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Edited Transcript of TRHC.OQ earnings conference call or presentation 8-Aug-19 9:00pm GMT

Q2 2019 Tabula Rasa HealthCare Inc Earnings Call

Moorestown Oct 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Tabula Rasa HealthCare Inc earnings conference call or presentation Thursday, August 8, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian W. Adams

Tabula Rasa HealthCare, Inc. - CFO & Secretary

* Calvin H. Knowlton

Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO

* Kevin J. Dill

Tabula Rasa HealthCare, Inc. - General Counsel

* Kevin P. Boesen

SinfoníaRx, Inc. - CEO

* Orsula V. Knowlton

Tabula Rasa HealthCare, Inc. - Co-Founder, President, Chief Marketing & New Business Development Officer and Director

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Conference Call Participants

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* David Michael Grossman

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Frank Sparacino

First Analysis Securities Corporation, Research Division - SVP

* Jared Phillip Haase

William Blair & Company L.L.C., Research Division - Research Analyst

* Matthew Dale Gillmor

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Mohan A. Naidu

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Sean William Wieland

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Stephanie July Demko

Citigroup Inc, Research Division - VP & Senior Analyst

* William Sutherland

The Benchmark Company, LLC, Research Division - Healthcare & Business Services Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen and welcome to the Q2 2019 Tabula Rasa HealthCare Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Mr. Kevin Dill, Corporate Counsel for Tabula Rasa HealthCare. Mr. Dill, you may begin.

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Kevin J. Dill, Tabula Rasa HealthCare, Inc. - General Counsel [2]

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Thank you and good evening. I am Kevin Dill, Corporate Counsel for Tabula Rasa HealthCare.

The company intends to avail itself of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements made during the call will be forward-looking statements within the meaning of that law. These forward-looking statements are subject to risks, uncertainties and other factors that could cause Tabula Rasa HealthCare's actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include the developing nature of the market for technology-enabled healthcare products and services and potential changes to laws and regulations that may impact our clients.

For additional information on the risks facing Tabula Rasa HealthCare, please refer to our filings with the SEC, including the Risk Factors section of our most recent Annual Report on Form 10-K filed with the SEC on March 1, 2019.

A 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 Tabular Rasa HealthCare. Cal?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [3]

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Thank you, Kevin. Good evening and thank you for joining us for our second quarter 2019 earnings call.

Also with me today are Dr. Orsula Knowlton, Co-Founder and Chief Marketing and Business Development Officer, who will provide an update on our markets and new business activities; and Mr. Brian 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 for first (sic) [second] quarter. Revenue was $76.3 million, representing 57% growth. Adjusted EBITDA was $13.7 million, representing 88% growth. Adjusted earnings per share was $0.35, representing 75% growth. We had strong performance across all aspects of our business. We also had a strong pipeline, which Orsula will summarize for you shortly.

Our main value proposition is by using our unique software identifying and mitigating simultaneous multidrug interactions. Our MedWise software is grounded deeply in the science of pharmacokinetics, pharmacogenomics, pharmacodynamics and chronopharmacology, which we compile into a singular medication risk score from 0 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 degree data mining analytics personnel. They have worked extensively with our PACE data sets and our CMS-sponsored Enhanced Medication Therapy Management data sets. With both data sets we have access to complete pharmacotherapy information, including prescription, over-the-counter, recreational meds and drugs as well as medical spending such as hospitalizations, ER visits, physician visits.

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 monthly that I will be reporting from the purview gleaned by our analytics departments, which is quite aligned with the embargoed results from CMS actuaries. The cohort to which we were signed each year was approximately 230,000 Part D patients. We risk stratified the group and identified approximately 35,000 patients who had a medication risk score above 14 on the 0 to 50 scale.

In 2017, we were able to conduct -- I'm sorry, consult with 15,000 patients of the 35,000. In 2018 we were able to consult with 28,000 patient. A consult means 1 telephonic 30-minute medication risk review, and a second follow-up 15-minute telephone contact within 90 days. Prior to the telephonic contact, we prepare a medication safety review along with preliminary reports we subsequently send to the patient and to their selected quarterback prescriber. The telephonic contact time, again, is limited to 30 minutes to 40 minutes, and it is retrospective. In other words, they are already taking the medications.

