Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20212022

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)

46-5726437
(I.R.S. Employer Identification No.)

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

(866648 - 2767
(Registrant’s Telephone Number,
Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, par value $0.0001 per share

TRHC

The Nasdaq Stock Market

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 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes     No  

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

Large accelerated filer  

Accelerated filer   

Non-accelerated filer   

Smaller reporting company   

Emerging growth company   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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, 2021,July 29, 2022, the Registrant had 25,718,70726,251,035 shares of Common Stock outstanding.

Table of Contents

TABULA RASA HEALTHCARE, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended SeptemberJune 30, 20212022

TABLE OF CONTENTS

Page

Number

PART I

Financial Information

3

Item 1.

Financial Statements

3

Unaudited Consolidated Balance Sheets as of SeptemberJune 30, 20212022 and December 31, 20202021

3

Unaudited Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021

4

Unaudited Consolidated Statements of Stockholders’ Equity (Deficit) for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021

5

Unaudited Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20212022 and 20202021

76

Notes to Unaudited Consolidated Financial Statements

87

Item 2.

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

2932

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

Item 4.

Controls and Procedures

47

PART II

Other Information

48

Item 1.

Legal Proceedings

48

Item 1A.

Risk Factors

48

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4849

Item 3.

Defaults Upon Senior Securities

4849

Item 4.

Mine Safety Disclosures

4849

Item 5.

Other Information

4849

Item 6.

Exhibits

4950

Signatures

5051

2

Table of Contents

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, 

    

2021

    

2020

Assets

Current assets:

Cash

$

11,347

$

23,362

Restricted cash

4,014

5,170

Accounts receivable, net of allowance of $297 and $224, respectively

31,736

32,516

Inventories

5,127

4,261

Prepaid expenses

5,344

3,739

Client claims receivable

15,284

14,412

Other current assets

15,398

9,752

Total current assets

88,250

93,212

Property and equipment, net

13,234

15,070

Operating lease right-of-use assets

21,935

21,711

Software development costs, net

40,297

27,882

Goodwill

170,835

170,862

Intangible assets, net

161,626

183,094

Other assets

4,801

2,609

Total assets

$

500,978

$

514,440

Liabilities and stockholders’ equity

Current liabilities:

Current portion of finance leases

$

$

4

Current operating lease liabilities

4,706

4,402

Acquisition-related contingent consideration

166

Acquisition-related notes payable

3,995

16,662

Accounts payable

13,019

11,245

Client claims payable

8,157

7,773

Accrued expenses and other liabilities

35,443

31,968

Total current liabilities

65,320

72,220

Line of credit

27,500

10,000

Long-term debt, net

318,969

239,285

Noncurrent operating lease liabilities

20,152

20,381

Deferred income tax liability, net

1,226

3,354

Other long-term liabilities

563

671

Total liabilities

433,730

345,911

Commitments and contingencies (Note 16)

Stockholders' equity:

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2021 and December 31, 2020

Common stock, $0.0001 par value; 100,000,000 shares authorized, 25,323,087 and 24,222,674 shares issued and 25,032,312 and 24,004,896 shares outstanding at September 30, 2021 and December 31, 2020, respectively

2

2

Treasury stock, at cost; 290,775 and 217,778 shares at September 30, 2021 and December 31, 2020, respectively

(4,292)

(4,018)

Additional paid-in capital

310,514

352,445

Accumulated deficit

(238,976)

(179,900)

Total stockholders’ equity

67,248

168,529

Total liabilities and stockholders’ equity

$

500,978

$

514,440

June 30, 

December 31, 

    

2022

    

2021

Assets

Current assets:

Cash

$

26,522

$

9,395

Restricted cash

7,062

6,038

Accounts receivable, net of allowance of $103 and $110, respectively

20,324

21,405

Inventories

5,798

5,444

Prepaid expenses

3,534

3,812

Client claims receivable

14,419

11,257

Other current assets

25,021

18,033

Current assets of discontinued operations

163,624

14,511

Total current assets

266,304

89,895

Property and equipment, net

10,126

11,778

Operating lease right-of-use assets

14,656

16,323

Software development costs, net

31,275

29,254

Goodwill

115,323

115,323

Intangible assets, net

41,970

45,358

Other assets

4,814

3,929

Noncurrent assets of discontinued operations

187,558

Total assets

$

484,468

$

499,418

Liabilities and stockholders’ equity (deficit)

Current liabilities:

Line of credit

$

57,200

$

Current operating lease liabilities

3,038

3,275

Accounts payable

15,802

8,870

Client claims payable

8,751

8,398

Accrued expenses and other liabilities

50,179

40,997

Current liabilities of discontinued operations

19,158

12,380

Total current liabilities

154,128

73,920

Line of credit

29,500

Long-term debt, net of discount of $3,646 and $5,701, respectively

231,626

319,299

Long-term debt - related party, net of discount of $1,391 and $0, respectively

88,337

Noncurrent operating lease liabilities

14,034

15,792

Deferred income tax liability, net

1,034

1,402

Other long-term liabilities

1,992

176

Noncurrent liabilities of discontinued operations

3,573

Total liabilities

491,151

443,662

Commitments and contingencies (Note 15)

Stockholders' equity (deficit):

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021

Common stock, $0.0001 par value; 100,000,000 shares authorized, 26,799,516 and 26,036,236 shares issued and 26,260,181 and 25,666,434 shares outstanding at June 30, 2022 and December 31, 2021, respectively

3

3

Treasury stock, at cost; 539,335 and 369,802 shares at June 30, 2022 and December 31, 2021, respectively

(4,292)

(4,292)

Additional paid-in capital

335,756

320,392

Accumulated deficit

(338,150)

(260,347)

Total stockholders’ equity (deficit)

(6,683)

55,756

Total liabilities and stockholders’ equity (deficit)

$

484,468

$

499,418

See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents

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, 

    

2021

    

2020

    

2021

    

2020

Revenue:

Product revenue

  

$

50,636

$

39,365

$

139,496

$

115,825

Service revenue

35,950

31,141

106,079

104,342

Total revenue

86,586

70,506

245,575

220,167

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

Product cost

38,770

28,638

105,326

84,879

Service cost

22,392

20,610

67,126

64,140

Total cost of revenue, exclusive of depreciation and amortization

61,162

49,248

172,452

149,019

Operating expenses:

Research and development

4,984

5,101

14,893

13,750

Sales and marketing

6,218

5,030

18,786

15,597

General and administrative

16,870

15,620

54,360

48,914

Change in fair value of acquisition-related contingent consideration expense

2,005

2,605

Depreciation and amortization

12,099

12,199

35,343

32,323

Total operating expenses

40,171

39,955

123,382

113,189

Loss from operations

(14,747)

(18,697)

(50,259)

(42,041)

Interest expense, net

2,230

4,722

6,959

14,000

Loss before income taxes

(16,977)

(23,419)

(57,218)

(56,041)

Income tax expense (benefit)

134

(1,830)

466

(5,705)

Net loss

$

(17,111)

$

(21,589)

$

(57,684)

$

(50,336)

Net loss per share, basic and diluted

$

(0.73)

$

(0.99)

$

(2.48)

$

(2.33)

Weighted average common shares outstanding, basic and diluted

23,407,391

21,779,808

23,230,138

21,571,214

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Revenue:

Product revenue

  

$

55,892

$

46,858

$

106,865

$

88,700

Service revenue

16,705

17,439

32,842

34,375

Total revenue

72,597

64,297

139,707

123,075

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

Product cost

43,384

35,064

82,936

66,421

Service cost

13,247

12,556

26,416

25,178

Total cost of revenue, exclusive of depreciation and amortization

56,631

47,620

109,352

91,599

Operating expenses:

Research and development

3,243

4,311

7,208

7,370

Sales and marketing

2,172

2,539

4,821

5,506

General and administrative

15,150

16,652

31,028

31,332

Long-lived asset impairment charge

4,062

Depreciation and amortization

5,489

4,980

11,231

9,781

Total operating expenses

26,054

28,482

58,350

53,989

Loss from operations

(10,088)

(11,805)

(27,995)

(22,513)

Interest expense, net

2,444

2,182

4,713

4,729

Loss from continuing operations before income taxes

(12,532)

(13,987)

(32,708)

(27,242)

Income tax expense

159

81

375

202

Net loss from continuing operations

(12,691)

(14,068)

(33,083)

(27,444)

Net loss from discontinued operations, net of tax

(36,919)

(7,013)

(44,720)

(13,129)

Net loss

$

(49,610)

$

(21,081)

$

(77,803)

$

(40,573)

Net loss per share:

Net loss per share from continuing operations, basic and diluted

$

(0.53)

$

(0.60)

$

(1.38)

$

(1.19)

Net loss per share from discontinued operations, basic and diluted

(1.54)

(0.31)

(1.87)

(0.56)

Total net loss per share, basic and diluted

$

(2.07)

$

(0.91)

$

(3.25)

$

(1.75)

Weighted average common shares outstanding, basic and diluted

23,959,726

23,268,131

23,913,050

23,140,043

See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

Stockholders' Equity

Nine Months Ended September 30, 2021

Common Stock

Treasury Stock

Additional

Accumulated

Stockholders'

    

Shares

    

Amount

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity

Balance, January 1, 2021

24,222,674

$

2

(217,778)

$

(4,018)

$

352,445

$

(179,900)

$

168,529

Cumulative effect of change in accounting policy

(74,850)

(1,392)

(76,242)

Issuance of common stock awards

1,416

Issuance of restricted stock

629,088

Forfeitures of restricted shares

(12,880)

Exercise of stock options, net of shares withheld

224,503

(6,218)

(274)

2,501

2,227

Stock-based compensation expense

8,602

8,602

Net loss

(19,492)

(19,492)

Balance, March 31, 2021

25,077,681

2

(236,876)

(4,292)

288,698

(200,784)

83,624

Issuance of restricted stock

120,598

Forfeitures of restricted shares

(22,913)

Exercise of stock options, net of shares withheld

84,396

885

885

Stock-based compensation expense

12,349

12,349

Net loss

(21,081)

(21,081)

Balance, June 30, 2021

25,282,675

2

(259,789)

(4,292)

301,932

(221,865)

75,777

Issuance of restricted stock

13,290

Forfeitures of restricted shares

(30,986)

Exercise of stock options, net of shares withheld

27,122

571

571

Stock-based compensation expense

8,011

8,011

Net loss

(17,111)

(17,111)

Balance, September 30, 2021

25,323,087

$

2

(290,775)

$

(4,292)

$

310,514

$

(238,976)

$

67,248

See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents

Stockholders' Equity (Deficit)

Six Months Ended June 30, 2022

Common Stock

Treasury Stock

Additional

Accumulated

Stockholders'

    

Shares

    

Amount

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity (Deficit)

Balance, January 1, 2022

26,036,236

$

3

(369,802)

$

(4,292)

$

320,392

$

(260,347)

$

55,756

Issuance of common stock awards

16,471

Issuance of restricted stock

297,434

Forfeitures of restricted shares

(138,882)

Exercise of stock options, net of shares withheld

11,646

60

60

Stock-based compensation expense

8,609

8,609

Net loss

(28,193)

(28,193)

Balance, March 31, 2022

26,361,787

3

(508,684)

(4,292)

329,061

(288,540)

36,232

Issuance of common stock awards

12,262

Issuance of restricted stock

424,540

Forfeitures of restricted shares

(30,542)

Exercise of stock options, net of shares withheld

927

(109)

3

3

Stock-based compensation expense

6,692

6,692

Net loss

(49,610)

(49,610)

Balance, June 30, 2022

26,799,516

$

3

(539,335)

$

(4,292)

$

335,756

$

(338,150)

$

(6,683)

Stockholders' Equity

Nine Months Ended September 30, 2020

Common Stock

Treasury Stock

Additional

Accumulated

Stockholders'

Shares

    

Amount

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity

Balance, January 1, 2020

22,496,999

$

2

(175,689)

$

(3,865)

$

288,345

$

(98,934)

$

185,548

Issuance of common stock awards

14,386

Issuance of restricted stock

388,108

Forfeitures of restricted shares

(33,371)

Exercise of stock options, net of shares withheld

116,288

(1,681)

(91)

1,244

1,153

Share adjustment

12,500

Stock-based compensation expense

7,137

7,137

Net loss

(14,437)

(14,437)

Balance, March 31, 2020

23,015,781

2

(198,241)

(3,956)

296,726

(113,371)

179,401

Issuance of restricted stock

37,702

Forfeitures of restricted shares

(5,807)

Exercise of stock options, net of shares withheld

105,828

1,159

1,159

Stock-based compensation expense

7,173

7,173

Net loss

(14,310)

(14,310)

Balance, June 30, 2020

23,159,311

2

(204,048)

(3,956)

305,058

(127,681)

173,423

Issuance of restricted stock

9,290

Forfeitures of restricted shares

(6,442)

Exercise of stock options, net of shares withheld

172,554

���

(1,517)

(62)

(2,017)

(2,079)

Issuance of common stock in connection with the settlement of acquisition-related contingent consideration

135,434

6,853

6,853

Stock-based compensation expense

8,098

8,098

Net loss

(21,589)

(21,589)

Balance, September 30, 2020

23,476,589

$

2

(212,007)

$

(4,018)

$

317,992

$

(149,270)

$

164,706

Stockholders' Equity

Six Months Ended June 30, 2021

Common Stock

Treasury Stock

Additional

Accumulated

Stockholders'

Shares

    

Amount

Shares

    

Amount

    

Paid-in Capital

    

Deficit

    

Equity

Balance, January 1, 2021

24,222,674

$

2

(217,778)

$

(4,018)

$

352,445

$

(179,900)

$

168,529

Cumulative effect of change in accounting policy

(74,850)

(1,392)

(76,242)

Issuance of common stock awards

1,416

Issuance of restricted stock

629,088

Forfeitures of restricted shares

(12,880)

Exercise of stock options, net of shares withheld

224,503

(6,218)

(274)

2,501

2,227

Stock-based compensation expense

8,602

8,602

Net loss

(19,492)

(19,492)

Balance, March 31, 2021

25,077,681

2

(236,876)

(4,292)

288,698

(200,784)

83,624

Issuance of restricted stock

120,598

Forfeitures of restricted shares

(22,913)

Exercise of stock options, net of shares withheld

84,396

885

885

Stock-based compensation expense

12,349

12,349

Net loss

(21,081)

(21,081)

Balance, June 30, 2021

25,282,675

$

2

(259,789)

$

(4,292)

$

301,932

$

(221,865)

$

75,777

See accompanying notes to unaudited consolidated financial statements.

65

Table of Contents

TABULA RASA HEALTHCARE, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Nine Months Ended

Six Months Ended

September 30, 

June 30, 

    

2021

    

2020

    

2022

    

2021

Cash flows from operating activities:

Net loss

$

(57,684)

$

(50,336)

$

(77,803)

$

(40,573)

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

Depreciation and amortization

35,343

32,323

18,562

23,244

Amortization of deferred financing costs and debt discount

1,714

9,925

939

1,172

Deferred taxes

337

(5,705)

(368)

263

Stock-based compensation

28,962

22,408

15,301

20,951

Change in fair value of acquisition-related contingent consideration

2,605

Acquisition-related contingent consideration paid

(67)

(2,390)

(67)

Impairment charges

40,510

Other noncash items

9

(70)

(54)

7

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

Changes in operating assets and liabilities:

Accounts receivable, net

789

(3,220)

2,979

(2,737)

Inventories

(866)

(494)

(354)

(605)

Prepaid expenses and other current assets

(6,084)

7,209

(7,916)

(3,811)

Client claims receivables

(872)

(3,162)

207

Other assets

(2,604)

(382)

(769)

(2,546)

Accounts payable

1,587

(1,432)

9,295

(926)

Accrued expenses and other liabilities

2,138

(5,408)

9,188

7,646

Client claims payables

423

353

(1,332)

Other long-term liabilities

(108)

315

2,139

7

Net cash provided by operating activities

3,017

5,348

8,840

900

Cash flows from investing activities:

Purchases of property and equipment

(1,611)

(2,537)

(471)

(970)

Software development costs

(22,649)

(13,734)

(17,870)

(14,011)

Net cash used in investing activities

(24,260)

(16,271)

(18,341)

(14,981)

Cash flows from financing activities:

Proceeds from exercise of stock options

3,683

3,225

60

3,082

Payments for employee taxes for shares withheld

(2,993)

Payments for debt financing costs

(8)

(38)

(350)

(8)

Borrowings on line of credit

17,500

27,700

12,500

Payment of acquisition-related notes payable

(13,000)

(13,000)

Payments of acquisition-related contingent consideration

(99)

(3,504)

(99)

Repayments of long-term debt and finance leases

(4)

(54)

(4)

Net cash provided by (used in) financing activities

8,072

(3,364)

Net cash provided by financing activities

27,410

2,471

Net decrease in cash and restricted cash

(13,171)

(14,287)

Net increase (decrease) in cash and restricted cash

17,909

(11,610)

Cash and restricted cash, beginning of period

28,532

46,581

15,706

28,532

Cash and restricted cash, end of period(1)

$

15,361

$

32,294

$

33,615

$

16,922

Supplemental disclosure of cash flow information:

Purchases of property and equipment and software development included in accounts payable and accrued expenses

$

370

$

103

$

2,693

$

131

Cash paid for interest

$

8,169

$

5,690

$

3,882

$

3,398

Cash paid for taxes

$

44

$

290

$

137

$

47

Interest costs capitalized to software development costs

$

216

$

192

$

202

$

134

Stock issued in connection with settlement of acquisition-related contingent consideration

$

$

6,853

Reconciliation of cash and restricted cash:

Cash

$

11,347

$

28,721

$

26,522

$

11,421

Restricted cash

4,014

3,573

7,062

4,657

Cash from discontinued operations

31

844

Total cash and restricted cash

$

15,361

$

32,294

$

33,615

$

16,922

(1)The cash flows related to discontinued operations have not been segregated. Accordingly, the unaudited consolidated statements of cash flows include the results of continuing and discontinued operations. See Note 3 for discussion of discontinued operations.

See accompanying notes to unaudited 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)

1.      Nature of Business

Tabula Rasa HealthCare, Inc. (the “Company”) is a healthcare technology company advancing the safe use of medications by creating solutions designed to empower pharmacists, providers, and patients to optimize medication regimens. The Company’s advanced proprietary technology, MedWise®, identifies the causecauses of and risks for medication-related problems, including adverse drug events, so healthcare professionals can minimize harm and reduce medication-related risks. Adverse drug events are a large and growing problem with medication therapy, costing an estimated $528 billion annually in the United States (“U.S.”) and resulting in more than 275,000 deaths per year in the U.S. in 2018. The Company’s software and services help improve patient outcomes and lower healthcare costs through reduced hospitalizations, emergency department visits, and healthcare utilization. In order to deliver its services, the Company has developed an extensive clinical tele-pharmacy network, with 7 call centers across the U.S., a number of which are tethered to academic institutions. The Company serves a number of different organizations within the healthcare industry, including more than 400 health plans, nearly 19,000 pharmacies, more than 150 hospital sites, and more than 140 at-risk provider groups, the majority of which are PACE organizations.organizations with Programs of All-Inclusive Care for the Elderly (“PACE”).

2.      Basis of Presentation, Summary of Significant Accounting Policies, and Recent Accounting Pronouncements

(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 to present fairly the Company'sCompany’s interim consolidated financial position for the periods indicated. The interim results for the three and ninesix months ended SeptemberJune 30, 20212022 are not necessarily indicative of results to be expected for the year ending December 31, 2021,2022, 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 audited consolidated financial statements and accompanying notes included in the Company’s annual reportAnnual Report on Form 10-K filed with the SEC on February 26, 2021 (“202025, 2022 (the “2021 Form 10-K”).

The Company operates its business through 2 segments, CareVention HealthCare and MedWise HealthCare. See Note 17 for a discussion ofExcept as described below, there have been no material changes to the Company’s reportable segments.significant accounting policies described in the 2021 Form 10-K that have a material impact on the Company’s accompanying unaudited consolidated financial statements and related notes.

Risks Related(b)Assets and Liabilities Held for Sale and Discontinued Operations

A long-lived asset (or disposal group) is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable within a year. A long-lived asset (or disposal group) classified as held for sale is initially measured at the lower of its carrying amount or fair value less costs to sell. An impairment loss is recognized for any initial or subsequent write-down of the long-lived asset (or disposal group) to fair value less costs to sell. A gain or loss not previously recognized by the date of the sale of the long-lived asset (or disposal group) is recognized at the date of derecognition.

Long-lived assets (including those that are part of a disposal group) are not depreciated or amortized while they are classified as held for sale. Long-lived assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet.

Unless otherwise noted, amounts and disclosures throughout the notes to the COVID-19 Pandemicunaudited consolidated financial statements relate to the Company’s continuing operations.

Additional details surrounding the Company’s assets and liabilities held for sale and discontinued operations are included in Note 3.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

(c)Cloud Computing Arrangements

Costs to implement cloud computing arrangements that are hosted by third-party vendors are capitalized when incurred during the application development phase. Capitalized implementation costs are amortized on a straight-line basis over the reasonably certain term of the hosting arrangement, beginning when the service is ready for its intended use. As of June 30, 2022 and December 31, 2021, capitalized implementation costs of $1,045 and $747, respectively, were included in prepaid expenses, and $842 and $0, respectively, were included in other assets on the Company’s consolidated balance sheets. Accumulated amortization for these arrangements was $503 and $398 as of June 30, 2022 and December 31, 2021, respectively. Amortization expense for the three months ended June 30, 2022 and 2021, was $52 and $53, respectively. Amortization expense for the six months ended June 30, 2022 and 2021, was $105 and $103, respectively.

(d)Vendor Financing Arrangements

On January 30, 2020,February 24, 2022, the World Health Organization (“WHO”) announcedCompany expanded its existing relationship with a globalthird-party service provider for business process outsourcing and technology services for its third-party administration services and electronic health emergency caused byrecords solutions. As a new strainresult, the third-party provider hired approximately 180 employees from the Company, hired to fill existing open positions and will augment with additional resources to meet client demand. The agreement term is seven years and includes total estimated fees of coronavirus (“COVID-19”) and the risks to the international community. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic (“COVID-19 pandemic”), based on the rapid increase in exposure globally. The full impact of the COVID-19 pandemic continues to present a substantial public health and economic challenge around the world.$115,300.

The arrangement includes extended payment terms for cloud computing implementation costs, internally developed software support, and business process support. In order to determine the present value of the commitment, the Company continues to closely monitorused an imputed interest rate of 9.5%, which is reflective of its estimated uncollateralized borrowing rate. As of June 30, 2022, the impactoutstanding principal balance of COVID-19 pandemicthe financing arrangement was $2,537 with an unamortized discount of $600, and was included in accrued expenses and other liabilities and other long-term liabilities on both its employeesthe Company’s consolidated balance sheet. Imputed interest expense from the arrangement was $30 and operations. In response$36 for the three and six months ended June 30, 2022, respectively.

(e)Concentrations of Credit Risk

The Company’s medication fulfillment services clients are sponsors of the federal Medicare Part D plan (prescription drug coverage plan) and, therefore, subject to the pandemic,payment regulations established by the Centers for Medicare & Medicaid Services (“CMS”). Under CMS guidelines, Medicare Part D sponsors are required to remit payment for claims within 14 calendar days of the date on which an electronically submitted claim is received and within 30 days of the date on which non-electronically-submitted claims are received. The Company has implemented measuresextends credit to protectclients based upon such terms, as well as management’s evaluation of creditworthiness, and generally collateral is not required.

The Company’s clients also include health plans, pharmacies, and other healthcare providers. Credit associated with these accounts is extended based upon management’s evaluation of creditworthiness and is monitored on an on-going basis.

