Tabula Rasa HealthCare, Inc.
Q3 2019 Earnings Call Transcript

Published: 9 Nov 2019

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2019 Tabula Rasa HealthCare, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. If you require any further assistance, please press star, then zero. I would now like to hand the conference over to your speaker today, Kevin Dill. Thank you. Please go ahead.

[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.These risks and uncertainties include the developing nature of the market for technology-enabled healthcare products and services and potential changes to laws and regulations that may impact our clients. For additional information on the risks facing Tabula Rasa HealthCare, please refer to our filings with the SEC, including the Risk Factors section of our most recent Form 10-K filed with the SEC on March 1, 2019.A recording of this call is accessible through a link on the Investor Relations page of our website, and it will be available for 90 days. Now, I’ll turn the call over to Dr. Calvin Knowlton, CEO, Chairman and Founder of Tabula Rasa HealthCare. Cal?

[Calvin Knowlton:]

Thank you, Kevin. Good evening. Thank you for joining us for our third quarter 2019 earnings call. With me today are Dr. Orsula Knowlton, Co-Founder, Chief Marketing and Business Development Officer, who will provide an update on our markets and new business activities; and Mr. Brian Adams, our Chief Financial Officer, who will provide our financial update on the third quarter as well as our latest outlook for year-end 2019.Tabula Rasa has delivered solid financial and operational performance to date in 2019. Strength in our core business and cohesion of our recent acquisitions gives us confidence in closing out the year on a high note.While we’ve experienced a number of successes in the quarter, I do want to take a moment to call out that we are trimming our guidance range as a direct result of the abrupt termination of a medication adherence star contract during the third quarter. We had announced this contract earlier in the year and anticipated the majority of the work to be completed in the third and fourth quarters. We continue to be engaged by this client for MTM and DoseMe Rx software, but due to their recent merger and change in management, the client terminated all adherence work, not just that being performed by TRHC.This was a one-time agreement and not our core business offering. While this is an unfortunate event, it should not be interpreted as a weakness in our core business. We continue to see demand building for our novel solutions, which we will cover in more detail throughout the call. Brian will discuss this further, including the specific impact of this cancellation.With that said, our third quarter revenue was $74.3 million, representing a 36% growth over Q3 2018, and our adjusted EBITDA was $10.6 million, representing a 13% growth compared to third quarter 2018. As a result of our recent reorganization process, we now think about our company in terms of four distinct business units

[Orsula Knowlton:]

