Tabula Rasa HealthCare, Inc.

Good day and thank you for standing by. Welcome to the first quarter 2023 Tabula Rasa Healthcare, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Frank Sparacino.

Good morning. This is Frank Sparacino, SVP of Investor Relations and Corporate Development for Tabula Lata Healthcare. As we start, I want to make clear that certain statements we make during this call about the company's future plans, prospects, and expectations constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, which should be considered in conjunction with the cautionary statements contained in our earnings release and in our most recent annual report on Form 10-K, filed on March 10, 2023, which is available under the heading Financial Reports in the Investors section of our website. tabularasahealthcare.com. While we may elect to update such forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. When we discuss our results on this call, unless indicated otherwise, we are referring to results from continuing operations, For additional information on our results from discontinued operations, please refer to the financial statements contained in the earnings release issued on May 8, 2023, and the notes to the financial statements indicated in our 10-K for 2022. Also during this call, we will be referring to certain financial measures not prepared in accordance with GAAP. A reconciliation of those non-GAAP financial measures to the most directly comparable GAAP measure is available in the press release of our first quarter 2023 earnings and also available under the heading Press Releases in the newsroom section of our website. A recording of this call is accessible through a link on the investor relations page of our website. I will now turn the call over to Brian Adams, President and CEO of Tabula Rasa Healthcare. Thanks, Frank. Good morning and thank you all for joining us. As you saw from our release, we've had a great start to 2023. top line, we had revenue growth of 32% and adjusted EBITDA growth of 337% compared to first quarter 2022. These numbers represent one of the highest levels of organic growth we have generated as a public company. With the divestitures of DOSNI and Symfony RX completed during the first quarter of 2023 behind us, we are focused on executing on our longer-term strategic objectives. and continuing to drive profitable growth and improved cash flow over the coming years. I want to take a few minutes to talk about how we're going to continue to do that with an update on three specific areas. One, the PACE market. Two, our commercial sales organization. And then three, a sales update. I'll start with PACE, our primary market today. PACE is arguably the most successful example of value-based care and has demonstrated material reductions in hospitalization rates, ER utilization, and health care costs compared to those individuals in long-term care settings. Recently, Senator Ron Wyden, chairman of the Senate Finance Committee, was quoted saying, dollar for dollar, PACE is the best care possible. In late March, I attended the National PACE Association Spring Policy Forum with some of our teams. One statistic that stood out to me was that the PACE model has been around for roughly 50 years. Over that timeframe, approximately 150 PACE organizations have opened. Now, over the next 24 months, we estimate that another 50 PACE organizations will open, representing the foundation for accelerated growth. Given that there are more than 2 million individuals currently eligible to participate in states offering PACE, and penetration is less than 5%, This expansion is desperately needed to support these vulnerable seniors. Also, in March of this year, a key advisory committee to Health and Human Services Secretary Javier Becerra endorsed the expansion of PACE for older adults residing in rural areas. As part of the report by the National Advisory Committee on Rural Health and Human Services, eight policy recommendations were delivered. A few of these include supporting a PACE pilot focused on Medicare-only beneficiaries, which comprise less than 1% of PACE participants nationwide today, administrative flexibility to support multiple PACE applications simultaneously and allow PACE sites to have an expedited approval process for expansion to new service areas, and partnerships with critical access hospitals to leverage existing facilities. In comparison to urban areas, rural areas have a higher prevalence of adults with multiple chronic conditions. 21% or 2.6 million dual eligible individuals live in rural areas. Advancing health equity to focus on underserved populations is a key CMS strategic objective. We are working with a number of PACE centers serving rural America today. In summary, we at Tabula Rasa believe there is significant opportunity to not only drive continued organic revenue growth, but to make a profoundly positive impact on the lives of the individual eligible for this service, especially in rural areas of this country. Now onto priority number two, our commercial sales organizations. During our last call, I talked about our efforts to build a best-in-class commercial sales organization for profitable, scalable growth inside and outside of patients. To support those efforts, we've implemented a voice of the customer program in 2023 to capture client feedback, to enhance our support, product roadmap, and ultimately our client relationships and retention. Also during the first quarter, we held our 2023 sales kickoff meeting, which allowed our team members to gather and participate in a number of sessions covering areas such as strategy, product training, sales, and account planning, and social media. The meeting was key to establishing alignment between all parties of Tabula Rasa that touch our go-to-market approach. These initiatives, along with our renewed focus on our core value-based care markets, have contributed to a number of notable wins. I'd like to highlight a couple as part of the sales update. We had a recent win with a seven-figure expansion contract with an existing PACE client in Virginia, This client adopted our PBM and pharmacy services, allowing us to displace their legacy provider, and is a great example of our continued cross-selling efforts. We continue to see significant opportunities drive the greater adoption of our solutions in PACE, and our focus on these efforts has resulted in the average revenue per PACE participant increasing 22% versus a year ago to $523. Another recent win from the quarter was a contract secured outside of PACE with a Medicare-focused provider group serving rural America for our risk adjustment services, which represents one of our strongest growth areas inside and outside of PACE. This further supports our strategy to target senior-focused at-risk providers. In addition, we continue to see growth in our backlog during the quarter, which increased more than $6 million to $84 million on a sequential basis versus the end of 2022. We've previously highlighted the growing presence of for-profit operators, such as WellBe Health, a longtime TRHC partner, as a positive influence on the awareness and future growth of PACE. This trend is evident in our backlog as for-profit operators represented 38% of pharmacy services backlog at the end of the quarter. And pharmacy services accounts for the majority of our overall backlog. I'm proud of the work our sales and account management teams are doing. They've built great relationships with our existing clients and are ensuring prospects understand the value of our solutions. I will now turn the call over to Tom to review our financial performance. Tom?

