10-Q 1 trhc-20160930x10q.htm 10-Q trhc_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

OR

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number 001-37888

 

Tabula Rasa HealthCare, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware
(State of incorporation)

45-5726437
(I.R.S. Employer Identification No.)

228 Strawbridge Drive, Suite 100
Moorestown, NJ 08057
(Address of Principal Executive Offices,
including Zip Code)

(866) 648 - 2767
(Registrant’s Telephone Number,
Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No   ☒*

 

*   The registrant has not been subject to the filing requirements for the past 90 days as it commenced trading following its initial public offering on September 29, 2016, but has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 since such time.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes     No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

 

 

(Do not check if a

 

 

 

smaller reporting company)

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes   No 

 

As of October 31, 2016, the Registrant had 16,101,216 shares of Common Stock outstanding.

 

 

 

 


 

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2016

 

TABLE OF CONTENTS

 

 

 

Page

 

 

Number

 

 

 

PART I 

Financial Information

Item 1. 

Financial Statements

 

Unaudited Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 

 

Unaudited Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015

 

Unaudited Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit for the nine months ended September 30, 2016

 

Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015

 

Notes to Unaudited Consolidated Financial Statements

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

42 

Item 4. 

Controls and Procedures

43 

PART II 

Other Information

44 

Item 1. 

Legal Proceedings

44 

Item 1A. 

Risk Factors

44 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

68 

Item 3. 

Defaults Upon Senior Securities

69 

Item 4. 

Mine Safety Disclosures

69 

Item 5. 

Other Information.

69 

Item 6. 

Exhibits

69 

Signatures 

70 

Exhibit Index 

71 

 

2


 

PART I. – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2016

    

2015

 

Assets 

 

(unaudited)

 

 

 

 

Current assets: 

 

 

 

 

 

 

 

Cash 

 

$

1,793

 

$

2,026

 

Restricted cash

 

 

 —

 

 

200

 

Accounts receivable, net

 

 

7,742

 

 

6,013

 

Inventories

 

 

2,609

 

 

2,304

 

Rebates receivable

 

 

305

 

 

1,064

 

Prepaid expenses and other current assets

 

 

636

 

 

522

 

Total current assets 

 

 

13,085

 

 

12,129

 

   

 

 

 

 

 

 

 

Property and equipment, net 

 

 

5,558

 

 

1,962

 

Software development costs, net

 

 

3,073

 

 

2,505

 

Goodwill

 

 

21,726

 

 

21,606

 

Intangible assets, net

 

 

26,229

 

 

17,687

 

Other assets

 

 

4,219

 

 

2,713

 

Total assets 

 

$

73,890

 

$

58,602

 

   

 

 

 

 

 

 

 

Liabilities, redeemable convertible preferred stock  and stockholders’ equity (deficit)

 

 

 

 

 

 

 

Current liabilities: 

 

 

 

 

 

 

 

Line of credit

 

$

 —

 

$

10,000

 

Current portion of long-term debt

 

 

29,193

 

 

13,526

 

Notes payable to related parties

 

 

250

 

 

250

 

Notes payable related to acquisition

 

 

 —

 

 

15,620

 

Acquisition-related consideration payable

 

 

9,402

 

 

235

 

Acquisition-related contingent consideration

 

 

1,634

 

 

1,886

 

Accounts payable

 

 

5,998

 

 

6,808

 

Accrued expenses and other liabilities

 

 

3,584

 

 

3,244

 

Total current liabilities 

 

 

50,061

 

 

51,569

 

 

 

 

 

 

 

 

 

Line of credit

 

 

16,000

 

 

 —

 

Long-term debt

 

 

1,119

 

 

430

 

Long-term acquisition-related contingent consideration

 

 

1,858

 

 

3,355

 

Warrant liability

 

 

4,930

 

 

5,569

 

Deferred income taxes

 

 

307

 

 

334

 

Other long-term liabilities

 

 

1,973

 