Thank you, Cal. I’d like to add to what was just presented from a new business perspective, provide an update regarding our PACE market, and share more about our sales team.Starting with our health plan payer market, as Cal alluded, we are pleased with the number of firsts this quarter. These include our first managed Medicaid program using our EMTM model. Magellan currently utilizes SinfoniaRx’s MTM solution. Supporting the SinfoniaRx acquisition’s thesis, this represents our first existing SinfoniaRx MTM customer to transition to our robust MedWise platform.Second, we have our first national health plan that will be using our optimized opioid solution program, which is in process; third, our first MedWise risk stratification and medication risk mitigation collaboration for a commercial population with a top national PBM to begin during the first quarter; four, our first MedWise SAAS model license to a 340(b) organization, which is also in process; and five, our first national electronic health record client, Cerner, to pilot MedWise as a SAAS model in their four large employee health clinics. That’s five firsts which we will leverage for growth in 2020.In addition, we have interest from pharmacies, including a national pharmacy, to incorporate TRHC’s MedWise medication risk mitigation system with their system of reminder packaging to assure medication safety. This will also be a first.As you may have read, I wanted to mention that our partner, Remedy Holdings, in its new division, Humanis Rx, recently launched SinfoniaRx’s Rx companion software to the employer market in Canada under an exclusive agreement. We are excited to begin these firsts.Moving on to PACE, the National PACE Association Annual Meeting was held October 13th through the 16th in New Orleans. As Cal mentioned, TRHC’s PACE companies are now united under our CareVention HealthCare PACE brand. The combined solution includes TRHC’s medication risk management, electronic health record, third-party administration, Medicare risk adjustment, and PACE consulting. In addition to multiple new business and client meetings, our annual PACE Appreciation Event attracted over 200 attendees.An Association update outlined that there are 130 PACE organizations in 31 states as of September 1. States with the largest number of providers include California, Michigan, North Carolina and Pennsylvania. As of January 1, 2019, PACE has grown to over 50,000 participants, a 43% compounded annual growth rate over the last five years.A survey conducted by the National PACE Association identified that PACE leaders remain consistently confident over time about their growth prospects, and their fiscal health ratings are the highest in four years. A PACE client that was recently featured in the October issue of Health IT News was quoted to say that TRHC’s technology platform and pharmacist collaboration was directly related to a 16% decrease in ER use and a 27% decrease in total hospitalization, which were realized within a short timeframe; also that Tabula Rasa HealthCare has added tremendous value to our organization.We were very pleased that our clients are acknowledging the value of TRHC as a partner and believe that we are directly impacting the quality and financial stability of PACE organizations in support of their growth. Approximately 85% of PACE providers use at least one TRHC service, but less than 20% use all four core service offerings. The goal of combining these solutions is for ease of use by clients, integrating our service offering, and, in the future, data analytics.Cross-selling amongst the CareVention HealthCare companies accounted for approximately $15 million of revenue in the first nine months of 2019, which is ahead of expectations. We cross-sold into 20 of our PACE customers so far this year. For medication risk management, our pipeline includes Welby Health PACE, one of the first private equity-backed for-profit PACE organizations focused on consistent growth of PACE in the United States. Their Stockton, California location, which is a partnership with Sutter Health, will begin with our medication risk mitigation services on December 1, followed by their Pasadena location on January 1, along with their third and fourth locations in March and July of 2020.We will begin 2020 strong with three new PACE clients, including Welby, along with two startups located in South Bend, Indiana and Jacksonville, Florida. Our client expansion pipeline for 2020 is exciting, with two startups, two starting on January 1. Over 15 planned openings so far using multiple CareVention Healthcare service lines. This is the greatest visibility we have ever had into a new year with signed agreements.As a final note, I’d like to expand on TRHC’s sales team formation efforts, led by Dr. Kevin Boesen, Chief Sales Officer. In order to support our growth and fully capitalize on the opportunities in the market, we focused on leveraging a sales team in the company. To give you additional perspective, we started 2019 with just a few direct salespeople. Today, we have over 30 on the sales team, including 20 inside sales for the pharmacist, provider, PrescribeWellness market, eight payer sales for SinfoniaRx, and an ongoing effort by the teams of CareVention HealthCare to cross-sell in PACE.Other sales team members cover chain pharmacies, pharma, and sales operations. We believe that we have made the appropriate additions and changes to our sales structure to maximize their efforts and continue to grow our organization.To conclude my remarks, we have a pandemic of simultaneous multi-drug regimens that cause adverse drug events. TRHC has a unique and proprietary offering with documented outcomes, a real sales team, robust pipeline, and strategy to have a positive impact on the situation.I’d like to now turn it over to our Chief Financial Officer, Brian Adams. Brian?

[Brian Adams:]

