at the second quarter results.
Thank you Ursula this was a strong second quarter for Tabula Rasa today Im pleased by how well all the businesses are working together.
Before I review the financials in greater detail I wanted to highlight a few areas the standout performance.
Are there so I mentioned Symphony Rx performed particularly well in the second quarter growing topline, 34% compared to a year ago.
Similarly, our paper businesses continue to thrive reporting year over year revenue growth of 23% in the second quarter, excluding acquisitions and growth of roughly 7% from last quarter.
Finally dose meat, while still a small portion of our overall revenue today showed nice traction in the quarter, signing a handful of new contracts and building a solid pipeline of interest.
Now turning to financial results.
For the second quarter of 2019, we generated total revenue of $76.3 million, an increase of 57% compared to a year ago.
Excluding the contributions from our recent acquisitions, we reported organic growth of 30%.
Product revenue of $33.4 million increased to 22% year over year, which is in line with our full year expectations.
Service revenue of $42.9 million increased 102% or 40% organically.
The strong year over year growth in our service revenue was driven by contributions from acquisitions and increasing the number of clinical reviews performed by the Symphony Rx team an increased fees for our drug utilization data.
Gross margin, excluding depreciation and amortization expense in the second quarter of 40.8% represents a meaningful increase compared to 33.3% we reported in the second quarter of last year.
The 750 basis point increase resulted from the continued shift in our revenue mix our service revenue comprised a greater percentage of total revenue.
Compared to last year.
In particular software revenue now makes up 18% of our revenue base.
We plan to continue focusing on diversifying our revenue streams in order to meet our long term gross margin target of 40% to 45%.
Product gross margin, excluding depreciation and amortization was 26% in the second quarter compared to 27% for the second quarter of last year, we do expect to see some modest uplift in margins as we transition to our new prime vendor over the remainder of the year.
Service gross margin, excluding depreciation and amortization was 53% compared to 42% a year ago. The increase in service gross margin was boosted by a contribution from prescribed wellness in 2019 compared to 2018 and higher fees on drug utilization data.
Operating expenses as a percentage of total revenue were 47% in the quarter. When you exclude depreciation amortization stock compensation the impact of the change in fair value of acquisition related contingent consideration.
Operating expenses would have represented 24% of total revenue in the quarter up from 20% in second quarter of last year.
The increase is in line with our expectation and reflects expenses associated with tier reached the 2.0 initiative. The launch of our precision Pharmacotherapy Research and development Institute and investments, we are making to integrate recent acquisitions.
We expect improvement in our operating leverage to begin to materialize over the next two to three years as we capitalize on the build out of our salesforce execute on synergies, resulting from the acquisition.
And continue to integrate our platforms and infrastructure.
In terms of adjusted EBITDA, we generated $13.7 million in the quarter compared to $7.3 million a year ago. Adjusted EBITDA margin for the second quarter of 2019 was 18% compared to 15% in the second quarter of last year.
Typically we would expect the second quarter to have the highest margins because of the seasonality of the Symphony Rx business.
Our GAAP net loss of $6.5 million compared to GAAP net loss of $29 million in the second quarter 2018.
GAAP net loss per diluted share for the second quarter was 32 cents compared to $1.53 for the same period last year.
The net loss per diluted share calculations are based on diluted share count of 20.5 million for the second quarter of 2019 versus $19 million for the second quarter of 2018.
Adjusted net income per diluted share for the second quarter was 35 cents compared to adjusted net income per diluted share of 20 cents in the second quarter of 2018, the net income per diluted share calculation.
Our based on a diluted share count of $22.8 million for the second quarter of 2019 versus 21.6 million for the second quarter of 2018.
Turning to the balance sheet as of June 32019, we had $52.1 million of unrestricted cash compared to $20.3 million at the end of 2017, we currently have $60 million available on our line of credit with nothing drawn.
To wrap up my comments today I will provide initial outlook for the third quarter and an update to our full year expectations.