 

 —

 

Total liabilities 

 

 

76,248

 

 

61,257

 

 

 

 

 

 

 

 

 

Redeemable convertible preferred stock:

 

 

 

 

 

 

 

Series A and A-1 redeemable convertible preferred stock, $0.0001 par value, 7,224,266 shares authorized, 6,911,766 shares issued and outstanding at September 30, 2016 and December 31, 2015 (liquidation preference of $6,884 and $6,589 at September 30, 2016 and December 31, 2015 respectively)

 

 

6,859

 

 

6,553

 

Series B redeemable convertible preferred stock, $0.0001 par value, 3,548,614 shares authorized, 2,961,745 shares issued and outstanding at September 30, 2016 and December 31, 2015 (liquidation preference of $5,455 and $5,223 at September 30, 2016 and December 31, 2015, respectively)

 

 

19,675

 

 

22,420

 

Total redeemable convertible preferred stock

 

 

26,534

 

 

28,973

 

Stockholders' deficit:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 27,836,869 shares authorized, 5,583,405 and 4,575,867 shares issued and outstanding at September 30, 2016 and December 31, 2015 respectively

 

 

 —

 

 

 —

 

Additional paid-in capital

 

 

 —

 

 

 —

 

Accumulated deficit

 

 

(28,892)

 

 

(31,628)

 

Total stockholders’ deficit

 

 

(28,892)

 

 

(31,628)

 

Total liabilities, redeemable convertible preferred stock and stockholders’ deficit 

 

$

73,890

 

$

58,602

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

  

$

20,731

 

$

15,389

 

$

58,732

 

$

42,684

 

Service revenue

 

 

3,443

 

 

2,563

 

 

8,017

 

 

7,594

 

Total revenue

 

 

24,174

 

 

17,952

 

 

66,749

 

 

50,278

 

Cost of revenue, exclusive of depreciation and amortization shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

Product cost

 

 

15,951

 

 

11,461

 

 

44,103

 

 

32,811

 

Service cost

 

 

1,232

 

 

816

 

 

3,135

 

 

2,398

 

Total cost of revenue

 

 

17,183

 

 

12,277

 

 

47,238

 

 

35,209

 

Gross profit

 

 

6,991

 

 

5,675

 

 

19,511

 

 

15,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (income) expenses: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development 

 

 

1,028

 

 

693

 

 

2,878

 

 

1,879

 

Sales and marketing

 

 

881

 

 

703

 

 

2,511

 

 

2,071

 

General and administrative 

 

 

2,053

 

 

2,084

 

 

5,762

 

 

5,374

 

Change in fair value of acquisition-related contingent consideration expense (income)

 

 

47

 

 

(330)

 

 

146

 

 

(1,348)

 

Depreciation and amortization

 

 

1,276

 

 

992

 

 

3,415

 

 

2,935

 

Total operating expenses 

 

 

5,285

 

 

4,142

 

 

14,712

 

 

10,911

 

Income from operations

 

 

1,706

 

 

1,533

 

 

4,799

 

 

4,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (income) expense: 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of warrant liability

 

 

(626)

 

 

3,293

 

 

(639)

 

 

3,477

 

Interest expense

 

 

1,242

 

 

1,468

 

 

4,250

 

 

4,418

 

Loss on extinguishment of debt

 

 

1,396

 

 

 —

 

 

1,396

 

 

 —

 

Total other expense

 

 

2,012

 

 

4,761

 

 

5,007

 

 

7,895

 

Loss before income taxes

 

 

(306)

 

 

(3,228)

 

 

(208)

 

 

(3,737)

 

Income tax (benefit) expense

 

 

(164)

 

 

36

 

 

11

 

 

212

 

Net loss

 

$

(142)

 

$

(3,264)

 

$

(219)

 

$

(3,949)

 

Net income (loss) attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1,228

 

$

(14,066)

 

$

1,080

 

$

(16,007)

 