Thank you, Orsula. During the third quarter, we saw continued top line growth in all areas of our business, as well as expanding gross margins. A few highlights from the quarter include our PACE business growing organically 23%; the expansion of our call center support of the growing virtual pharmacist offering targeted for our pharmacy customers, which provoked the opening of our ninth call center at Drake University; and DoseMe continues to grow, including signing a national deal for infusion centers owned by one of our main MTM customers, a nice evidence of our cross-selling efforts.Before I get into the details of the quarter, I wanted to touch on the contract cancellation that Cal referenced earlier. We had previously announced a new adherence contract with one of our MTM customers. We expected that contract to generate approximately $10 million of revenue in 2019 and contribute $4 million to $5 million of adjusted EBITDA. The majority of this work was to take place in the third and fourth quarter. The contract was canceled during the third quarter, and, at that time the contract was canceled, we had generated about $2 million of revenue. We were expecting another $2 million in third quarter, and $6 million in the fourth quarter. As a result, we are adjusting our guidance accordingly.Now, turning to financial results, for the third quarter of 2019, we generated total revenue of $74.3 million, an increase of 36% compared to a year ago. Product revenue of $35 million increased 25% year-over-year and represented 47% of total revenue as compared to 52% last year, a purposeful decline we expect to continue in the near-term.Service revenue of $39.3 million increased 49%. The strong year-over-year growth in our service revenue was driven by both contributions from acquisitions as well as organic growth within our service offerings. Gross margin, excluding depreciation and amortization expense in the third quarter of 37.5% compared to 35.6% in the third quarter of last year.The increase was primarily the result of the continued shift in our revenue mix, as service revenue comprises a greater percentage of total revenue compared to last year. In particular, SAAS revenue now makes up 18% of our revenue base compared to 4% last year. We plan to continue focusing on diversifying our revenue streams in order to meet our long-term gross margin target of 40% to 45%.Product gross margin, excluding depreciation and amortization, was 26% in the third quarter compared to 25% in the third quarter of last year. As we expected, we are seeing a modest uplift in margins as the result of our recent transition to a new prime vendor. Service gross margin, excluding depreciation and amortization, was 48% compared to 47% a year ago. The increase in service gross margin resulted from the PrescribeWellness acquisition completed earlier this year.Operating expenses as a percentage of total revenue were 48% in the quarter. When you exclude depreciation, amortization, stock compensation and the impact of the change in fair value to the acquisition-related contingent consideration, operating expenses would have represented 24% of total revenue in the quarter, up from 20% in the third quarter of last year. The increase is in line with our expectations and reflects expenses associated with the launch of our Precision Pharmacotherapy Research and Development Institute, investments we are making to integrate recent acquisitions, as well as build out our sales infrastructure.As previously stated, we expect improvement in our operating leverage to begin to materialize over the next two to three years as we capitalize on expanding our sales force, executing on synergies resulting from the acquisitions, and continuing to integrate our platforms and infrastructure.In terms of adjusted EBITDA, we generated $10.6 million in the quarter compared to $9.3 million a year ago. Adjusted EBITDA margin for the third quarter of 2019 was 14.2% compared to 17% in the third quarter of last year. This was in line with our expectations based on investments I just reviewed. Research and development costs, excluding stock compensation, increased 5.2% of revenue compared to 4.5% last year.Additionally, sales and marketing costs, excluding stock compensation, were 7.7% of revenue compared to 4.2% last year. This is not only reflective of some of our recent investments to build out the sales infrastructure, but also includes costs related to an intense conference quarter for our pharmacist business unit.Our GAAP net loss of $8.1 million compared to a GAAP net income of $10.4 million in the third quarter of 2018. GAAP net loss per diluted share for the third quarter was $0.39 compared to GAAP net income per diluted share of $0.47 for the same period last year. The net loss per diluted share calculation are based on diluted share count of $20.7 million for the third quarter of 2019 versus $22.3 million for the third quarter of 2018.Adjusted net income per diluted share for the third quarter of 2019 was $0.22 compared to adjusted net income per diluted share of $0.26 in the third quarter of 2018. Net income per diluted share calculations are based on a diluted share count of 23.1 million for the third quarter 2019 versus 22.3 million for the third quarter 2018.Turning to the balance sheet, as of September 30, 2019, we had $47.3 million of unrestricted cash compared to $20.3 million at the end of 2018. We currently have $60 million available on our line of credit with nothing drawn.To wrap up my comments today, I will provide an initial outlook for the fourth quarter and an update to our full-year expectations. For the fourth quarter of 2019, we anticipate revenue to be in the range of $71 million to $74 million; adjusted EBITDA to be in the range of $6 million to $7 million; and net loss to be in the range of $12 million to $11 million. As I stated earlier, the majority of the impact from the loss of the adherence contract will occur during the fourth quarter and, as a result, we have trimmed our guidance to reflect the cancellation.For the full year 2019, we’re updating our outlook as follows. We anticipate total revenue to be in the range of $282 million to $285 million; adjusted EBITDA to be in the range of $36 million to $37 million. As we have discussed in the past, we are expecting full-year adjusted EBITDA margins to be slightly behind 2018’s margin due to expected losses in 2019 attributable to the DoseMe business as well as costs related to the launch of Precision Pharmacotherapy Research and Development Institute. And now, factoring in the contract cancellation, we expect adjusted EBITDA margins to be about 2% below 2018.In addition, we expect net loss to be in the range of $38 million to $37 million. This does not include any future adjustments to the contingent consideration for Cognify.Overall, I’m pleased with Tabula Rasa’s performance this quarter despite the contract cancellation. We ended the quarter within our guidance range for both revenue and adjusted EBITDA and beat estimates for EPS. In addition, as we’ve all mentioned, the momentum in the markets we serve is building, and the work we have done to realign and build out the sales force I believe are going to pay dividends in 2020 and beyond.With that, I would like to turn the call back over to Cal for his closing remarks. Cal?