As of June 30, 2022 and December 31, 2021, no clients represented more than 10% of net accounts receivable.

NaN client accounted for 16% and 13% of total revenue for the healththree months ended June 30, 2022 and safety2021, respectively, and 17% and 14% of its employees, including hybridtotal revenue for the six months ended June 30, 2022 and remote work arrangements, reduced density in the Company’s buildings, guidelines to ensure safe business travel, and safety protocols for on-site employees, including social distancing, enhanced cleaning, contact tracing.2021, respectively.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

During 2020, the Company experienced challenges with revenue growth as the COVID-19 pandemic delayed the closing of client contracts and, in some cases, shifted project priorities and timelines, which management believed resulted in fewer business wins during 2020 and reduced future revenue. Overall census growth for Programs of All-Inclusive Care for the Elderly (“PACE”) was below historical levels during 2020 and the first quarter of 2021, which reduced the CareVention HealthCare segment growth. However, since the second quarter of 2021, the Company has experienced some recovery, including with respect to PACE census growth. During the third quarter of 2021, the Company’s net census growth for PACE remained at pre-pandemic levels with monthly sequential growth, which positively impacted revenue within the Company’s CareVention HealthCare segment. The PACE population also benefited from the high level of vaccinations administered to seniors across the U.S.

(f)

The Company’s MedWise HealthCare segment continues to be impacted by the COVID-19 pandemic. Changes made by Centers for Medicare & Medicaid Services (‘CMS”) to their Medicare Part D Star Ratings improvement programs for health plans in response to COVID-19 have negatively impacted the Company’s medication safety services revenues. In addition, the COVID-19 pandemic has elevated the role of retail pharmacies and created strong demand for pharmacists and pharmacy technicians. As a result, the Company has faced challenges in hiring to staff the Company’s call centers to support its health plan clients.

Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, as well as the factors discussed in Part Item 1A, “Risk Factors” in the Company’s 2020 Form 10-K and elsewhere in this Quarterly Report on Form 10-Q, the Company is not able to predict the continuing effects that the COVID-19 pandemic may have on its results of operations, financial condition, or liquidity for the remainder of 2021 and beyond. Management continues to actively monitor the COVID-19 pandemic and is prepared to mitigate potential adverse impacts to its business, including its financial position, liquidity, operations, suppliers, industry, and workforce.

Summary of Significant Accounting Policies

There have been no changes to the Company's significant accounting policies described in the 2020 Form 10-K that have had a material impact on the consolidated financial statements and related notes.

Recent Accounting Pronouncements

In August 2020,October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt – Debt2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“Customers (“ASU 2020-06”2021-08”). ASU 2020-06 provides new2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under ASC Topic 606 (Revenue from Contracts with Customers) in order to simplifyalign the accounting for convertible instruments by eliminating the cash conversion model. As comparedrecognition of a contract liability with the definition of performance obligation. This approach differs from the current accounting standards, more convertible debt instruments will be reported asrequirement to measure contract assets and contract liabilities acquired in a single liability instrument and the interest rates of more convertible debt instruments will be closer to the coupon interest rate.business combination at fair value. ASU 2020-06 also aligns the consistency of diluted earnings per share calculations for convertible instruments by requiring that (1) an entity use the if-converted method and (2) share settlement be included in the diluted earnings per share calculation for both convertible instruments and equity contracts when those contracts include an option of cash settlement or share settlement. The treasury stock method will no longer be permitted. ASU 2020-062021-08 is effective for financial statements issued for fiscal years beginning after December 15, 2021 and2022; early adoption is permitted.

Under ASC 470-20 Debt with Conversion and Other Options (“ASC 470-20”), The Company is currently evaluating the Company separately accounted forpotential impact of the liability and equity componentsadoption of its 1.75% convertible senior subordinated notes (the “2026 Notes”), which may be settled entirely or partly in cash upon conversion. The equity component was required to be included in the additional paid-in capital section of stockholders’ equitythis standard on the Company’s consolidated balance sheet,financial statements.

3.     Discontinued Operations

In February 2022, the Company announced plans to evaluate non-core assets, refocus its corporate strategy, and increase stockholder value, and the valueCompany commenced a plan to sell the DoseMe business, which the Company acquired in January 2019. In March 2022, the Company completed its evaluation of additional divestiture opportunities and commenced plans to sell the SinfoníaRx and PrescribeWellness businesses, which were acquired in September 2017 and March 2019, respectively.

On June 18, 2022 (the “Signing Date”), the Company and Tabula Rasa HealthCare Group, Inc., a wholly-owned subsidiary of the equity componentCompany (the “Seller”), entered into an Asset Purchase Agreement (the “PW Purchase Agreement”), by and among the Company, Seller, and Transaction Data Systems, Inc. (“TDS”), pursuant to which Seller agreed to sell to TDS its unincorporated PrescribeWellness business division (the “PrescribeWellness Business”), the assets, properties, and rights that are primarily used or held for use in connection with the PrescribeWellness Business, and the KD Assets (as defined below). As consideration, TDS agreed to pay to Seller up to $140,000 in cash, of which $125,000 was treated as original issue discount for purposes of accounting for the debt componentto be paid upon consummation of the 2026 Notes. As a result, the Company was requiredsale, subject to record a greater amount of non-cash interest expense in previous periods presentedcertain adjustments related to the amortizationnet working capital of the discounted carrying valuePrescribeWellness Business, subject to certain customary post-closing adjustments. The additional $15,000 was contingent consideration that may be paid to Seller based upon the PrescribeWellness Business’s achievement of certain performance-based metrics during the fiscal years ending December 31, 2023 and 2024.

On the Signing Date and as a condition to TDS’s entry into the PW Purchase Agreement, Seller also entered into an asset purchase agreement (the “KD Purchase Agreement”) with karmadata, Inc., a Delaware corporation (“KD”), pursuant to which Seller agreed to purchase all of KD’s rights, title, and interests in and to certain intellectual property of KD that has historically been licensed to Seller, all intellectual property owned by KD that was developed or improved pursuant to that certain IP Development Agreement, by and between Seller and KD, dated as of December 1, 2016, as amended, and all authorization rights and claims or causes of action with respect to the foregoing (collectively, the “KD Assets”).

The foregoing descriptions of the 2026 NotesPW Purchase Agreement and the KD Purchase Agreements are qualified in their entirety by reference to their face amount over the termterms of such agreements, which are included as Exhibits 10.3 and 10.4 to this Quarterly Report on Form 10-Q.

As discussed in Note 18, on August 1, 2022, the Company completed the sale of the 2026 Notes. BecausePrescribeWellness Business and the acquisition of the KD Assets.

The Company intendsconsiders the sale of the DoseMe and SinfoníaRx businesses to settle the 2026 Notes entirely or partly in cash, the Company had used the treasury stock method when calculating their potential dilutive effect, if any.be highly probable within one year.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

ASU 2020-06 allows adoption through either a modified retrospective method or fully retrospective method of transition. The Company early adopted ASU 2020-06 effective January 1, 2021 usingAt June 30, 2022, the modified retrospective method. In applyingDoseMe, SinfoníaRx, and PrescribeWellness businesses comprised the modified retrospective transition method, the cumulative effectmajority of the accounting change is recognizedCompany’s MedWise HealthCare segment. The Company’s sale of PrescribeWellness, and plan of sale with respect to DoseMe and SinfoníaRx, represents a strategic business shift having a significant effect on the Company’s operations and financial results. As a result, the Company determined that these businesses met such requirements to be classified as held for sale and discontinued operations as of March 31, 2022 and continue to meet the requirements as of June 30, 2022. Accordingly, unless otherwise indicated, the accompanying consolidated financial statements have been recast for all periods presented to reflect the assets, liabilities, revenue, and expenses related to these businesses as discontinued operations.

During the three and six months ended June 30, 2022, as a result of the Company’s intention to sell the aforementioned businesses, the Company prepared an adjustmentimpairment test on the related net assets held for sale. Using a market approach to determine fair value, the opening balanceCompany concluded that the carrying values of retained earnings at the date of adoption. Upon adoption,net assets held for sale for the PrescribeWellness, SinfoníaRx, and DoseMe businesses did not exceed their fair values, less costs to sell. As a result, the Company recorded a $74,850 decrease to additional paid-in capital, a $78,707 increasegoodwill impairment charges of $17,532 related to the carrying valuePrescribeWellness and SinfoníaRx businesses and $18,076 of its convertible notes, a $2,465 decreaseimpairment charges on the net assets held for sale related to the net deferred tax liability,PrescribeWellness, SinfoníaRx, and a $1,392 increase in accumulated deficit. See Note 12DoseMe businesses for further detailsthe three months ended June 30, 2022. For the six months ended June 30, 2022, the Company recorded goodwill impairment charges of $18,272 and impairment charges on the 2026 Notes.net assets held for sale of $18,176 related to the PrescribeWellness, SinfoníaRx, and DoseMe businesses.

In OctoberThe following table summarizes the results of operations of the DoseMe, SinfoníaRx, and PrescribeWellness businesses, which are included in loss from discontinued operations, net of tax in the consolidated statements of operations for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

    

Six Months Ended

June 30, 

    

June 30, 

2022

    

2021

    

2022

    

2021

Revenue

$

16,961

$

18,012

$

33,456

$

35,914

Cost of revenue, exclusive of depreciation and amortization

10,197

9,643

19,942

19,691

Operating expenses

8,761

15,330

22,354

29,222

Impairment charges

35,608

36,448

Loss from discontinued operations before income taxes

(37,605)

(6,961)

(45,288)

(12,999)

Income tax (benefit) expense

(686)

52

(568)

130

Net loss from discontinued operations, net of tax

$

(36,919)

$

(7,013)

$

(44,720)

$

(13,129)

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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 FASB issued ASU 2021-08, Accounting for Contract Assetscurrent and Contact Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 requires an acquirer in a business combination to recognize and measure contractnoncurrent assets and contract liabilities from acquired contracts usingclassified as discontinued operations on the revenue recognition guidance under Accounting Standards Codification Topic 606 in order to align the recognitionconsolidated balance sheets as of a contract liability with the definition of performance obligation. This approach differences from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 is effective for financial statements issued for fiscal years beginning after December 15,June 30, 2022 and early adoption is permitted. December 31, 2021:

June 30, 

December 31, 

2022

    

2021

Cash

$

31

$

273

Accounts receivable, net

10,748

12,646

Prepaid expenses and other assets

2,940

1,592

Property and equipment, net

1,707

Operating lease right-of-use assets

4,984

Software development costs, net

20,012

Goodwill

37,240

Intangible assets, net

104,138

Impairment of carrying value

(18,176)

Total current assets of discontinued operations

$

163,624

$

14,511

Property and equipment, net

$

$

1,897

Operating lease right-of-use assets

4,730

Software development costs, net

15,940

Goodwill

55,512

Intangible assets, net

109,292

Other assets

187

Total noncurrent assets of discontinued operations

$

$

187,558

Operating lease liabilities

$

4,785

$

1,413

Accounts payable

6,671

4,308

Accrued expenses and other liabilities

7,702

6,659

Total current liabilities of discontinued operations

$

19,158

$

12,380

Noncurrent operating lease liabilities

$

3,438

Other long-term liabilities

135

Total noncurrent liabilities of discontinued operations

$

$

3,573

The Company is currently evaluatingfollowing table summarizes the potential impactsignificant operating non-cash items and investing activities of the adoptiondiscontinued operations:

Six Months Ended

June 30, 

    

2022

    

2021

Depreciation and amortization

$

7,331

$

13,463

Impairment charges

36,448

Stock-based compensation

2,506

3,752

Purchases of property and equipment

(59)

(230)

Software development costs

(6,006)

(4,445)

11

Table of this standard on the Company’s consolidated financial statements.Contents

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

3.4.     Revenue

The Company generates the majority of its revenue from its CareVention HealthCare and MedWise HealthCare segments. See Note 17 for additional discussion of the Company’s reportable segments.segment.

Client contracts generally have a term of one to five years and generally renew at the end of the initial term. In most cases, clients may terminate their contracts with a notice period ranging from 0 to 180 days without cause, thereby limiting the term in which the Company has enforceable rights and obligations. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the goods or services. Generally, there are not significant differences between the timing of revenue recognition and billing. Consequently, the Company has determined that client contracts do not include a financing component.

The Company does not disclose the amount of variable consideration that the Company expects to recognize in future periods as the variable consideration in the Company’s contracts is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation, and the terms of that variable consideration relate specifically to the Company’s efforts to transfer the distinct service, or to a specific outcome from transferring the distinct service. The Company’s contracts primarily include monthly fees associated with unspecified quantities of medications, members, claims, medication safety reviews, or user subscriptions that fluctuate throughout the contract. See below for a description of the Company’s revenues by segment.revenues.

CareVention HealthCare

PACE Product Revenue

The Company provides medication fulfillment pharmacy services to PACE organizations. While the majority of medications are routinely filled in order to treat chronic conditions, the mix and quantity of medications can vary. Revenue from medication fulfillment services is generally billed monthly or weekly, depending on whether the PACE organization is contracted with a pharmacy benefit manager, and is recognized when medications are delivered and control has passed to the client. At the time of delivery, the Company has performed substantially all of its performance obligations under its client contracts. The Company does not experience a significant level of returns or reshipments.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

PACE Solutions

The Company provides medication safety services and health plan management services to PACE organizations. These services primarily include medication reviews, risk adjustment services, third-party administration services, pharmacy benefit management (“PBM”) solutions, and electronic health records software. Revenue related to these services primarily consists of a fixed monthly fee assessed based on number of members served (“per member per month”), a fee for each claim adjudicated, and subscription fees. These fees are recognized when the Company satisfies its performance obligation to stand ready to provide PACE services, which occurs when the Company’s clients have access to the PACE services. The Company generally bills for PACE services on a monthly basis.

MedWise HealthCare

Product Revenue

The Company provides COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed when test kits are shipped and is recognized asFor client contracts for which the Company satisfiesperforms both medication fulfillment and PBM services, the Company recognizes revenue using the gross method at the contract price negotiated with its performance obligations to deliver the test kitsclients and provide the test results. The Company does not experience a significant level of returns or reshipments.

Medication Safety Services

The Company provides medication safety services, which include identification of high-risk individuals, medication regimen reviews including patient and prescriber counseling, and targeted interventions to increase adherence and close gaps in care. Revenue related to these services primarily consists of per member per month fees and fees for each medication review and clinical encounter completed. Revenue is recognized when the Company satisfieshas concluded it controls the prescription drug before it is transferred to the client plan members. The Company controls prescription drugs dispensed indirectly through its performance obligation to stand readyretail pharmacy network because it has separate contractual arrangements with those pharmacies, has discretion in setting the price for the transaction, and assumes primary responsibility for fulfilling the promise to provide medication safety services, which occurs whenprescription drugs to its client plan members while performing the Company’s clients have access to the medication safety services and when medication reviews and clinical encounters are completed. The Company generally bills for the medication safety services on a monthly basis.

Software Subscription

The Company provides software as a service (“SaaS”) solutions, which allow for the identification of individuals with high medication-related risk, for patient communication and engagement, for documentation of clinical interventions, for optimizing medication therapy, for targeting adherence improvement, and for precision dosing. Revenues related to these software services primarily consist of monthly subscription fees and are recognized monthly asPBM services. These factors indicate that the Company meets its performance obligation to provide access tois the software. Revenue for implementationprincipal and, set up services is generally recognized overas such, the contract term asCompany recognizes the software services are provided. The Company generally bills for the software services on a monthly basis.

total prescription price contracted with clients in revenue.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

MedWise HealthCare

Medication Safety Services

The Company provides medication safety services, which include identification of high-risk individuals, medication regimen reviews including patient and prescriber counseling, and targeted interventions to increase adherence and close gaps in care. Revenue related to these services primarily consists of per member per month fees and fees for each medication review and clinical assessment completed. Revenue is recognized when the Company satisfies its performance obligation to stand ready to provide medication safety services, which occurs when the Company’s clients have access to the medication safety services and when medication reviews and clinical assessments are completed. The Company generally bills for the medication reviews and clinical assessments when they are completed. The Company generally bills for the medication safety services on a monthly basis.

Software Subscription and Services

The Company provides software as a service (“SaaS”) solutions which allow for the identification of individuals with high medication-related risk and for optimizing medication therapy. Revenues related to these software services primarily consist of monthly subscription fees and are recognized monthly as the Company meets its performance obligation to provide access to the software. Revenue for implementation and set-up services is generally recognized over the contract term as the software services are provided. The Company generally bills for the software services on a monthly basis.

Disaggregation of Revenue

In the following table, revenue is disaggregated by reportableoperating segment. Substantially all of the Company’s revenue is recognized in the U.S.

Three Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

September 30, 

September 30, 

June 30, 

June 30, 

2021

2020

2021

2020

2022

2021

2022

2021

CareVention HealthCare:

PACE product revenue

$

50,321

$

39,086

$

139,021

$

115,103

$

55,892

$

46,858

$

106,865

$

88,700

PACE solutions

14,707

11,214

42,973

34,307

15,853

14,347

31,188

28,266

$

65,028

$

50,300

$

181,994

$

149,410

$

71,745

$

61,205

$

138,053

$

116,966

MedWise HealthCare:

Product revenue

$

315

$

279

$

475

$

722

Medication safety services

9,467

9,817

31,247

39,844

$

774

$

3,037

$

1,493

$

5,997

Software subscription and services

11,776

10,110

31,859

30,191

78

55

161

112

$

21,558

$

20,206

$

63,581

$

70,757

$

852

$

3,092

$

1,654

$

6,109

Total revenue

$

86,586

$

70,506

$

245,575

$

220,167

$

72,597

$

64,297

$

139,707

$

123,075

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Contract Balances

Assets and liabilities related to the Company’s contracts are reported on a contract-by-contract basis at the end of each reporting period. Contract balances consist of contract assets and contract liabilities. Contract assets are recorded when the right to consideration for services is conditional on something other than the passage of time. Contract assets relating to unbilled receivables are transferred to accounts receivable when the right to consideration becomes unconditional. Contract assets are classified as current or non-current based on the timing of the Company’s rights to the unconditional payments. Contract assets are generally classified as current and recorded within other current assets on the Company’s consolidated balance sheets.

Contract liabilities include advance customer payments and billings in excess of revenue recognized. The Company generally classifies contract liabilities in accrued expenses and other current liabilities and in other long-term liabilities on the Company’s consolidated balance sheets. The Company anticipates that it will satisfy most of its performance obligations associated with its contract liabilities within one year.

The following table provides information about the Company’s contract assets and contract liabilities from contracts with clients as of SeptemberJune 30, 20212022 and December 31, 2020.2021.

September 30, 

December 31, 

June 30, 

December 31, 

2021

    

2020

2022

    

2021

Contract assets

$

11,638

$

7,601

$

22,043

$

12,695

Contract liabilities

4,549

3,876

2,902

2,191

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:

June 30, 

2022

Contract assets:

Contract assets, beginning of period

$

12,695

Decreases due to cash received

(10,627)

Changes to the contract assets at the beginning of the period as a result of changes in estimates

2,915

Changes during the year, net of reclassifications to receivables

17,060

Contract assets, end of period

$

22,043

Contract liabilities:

Contract liabilities, beginning of period

$

2,191

Revenue recognized that was included in the contract liabilities balance at the beginning of the period

(1,810)

Increases due to cash received, excluding amounts recognized as revenue during the year

2,521

Contract liabilities, end of period

$

2,902

During the six months ended June 30, 2021, the Company recognized $1,243 of revenue that was included in the December 31, 2020 contract liability balance of $1,982.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Significant changes in the contract assets and the contract liabilities balances during the nine months ended September 30, 2021 are as follows:

September 30, 

2021

Contract assets:

Contract assets, beginning of period

$

7,601

Decreases due to cash received

(8,881)

Changes to the contract assets at the beginning of the period as a result of changes in estimates

2,391

Changes during the period, net of reclassifications to receivables

10,527

Contract assets, end of period

$

11,638

Contract liabilities:

Contract liabilities, beginning of period

$

3,876

Revenue recognized that was included in the contract liabilities balance at the beginning of the period

(2,708)

Increases due to cash received, excluding amounts recognized as revenue during the period

3,381

Contract liabilities, end of period

$

4,549

During the nine months ended September 30, 2020, the Company recognized $3,783 of revenue that was included in the December 31, 2019 contract liability balance of $4,930.

4.5.     Net Loss per Share

Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock of the Company outstanding during the period.

The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock:

Three Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

September 30, 

September 30, 

June 30, 

June 30, 

    

2021

   

2020

    

2021

   

2020

    

2022

   

2021

   

2022

   

2021

Numerator (basic and diluted):

Net loss from continuing operations

$

(12,691)

$

(14,068)

$

(33,083)

$

(27,444)

Net loss from discontinued operations

(36,919)

(7,013)

(44,720)

(13,129)

Net loss

$

(17,111)

$

(21,589)

$

(57,684)

$

(50,336)

$

(49,610)

$

(21,081)

$

(77,803)

$

(40,573)

Denominator (basic and diluted):

Weighted average shares of common stock outstanding, basic and diluted

23,407,391

21,779,808

23,230,138

21,571,214

23,959,726

23,268,131

23,913,050

23,140,043

Net loss per share, basic and diluted

$

(0.73)

$

(0.99)

$

(2.48)

$

(2.33)

Net loss per share from continuing operations, basic and diluted

$

(0.53)

$

(0.60)

$

(1.38)

$

(1.19)

Net loss per share from discontinued operations, basic and diluted

(1.54)

(0.31)

(1.87)

(0.56)

Total net loss per share, basic and diluted

$

(2.07)

$

(0.91)

$

(3.25)

$

(1.75)

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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 potential common shares, presented based on amounts outstanding as of SeptemberJune 30, 20212022 and 2020,2021, were excluded from the calculation of diluted net loss per share for the periods indicated above because including them would have had an anti-dilutive effect.

September 30, 

June 30, 

    

2021

    

2020

    

2022

    

2021

Stock options to purchase common stock

1,671,680

2,188,239

1,448,537

1,741,465

Unvested restricted stock

1,624,523

1,300,538

Unvested restricted stock and restricted stock units

2,324,497

1,658,481

Common stock warrants

4,646,393

4,646,393

4,646,393

4,646,393

Conversion of convertible senior subordinated notes

4,646,393

4,646,393

4,646,393

12,588,989

8,135,170

13,065,820

12,692,732

For the three and ninesix months ended SeptemberJune 30, 2022 and 2021, shares related to the conversion of the convertible senior subordinated notes were included in the table above underusing the if-converted method. For the three and nine months ended September 30, 2020, shares associated with the conversion of the convertible senior subordinated notes were excluded from the table above as the Company assumed the notes would be settled entirely or partly in cash.

For the three and ninesix months ended SeptemberJune 30, 2021,2022, shares related to the performance stock units were excluded from the table above, as the performance conditions were not metunmet as of SeptemberJune 30, 20212022 (see Note 14)13).

5.     Acquisitions

Personica

On October 5, 2020, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with TRHC Group, Personica Holdings, Inc., a Wisconsin corporation, and other seller parties, whereby the Company completed the acquisition of all the issued and outstanding membership interests of Personica, LLC, a Delaware limited liability company (“Personica”), and its subsidiaries, a provider of PBM solutions and pharmacy services, including 340B and Medicare Part D administration solutions to the PACE market. The purchase price consisted of (i) cash consideration of $10,000, subject to certain customary post-closing adjustments, (ii) the issuance of 555,555 shares of the Company’s common stock valued at $23,589, and (iii) the delivery of promissory notes (collectively, the “Notes”) for the payment of (a) $7,500 in cash paid in January 2021, (b) $5,500 in cash paid in April 2021, and (c) $3,550 in cash paid in October 2021, with the remaining amount of $450 expected to be paid in cash during the fourth quarter of 2021. The Company may set off amounts due under the Notes to the extent the Company is entitled to indemnification under the Purchase Agreement or in respect of adjustments to the purchase price.