This contrasts with PACE where our contact is prospective prior to medication being filled and it is ongoing with a touch every month. So even with that light touch, the first year of our MedWise platform and certified MedWise finances reduced medical spend by more than 2%, which was CMS' target after 5 years. Our analytics department determined that once again in 2018, our one-touch interventions also reduced medical spend by more than 2%. This was attracted from patients we consulted only in 2018 and not duplicated patients from 2017.

To switch gears a bit, we then looked at the almost 200,000 patients for whom we did not intervene. These were those with the medication risk score below 14. That is they were less at risk for an adverse drug event compared to our intervention cohort, who had medication risk scores of 14 or higher. So these patients have not been touched by our MedWise certified pharmacies, yet even at the lower medication risk, what we found was most interesting, shocking, and concerning.

We ask 3 questions of the data. First, is there a relationship between adverse drug events and hospitalizations in this lower medication risk cohort? Second, is there a relationship between adverse drug events and medical expenditures? And third, does MedWise risk score correlate 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 where reported adverse drug events correlates with the 3.8x greater annual admission rate and a 3.5x greater overall medical spend per month.

Second, is the relationship between adverse drug events and medical expenditures in this lower medication risk score cohort? Again, the answer is, yes. Members with the reported adverse drug event had an increase in 12-month average total additional medication -- medical cost of $18,025 compared with members without reported adverse drug event.

To answer the third question, so if the MedWise risk would correlate with hospitalization rate and if so how? For this analyst, we started the entire cohort that is almost 240,000 patients. The answer, a resounding, yes. There is a strong correlation between the average 12-month hospital admission rate and Part D MedWise risk score. And here's the harvested data. A, MedWise risk score includes 10. The annual admit rate to the hospital 26%. B, the MedWise risk score equals 20, the annual admit rate is 44%. C, the MedWise risk score equals 30 and the annual admit rate to the hospital is 64%. Furthermore, what the data tell us, is that with each unit reduction of the MedWise risk score, for example from 15 to 14 or 14 to 13, each single point drop corresponds to $683 of annual medical spend reduction. The take-home from all of this data is this, number 1, 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 a cause of preventative mortality.

Number 2, using new technology, most adverse drug events, especially those caused by simultaneous multidrug interactions can be prevented.

And number 3, our unique MedWise risk score 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 Orsula for her update.

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Orsula V. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, President, Chief Marketing & New Business Development Officer and Director [4]

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Thank you. Cal. 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 Sinfonia's solid performance this quarter, provide an update regarding prescribed wellness and touch on our PACE market along with our CareVention HealthCare brand platform.

First, during the second quarter, Sinfonia's dedicated team of interprofessional clinical providers reached a record-breaking number of direct patient contacts for comprehensive medication reviews or CMRs. Through the first half of the year, the number of CMRs the Sinfonia team completed increased nearly 40%. This group is performing very well and we expect them to continue to do so.

With regard to PrescribeWellness, we are pleased that they have seen great success of selling their new VRxAssist product to the turn of 200 new customers on this module over the past 2 months, which is about $2 million of incremental top line annual revenue upon implementation. I think as an extension of pharmacy staff, the VRxAssist virtual team expand services, optimizes quality measures, workflow efficiency, improved outcomes and capitalizes on new revenue opportunities, all while minimizing direct and indirect remuneration or DIR fees for the client.

[GHRP] is in the process of integrating these services into Sinfonia's call center operations to support the expansion lease. Currently, PrescribeWellness is using outside vendors. Also PrescribeWellness had recent success with Highmark, one of the first [at-risk] payer contract in which they achieved their value-based goals. So far over the course of this summer, which is PrescribeWellness' selling season, they've developed an even stronger pipeline of future business.