[Calvin Knowlton:]

Thank you, Brian. As I think Orsula, Brian and I have all stressed on this call, we are incredibly pleased with everything Tabula Rasa accomplished thus far in 2019. Now, where we are going, and has been the case every quarter, we could not have delivered these results without the ongoing hard work, strategic vision, and dedication of all of our team members, as well as the trust and collaboration of our clients. We have touched on our sights and tactics for 2020. Certified MedWise concierge pharmacists will gain local traction. Use of our science should begin integrating into hospitals, as well as two yet-to-be-public significant initiatives that are pending.I want to thank you for listening, and sincere thanks to our sophisticated team members who have enabled us to continue to propagate our disruptive MedWise medication safety solution.At this point, Operator, would you please open the call to questions?

[Operator:]

[Operator Instructions] Our first question comes from the line of Ryan Daniels. Your line is now open.

[Jared Haase:]

This is Jared Haase in for Ryan this evening. I guess maybe first, just looking at the guidance, if I look at the midpoint of the new adjusted EBITDA guidance, it looks like margin’s down maybe about 70 basis points or so from the prior guidance range. So just curious why there was kind of that sizable margin carry-through. Was that purely associated with the loss of the adherence contract? Or is there anything else going on there that’s worth noting?

[Brian Adams:]

No, that is the only thing that is impacting our adjustment to guidance at this point. So the loss of that contract is the sole factor.

[Jared Haase:]

And then with your contract structure, is it typical that clients are able to cancel abruptly in this fashion? Or was there a unique, specific provision in place for change of control?

[Brian Adams:]

So with this contract, it’s not like our typical medication therapy management contracts, where we are doing the qualification and developing the population on which we’re going to target interventions. This was one where the client was giving us an estimate early on in the year for the volumes that they expected to pass us for the adherence interventions. And so there was no specific commitment on volumes. It was an understanding at the beginning of the contract. And so they had the ability to terminate and no longer send us opportunities to perform these interventions.I’m going to ask Kevin Boesen if he’s got anything addition that he wants to add there.

[Kevin Boesen:]

Thanks, Brian. Brian covered it well. With these contracts, particularly the ones that are related to adherence with some of the large health plans, there’s an estimate that they’ll make in terms of how many patients they want to target to achieve certain star benchmarks. In some cases, we do have good estimates, good downsize protection, some good guarantees, but in this one we didn’t.