For the third quarter of 2019, we anticipate revenue to be in the range of $74 million to $77 million adjusted EBITDA to be in the range of $10 million to $11 million net loss to be in the range of $9.3 billion to $8.5 billion I will remind you that during the course of the year the clinical reviews that our performance on our qualified members for the NIM for the MTM business excuse me.
Increasingly more difficult to perform and this has a direct impact on profitability, which is contributing to the sequential decrease from last quarter.
For the full year 2019, we are updating our outlook as follows.
We anticipate total revenue to be in the range of $283 million to $293 million up from our initial range of $280 million to $290 million.
Of that total revenue, we expect product revenue of approximately $134 billion.
Adjusted EBITDA will be in the range of $37 million to $41 million compared to our previously stated range of $36 million to $41 million. We discussed as we have discussed in the past.
We are expecting full year adjusted EBITDA margins to be slightly behind 2018 margins due to expected loss in 2019 attributable to the dose of the business as well as costs related to the launch of the precision Pharmacotherapy Research and development Institute.
In addition, we expect net loss to be in the range of $38 million to $34.6 million compared to our previous range of $37.6 million to $35.4 billion.
Im very pleased with Tabula Rasa has performance. This quarter, we are seeing positive early indications that our customers and prospective customers. Appreciate the integrated platform. We are now able to offer and this quarter further confirms our belief that we are uniquely positions in the markets. We currently serve.
With that I would like to turn the call back over to Kal for his closing remarks Kelly.
Thank you, Brian as I think Orsula, Brian and I have all stressed on this call. We are incredibly pleased and everything David Ross and accomplished thus far in 2019, and where we are going.
As has been the case every quarter.
We could not have delivered these results without the ongoing hard work strategic vision and dedication of our team members as well as the trust and collaboration from our clients.
Also I should have mentioned that we are three months into a six month structured organizational redesign led by the River group from California.
This is enabling the trnc leadership teams to congeal.
And assimilate our recent acquisitions in a systematic orderly manner.
We have embarked on this restructuring to ensure that you are seeing is poised to maintain our ongoing growth trajectory.
We still remain.
The market leader in only in the platform only one in the platform in this market addressing the ubiquitous pandemic.
Preventable multi drug adverse medication events that now kill more than 170000 us residents annually.
And merely injure hundreds of thousands more.
Yes, the 4 million pharmacists in the world used our deep science based Medwise platform.
Especially prospectively.
Presentable adverse drug events could be avoided.
Including a substantial amount of fatal unintended opioid overdoses.
Which are due to unrecognized multi drug simultaneous interactions.
Toward that end we have.
A new opioid initiative.
We are now launching.
So thank you for listening in most sincere thanks to our sophisticated team members, who have enabled us to attain this bellwether quarter.
In terms of economic clinical and humanistic outcomes.
Operator, please open the call to questions.
Thank you ladies and gentlemen, if you have a question at this time.
Please press the Star then one key on your Touchtone telephone.
If your question has been answered your question move yourself from the queue. Please press the pound key our first question comes from Ryan Daniels with William Blair.
Hi, This is Gerry styling in for Ryan. Thanks for taking my question, maybe just to start looking at the revenue in the quarter.
Brian I know you talked a little bit about the strength of the symphony of business, but I'm wondering if there is any more color that you can provide to us just on kind of some of the drivers of the strength there in the quarter.
Yes, I mean, there is a couple of things.
This unfinished business as you heard from both Ursula and for myself you to certainly did perform extremely well during the quarter and I will remind you that thats, mostly on a on a transactional basis at the beginning of each year. We know the number of clinical interventions that we need to perform.
We recognize revenue based on when those are performed and so.
A good number of those were completed during the second quarter, we typically see that happen would expect for that to continue.
And then there is a different type of clinical intervention nikin performs more towards the end of the year that's focused on stars program.
So there is some seasonality to that business. In addition, we did see.
