Tabula Rasa HealthCare (TRHC) Tops Q2 EPS by 1c, Revenues Miss; Offers 3Q & FY20 Revenue Guidance Below Consensus

Tabula Rasa HealthCare (NASDAQ: TRHC) reported Q2 EPS of $0.07, $0.01 better than the analyst estimate of $0.06. Revenue for the quarter came in at $76.8 million versus the consensus estimate of $78.09 million.

Second Quarter 2020 Results

All comparisons, unless otherwise noted, are to the three months ended June 30, 2019.

• Total revenue - Total revenue of $76.8 million was up 1% as compared to $76.3 million. Total revenue included product revenue of $39.4 million, an increase of 18%, and solutions (i.e. software and services) revenue of $37.5 million, a decrease of 13%. On a sequential basis compared to the first quarter of 2020, total revenue increased 6%. Product revenue of $39.4 million includes $0.4 million related to the initial sales of COVID-19 test kits through our PrescribeWellness pharmacy network.
• Total revenue by segment - CareVention HealthCare revenue increased 13% to $50.5 million, comprised of $38.9 million of PACE product revenue (a 17% increase) and $11.5 million of PACE solutions revenue (a 1% increase), the latter of which remains negatively impacted by the renegotiated contract we highlighted during the quarter ended March 31, 2020. Excluding that unique contract from the first quarter results, PACE solutions revenue would have increased by 9%. MedWise HealthCare revenue decreased 16% to $26.4 million, comprised of $15.7 million (a 30% decrease) of medication safety services and $10.2 million (a 14% increase) of software subscriptions. Medication safety services increased 10% on a sequential basis as compared to the first quarter of 2020, driven by a higher number of total clinical interventions performed. As previously discussed, the expected year-over-year decline in the second quarter of 2020 was driven by CMS Star Rating changes and a large client contract that boosted our 2019 results to record levels.
• Gross margin - Gross margin, excluding depreciation and amortization expense, was 32.7% compared to 40.8% a year ago. Product gross margin increased to 26.2% from 25.5% and service gross margin decreased to 39.5% from 52.7%, driven by the decline in medication safety services. Software-related revenue, largely comprised of software subscriptions, represented 18% of total revenue as compared with 17% a year ago.
• Non-GAAP Adjusted EBITDA - Non-GAAP Adjusted EBITDA of $7.1 million declined as compared to $13.7 million a year ago, driven entirely by lower revenue and profitability in our MedWise HealthCare segment. Non-GAAP Adjusted EBITDA margin decreased to 9.3% as compared to 17.9% a year ago, the latter of which represented a company record high, benefiting from record MedWise HealthCare performance.
• Non-GAAP Adjusted EBITDA by segment - Excluding $9.7 million of shared services allocated to corporate, CareVention HealthCare non-GAAP Adjusted EBITDA of $12.1 million (23.9% margin) increased 5% as compared to $11.5 million (25.6% margin) a year ago. MedWise HealthCare non-GAAP Adjusted EBITDA of $4.7 million (17.8% margin) decreased as compared to $9.1 million (28.8% margin) a year ago due to lower medication safety services but improved on a sequential basis from the first quarter of 2020 (11.7% margin).
• GAAP Net loss - Net loss was $14.3 million compared to a net loss of $6.5 million a year ago. The primary factors contributing to the net loss were stock-based compensation expense of $7.2 million, depreciation and amortization of $10.2 million, and interest expense of $4.7 million.
• GAAP EPS - Net loss per diluted share was $0.66 compared to $0.32 a year ago. The net loss per share calculations were based on a diluted share count of 21.6 million shares for the second quarter of 2020, compared to 20.5 million shares for the same period a year ago.
• Non-GAAP EPS - Non-GAAP Adjusted net income per diluted share, or Adjusted Diluted EPS, was $0.07 as compared to $0.35 a year ago. The net income per share calculations were based on a diluted share count of 23.5 million shares for the second quarter of 2020, compared to 22.8 million shares for the same period a year ago.
• Cash - Unrestricted cash at the end of the second quarter of 2020 was $38.8 million as compared to $38.1 million at the end of the first quarter of 2020 and $42.5 million at the end of 2019. The change in cash through the first six months of 2020 was driven by net cash provided by operating activities of $3.4 million, offset by software development costs of $8.9 million. As of the end of the second quarter of 2020, no amounts were drawn on our $60 million line of credit.