Our integration of MedWise on the PrescribeWellness Patient Engagement center platform is on track for the first quarter of 2020. We are entering into pilot engagements with a half dozen of PrescribeWellness clients to develop and launch our MedWise Advisor, a concierge pharmacists platform offering. During the recent PrescribeWellness advisory panel meeting held that TRHC headquarters, we found meaningful interest in hosting MedWise on the PrescribeWellness platform. As 1 pharmacist put it, I can't believe we haven't had this type of medication decision support to help our patients avoid adverse drug event. It is humbling to realize how much pharmacist providers could engage patients, improve outcomes of care and overall health with medication decision support tools like MedWise.

SinfoniaRx and PrescribeWellness are now collaborating to provide an integrated solution to independent pharmacies. This extends our model with PrescribeWellness community pharmacy network providing local support and SinfoniaRx 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 health care to consumer.

Just to mention our recent acquisition DoseMe, the company has had great success, bringing on several new hospital clients. They also launched their new clinical dashboard known as [Cohere], which is being written into existing contracts in their pipeline.

Next I want to provide an update about PACE and our new brand CareVention HealthCare. CareVention is our collective service offerings we provide to PACE, including CareKinesis, Capstone, Peak PACE, Mediture and Cognify. From a market perspective, the good news is that the new PACE conditions of participation took effect on August 2.

This shows continued support from the federal government for the PACE program and willingness to encourage growth. Recall that PACE participants cost the federal government $2,000 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 allow PACE organizations more operational flexibility. We believe our CareVention platform will help PACE organizations more easily achieve these growth goals.

Along with the new PACE rules, we are seeing organic expansion in multiple states. From our perspective, in addition to the ongoing new business we are adding to PACE, we have a strong pipeline of client expansions that run through 2020 and the start of 2021. Truly we are seeing strength in growth in the market.

We are also excited about our CareVention HealthCare platform's selling success. CareVention HealthCare PACE 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 CareVention concept last fall, we have experienced success of 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 CareVention services outside of PACE to do different Medicare Advantage Plan. SOLIS located in Florida and Troy Health in North Carolina, both are fairly new plans. SOLIS is also currently using SinfoniaRx for MTM. Troy Health is unique and that is the 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 unmet potential for the CareVention platform's market opportunity.

With that, I'd like to turn the call over to Brian for a closer look at the second quarter results.

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [5]

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Thank you. Orsula. This was a strong second quarter for Tabular Rasa, and I am 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 of standout performance.

As Orsula mentioned, SinfoniaRx performed particularly well in the second quarter, growing top line 34% compared to a year ago. Similarly, our PACE 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, DoseMe, 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 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, an increase in the number of clinical reviews performed by the SinfoniaRx team and 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 a continued shift in our revenue mix as service revenue comprises 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% in 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 PrescribeWellness 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 and 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 the second quarter of last year. The increase is in line with our expectation and reflects expenses associated with TRHC 2.0 initiatives, the launch of our Precision Pharmacotherapy Research and Development Institute and investments we are making to integrate a recent acquisition.

We expect improvement in our operating leverage to begin to materialize over the next 2 years to 3 years as we capitalize on the build-out of our sales force, 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 SinfoniaRx business.

Our GAAP net loss of $6.5 million compared to GAAP net loss of $29 million in the second quarter of 2018. GAAP net loss per diluted share for the second quarter was $0.32 compared to $1.53 for the same period last year. The net loss per diluted share calculation 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 $0.35 compared to adjusted net income per diluted share of $0.20 in the second quarter of 2018. The net income per diluted share calculation are based on 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 30, 2019, we had $52.1 million of unrestricted cash compared to $20.3 million at the end of 2018. We currently have $60 million available on our line of credit with nothing drawn.

To wrap up my comments today, I will provide an 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 million to $8.5 million. I will remind you that during the course of the year, the clinical reviews that our performance on our qualified numbers for the MTM business, get increasingly more difficult to perform and it 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 the product revenue of approximately $134 million. 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. 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 DoseMe 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 million.

I'm very pleased with Tabular Rasa's 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 positioned in the markets we currently serve.

With that, I would like to turn the call back over to Cal for his closing remarks.