The drug utilization.
Fees that we receive.
That is a little bit lumpy. So I will tell you that that business is not exactly smoothed. We typically know it could estimate what we're going to receive pretty much for the full year.
But that from a quarter to quarter basis, and can vary a bit. So we saw a bit of an increase there.
In the second quarter.
Got it great. Thanks, that's very helpful. And then just when we look at the adjusted EBITDA margin strength, they're coming in at about 18%.
I imagine some of that is due to maybe some of the strength on the symphony aside, but but anything else to add there from a margin perspective anything that was maybe more timing or would you consider kind of onetime in nature for the quarter.
So the only thing I would mention is the second piece, yes, Tiffany it did have a contribution but also the.
The utilization data that I was mentioning that came in a little bit higher than our expectations would be for the following two quarters. So that did have an impact on on margins in the second quarter as well.
Got it thanks very much very helpful.
Thank you. Our next question comes from Mohan Naidu with Oppenheimer.
Thanks for taking my questions Kyle on the MKM pilot.
Do we know when it will be.
Hey made public how others are doing in this program compared to your from your results in kind of result.
Hi, Brian .
The the embargo was lifted the onest of August , but we only received the percentage that we exceeded the 2% savings we didnt receive the strong dollar amount yet thats finalized so.
We had to use our analytics group to kind of.
I can report on analytics group I can't really report on the CMS other than they did did.
I was we did say greater than 2%.
Okay, and you shared a lot of data about.
Potential opportunities with lower risk score patients.
As you go into year three.
You're going to be looking at these patients to incur lean or how you structure or what are you thinking of structuring in Q3.
Well what happens is we get a refreshing refresh data feed every month on a BMD data and the patients change over time.
So the the the 240000 people are not the same 240, we had last year in 2017, and a lot of them come into the programs and the same with the folks that we risk stratify the ones we restricted five in 2018, we're different.
There were some overlap but most of it most of them were different than what we did in 2017 I suspect that's going to happen and Thats happening. This year too because we now have down weeks group running this week you get feedback pretty much monthly.
And it is a new cohort again this year, mostly then two because from the last two years.
Okay. Thanks for that color and maybe a couple of quick ones on the pipeline.
You guys talked about a strong pipeline before and today as well.
Team has been very active in terms of building the pipeline the message among the clients that were talking to specifically I. If I look in the markets, where we're pushing and talking about met wise in preventing adverse drug events, reducing overall total cost of care is primarily in managed Medicaid and commercial markets, where they have more flexibility in the type of.
Medication management services that they can implement so the model that we've been talking about has been specifically in those those markets have a combined approach that takes the tabula Rasa science and Leverages. The ground force of the prescribed wellness network with the Air Force of the Symphony a call Center model and that's been resonating really well and we're very confident that we should have some.
Some some of those deals that we can close this year.
With revenue associated with that and 2020.
That's great and maybe one quick one from a common.
You any way to quantify the deal sizes are a number of deals that any color that you can grow and that would be great. Thanks, a lot for taking my questions.
Yeah, I think it at this point there the plants that were talking to some of them are significant in size and then there's there's a number of smaller plans that were talking to as well. So I think it's a little you know.
It's maybe a little soon to give you some exact projections on on that but we're we're very optimistic that that the message that we are saying is the right message to the market because we're getting a great response from that so hopefully more to come very soon.
Thanks, Kevin.
Thanks, Kelly congratulations on a great core.
Thanks, Mike.
Thank you. Your next question comes from Matthew Gilmore with Baird.
Hey, Thanks for the question maybe following up on some of the pipeline commentary from Kevin. Thanks for thanks for the detail.
Sure. So we should think about that model is being sort of similar to the enhanced MTM product. That's currently in market.
Should we think about the pricing around that.
Being similar or will that be scaled back just because you probably won't be doing as many interventions on on a commercial population for example.
I'm happy to take that first and then maybe Kevin can fill in but.