Revenue from Personica includes medication fulfillment pharmacy services to PACE organizations. Revenue for these services, and the related costs, is recognized when medications are delivered and control has passed to the client and is included in product revenue and cost of revenue – product cost, respectively, in the Company’s consolidated statements of operations. Revenue from Personica is also comprised of monthly fees per adjudicated claim for PBM solutions. Revenue for these services, and the related costs, is recognized each month as performance obligations are satisfied and costs are incurred and is included in service revenue and cost of revenue – service cost, respectively, in the Company’s consolidated statements of operations. The financial results of Personica are included in the Company’s CareVention HealthCare segment.

Pro forma

The unaudited pro forma results presented below include the results of the Personica acquisition as if it had been consummated as of January 1, 2019. The unaudited pro forma results include the amortization associated with acquired intangible assets, interest expense on the debt incurred to fund these acquisitions, stock-based compensation expense related to equity awards granted to employees of the acquired companies, and the estimated tax effect of adjustments to net loss before income taxes. Material nonrecurring charges, including direct acquisition costs, directly

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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 acquisition been consummated as of January 1, 2019.

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

   

2020

Revenue

$

73,490

$

228,943

Net loss

(22,420)

(50,705)

6.     Other Current Assets

As of SeptemberJune 30, 20212022 and December 31, 2020,2021, other current assets consisted of the following:

    

September 30, 2021

    

December 31, 2020

June 30, 2022

    

December 31, 2021

Contract assets

$

11,638

$

7,601

$

22,043

$

12,695

Non-trade receivables

1,611

647

778

3,289

Other

2,149

1,504

2,200

2,049

Total other current assets

$

15,398

$

9,752

$

25,021

$

18,033

7.       Property and Equipment

Accumulated depreciation was $20,861$18,131 and $17,922$17,427 as of SeptemberJune 30, 20212022 and December 31, 2020,2021, respectively. Depreciation expense on property and equipment for the three months ended SeptemberJune 30, 2022 and 2021 was $1,214 and 2020 was $1,109 and $1,272,$900, respectively. Depreciation expense on property and equipment for the ninesix months ended SeptemberJune 30, 2022 and 2021 was $2,061 and 2020 was $3,616 and $3,774,$1,847, respectively.

8.       Software Development Costs

The Company capitalizes certain costs incurred in connection with obtaining or developing its proprietary software platforms, which are used to support its product and service contracts. These costs include external direct costs of materialthird-party contractors and services, payroll costs for employees directly involved with the software development, including external direct costs of material and services, and interest expense related to the borrowings attributable to software development. As of SeptemberJune 30, 20212022 and December 31, 2020,2021, capitalized software costs consisted of the following:

September 30, 2021

    

December 31, 2020

June 30, 2022

    

December 31, 2021

Software development costs

$

71,205

$

48,548

$

46,750

$

49,481

Less: accumulated amortization

(30,908)

(20,666)

(15,475)

(20,227)

Software development costs, net

$

40,297

$

27,882

$

31,275

$

29,254

Capitalized software development costs included above not yet subject to amortization

$

9,518

$

4,382

$

8,379

$

5,328

Amortization expense for the three months ended SeptemberJune 30, 2022 and 2021 was $2,581 and 2020 was $3,913 and $2,636,$2,165, respectively. Amortization expense for the ninesix months ended SeptemberJune 30, 2022 and 2021 was $5,781 and 2020$4,103, respectively.

During the first quarter of 2022, the Company became aware of changes in circumstances impacting the future functionality of certain capitalized software development costs in the MedWise HealthCare segment and evaluated the recoverability of the related long-lived assets by comparing their carrying amount to the future net undiscounted cash flows expected to be generated by the assets to determine if the carrying value was $10,242not recoverable. The recoverability test indicated that certain capitalized software development costs were impaired and, $6,613, respectively.as a result, the Company used an income approach to measure the fair value of the assets and recognized non-cash impairment charges of $4,062 for the six months ended June 30, 2022. There were no identified circumstances that would impact the future functionality of capitalized software development costs during the three months ended June 30, 2022.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

9.      Goodwill and Intangible Assets

The Company’s goodwill as of June 30, 2022 and related changes duringDecember 31, 2021 was $115,323, which relates to the nine months ended September 30, 2021 were as follows:Company’s CareVention HealthCare segment.

CareVention HealthCare

MedWise HealthCare

Total

Balance at January 1, 2021

$

115,350

$

55,512

$

170,862

Adjustments to goodwill related to prior year acquisition

(27)

(27)

Balance at September 30, 2021

$

115,323

$

55,512

$

170,835

During the first and second quarters of 2022, the Company experienced a sustained decline in the market price of its common stock and determined that an indicator of impairment was present. The Company performed a quantitative goodwill impairment assessment as of June 30, 2022, estimating the fair value of the Company’s reporting unit using a market approach. Based on the analysis performed, the Company determined that the estimated fair value of the Company’s reporting unit exceeded its carrying value, and, as a result, goodwill was not impaired as of June 30, 2022.

Intangible assets consisted of the following as of SeptemberJune 30, 20212022 and December 31, 2020:2021:

Weighted Average

Weighted Average

Amortization Period

Accumulated

Intangible

Amortization Period

Accumulated

Intangible

    

(in years)

    

Gross Value

    

Amortization

    

Assets, net

    

(in years)

    

Gross Value

    

Amortization

    

Assets, net

September 30, 2021

June 30, 2022

Trade names

2.1

$

5,529

$

(2,987)

$

2,542

2.9

$

1,340

$

(939)

$

401

Client relationships

11.5

145,629

(34,871)

110,758

11.7

51,264

(13,306)

37,958

Non-competition agreements

5.0

6,892

(5,010)

1,882

5.0

1,640

(1,139)

501

Developed technology

7.6

65,414

(29,492)

35,922

6.2

14,720

(11,640)

3,080

Patient database

5.0

21,700

(11,212)

10,488

Domain name

10.0

59

(25)

34

10.0

59

(29)

30

Total intangible assets

$

245,223

$

(83,597)

$

161,626

$

69,023

$

(27,053)

$

41,970

Weighted Average

Weighted Average

Amortization Period

Accumulated

Intangible

Amortization Period

Accumulated

Intangible

    

(in years)

    

Gross Value

    

Amortization

    

Assets, net

    

(in years)

    

Gross Value

    

Amortization

    

Assets, net

December 31, 2020

December 31, 2021

Trade names

3.7

$

11,955

$

(8,286)

$

3,669

2.9

$

1,340

$

(853)

$

487

Client relationships

12.2

152,654

(32,437)

120,217

11.7

51,264

(11,042)

40,222

Non-competition agreements

5.0

6,892

(3,976)

2,916

5.0

1,640

(975)

665

Developed technology

8.0

67,369

(24,858)

42,511

6.2

14,720

(10,768)

3,952

Patient database

5.0

21,700

(7,957)

13,743

Domain name

10.0

59

(21)

38

10.0

59

(27)

32

Total intangible assets

$

260,629

$

(77,535)

$

183,094

$

69,023

$

(23,665)

$

45,358

Amortization expense for intangible assets for the three months ended SeptemberJune 30, 2022 and 2021 was $1,695 and 2020 was $7,060 and $8,291,$1,915, respectively. Amortization expense for intangible assets for the ninesix months ended SeptemberJune 30, 2022 and 2021 was $3,389 and 2020 was $21,468 and $21,936,$3,831, respectively.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The estimated amortization expense for the remainder of 20212022 and each of the next five years and thereafter is as follows:

Years Ending December 31,

    

    

2021 (October 1 - December 31)

    

$

6,974

2022

27,089

2022 (July 1 – December 31)

$

3,363

2023

25,804

6,162

2024

18,521

4,684

2025

14,038

4,466

2026

12,830

4,338

2027

4,271

Thereafter

56,370

14,686

Total estimated amortization expense

$

161,626

$

41,970

10.      Notes Payable Related to Acquisition

On October 5, 2020, as part of the consideration of the Personica acquisition, the Company entered into promissory notes in the aggregate principal amount of $17,000 payable to the owners of Personica (see Note 5). The Notes bear an interest rate of 3.25% and are payable as follows: (a) $7,500 in cash, which was paid in January 2021, (b) $5,500 in cash, which was paid in April 2021, and (c) $3,550 in cash, which was paid in October 2021. The remaining amount of $450 is expected to be paid in cash during the fourth quarter of 2021.

The Notes were recorded at their aggregate acquisition-date fair value of $16,355 and are being accreted up to their face values over their respective terms using the effective-interest method. For the three months ended September 30, 2021, the Company recognized $112 of interest expense related to the Notes, of which $33 was paid or accrued and $79 was the non-cash accretion of the discounts recorded. For the nine months ended September 30, 2021, the Company recognized $474 of interest expense related to the notes, of which $141 was paid or accrued and $333 was the non-cash accretion of the discounts recorded. As of September 30, 2021 and December 31, 2020, the Notes had a fair value of $3,995 and $16,662, respectively.

11.       Accrued Expenses and Other Liabilities

As of September 30, 2021 and December 31, 2020, accrued expenses and other liabilities consisted of the following:

    

September 30, 2021

    

December 31, 2020

Employee related expenses

$

9,389

$

8,218

Contract liability

3,986

3,205

Customer deposits

904

904

Client funds obligations*

4,014

5,170

Contract labor

888

1,374

Interest

1,006

3,690

Professional fees

840

572

Consideration payable to customer

11,463

5,968

Non-income taxes payable

158

151

Other expenses

2,795

2,716

Total accrued expenses and other liabilities

$

35,443

$

31,968

*This amount represents clients’ funds held by the Company, with an offsetting amount included in restricted cash.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

12.10.       Accrued Expenses and Other Liabilities

As of June 30, 2022 and December 31, 2021, accrued expenses and other liabilities consisted of the following:

    

June 30, 2022

    

December 31, 2021

Employee related expenses

$

5,442

$

8,595

Contract liability

2,751

2,015

Customer deposits

904

904

Client funds obligations*

7,062

6,038

Contract labor

2,331

838

Interest

2,340

2,281

Vendor financing arrangements

96

Professional fees

1,438

1,327

Consideration payable to customer

24,587

15,971

Income and non-income taxes payable

45

15

Other expenses

3,183

3,013

Total accrued expenses and other liabilities

$

50,179

$

40,997

*This amount represents client funds held by the Company, with an offsetting amount included in restricted cash.

11.      Lines of Credit and Long-Term Debt

(a)    Lines of Credit

On September 6, 2017, the Company entered into an Amended and Restated Loan and Security Agreement (the “2015 Line of Credit”), whereby the Company amended and restated its revolving line of credit, originally entered into with Bridge Bank (now Western Alliance Bank) in 2015 and had subsequently amended. The 2015 Line of Credit provided for borrowing availability in an aggregate amount up to $60,000 to be used for general corporate purposes, with a $1,000 sublimit for cash management services, letters of credit, and foreign exchange transactions. The 2015 Line of Credit matured pursuant to its terms on December 6, 2020.

On December 18, 2020, the Company and its subsidiaries entered into a Loan and Security Agreement (the “2020 Credit Facility”), with Western Alliance Bank which provides(“WAB”). The 2020 Credit Facility provided for a $120,000 secured revolving credit facility, with a $1,000 sublimit for cash management services and letters of credit and foreign exchange transactions (the “2020 Credit Facility”) and replaced the 2015 Line of Credit.transactions.

Amounts under the 2020 Credit Facility maycould be borrowed, repaid, and re-borrowed from time to time until the maturity date on May 16, 2025, and maywere permitted to be used for, among other things, working capital and other general corporate purposes. Loans under the 2020 Credit Facility will bearbore interest at a rate equal to the LIBOR rate plus 3.25%. In the event LIBOR for any applicable interest period was less than zero percent, then the LIBOR rate would have been determined as zero percent for such interest period. If LIBOR ceased to exist or was no longer available, then the interest rate would have been replaced with an alternate base rate and spread. The obligations under the 2020 Credit Facility arewere secured by all of the Company’s assets of the borrowers, subject to certain exceptions and exclusions as set forth in the Loan and Security Agreement.2020 Credit Facility.

The Loan and Security Agreement contains2020 Credit Facility contained certain affirmative and negative covenants that arewere binding on the Company, including, but not limited to, restrictions (subject to specified exceptions and qualifications) on the Company’s ability to incur indebtedness, create liens, merge or consolidate, make dispositions, pay dividends or make distributions, make investments, pay any subordinated indebtedness, enter into certain transactions with affiliates, or make capital expenditures, as defined.expenditures. In addition, the Loan and Security Agreement imposes2020 Credit Facility imposed certain financial covenants, including that the Company (i) maintain unrestricted cash balances with Western Alliance Bank,WAB, plus amounts available for draw under the 2020 Credit Facility of at least $10,000 at all times, and (ii) maintain a leverage ratio of less than 3.00:1.00, on a trailing twelve-month basis, measured quarterly. The Loan and Security Agreement defines2020 Credit Facility defined amounts available for borrowing as three3 times the Company’s trailing twelve months EBITDA as(as defined therein) less amounts outstanding under the 2020 Credit Facility. As of September 30, 2021, amounts available for borrowing under the 2020 Credit Facility were $31,075.

The 2020 Credit Facility iswas subject to a commitment fee of 0.50% of the total commitment under the 2020 Credit Facilityamount payable on the closing date, and 0.25% of the total commitment under the 2020 Credit Facilityamount payable on each anniversary thereafter. Additionally, the 2020 Credit Facility iswas subject to an unused line fee.

As of September 30, 2021, the Company had $27,500 outstanding under the 2020 Credit Facility, plus an outstanding letter of credit of $100 issued in connection with the Company’s lease agreement for its office space in Moorestown, NJ. The letter of credit renews annually and expires in September 2027. As of September 30, 2021, the Company had unused commitments of $92,500 under the 2020 Credit Facility.

As of September 30, 2021, the Company was in compliance with all of the financial covenants related to the 2020 Credit Facility, and management expects that the Company will be able to maintain compliance with its covenants.

As of September 30, 2021, the interest rate on the 2020 Credit Facility was 3.33% and the effective rate for the unused line fee was 0.45%. Interest expense on the 2020 Credit Facility was $314 and $842 for the three and nine months ended September 30, 2021, respectively. As of September 30, 2020, the interest rate on the 2015 Line of Credit was 5.50%. NaN interest expense was incurred for the three and nine months ended September 30, 2020 as there were 0 aggregate borrowings outstanding on the 2015 Line of Credit during the three and nine months ended September 30, 2020.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

As of June 30, 2022, the Company had $57,200 outstanding under the 2020 Credit Facility, plus an outstanding letter of credit of $100 issued in connection with the Company’s lease agreement for its office space in Moorestown, New Jersey. The letter of credit renewed annually until its expiration in September 2027, and reduced amounts available under the 2020 Credit Facility. As discussed in Note 18, on August 1, 2022, the Company entered into payoff letter with WAB pursuant to which the Company voluntarily elected to pay all amounts outstanding under the 2020 Credit Facility and terminated the 2020 Credit Facility and all related loan documents.

As of June 30, 2022, the interest rate on the 2020 Credit Facility was 4.37% and the effective rate for the unused line fee was 0.35%. Interest expense on the 2020 Credit Facility was $637 and $1,097 for the three and six months ended June 30, 2022, respectively. As of June 30, 2021, the interest rate on the 2020 Credit Facility was 3.34% and the effective rate for the unused line fee was 0.45%. Interest expense on the 2020 Credit Facility was $267 and $528 for the three and six months ended June 30, 2021, respectively.

In connection with the 2020 Credit Facility, the Company recorded deferred financing costs of $1,184.$1,534. The Company is amortizing the deferred financing costs associated with the 2020 Credit Facility to interest expense using the effective-interest method over the term of the 2020 Credit Facility.agreement. The Company amortized $136$138 and $404$275 to interest expense for the three and ninesix months ended SeptemberJune 30, 2021, respectively.2022, respectively, for deferred financing costs. The Company amortized $79$135 and $278$268 to interest expense during the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, for deferred financing costs related to the 2015 Line of Credit.costs. Deferred financing costs of $760$699 and $1,156,$624, net of accumulated amortization, are included in other assets on the accompanying consolidated balance sheets as of SeptemberJune 30, 20212022 and December 31, 2021, respectively. The remaining balance of deferred financing costs will be amortized to interest expense during the third quarter of 2022 in connection with the termination of the 2020 respectively.Credit Facility as described in Note 18.

(b)    Convertible Senior Subordinated Notes

On February 12, 2019, the Company issued and sold an aggregate principal amount of $325,000 of 1.75% convertible senior subordinated notes (the “2026 Notes”) in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended. The 2026 Notes bear interest at a rate of 1.75% per year, payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2019. The notes2026 Notes will mature on February 15, 2026, unless earlier converted or repurchased. The initial conversion rate for the notes is 14.2966 shares of the Company’s common stock per $1 principal amount of notes.the 2026 Notes. This conversion rate is equal to an initial conversion price of approximately $69.95 per share of the Company’s common stock.

Holders may convert all or any portion of their 2026 Notes at any time prior to the close of business on the business day immediately preceding August 15, 2025 only under the following circumstances: (1) during any calendar quarter commencing after March 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5 business day period after any 5 consecutive trading day period (the measurement period) in which the trading price (as defined in the indenture governing the 2026 Notes) per $1 principal amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events, including certain distributions, the occurrence of a fundamental change or make-whole fundamental change (as defined in the indenture governing the 2026 Notes) or a transaction resulting in the Company’s common stock converting into other securities or property or assets. On or after August 15, 2025 until the close of business on the first scheduled trading day immediately preceding the maturity date, a holder may convert all or any portion of its 2026 Notes regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver shares of our common stock, cash or a combination thereof at the Company’s option. As of SeptemberJune 30, 2021,2022, none of the conditions allowing holders of the 2026 Notes to convert had been met.

In the initial accounting for the issuance of the 2026 Notes, the Company separated the 2026 Notes into liability and equity components. The carrying amount of the equity component representing the conversion option was $102,900 and was determined by deducting the fair value of the liability component from the par value of the 2026 Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The initial associated deferred tax effect of $25,884 was recorded as a reduction of additional paid-in capital because the equity component was not expected to be deductible for income tax purposes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) was amortized to interest expense over the term of the 2026 Notes at an effective interest rate of 8.05% over the contractual term. Debt issuance costs related to the 2026 Notes of $9,372 were allocated to the liability and equity components of the 2026 Notes based on their relative values. Issuance costs attributable to the liability component were $6,405 and wereare being amortized to interest expense using the effective interest method over the contractual term. Issuance costs attributable to the equity component were netted with the equity componentterm, resulting in stockholders’ equity.an effective interest rate of 2.20%.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

As described in Note 2, the Company adopted ASU 2020-06 using the modified retrospective method effective January 1, 2021. Upon adoption, the Company recorded a $74,850 decrease to additional paid-in capital, a $78,707 increase to the carrying value of its convertible notes, a $2,465 decrease to the net deferred tax liability, and a $1,392 increase in accumulated deficit. Effective on January 1, 2021, debt issuance costs related to the 2026 Notes of $7,008 were allocated to the liability component of the 2026 Notes and will be amortized to interest expense using the effective interest method over the contractual term, resulting in an effective interest rate of 2.20%.

During the three months ended SeptemberJune 30, 2021,2022, the Company recognized $1,750$1,755 of interest expense related to the 2026 Notes, of which $1,423$1,422 was paid or accrued and $327$333 was the non-cash accretion of the debt discounts recorded. During the ninesix months ended SeptemberJune 30, 2021,2022, the Company recognized $5,243$3,508 of interest expense related to the 2026 Notes, of which $4,266$2,844 was paid or accrued and $977$664 was the non-cash accretion of the debt discounts recorded.

During the three months ended SeptemberJune 30, 2020, under the previous accounting standard,2021, the Company recognized $4,702$1,747 of interest expense related to the 2026 Notes, of which $1,422$1,421 was paid or accrued, and $3,280$326 was the non-cash accretion of the debt discounts recorded. During the ninesix months ended SeptemberJune 30, 2020, under the previous accounting standard,2021, the Company recognized $13,913$3,493 of interest expense related to the 2026 Notes, of which $4,266$2,843 was paid or accrued, and $9,647$650 was the non-cash accretion of the debt discounts recorded.

In addition, unpaid additional interest payable as a result of the failure to remove the restrictive legend on the 2026 Convertible Notes had accrued on the 2026 Convertible Notes from and including February 17, 2020, and hadbut ceased accruing on February 16, 2021 as a result of the restrictive legend being removed. The Company recorded $212 of additional interest expense for the ninesix months ended SeptemberJune 30, 2021. The total cumulative amount of additional interest expense was $1,625 and was paid in full during the third quarter of 2021.

TAs of June 30, 2022, total otal accrued interest payable related to the 2026 Notes was $711 as of September 30, 2021,$2,133, which is included in accrued expenses and other liabilities on the consolidated balance sheet.sheets. The 2026 Notes hadhave a carrying value of $318,969$319,963 as of SeptemberJune 30, 2021.2022.

The 2026 Notes are classified as long-term debt on the Company’s consolidated balance sheets, and will be until such 2026 Notes are within one year of maturity.

(c)    Convertible Note Hedge and Warrant Transactions

In connection with the offering of the 2026 Notes, the Company entered into convertible note hedge transactions with affiliates of certain of the initial purchasers (the “option counterparties”) of the 2026 Notes pursuant to the terms of call option confirmations. The Company has the option to purchase a total of 4,646,393 shares of its common stock at a price of approximately $69.95 per share. The total premiums paid for the note hedges were $101,660. The Company also entered into warrant transactions with the option counterparties whereby they have the option to purchase 4,646,393 shares of the Company’s common stock at a price of $105.58 per share. The Company received $65,910 in cash proceeds from the sale of the warrants. As these instruments are considered indexed to the Company's own stock and are considered equity classified, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period. The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the Company’s consolidated balance sheets.

The convertible note hedge transactions are expected generally to reduce the potential dilution to the Company’s common stock upon conversion of the 2026 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2026 Notes, as the case may be. The warrant transactions could separately have a dilutive effect on the Company’s common stock to the extent that the market price per share of the Company’s common stock exceeds the strike price of the warrants.

As of June 30, 2022, 0 warrants have been exercised and all warrants to purchase shares of the Company’s common stock were outstanding.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

As of September 30, 2021, 0 warrants have been exercised and all warrants to purchase shares of the Company’s common stock were outstanding.

(d)    Long-Term Debt

The following table represents the total long-term debt obligations of the Company at SeptemberJune 30, 20212022 and December 31, 2020:2021:

    

September 30, 2021

    

December 31, 2020

    

June 30, 2022

    

December 31, 2021

Convertible senior subordinated notes

$

325,000

$

325,000

$

235,272

$

325,000

Convertible senior subordinated notes - related party

89,728

Unamortized discount, including debt issuance costs, on convertible senior subordinated notes

(6,031)

(85,715)

(5,037)

(5,701)

Convertible senior subordinated notes, net

318,969

239,285

Finance leases

4

Total long-term debt and finance leases, net

318,969

239,289

Less current portion of finance leases

(4)

Total long-term debt, net

$

318,969

$

239,285

$

319,963

$

319,299

13.12.      Income Taxes

For the three months ended June 30, 2022 and 2021, the Company recorded income tax expense of $159 and $81, respectively, which resulted in effective tax rates of (1.3%) and (0.6)%, respectively.