[Brian Adams:]

And just to build – just a couple comments on staffing related to that. During the third quarter, we were able to reposition the staff that was dedicated to this adherence project to focus on the virtual pharmacist support. So while you didn’t see a huge impact in the third quarter, we were not staffing up to support this contract in Q4. So you’re not seeing a huge decrease in our costs in the fourth quarter because we had not staffed up to support this contract in Q4.

[Jared Haase:]

Okay. Great, thank you.

[Operator:]

Next question comes from the line Jamie Stockton. Sir, your line is now open.

[Jamie Stockton:]

Maybe just to follow up on that, Brian, as we think about the cost structure in Q4, is there anything – you just said, hey, we weren’t staffing up a lot for this contract. It seems like there’s going to be some sequential cost growth. So are there specific areas within the income statement that we should be thinking about as kind of capturing that cost growth?

[Brian Adams:]

Yes. So while we weren’t specifically staffing up, or we hadn’t started the process yet to staff up to support the significant effort that was going to be required in the fourth quarter, there is some seasonality in the Sinfonia business. I know we’ve touched on this a little bit in the past. But as you progress throughout the year, the folks that are qualified at this point to receive MTM services are much more difficult to complete the comprehensive medication reviews on.So we don’t have the same leverage that we had earlier in the year. So if you’re looking for a place where you’re going to continue to see consistent costs, it would be in that labor line where we’re going to have a consistent level of people and effort to deliver fewer CMRs in the fourth quarter than we had delivered in the third and second quarter.

[Jamie Stockton:]

And then, some of the PACE commentary that you guys had, I think you said that you’ve got 15 locations already contracted for 2020. Should we think about that as 15 organizations that are all taking kind of the core institutional pharmacy offering? Or is that one of the three or four main offerings that you guys have in the PACE market? And then, maybe my other question on PACE would just be can you give us some sense for the number of locations that you guys are going to end this year with that we should be thinking about that 15 as growing off of from a base standpoint?

[Orsula Knowlton:]

Sure. Thanks, Jamie, for your question. The 15 PACE organizations are for medication therapy management. Because some are startup and we do successfully cross-sell, they could also bring in other services along with them. As far as the number of locations will be about 80 at the end of this year.

[Calvin Knowlton:]

So [indiscernible] 15 are actually starting as CareKinesis with the medication risk mitigation.

[Orsula Knowlton:]

And they may have [indiscernible] services.

[Jamie Stockton:]

Okay, thank you.

[Operator:]

Next question from the line of Sean Wieland. Your line is now open.

[Sean Wieland:]

Thanks. So on this lost client again, I’m just a little confused. You’ve used the word "adherence" to describe pretty much every one of your product lines. I’m guessing this is – to use other lingo, was it MTM client with SinfoniaRx? Is that a right assumption, or not?

[Brian Adams:]

Yes, I’ll take that. So if you look at the Sinfonia business – and thanks for the question and clarification request. But if you look at the MTM programs, there’s two key components to the program. One is doing comprehensive medication reviews for your MTM qualified group. And so that’s our Sinfonia core business. It’s predictable. It’s grown year-over-year, which is great.There is another component to the MTM service which is – we call it adherence because it’s tied to star ratings and star improvement. So if you look at the patients who don’t qualify for an MTM program, so usually about 15% qualify, in order for plans to hit some of their star benchmarks related to the Part D star measures, there’s three different adherence components, so adherence to blood pressure medications, adherence to diabetes medications, and adherence to statin medications, or cholesterol-lowering medications.So that program was specific to doing outreach to patients. As a lot of it, reminder calls to take blood pressure, diabetes, cholesterol meds. So it’s a different component of the MTM program.

[Sean Wieland:]

And so, it doesn’t sound like it was PrescribeWellness then either, right?

[Brian Adams:]

No, correct. It’s on the Sinfonia side, correct.

[Sean Wieland:]

And did you anticipate?

[Kevin Boesen:]

[indiscernible], the other types of contracts that we have that are similar are very minimal, that are structured in the same manner and significantly smaller. So this by far is the largest one that looks like this.