Typically what were seeing Matt.
Is the number of people that are high risk in a commercial plan significantly lower than were seeing on the Medicare population somewhere in between.
4% to 7% or so.
So the.
Fees that we would expect on a commercial arrangement would be.
Somewhere probably closer to a dollar but still targeting to apply that across the entire commercial population.
Kevin maybe you want to fill that in a little bit more.
Yes, sure that said, that's a great explanation of it and what we can do in the sales process is to do a risk stratification on a client's entire population. So we we have a good sense of the numbers of patients percentages of patients that are high risk and so we price the model based on that percent. So in the managed Medicaid market, we're seeing the percentages of patients similar to what we're seeing on the Medicare side.
Of that patients that utilize medications theres theres and Theres, a number of patients and managed Medicaid.
Younger groups that that may not have.
As many medications, but if you're looking at medication utilizers, it's similar to Medicare on the commercial side, it's like Brian said, it's probably around that 5% Mark.
Okay great.
And then.
I appreciate all the details Cal provided on the MTM analysis.
I was just just to dumb it down to make sure we are understanding what you're saying on the analysis you did on the folks where you weren't entering it sounds like the point there was.
If you did do interventions on that population there would still be a lot of value that could be generated.
Because there are obviously hospitalizations associated with with drug use what was that sort of the point you are you are making Cal.
Well, Hi, Matt, Yes, it was and you know frankly.
We didnt, we never looked at this cohort we only looked at that people will 14, 15 18 above that 14 months. So we so with that why don't we look and see even though they're lower risk.
They still be could we still intervene and it was surprising to us.
Even with the risk were 10 to 20% to 25% and 26% were committed once during the year for hospitalization.
And we weren't surprised with the 20 and 44% or the Thirtyth, 64%, but I was we were really surprised that even the lower cohort.
No risk scores still had a significant.
Impact.
On.
Correlation with.
Association with hospitalizations, which means that yes, we should be able to be on these people. So what we're talking about dialing it back from 14 and it wasn't a magic number.
Dialing it back.
As we go along and intervening one on more and not just limiting it to 14 and above.
Okay, and then one last one I think probably for Brian on guidance. So you raised the overall revenue range, but we saw within that you dialed back the product a little bit and you dialed up the service revenue I was hoping you could just provide some explanation in terms of.
The revenue mix and wide product went lower why services went on there.
Yes, Hey, Matt.
So I think at this point, we've got pretty very good visibility I would say into what we're expecting on the product side, which should yield about a 20% growth rate for the full year, which.
But in line with our original expectation.
But just having a little bit more.
Okay.
We can be more Chris with that at this stage of the year.
And the remainder really be the piece of.
Service revenue that were expecting so.
I think it's really just a timing thing at this point that.
At the ability to to be a little bit more precise.
Okay fair enough. Thank you.
Thank you. Our next question comes from Sean Wieland with Piper Jaffray.
Hi, Thanks, so that at least some impressive gross margin improvement on the services line. It sounds like it might have something to do it it's funny Rx.
Can you.
Describe for us how that business was able to grow so strongly sequentially without really adding much in the land cost of goods sold.
Sure.
Happy to take that one and Kevin you might want to jump in a little bit too.
Sure I am one of the things that we're dealing with this year is an increase in the cut points related to.
The star measures for comprehensive medication reviews that need to be completed in order to meet certain star ratings. So our clients generally came back to us looking to maintain your current star ratings, but needed.
To achieve.
Significantly more seymour's than in the prior year.
So we anticipated this stepped up at the beginning of the year and have become I would say much more efficient in the delivery model of those.
Of those reviews.
So the team has done a great job really maximizing.
The staff that we have today.
And we've seen a significant.
Uptick in that ratio.
Okay. So you would.
Yes, just to add to that I would I would echo what Brian said is that a lot of it is theres performance expectations from the health plans that we serve for higher engagement rates from patients. We also.