Diluted

 

$

(803)

 

$

(14,066)

 

$

(894)

 

$

(16,007)

 

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

$

(3.21)

 

$

0.22

 

$

(3.78)

 

Diluted

 

$

(0.08)

 

$

(3.21)

 

$

(0.09)

 

$

(3.78)

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

4,918,885

 

 

4,379,796

 

 

4,817,285

 

 

4,232,350

 

Diluted

 

 

10,333,723

 

 

4,379,796

 

 

10,232,050

 

 

4,232,350

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

Redeemable Convertible Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

Total

 

 

 

Series A

 

Series A-1

 

Series B

 

 

 

 

 

Class A

 

Class B

 

Additional

 

Accumulated

 

Stockholders'

 

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Total

 

 

Shares

    

Amount

    

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Deficit

 

Balance, January 1, 2016

 

4,411,766

 

$

4,019

 

2,500,000

 

$

2,534

 

2,961,745

 

$

22,420

 

$

28,973

 

 

2,100,980

 

$

 —

 

2,474,917

 

$

 —

 

$

 —

 

$

(31,628)

 

$

(31,628)

 

Issuance of common stock in connection with satisfaction of contingent consideration related to acquisition of St. Mary's Prescription Pharmacy

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

10,824

 

 

 —

 

 —

 

 

 —

 

 

35

 

 

 —

 

 

35

 

Accretion (decretion) of redeemable convertible preferred stock

 

 —

 

 

188

 

 —

 

 

118

 

 —

 

 

(2,745)

 

 

(2,439)

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(516)

 

 

2,955

 

 

2,439

 

Transfer of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2,577

 

 

 —

 

(2,577)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

1

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net exercise of stock warrants

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

210,817

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Net exercise of stock options

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

63,220

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of restricted stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

722,646

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

481

 

 

 —

 

 

481

 

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(219)

 

 

(219)

 

Balance, September 30, 2016

 

4,411,766

 

$

4,207

 

2,500,000

 

$

2,652

 

2,961,745

 

$

19,675

 

$

26,534

 

 

2,837,028

 

$

 —

 

2,746,377

 

$

 —

 

$

 —

 

$

(28,892)

 

$

(28,892)

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2016

    

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(219)

 

$

(3,949)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,415

 

 

2,935

 

Amortization of deferred financing costs and debt discount

 

 

1,255

 

 

1,575

 

Payment of imputed interest on debt

 

 

(3,893)

 

 

(105)

 

Deferred taxes

 

 

(27)

 

 

212

 

Issuance of common stock warrants

 

 

 —

 

 

16

 

Stock-based compensation

 

 

481

 

 

471

 

Change in fair value of warrant liability

 

 

(639)

 

 

3,477

 

Change in fair value of acquisition-related contingent consideration

 

 

146

 

 

(1,348)

 

Loss on extinguishment of debt

 

 

1,396

 

 

 —

 

Other noncash items

 

 

 —

 

 

(13)

 

Changes in operating assets and liabilities, net of effect from acquisitions:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(1,729)

 

 

(951)

 

Inventories

 

 

(305)

 

 

(353)

 

Rebates receivable

 

 

759

 

 

308

 

Prepaid expenses and other current assets

 

 

(114)

 

 

(191)

 

Other assets

 

 

(171)

 

 

79

 

Acquisition-related contingent consideration

 

 

 —

 

 

(610)

 

Accounts payable   

 

 

(191)

 

 

322

 

Accrued expenses and other liabilities

 

 

340

 

 

912

 

Other long-term liabilities

 

 

1,973

 

 

(4)

 

Net cash provided by operating activities

 

 

2,477

 

 

2,783

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,947)

 

 

(135)

 

Software development costs

 

 

(1,201)

 

 

(669)

 

Purchases of intangible assets

 

 

(29)

 

 

 —

 

Change in restricted cash

 

 

200

 

 

300

 

Purchase of businesses, net of cash acquired

 