[Sean Wieland:]

And prior to the cancellation, had you anticipated revenue to be generated in 2020 from this contract?

[Brian Adams:]

No. It was a single-year, year-to-year contracts. We hadn’t done any forecasting for 2020 relative to that.

[Sean Wieland:]

And this is going to come out of services revenue?

[Kevin Boesen:]

That’s right.

[Sean Wieland:]

Got it. How much of your services revenue, percentage-wise, are tied to these kind of one-time contracts?

[Kevin Boesen:]

It’s very small. So this was by far the largest. I would say the rest of the service contracts that look like this are – maybe it’s $1 million.

[Brian Adams:]

Yes, in aggregate.

[Sean Wieland:]

Okay, thanks so much.

[Operator:]

Next question comes from the line of Matthew Gillmor. Sir, your line is now open.

[Matthew Gillmor:]

I have one follow-up on this contract. Brian, I think you said you had generated $2 million off of it for 2019. So I just wanted to confirm that, so as we’re thinking about the headwind from it, it’s obviously pretty small for next year. Is that right?

[Brian Adams:]

That’s correct.

[Matthew Gillmor:]

Orsula talked about some of the MedWise contracts with payers, and I think you said Magellan would be using sort of an EMTM-like capabilities for some of their Medicaid populations. I think you also mentioned a national PBM will be using MedWise for commercial population. I was hoping you could talk about how the model’s working with those payers? Is it sort of both services and software, or just software? And then, is there any way to kind of frame up the size of these contracts? Are these pilots that will build? Or are they more meaningful out of the gate? So any details there would be great.

[Kevin Boesen:]

Now, this is Kevin. I’ll take that question. We’re very excited about these programs and the use of MedWise. One of the goals has been to talk to people about the MedWise science, how unique it is, the opportunity for it to truly reduce total cost of care and improve patients' lives.And so, we’re very, very excited to do the first managed Medicaid program with Magellan. It will be a services component. Our goal would be to transition that to more of a software support as we train pharmacists in the geography that those will be in leveraging our PrescribeWellness network. So that’ll launch in Virginia, and then secondarily in Florida. It’s between a $500,000 to $1 million in total contract size.The other programs that we’re excited about in 2020 is a traditional Medicare program that is launching and adding the MedWise component to their traditional MTM model. It’s very similar in terms of it will start as a service contract while we have the opportunity to train and certify their pharmacists to use the technology. So it’ll transition to a SAAS.It’s similar in size, in that $500,000 to $1 million range. And then, the PBM that’s looking to implement the program on the commercial side is very similar in size to that program, as well, in the same type of thing. It’ll be a service model with the goal of transitioning that to a SAAS. So in all those components, the managed Medicaid plan, the Medicare, the commercial, they’re very much interested in measuring reductions in adverse drug events that result in hospitalizations, emergency room visits. So we’re very excited to launch those programs, track that success, and build on it.

[Matthew Gillmor:]

And by service, I take that to mean it’s an EMTM-like model, where you are doing the interventions? And I think what you’re saying is there’s a pathway for the plan to perform the interventions over time. Is that correct?

[Kevin Boesen:]

Correct, exactly. So, initially, it’ll be centrally-based call center pharmacists that will do the interventions with the patients, with a transition to either the health plan pharmacist doing it or our PrescribeWellness network pharmacist completing those.

[Matthew Gillmor:]

And then, Brian, if you could, I know you’re probably not in a position to give formal guidance around 2020, but it sounds like the visibility in the PACE side is pretty good. You’ve got this pipeline with payers. Should we still be thinking about 20% growth as what you’re targeting? Or should we be orienting around something else?

[Brian Adams:]

No. I think that that’s a pretty reasonable expectation at this point. Obviously, we’ll refine that as we get into 2020 and get closer to announcing year-end results. But I think that at this point, that’s an appropriate expectation.

[Matthew Gillmor:]

Okay. Great, thank you.

[Operator:]

Next question from the line of Steve Halper. Your line is now open.