Onboarded a large client in 2018, so it's our second year with that client as we work with similar groups of patients that have multiple chronic conditions in multiple medications, we gain through our call center model as an opportunity to to develop relationships that add to the efficiency and then I would say that third piece of that we mentioned a little bit during the call if the.
Investment in the Taboola Ross at 2.0 integration and so Theres Theres a lot of things on the technology side that we've been able to integrate from a company standpoint that has benefited symphony from an efficiency standpoint as well.
Brian Thank you Brian can you.
Help us out with.
What the margin profile of the services business will be in the back half of the year as is this kind of level of margin sustainable.
So I think you're going to see a drop down a bit to be honest with you Sean.
Yes, it's one of the things I was mentioning in my commentary was that these these reviews get progressively more difficult to perform as we have a number of people at the beginning of the year that we can address so it's easier to contact and engage those members at the beginning of the year gets progressively more difficult in the level of effort.
Did not proportional so I do expect that we're going to see margins declined in the second half of the year as it relates to that.
So I would expect second quarter to be the good.
The highest gross margin level for the year.
All right, thanks, and on the MTN pilot do you have any.
Data or any anecdotal evidence or.
Times, where you were able to intervene.
Recommend a change in the treatment.
Lower the 80 E risk and see what the what the corresponding medical costs good.
Yes, we do we have got actually we have very sophisticated information on that.
From from our analytics Department, and we have pre post intervention information that shows.
It's really interesting too because it's only one touch you know, but even with one touch it was amazing how the risk where were down on average five points.
And then each point averaged about $680 in and savings on medical so we it's pretty it's pretty well harvest and now with this group we have to do it.
This gets into this data is that helpful.
That is very helpful. Thank you very much.
Thank you. Our next question comes from Frank Sparacino with first analysis.
Hi.
I wanted to come back or so you made a comment.
As it relates to I think 13 million of annual incremental revenue.
On the Carefusion side.
I'm trying to get a sense of what the base would be there to get a sense of the magnitude of that number.
So Frank.
This is Brian Im happy to kind of jump in there, but you're typically right now what we're seeing for.
For the pay side of the business, it's roughly representing about half of that.
Our current revenues so if you're looking at.
You know about a 150 billion or so for the year. If you were to back that up to last year, it's probably closer to.
120.
At that point.
Okay, right, and that's where based on cross selling.
At least they had one existing service with our company and we're adding another one at least one more or two.
Airborne.
Great and then maybe just within pace. If you look at 2019 and the growth I think you talked about Brian sort of 20%.
Plus or minus.
Yeah relative to prior years is that.
Being driven more by the existing base versus new clients.
Well I think a lot of that is being driven your oh, there are new startup we have a number in the pipeline for our existing client base, we have a number of expansion location.
Over 20 locations that are set between now and 2021, the first quarter of 2021 so.
The National pay Association focused on page 2.0 is definitely one driver.
We've added.
New clients to the portfolio.
As I said no to that that's part is when our clients are growing.
We're growing with them and we support them in that process.
Great and just maybe one last one Brian on the R&D side of things.
Down sequentially.
I know given all the initiatives you guys have going on from an R&D perspective, I guess I would expect that number to continue to increase but maybe just what is your expectation in the back half of the year on R&D spend.
So Frank I do I do anticipate thats going to tick up a little bit.
During the back half of the year.
I will tell you that a good bit of.
The R&D spend is also being capitalized too so you'll see that in our results as well.
Quite a bit.
Thank you.
Thanks, Mike.
Thank you. Our next question comes from Stephanie Dan Fannon with Citi.
Hey, guys. Thank you for taking my question. Thanks, guys on the quarter. Thank you so.
I thought you know.
Over the past month I thought it might be an opportune time asked for an update on the hospital business.
Well certainly it certainly has taken the U.S. by storm [laughter] you know they are a company that previous to January 1st were only located in Australia.