 

(1,000)

 

 

(2,403)

 

Net cash used in investing activities

 

 

(4,977)

 

 

(2,907)

 

  

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments for debt financing costs

 

 

(1,521)

 

 

(69)

 

Repayments of notes payable to related parties

 

 

 —

 

 

(354)

 

Borrowings on line of credit

 

 

6,000

 

 

10,000

 

Repayments of line of credit

 

 

 —

 

 

(6,860)

 

Payments of acquisition-related consideration

 

 

(180)

 

 

(1,895)

 

Repayment of note payable related to acquisition

 

 

(14,337)

 

 

 —

 

Payments of initial public offering costs

 

 

(2,191)

 

 

(390)

 

Payments of contingent consideration

 

 

(1,895)

 

 

(267)

 

Proceeds from long-term debt

 

 

30,000

 

 

 —

 

Repayments of long-term debt

 

 

(13,609)

 

 

(1,605)

 

Net cash provided by (used in) financing activities

 

 

2,267

 

 

(1,440)

 

  

 

 

 

 

 

 

 

Net decrease in cash

 

 

(233)

 

 

(1,564)

 

Cash, beginning of period

 

 

2,026

 

 

4,122

 

Cash, end of period

 

$

1,793

 

$

2,558

 

  

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Acquisition of equipment under capital leases

 

$

1,470

 

$

353

 

Additions to property, equipment, and software development purchases included in accounts payable

 

$

238

 

$

15

 

Deferred offering costs included in accounts payable

 

$

1,006

 

$

1,222

 

Cash paid for interest

 

$

7,901

 

$

1,807

 

(Decretion) accretion of redeemable convertible preferred stock to redemption value

 

$

(2,439)

 

$

12,058

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6


 

Table of Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

1.      Nature of Business

 

Tabula Rasa HealthCare, Inc. (the “Company”) provides patient-specific, data-driven technology and solutions that enable healthcare organizations to optimize medication regimens to improve patient outcomes, reduce hospitalizations, lower healthcare costs and manage risk. The Company delivers its solutions through a comprehensive suite of technology-enabled products and services for medication risk management and risk adjustment. The Company serves healthcare organizations that focus on populations with complex healthcare needs and extensive medication requirements. The Company's suite of cloud-based software solutions provides prescribers, pharmacists and healthcare organizations with sophisticated and innovative tools to better manage the medication-related needs of patients.

 

On October 4, 2016, the Company closed its initial public offering (the “IPO”) in which the Company issued and sold 4,300,000 shares of common stock, plus the exercise of the underwriters’ option to purchase an additional 645,000 shares of common stock, at an issuance price of $12.00 per share. The Company received net proceeds of $55,186 after deducting underwriting discounts and commissions of $4,154 but before deducting other offering expenses. In addition, upon the closing of the IPO, all of the Company’s then outstanding Class A Non-Voting common stock and Class B Voting common stock, totaling 5,583,405 shares, were automatically redesignated into shares of common stock, and all of the Company’s then outstanding convertible preferred stock converted into an aggregate of 5,089,436 shares of common stock. In addition, 202,061 shares of common stock were issued upon the automatic net exercise of outstanding warrants to purchase common stock that would have otherwise terminated immediately prior to the closing of the IPO. Additionally, in connection with the closing of the IPO, outstanding warrants to purchase shares of preferred stock converted into warrants to purchase an aggregate of 463,589 shares of common stock.

 

Upon completion of the IPO on October 4, 2016, the Company filed an amended and restated certificate of incorporation to, among other things, state that the aggregate number of shares of stock that the Company is authorized to issue is 100,000,000 shares of common stock, par value $.0001 per share, and 10,000,000 shares of undesignated preferred stock, par value $.0001 per share.

 

 

2.      Summary of Significant Accounting Policies

 

The Company's significant accounting policies are disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2015, which is included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on September 29, 2016 (the “Prospectus”). Since the date of those audited consolidated financial statements, there have been no changes to the Company's significant accounting policies, including the status of recent accounting pronouncements, other than those detailed below.