Thank you, Brian, and good morning, everyone. I will focus my comments on three areas. First quarter results, key operational metrics, and our updated 2023 guidance. First quarter revenue of $88.3 million increased 32% versus the year-ago quarter, comprised of medication revenue growth of 35% and technology-enabled solutions revenue growth of 21%. Medication revenue growth was primarily attributable to continued strong year-over-year PACE participant growth and higher revenue per PACE participant as seen in the operational metrics disclosed in our earnings press release. Technology-enabled solutions growth was led by our PBM and risk adjustment services. Our revenue outperformance during the first quarter was driven primarily by two factors. Higher than expected drug price inflation and an increase in pharmacy capacity due to staffing and automation, which will be important in meeting customer demand inherent in the growth we're experiencing. Adjusted gross margin as a percentage of revenue was 24.1% for the first quarter, up 30 basis points from 23.8% a year ago. Medication adjusted gross margin of 23% increased versus 22.8% a year ago, and technology-enabled solutions gross margin of 27.9% increased versus 26.7% a year ago. A gap net loss for the quarter of $7.1 million compares to a net loss of $20.4 million a year ago. Adjusted EBITDA of $4.7 million from continuing operations for the quarter increased from $1.1 million a year ago. A strong revenue growth combined with disciplined cost management has helped improve profitability. Our adjusted EBITDA margin for the first quarter was 5.4%, which represented a nearly 380 basis point improvement versus a year ago and 40 basis points on a sequential basis versus the fourth quarter of 2022. With respect to our key operational metrics, there are three numbers I would like to highlight. PACE medication census, PACE average revenue per participant per month for medication, and PACE average revenue per participant per month for technology-enabled solutions. Our PACE medication census during the first quarter of 2023 increased 18% versus a year ago, about two-thirds of which was driven by same-center participant growth. Our PACE average revenue per participant per month for medication increased 14% to $1,110 during the first quarter of 2023. Our PACE technology-enabled solutions census increased 8% a year ago, and our PACE average revenue per participant per month for technology-enabled solutions increased 10% to $98 during the first quarter of 2023. Our PACE average revenue per participant per month, in aggregate, increased 22% to $523 during the first quarter of 2023. As Brian indicated, the biggest driver of that growth was cross-selling pharmacy services to our technology-enabled solutions clients. As a reminder, last quarter we noted that if a client used all of our PACE services, we would expect the average revenue for PACE participants per month to approximate $1,200. As of the first quarter of 2023, We have more than 20% of our participants at or above this figure. Turning to guidance, we are introducing second quarter 2023 guidance, and we are increasing the previously provided full year 2023 revenue and adjusted EBITDA guidance. We feel comfortable increasing our guidance due to our renewed focus and the consistent execution of our financial and strategic objectives demonstrated over the last four quarters. Second quarter revenue from continuing operations of $88 million to $90 million represents growth of 23% versus a year ago at the midpoint of the range. Adjusted EBITDA of $3.5 million to $4.5 million represents growth of 94% versus a year ago at the midpoint. Second quarter revenue guidance reflects the off-boarding of a client who joined us temporarily in the second half of 2022 while they transitioned to a long-planned in-house pharmacy solution. And as I highlighted during our last earnings call, the second quarter adjusted EBITDA is negatively impacted by annual salary increases versus the first quarter of 2023. For the full year 2023, revenue from continuing operations of $355 million to $365 million represents growth of 20% at the midpoint. Adjusted EBITDA of $19 million to $22 million represents growth of 120% at the midpoint and an adjusted EBITDA margin of 5.7%, which compares with 3.1% for 2022. As I noted during our last earnings call, we expect revenue growth comparisons in the first half of the year to be higher than the second half due to the onboarding of a significant number of new participants in the second half of 2022. I will now turn the call back to Brian for some concluding remarks.