GUIDANCE:

Tabula Rasa HealthCare sees Q3 2020 revenue of $71-78 million, versus the consensus of $87.78 million.

Tabula Rasa HealthCare sees FY2020 revenue of $300-310 million, versus the consensus of $333.32 million.

“I am pleased with our second quarter performance as our revenue and Adjusted EBITDA results were within our guidance range despite COVID-19 related challenges that became significantly more pronounced in May and June across our primary target markets. Our PACE census trends have shown continued improvement during June, July and August but our overall enrollment growth remains below historical levels, largely due to slower-than-expected growth within our clients’ existing PACE centers as they continue to deal with the pandemic. In addition, following our record sales in the first quarter of 2020, our MedWise HealthCare segment experienced delays in the timing of implementations and closing new business during the second quarter. We remain encouraged by positive signs within our CareVention HealthCare segment, continued healthy growth in our sales pipeline, and our efforts to broaden the adoption of our medication science as evidenced by the major launch of MedWise for our PrescribeWellness community pharmacists,” said Calvin H. Knowlton, PhD, TRHC’s Chief Executive Officer, Chairman and Founder.

Our guidance is based on current market conditions and our expectations as of today.

For the third quarter 2020 ending September 30, we expect:

• Total revenue in the range of $74 million to $78 million, the mid-point of which represents 2% growth compared to the third quarter of 2019.
• GAAP net loss in the range of $15.1 million to $13.3 million.
• Non-GAAP adjusted EBITDA in the range of $7 million to $9 million.

For the full year 2020 ending December 31, we expect:

• Revenue in the range of $300 million to $310 million, the mid-point of which represents 7% growth compared to the full 2019 fiscal year. The key factors, in order of importance, impacting our revised guidance are: (1) COVID-19 related delays in closing health plan deals with project timelines in some cases shifting to 2021, resulting in a lower contribution from new business wins, (2) COVID-19 related slower census growth in our PACE population, (3) implementation delays with several contracts won during the first quarter of 2020, including with respect to one of our largest deals within our MedWise HealthCare segment, to 2021, originally anticipated to go-live during the second quarter of 2020, and (4) the cancellation of all of the major pharmacy tradeshows in the third quarter of 2020, negatively impacting a key selling season for PrescribeWellness.
• GAAP net loss in the range of $58.5 million to $53.3 million.
• Non-GAAP Adjusted EBITDA in the range of $27 million to $33 million. Our profitability outlook is disproportionately impacted by our lower revenue guidance as we plan to continue to invest in strategic initiatives and maintain the necessary level of resources to support our early views on 2021 growth. As a reference point, our corporate shared services totaled $19.4 million through the first half of 2020, which is 44%, or $6.0 million higher, as compared to the first half of 2019.
• Free cash flow, excluding capitalized software and capital expenditures, in the range of breakeven to $5 million.

2021

Given our modest revenue growth outlook for the second half of 2020, we thought it would be important to provide our initial thoughts for 2021. Currently, we see a path to return to our historical organic growth rates and this optimism is based on a number of factors. Starting with CareVention HealthCare, (1) our recent PACE census figures from June through August are showing continued improvement after a low point in May, (2) we have a large number of new PACE clients and expansions with existing clients launching in the second half of 2020 with a greater emphasis on the fourth quarter of 2020 and 2021 and our PACE center backlog represents growth of 25% as compared to our ending PACE center total as of July 31, 2020, and (3) we have late-stage deals that we expect to complete in the second half of 2020 that represent a few thousand PACE lives and well in excess of $10 million in annual revenue. With respect to our MedWise HealthCare segment, we have delivered strong results for new health plan accounts during the first half of 2020 that have the potential to deliver exponentially higher revenue in 2021 with active expansion discussions ongoing. With master service agreements in place and proven outcomes, we expect shorter sales cycles and higher conversion rates with some of nation’s largest health plans. In addition, our key pharmacy win announced last quarter has the potential to drive double-digit growth in our 2021 software subscriptions. Lastly, 2021 profitability is expected to grow at a materially faster rate than revenue as we reap the benefits of our heavy investment spend in 2019 and the first half of 2020.

For earnings history and earnings-related data on Tabula Rasa HealthCare (TRHC) click here.

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