 

(a)    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 for the fair statement of the Company's interim consolidated financial position for the periods indicated. The interim results for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the year ending December 31, 2016, 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 consolidated financial statements and accompanying notes included in the Company’s Prospectus.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

(b)    Reverse Stock Split

 

              The Company effected a 1-for-1.94 reverse split of its common stock on September 16, 2016. The reverse split combined each 1.94 shares of the Company's issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion prices of its convertible preferred stock. No fractional shares were issued in connection with the reverse split. Any fractional shares resulting from the reverse split were rounded down to the nearest whole share, and in lieu of any fractional shares the Company will pay a cash amount to the holder of such fractional share equal to the fair market value of such fractional share as determined by the Company’s board of directors (the “Board”). All share, per share and related information presented in the consolidated financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the reverse stock split.

 

(c)    Liquidity

 

              The Company's unaudited consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Management believes that the Company's cash on hand of $1,793 as of September 30, 2016, cash flows from operations, net proceeds from the IPO and borrowing availability under the Amended 2015 Revolving Line (Note 10) are sufficient to fund the Company's planned operations through at least March 31, 2018.

 

(d)    Use of Estimates

 

              The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates or assumptions.

 

(e)    Deferred Offering Costs

 

              The Company capitalized certain legal, accounting and other third-party fees that were directly associated with the IPO as deferred offering costs (non-current). After the IPO on October 4, 2016 (Note 1 and 17), these costs were recorded in stockholders' deficit as a reduction of additional paid-in capital. Deferred offering costs were $3,677 and $2,298 as of September 30, 2016, and December 31, 2015, respectively.

 

(f)    Deferred Debt Issuance Costs

 

              Effective January 1, 2016, the Company adopted Accounting Standards Update (ASU) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the associated debt. Previously, the Company reported these costs in "Other assets" in the Company's consolidated balance sheets. The Company continues to defer the issuance costs related to its line of credit arrangement in "Other assets". The new guidance has been applied on a retrospective basis whereby prior-period financial statements have been adjusted to reflect the application of the new guidance, as required by the Financial Accounting Standards Board ("FASB") and resulted in the reclassification of $105 as of December 31, 2015 from other assets to current portion of long-term debt.

 

(g)    Recent Accounting Pronouncements

 

               In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). ASU 2016-15 provides new guidance to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the disclosure impact of the adoption of ASU 2016-15 on the Company's consolidated financial statements.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

3.     Net Income (Loss) per Share

 

Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock of the Company outstanding during the period. The Company computed net income (loss) per share of common stock in conformity with the two-class method required for participating securities for the three and nine months ended September 30, 2016. The Company considers its redeemable convertible preferred stock to be participating securities as the holders of the preferred stock are entitled to receive a dividend in the event that a dividend is paid on common stock. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock during the period plus the impact of dilutive securities, to the extent that they are not anti-dilutive. The following table presents the calculation of basic and diluted net income (loss) per share for the Company’s common stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2016

    

2015

    

2016

    

2015

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(142)

 

$

(3,264)

 

$

(219)

 

$

(3,949)

 

Decretion (accretion) of redeemable convertible preferred stock

 

 

2,641

 

 

(10,802)

 

 

2,439

 

 

(12,058)

 

Undistributed income attributable to redeemable convertible preferred stockholders

 

 

(1,271)

 

 

 —

 

 

(1,140)

 

 

 —

 

Net income (loss) attributable to common stockholders, basic

 

$

1,228

 

$

(14,066)

 

$

1,080

 

$

(16,007)

 

Decretion of redeemable convertible preferred stock

 

 

(2,641)

 

 

 —

 

 

(2,439)

 

 

 —

 

Revaluation of warrant liability, net of tax

 

 

(661)

 