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [6]

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Thank you, Brian. As I think Orsula, Brian and I have all stressed on this call, we are incredibly pleased and everything Tabula Rasa has 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 3 months into a 6-month structured organizational redesign led by the (inaudible) from California. This is enabling the TRHC leadership teams to congeal and assimilate our recent acquisitions in a systematic orderly manner. We have embarked on this restructuring to ensure that TRCH is poised to maintain our ongoing growth trajectory.

We still remain the market leader and only in the platform -- only one in the platform in this market, addressing the ubiquitous pandemic preventable multidrug adverse medication events that now kill more than 170,000 US residents annually and merely injure hundreds of thousands and more. It's the 4 million pharmacists in the world who used our deep science-based MedWise platform especially prospectively. Preventable adverse drug events could be avoided, including a substantial amount of fatal unintended opioid overdoses, which are due to unrecognized multidrug simultaneous interactions.

Towards that end, we have a new opioid initiative we're now launching. So thank you for listening and 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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Ryan Daniels with William Blair.

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Jared Phillip Haase, William Blair & Company L.L.C., Research Division - Research Analyst [2]

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This is Jared Haase dialing in for Ryan. Maybe just to start looking at the revenue in the quarter, Brian, I know you talked a little bit about the strength of the Sinfonia business, but I'm wondering if there's any more color that you can provide to us just on kind of some of the drivers of the strength there in the quarter?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [3]

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Yes, I mean there's a couple of things. The Sinfonia business as you heard from both Orsula and from myself, it certainly did perform extremely well during the quarter and I will remind you that that's mostly 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. So a good number of those were completed during the second quarter. We typically see that happen and we expect that to continue, and then there is a different type of clinical intervention that gets performance more towards the end of the year that's focused on STARs programs. So there's some seasonality to that business.

In addition, we did see the drug utilization fees that we received. That is a little bit lumpy. So I will tell you that, that business is not exactly smooth. We typically know -- it can estimate what we're going to receive pretty much for the full year, but that from a quarter-to-quarter basis can vary a bit. So we saw a bit of an increase there in the second quarter.

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Jared Phillip Haase, William Blair & Company L.L.C., Research Division - Research Analyst [4]

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And then just when we look at the adjusted EBITDA margin strength there coming in at about 18%, I imagine some of that's due to maybe some of the strength on the Sinfonia side, but anything else to add there from a margin perspective, anything that was maybe more timing or would be considered kind of one-time in nature for the quarter?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [5]

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So the only thing I would mention is the second piece of that. Yes, Sinfonia did have a contribution, but also the utilization data that I was mentioning, that came in a little bit higher than our expectations will be for the following 2 quarters. So that did have an impact on margins in the second quarter as well.

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Operator [6]

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Our next question comes from Mohan Naidu with Oppenheimer.

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Mohan A. Naidu, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [7]

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Cal, on the EMTM pilot, do we know when it will be made public and how others are doing in this program compared to your results -- internal results?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [8]

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The embargo was lifted the August 1, but we only received the percentage that we exceeded the 2% savings. We didn't receive the strong dollar amount yet that's finalized. So we had to use our analytics group to kind of -- I could report on the analytics group, I can't really report on the CMS other than they did -- we did save greater than 2%.

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Mohan A. Naidu, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [9]

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Okay. And you shared a lot of data about the potential opportunities with lower risk score patients. As you go into year 3, are you going to be looking at these stations to intervene or how do you structure or how are you thinking of structuring into year 3?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [10]

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But what happens is we get a refreshing -- refresh data feed every month on A, B and D data and the patients change over time. So the 240,000 people are not the same 240,000 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 that we risk stratified in 2018 were different. There was some overlap, but most of them were different than what we did in 2017 and I suspect, that's going to happen and that's happening this year too because know we have the analytics group running this, we could get feedback pretty much monthly. And it is a new cohort again this year, mostly than duplicates from the last 2 years.

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Mohan A. Naidu, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [11]

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And maybe a couple of quick ones on the pipeline. You guys talked about the strong pipeline before and today as well. Can you give us any color on what type of deals are in the pipeline and any visibility on any conversion for this year or next year?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [12]

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Well, we have Kevin Boesen on the line 2, and Kevin, would you like to take that one for Mohan, please?