For the six months ended June 30, 2022 and 2021, the Company recorded income tax expense of $375 and $202, respectively, which resulted in effective tax rates of (1.1%) and (0.7)%, respectively.

The effective tax rates differ from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that is currently limiting the realizability of the Company’s net deferred tax assets as of the end of the periods presented. As of June 30, 2022, the Company has recorded a full valuation allowance against its deferred tax assets. Accordingly, the tax benefit was limited due to unbenefited losses in the three and six months ended June 30, 2022 and 2021, respectively. The Company calculates its provision for income taxes during its interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year to date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.

On February 12, 2021, the Company received a private letter ruling from the Internal Revenue Service, which determined, based on information submitted and representations made by the Company, that the Company met the requirements to deduct the interest expense resulting from the amortization of the debt discount associated with the 2026 Notes. As a result, during the nine months ended September 30, 2021, the Company recorded a deferred tax asset of $26,313 and a corresponding $26,313 increase to its valuation allowance. As of September 30, 2021, the Company recorded a full valuation allowance against its deferred tax assets.

The Company calculates its provision for income taxes during its interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year-to-date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.

For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $134 and $466, respectively, primarily related to indefinite-lived deferred tax liabilities for goodwill amortization, which resulted in effective tax rates of (0.8)% and (0.8)%, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that is currently limiting the realizability of the Company’s net deferred tax assets as of September 30, 2021. Accordingly, the tax benefit was limited due to unbenefited losses in the three and nine months ended September 30, 2021.

For the three and nine months ended September 30, 2020, the Company recorded an income tax benefit of $1,830 and $5,705, respectively, which resulted in effective tax rates of 7.8% and 10.2%, respectively. The effective tax rate differed from the U.S. statutory tax rate primarily due to an increase in the valuation allowance that limited the realizability of the Company’s net deferred tax assets as of September 30, 2020. Accordingly, the tax benefit was limited due to unbenefited losses in the three and nine months ended September 30, 2020.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

14.13.     Stock-Based Compensation

In September 2016, the Company adopted the 2016 Equity Compensation Plan (“(2016 Plan”). During the term of the 2016 Plan, the share reserve will automatically increase on the first trading day in January of each calendar year by an amount equal to the lesser of 5% of the total number of outstanding shares of common stock on the last trading day in December of the prior calendar year or such other number set by the Board.Company’s Board of Directors (the “Board”). In accordance with the terms of the 2016 Plan, the share reserve increased by 1,200,2441,283,321 shares on January 2, 2021.February 25, 2022. As of SeptemberJune 30, 2021, 1,665,1842022, 1,817,777 shares were available for future grants under the 2016 Plan.

The following stock-based compensation information disclosed below include results of both continuing and discontinued operations.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Restricted Common Stock and Restricted Stock Units

The Company issues restricted stock awards and restricted stock units pursuant to the 2016 Plan to employees and non-employee directors. Restricted stock awards and restricted stock units generally vest over a one- to four-year period and the unvested portion of these awards is forfeited if the employee or non-employee director leaves the Company before the vesting period is completed. The grant-date fair value of restricted stock awards and restricted stock units is determined using the Company’s closing stock price at grant date.

The following table summarizes the aggregate restricted stock award activity, inclusive of performance based restricted stock awards, and restricted stock unit activity under the 2016 Plan for the ninesix months ended SeptemberJune 30, 2021:2022.:

Weighted

Weighted

average

average

Number

grant-date

Number

grant-date

    

of shares

    

fair value

    

of shares

    

fair value

Outstanding at December 31, 2020

1,386,908

$

44.14

Outstanding at December 31, 2021

2,196,566

$

40.19

Granted

774,352

52.80

768,351

5.32

Vested

(469,958)

48.59

(456,774)

44.01

Forfeited

(66,779)

55.86

(169,424)

36.67

Outstanding at September 30, 2021

1,624,523

$

46.50

Outstanding at June 30, 2022

2,338,719

$

28.24

The table above includes 14,222 restricted stock units which have vested but as of June 30, 2022, have not been issued.

For the three months ended SeptemberJune 30, 2022 and 2021, an aggregate of $5,681 and 2020, $6,447 and $5,398$10,124 of expense, respectively, was recognized related to restricted stock awards and restricted stock units, excluding performance-based restricted stock awards described below.

For the ninesix months ended SeptemberJune 30, 2022 and 2021, an aggregate of $13,068 and 2020, $22,846 and $14,346$16,399 of expense, respectively, was recognized related to restricted stock awards respectively.and restricted stock units, excluding performance-based restricted stock awards as described below. As of SeptemberJune 30, 2021,2022, there was unrecognized compensation expense of $52,583$44,394 related to non-vestedunvested restricted stock awards and unvested restricted stock units, excluding performance-based restricted stock awards described below, under the 2016 Plan, which is expected to be recognized over a weighted average period of 2.62.4 years.

Performance-Based Equity Awards

On May 4, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 10,686 shares of restricted stock to an employee. The grants vest subject to certain performance conditions being achieved during the two-year period ending March 2, 2022. The awards havewere recorded using a grant-date fair value of $56.14 per share which was based on the Company’s closing stock price on the grant date. Stock-based compensation costs associated with theseThe grants are recognized over the service period based upon the Company’s assessment of the probability that thewere subject to certain performance conditions will be achieved. The Company recognized 0 stock-based compensation expense related to these grants for the threetwo-year period ended March 2, 2022, which were not achieved. As a result, the grants expired, and nine0 expense was recognized during the six months ended SeptemberJune 30, 2021 as the achievement of the underlying performance conditions was considered unlikely. As of September 30, 2021, there was $600 of unrecognized compensation expense related to these performance-based restricted stock awards.2022.

On October 29, 2020, pursuant to the 2016 Plan, the Board approved grants totaling 26,400 shares of restricted stock to certain employees, of which 1,400 expired on April 30, 2021 and 12,500 expired on December 31, 2021. The remaining grants vest12,500 shares fully vested subject to the achievement of certain milestones achieved throughon December 31, 2021. The awards havehad a grant-date fair value of $35.95 per share based on the Company’s closing stock price on the grant date. Stock-based compensation costs associated with these grants arewere recognized over the service period based upon the Company’s assessment of the probability that the performance conditions willwould be achieved. The Company recognized $194$148 and $556$362 of stock-based compensation expense related to these grants for the three and ninesix months ended SeptemberJune 30, 2021, respectively. As of September 30, 2021, there was $191 of unrecognized compensation expense related to these performance-based restricted stock awards.

22

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

On April 27, 2021, pursuant to the 2016 Plan, the Board approved awards of performance stock units to certain employees. Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient. As of SeptemberJune 30, 2021,2022, the number of Target Shares was 92,72586,175 shares. The awards are earned upon the Company’s achievement of certain revenue performance targets during the three-year performance period ending December 31, 2023. Depending on the results achieved during the performance period, the actual number of shares that a grant recipient receivesmay receive at the end of the performance period may range from 0% to 200% of the Target Shares granted. The performance stock unit awards have a grant-date fair value of $44.13 per share based on the Company’s closing stock price on the grant date. Stock-based compensation costs associated with these grants are recognized over the performance period based upon the Company’s assessment of the probability that the performance targets will be achieved. For the three months ended September 30, 2021, theThe Company recorded a $216 reduction indid not recognize any stock-based compensation expense related to the performance stock units, resulting in 0 stock-based compensation expense for the ninethree and six months ended SeptemberJune 30, 20212022, as the achievement of the underlying performance targets was considered unlikely. During the six months ended June 30, 2022, 6,550 performance stock units expired. As of SeptemberJune 30, 2021,2022, the maximum number of achievable performance stock units was 185,450172,350 and the maximum unrecognized compensation expense was $8,184.$7,606.

Other Stock Awards

During the first quarter of 2021, the Board approved the grant of stock awards to certain non-employee directors and to a consultant pursuant to the 2016 Plan. The awards provided for the issuance of 1,416 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $40.85 per share. For the ninesix months ended SeptemberJune 30, 2021, the Company recorded $58 of expense related to these stock awards.

During the first quarter of 2020,2022, the Board approved the grantgrants of stock awards to selectcertain non-employee directors and employees pursuant to the 2016 Plan. The awards provided for the issuance of 9,38616,471 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $52.29$5.57 per share. For the ninesix months ended SeptemberJune 30, 2020,2022, the Company recorded $491$92 of expense related to these stock awards.

During the second quarter of 2022, the Board approved grants of stock awards to certain non-employee directors pursuant to the 2016 Plan. The awards provided for the issuance of 12,262 shares of the Company’s common stock, which immediately vested on the grant date. These grants had a weighted average grant-date fair value of $3.64 per share. For the three months ended June 30, 2022, the Company recorded $45 of expense related to these stock awards.

Stock Options

The Company recorded $1,586$966 and $2,700$1,861 of stock-based compensation expense related to employee and non-employee director stock options for the three months ended June 30, 2022 and 2021, respectively. The Company recorded $2,096 and $3,916 of stock-based compensation expense related to employee and non-employee stock options for the threesix months ended SeptemberJune 30, 20212022 and 2020, respectively. The Company recorded $5,502 and $7,571 of stock-based compensation expense related to employee and non-employee stock options for the nine months ended September 30, 2021, and 2020, respectively. The Company records forfeitures as they occur.

NaN grants for employee and non-employee stock options were made during the six months ended June 30, 2022. The table below sets forth the weighted average assumptions for employee grants during the ninesix months ended SeptemberJune 30, 2021 and 2020:2021:

Nine Months Ended

September 30, 

Valuation assumptions:

    

2021

    

2020

Expected volatility

58.57

%  

56.10

%

Expected term (years)

5.48

5.25

Risk-free interest rate

0.50

%  

1.22

%

Dividend yield

The weighted average grant date fair value of employee options granted during the nine months ended September 30, 2021 and 2020 was $28.26 and $33.78 per share, respectively.

Six Months Ended

Valuation assumptions:

June 30, 2021

Expected volatility

58.57

%

Expected term (years)

5.48

Risk-free interest rate

0.50

%

Dividend yield

23

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The weighted average grant date fair value of employee options granted during the six months ended June 30, 2021 was $28.26 per share.

The following table summarizes stock option activity under the 2016 Plan for the ninesix months ended SeptemberJune 30, 2021:2022:

Weighted

Weighted

Weighted

average

Weighted

average

average

remaining

Aggregate

average

remaining

Aggregate

Number

exercise

contractual

intrinsic

Number

exercise

contractual

intrinsic

    

of shares

    

price

    

term

    

value

    

of shares

    

price

    

term

    

value

Outstanding at December 31, 2020

2,096,556

$

27.74

  

Granted

2,500

55.01

Outstanding at December 31, 2021

1,604,226

$

29.90

  

Exercised

(336,021)

11.78

(12,573)

5.01

Forfeited

(91,355)

46.19

(143,116)

46.27

Outstanding at September 30, 2021

1,671,680

$

29.98

5.7

$

12,679

Options vested and expected to vest at September 30, 2021

1,671,680

$

29.98

5.7

$

12,679

Exercisable at September 30, 2021

1,446,392

$

26.30

5.4

$

12,679

Outstanding at June 30, 2022

1,448,537

$

28.49

4.9

$

-

Options vested and expected to vest at June 30, 2022

1,448,537

$

28.49

4.9

$

-

Exercisable at June 30, 2022

1,379,541

$

27.16

4.8

$

-

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the Company’s closing stock price or estimated fair value on the last trading day of the fiscal quarter for those stock options that had exercise prices lower than the fair value of the Company's common stock. This amount changes based on the fair market value of the Company’s stock. The total intrinsic value of options exercised during the ninesix months ended SeptemberJune 30, 2022 and 2021 was $2 and 2020 was $11,113 and $19,850,$10,601, respectively.

As of SeptemberJune 30, 2021,2022, there was $6,740$2,057 of total unrecognized compensation cost related to nonvested stock options granted under the 2016 Plan, which is expected to be recognized over a weighted average period of 1.30.6 years.

Cash received from option exercises for the ninesix months ended SeptemberJune 30, 2022 and 2021 was $60 and 2020 was $3,683 and $3,225,$3,082, respectively.

The Company recorded total stock-based compensation expense for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 in the following expense categories of its consolidated statements of operations:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Cost of revenue - product

$

255

$

192

$

851

$

567

Cost of revenue - service

1,105

828

3,524

2,430

Research and development

1,658

1,717

5,919

4,197

Sales and marketing

556

564

2,523

1,615

General and administrative

4,437

4,797

16,145

13,599

Total stock-based compensation expense

$

8,011

$

8,098

$

28,962

$

22,408

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Cost of revenue - product

$

223

$

337

$

447

$

596

Cost of revenue - service

570

898

1,471

1,748

Research and development

761

2,069

2,280

3,272

Sales and marketing

50

345

308

1,042

General and administrative

3,488

6,178

8,289

10,541

Discontinued operations

1,600

2,522

2,506

3,752

Total stock-based compensation expense

$

6,692

$

12,349

$

15,301

$

20,951

Employee Stock Purchase Plan

In February 2021, the CompanyBoard, subject to stockholder approval, adopted the Tabula Rasa HealthCare, Inc. Employee Stock Purchase Plan (the “ESPP”), which allows eligible employees to purchase common shares of Company stock through payroll deductions at a 15% discount off the lower of (i) the fair market value per share of common stock on the start date of the applicable offering period or (ii) the fair market value per share of common stock on the purchase date. The ESPP was approved by the Company’s stockholders at the 2021 Annual Meetingannual meeting of stockholders in June 2021. The number of shares of common stock reserved for issuance under the ESPP will initially be 480,097 shares, subject to adjustment as provided in the ESPP, all of which remained available as of SeptemberJune 30, 2021.

2022.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

15.14.     Fair Value Measurements

The Company’s financial instruments consist of accounts receivable, client claims receivables, contract assets, accounts payable, client claims payable, contract liabilities, accrued expenses, acquisition-related notes payable,vendor financing arrangements, line of credit, and long-term debt, which includes the Company’s convertible senior subordinated notes. The carrying values of accounts receivable, client claims receivables, contract assets, accounts payable, client claims payable, contract liabilities, and accrued expenses and acquisition-related notes payable are representative of their fair valuevalues due to the relatively short-term nature of those instruments. Vendor financing arrangements are recorded at net carrying value, which approximates fair value. The outstanding principal balance of the line of credit is representative of its fair value due to it being variable-rate debt. See below for additional information on the Company’s convertible senior subordinated notes.

In connection with the 2018 acquisition of the Cognify business, additional consideration was payable by the Company based on a multiple of the excess of certain PACE solutions’ 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement. The Cognify acquisition-related contingent consideration, which was liability-classified, was recorded at the estimated fair value at the acquisition date of October 19, 2018. The Company, with the assistance of a third-party appraiser, utilized a Monte Carlo simulation to derive estimates of the contingent consideration payments as of the acquisition date and at each subsequent reporting period.

The acquisition-related contingent consideration liability represented the estimated fair value of the additional cash and equity consideration payable that was contingent upon the achievement of certain financial and performance milestones. In accordance with ASC 805, Business Combinations, all changes in liability-classified contingent consideration subsequent to the initial acquisition-date measurement were recorded in net income or loss.

The acquisition-related contingent consideration was measured at fair value on a recurring basis and included the use of significant unobservable inputs, hence, these instruments represented Level 3 measurements within the fair value hierarchy. During the third quarter of 2020, pursuant to the terms of the stock purchase agreement, the Company elected to accelerate the payment of the acquisition-related contingent consideration for an aggregate payment amount of $13,413. Due to the accelerated payment of the Cognify acquisition-related contingent consideration, the acquisition-related contingent consideration payment amount was fixed and was no longer classified within the fair value hierarchy. The acquisition-related contingent consideration was partially paid during 2020 by cash payments of $6,394 and the issuance of 135,434 shares of the Company’s common stock, with a fair value of $6,853. In January 2021, the Company made the final cash payment of $166 in full satisfaction of the remaining acquisition-related contingent consideration liability. During the three and nine months ended September 30, 2020, the Company recorded a $2,005 and $2,605 charge, respectively, for the change in the fair value of Cognify acquisition-related contingent consideration primarily due to the accelerated payment.

The following table presents the financial instruments that are not carried at fair value but require fair value disclosure as of SeptemberJune 30, 2021:2022:

Face Value

    

Carrying Value

    

Fair Value

Face Value

    

Carrying Value

    

Fair Value

1.75% Convertible Senior Subordinated Notes due 2026

$

325,000

$

318,969

$

273,003

$

325,000

$

319,963

$

219,193

The fair value of the 2026 Notes at each balance sheet date is determined based on recent quoted market prices for these notes which is a Level 2 measurement. As discussed in Note 12,11, the 2026 Notes are carried at their aggregate face value of $325,000, less any unamortized debt issuance costs. 

16.15.     Commitments and Contingencies

(a) Employment Agreements

The Company has change-in-control and severance agreements with each of the Company’s named executive officers that provide for, among other things, salary, performance bonuses or other incentive compensation, payments in the event of termination of the executives upon the occurrence of a change in control, and restrictive covenants pursuant to which the employees have agreed to refrain from competing with the Company or soliciting the Company’s employees or clients for a period following the employee’s termination of employment.

(b)   ��Legal Proceedings

The Company is not currently involved in any significant claims or legal actions that, in the opinion of management, are expected to have a material adverse impact on the Company.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

(b)(c)    Vendor Purchase Agreements

On March 29, 2019, the Company entered into an Affiliated Pharmacy Agreement and Pharmaceutical Program Supply Agreement (the “Prior Thrifty Drug Agreements”) with Thrifty Drug Stores, Inc. (“Thrifty Drug”). On July 1, 2020, the Company entered into a new Affiliated Pharmacy Agreement and Pharmaceutical Program Supply Agreement with Thrifty Drug (the “Thrifty Drug Agreements”) to replace the Prior Thrifty Drug Agreements, which, among other things, extended the Company’s agreement with Thrifty Drug through September 30, 2023. Pursuant to the terms of the Thrifty Drug Agreements, the Company has agreed to purchase not less than 98% of the Company’s total prescription product requirements from Thrifty Drug. The Company commenced purchasing prescription products under the Prior Thrifty Drug Agreements in May 2019 and has continued to do so under the Thrifty Drug Agreements beginning in July 2020. Both the Prior Thrifty Drug Agreements and the Thrifty Drug Agreements authorize Thrifty Drug to hold a security interest in all of the products purchased by the Company under the respective agreements.

As of SeptemberJune 30, 20212022 and December 31, 20202021 the Company had $1,568$1,723 and $1,985 payable$1,854, respectively, due to Thrifty Drug as a result of prescription drug purchases, respectively.purchases.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

In June 2021, the Company entered into an updated agreement with its provider of hosting services. The agreement is effective June 3, 2021 and expires on April 28, 2024 and commits the Company to a minimum purchase obligation of $1,240 over the contract term.

In December 2019, the Company entered into an updated agreement with its data aggregation partner related to the Company’s pharmacy cost management services. The agreement is effective January 1, 2020 with a three-year term expiring December 31, 2022 and commits the Company to a monthly minimum purchase obligation of $30.

In June 2021, the Company entered into an updated agreement with its provider of hosting services. The agreement is effective June 3, 2021 and expires on April 28, 2024 and commits the Company to a minimum purchase obligation of $1,272 over the contract term. As of June 30, 2022, the Company had a remaining commitment of $802.

In August 2021, the Company entered into an agreement with a third party to provide information technology services. The agreement is effective November 1, 2021 and expires on October 31, 2026 and commits the Company to a minimum purchase obligation of $8,960 through October 31, 2024. As of June 30, 2022, the Company had a remaining commitment of $6,969.

In October 2021, the Company entered into an agreement with a provider for enterprise support services. The agreement is effective October 1, 2021 and expires on September 30, 2024. The three-year contract commits the Company to an obligation of $7,050 over the duration of the contract term. As of June 30, 2022, the Company had a remaining commitment of $5,159.

In November 2021, the Company entered into an agreement with a new provider for additional hosting services. The agreement is effective November 25, 2021 and expires on November 25, 2022 and commits the Company to a minimum purchase obligation of $1,598 over the contract term. As of June 30, 2022, the Company had a remaining commitment of $729.

17.16.    Segment Reporting

The Company operates its business through 2 segments. As discussed in Note 3 above, the divestiture of the PrescribeWellness business and the planned divestitures of the DoseMe and SinfoníaRx businesses, which collectively comprise the majority of the Company’s MedWise HealthCare segment, represent a strategic business shift in the Company’s operations. The Company determined that these businesses met the requirements of discontinued operations as of June 30, 2022, and as a result, are excluded from the Company’s segment reporting. The Company presents continuing operations of the remaining components of the MedWise HealthCare segment combined with its shared services.

The Company's chief operating decision maker (“CODM”), the Chief Executive Officer, allocates resources and assesses performance based upon financial information at the reportable segment level. Substantially all revenues are generated and substantially all tangible assets are held in the U.S. The Company classifies its operations into 2 reportable segments as follows:

CareVention HealthCare primarily provides services to PACE organizations that include medication fulfillment pharmacy services and PACE solutions, such as medication safety services, pharmacy benefit managementPBM solutions, and health plan management services.

MedWise HealthCare clients include health plans, pharmacies, and non-PACE healthcare providers. Services provided to these clients include primarily generates revenues from medication safety services and software subscription solutions, which identify individuals with high medication-related risk improve patient communication and engagement, and allow for documentation of clinical interventions. These services optimize medication therapy, improve adherence, and enable precision dosing.therapy.

Shared services primarily consist of unallocated corporate sales and marketing expenses and general and administrative expenses associated with the management and administration of the Company’s business objectives.

The CODM uses revenue in accordance with U.S. GAAP and Adjusted EBITDA as the relevant segment performance measures to evaluate the performance of the segments and allocate resources.

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Adjusted EBITDA is a segment performance financial measure that offers a useful view of the overall operation of the Company’s businesses and may be different from similarly titled segment performance financial measures used by other companies.

Adjusted EBITDA consists of net loss plus certain other expenses, which include interest expense, income tax expense, depreciation and amortization, impairment charges, settlement costs, business optimization expenses, severance costs, executive transition costs, divestiture-related expense, acquisition-related expense, and stock-based compensation expense. The Company considers settlement costs to include amounts payable by the Company or reductions to amounts owed to the Company as a result of a contractual settlement. The Company considers business optimization expenses to include contract termination payments, severance, retention payments, and other employee and non-recurring vendor costs incurred related to its business optimization initiatives during 2022. The Company considers severance costs to include severance payments related to the realignment of its resources. The Company considers executive transition costs to include nonrecurring costs related to hiring and onboarding of new named executive officers. The Company considers divestiture-related expense to include nonrecurring direct transaction costs. The Company considers acquisition-related expense to include nonrecurring direct transaction and integration costs.

Management considers revenue and Adjusted EBITDA to be the appropriate metric to evaluate and compare the ongoing operating performance of the Company’s segments on a consistent basis across reporting periods as it eliminates the effect of items which are not indicative of each segment’s core operating performance.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Adjusted EBITDA consists of net loss plus certain other expenses, which include interest expense, income tax expense or benefit, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense, settlement costs, severance expense incurred in 2021 related to a realignment of resources, acquisition-related expense, and stock-based compensation expense. The Company considers acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue.

Management considers revenue and Adjusted EBITDA to be the appropriate metrics to evaluate and compare the ongoing operating performance of the Company’s segments on a consistent basis across reporting periods as they eliminate the effect of items which are not indicative of each segment's core operating performance.