 

 —

 

 

(675)

 

 

 —

 

Adjustment to undistributed income attributable to redeemable convertible preferred stockholders

 

 

1,271

 

 

 —

 

 

1,140

 

 

 —

 

Net (loss) attributable to common stockholders, diluted

 

$

(803)

 

$

(14,066)

 

$

(894)

 

$

(16,007)

 

Denominator (basic):

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding, basic

 

 

4,918,885

 

 

4,379,796

 

 

4,817,285

 

 

4,232,350

 

Denominator (diluted):

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

4,918,885

 

 

4,379,796

 

 

4,817,285

 

 

4,232,350

 

Effect of potential dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect from preferred stock and preferred stock warrants assuming conversion

 

 

5,414,838

 

 

 —

 

 

5,414,765

 

 

 —

 

Weighted average shares of common stock outstanding, diluted

 

 

10,333,723

 

 

4,379,796

 

 

10,232,050

 

 

4,232,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders, basic

 

$

0.25

 

$

(3.21)

 

$

0.22

 

$

(3.78)

 

Net (loss) per share attributable to common stockholders, diluted

 

$

(0.08)

 

$

(3.21)

 

$

(0.09)

 

$

(3.78)

 

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

For the three and nine months ended September 30, 2016 and 2015, the Company's potential dilutive securities include stock options, restricted stock, outstanding warrants to purchase shares of preferred and common stock and redeemable convertible preferred stock, and have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

  

2016

    

2015

    

2016

    

2015

 

Stock options to purchase common stock

 

2,723,193

 

2,789,626

 

2,723,193

 

2,789,626

 

Restricted stock

 

722,646

 

 —

 

722,646

 

 —

 

Common stock warrants

 

213,806

 

446,593

 

213,806

 

446,593

 

Preferred stock warrants (as converted to common stock)

 

 —

 

463,589

 

 —

 

463,589

 

Redeemable convertible preferred stock (as converted to common stock)

 

 —

 

5,089,436

 

 —

 

5,089,436

 

 

 

3,659,645

 

8,789,244

 

3,659,645

 

8,789,244

 

 

On October 4, 2016, the Company closed its IPO in which the Company issued and sold 4,300,000 shares of common stock, plus the exercise of the underwriters’ option to purchase an additional 645,000 shares, at an issuance price of $12.00 per share. See Note 1 and Note 17 for additional information.

 

 

 

 

4.     Acquisition

 

On September 15, 2016, the Company acquired certain assets, consisting primarily of intellectual property and software assets of 9176-1916 Quebec Inc. (an entity indirectly controlled by our Chief Scientific Officer, Jacques Turgeon). The intellectual property and software assets were previously licensed by us and are integrated into the Company’s Medication Risk Mitigation Matrix. The purchase price consisted of cash consideration of up to $6,000, consisting of $1,000 which was paid upon closing, $2,200 paid on November 2, 2016, $2,200 payable on the 45th business day following the completion the IPO and $600 following the 12-month anniversary of the closing date of the acquisition, which is contingent upon no claims for indemnification being made pursuant to the purchase agreement. In addition to the cash consideration, the purchase price included $5,000 worth of common stock, consisting of $2,500 of common stock due on the 31st business day following the completion of the IPO and $2,500 of common stock due on the 61st business day following the completion of the IPO. The stock consideration to be paid on the 31st and 61st business days following the completion of the IPO is calculated based on the arithmetic average of the daily volume-weighted average price of the Company’s common stock for the 30 business days ending on, and including, the 30th and 60th business day, respectively, following the completion of the IPO.

