Tabula Rasa HealthCare Inc (TRHC) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2020 Tabula Rasa HealthCare, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to your host, Mr. Kevin Dill.

Thank you, and good morning. 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 10-K. 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.

I'll turn the call over to Dr. Calvin Knowlton, CEO, Chairman and Founder of Tabula Rasa HealthCare.

Good morning, and thank you for joining us for our fourth quarter 2020 earnings call. In addition to Dr. Dill with me today or Dr. Orsula Knowlton, Co-Founder, Chief Marketing and 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 finish to 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 4 areas, as reflected on Slide 3: PACE; Pharmacist provider and PrescribeWellness; third, 2021 & 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 a death rate of 3.1% for 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 2 weeks of February in terms of less new viral cases and less deaths.

Again, we believe this trend will hold as our PACE members receive vaccination in the coming weeks and months as enrollment continues along with the opening of new PACE centers. In fact, we are starting to see good progress with vaccinations in PACE organizations throughout the United States. As an example, in California, where a new COVID-19 vaccination site designed specifically for the community's most vulnerable seniors opened on February 11 at West PACE in San Diego County with a goal of vaccinating 500 or more seniors per day.

The second topic is pharmacist. The pandemic has emphasized the critical role pharmacists play and the even larger influence pharmacists will have in primary care as part of long-term movement toward value-based care.

In the short term, our PrescribeWellness network of pharmacies is contributing to the nationwide effort to vaccinate Americans. And as of February 11, PrescribeWellness has administered more than 0.5 million COVID-19 vaccinations across nearly 2,000 pharmacies. Pharmacies are leveraging PrescribeWellness contactless registration forms and integrations that we have with state vaccine databases.

In early February, to accelerate vaccination efforts, the Biden administration announced the launch of the Federal Retail Pharmacy Program, a private partnership with 21 national pharmacy partners and networks of independent community pharmacies representing 40,000 pharmacy locations nationwide. Among those participating pharmacies are a number of PrescribeWellness clients such as H-E-B, CPESN network and Health Mart.

The third area I'd like to discuss shortly is some of our key investment and growth initiatives in 2021 and beyond. As highlighted in our press release, we had a strong sales year, led by our health plan payer division. Given the wealth of opportunities in our existing and new markets, we plan to aggressively invest in sales and marketing: first, by growing our sales force headcount by more than 50% in 2021; and second, by expanding our marketing initiatives involving enhanced digital marketing efforts, an adverse drug event thought leadership campaign and MedWise campaigns targeting health plans and pharmacists.

Examples of 5 new or emerging markets, we plan to further penetrate in the years ahead are: first, large self-funded employer groups; second, pharma, using our unique multidrug simulation platform; third, at-risk provider groups; fourth, the broader Medicare market, including MA plans; fifth, state government Medicaid programs.

In fact, as part of his annual budget address yesterday on Tuesday, February 23, New Jersey Governor, Murphy announced his administration is supporting current legislation that will apply a risk reduction model to prescription drug services under the Medicaid program. This is the legislation that recently passed unanimously in the New Jersey Senate and now waits for the New Jersey Assembly.

We have similarly exciting new opportunities that have recently closed or are in our sales pipeline and more on these initiatives in the coming months. Dr. Celynda Tadlock, one of our recent senior executives, who joined our team is playing an integral role in enterprise cross-selling. Within our PACE membership base, we have an enormous opportunity to cross-sell our 5 core solutions, led by our bundled medication science offering and comprehensive pharmacy fulfillment.

These offerings, for example, at the end of 2021, were adopted by just 35% of our base of nearly 45,000 PACE participants, providing us with significant opportunity for continued market share expansion. Fourth, I wanted to share some of the major accomplishments from our research and development team. We had a record year in 2020 with 47 publications in peer-reviewed journals, which is more than the prior 2 years combined along with 353 citations in these papers.

Looking to 2021, we have some exciting new research, peer-reviewed publications underway, including in 6 different categories: first, the association of our MedWise risk score predicting premature mortality; second, a number of EMTM focused articles showing the significant savings we scored on the cohort of patients with whom we intervened; third, proven outcomes of one of our large self-insured employer groups; fourth, pharmacist-driven interventions for patient outcomes focused on payers; fifth pharmacogenomics effective applications in opioid prescribing; and sixth, a robust multidrug simultaneous medication regimen simulation for pharma, as I mentioned previously.

With that, I now will turn it over to Brian.

Thanks, Cal. I'm going to focus my comments on our 2021 outlook, but first, I 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. For the full year 2021, we're introducing formal guidance as follows: total revenue in the range of $336 million to $356 million, the midpoint of which represents 16% growth. Our growth rate in the first quarter and first half of 2021 is depressed due to PACE census and client attrition discussed in more detail in a moment.

We expect our growth rate to improve significantly in the second half of 2021 and return to the historical levels we've experienced pre-COVID as these trends begin to subside. Non-GAAP adjusted EBITDA in the range of $26 million to $32 million, the midpoint of which represents 33% growth or 2x the rate of growth for revenue and a margin of 8.4% or 110 basis point improvement over 2020. Our profitability in the first quarter marks the low watermark for 2021 and is impacted by the modest revenue growth and higher cost structure coming into the year to support our growth plans.

Our press release on Slide 6 provides the building blocks behind our revenue guidance relative to when we spoke in November, there are 2 notable changes: First, as Cal touched on, is the resurgence of COVID-19 in late 2020 and early 2021. While our overall enrollment rates remain extremely strong across all of our PACE clients, we did see higher death rates in January and February, resulting in negative net enrollment for both months. Recent data from the National PACE Association has shown a progressive decline in death rates over the past 4 weeks, something that we have also seen in our client data. We're encouraged by these recent trends and expected to return to a more normal growth rate by the second half of 2021 as vaccines become more widespread.