The following tables present the Company’s segment information:

CareVention HealthCare

MedWise HealthCare

Consolidated

CareVention HealthCare

Shared Services and Other

Consolidated

Revenue:

Three Months Ended September 30, 2021

Three Months Ended June 30, 2022

Product revenue

$

50,321

$

315

$

50,636

$

55,892

$

$

55,892

Service revenue

PACE solutions

14,707

14,707

15,853

15,853

Medication safety services

9,467

9,467

774

774

Software subscription and services

11,776

11,776

78

78

Total service revenue

14,707

21,243

35,950

15,853

852

16,705

Total revenue

$

65,028

$

21,558

$

86,586

$

71,745

$

852

$

72,597

Three Months Ended September 30, 2020

Three Months Ended June 30, 2021

Product revenue

$

39,086

$

279

$

39,365

$

46,858

$

$

46,858

Service revenue

PACE solutions

11,214

11,214

14,347

14,347

Medication safety services

9,817

9,817

3,037

3,037

Software subscription and services

10,110

10,110

55

55

Total service revenue

11,214

19,927

31,141

14,347

3,092

17,439

Total revenue

$

50,300

$

20,206

$

70,506

$

61,205

$

3,092

$

64,297

Nine Months Ended September 30, 2021

Six Months Ended June 30, 2022

Product revenue

$

139,021

$

475

$

139,496

$

106,865

$

$

106,865

Service revenue

PACE solutions

42,973

42,973

31,188

31,188

Medication safety services

31,247

31,247

1,493

1,493

Software subscription and services

31,859

31,859

161

161

Total service revenue

42,973

63,106

106,079

31,188

1,654

32,842

Total revenue

$

181,994

$

63,581

$

245,575

$

138,053

$

1,654

$

139,707

Nine Months Ended September 30, 2020

Six Months Ended June 30, 2021

Product revenue

$

115,103

$

722

$

115,825

$

88,700

$

$

88,700

Service revenue

PACE solutions

34,307

34,307

28,266

28,266

Medication safety services

39,844

39,844

5,997

5,997

Software subscription and services

30,191

30,191

112

112

Total service revenue

34,307

70,035

104,342

28,266

6,109

34,375

Total revenue

$

149,410

$

70,757

$

220,167

$

116,966

$

6,109

$

123,075

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

CareVention HealthCare

MedWise HealthCare

Shared Services

Consolidated

Adjusted EBITDA (loss):

Three Months Ended September 30, 2021

Adjusted EBITDA (loss)

$

14,014

$

2,618

$

(10,915)

$

5,717

Three Months Ended September 30, 2020

Adjusted EBITDA (loss)

$

12,735

$

1,009

$

(8,650)

$

5,094

Nine Months Ended September 30, 2021

Adjusted EBITDA (loss)

$

40,983

$

7,532

$

(33,236)

$

15,279

Nine Months Ended September 30, 2020

Adjusted EBITDA (loss)

$

36,560

$

8,537

$

(28,062)

$

17,035

CareVention HealthCare

Shared Services and Other

Consolidated

Adjusted EBITDA (loss) from Continuing Operations:

Three Months Ended June 30, 2022

Adjusted EBITDA (loss)

$

13,396

$

(11,339)

$

2,057

Three Months Ended June 30, 2021

Adjusted EBITDA (loss)

$

14,059

$

(10,796)

$

3,263

Six Months Ended June 30, 2022

Adjusted EBITDA (loss)

$

25,480

$

(22,341)

$

3,139

Six Months Ended June 30, 2021

Adjusted EBITDA (loss)

$

26,969

$

(22,123)

$

4,846

The following table presents the Company’s reconciliation of the segments’ total Adjusted EBITDA to net loss as presented in the consolidated statements of operations:

Three Months Ended September 30, 

Nine Months Ended September 30, 

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

    

2022

    

2021

    

2022

    

2021

Reconciliation of Net Loss to Adjusted EBITDA

Reconciliation of Net Loss to Adjusted EBITDA from Continuing Operations

Net loss

$

(17,111)

$

(21,589)

$

(57,684)

$

(50,336)

$

(49,610)

$

(21,081)

$

(77,803)

$

(40,573)

Add:

Interest expense, net

2,230

4,722

6,959

14,000

2,444

2,182

4,713

4,729

Income tax expense (benefit)

134

(1,830)

466

(5,705)

Income tax expense

159

81

375

202

Depreciation and amortization

12,099

12,199

35,343

32,323

5,489

4,980

11,231

9,781

Change in fair value of acquisition-related contingent consideration expense

2,005

2,605

Settlement

500

Severance expense

354

917

516

917

Impairment charges

4,062

Business optimization expenses

787

Severance costs

162

575

162

Executive transition

150

150

Divestiture-related expense

1,414

1,534

Acquisition-related expense

572

217

823

99

217

Stock-based compensation expense

8,011

8,098

28,962

22,408

5,092

9,827

12,795

17,199

Adjusted EBITDA

$

5,717

$

5,094

$

15,279

$

17,035

Loss from discontinued operations

36,919

7,013

44,720

13,129

Adjusted EBITDA from continuing operations

$

2,057

$

3,263

$

3,139

$

4,846

Adjusted EBITDA from discontinued operations

1,117

2,700

2,557

4,716

Total Adjusted EBITDA

$

3,174

$

5,963

$

5,696

$

9,562

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended June 30, 

Six Months Ended June 30, 

2022

    

2021

    

2022

    

2021

Reconciliation of Net Loss from Discontinued Operations, net of tax to Adjusted EBITDA from Discontinued Operations

Net loss from discontinued operations, net of tax

$

(36,919)

$

(7,013)

$

(44,720)

$

(13,129)

Add:

Income tax (benefit) expense

(686)

52

(568)

130

Depreciation and amortization

6,639

7,331

13,463

Impairment charges

35,608

36,448

Settlement

1,448

500

1,448

500

Divestiture-related expense

66

112

Stock-based compensation expense

1,600

2,522

2,506

3,752

Adjusted EBITDA from discontinued operations

$

1,117

$

2,700

$

2,557

$

4,716

Asset information by segment is not a key measure of performance used by the CODM. Accordingly, the Company has not disclosed asset information by segment.

17.    Related Party Transactions

The Company’s CareVention HealthCare segment provides medication fulfillment pharmacy services and certain PACE solutions services to a client whose Chief Executive Officer is a member of the Board. For the three months ended June 30, 2022 and 2021, $1,888 and $1,696, respectively, of revenue related to this client was included in the Company’s consolidated statements of operations. For the six months ended June 30, 2022 and 2021, $3,647 and $3,155, respectively, of revenue related to this client was included in the Company’s consolidated statements of operations, and $147 and $67 was included in accounts receivable, net, as of June 30, 2022 and December 31, 2021, respectively, on the Company’s consolidated balance sheets. The Company believes that these transactions are on terms comparable to those that the Company could reasonably expect in an arm’s length transaction with an unrelated third party.

As of June 30, 2022, a holder of the Company’s convertible senior subordinated notes became a significant stockholder. The stockholder held approximately $88,337 of the Company’s convertible senior subordinated notes, net of discount, which is presented on the Company’s consolidated balance sheet as of June 30, 2022. See Note 11 for more information on the Company’s convertible senior subordinated notes.

18.    Subsequent Events

a) Closing of Sale of PrescribeWellness Business

On August 1, 2022 (the “Closing Date”), the Company completed the sale of the PrescribeWellness Business and the acquisition of the KD Assets. At the closing, pursuant to the terms of the PW Purchase Agreement and as consideration for the transactions contemplated thereby, TDS paid to Seller approximately $125,000 in cash, subject to certain adjustments as forth in the PW Purchase Agreement.

(b) 2020 Credit Facility Payoff and Termination

Also on the Closing Date, the Company entered into an agreement with WAB with respect to the 2020 Credit Facility (the “Payoff Letter”), pursuant to which the Company voluntarily elected to pay all amounts outstanding under the 2020 Credit Facility and related loan documents (the “Repayment”) using cash on hand and proceeds from the sale of the PrescribeWellness Business. Accordingly, on the Closing Date, the Company paid a total of $57.4 million to WAB for the Repayment, and terminated the 2020 Credit Facility and related loan documents (the “Termination”). The

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TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Company did not incur any prepayment or early termination penalties in connection with either the Repayment or the Termination. Upon the Termination and in connection with the Repayment Letter, all security interests and pledges granted to the secured parties thereunder were terminated and released.

(c) Rights Plan Adoption

On July 25, 2022, the Board approved and adopted a Rights Agreement, dated as of July 25, 2022 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agent”). Pursuant to the Rights Agreement, the Board declared a dividend of 1 preferred share purchase right (each, a “Right”) for each outstanding share of common stock. The Rights are distributable to stockholders of record as of the close of business on August 5, 2022. See Exhibit 4.1 as filed with Form 8-K on July 26, 2022, incorporated by reference on this Quarterly Report on Form 10-Q, for additional information.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and related notes and other financial information included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2020,2021, included in our 20202021 Form 10-K.

Forward-Looking Statements

This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements aremay be identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially,”“potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to, without limitation, our future plans, objectives, expectations, intentions, the sale of the PrescribeWellness business and the potential sales of the SinfoníaRx and DoseMe businesses of the Company and the timing and benefits thereof, and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to,to: (i) the impacts of the ongoingcurrent COVID-19 pandemic and other health epidemics; (ii) our ability to adapt to changes or trends within the market for healthcare in the U.S.; (iii) a significant increase in competition from a variety of companies in the health carehealthcare industry; (iv) developments and changes in laws and regulations, including increased regulation of the healthcare industry through legislative action and revised rules and standards; (v) the extent to which we are successful in gaining new long-term relationships with clients or retaining existing clients; (vi) the growth and success of our clients, which is difficult to predict and is subject to factors outside of our control; (vii) our ability to maintain relationships with a specified drug wholesaler; (viii) increasing consolidation in the healthcare industry; (ix) managing our growth effectively; (x) fluctuations in operating results; (xi) our ability to manage our cash flows; (xii) failure or disruption of our information technology and security systems; (xii)(xiii) dependence on our senior management and key employees; (xiii)(xiv) our future indebtedness and our ability to obtain additional financing, reduce expenses, or generate funds when necessary; (xv) macroeconomic conditions, including the impact of inflation, on our business and (xiv)operations; (xvi) risks related to actions of activist stockholders; (xvii) our ability to execute on our planned divestitures of our SinfoníaRx and DoseMe businesses, the costs associated therewith, and risks related to diverting management’s attention from the Company’s ongoing business operations; (xviii) risks related to the volatility in our stock price; and (xix) the risks described in Part I, Item 1A of our 20202021 Form 10-K and our subsequentother filings and reports filed with or furnished to the Securities and Exchange Commission. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by applicable law. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

 

Tabula Rasa HealthCare, Inc. (the “Company,” “we,” “us,” and “our”) is a healthcare technology company advancing the safe use of medications by creating solutions designed to empower pharmacists, providers, and patients to optimize medication regimens. Our advanced proprietary technology, MedWise®, identifies the causecauses of and risks for medication-related problems, including adverse drug events (“ADEs”), so healthcare professionals can minimize harm and reduce medication-related risks. Our software and services help improve patient outcomes and lower healthcare costs through reduced hospitalizations, emergency department visits, and healthcare utilization. We believe we have the most extensive clinical tele-pharmacy network in the United States, or U.S., with seven call centers across the country, a number of which are tethered to academic institutions. Health plans and pharmacies nationwide use our solutions to assist them in meeting a range of value-based payment requirements. Our vision and mission are supported by our industry-recognized leadership team, our significant investments, and collaborations to advance precision pharmacotherapy research and its application in clinical practice, and our culture.

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We operate our business through two segments, CareVention HealthCare and MedWise HealthCare, which accounted for 75% and 25% of our revenue, respectively, for the three months ended September 30, 2021, and accounted for 74% and 26% of our revenue, respectively, for the nine months ended September 30, 2021. In comparison, the CareVention HealthCare and MedWise HealthCare segments accounted for 71% and 29% of our revenue, respectively, for the three months ended September 30, 2020, and accounted for 68% and 32% of our revenue, respectively for the nine months ended September 30, 2020. Our CareVention HealthCare segment provides our clients, primarily Programs of All-Inclusive Care for the Elderly, or PACE, programs, with medication fulfillment services, cloud-based software, pharmacy benefit management solutions, and clinical pharmacist services at the point of care. Our MedWise HealthCare segment provides our clients with cloud-based pharmacy software and clinical pharmacy programs.HealthCare.

Our results for the three and nine months ended September 30, 2021 reflected improved product and service revenues on a year-over-year basis, offset by increased cost32

Table of product revenue, increased cost of service revenue, and increased operating expenses, which primarily include research and development expenses, sales and marketing expenses, and general and administrative expenses. Our total revenues for the three and nine months ended September 30, 2021 were $86.6 million and $245.6 million, respectively, compared to $70.5 million and $220.2 million for the three and nine months ended September 30, 2020, respectively. We incurred net losses of $17.1 million and $57.7 million for the three and nine months ended September 30, 2021, respectively, compared to net losses of $21.6 million and $50.3 million for the three and nine months ended September 30, 2020, respectively. Adjusted EBITDA for the three and nine months ended September 30, 2021 was $5.7 million and $15.3 million, respectively, compared to $5.1 million and $17.0 million for the three and nine months ended September 30, 2020, respectively. See “Management's Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures — Adjusted EBITDA” for our definition of Adjusted EBITDA, why we present Adjusted EBITDA, and a reconciliation of net loss to Adjusted EBITDA.Contents

Substantially all our revenue is recognized in the U.S. and substantially all our long-lived assets are located in the U.S.

CareVention HealthCare

CareVention HealthCare primarily services PACE, which is a Centers for Medicare & Medicaid Services or CMS,(“CMS”) sponsored program providing comprehensive medical and social services to adults age 55 and older who need a nursing facility level of care but can live safely in community settings. Our clients include ArchCare Senior Life, Trinity Health, Palm Beach PACE, and St. Paul’s PACE. We access the market through a number of different service lines and brands, including CareKinesis,CareKinesis®, Capstone Risk Adjustment Services, PACElogic, TruChart,CareVention Consulting™, PACElogic™, TruChart®, PeakTPA, PersonifilRx,PersonifilRx®, and Pharmastar.Pharmastar®.

Our largest CareVention HealthCare revenue offering is our medication fulfillment services, which areis built around our novel and proprietary Medication Risk Mitigation Matrix, or MRM Matrix,MedWise® technology, designed to enable clinicians to increase patient safety, create individualized medication regimens, promote adherence, and eliminate unnecessary prescriptions. Our medication fulfillment and reminderadherence packaging services utilize the MRM MatrixMedWise technology to reduce medication-related risk for the high-cost, high-risk PACE population. The CareVention HealthCare suite of offerings also includes risk adjustment services, pharmacy benefit management or PBM,(“PBM”) solutions, cloud-based electronic health records (“EHR”) solutions, and third-party administration services, which are all specifically tailored to the PACE market. Our CareVention HealthCare segment serves more than 140150 healthcare organizations.

The CareVention HealthCare segment revenue model is primarily based on payments on a per-member per-month or PMPM,(“PMPM”) basis, payments on a subscription basis, payments on a transaction basis, and payments for medication charges and dispensing fees for medication fulfillment.

MedWise HealthCare

Our MedWise HealthCare segment is primarily comprisedIn February 2022, we announced plans to evaluate non-core assets to refocus our corporate strategy and increase stockholder value, and we commenced an initial plan to sell the DoseMe business, which we acquired in January 2019. In March 2022, we completed our evaluation of service offerings from our acquisitions ofadditional divestiture opportunities and commenced plans to sell the SinfoníaRx now known as MedWiseRx,and PrescribeWellness businesses, acquired in September 2017 and PrescribeWellness in March 2019. As2019, respectively.

On June 18, 2022 (the “Signing Date”), we entered into an Asset Purchase Agreement (the “PW Purchase Agreement”), by and among our Company, Tabula Rasa HealthCare Group, Inc., a resultwholly owned subsidiary of these acquisitions, we believe we arethe Company (the “Seller”), and Transaction Data Systems, Inc. (“TDS”), a leading provider of Medication Therapy Management,pharmacy-focused, patient-centric solutions, pursuant to which Seller agreed to sell to TDS its unincorporated PrescribeWellness business division (the “PrescribeWellness Business”), the assets, properties, and rights that are primarily used or MTM, softwareheld for use in connection with the PrescribeWellness Business, and servicesthe KD Assets (as defined below) for Medicare, Medicaid,an all-cash purchase price of up to $140 million in cash. On the Signing Date and commercial health plans;as a condition to TDS’s entry into the PW Purchase Agreement, Seller also entered into an asset purchase agreement (the “KD Purchase Agreement”) with karmadata, Inc., a Delaware corporation (“KD”), pursuant to which Seller agreed to purchase all of KD’s rights, title, and we are also a leading providerinterests in and to certain intellectual property of cloud-based patient engagement softwareKD that has historically been licensed to Seller, all intellectual property owned by KD that was developed or improved pursuant to that certain IP Development Agreement, by and servicesbetween Seller and KD, dated as of December 1, 2016, as amended, and all authorization rights and claims or causes of action with respect to nearly 19,000 pharmacies nationwide.the foregoing (collectively, the “KD Assets”).

On August 1, 2022, we completed the sale of the PrescribeWellness Business and the acquisition of the KD Assets. In connection with the closing, we received $125 million in cash,excluding certain adjustments related to the net working capital of the PrescribeWellness Business, and may receive up to an additional $15 million contingent upon the PrescribeWellness Business’s achievement of certain performance-based metrics during the fiscal years ending December 31, 2023 and 2024.

On the Signing Date, we also announced a strategic partnership to offer our proprietary MedWise® Science, an accumulative, simultaneous, multi-drug analysis tool that identifies medication related risk, into TDS’s pharmacy management systems upon the consummation of the transaction.

The DoseMe, SinfoníaRx, and PrescribeWellness businesses collectively comprised the majority of our MedWise HealthCare segment. Our sale of the PrescribeWellness business and plans to sell the DoseMe and SinfoníaRx businesses represent a strategic business shift having a significant effect on our Company’s operations and financial results. As a result, we determined that these businesses met the requirements to be classified as held for sale and discontinued operations as of March 31, 2022 and continued to meet such requirements as of June 30, 2022. Accordingly, the accompanying consolidated financial statements in this Quarterly Report on Form 10-Q have been recast for all periods presented to reflect the assets, liabilities, revenue, and expenses related to these businesses as discontinued operations. We present continuing operations of the remaining components of our MedWise HealthCare segment combined with our shared services.

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Approximately 19,000 retail pharmacies and more than 400 health plans, including several Blue Cross Blue Shield organizations, Express Scripts, Humana, UnitedHealth Group, and WellCare, utilize our MedWise HealthCare solutions to execute a range

The continuing operations of clinical programs. These programs support MTM, Enhanced MTM, Medicare Part D Star Ratings improvement programs, Healthcare Effectiveness Data and Information Set (HEDIS) quality measures, and post-hospital discharge care transitions through a combinationthe remaining components of our nearly 30,000 PrescribeWellness network pharmacists and/or our clinical tele-pharmacy call centers across the country employing more than 300 pharmacists. Within our MedWise HealthCare segment we offer our cloud-based softwarepromote medication safety and clinical pharmacist services through a number of different brands, including Tabula Rasa HealthCare®, MedWise®, MedWise MTM, PrescribeWellness,adherence to improve patient outcomes and DoseMeRx.

The Enhanced MTM program was a five-year Centers for Medicare & Medicaid Services Innovation (“CMMI”) Part D pilot that began January 1, 2017 and is scheduled to end on December 31, 2021. The Company believes that the decision by CMMI to not extend the EMTM Pilot Program is not a reflection of the financial savings or improved quality of care the Company has delivered and recently documented in CMMI’s August 2021 report, but is based on the EMTM Pilot Program as a whole, which covered six distinct regions across the country, 1.9 million Part D beneficiaries during 2019, and multiple vendors testing new types of member targeting, outreach and clinical interventions.

reduce healthcare costs. The MedWise HealthCare segment revenue model is primarily based on payments on a PMPM basis, payments on a subscription basis, and payments on a fee-for-service basis for each medication safety review and clinical intervention.assessment completed.

Our StrategyUnless otherwise noted, management’s discussion and analysis of our Company’s results of operations relate to our Company’s continuing operations.

In early 2020, we disclosed a long-term growth strategy based on three key tenets:Substantially all of our revenue is recognized in the U.S. and substantially all of our long-lived assets are located in the U.S.

1)Further penetration of the PACE market by leveraging our existing CareVention HealthCare client base (90% of all PACE organizations utilize at least one of our solutions) and cross-selling to increase our average PMPM fee; organic member growth within our existing clients in part due to the acceleration of the National PACE Association’s PACE 2.0 initiative designed to significantly increase enrollment to 200,000 by 2028; and continued investments in our offerings to attract new PACE clients and, more broadly, Medicare Advantage organizations.

2)Accelerating the adoption of our MedWise software and clinical pharmacy programs by health plans across all lines of business, including Medicare Part C and Part D, Medicaid managed care, and commercial clients with a focus on self-insured employer groups.

3)Increasing the number of pharmacies licensing the entire PrescribeWellness solution set, including our MedWise module launched in July 2020, across our growing pharmacy footprint of nearly 19,000 pharmacies nationwide.

To supplement our organic growth, we made a total of six acquisitions from the beginning of 2018 through 2020, and we continue to evaluate strategic acquisitions across both segments of our business. As a result of our most recent acquisition, Personica, in October 2020, and our organic member growth, our PACE clients had a combined patient census of 44,947 as of December 31, 2020, as compared to 31,820 and 27,690 patients as of December 31, 2019 and 2018, respectively.

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Key Business Metrics

We continually monitor certain corporate metrics, including the following key metrics, that we believe are useful in evaluating and managing our operating performance compared to that of other companies in our industry.

Three Months Ended

Three Months Ended

September 30, 

Change

June 30, 

Change

    

2021

    

2020

    

$

    

%

    

2022

    

2021

    

$

    

%

(Dollars in thousands)

(Dollars in thousands)

Revenues

$

86,586

$

70,506

$

16,080

23

%

Net loss

(17,111)

(21,589)

4,478

21

Adjusted EBITDA

5,717

5,094

623

12

Revenues from continuing operations

$

72,597

$

64,297

$

8,300

13

%

Net loss from continuing operations

(12,691)

(14,068)

1,377

10

Adjusted EBITDA from continuing operations

2,057

3,263

(1,206)

(37)

Nine Months Ended

Six Months Ended

September 30, 

Change

June 30, 

Change

2021

2020

$

%

2022

2021

$

%

(Dollars in thousands)

(Dollars in thousands)

Revenues

$

245,575

$

220,167

$

25,408

12

%

Net loss

(57,684)

(50,336)

(7,348)

(15)

Adjusted EBITDA

15,279

17,035

(1,756)

(10)

Revenues from continuing operations

$

139,707

$

123,075

$

16,632

14

%

Net loss from continuing operations

(33,083)

(27,444)

(5,639)

(21)

Adjusted EBITDA from continuing operations

3,139

4,846

(1,707)

(35)

We monitor the key metrics set forth in the preceding table to help us evaluate trends, establish budgets, measure the effectiveness and efficiency of our operations, and gauge our cash generation. We discuss Adjusted EBITDA in more detail in "Non-GAAP“Non-GAAP Financial Measures — Adjusted EBITDA."Measures.” We also monitor revenue retention rate on an annual basis, which is described in our 20202021 Form 10-K.

Factors Affecting our Future Performance

General

We believe that our future success depends on many factors, including our ability to maintain and grow our relationships with existing clients, expand our client base, continue to enter new markets, and expand our offerings to meet evolving market needs. While these areas present significant opportunity, they also present risks that we must manage to ensure successful results. Please refer to “Item 1A – Risk Factors” in our 20202021 Form 10-K for a discussion of certain risks and uncertainties that may impact our future success.

COVID-19 PandemicDivestitures of Non-Core Businesses

On January 30, 2020,As described above, on August 1, 2022 we completed the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of coronavirus (“COVID-19”) and the risks to the international community. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic (“COVID-19 pandemic”), based on the rapid increase in exposure globally. The full impactsale of the PrescribeWellness Business and have commenced plans to sell the DoseMe and SinfoníaRx businesses. We anticipate that proceeds from these divestitures will provide the Company the financial flexibility to optimize our capital structure, including significantly reducing net debt and increasing liquidity, as well as to focus on our core value-based care business including our offerings targeted at the PACE market and our MedWise science.

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We anticipate that proceeds from such divestitures will provide our Company the financial flexibility to optimize our capital structure, including significantly reducing net debt and increasing liquidity, as well as to focus on our core value-based care business, including our offerings targeted at the PACE market and our MedWise Science and care platforms.

COVID-19 pandemic continues to present a substantial public health and economic challenge around the world.Pandemic

We continue to closelyactively monitor the impact of the ongoing COVID-19 pandemic on both our employees and operations. In response to the pandemic, we have implemented measures to protect the health and safety of our employees, including hybrid and remote work arrangements, reduced density in our buildings, guidelines to ensure safe business travel, and safety protocols for on-site employees, including social distancing, enhanced cleaning, and contact tracing.

During 2020, we experienced challenges with revenue growth as the COVID-19 pandemic delayed the closing of client contracts and, in some cases, shifted project priorities and timelines, which we believed resulted in fewer business wins during 2020 and reduced future revenue. Overall census growth for PACE was below historical levels during 2020 and the first quarter of 2021, which reduced the CareVention HealthCare segment growth. However, since the second quarter of 2021, we have experienced some recovery from the COVID-19 pandemic impact, including with respect to PACE census growth. During the third quarter of 2021, our net census growth for PACE remained at pre-pandemic levels with monthly sequential growth, which positively impacted revenue within our CareVention HealthCare segment. The PACE population also benefited from the high level of vaccinations administered to seniors across the U.S.

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Our MedWise HealthCare segment continues to be impacted by the COVID-19 pandemic. Changes made by Centers for Medicare & Medicaid Services (‘CMS”) to their Medicare Part D Star Ratings improvement programs for health plans in response to COVID-19 have negatively impacted our medication safety services revenues. In addition, the COVID-19 pandemic has elevated the role of retail pharmacies and created strong demand for pharmacists and pharmacy technicians. As a result, we have faced challenges in hiring to staff our call centers to support our health plan clients.

Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, as well as the factors discussed in Part Item 1A, “Risk Factors” in our 2020 Form 10-K and elsewhere on this Quarterly Report on Form 10-Q, we are not able to predict the continuing effects that the COVID-19 pandemic may have on our results of operations, financial condition, or liquidity for the remainder of 2021 and beyond.liquidity. We continue to actively monitor the COVID-19 pandemic and are prepared to mitigate potential adverse impacts to our business, including our financial position, liquidity, operations, suppliers, industry, and workforce.

Components of Our Results of Operations

Revenue

Our revenue is derived from our product sales and service activities under our CareVention HealthCare and MedWise HealthCare segments. For the three months ended SeptemberJune 30, 2022 and 2021, and 2020, product sales revenue represented 58%77% and 56%73% of our total revenue, respectively, and service revenue represented 42%23% and 44%27% of our total revenue, respectively. For the ninesix months ended SeptemberJune 30, 2022 and 2021, and 2020, product sales revenue represented 57%77% and 53%72% of our total revenue, respectively, and service revenue represented 43%23% and 47%28% of our total revenue, respectively.

CareVention HealthCare

PACE Product Revenue

We provide medication fulfillment pharmacy services to PACE organizations. While the majority of medications are routinely filled in order to treat chronic conditions, the mix and quantity of medications can vary. Revenue from medication fulfillment services is generally billed monthly or weekly, depending on whether the PACE organization is contracted with a pharmacy benefit manager, and is recognized when medications are delivered and control has passed to the client. At the time of delivery, we have performed substantially all our performance obligations under our client contracts. We do not experience a significant level of returns or reshipments.

PACE Solutions

We provide services to PACE organizations, and these services primarily include medication safety services and health plan management services which consist ofto PACE organizations. These services primarily include medication safety services, risk adjustment services, PBM solutions, electronic health recordsEHR solutions, and third-party administration services. Revenue related to these services primarily consists of a fixed monthly fee assessed based on number of members served, or per member per month,a PMPM basis, a fee for each claim adjudicated, and subscription fees. These fees are recognized when we satisfy our performance obligation to stand ready to provide PACE services, which occurs when our clients have access to the PACE services. We generally bill for PACE services on a monthly basis as the services are provided.

MedWise HealthCare

Product Revenue

We provide COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed when test kits are shipped and is recognized as we satisfy our performance obligations to deliver the test kits and provide the test results. We do not experience a significant level of returns or reshipments.

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Table of Contents

Medication Safety Services

We provide medication safety services, which include identification of high-risk individuals, medication regimen reviews, including patient and prescriber counseling, and targeted interventions to increase adherence and close gaps in care. Revenue related to these services primarily consists of per member per monthPMPM fees and fees for each medication review and clinical encounterassessment completed. Revenue is recognized when we satisfy our performance obligation to stand ready to provide medication safety services, which occurs when our clients have access to the medication safety services and when medication reviews and clinical encountersassessments are completed. We generally bill for the medication safety services on a monthly basis.

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Software Subscription and Services

We provide software as a service or SaaS,(“SaaS”) solutions, which allow for the identification of individuals with high medication-related risk, for patient communication and engagement, for documentation of clinical interventions, for optimizing medication therapy, for targeting adherence improvement, and for precision dosing.risk. Revenues related to these software services primarily consist of monthly subscription fees and are recognized monthly as we meet our performance obligation to provide access to the software. Revenue for implementation and set upset-up services is generally recognized over the contract term as the software services are provided. We generally bill for the software services on a monthly basis.

Cost of Revenue (exclusive of depreciation and amortization)

Product Cost

Cost of product revenue includes all costs directly related to the fulfillment and distribution of medications under our CareVention HealthCare offerings. Costs consist primarily of the purchase price of the prescription medications we dispense. Fordispense, which for the three months ended SeptemberJune 30, 2022 and 2021, represented 80% and 2020,81%, respectively, of our total product costs. For the six months ended June 30, 2022 and 2021, medication costs represented 81% and 80%, respectively, of our total product costs, respectively. For the nine months ended September 30, 2021 and 2020, medication costs represented 81% and 79% of our total product costs, respectively.costs. In addition to costs incurred to purchase the medications we dispense, other costs include shipping; packaging; expenses associated with operating our medication fulfillment centers, including salaries and related costs, such as stock-based compensation for personnel; technology expenses; direct overhead expenses; and allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount.

Service Cost

Cost of service revenue includes all costs directly related to servicing our CareVention HealthCare and MedWise HealthCare service contracts. These costs primarily consist of labor costs, including stock-based compensation, outside contractors, expenses related to supporting our software platforms, direct overhead expenses, and allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our research and development functions. TheseThis personnel includeincludes employees engaged in scientific research, healthcare analytics, the design and development of new scientific algorithms, and the enhancement of our software and technology platforms. Research and development expenses also include fees paid to third-party consultants, costs related to quality assurance and testing, and other allocated facility-related overhead and expenses.

We capitalize certain costs incurred in connection with obtaining or developing the proprietary software platforms that support our product and service contracts, including third-party contractors and payroll costs for employees directly involved with the software development. Capitalized software development costs are amortized beginning when the software project is substantially completed and when the asset is ready for its intended use. Costs incurred during the preliminary project stage and post implementation stage, as well as maintenance and training costs, are expensed as incurred. We continue to focus our research and development efforts on adding new features and applications to increase the functionality and enhance the ease of use of our existing suite of software solutions.

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Table of Contents

We believe continued investment in our software solutions is important for our future growth. We expect our research and development expenses will increasefluctuate in absolute dollars as we increase our research and development efforts to further strengthen and enhance our software solutions and service offerings,the near term but will decrease as a percentage of revenue in the long term as we expect our revenue to increase at a greater rate than such expenses.term.

Sales and Marketing Expenses

Sales and marketing expenses consist principally of salaries, commissions, bonuses, and stock-based compensation and employee benefits for sales, marketing, and account management personnel, as well as travel costs related to sales, marketing, and account management activities. Marketing costs also include costs for communication and branding materials, conferences, trade shows, public relations, and allocated overhead.

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Table of Contents

We expect our sales and marketing expenses to increasefluctuate in absolute dollarsthe near term, in connection with the sale of the PrescribeWellness business and as we strategically invest to growcomplete the sales of the SinfoníaRx and DoseMe businesses and refocus on our sales, account management, and marketing infrastructure as we introduce new products and enter new markets,core business, but decrease as a percentage of revenue in the long term.

General and Administrative Expenses

General and administrative expenses consist principally of employee-related expenses, including salaries, benefits, and stock-based compensation, for employees who are responsible for information systems, administration, human resources, finance, strategy, legal and executive management, as well as other corporate expenses associated with these functional areas. General and administrative expenses also include professional fees for legal, consulting and accounting services and allocated overhead. General and administrative expenses are expensed when incurred.

We expect that our general and administrative expenses will increasefluctuate in absolute dollarsthe near term, in connection with the sale of the PrescribeWellness business and as we expandcomplete the sales of the SinfoníaRx and DoseMe businesses and refocus on our infrastructure and continue to comply with the requirements applicable to public companies,core business, but decrease as a percentage of revenue in the long term.

Long-Lived Asset Impairment Charge

Long-lived assets consist of property and equipment, software development costs and definite-lived intangible assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, we compare forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use and disposition of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows or a combination of income and market approaches.

Depreciation and Amortization Expenses

Depreciation and amortization expenses are primarily attributable to our capital investment in equipment, our capitalized software, and acquisition-related intangibles.

Interest Expense

Interest expense is primarily attributable to interest expense associated with our 2026 Convertible Notes,convertible senior subordinated notes (the “2026 Notes”), our 2020Loan and Security Agreement with Western Alliance Bank (the “2020 Credit Facility (as defined below)Facility”), and the promissory notes related to the purchase consideration for the acquisition of Personica, acquisition purchase consideration.LLC. Interest expense also includes the amortization of debt discount and debt issuance costs related to our various debt arrangements.arrangements and imputed interest.

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Results of Operations

The following table summarizes our results of operations for the three and ninesix months ended SeptemberJune 30, 20212022 and 20202021 (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

September 30, 

Change

September 30, 

Change

June 30, 

Change

June 30, 

Change

    

2021

    

2020

    

$

    

%

    

2021

    

2020

    

$

    

%

    

2022

    

2021

    

$

    

%

    

2022

    

2021

    

$

    

%

    

Revenue:

Product revenue

$

50,636

$

39,365

$

11,271

29

%

$

139,496

$

115,825

$

23,671

20

%

$

55,892

$

46,858

$

9,034

19

%

$

106,865

$

88,700

$

18,165

20

%

Service revenue

35,950

31,141

4,809

15

106,079

104,342

1,737

2

16,705

17,439

(734)

(4)

32,842

34,375

(1,533)

(4)

Total revenue

86,586

70,506

16,080

23

245,575

220,167

25,408

12

72,597

64,297

8,300

13

139,707

123,075

16,632

14

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

Product cost

38,770

28,638

10,132

35

105,326

84,879

20,447

24

43,384

35,064

8,320

24

82,936

66,421

16,515

25

Service cost

22,392

20,610

1,782

9

67,126

64,140

2,986

5

13,247

12,556

691

6

26,416

25,178

1,238

5

Total cost of revenue, exclusive of depreciation and amortization

61,162

49,248

11,914

24

172,452

149,019

23,433

16

56,631

47,620

9,011

19

109,352

91,599

17,753

19

Operating expenses:

Research and development

4,984

5,101

(117)

(2)

14,893

13,750

1,143

8

3,243

4,311

(1,068)

(25)

7,208

7,370

(162)

(2)

Sales and marketing

6,218

5,030

1,188

24

18,786

15,597

3,189

20

2,172

2,539

(367)

(14)

4,821

5,506

(685)

(12)

General and administrative

16,870

15,620

1,250

8

54,360

48,914

5,446

11

15,150

16,652

(1,502)

(9)

31,028

31,332

(304)

(1)

Change in fair value of acquisition-related contingent consideration expense

2,005

(2,005)

(100)

2,605

(2,605)

(100)

Long-lived asset impairment charge

4,062

4,062

nm

Depreciation and amortization

12,099

12,199

(100)

(1)

35,343

32,323

3,020

9

5,489

4,980

509

10

11,231

9,781

1,450

15

Total operating expenses

40,171

39,955

216

1

123,382

113,189

10,193

9

26,054

28,482

(2,428)

(9)

58,350

53,989

4,361

8

Loss from operations

(14,747)

(18,697)

3,950

21

(50,259)

(42,041)

(8,218)

(20)

(10,088)

(11,805)

1,717

15

(27,995)

(22,513)

(5,482)

(24)

Interest expense, net

2,230

4,722

(2,492)

(53)

6,959

14,000

(7,041)

(50)

2,444

2,182

262

12

4,713

4,729

(16)

Loss before income taxes

(16,977)

(23,419)

6,442

28

(57,218)

(56,041)

(1,177)

(2)

Income tax expense (benefit)

134

(1,830)

1,964

107

466

(5,705)

6,171

108

Loss from continuing operations before income taxes

(12,532)

(13,987)

1,455

10

(32,708)

(27,242)

(5,466)

(20)

Income tax expense

159

81

78

96

375

202

173

86

Net loss from continuing operations

(12,691)

(14,068)

1,377

10

(33,083)

(27,444)

(5,639)

(21)

Net loss from discontinued operations, net of tax

(36,919)

(7,013)

(29,906)

(426)

(44,720)

(13,129)

(31,591)

(241)

Net loss

$

(17,111)

$

(21,589)

$

4,478

21

$

(57,684)

$

(50,336)

$

(7,348)

(15)

$

(49,610)

$

(21,081)

$

(28,529)

(135)

$

(77,803)

$

(40,573)

$

(37,230)

(92)

nm= not meaningful

Comparison of the Three Months Ended SeptemberJune 30, 2022 and 2021 and 2020(Continuing Operations)

Product Revenue

Product revenue increased $11.3$9.0 million, or 29%19%, to $50.6$55.9 million for the three months ended SeptemberJune 30, 20212022, as compared to the same period in 2020. New business acquired from the October 2020 Personica acquisition contributed approximately $1.9 million to this increase. Excluding the Personica acquisition, approximately $6.3 million of the increase was attributable to increased2021. Increased medication fulfillment volume from growth in the number of patients served by our existing clients, medication mix of prescriptions filled, and payer mix.mix contributed $6.3 million to the increase. Medications dispensed by our community pharmacy network on behalf of CareVention HealthCare contributed $2.6$1.7 million to the increase as a result of amended client agreements. New CareVention HealthCare clients that started services after the end of the second quarter in 2021 contributed $1.1 million to the increase.

Service Revenue

Service revenue increased $4.8decreased $0.7 million, or 15%4%, to $36.0$16.7 million for the three months ended SeptemberJune 30, 2021 compared to the same period in 2020.

CareVention HealthCare service revenues increased by approximately $3.5 million, or 31%, to $14.7 million for the three months ended September 30, 2021,2022, as compared to the same period in 2020. The acquisition of Personica in October 2020 contributed approximately $2.2 million to the increase. The remaining increase was attributable to new clients and growth with existing clients.2021.

Service revenues generated by our MedWise HealthCare segment increased by approximately $1.3Medication safety services revenue decreased $2.2 million, or 7%75%, to $21.2 million forduring the three months ended SeptemberJune 30, 2021,2022, as compared to the same period in 2020. This increase2021. The decrease is attributableprimarily due to the conclusion of the Enhanced Medication Therapy Management (“EMTM”) pilot program on December 31, 2021. As a $1.7 million increase in software subscription servicesresult, no revenues related to a new partnership with a leading online health insurance marketplace. This increase was offset by a $350 thousandthe EMTM program were recognized after December 31, 2021.

The decrease in medication safety services which was partially offset by an increase in CareVention HealthCare PACE solutions revenue of approximately $1.5 million, or 10%, to $15.9 million for the three months ended June 30, 2022, as compared to the same period in 2021. The increase was attributable to the addition of new clients and growth with existing clients since the second quarter of 2021, primarily a result of a large MTM client contract that did not renew in 2021within our PBM solutions, third-party administration services and reduced fees in the final year of the EMTM pilot program.risk adjustment services.

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Cost of Product Revenue

Cost of product revenue increased $10.1$8.3 million, or 35%24%, to $38.8$43.4 million for the three months ended SeptemberJune 30, 20212022, as compared to the same period in 2020. New business acquired from the Personica acquisition contributed approximately $1.8 million to the increase in cost of product revenue. Excluding the Personica acquisition, approximately $5.3 million of the change was due to increased2021. Increased medication volume from growth in the number of patients served by our existing customers.customers contributed approximately $4.9 million to the change, of which $0.6 million was attributable to new clients. Medications dispensed by our community pharmacy network on behalf of CareVention HealthCare contributed $2.6$1.7 million to the increase as a result of amended client agreements. The increase in cost of product revenue was also due to a $295 thousand$1.2 million increase in distribution charges related to higher shipping costs and volume for the medications we fulfilled. The remaining increase in cost of product revenue was primarily attributable to an increase in employee compensation costs, including stock-based compensation, due to increased headcount to support our overall growth.an increase in employee headcount.

Cost of Service Revenue

Cost of service revenue increased $1.8$0.7 million, or 9%6%, to $22.4$13.2 million for the three months ended SeptemberJune 30, 2021,2022, as compared to the same period in 2020.

Cost2021. The increase is primarily comprised of service revenue$3.1 million of costs related to our CareVention HealthCare segment increased $2.8 million, or 38%, to $10.3 milliona new vendor arrangement for the three months ended September 30, 2021, as compared to the same period in 2020. Of the total increase, $1.1 million related to the acquisition of Personica in October 2020. The remaining increase was primarily attributable tobusiness process support and technology services and an increase in employee costs and investmentsinformation technology expenses of $0.2 million. These increases were partially offset by a $2.1 million reduction in infrastructure in order to better scale the delivery of third-party administrative services into markets outside of PACE.

Cost of service revenue related to our MedWise HealthCare segment decreased $1.1 million, or 8%, to $12.1 million for the three months ended September 30, 2021, as compared to the same period in 2020. This decrease was due to hiring challenges during the quarter which resulted in lower employee compensation costs, including stock-based compensation, for the employees hired by the third-party provider and a decrease$0.7 million reduction in the use of contract resources contracted to deliver medication safety interventions, and reduced printing and postage expenses.services due to the conclusion of the EMTM program on December 31, 2021.

Research and Development Expenses

Research and development expenses decreased slightly by $117 thousand,$1.1 million, or 2%25%, to $5.0$3.2 million for the three months ended SeptemberJune 30, 2021,2022, as compared to the same period in 2020.2021. The decrease wasis primarily attributablerelated to a higher capitalization rate related$1.3 million decrease in stock-based compensation expense as a result of fewer grants during 2022 compared to development initiatives to enhance the software supporting our CareVention HealthCare and MedWise HealthCare offering,2021. This decrease was partially offset by increased technology-related expenses for new project management tools to support our software development teams.an aggregate $0.2 million increase in professional consulting fees and investment in information technology.

Sales and Marketing Expenses

Sales and marketing expenses increased $1.2decreased $0.4 million, or 24%14%, to $6.2$2.2 million for the three months ended SeptemberJune 30, 2021 from $5.0 million for2022, as compared to the three months ended September 30, 2020.same period in 2021. The increase wasdecrease is primarily attributable to a $573 thousand increase$0.3 million decrease in employeestock-based compensation costsexpense and a $0.1 million decrease in professional consulting services related to additional headcount and increased employee benefits costs, including bonus and commission expense, a $227 thousand increase in marketing and public relations related expenses, including consulting and advertising services, and a $177 thousand increase in travel and conference related spend. The remaining increase was primarily attributable to increased software licenses and technology-related expenses related to an enhanced clientexecuting our branding and marketing management tool.strategies.

General and Administrative Expenses

General and administrative expenses increased $1.3decreased $1.5 million, or 11%9%, to $16.9$15.2 million for the three months ended SeptemberJune 30, 2021,2022, as compared to the same period in 2020.2021. The increasedecrease is primarily attributable to a $3.2 million decrease in employee compensation costs compared to 2021, of which $2.5 million relates to a decrease in stock-based compensation expense. The decrease was primarily due to a decrease in employee headcount as a result of the Company’s business optimization initiatives to outsource enterprise support services. The decrease in general and administrative expenses was primarily attributable to higher employee compensationpartially offset by $1.4 million of divestiture related costs of $1.3and a $0.7 million mainly due to increased costs for health insurance premiums and other supplemental benefits, including bonus expense. Also contributing to the increase in general administrative expenses was a $211 thousand increase in business insurance premiums and a $165 thousand increase in bad debt expense. The acquisition of Personica contributed $127 thousand to the increase in expenses, which consistedprofessional services, primarily of employee compensation costs, including stock-based compensation, and consulting expenses.

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Partially offsetting these increases was a reduction in acquisition related costs of $572 thousand incurred in the prior year related to the acquisitiona new provider of Personica that was completed on October 5, 2020.

Acquisition-related Contingent Consideration Expense

During the third quarter of 2020,enterprise support services we elected to accelerate the payment of the acquisition-related contingent consideration for an aggregate payment amount of $13.4 million, which was satisfied by cash payments of $6.4 million and the issuance of 135,434 shares of our common stock, with a fair value of $6.9 million. During the three months ended September 30, 2020, we recorded a $2.0 million charge to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to the accelerated payment. No charges were incurredengaged during the three months ended September 30, 2021 as the final amount of the Cognify acquisition-related contingent consideration liability was determined and fixed as of December 31, 2020. In the firstfourth quarter of 2021 we made the final cash payment of $166 thousand in full satisfactionas part of the remaining acquisition-related contingent consideration liability.business optimization initiative referenced above.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased slightlyincreased $0.5 million, or 10%, to $12.1$5.5 million for the three months ended SeptemberJune 30, 2021 from $12.2 million for2022, as compared to the three months ended September 30, 2020.same period in 2021. This decreaseincrease was primarily due to a $1.2 million decrease in amortization expense mainly due to increased amortization expense in the third quarter of 2020 related to changes in the estimated useful lives of certain intangible assets during 2020, and a $160 thousand decrease in depreciation expense. The decrease was partially offset by a $1.3$0.5 million increase in the amortization of capitalized software related to new software functionality placed into service since 2020after the end of the second quarter in 2021 to support our CareVention HealthCare and MedWise HealthCare segments.business.

Interest Expense

Interest expense for the three months ended SeptemberJune 30, 20212022 was $2.2$2.4 million, a decreasean increase of $2.5$0.3 million, or 12%, as compared to the three months ended September 30, 2020. Of the total decrease, approximately $3.0same period in 2021. The increase is primarily attributable to a $0.4 million related to the adoptionincrease in interest

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Table of ASU 2020-06 on January 1, 2021, which significantly reduced the amount of debt discount to be amortized. The decrease was partially offset by $314 thousand of interest Contents

expense on the 2020 Credit Facility, and $112 thousandpartially offset by the full satisfaction of interest expense on the acquisition-related notes payable in October 2021 related to the October 2020 acquisition of Personica, acquisition.LLC. Approximately $0.1 million of interest expense was recognized for the three months ended June 30, 2021 related to the acquisition-related notes payable.

Income Taxes

For the three months ended SeptemberJune 30, 2022 and 2021, we recorded income tax expense of $134 thousand$0.2 million and $0.1 million, respectively, which resulted in effective tax rates of (1.3%) and (0.6%), respectively. Income tax expense is primarily related to indefinite-lived deferred tax liabilities for goodwill amortization, which resulted in an effective tax rate of (0.8)%.amortization. The effective tax rate differsrates differ from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that is currently limiting the realizability of our net deferred tax assets as of SeptemberJune 30, 2022 and 2021. Accordingly, the tax benefit was limited due to unbenefited losses in the three months ended SeptemberJune 30, 2021.

For the three months ended September 30, 2020, we recorded an income tax benefit of $1.8 million, which resulted in an effective tax rate of 7.8%. The effective tax rate differed from the U.S. statutory tax rate primarily due to an increase in the valuation allowance that limited the realizability of our net deferred tax assets as of September 30, 2020. Accordingly, the tax benefit was limited due to unbenefited losses in the three months ended September 30, 2020.

We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year-to-date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.

Comparison of the Nine Months Ended September 30, 20212022 and 2020

Product Revenue

Product revenue increased $23.7 million, or 20%, to $139.5 million for the nine months ended September 30, 2021 compared to the same period in 2020. New business acquired from the October 2020 Personica acquisition contributed approximately $6.2 million to this increase. Excluding the Personica acquisition, approximately $12.9 million of the increase was due to increased medication fulfillment volume from growth in the number of patients served

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by our existing clients, medication mix of prescriptions filled, and payer mix. Medications dispensed by our community pharmacy network on behalf of CareVention HealthCare contributed $4.0 million to the increase as a result of amended client agreements. The increase in product revenue was partially offset by a $491 thousand decrease in COVID-19 test kits sold through our CareVention HealthCare segment and PrescribeWellness pharmacy network.

Service Revenue

Service revenue increased $1.7 million, or 2%, to $106.1 million for the nine months ended September 30, 2021 compared to the same period in 2020.

Service revenue generated by our CareVention HealthCare increased by approximately $8.7 million, or 25%, to $43.0 million for the nine months ended September 30, 2021, as compared to the same period in 2020. The acquisition of Personica in October 2020 contributed $6.3 million to the increase. The remaining increase was attributable to new clients added and growth with existing clients since the second quarter of 2020.

Service revenues generated by our MedWise HealthCare decreased approximately $6.9 million, or 10%, to $63.1 million for the nine months ended September 30, 2021, as compared to the same period in 2020. Medication safety services decreased $8.6 million primarily as a result of a large MTM client contract that did not renew in 2021 and reduced fees in the final year of the EMTM pilot program. This decrease was offset by an increase in software subscription services of $1.7 million related to a new partnership with a leading online health insurance marketplace.

Cost of Product Revenue

Cost of product revenue increased $20.5 million, or 24%, to $105.3 million for the nine months ended September 30, 2021, as compared to the same period in 2020. New business acquired from the Personica acquisition contributed approximately $5.8 million to the increase. Excluding the Personica acquisition, increased medication volume from growth in the number of patients served by our existing customers contributed approximately $10.0 million to the change. Medications dispensed by our community pharmacy network on behalf of CareVention HealthCare contributed $4.0 million to the increase as a result of amended client agreements. The increase in cost of product revenue was also due to a $425 thousand increase in distribution charges related to higher shipping volume for the medications we fulfilled. The increase in cost of product revenue was partially offset by a $394 thousand decrease of COVID-19 test kits sold.

Cost of Service Revenue

Cost of service revenue increased $3.0 million, or 5%, to $67.1 million for the nine months ended September 30, 2021 from $64.1 million for the nine months ended September 30, 2020.

Cost of service revenue related to our CareVention HealthCare segment increased $8.0 million, or 36%, to $30.1 million for the nine months ended September 30, 2021, as compared to the same period in 2020. Of the total increase, $3.2 million related to the acquisition of Personica in October 2020. The remaining increase was primarily related to investments in infrastructure, including increased personnel and employee costs, in order to better scale the delivery of third-party administrative services into markets outside of PACE.

Cost of service revenue related to our MedWise HealthCare segment decreased $5.0 million, or 12%, to $37.0 million for the nine months ended September 30, 2021, as compared to the same period in 2020. This decrease was comprised of lower employee compensation costs due to a decrease in headcount, a decrease in the use of contracted resources, and reduced printing and postage expenses resulting from fewer clinical interventions performed.

Research and Development Expenses

Research and development expenses increased $1.1 million, or 8%, to $14.9 million for the nine months ended September 30, 2021, as compared to the same period in 2020. Stock-based compensation costs increased $1.7 million primarily as a result of equity awards granted during 2021. The increase in stock-based compensation expense was offset by a decrease in employee compensation costs, excluding stock-based compensation, and professional services primarily due to increased capitalization rates of development initiatives to enhance the software supporting our CareVention HealthCare and MedWise HealthCare offerings.

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Sales and Marketing Expenses

Sales and marketing expenses increased $3.2 million, or 20%, to $18.8 million for the nine months ended September 30, 2021 from $15.6 million for the nine months ended September 30, 2020. The increase was primarily attributable to a $1.9 million increase in employee compensation costs, of which $908 thousand related to an increase in stock-based compensation expense. The remaining increase in employee compensation costs was related to additional employee headcount and increased costs related to employee benefits, including bonus. The increase also consisted of a $626 thousand increase in marketing-related expenses, including consulting and public relations services, and a $384 thousand increase in software licenses and technology-related expenses, primarily related to an enhanced client and marketing management tool. The remaining increase was attributable to increased travel and conference spend.

General and Administrative Expenses

General and administrative expenses increased $5.4 million, or 11%, to $54.4 million for the nine months ended September 30, 2021, as compared to the same period in 2020. The acquisition of Personica contributed $499 thousand to the increase in expenses, which consisted primarily of employee compensation costs, including stock-based compensation, and consulting services. Excluding costs related to the Personica acquisition, general and administrative expenses increased by approximately $4.9 million.

The increase in general and administrative expenses was primarily attributable to higher employee compensation costs of $4.1 million, which included a $2.5 million increase in stock-based compensation expense primarily related to equity awards granted during 2021. The remaining increase in employee costs was primarily related to increased costs for health insurance premiums and other supplemental benefits, including bonus expense. The increase in general and administrative expenses was also due to a $608 thousand increase in business insurance premiums. The remaining increases are primarily due to general increases in expenses including audit fees, recruiting expenses, employee relations, as well as bad debt expense.

Acquisition-related Contingent Consideration Expense

During the third quarter of 2020, we elected to accelerate the payment of the acquisition-related contingent consideration for an aggregate payment of $13.4 million, which was satisfied by cash payments of $6.4 million and the issuance of 135,434 shares of our common stock, with a fair value of $6.9 million. During the nine months ended September 30, 2020, we recorded a $2.6 million charge to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to the accelerated payment. No charges were incurred during the nine months ended September 30, 2021, as the final amount of the Cognify acquisition-related contingent consideration liability was determined and fixed as of December 31, 2020. In the first quarter of 2021, we made the final cash payment of $166 thousand in full satisfaction of the remaining acquisition-related contingent consideration liability.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $3.0 million, or 9%, to $35.3 million for the nine months ended September 30, 2021 from $32.3 million for the nine months ended September 30, 2020. This increase was due to a $3.6 million increase in the amortization of capitalized software related to new software functionality placed into service since 2020 to support our CareVention HealthCare and MedWise HealthCare segments. This increase was partially offset by a $468 thousand decrease in amortization expense primarily due to higher amortization expense in the third quarter of 2020 related to changes in the estimated useful lives of certain intangible assets during 2020.

Interest Expense

Interest expense for the nine months ended September 30, 2021 was $7.0 million, a decrease of $7.0 million compared to the nine months ended September 30, 2020. Of the total decrease, approximately $8.7 million related to the adoption of ASU 2020-06 on January 1, 2021, which significantly reduced the amount of debt discount to be amortized. The decrease was partially offset by $842 thousand of interest expense on the 2020 Credit Facility and $474 thousand of interest expense on the acquisition-related notes payable related to the Personica acquisition.

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Income Taxes

On February 12, 2021, we received a private letter ruling from the Internal Revenue Service, which determined, based on information submitted and representations made by us, that we met the requirements to deduct the interest expense resulting from the amortization of the debt discount associated with the 2026 Notes. As a result, during the nine months ended September 30, 2021, we recorded a deferred tax asset of $26.3 million and a corresponding $26.3 million increase to our valuation allowance. As of September 30, 2021, we have recorded a full valuation allowance against our deferred tax assets.

For the nine months ended September 30, 2021, we recorded income tax expense of $466 thousand primarily related to indefinite-lived deferred tax liabilities for goodwill amortization, which resulted in an effective tax rate of (0.8)%.The effective tax rate differs from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that is currently limiting the realizability of our net deferred tax assets as of September 30, 2021. Accordingly, the tax benefit was limited due to unbenefited losses in the nine months ended September 30, 2021.

For the nine months ended September 30, 2020, we recorded an income tax benefit of $5.7 million, which resulted in an effective tax rate of 10.2%. The effective tax rate differed from the U.S. statutory tax rate primarily due to an increase in the valuation allowance that limited the realizability of our net deferred tax assets as of September 30, 2020. Accordingly, the tax benefit was limited due to unbenefited losses in the nine months ended September 30, 2020.

We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year-to-date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.

Net Loss from Discontinued Operations, Net of Tax

As of June 30, 2022, we determined that the SinfoníaRx, PrescribeWellness, and DoseMe businesses, which were acquired in September 2017, March 2019, and January 2019, respectively, continued to meet the held-for-sale criteria and, as such, all related assets and liabilities and the results of operations for all periods presented are classified as discontinued operations in the consolidated financial statements. Net loss from discontinued operations, net of tax, was $36.9 million and $7.0 million for the three months ended June 30, 2022 and 2021, respectively. See Note 3 in the notes to our consolidated financial statements as reported in this Quarterly Report on Form 10-Q for additional information.

Comparison of the Six Months Ended June 30, 2022 and 2021 (Continuing Operations)

Product Revenue

Product revenue increased $18.2 million, or 20%, to $106.9 million for the six months ended June 30, 2022, as compared to the same period in 2021. Increased medication fulfillment volume from growth in the number of patients served by our existing clients, medication mix of prescriptions filled, and payer mix contributed $12.0 million to the increase. Medications dispensed on behalf of CareVention HealthCare by our community pharmacy network increased $4.7 million resulting from amended client agreements. In addition, new CareVention HealthCare clients that started services after the end of the second quarter in 2021 contributed $1.5 million to the increase in product revenue during 2022.

Service Revenue

Service revenue decreased $1.5 million, or 4%, to $32.8 million for the six months ended June 30, 2022, as compared to the same period in 2021.

Medication safety services revenue decreased $4.5 million, or 75%, during the six months ended June 30, 2022, as compared to the same period in 2021. The decrease is primarily due to the conclusion of the EMTM pilot program on December 31, 2021. As a result, no revenues related to the EMTM program were recognized after December 31, 2021.

The decrease in medication safety services was partially offset by a $2.9 million, or 10%, increase in CareVention HealthCare PACE solutions revenue to $31.2 million for the six months ended June 30, 2022, as compared to the same period in 2021. The increase was attributable to the addition of new clients and growth with existing clients since the second quarter of 2021, primarily within our PBM solutions, third-party administration services, and risk adjustment services.

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Cost of Product Revenue

Cost of product revenue increased $16.5 million, or 25%, to $82.9 million for the six months ended June 30, 2022, as compared to the same period in 2021. Increased medication volume from growth in the number of patients served by our customers contributed approximately $9.0 million to the change, of which new clients contributed $0.8 million. Medications dispensed by our community pharmacy network on behalf of CareVention HealthCare contributed $4.7 million to the increase as a result of amended client agreements. The increase in cost of product revenue was also due to a $2.0 million increase in distribution charges related to higher shipping costs and volume for the medications we fulfilled. The remaining increase in cost of product revenue was primarily attributable to an increase in employee compensation costs, including stock-based compensation, due to an increase in employee headcount, and investments in information technology spend.

Cost of Service Revenue

Cost of service revenue increased $1.2 million, or 5%, to $26.4 million for the six months ended June 30, 2022 compared to the same period in 2021. The increase was primarily comprised of $4.4 million of costs related to a new vendor arrangement for business process support and technology services and an increase in information technology expenses of $0.6 million. These increases were offset by a $2.9 million reduction in employee compensation costs, including stock-based compensation, for the employees hired by the third-party provider and a $1.1 million reduction in resources contracted to deliver medication safety services due to the conclusion of the EMTM program on December 31, 2021.

Research and Development Expenses

Research and development expenses decreased $0.2 million, or 2%, to $7.2 million for the six months ended June 30, 2022 as compared to the same period in 2021. The decrease was primarily attributable to a $1.3 million decrease in employee compensation costs compared to 2021, of which $1.0 million related to a decrease in stock-based compensation expense. The decrease in research and development expenses was partially offset by investments in information technology spend of $0.4 million and $0.4 million of expenses related to non-recurring business optimization initiatives during 2022, specifically efforts associated with consolidating our electronic health records solutions platforms. The remaining increase was primarily attributable to expenses incurred to terminate a long-term lease and professional consulting services.

Sales and Marketing Expenses

Sales and marketing expenses decreased $0.7 million, or 12%, to $4.8 million for the six months ended June 30, 2022 as compared to the same period in 2021. The decrease was primarily attributable to a $1.0 million decrease in employee compensation costs, of which $0.7 million related to a decrease in stock-based compensation expense, compared to 2021. This decrease was partially offset by an aggregate increase of $0.3 million in conference related travel expenses and professional consulting services related to executing our branding and marketing strategies.

General and Administrative Expenses

General and administrative expenses decreased $0.3 million, or 1%, to $31.0 million for the six months ended June 30, 2022 as compared to the same period in 2021. The decrease was primarily attributable to a $3.9 million decrease in employee compensation costs, of which $2.1 million related to a decrease in stock-based compensation expense compared to 2021. The decrease in employee costs was primarily due to a decrease in employee headcount as a result of the Company’s business optimization initiative to outsource enterprise support services. The decrease in general and administrative expenses were partially offset by a $1.8 million increase in professional services, primarily related to a new provider of enterprise support services we engaged during the fourth quarter of 2021 as part of the business optimization initiative previously referenced. The increase in general and administrative expenses also included $1.5 million of divestiture-related costs and an increase in severance expense of $0.5 million in 2022.

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Long-Lived Asset Impairment Charge

During the six months ended June 30, 2022, we recorded a $4.1 million long-lived asset impairment charge related to certain capitalized software development costs. During the first quarter of 2022, we became aware of changes in circumstances impacting the future application of certain capitalized software development costs and evaluated the recoverability of the related long-lived assets by comparing their carrying amount to the future net undiscounted cash flows expected to be generated by the assets to determine if the carrying value was not recoverable. The recoverability test indicated that certain capitalized software development costs were impaired. As a result, we recognized an impairment loss equal to $4.1 million for the six months ended June 30, 2022. We did not record any long-lived asset impairment charges in 2021.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $1.4 million, or 15%, to $11.2 million for the six months ended June 30, 2022 from $9.8 million for the six months ended June 30, 2021. This increase was due to a $1.7 million increase in the amortization of capitalized software related to new software functionality placed into service after the end of the second quarter of 2021 to support our business. This increase was partially offset by a decrease in amortization expense of $0.4 million primarily due to definite-lived intangible assets which have been fully amortized since the end of the first quarter in 2021.

Interest Expense

Interest expense decreased slightly to approximately $4.7 million for the six months ended June 30, 2022, as compared to the same period in 2021. The decrease was primarily attributable to the full satisfaction of the acquisition-related notes payable in October 2021 related to the October 2020 acquisition of Personica, LLC. Approximately $0.4 million of interest expense was recognized for the six months ended June 30, 2021 related to the acquisition-related notes payable. This decrease was partially offset by a $0.5 million increase in interest expense on the 2020 Credit Facility.

Income Taxes

For the six months ended June 30, 2022 and 2021, we recorded income tax expense of $0.4 million and $0.2 million, respectively, which resulted in effective tax rates of (1.1%) and (0.7%), respectively. Income tax expense is primarily related to indefinite-lived deferred tax liabilities for goodwill amortization. The effective tax rates differ from the U.S. statutory tax rate primarily due to the full valuation allowance recorded that is currently limiting the realizability of our net deferred tax assets as of June 30, 2022 and 2021. Accordingly, the tax benefit was limited due to unbenefited losses in the six months ended June 30, 2022 and 2021. We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period’s year-to-date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period.

Net Loss from Discontinued Operations, Net of Tax

As of June 30, 2022, we determined that the SinfoníaRx, PrescribeWellness, and DoseMe businesses, which were acquired in September 2017, March 2019, and January 2019, respectively, met the held-for-sale criteria and, as such, all related assets and liabilities and the results of operations for all periods presented are classified as discontinued operations in the consolidated financial statements. Net loss from discontinued operations, net of tax, was $44.7 million and $13.1 million for the six months ended June 30, 2022 and 2021, respectively. See Note 3 in the notes to our consolidated financial statements as reported in this Quarterly Report on Form 10-Q for additional information.

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NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA and Adjusted EBITDA Margin

To provide investors with additional information about our financial results, we disclose Adjusted EBITDA, and Adjusted EBITDA margin, each of which is considered a non-GAAP financial measure. Adjusted EBITDA consists of net loss plus certain other expenses, which include interest expense, provision (benefit) for income tax expense, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense,impairment charges, settlement costs, business optimization expenses, severance costs, executive transition costs, divestiture-related expense, incurred in 2021 related to a realignment of resources, acquisition-related expense, and stock-based compensation expense. We consider settlement costs to include amounts payable by us or reductions to amounts owed to us a result of a contractual settlement. We consider business optimization expenses to include contract termination payments, severance, retention payments, and other employee and non-recurring vendor costs incurred related to our business optimization initiatives during 2022. We consider severance costs to include severance payments related to the realignment of our resources. We consider executive transition costs to include nonrecurring costs related to hiring and onboarding of new named executive officers. We consider divestiture-related expense to include nonrecurring direct transaction costs. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue. Adjusted EBITDA margin is calculated as Adjusted EBITDA as a percentage of revenue.costs. We present Adjusted EBITDA and Adjusted EBITDA margin because they are someit is one of the measures used by our management and Board of Directors to understand and evaluate our core operating performance, and we consider themit an important supplemental measuresmeasure of performance. We believe these metrics arethis metric is commonly used by the financial community, and we present themit to enhance investors'investors’ understanding of our operating performance and cash flows. We believe Adjusted EBITDA and Adjusted EBITDA margin provideprovides investors and other users of our financial information consistency and comparability with our past financial performance.

Our management uses Adjusted EBITDA and Adjusted EBITDA margin:EBITDA:

as measuresa measure of operating performance to assist in comparing performance from period to period on a consistent basis;
to prepare and approve our annual budget; and
to develop short- and long-term operational plans.

Adjusted EBITDA and Adjusted EBITDA margin areis not in accordance with, or an alternative to, measures prepared in accordance with GAAP. In addition, thesethis non-GAAP measures aremeasure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measures,measure, Adjusted EBITDA and Adjusted EBITDA margin havehas limitations in that they doit does not reflect all the amounts associated with our results of operations as determined in accordance with GAAP. In particular:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, andfuture. Adjusted EBITDA and Adjusted EBITDA margin dodoes not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
Adjusted EBITDA and Adjusted EBITDA margin dodoes not reflect cash interest income or expense;
Adjusted EBITDA and Adjusted EBITDA margin dodoes not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA and Adjusted EBITDA margin dodoes not reflect the potentially dilutive impact of stock-based compensation;compensation and related employer taxes;
Adjusted EBITDA and Adjusted EBITDA margin dodoes not reflect tax payments that may represent a reduction in cash available to us;
Adjusted EBITDA does not reflect costs incurred in connection with the Company’s business optimization initiatives during 2022;

Adjusted EBITDA does not reflect severance costs related to the realignment of our resources; and

other companies, including companies in our industry, may calculate Adjusted EBITDA, Adjusted EBITDA margin, or similarly titled measures differently, which reduces theirreduce its usefulness as a comparative measure.

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Because of these and other limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside GAAPGAAP-based financial performance measures, including various cash flow metrics, net loss and our other GAAP financial results. You shouldresults and not consider Adjusted EBITDA and Adjusted EBITDA margin in isolation from, or as a

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substitute for, financial information prepared in accordance with GAAP. You should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in the current presentation, and we do not intend to imply that our future results will be unaffected by unusual or non-recurring items.

The following is a reconciliation of Adjusted EBITDA to our net loss for the periods presented:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

    

2020

Reconciliation of Net Loss to Adjusted EBITDA

Net loss

$

(17,111)

$

(21,589)

$

(57,684)

$

(50,336)

Add:

Interest expense, net

2,230

4,722

6,959

14,000

Income tax expense (benefit)

134

(1,830)

466

(5,705)

Depreciation and amortization

12,099

12,199

35,343

32,323

Change in fair value of acquisition-related contingent consideration expense

2,005

2,605

Settlement

500

Severance expense

354

917

516

917

Acquisition-related expense

572

217

823

Stock-based compensation expense

8,011

8,098

28,962

22,408

Adjusted EBITDA

$

5,717

$

5,094

$

15,279

$

17,035

Total revenue

$

86,586

$

70,506

$

245,575

$

220,167

Adjusted EBITDA margin

6.6%

7.2%

6.2%

7.7%

Adjusted Diluted Net Income (Loss) Per Share, or Adjusted Diluted EPS

Adjusted Diluted EPS excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. We believe the exclusion of these items assists in providing a more complete understanding of our underlying operations, results, and trends, allows for comparability with our peer company index and industry, and enables us to be more consistent with our expected capital structure on a going forward basis. Our management uses this measure along with corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define Adjusted Diluted EPS as net loss before fair value adjustments for acquisition-related contingent consideration, amortization of acquired intangibles, amortization of debt discount and issuance costs, settlement cost, severance expense incurred in 2021 related to a realignment of resources, acquisition-related expense, stock-based compensation expense, and the tax impact using a normalized tax rate on pre-tax income adjusted for those items expressed on a per share basis using weighted average diluted shares outstanding. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue.

Adjusted Diluted EPS is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. In the future we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not intend to imply that our future results will be unaffected by unusual or non-recurring items.