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Kevin P. Boesen, SinfoníaRx, Inc. - CEO [13]

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Sure, absolutely. Thanks for the question. We have -- the sales team has been very active in terms of building the pipeline, the message among the clients that we're talking to specifically, if I looked in the markets where we're pushing and talking about MedWise and preventing adverse drug events, reducing overall total cost of care, is primarily in Managed Medicaid and the 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 markets of a combined approach that takes the Tabula Rasa science and leverages the ground force of the PrescribeWellness network with (inaudible) of the Symphony, a call center model and that's been resonating really well and we're very confident that we should have some of those deals that we can close this year with revenue associated with that in 2020.

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Mohan A. Naidu, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [14]

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That's great. Maybe one quick one for Kevin. Any way to quantify the deal sizes or number of deals or any color that you can provide that would be great.

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Kevin P. Boesen, SinfoníaRx, Inc. - CEO [15]

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Yes. I think at this point there, the plans that we're talking to, some of them are significant in size and then there is a number of smaller plans that we're talking to as well. So I think it's a little -- it's maybe a little soon to give you some exact projections on that, but we're very optimistic that the message that we're saying is the right message to the market because we're getting a great response from that. So hopefully, more to come very soon.

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Operator [16]

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Our next question comes from Matthew Gillmor with Baird.

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Matthew Dale Gillmor, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]

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Maybe, following up on some of the pipeline commentary from Kevin. Should we should think about that model as 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 a commercial population for example?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [18]

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I'm happy to take that first, and then maybe Kevin can fill in, but typically what we're seeing, Matt, is the number of people that are high risk in a commercial plan is significantly lower than we're seeing on a Medicare population, somewhere in between I think 4% to 7% or so. And so the fees that we would expect on a commercial arrangement would be somewhere probably closer to $1, but still look targeting to apply that across the entire commercial population. Kevin, maybe you want to fill that in a little bit more?

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Kevin P. Boesen, SinfoníaRx, Inc. - CEO [19]

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Yes, sure. That's a great explanation of it, and what we can do in the sales process is do a risk stratification on a client's entire population. So we have a good sense of the numbers of patients, percentage 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. There is a number of patients in Managed Medicaid, younger groups 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.

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Matthew Dale Gillmor, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [20]

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And then I appreciate all the details Cal provided on the EMTM analysis. I was just a demo down to make sure we are understanding what you're saying on the analysis you did on the folks where you weren't intervening. It sounds like the point there was if you did do intervention on that population, there would still be a lot of value that could be generated because there are obviously hospitalizations associated with drug use. Was that sort of the point you were making, Cal?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [21]

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Yes, it was. Frankly, we didn't -- we never looked at this cohort. We only looked at the people 14, 15, 18, 20 or above that 14 mark. So we said what the heck, why don't we look and see even though they're lower risk could they still be -- could we still intervene and it was surprising to us that even with the risk score of 10 that the 20 -- the 25% of them, 26% were admitted once during the year for hospitalization and we weren't surprised with the 20 at 44% or the 30 at 64%, but I was -- we were really surprised that even the lower cohort, the lower risk score still had a significant impact on -- or correlation with association with hospitalizations, which means that, yes, we should be able to intervene on these people. So while we're talking about dialing it back from 14, it wasn't a magic number. Dialing it back as we go along and intervening on more, and not just limiting it to 14 and above.

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Matthew Dale Gillmor, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [22]

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Okay. And then one last one, I think probably for Brian on guidance. So you raised the overall revenue range that 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 why product went lower, why services went higher?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [23]

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Yes. I was thinking that. So I think at this point we've got very 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 was in line with our original expectation. But just having a little bit more -- we could be more crisp with that at this stage of the year and the remainder really being the piece of service revenue, that we're expecting. So I think it's really just a timing thing at this point at the ability to be a little bit more precise.

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Operator [24]

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Our next question comes from Sean Wieland with Piper Jaffray.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [25]

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So that was some impressive gross margin improvement on the services line, and it sounds like it might have something to do with some SinfoniaRx. Can you describe for us how that business was able to grow so strongly sequentially, without really adding much in the way of cost of goods sold?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [26]

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Sure. I'll be happy to take that one and Kevin, you might even want to jump in a little bit too. Sean, 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 mitigation reviews that need to be completed in order to meet certain STAR ratings. So our clients generally came back to us looking to maintain their current STAR ratings, but needed to achieve significantly more CMRs than in the prior year. So we anticipated this staffed up at the beginning of the year and have become, I would say, much more efficient in the delivery model of those reviews. So the team has done a great job really maximizing the gap that we have today, and we've seen a significant uptick in that ratio. Kevin?

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [27]

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Okay. So you would add…

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Kevin P. Boesen, SinfoníaRx, Inc. - CEO [28]

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Yes, just to add to that, I would echo what Brian said, is that a lot of it is there is performance expectations from the health plans that we serve for a higher engagement rates from patients. We also on-boarded 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 and multiple medications. We gain through our call center models, an opportunity to develop relationships that add to the efficiency. And then I would say the third piece of that, we mentioned a little bit during the call, the investment in the Tabula Rasa 2.0 integration, and so there is a lot of things on the technology side that we've been able to integrate from a company standpoint that has benefited Sinfonia from an efficiency standpoint as well.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [29]

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Brian, can you help us out with what the margin profile of the services business will be in the back half of the year? Is this kind of level of margin sustainable?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [30]

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So I think you're going to see it drop down a bit. To be honest with you Sean. It's -- one of the things I was mentioning in my commentary was that these reviews get progressively more difficult to perform as we have a set 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. It gets progressively more difficult in the level of effort. It's not proportional. So I do expect that we're going to see margins decline in the second half of the year as it relates to that. So I would expect second quarter to be the highest gross margin level for the year.

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [31]

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And on the EMTM pilot, do you have any data or anecdotal evidence or of times where you were able to intervene, recommend a change in the treatment, lower the ADE risk and see what the corresponding medical cost did?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [32]

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Yes, we do. We have -- actually we have very sophisticated information on that 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 went down on average 5 points. And then each point averaged about $680 in savings on medical. So it's pretty, well harvested now with this group we have that do -- which gets into this data. Is that helpful?

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Sean William Wieland, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [33]

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That is very helpful.

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Operator [34]

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Our next question comes from Frank Sparacino with First Analysis.

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Frank Sparacino, First Analysis Securities Corporation, Research Division - SVP [35]

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I wanted to come back. Orsula, you made a comment, as it relates to I think $13 million of annual incremental revenue on the CareVention 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.

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [36]

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So Frank, this is Brian. I'm happy to kind of jump in there. But right now, what we're seeing for that payside of the business is it's roughly representing about half of -- half our current revenues. So if you're looking at about $150 million or so for the year. If you were to back that up to last year, it's probably closer to $120 million at that point.

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Orsula V. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, President, Chief Marketing & New Business Development Officer and Director [37]

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Right. And those were based on cross-selling. At least they had 1 existing service with our companies and we're adding another one at least 1 more or 2 (inaudible).

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Frank Sparacino, First Analysis Securities Corporation, Research Division - SVP [38]

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Great. And then maybe just within PACE, if you look at 2019 and the growth, I think you talked about prime sort of 20% plus or minus. Relative to prior years, is that being driven more by the existing base versus new clients?

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Orsula V. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, President, Chief Marketing & New Business Development Officer and Director [39]

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Well, I think a lot of is being driven -- both -- there are new start-ups, we have a number in the pipeline, we -- for existing client base, we have a number of expansion locations, over 20 locations that are set between now and 2021, the first quarter of 2021. So the National PACE Association focus on PACE 2.0, it's definitely 1 driver. We've added new clients to the portfolio and as I said, the best part is when our clients are growing, we're growing with them and we support them in that process.

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Frank Sparacino, First Analysis Securities Corporation, Research Division - SVP [40]

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Great. And just maybe one last one, Brian. On the R&D side of things, start 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's your expectation in the back half of the year on R&D spend?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [41]

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So Frank, I do anticipate that's going to tick up a little bit in 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. So that's up quite a bit.

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Operator [42]

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Our next question comes from Stephanie Demko with Citi.

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Stephanie July Demko, Citigroup Inc, Research Division - VP & Senior Analyst [43]

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So I saw a few dosing announcements over the past month. I thought it might be an off-of-your time to ask for an update in the hospital-based business.

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Orsula V. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, President, Chief Marketing & New Business Development Officer and Director [44]

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Well, DoseMe certainly has taken the US by storm. They are a company that previous January 1, were only located in Australia. So they have quite an opportunity. They had launched in the third quarter of (inaudible) agreement for (inaudible) to hospitals, that's working. They are mostly digital and -- but we've tried to expand their offer there. Really their communications into a real-time communications, then recently for instance, had a 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.

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [45]

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I think it's still -- we've looked at this market and it's definitely a market that needs our system. We've made a decision recently that with the experience we've just had with DoseMe, actually over the last 6 months that we will be upgrading our matrix per se to 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 DoseMe 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 located, but we need to upgrade our matrix first. So we have just not only parental, not only the oral solids and stuff, but also the parental -- the injectables. So that's kind of where we are. So I wouldn't think that we're going to do much this year until we get the matrix finished. And then we've got a tremendous opportunity with the hospital market.

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Stephanie July Demko, Citigroup Inc, Research Division - VP & Senior Analyst [46]

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And you said the potential way of expansion, but not something to look for the next kind of few months. And then my next one is for Brian. Just looking at the 3Q guidance, if you exclude the pharmacy cost management data sales in the third quarter of last year, your guidance does imply a return to margin expansion. Is that an indication then that it's trying to taper off or is there anything else to call out there?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [47]

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No, there's really not anything going on there. There was that onetime kind of bump last year as you referenced. We don't anticipate that that's going to recur this year, although you just see a little bit of an increase in Q2. So I think we're going to, hopefully over the next few quarters, find that to be a little bit more smoothed out, but nothing significant happening other than --.

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Stephanie July Demko, Citigroup Inc, Research Division - VP & Senior Analyst [48]

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Okay. So nothing wrong start modeling a little bit more expansion?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [49]

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That's right.

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Stephanie July Demko, Citigroup Inc, Research Division - VP & Senior Analyst [50]

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Nothing wrong with your thought of modeling a bit more expansion in your…

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [51]

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Yes, that's correct.

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Operator [52]

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And our final question today will come from David Grossman with Stifel.

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David Michael Grossman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [53]

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I was hoping maybe just to get a better sense for the outperformance in the quarter. 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've covered this, but I just want to make sure I understand how much of that was timing of revenue and when it came during the year versus higher unit growth volumes with Sinfonia or perhaps the pricing comment you made on the drug utilization data?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [54]

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David, it's Brian. I mean most of it, to be honest with you, is more of a private thing. We do have some benefit in the second quarter. I think we did a nice job earlier in the year of setting expectations for what we expected for full year, both revenue and EBITDA and we've ticked that up just a little bit. There has been some seasonality, as it relates to some of the more recent acquisition, and that's really what's driving the second quarter uptick ahead of where we expect it to be or where we guided earlier.

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David Michael Grossman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [55]

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I see. Is the drug utilization data fee, is that an annual increase that you typically get or is that something…?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [56]

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No, it is not, but it's less. We can predict it more so on a full-year basis, but less so on a quarterly basis. So something that can, it would be a little bit up and down each quarter.

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David Michael Grossman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [57]

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Okay. And is that a meaningful number? Just, I don't really know how to size that?

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [58]

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So for the full year, it's only about $10 million.

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David Michael Grossman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [59]

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I see. Got it. And then Cal, thanks for your -- the update on the EMTM results. But just to make sure we understand exactly what that means, so is the 2% savings that you've got on the '18 data, is that 2% above and beyond what you've got in 2017 or is that still that you're beating the 2% benchmark overall?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [60]

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No, it's above and beyond what we got in '17.

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David Michael Grossman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [61]

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Got it. And do you have any just anecdotal perspective, if you will, on how your peers are performing?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [62]

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Well you know, we should have that shortly. Everything was just released from a couple of days, go from being embargoed at least a percent was. We are having a forthcoming meeting with a couple of them just because we are working on other things with them. So I'm sure we'll get some insight. But at this point, I haven't -- have you guys gotten anything? We haven't gotten anything, any feedback yet. So as soon as we have, we'll let you know, but I haven't seen anything. David,

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David Michael Grossman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [63]

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I see. And just the last one, just on the organizational restructuring that you talked about with the consultant. Is that something that 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?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [64]

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I wouldn't say if that's going to generate meaningful operating leverage. It's more about focus of go-to-market strategy. Kind of consolidated around specific market segments.

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Brian W. Adams, Tabula Rasa HealthCare, Inc. - CFO & Secretary [65]

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I think is going to generate operating efficiencies from process -- from a process standpoint, maybe not as much from an economic standpoint, but we had 5 CEOs, we had all sorts of clumsy stuff when you do these assimilations and this goes through. The 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 we're slowly implementing over the next couple of months and I'm very, very pleased with it, frankly. It's just -- the span of control when it gets above 6 or 7 people for anyone, it gets a little bit tenuous and some of this had 12 to 15 people span of control due to the assimilation. So it's just really -- it's going to help us immensely.

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Operator [66]

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And we do have a follow-up question from Matthew Gillmor with Baird.

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Matthew Dale Gillmor, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [67]

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I just had one question left. I thought Orsula mentioned selling the MedWise capabilities into the pharmacy channel with PrescribeWellness. I just wanted to confirm if that was right and if you could describe how that's getting deployed and would you describe those sales as sort of meaningful from a revenue standpoint, or still pretty small?

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Orsula V. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, President, Chief Marketing & New Business Development Officer and Director [68]

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Sure. We are working through the integration process. While working through that process we are piloting a half dozen PrescribeWellness clients using the MedWise platform and identifying target market opportunities, continuous pharmacist opportunities. So really refining the product with the goal of a go-to-market date of January 1 to other PrescribeWellness clients. So nothing meaningful at this point, but we have expectations that we're setting now through the process.

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Operator [69]

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And we do have a question from Bill Sutherland with The Benchmark Company.

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William Sutherland, The Benchmark Company, LLC, Research Division - Healthcare & Business Services Analyst [70]

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Yes, I just wanted to come in with one last one. I think Cal you mentioned you're now going to be producing or putting together a offering for the opioid market. Can you provide some framework to that?

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [71]

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Well the -- in the last couple of weeks, we've all learned that the opioid litigation has been consolidated into a high (inaudible). And when you look at the people that are defendants, there's 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 is another way to look at this opioid problem, it has to do with the science, particularly that most opioids or pro-drugs and they have a particular gene that activates them to active moiety. And that particular gene gets interfered with other drugs people are taking, they have a stronger affinity to that gene, thereby rendering the opioid ineffective as analgesic. And what happens then is they keep increasing the dose and then it gets so high that eventually, if the person discontinues the interfering drug or drugs, they have now released all the activating gene and the opioid now goes crazy activating from oxycodone, oxymorphone and you get a tremendous unintentional, unbeknownst overdose that leads to terrible things including many, many times death.

And so we believe that these defendants will probably need to have, besides paying a lot of money, I guess, they will probably need to have some type of 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. We will be able to report later to you. But it's just a -- it's a tragedy what's happened, but most of it's preventable if multidrug simultaneous analysis was in place, and it's not. So that's what we're trying to explore. So we'll have more probably by next call, we'll have more to let you know on that, but that's what we're doing.

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Operator [72]

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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.

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Calvin H. Knowlton, Tabula Rasa HealthCare, Inc. - Co-Founder, Chairman of the Board & CEO [73]

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No. I think we're good. Thank you very much, everyone, for joining us.

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Operator [74]

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Ladies and gentlemen, thank you for participating in today's conference, this concludes the program. You may all disconnect and have a wonderful day.