[Steve Halper:]

Two questions. So just as a housekeeping item, what was the organic revenue growth in the quarter? And any update on the EMTM pilot with CMS?

[Brian Adams:]

I can take the organic growth update. Steve, it was just about 20% organic growth in the quarter.

[Calvin Knowlton:]

There was a announcement, Steve, from CMS that came out last week on – it was actually a 170-page document reviewing the EMTM program from the last 2.5 years. But it was very enlightening, and they showed some good stuff, but it was mostly all quantitative.But the very interesting thing about it was that traditional MTM targets or engages about 7.9% of beneficiaries that meet the requirement, whereas EMTM, according to CMS, they found it’s 71.7% beneficiaries were engaged. So it’s been a huge uptick on the number of people that were engaged in this.And it did talk a little bit about Tabula Rasa on one of the pages, back on page 126-127 of the article. But again, it wasn’t quantitatively comparing. It was qualitatively saying here’s what this group did, here’s what this group did.

[Orsula Knowlton:]

Prescriptive.

[Calvin Knowlton:]

Yes, it was prescriptive, yes. And we actually were the only ones that did the prospective medication risk identification and mitigation.

[Steve Halper:]

Great, thanks.

[Operator:]

Thank you. Next question from the line of David Grossman. Sir, your line is now open.

[David Grossman:]

Great, thank you. Just one last question on the contract cancellation. It’s had a fairly significant impact on the margins in the fourth quarter, which brings obviously the year down as well. Again, without necessarily providing a guide for next year, how do you want us to think about the ability for margin expansion next year, particularly given that the base this year is going to be so low? Do you still want that to be the starting point for your target of 150 basis points? Or has that kind of been thrown off by the loss of this contract?

[Brian Adams:]

So I don’t know that I’m ready to respond to that question just yet, but I think at a minimum, you could expect 150 basis points would be my comment.

[David Grossman:]

And then, going into PACE, obviously you had some pretty favorable PACE metrics to disclose this quarter and some new wins. How should we think about the growth of that business? Because I know that the PACE organization itself is expecting an acceleration back to more levels that they saw maybe it was three years ago. Is that realistic? Or do you expect to see that flow through to your business? Or do you think that the wins that you’re getting, given the scale of the business where it is today, just allowed you to sustain the growth rate that you’ve been experiencing?

[Brian Adams:]

I mean, I think right now we would anticipate a slight uptick in growth going into next year based on our current customers and what Orsula was describing earlier with the number of new centers that we have. We’ve forecasted in the past about 20% growth on the PACE side, so I think that that would be consistent with our expectations right now. As we get a little bit more visibility into the growth rates of some of those plans, I think that that might be able to increase a little bit. But I think right now, still comfortable at around 20% growth for PACE.

[David Grossman:]

Got it. And just one last question. Now that the sales force is up to 30 people and you’re reaching critical mass, do you have any metrics to share, for example, on pipeline, advantage Medicaid, or other activities that may give us a sense of just kind of how the pipeline or the backlog’s building and the productivity of those 30 people?

[Kevin Boesen:]

Yes, thanks for that question. So as we put together the – Brian and I worked together on putting the forecast together for 2020. We can probably provide some additional specifics. But we do have a sales team in the payer space that is generating a lot of interest in our core markets, which are Medicare, Medicaid, and then the commercial plans.The pipelines are – if you look at the total market in those areas, it’s quite broad. And with the interest that people are having and really tackling total cost of care and not necessarily chasing metrics, we sit perfectly for that.We’ve given each one of the sales folks a pretty aggressive target, and I think they’re all optimistic that, even though it’s aggressive, the opportunity’s there.

[David Grossman:]

Great, thank you very much.

[Operator:]

Thank you. Next question from the line of Stephanie Demko. Your line is now open.