So they have quite an opportunity they are they had launched.
In the.
The third quarter, a busy and.
Agreement for.
Wholesale to hospitals that's working.
They are mostly digital and but weve tried to expand their offer their really their communications into a real time communications and recently for instance had.
The conference call with over 250.
People registered.
About with the client from Robert Wood Johnson speak about their experience and we had over 25 questions at the end of that so they really are doing quite well.
I think it's still just I think it's still.
You know we we we've we've looked at this market and its definitely a market that needs our system.
We've made a decision recently that and with the experience. We've just had with dose may actually over the last six months.
That we will be upgrading our matrix.
Per se.
T have parental drugs in the matrix and that's a project we're working on this year once we get that done we didn't think we need to do that in the beginning frankly, but we've learned from those to be that we really should and so that will continue they will continue to be our Trojan horse into the hospital systems here and abroad, where they're where they're located.
But we need to upgrade or matrix for so we have just not only parenteral not only the oral solids and stuff, but most of the decrementals via the Injectables. So that's kind of where we are so I wouldn't they think they were going to do much.
This year until we get the matrix finished and then we've got a tremendous opportunity.
With the hospital market.
All right understood the potential expansion, but not something we look for us to the next.
And then my next one is from Ryan.
Just looking at the Threeq guide if you exclude the pharmacy cost management data sales the third quarter of last year.
Guidance does imply a return to margin.
Is that an indication that.
That is starting to taper off or is there anything else to call out there.
No, there's really not anything going on there.
Yeah, there was that that one time kind of bump.
Last year as you reference company.
We don't anticipate that that's going to recur. This year, although you did see a little bit of increase.
You too.
So.
I think we're going to hopefully over the next few quarters find that to be a little bit more smooth it out but.
There's nothing nothing significant happening other than.
Okay, so nothing wrong to start modeling a little bit more expansion.
That's right.
Nothing wrong with your thought of.
Modeling a bit more expansion.
And your yes.
Correct, yes.
Hi.
Well. Thank you guys I appreciate the question.
Great. Thank you. Thank you so.
Thank you and our final question today will come from David Grossman with Stifel.
Thank you.
I was hoping maybe just to get a better sense for the outperformance in the quarter you know as I recall, you went in a little more cautious.
You'd be at the high end of your guidance by about $3 million and build that into the annual guidance. So sorry, if you covered this but I just want to make sure I understand how much of that was timing.
Revenue and when it came during the year versus higher unit growth volumes with symphony or perhaps the pricing comment you made.
The drug utilization data.
Yes, Steve This is Bryan most of it to be honest with you. It is more of a.
We do have.
The benefit in.
The second quarter I think we did a nice job earlier in the year setting expectations for what we expected for full year.
Both revenue and EBITDA.
And with that up just a little bit.
There has been some seasonality as it relates to some of the more recent acquisitions.
And that's really what's driving the second quarter uptick.
Go ahead of where we expected to be where we guided.
Earlier.
I see is that the drug utilization data fee is that an annual increase that you typically get orders.
No it's something that it's no it is not.
But.
Less.
We can predict it.
More so on a full year basis, but less so on a quarterly basis. So.
Something that can.
B.
A little bit up and down each quarter.
Okay and is that a meaningful number just I don't really know how to how to size that.
So for the full year, it's only about $10 million.
I see got it.
And then Kelly thanks for the update on the MCM results.
But just to make sure we understand exactly what that means so is the 2%.
Savings that you've got on the 18 days or is that 2% above and beyond what you've got in 2017 or is that.
Still that you're building the 2% benchmark over all.
No it's above and beyond.
Well be gotten 70.
Got it and do you have any you know just anecdotal.
Perspective, if you will on on how your peers are performing.
Well you know we should have that shortly everything was just released from.
A couple of days go from being embargoed at least the person was.
We haven't forthcoming meeting with a couple of them.
Just because we're working on other things with them. So I'm sure we'll get some insight.