 

The deferred acquisition cash consideration of $5,000 was recorded at its acquisition-date fair value of $4,955, using an assumed cost of debt of 7.8%. The $45 discount is being amortized to interest expense using the effective interest method through the consideration payment date. The Company amortized $2 of the discount to interest expense for the three and nine months ended September 30, 2016. Additionally, the deferred stock consideration of $5,000 was recorded at its acquisition-date fair value of $4,445. The stock consideration to be paid in connection with the acquisition is subject to a lock-up agreement and, as a result, a discount for lack of marketability of 10% was applied to determine the fair value of the stock consideration as of the acquisition date. These amounts are included in acquisition-related consideration payable in the consolidated balance sheets as of September 30, 2016.

 

The assets acquired, and revenue generated from the acquired assets, are included in the Company’s consolidated financial statements from the date of acquisition.

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

The following table summarizes the preliminary allocation of the purchase price based on the estimated fair values of the assets acquired at the date of acquisition:

 

 

 

 

 

 

Developed technology

 

$

10,100

 

Trade name

 

 

180

 

Goodwill

 

 

120

 

Total assets acquired

 

$

10,400

 

 

The purchase price was allocated to identifiable intangible assets acquired based on their acquisition-date estimated fair values. The identifiable intangible assets principally included developed technology valued at $10,100 and trade name valued at $180, each of which are subject to amortization on a straight-line basis over 7 and 5 years, respectively. The weighted average amortization period for acquired intangible assets as of the date of acquisition is 6.96 years.

 

The Company, with the assistance of a third-party appraiser, assessed the fair value of the assets. The fair value of the developed technology was estimated using a discounted present value income approach. To calculate fair value, the Company used cash flows discounted at a rate considered appropriate given the inherent risks associated with the intangible asset. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions. The fair value of the trade name was estimated using the relief from royalty method. The Company derived the hypothetical royalty income from the incremental projected revenues related to utilizing the acquired technology.

 

              The amortization of intangible assets is deductible for income tax purposes.

 

The Company continues to evaluate the fair value of certain assets related to the acquisition. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded may result in a corresponding adjustment to goodwill. The determination of the estimated fair values of all assets acquired is expected to be completed within one year.

 

The unaudited pro forma results presented below include the results of the 9176-1916 Quebec Inc. acquisition as if it had been consummated as of January 1, 2015. The unaudited pro forma results include the amortization associated with acquired intangible assets and interest expense on debt to fund the acquisition. Material nonrecurring charges 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, 2015.

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

 

    

2016

 

    

2015

 

Revenue

$

66,788

 

$

50,290

 

Net loss

 

(1,305)

 

 

(5,064)

 

Net income (loss) per share attributable to common stockholders, basic

 

0.00

 

 

(2.90)

 

Net (loss) per share attributable to common stockholders, diluted

 

(0.19)

 

 

(2.90)

 

 

 

 

5.       Property and Equipment

 

              Depreciation and amortization expense on property and equipment for the three months ended September 30, 2016 and 2015 was $359 and $250, respectively. Depreciation and amortization expense for the nine months ended September 30, 2016 and 2015 was $889 and $729, respectively.

 

 

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

6.       Software Development Costs

 

              The Company capitalizes certain costs incurred in connection with obtaining or developing internal-use software, including external direct costs of material and services and payroll costs for employees directly involved with the software development. As of September 30, 2016 and December 31, 2015, gross capitalized software costs were $5,875 and $4,550 and accumulated amortization was $2,802 and $2,045, respectively. Amortization expense for the three months ended September 30, 2016 and 2015 was $302 and $164, respectively. Amortization expense for the nine months ended September 30, 2016 and 2015 was $757 and $474, respectively. As of September 30, 2016 and December 31, 2015, there was $1,136 and $888, respectively, of capitalized software costs that were not yet subject to amortization.

 

 

7.      Goodwill and Intangible Assets

 

The Company’s goodwill and related changes during the nine months ended September 30, 2016 are as follows:

 

 

 

 

 

Balance at January 1, 2016

 

$

21,606

Goodwill from 2016 acquisition

 

 

120

Balance at September 30, 2016

 

$

21,726

 

Intangible assets consisted of the following as of September 30, 2016 and December 31, 2015: