Tabula Rasa HealthCare, Inc.
Q4 2020 Earnings Call Transcript

Published: 24 Feb 2021

[Operator:]

Good morning ladies and gentlemen and welcome to the Fourth Quarter and Full Year 2020 Tabula Rasa HealthCare, Inc. Earnings Conference Call. I would now like to hand the conference to your host, Mr. Kevin Dill

[Kevin Dill:]

Thank you, and good evening. I'm Kevin Dill, Corporate Counsel for Tabula Rasa HealthCare. The company intends to avail itself of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements made during this call will be forward-looking statements within the meaning of that law. These forward-looking statements are subject to risks, uncertainties and other factors that could cause Tabula Rasa HealthCare's actual results to differ materially from those expressed or implied by the forward-looking statements.

[Calvin Knowlton:]

Good morning and thank you for joining us for our fourth quarter 2020 earnings call. In addition to Dr. Dill with me today are Dr. Orsula Knowlton, Co-Founder and Chief Marketing/New Business Development Officer, Mr. Brian Adams, Chief Financial Officer, Dr. Kevin Boesen, Chief Sales Officer. Orsula and Kevin will both be available to respond to questions after we conclude our prepared remarks. As a reminder this conference call and webcast is accompanied by a PowerPoint presentation available at the IR Section of our website and I would encourage you to use it to follow along. We are pleased with our finished 2020, delivering fourth quarter revenue of $77.1 million, which was above the high-end of our guidance provided in November, 2020 of $74 million to $76 million and driven by solid execution across both our major operating segments. I'd like to focus my comments on four areas as reflected on Slide 3. PACE, pharmacist provider, PrescribeWellness, third, 2021 and future growth initiatives, and fourth research and development pillar achievements. First while the pandemic has slowed the strong net growth that PACE programs have historically experienced unfortunately due to COVID-19 deaths. This is temporary due to imminent vaccination programs and has further highlighted the benefits of enrolling in PACE. According to CMS and the National PACE Association as of January 17, 2021, nursing homes had a 52.1% infection rate and a 10.3% death rate as compared with an infection rate of 16.4% and death rate of 3.1% for the PACE organizations. Further, PACE are 66% less likely, PACE participants less likely to contract COVID-19 or die during COVID-19. With the resurgence of the virus in late 2020 and increased death rate among PACE participants, the strong recovery we initially saw on October weakened into the early part of 2021. With that said, we are encouraged by the recent trends as seen on Slide 4. According to the National PACE Association, there has been a dramatic improvement in the first two weeks of February in terms of less new viral cases and less deaths.

[Brian Adams:]

Thanks Cal. I'm going to focus my comments on our 2021 outlook, but first wanted to provide some additional color on the fourth quarter. Our solid performance was driven by our organic and inorganic growth within our CareVention HealthCare segment. Personica contributed $3.6 million of revenue during the fourth quarter, which was nearly equally divided in PACE Product and PACE Solutions revenue. Turning to MedWise HealthCare, I'm pleased to report this segment performed as expected showing modest sequential growth versus the third quarter as we successfully addressed the challenges that negatively impacted our third quarter results.

[Calvin Knowlton:]

Thank you, Brian. Despite some early headwinds, notably with our PACE net population, we are looking-forward to a much better year in 2021. We are making the necessary investments to advance our medication science and suite of technology solutions as well as to expand our sales and marketing team to support even stronger growth in the years ahead.

[Operator:]

And your first question comes from Ryan Daniels with William Blair.

[Ryan Daniels:]

Yes, guys thanks for taking the questions and the color. If we think about the sales and marketing investments, clearly MedWise payer bookings are doing well and that pipeline looks robust. However, you still have this huge cross-sell and upsell to the core PACE clients. So can you talk a little bit about how you're going to allocate that pretty market uptick in sales and marketing spend going forward to your various products? Thanks.

[Kevin Boesen:]

Sure. Thanks Ryan. This is Kevin Boesen. Appreciate the question. We have – I think you're right in terms of the comments that we've made and focused on some of the growth areas outside of the PACE market, but we are also making tremendous amounts of growth in the sales team within the PACE organization as well. So we have about 400% growth over the last year. And the number of folks that we have selling in the PACE space and then further supported by the work that Celynda is doing, cross-selling and leveraging some of the new assets that we brought into our total product offering there.

[Ryan Daniels:]

Okay. Thank you for that and then maybe one for Brian. Just as we think about new business conversion, I think the press release indicated that should drive about 700 basis points of your growth expectation. How does that compare to a normal year say 2019 or 2020? And what level of visibility do you have based on the pipeline and conversion rates to actually hitting that kind of delta that seems like the biggest potential driver to either end of the range? Thank you guys.

[Brian Adams:]

Yes. Thanks Ryan. That's a good question. We based our forecast on 2021, which – excuse me on 2020, which is relatively conservative. Looking at the conversion rates by our existing sales infrastructure and then rolled that forward with the incremental headcount that we've on-boarded at the end of 2020, early 2021 and the additional folks that we're planning to bring on in the first half of the year. Anybody later in the year obviously wouldn't have the ability to really contribute to 2021 revenue. So we use 2020 conversion rate as our baseline, which we think is likely conservative.

[Operator:]

Your next question comes from Glen Santangelo with Guggenheim Securities.

[Glen Santangelo:]

Yes. Thanks for taking my question. Hey, Brian, I also wanted to follow-up on the guidance a little bit. In the release, you talked about bookings being up 58% in the quarter and your sales pipeline now being up sort of 92% versus maybe where it was this time last year. Could you help us sort of reconcile those comments and put that into perspective relative to the 2021 guidance on the top line? And as part of that, I think you just suggested in your prepared remarks that you expect it to be growing kind of more normalized in the second half of the year. And I guess I just want to try and get an updated sense from you, like what is normalized growth at this point? How should we think about maybe the longer-term growth algorithm relative to what you've discussed in the past? Thanks.

[Brian Adams:]

Yes. Good questions, Glen. And I'll probably end up tag teaming this with Kevin. But as you think about – and I would starting to describe this with Ryan's question, the effort required by the sales team to deliver on those numbers. We've got the pipeline today and that's really what we were trying to communicate with some of those statistics, is that the pipeline is there, it's really about continuing to onboard new sales professionals to pull those opportunities through the pipeline. So we feel really good about the conversion rates exiting 2020. And now it's just about horsepower. So the new individuals we plan to bring on over the coming months, we think are going to be really impactful. And as you look towards the latter half of this year and the growth rates, our typical growth rate in PACE is about little over 1% sequentially for each month. So we've seen about 15% organic growth on an annual basis in a non-COVID year. So I would expect us to get to that level starting in probably Q3. And the year-over-year growth rates in Q3 and Q4 that we're forecasting are about 25%, which we think based on the sales infrastructure and the investment that we're making is a good forward-looking expectation related to growth. Kevin, anything you would add to that?

[Kevin Boesen:]

Yes, I would say a couple of our core services, particularly on the health plan side. There's a much better opportunity in 2021 as that was in 2020 comparatively. So some of the services where we were providing medication adherence support aligned with our MedWise kind of day dosing slowed as the pandemic hit at the early part of the year, and patients were allowed extra pills, extra quantity. And so as that returns to normal in 2021, that's also an opportunity for us to accelerate implementation of some of the deals that we're closing as well. So we feel like we'll be back to what we would expect pre-pandemic this year-end.

[Glen Santangelo:]

Okay. Thanks for the comments.

[Operator:]

Your next question comes from Sean Dodge with RBC Capital Markets.

[Sean Dodge:]

Thanks, guys. Good morning. Maybe staying on the sales pipeline for a moment, can you give us a broad sense of the composition of that? It's up 92% now year-on-year is the bulk of the pipeline now MedWise and these are relatively larger contracts you're going after or are these a bunch of smaller opportunities? Are they expansions or new clients, and then anything on how they could or you're expecting them to kind of flow in or convert into revenue over the course of the years this January-centric stuff or is this stuff that can launch into the year?

[Brian Adams:]

It's a great question. It's actually a mix of all of those. So I think from a focus standpoint, clearly what we've tried to transition to is a broader, deeper relationship with our MedWise science, so in some of the clients that we've picked up in the last couple of years it's much broader than a traditional MTM relationship, we’re working on Medicare Part C measures, which are the medical measures that appropriate medication management really helps drive. So much broader, deeper relationships with larger clients, larger deal sizes on the health plan side, but also a tremendous amount of growth on the pay side as well. So being able to leverage some of the assets that we have on the pay side, particularly with our Pharmastar acquisition and looking at clients that use Pharmastar as PBM, but are not necessarily using our pharmacy services just yet, that's a big opportunity for us and those are large deal sizes as well. And then we do focus on plans that we can implement throughout the year. Traditional MTM is a calendar year start, but we've had some great wins in the Medicaid space that allows us to implement programs mid-year. And then other services, I mentioned adherence services that we can implement throughout the year as well.

[Sean Dodge:]

Okay. Thanks. And then on the PACE guidance, you said the guidance seems a weak first half of the year followed by an improving second half. Can you give us just a little bit more detail on what that means? Are you assuming continued declines in census for the next couple of months or given what we've seen now in February or are you assuming some kind of stabilization? And then in the back half, does that improving mean just some growth or are you expecting a pretty quick return to kind of the historical 1% per month kind of sequential cadence?

[Calvin Knowlton:]

This is Cal. Yes, we had January showed a negative net for us because of the tremendous amount of deaths. But we still had over 300, 350 new admissions and the same in February. February was about 10%, 90% less death than kind of January it was almost a breakeven month. So we expect that March and the rest of the months now are going to get back to normal.

[Brian Adams:]

Sean, as it relates to the second half of the year. And as Cal was just describing, we're basically maybe kind of flat for Q1 given what happened in January and expecting a little bit of improvement in March and then seeing a slight uptick in the second quarter, going back to that normal growth rate, really starting in the July timeframe of about 1% per month.

[Sean Dodge:]

Okay. All right. That's great. Thanks again.

[Operator:]

Your next question comes from Sean Wieland with Geyer Sandler.

[Sean Wieland:]

Piper Sandler, pretty close. Thank you. So you mentioned that you're going after some new markets next year, large self-funded employer groups, at-risk providers, Medicare Advantage, Medicaid Programs, I might have missed one. Can you just maybe talk a little bit about your go-to market strategy in these areas where the area focuses and within your guidance that you outlaid, what some of your underlying assumptions are with respect to these new markets? Thanks.

[Kevin Boesen:]

I'll – this is Kevin, thanks for that question. I'll address some of the go-to market in the areas that we’ve mentioned. So one of the areas is still core for us on the risk side and those are the Medicare Advantage programs. One of the things that are leveraging our PACE assets, so we've typically thought about Tabula Rasa as our health plan side and our pay side, but there's a lot of new assets and things that we have on the pay side that are applicable and attractive to our health plan market. So we have traditional Medicare services that we've offered relative to things like traditional MTM, our Medwise programs, our opioid solutions. But we've recently contracted with startup MA plans that are looking at also leveraging our PBM and TPA services. So part of our Medicare strategy has been to also look at some of those smaller startup plans with a more broader set of services that we can provide to them as an example. In the employer space, it's very similar in terms of what we're looking at relative to what the health plans like self-insured employers that have risks on the medical side that really haven't paid attention to how they can leverage a pharmacy benefit to manage that is really a key portion of that. We've contracted with to supplement the sales team, companies that live in that employer space that benefit broker space to help us bring some of those solutions together that similarly can include our PBM services, Medwise science services and even some of the other assets that we have. Our pharma strategy is really built around using our science to help pharma companies predict the safety of medications in general populations using our MedWise Risk Score. And then in the health system space, very similar to where we're looking at the Medicare space as those health systems have to take risks relative to the same things that the Medicare Advantage companies are looking or really supporting them in a population health strategy and helping manage that through appropriate medication use. And then I know we spent a little bit of time talking about our state strategy, we're looking at the Medicaid programs and really modeling the work that we're doing in New Jersey.

[Sean Wieland:]

And how much of the guidance is leaning on these new market opportunities?

[Brian Adams:]

So Sean today, the majority of our guidance is focused on the commercial Medicare and Medicaid space, which is where we've been spending the most time. And there's very little baked into our guidance related to the pharma and network providers at this point. So those are just emerging opportunities, I would say it's pretty much immaterial for 2021.

[Sean Wieland:]

Okay, great. And then the vaccine rollout and the participation among some of your independent pharmacies, is there any revenue associated with that or any tangential revenue opportunities associated with that?

[Orsula Knowlton:]

Not necessarily. I think there are opportunities just for really identifying pharmacists as primary care providers and expanding their practice. In addition, we're providing our MedWise system, our MedWise technology right in the patient engagement center. So there are greater opportunities for client engagement in that regard. Generally the vaccines are – generate revenue for the pharmacist themselves, the initial vaccine and then the follow-up vaccine administration. The vaccines themselves are covered by doctors.

[Brian Adams:]

Sean, there's also – in order to access our state vaccine databases, registries that we have for every state, they have to be a client of PrescribeWellness and get a certain module – buy a certain module from us. So there is revenue on that.

[Orsula Knowlton:]

Yes, absolutely.

[Sean Wieland:]

Okay. Thanks so much.

[Operator:]

Your next question is from David Grossman with Stifel.

[David Grossman:]

Thank you. I wonder if I could just follow-up a little bit on some of the – kind of the changes or additions you're making to the sales and marketing organization. I'm just curious, what type of persons do you target to add given how unique your model is? And maybe just a follow-up to that, what has really been the biggest gating item to the new sales efforts that you faced thus far in the non-PACE markets? And what can you do to kind of address some of those obstacles?

[Brian Adams:]

David thanks for the question and the opportunity to do a little recruitment. So for the sales team, we are looking for people that have a really good understanding of the healthcare system or the markets that we're evolved in. And I think to your point, one of the opportunities that we have is to really look at all the things that Tabula Rasa has to offer and being able to work with our health plans or at-risk providers, community pharmacies, to really understand how the pieces can fit together from a solution standpoint. So it is complicated in terms of making sure that you do understand healthcare. So that's an important part of that. We brought on some great people in 2020 and we're really excited about their success from Q3 to Q4. It was really one of the first times that typically we would have seasonal decline in Q4 in our MedWise business and we didn't see that this year, so showing signs of really turning around that health plan business and coming back out of the pandemic. The challenges that we faced probably mostly last year, which is relative to access, it was very difficult to see clients, the trade shows were canceled and so if you didn't have relationships with people, it was difficult to get in the door and get started. So that's certainly something that we look for as well, the opportunity to have some relationships with clients, but we're starting to see the market really adapt sort of come out of the pandemic, be much more forward-looking meetings with health plans are easier to get, the virtual trade shows are starting to turn back to regular trade shows and so I think that access will help as well. So hopefully that answers the question. Kevin, do you just want to touch on for a second, how we started the year in 2020 versus how we ended the year with the types of sales professionals we had on there?

[Kevin Boesen:]

Yes, sure. That's a great comment too. So adding into 2020, we had primarily regional based director-level salespeople with the intent of really driving that lead generation through a number of – we had planned to attend probably a 100 plus different health plan and pharmacy related trade shows. And so we've transitioned away from that as those shows were canceled and we brought in some executive level, Vice President level sales folks that have broad levels of experience in the PBM space and the health plan space. So really understanding benefit design and where these opportunities are. So we transitioned in 2020 to a higher level sales person and we're starting to see the benefits of that.

[David Grossman:]

I agree.

[Orsula Knowlton:]

So from a marketing perspective, that was on a brand awareness and medication safety issue awareness we had launched a medication safety campaign in 2020 and had reached millions of people through a broadcast media. And we're seeing the benefits of that, but still the idea of medication safety and the problem with it is we're providing thought leadership and education.

[David Grossman:]

All right, great well thank you. Thank you for that. And just one more question, if I may, just on the guidance. The 2021 guide is in a range of $20 million, which looks to be equal to the 7% of revenue growth that's contributed from in your bookings. Should we take from that, you feel your strong visibility on the low end of that range today or – and if not what are the components of the guide that remained, that have the lowest visibility? Is it that reacceleration of PACE at the end of the year? Or do you feel that with the new openings that you mentioned in the press release that you said you have a pretty good read on that today?

[Brian Adams:]

Yes. David, we feel very good about the low end of the range, especially what we've seen happened throughout 2020 with PACE census. I mean, there was a little bit of a stall as the pandemic emerged in the spring timeframe. And then we saw progressive growth despite not having vaccines at the time. So there was a kind of a resurgence of that growth. So now that the dynamics are pretty different and the decline in the number of deaths over the past four weeks as we've seen has been really aggressive, we feel really confident in getting back to a normal growth rate, but that is the kind of the biggest piece of our guidance that we remain watching very closely. But we feel really good about the bottom-end based on all the factors that we've described and where we sit today.

[David Grossman:]

And just if you could remind me, was the opening of PACE centers delayed significantly in 2020 as a result of the pandemic. And just trying to get a read on just how visible kind of the new openings are? I know they're not that material to this year, but they certainly will impact 2022.

[Orsula Knowlton:]

Well, there were some delays, but there were not significant. The programs that were expecting to open did open. And of course in 2021, we have quite the pipeline of existing and new client expansion sites that are scheduled to start.

[David Grossman:]

I see. All right, very good. Thank you very much.

[Brian Adams:]

Thank you.

[Operator:]

And your next question is from Stephanie Davis with SVB Leerink.

[Stephanie Davis:]

Hey guys, thank you for taking my question.

[Orsula Knowlton:]

Hi, Stephanie.

[Stephanie Davis:]

I'm sure. You're probably never going to want to talk about this topic again after this. But could you tell us a little bit more about the large contract attrition? Are there any read-through relative to prioritization of the MTM program? Or is this a company specific or competitive takeaways of the dissolution?

[Kevin Boesen:]

Yes, Stephanie, that's a good – it's a good question. It's good to talk to you. This is Kevin I'll address that. Regarding the client, we did decide we did not renew that MTM contract with them, we did not net sever our relationships with them. So there are programs that we will be supporting. We see from time-to-time that plans look to outsource, in-source and that's part of some of the challenges that we face. We with that client in particular, we had lost some of the business due to a merger in the healthcare space. And a number of the clients and patients went to a new client of ours. So we actually over the last couple of years have picked up a lot of that business through a growing relationship that we have on the WellCare side of things too. So I wouldn't personally read too much into that, I think it's we've made the adjustments and more confident in terms of where we are today.

[Stephanie Davis:]

All right. Understood, that's helpful. Maybe you never talk about that contract again. Brian, I would love to hear a little bit more about kind of the cadence or the ramp up from this low-single digit growth in 1Q to double-digit exiting year-end. Could you – can you help us reconcile?

[Brian Adams:]

Sure. So as you're looking at the first part of the year, clearly the PACE census is having an impact, as well as the contract that we were just discussing. Those two things are primarily what are depressing the numbers in the first quarter as we come in. Kevin and his team have done a phenomenal job in building the pipeline and we have seen an acceleration of conversion rates with that team. As he mentioned, we've migrated to a bit of a different structure. And I think that's been extremely helpful in terms of win rates. And so we do continue to see those accelerate and as we begin to bring on new sales folks we do expect that those win rates are going to increase throughout the year. So you're right, first quarter, second quarter, we are looking at single-digit growth rates, but getting to about 25% in both Q3 and Q4. The biggest piece of that is, as we expect PACE growth rates to really accelerate throughout the second quarter into the third, that's going to have a very material impact and coupled with an increase in contribution from the sales team. So I think we're seeing really positive signs on all fronts, despite having a negative net enrollment in January and February, the fact that we're sitting here with the vaccine rollout across PACE on a very aggressive rate right now. I think that, it's very reasonable to assume that we get back to that 25% growth rate in the second half of the year, which is very much in line with what we saw pre-COVID for the entire business.

[Stephanie Davis:]

And so more of a step function kind of then a gradual ramp and then exiting then is at 25% growth more normalized?

[Brian Adams:]

Yes, that's what we believe. You know 25% on a more normalized basis. So in past years, at least over the past couple, it's been a little bit more lumpy throughout the year and our target is to have more predictable sequential growth and the types of organizations that Kevin and his team are targeting right now, as he was describing earlier can launch at any point throughout the year. So we're not held to that Medicare calendar-year timeframe. It's we do have the ability to launch those programs, and there's been a couple of wins recently that'll help us to meet those goals going into Q3.

[Stephanie Davis:]

Perfect. That's super helpful. Thank you guys.

[Brian Adams:]

Sure.

[Kevin Boesen:]

Thanks Stephanie.

[Operator:]

At this time there are no further questions. This does conclude today's conference call. Thank you for your participation. You may now disconnect.