But at this point I haven't you have you guys gotten anything.
We haven't gotten anything see any feedback yet so.
Since we have a well, let you know, but I haven't seen anything David.
I see and just.
The last one just on the organizational.
Restructuring that you talked about with the consultant.
Is that something that you know, we would expect to generate or yield some.
Meaningful operating leverage once that's finished I assume sometime in the next 12 months or so.
I wouldn't say, that's going to generate meaningful operating leverage it's more about focus of go to market strategy.
Consolidating around specific.
Market segments.
I think it's going to generate operating efficiencies.
From process from a process standpoint, maybe not as much from an economic standpoint, but you know we had five Ceos, we had all sorts of.
Clumsy self when you do these simulations and this 'cause River group has done a spectacular job for us to streamline our executive team and reposition things. It's just been a really really helpful.
System that that were slowly and implementing over the next couple of months and I'm very very pleased with it frankly, it's just a.
The span of control when it gets above six or seven people for anyone gets a little tenuous and you know some of this has 12 15 people span of control.
The assimilation. So it's just really it's what's going to help us immensely.
All right great well, thanks very much for the questions. Thank you. Thanks.
Thank you and we do have a follow up question from Matthew Gilmore with Baird.
Hey, Thanks, I just had one question left I thought or someone mentioned I'm selling the medwise capabilities into the pharmacy channel with prescribed wellness.
I just wanted to confirm that that was right and if you could describe how that's getting deployed and then would you describe those sales as a sort of meaningful from a revenue standpoint or are still pretty small.
Sure well, we are working through the integration process were working through that process. We are piloting a half dozen prescribed long as clients using the medwise platform and identifying target market opportunities come Sears pharmacist opportunities. So really refining the product with the goal of a go to market date of January Onest, two other prescribe long as clients.
So nothing meaningful at this point, but we have expectations that we're setting out to the process.
Got it thank you.
Thank you Matt.
Thank you.
And we do have a question from Phil.
Sutherland with the benchmark company.
Yes, I just wanted to come in with one last one I think you mentioned.
You are now.
Good.
The.
Producing are putting together the offering opioid market.
Can you provide some framework to that.
Well the.
In the last couple of weeks, we've all learned that the opioid.
Litigation and to be consolidated.
And to.
Uh huh.
And into Ohio, I believe was and when you look at the people that are defendants is about 140 to 150 defendants.
And it's everyone under the Sun you can imagine and.
We looked at that and we said to ourselves you know there's another way to look at that so few a problem. It has to do with the science, particularly that.
Most opioids are pro drugs and they have a particular gene that activates them to their active moiety and that that particular gene gets interfered with with other.
Drugs people were taking to have a stronger affinity to that gene, thereby rendering the opioid ineffective as an analgesic and what happens then is they keep increasing the dose.
And then again so high that.
Eventually Uh huh.
If the person this continues the interfering drugs or drugs.
They have now released all the all the activating gene and the opioid now goes crazy activating from Oxy CONMED Oxymorphone and you got a tremendous unintentional unbeknownst to overdose the leads to.
Terrible things, including many many many many times debt.
And so we believe that these defendants will probably need to have besides being a lot of money I guess, they'll probably need to have some type of a.
A system in place to help the future path of what they're doing.
And as far as I know, we're the only people that can do that.
So we are contacting all of the Ceos with those companies and we will see how things go well be able to report report later to you, but a you know it's just a it's a tragedy what's happened, but most of it's preventable.
If a multi drug simultaneous analysis was in place.
And it's not.
So that's what we're trying to trying to explore so we'll have more to do probably by next call what more diligent on that but that's what we're doing.
Hi, Thanks for the color.
Thanks.
Ladies and gentlemen, thank you for participating in today's question and answer session I would now like to turn the call back over to management for any closing remarks.
No I think were good. Thank you very much everyone for joining us.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may all disconnect and have a wonderful day.