[Joyce Xiang:]

This is Joyce Xiang for Stephanie. Thanks for taking my question. It sounds like the loss of the contract is due to a change in client strategy. Does that impact how you position your adherence programs, going forward? Specifically, would you be able to – making any tweaks to enhance the value proposition?

[Kevin Boesen:]

Yes. I don’t think with this one case – and that’s a great question – I don’t think in this one case there was anything relative to this that was program-specific, and meaning that I don’t know that anybody thought that the program was ineffective. I don’t know that there’s been any chance in adherence being an important metric for health plans.So I do think it’s just – it’s truly an outlier, even thought it was a pretty large dollar amount. We see it as really an outlier in our business. And like Cal said, it’s not core to what our business is. We do support some adherence programs that community pharmacies run, and those are successful. We don’t anticipate any of those changing.

[Calvin Knowlton:]

I think the other thing – this is Cal – the other thing is that this particular client is undergoing a tremendously large assimilation of another company right now. And if you look at the star ratings they had this year for this client, they’re all less. They’ve achieved less than they did last year. So there really was an incentive for them to continue doing this, but I think they’re just really busy with trying to get this assimilation done on this acquisition. But their star ratings should show that they really should have stayed with it, but I think they made that decision.

[Joyce Xiang:]

And looking to next year, how should we think about your interim revenue growth rate until this contract loss is annualized?

[Brian Adams:]

I would think about it as being consistent with what we’ve communicated in the past. I think a 20% overall growth rate organically for Tabula Rasa is kind of an appropriate place for us to be and thinking about for next year. I don’t think that this contract and cancellation this year would impact that.

[Joyce Xiang:]

Got it. Thank you.

[Operator:]

[Operator Instructions] Next question from the line of Franco Sparacino. Your line is now open.

[Franco Sparacino:]

Hi, guys. I’ll try it to be quick. On Prescribe, is that tracking to plan for 2019, ahead, below?

[Brian Adams:]

This is Brian. Yes, right now they’re tracking exactly where we expected them to be through the first six months or so that we’ve owned [indiscernible].

[Franco Sparacino:]

And secondly, Orsula, you gave a list of a number of new initiatives or contracts in the works. And I’m curious if you could rank-order maybe just the top one or two that you think have the greatest short-term opportunity from a revenue standpoint? It may be from a TAM standpoint, as well.

[Kevin Boesen:]

This is Kevin. Are you asking in terms of the first that she went through, those opportunities?

[Franco Sparacino:]

Yes. I mean, I know the opioid opportunity I think is relatively small, but maybe some of the 340, BEA and some of the other things. So that’d be the first list, Kevin, yes.

[Kevin Boesen:]

Yes. The opportunities on the payer side are the more significant opportunities, so the Medicaid launch, the Medicare launch, and then there’s one that’s pending relative to a new opioid program, so using our medication decision science, the simultaneous multi-drug analysis and opioids and managing that for the large national payer. That’s probably the top three rank. The others where we’re having opportunity to get into the FQHC space, it’s a unique opportunity for us to go into that provider network, but also use an EMR integration that we developed, so that’s more of a smaller opportunity, but creates a good learning experience for us as we work with the centers like that that have innovative clinical pharmacy programs. Oftentimes, they have an onsite pharmacist who’s managing difficult patient populations, oftentimes in a safety net area. And so, coordination of care is critical. And so, being able to be in that market and see how MedWise performs, see how the EMR integration performs is smaller, but very important.

[Orsula Knowlton:]

Yes. I would have to agree, but it’s really hard to say. All of these are first. So one might be – have a greater attraction than another. For instance, on the PBM, our discussions is around their largest commercial health plans, so we’ll look to see where we are. This is almost like a new canvas for us, really.

[Franco Sparacino:]

Great, thank you guys.

[Operator:]

Thank you. I will now turn the call over to speaker. Please continue.

[Calvin Knowlton:]

Well, thank you very much for joining the call. We appreciate that. And with that, I think we’ll say good-night.

[Orsula Knowlton:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you, everyone, for participating. You may now disconnect.