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The following table reconcilesis a reconciliation of Adjusted EBITDA to our net loss per share on a diluted basis,for the most directly comparable GAAP measure, to Adjusted Diluted EPS:periods presented:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2021

    

2020

    

2021

2020

(In thousands except per share amounts)

(In thousands except per share amounts)

Reconciliation of diluted net loss per share to Adjusted Diluted EPS

GAAP net loss, basic and diluted, and net loss per share, basic and diluted

$

(17,111)

$

(0.73)

$

(21,589)

$

(0.99)

$

(57,684)

$

(2.48)

$

(50,336)

$

(2.33)

Adjustments:

Change in fair value of acquisition-related contingent consideration expense

2,005

2,605

Amortization of acquired intangibles

7,060

8,291

21,468

21,936

Amortization of debt discount and issuance costs

406

3,280

1,310

9,647

Settlement

500

Severance expense

354

917

516

917

Acquisition-related expense

572

217

823

Stock-based compensation expense

8,011

8,098

28,962

22,408

Impact to income taxes (1)

439

(1,762)

1,588

(6,306)

Adjusted net (loss) income and Adjusted Diluted EPS

$

(841)

$

(0.04)

$

(188)

$

(0.01)

$

(3,123)

$

(0.13)

$

1,694

$

0.07

Three Months Ended June 30, 

Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

    

Reconciliation of Net Loss to Adjusted EBITDA

Net loss

$

(49,610)

$

(21,081)

$

(77,803)

$

(40,573)

Add:

Interest expense, net

2,444

2,182

4,713

4,729

Income tax expense

(527)

133

(193)

332

Depreciation and amortization

5,489

11,619

18,562

23,244

Impairment charges

35,608

40,510

Settlement

1,448

500

1,448

500

Business optimization expenses

787

Severance costs

162

575

162

Executive transition

150

150

Divestiture-related expense

1,480

1,646

Acquisition-related expense

99

217

Stock-based compensation expense

6,692

12,349

15,301

20,951

Adjusted EBITDA (1)

$

3,174

$

5,963

$

5,696

$

9,562

(1)The impactfinancial results and Adjusted EBITDA related to taxes was calculated using a normalized statutory tax rate applied to pre-tax income or loss adjusted fordiscontinued operations have not been segregated. The table above includes the respective items aboveresults of continuing and then subtracting or adding the tax benefit or provision, respectively, as determined for GAAP purposes.

The following table reconciles the diluted weighted average shares of common stock outstanding used to calculate net loss per share on a diluted basis for GAAP purposes to the diluted weighted average shares of common stock outstanding used to calculate Adjusted Diluted EPS:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

2020

 

2021

2020

Reconciliation of weighted average shares of common stock outstanding, diluted, to weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS

Weighted average shares of common stock outstanding, basic and diluted for GAAP

23,407,391

21,779,808

23,230,138

21,571,214

Adjustments:

Weighted average dilutive effect of stock options

1,281,367

Weighted average dilutive effect of restricted stock

491,245

Weighted average dilutive effect of contingent shares

74,102

Weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS (1)

23,407,391

21,779,808

23,230,138

23,417,928

(1)For the threediscontinued operations. See Note 3 and nine months ended September 30, 2021, we accounted for the convertible senior subordinated notes utilizing the if-converted method in accordance with the guidance under ASU 2020-06 effective January 1, 2021 (see Note 216 in the notes to the consolidated financial statements). Understatements in this method, we are required to presume that the convertible senior subordinated notes are converted at the beginningQuarterly Report on Form 10-Q for discussion of the current perioddiscontinued operations and settled entirely in our common stock. However, no potential shares are assumed outstanding and are excluded from the diluted EPS calculation if including them would have an anti-dilutive effect. For the three and nine months ended September 30, 2021, there was no impact on diluted EPS from the convertible senior subordinated notes as the conversion would have had an anti-dilutive effect.segment reporting for continuing operations, respectively.

For the three and nine months ended September 30, 2020, under the previous accounting standard, we accounted for the convertible senior subordinated notes utilizing the treasury stock method. Under this method, we presumed that we would settle the notes entirely or partly in cash. The underlying shares issuable upon conversion of the notes were excluded from the calculation of diluted EPS, except to the extent that the average stock price for the reporting period exceeded their conversion price of $69.95 per share. For the three and nine months ended September 30, 2020, there was no impact on diluted EPS from the convertible senior subordinated notes as the conversion price exceeded our average stock price.

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Liquidity and Capital Resources

We incurred a net loss of $57.7$77.8 million and $50.3$40.6 million for the ninesix months ended SeptemberJune 30, 20212022 and 2020,2021, respectively. Our primary liquidity and capital requirements are for research and development, sales and marketing, general and administrative expenses, and debt service obligations, and strategic business acquisitions.obligations. We have funded our operations, working capital needs, and investments with cash generated through operations, issuance of stock, and borrowings under our credit facilities.the 2020 Credit Facility. At SeptemberJune 30, 2021,2022, we had unrestricted cash of $11.3$26.5 million. We believe that our operating cash flows and other sources of liquidity are sufficient to meet our cash requirements for the next 12 months and beyond.

Summary of Cash Flows

The following table shows a summary of our cash flows for the ninesix months ended September 30, 2021June, 2022 and 2020:2021:

Nine Months Ended

Six Months Ended

September 30, 

June 30, 

    

2021

    

2020

    

2022

    

2021

Net cash provided by operating activities

$

3,017

$

5,348

$

8,840

$

900

Net cash used in investing activities

(24,260)

(16,271)

(18,341)

(14,981)

Net cash provided by (used in) financing activities

8,072

(3,364)

Net decrease in cash and restricted cash

$

(13,171)

$

(14,287)

Net cash provided by financing activities

27,410

2,471

Net increase (decrease) in cash and restricted cash (1)

$

17,909

$

(11,610)

(1)The cash flows related to discontinued operations have not been segregated. Accordingly, the consolidated statements of cash flows and the following discussions include the results of continuing and discontinued operations. See Note 3 in the notes to the consolidated financial statements as reported in this Quarterly Report on Form 10-Q.

Operating Activities

Net cash provided by operating activities was $3.0$8.8 million for the ninesix months ended SeptemberJune 30, 20212022 and consisted of our net loss of $57.7$77.8 million andoffset by changes in our operating assets and liabilities totaling $5.6$11.8 million offset byand the addition of noncash items of $66.3$74.9 million. The noncash items primarily included $35.3$40.5 million of impairment charges primarily related to our long-lived assets and goodwill, $18.6 million of depreciation and amortization expense, $29.0$15.3 million of stock-based compensation expense, $1.7and $0.9 million of amortization of deferred financing costs and debt discounts primarily related to the 2026 Notes, and acquisition-related notes payable, andpartially offset by a $337 thousand$0.4 million change in net deferred taxes, offset by acquisition-related contingent consideration paid of $67 thousand related to the Cognify acquisition.taxes. The change in operating assets and liabilities was primarily due to an increase in accounts payable, an increase in accrued expenses and other liabilities, and other long-term liabilities, and a decrease in accounts receivable, which were partially offset by an increase in prepaid expenses and other current assets and client claims receivable. The increase in accounts payable and accrued expenses and other liabilities was primarily due to the timing of vendor payments and an increase in other assets.consideration payable to customers of our PBM solutions. The increase in prepaid expenses and other current assets was primarily due to an increase in contract assets related to rebate administration services under our pharmacy benefit managementPBM solutions.

Net cash provided by operating activities was $0.9 million for the six months ended June 30, 2021 and consisted primarily of our net loss of $40.6 million and changes in our operating assets and liabilities totaling $4.1 million, offset by the addition of noncash items of $45.6 million. The noncash items primarily included $23.2 million of depreciation and amortization expense, $21.0 million of stock-based compensation expense, $1.2 million of amortization of deferred financing costs and debt discounts primarily related to the 2026 Notes and acquisition-related notes payable, and a $0.3 million change in net deferred taxes, offset by acquisition-related contingent consideration paid of $0.1 million related to the acquisition of Cognify in 2018. The change in operating assets and liabilities was primarily due to an increase in prepaid expenses and other current assets, an increase in other assets, and an increase in accounts receivable. The increase in prepaid expenses and other current assets was primarily due to an increase in contract assets related to rebate administration services under our PBM solutions. The increase in other assets was primarily due to an increase in nontrade receivables, and the increase in accounts receivable was primarily due to revenue growth within our CareVention HealthCare segment The change in operating assets and liabilities was partially offset by an increase in accrued expenses and other liabilities primarily due to increased consideration payable to clients under our rebate administration services, partially offset by a decrease in accrued interest, an increase in accounts payable, and a decrease in accounts receivable as a result of improved collections.

Net cash provided by operating activities was $5.3 million for the nine months ended September 30, 2020 and consisted of our net loss of $50.3 million and changes in our operating assets and liabilities totaling $3.4 million, offset by the addition of noncash items of $67.2 million. The noncash items primarily included $32.3 million of depreciation and amortization expense, $22.4 million of stock-based compensation expense, $9.9 million of amortization of deferred financing costs and debt discounts primarily related to the 2026 Notes, and $2.6 million related to the change in fair value of the Cognify acquisition-related contingent consideration. These noncash items were partially offset by changes in net deferred taxes of $5.7 million and $2.4 million in payments related to the contingent purchase price consideration for the Cognify acquisition. The change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued expenses and other liabilities and an increase in accounts receivable. The decrease in accounts payable and accrued expenses and other liabilities was primarily due to lower accrued employee compensation costs and the timing of vendor payments, partially offset by an increase in accrued contract labor and professional fees and an increase in contract liability balances related to performance obligations for our services. The increase in accounts receivable was attributable to growth across our business lines as a result of new clients and growth in existing clients, as well as timing of client payments. The change in operating assets and liabilities was partially offset by a decrease in prepaid expenses and other current assets primarily due to payments received related to prior year contract asset balances and non-trade receivables.liabilities.

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Investing Activities

Net cash used in investing activities was $24.3$18.3 million for the ninesix months ended SeptemberJune 30, 20212022 and $16.3 million for the nine months ended September 30, 2020. Net cash used in investing activities for the nine months ended September 30, 2021 reflected $22.7included $17.9 million in software development costs for our CareVention HealthCare and MedWise HealthCare technologies. Net cash used in investing activities also included $1.6$0.5 million in purchases of property and equipment to support our operations.

Net cash used in investing activities was $15.0 million for the six months ended June 30, 2021, which included $14.0 million in software development costs for our CareVention HealthCare and MedWise HealthCare technologies. Net cash used in investing activities also included $1.0 million in purchases of property and equipment primarily to support technology-related needs and infrastructure at our pharmacies, call center locations, and Moorestown, New Jersey headquarters, and fixtures and improvements for our new office space in Eden Prairie, Minnesota to support our health plan management services and for an expansion to our pharmacy in Boulder, Colorado.

Net cash used in investing activities for the nine months ended September 30, 2020 reflected $13.7 million in software development costs for our CareVention HealthCare and MedWise HealthCare technologies. Net cash used in investing activities also consisted of $2.5 million in purchases of property, equipment, and leasehold improvements primarily related to equipment to support the pharmacy at our Moorestown, New Jersey location, improvements for our expanded office space at our Moorestown, New Jersey headquarters and improvements for our call center space in Tucson, Arizona to support our medication safety services.

Financing Activities

Net cash provided by financing activities was $8.1$27.4 million for the ninesix months ended SeptemberJune 30, 2021 compared to net cash used in financing activities2022 and consisted of $3.4 million for the nine months ended September 30, 2020. Financing activities for the nine months ended September 30, 2021 primarily reflected $17.5$27.7 million of borrowings on our 2020 Credit Facility mainly to fund the repayment of the firstsupport business operations and second promissory notes in connection with the Personica acquisitioninitiatives, and $3.7$0.1 million of proceeds received from the exercise of stock options. Net cash provided by financing activities for the ninesix months ended SeptemberJune 30, 2022 was partially offset by $0.4 million of payments of debt financing costs.

Net cash provided by financing activities was $2.5 million for the six months ended June 30, 2021 and included $12.5 million of borrowings on our 2020 Credit Facility to fund the repayment of the first and second promissory notes in connection with the October 2020 acquisition of Personica, LLC and $3.1 million of proceeds received from the exercise of stock options. Net cash provided by financing activities was partially offset by repayments of $13.0 million related to the first and second promissory notes in connection with the Personica, LLC acquisition and $99 thousand$0.1 million for the final payment of the Cognify acquisition-related contingent purchase price consideration.

Financing activities for the nine months ended September 30, 2020 primarily reflected $3.5 million of payments for the contingent purchase price consideration related toin connection with the 2018 acquisition of the Cognify acquisition and $3.0 million in payments for payroll taxes remitted to taxing authorities on behalf of employees for shares withheld from the net exercise of stock options during 2020. Net cash used in financing activities was partially offset by $3.2 million of proceeds received from the exercise of stock options.business.

Funding Requirements

On December 18, 2020, we entered into a Loan and Security Agreement (the “2020 Credit Facility”) with Western Alliance Bank or the 2020 Credit Facility,(“WAB”), which providesprovided for a $120.0 million secured revolving credit facility, with a $1.0 million sublimit for cash management services and letters of credit and foreign exchange transactions. The 2020 Credit Facility matureswas scheduled to mature on May 16, 2025. As of September 30, 2021, weWe had $31.1 million available for borrowing and $92.5$62.7 million of unused commitments under the 2020 Credit Facility. We were in compliance with all financial and operating covenants related to theour 2020 Credit Facility as of SeptemberJune 30, 2021.2022.

On August 1, 2022, the Company entered into an agreement with WAB with respect to the 2020 Credit Facility (the “Payoff Letter”), pursuant to which the Company voluntarily elected to pay all amounts outstanding under the 2020 Credit Facility and related loan documents (the “Repayment”) using cash on hand and proceeds from the sale of PrescribeWellness Business. Accordingly, on August 1, 2022, the Company paid a total of $57.4 million to WAB for the Repayment, and terminated the 2020 Credit Facility and related loan documents.

We believe that our unrestricted cash of $11.3$26.5 million as of SeptemberJune 30, 2021,2022, proceeds from the sale of the PrescribeWellness Business, and cash flows from continuing operations and borrowings under our credit facility will be sufficient to fund our planned operations through at least November 2022.August 2023. Our ability to maintain successful operations will depend on, among other things, new business, the retention of clients, and the effectiveness of sales and marketing initiatives.

We may seek additional funding through public or private debt or equity.equity financings. We may not be able to obtain financing on acceptable terms, or at all. The terms of any financing may adversely affect our stockholders. If we are unable to obtain funding, we could be forced to delay, reduce, or eliminate our research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect our business prospects. There can beis no assurance that additional capital resources, including debt and equity financing,we will be availablesuccessful in obtaining sufficient funding on terms acceptable to us on terms that we find acceptable, orto fund continuing operations, if at all.

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Contractual Obligations and Commitments

During the three and ninesix months ended SeptemberJune 30, 2021,2022, there were no material changes to our contractual obligations and commitments as compared to those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our 20202021 Form 10-K.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.United States generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

ThereExcept as disclosed in Note 2 in the notes to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no material changes in our critical accounting policies during the three and ninesix months ended SeptemberJune 30, 2021,2022 as compared to those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our 20202021 Form 10-K.

Recent Accounting Pronouncements

See Note 2 in this Quarterly Report on Form 10-Q and Note 2 in the Annual Financial Statements in our 2020 Form 10-K for the year ended December 31, 2020 for a description of new accounting pronouncements. As of January 1, 2021, we adopted Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).

Item 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in our primary market risk exposures or how those exposures are managed from the information disclosed in our 20202021 Form 10-K, for the three and ninesix months ended SeptemberJune 30, 2021.2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures.

Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of SeptemberJune 30, 2021,2022, our disclosure controls and procedures are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’sSecurities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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Inherent Limitations on Effectiveness of Controls and Procedures

Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

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Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the third fiscalsecond quarter of 2021fiscal 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently party to any material legal proceedings. From time to time, however, we may be a party to litigation and subject to claims in the ordinary course of business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

Stockholders and potential investors in our securities should carefully consider the risk factors set forth in Part I, “Item 1A. Risk Factors” of our 20202021 Form 10-K for the year ended December 31, 2020,2021, which was filed with the Securities and Exchange Commission on February 26, 2021.25, 2022. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf. ThereExcept as set forth below, there have been no material changes to such risk factors previously disclosed in our 20202021 Form 10-K.

Actions of activist stockholders against us could be disruptive and costly. The possibility that activist stockholders may wage proxy contests or seek representation on our Board could cause uncertainty about the strategic direction of our business.

Stockholders may from time to time engage in proxy solicitations, advance stockholder proposals or board nominations or otherwise attempt to effect changes, assert influence or acquire some level of control over us.

On June 1, 2022, Indaba Capital Management, L.P., IC GP, LLC, and Derek C. Schrier (collectively, “Indaba”) jointly filed a statement on Schedule 13D to report that Indaba had purchased 5,169,024 shares of our common stock, representing approximately 19.99% of our issued and outstanding shares. As of July 28, 2022, Indaba had reported through the filing of an amended Schedule 13D (the “Amended 13D”) that Indaba has acquired an aggregate amount of 6,521,578 shares of our common stock, representing approximately 25.23% of our issued and outstanding shares. The Amended 13D also reported that Indaba had delivered a letter to our corporate secretary demanding the inspection of certain books and records pursuant to Section 220 of the Delaware General Corporation Law.

Activist stockholders such as Indaba may from time to time attempt to effect changes in our strategic

direction, and in furtherance thereof, may seek changes in how our company is governed.Our Board and management team strive to maintain constructive, ongoing communications with our stockholders, including Indaba, and welcomes

their views and opinions with the goal of enhancing value for all stockholders. However, an activist campaign that seeks to replace members of our Board or changes in our strategic direction could have an adverse effect on us because:

Responding to actions by activist stockholders can disrupt our operations, are costly and time-consuming, and divert the attention of our Board and senior management team from the pursuit of business strategies, which could adversely affect our results of operations and financial condition;

Perceived uncertainties as to our future direction as a result of changes to the composition of our Board or changes to our stockholder base may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may result in the loss of potential business opportunities, cause concern for our client base, and make it more difficult to attract and retain qualified personnel and business partners;

These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business; and

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If individuals are elected to our Board with a specific agenda, it may adversely affect our ability to effectively implement our business strategy and to create additional value for our stockholders.

Our stockholder rights plan, or “poison pill,” includes terms and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.

On July 25, 2022, our Board approved and adopted a Rights Agreement, dated as of July 25, 2022 (the “Rights Agreement”), by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent. Pursuant to the Rights Agreement, the Board declared a dividend of one preferred share purchase right (each, a “Right”) for each outstanding share of our common stock (the “Common Shares”). The Rights are distributable to stockholders of record as of the close of business on August 5, 2022 (the “Record Date”). One Right also will be issued together with each Common Share issued by the Company after the Record Date, but before the Distribution Date (as defined in the Rights Agreement) (or the earlier redemption or expiration of the Rights) and, in certain circumstances, after the Distribution Date.

Generally, the Rights Agreement works by causing substantial dilution to any person or group that acquires beneficial ownership of ten percent (10%) or more of the Common Shares without the approval of the Board. As a result, the overall effect of the Rights Agreement and the issuance of the Rights may be to render more difficult or discourage a merger, tender, or exchange offer or other business combination involving the Company that is not approved by the Board. The Rights Agreement is not intended to interfere with any merger, tender, or exchange offer or other business combination approved by the Board. The Rights Agreement also does not prevent the Board from considering any offer that it considers to be in the best interest of its stockholders. The description and terms of the Rights are set forth in the Rights Agreement, which has previously been filed as an exhibit to our public reports.

As discussed above, the Rights have certain anti-takeover effects, including potentially discouraging a takeover that stockholders may consider favorable. The Rights will cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the Board.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the three months ended SeptemberJune 30, 2021.2022.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

 

 

 

 

Incorporated by Reference 

 

Filed Herewith 

Exhibit

No. 

 

Exhibit Description 

 

Form 

 

Filing Date 

 

Exhibit Number 

 

  

  

  

  

  

  

  

  

  

  

  

3.1

  

Amended and Restated Certificate of Incorporation of Tabula Rasa HealthCare, Inc.

  

8-K

  

10/4/2016

  

3.1

  

3.2

 

Amended and Restated Bylaws of Tabula Rasa HealthCare, Inc.

 

8-K

  

10/4/2016

 

3.2

 

10.1

Tabula Rasa HealthCare, Inc. Employee Stock Purchase Plan

8-K

6/17/2021

10.1

31.1

Certification of Chief Executive Officer (Principal Executive Officer) required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2

Certification of Chief Financial Officer (Principal Financial Officer) required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1**

Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101.INS

  

Inline XBRL Instance Document

  

 

  

 

  

 

  

X

101.SCH

  

Inline XBRL Schema Document

  

 

  

 

  

 

  

X

101.CAL

  

Inline XBRL Calculation Linkbase Document

  

 

  

 

  

 

  

X

101.DEF

  

Inline XBRL Definition Linkbase Document

  

 

  

 

  

 

  

X

101.LAB

  

Inline XBRL Label Linkbase Document

  

 

  

 

  

 

  

X

101.PRE

  

Inline XBRL Presentation Linkbase Document

  

 

  

 

  

 

  

X

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30 2021, formatted in Inline XBRL (contained in Exhibit 101)

X

 

 

 

 

Incorporated by Reference 

 

Filed Herewith 

Exhibit

No. 

 

Exhibit Description 

 

Form 

 

Filing Date 

 

Exhibit Number 

 

  

  

  

  

  

  

  

  

  

  

  

3.1

  

Amended and Restated Certificate of Incorporation of Tabula Rasa HealthCare, Inc.

  

8-K

  

10/4/2016

  

3.1

  

3.2

Certificate of Designation of Series A Junior Participating Preferred Stock of Tabula Rasa HealthCare, Inc.

8-K

7/26/2022

3.1

3.3

 

Amended and Restated Bylaws of Tabula Rasa HealthCare, Inc.

 

8-K

  

10/4/2016

 

3.2

 

4.1

Rights Agreement, dated as of July 25, 2022, by and between Tabula Rasa HealthCare, Inc. and American Stock Transfer & Trust Company, LLC, as rights agent

8-K

7/26/2022

4.1

10.1*

Sixth Amendment to Restricted Stock Agreement (Calvin Knowlton)

8-K

5/18/2022

10.1

10.2*

Sixth Amendment to Restricted Stock Agreement (Orsula Knowlton)

8-K

5/18/2022

10.2

10.3††

Asset Purchase Agreement, by and among Tabula Rasa HealthCare Group, Inc., Transaction Data Systems, Inc., and Tabula Rasa HealthCare, Inc., dated as of June 18, 2022

8-K

6/21/2022

2.1

10.4††

Asset Purchase Agreement, by and between Tabula Rasa HealthCare Group, Inc., and karmadata, Inc., dated as of June 18, 2022

8-K

6/21/2022

2.2

10.5

Form of Restricted Stock Agreement

X

31.1

Certification of Chief Executive Officer (Principal Executive Officer) required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

31.2

Certification of Chief Financial Officer (Principal Financial Officer) required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1**

Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

101.INS

  

Inline XBRL Instance Document

  

 

  

 

  

 

  

X

101.SCH

  

Inline XBRL Schema Document

  

 

  

 

  

 

  

X

101.CAL

  

Inline XBRL Calculation Linkbase

  

 

  

 

  

 

  

X

101.DEF

  

Inline XBRL Definition Linkbase

  

 

  

 

  

 

  

X

101.LAB

  

Inline XBRL Label Linkbase

  

 

  

 

  

 

  

X

101.PRE

  

Inline XBRL Presentation Linkbase

  

 

  

 

  

 

  

X

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in Inline XBRL (contained in Exhibit 101)

X

* Represents management contract or compensatory plan or arrangement.

** This certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Tabula Rasa HealthCare, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of this Form 10-Q), irrespective of any general incorporation language contained in such filing.

†† Certain of the exhibits and schedules to this exhibit are omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally to the SEC, upon request, a copy of any omitted schedule or exhibit.

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Table of Contents

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TABULA RASA HEALTHCARE, INC.

Date: NovemberAugust 5, 20212022

By:

/s/ DR. CALVIN H. KNOWLTON

Name:

Dr. Calvin H. Knowlton

Title:

Chief Executive Officer

(Principal Executive Officer)

Date: NovemberAugust 5, 20212022

By:

/s/ BRIAN W. ADAMSTHOMAS J. CANCRO

Name:

Brian W. AdamsThomas J. Cancro

Title:

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: November 5, 2021

By:

/s/ ANDREA C. SPEERS

Name:

Andrea C. Speers

Title:

Chief Accounting Officer

(Principal Accounting Officer)

5051