Second, as noted in our earnings release, we did have some client attrition representing about 5% of revenue, primarily related to 1 customer. While this will have a more pronounced impact on the first half of the year, we expect to more than offset these losses with the significant expansions we are seeing at several key accounts secured in 2020 as well as incremental sales contracts secured by our growing sales team.

And with that, I'll turn it back over to Dr. Knowlton for closing comments. Cal?

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, please open the call for question and answer.

(Operator Instructions)

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

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?

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 have 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 a 400% growth over the last year in 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.

Okay. 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, '19 or '20? 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?

Yes. Thanks, Ryan. That's a good question. We based our forecast on 2021, which -- or excuse me, on 2020, which is relatively conservative, looking at the conversion rates by our existing sales infrastructure and then roll that forward with the incremental headcount that we've onboarded at the end of 2020 to 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 rates as our baseline, which we think is likely conservative.

Our next question comes from Glen Santangelo with Guggenheim Securities.

Brian, I also want 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 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 expected to be growth kind of more normalized in the second half of the year. And I guess I just want to try to 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?

Yes, good questions, Glen. And I'll probably end up tag-teaming this with Kevin. But as you think about the -- and I was 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 a 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 rate 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?

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 there was in 2020 comparatively. So some of the services where we were providing medication adherence support aligned with our MedWise time of day dosing slowed as the pandemic hit at the early part of the year, and patients were allowed extra fills, 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.

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

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 of the 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 year? Is this January-centric stuff? Or is this stuff that can kind of launch intra-year?

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 PACE 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 a 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 midyear. And then other services, I mentioned adherence services that we can implement throughout the year as well.

Okay. 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, are you assuming some kind of stabilization? And then the back half, does 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?

This is Cal. Yes. We had -- January showed a negative net for us because of the tremendous amount of deaths. But yet, we still had over 300, 350 new admissions and the same in February. February was about 10% of 90% less deaths than we had in 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.

Yes. 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 time frame of about 1% per month.

Your next question comes from Sean Wieland with Piper Sandler.

Piper Sandler, pretty close. So you mentioned you're going after some new markets next year. Large self-funded employer groups, at-risk providers, Medicare Advantage, state Medicaid programs (inaudible). Can you just maybe talk a little bit about your go-to-market strategy in these areas, where the area focus is? And within your guidance that you outlaid, what some of your underlying assumptions are with respect to these new markets?

I'll -- this is Kevin. Thanks for the question. I'll address some of the go-to-market in the areas that we 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 thing is that leveraging our PACE assets, so we typically thought about Tabula Rasa as our health plan side and our PACE side. But there's a lot of new assets and things that we have on the PACE 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 start-up 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 risk 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 is those health systems have to take risk relative to the same things that the Medicare Advantage companies are looking for, really supporting them in a population health strategy and helping manage that through appropriate medication use. And then I know we spend a little bit of time talking about our state strategy, looking at the Medicaid programs and really modeling the work that we're doing in New Jersey.

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

So Sean, today, the majority of our guidance is focused on the commercial Medicare, 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 at-risk providers at this point. So those are just emerging opportunities. I would say it's pretty much immaterial for 2021.

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

Not necessarily. I think they 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 pharmacists themselves in the initial vaccine and then the follow-up vaccine administration, the vaccines themselves are covered by health care systems.

I think there's also -- Sean, there's also in order to access our state vaccine databases and 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 it's -- there is revenue on them.

Yes, absolutely.

Your next question is from David Grossman with Stifel.

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 person 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?

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 health care 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 health care. 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 were just 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 that 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 that?

Sure. That's a great comment, too. So heading into 2020, we had primarily regional-based director-level salespeople with the intent of really driving that lead generation through a number of -- we have planned to attend probably 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, in the health plan space, so really understanding benefit design and where these opportunities are. So we transitioned in 2020 to a higher-level salesperson, and we're starting to see the benefits of that.

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

All right. Great. And just one more question, if I may, just on the guidance. The '21 guide is in the 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, that you feel you have strong visibility on the low end of the range today? Or -- and if not, what are the components of the guide that remain 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 just have a pretty good read on that today.

Yes, David, we feel very good about the low end of the range, especially what we've seen happen throughout 2020 with PACE census. I mean there was a little bit of a stall as the pandemic emerged in the spring time frame, 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 4 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.

And is -- just if you could remind me, was the opening of PACE centers delayed significantly in 2020 as a result of the pandemic? And I'm 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 it certainly will impact 2022.

Well, there were some delays, but they were not significant. The programs that we're 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.

(Operator Instructions)

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

So, 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 readthroughs relative to prioritization of the MTM program or is this a company-specific or competitive takeaway sort of the situation?

Yes, Stephanie, that's a good question. It's good to talk to you. This is Kevin. I'll address that. We -- regarding the client, we did decide, we did not renew the MTM contract with them, which did not sever all relationships with them. So there are programs that we'll be supporting. We see from time to time that plans look to outsource, insource 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 health care 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 the 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 we're confident in terms of where we are today.

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

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 2 things are primarily what are depressing the numbers in the first quarter as we come in. Kevin and the team have done a phenomenal job 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, 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.

And so -- and more of a step function kind of than a gradual ramp and then exiting then, is that 25% growth more normalized?

Yes. That's what we believe. 25% on a more normalized basis. So the -- in past years, the -- 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 Kev -- 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 time frame. It's -- we do have the ability to launch those programs, and there's been a couple of wins recently that will help us to meet those goals going into Q3.

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