TABULA RASA HEALTHCARE, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited consolidated financial statements and related notes and other financial information included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes thereto for the year endedDecember 31, 2019 , included in our 2019 Form 10-K. Forward-Looking Statements This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as "believe," "will," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "expect," "predict," "could," "potentially" or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, (i) the impacts of the current COVID-19 pandemic and other health epidemics; (ii) our ability to adapt to changes or trends within the market for healthcare in theU.S. ; (iii) a significant increase in competition from a variety of companies in the health care industry; (iv) developments and changes in laws and regulations, including increased regulation of the healthcare industry through legislative action and revised rules and standards; (v) the extent to which we are successful in gaining new long-term relationships with clients or retaining existing clients; (vi) the growth and success of our clients, which is difficult to predict and is subject to factors outside of our control; (vii) our ability to maintain relationships with a specified drug wholesaler; (viii) increasing consolidation in the healthcare industry; (ix) managing our growth effectively; (x) fluctuations in operating results; (xi) failure or disruption of our information technology and security systems; (xii) dependence on our senior management and key employees; (xiii) our future indebtedness and our ability to obtain additional financing, reduce expenses or generate funds when necessary; and (xiv) the risks described in Part I, Item 1A of our 2019 Form 10-K and Part II, Item 1A of this Quarterly Report on Form 10-Q. Forward -looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments, except as required by applicable law. We caution investors that our business and financial performance are subject to substantial risks and uncertainties. Overview We are innovating and redefining the medication safety market, creating solutions designed to empower pharmacists, providers, and patients to optimize medication regimens. Our advanced proprietary technology, MedWise™, identifies the cause of medication-related problems including adverse drug events, so healthcare professionals can minimize harm and reduce medication-related risks. Our software and services help improve patient outcomes, reduce hospitalizations and lower healthcare costs. We also believe we have the most extensive clinical tele-pharmacy network inthe United States . Our suite of solutions is trusted by health plans and pharmacies nationwide to assist them in meeting value-based payment requirements. Our vision and mission are supported by our industry-recognized leadership team, our significant investments and collaborations to advance medication safety-related pharmacotherapy research and its application in clinical practice, and our culture, best captured in the 32 "Fundamentals" known as "The TRHC Way ." We operate our business through two segments,CareVention HealthCare and MedWise HealthCare , which accounted for 71% and 29% of revenue, respectively for the three months endedSeptember 30, 2020 and accounted for 68% and 32% of revenue, respectively for the nine months endedSeptember 30, 2020 . OurCareVention HealthCare segment provides our clients, primarily PACE, with medication fulfillment services, cloud-based software, pharmacy benefit services, and clinical pharmacist services at the point-of-care. OurMedWise HealthCare segment provides our clients with cloud-based pharmacy software and full-service clinical pharmacy programs. Substantially all of our revenue is recognized in theU.S. and substantially all of our long-lived assets are located in the
U.S. 30 Table of Contents Our total revenues for the three and nine months endedSeptember 30, 2020 were$70.5 million and$220.2 million , respectively, compared to$74.3 million and$211.5 million for the three and nine months endedSeptember 30, 2019 , respectively. We incurred a net loss of$21.6 million and net loss of$50.3 million for the three and nine months endedSeptember 30, 2020 , respectively, compared to a net loss of$8.1 million and$25.6 million for the three and nine months endedSeptember 30, 2019 , respectively. Adjusted EBITDA for the three and nine months endedSeptember 30, 2020 was$5.1 million and$17.0 million , respectively, compared to$10.6 million and$29.9 million for the three and nine months endedSeptember 30, 2019 , respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures - Adjusted EBITDA" for our definition of Adjusted EBITDA, why we present Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA. Personica Acquisition
OnOctober 5, 2020 , we completed the acquisition ofPersonica, LLC and its subsidiaries PersonifilRx, Pharmastar, and PersonifilRx New England, a provider of pharmacy services, including 340B and Medicare Part D administration solutions to Programs of All-inclusive Care for the Elderly, or PACE. The purchase price consisted of (i) the payment of$10.0 million in cash consideration, subject to adjustments, (ii) the issuance of 555,555 shares of our common stock, and (iii) the issuance of promissory notes for the payment of (a)$7.5 million in cash within two business days followingJanuary 1, 2021 , (b)$5.5 million in cash within two business days followingApril 1, 2021 , and (c)$4 million in cash within two business days following the dateOctober 5, 2021 . We may set off amounts due under these promissory notes to the extent that we are entitled to indemnification under the agreement or in respect of adjustments to the purchase price.CareVention HealthCare CareVention HealthCare primarily services PACE, which is aCenters for Medicare & Medicaid Services , or CMS, sponsored program providing comprehensive medical and social services to adults age 55 and olderwho need a nursing facility level of care but can live safely in community settings. Our clients include ArchCare Senior Life,Trinity Health , Palm Beach PACE, andSt. Paul's PACE. Within ourCareVention HealthCare segment, we offer our medication fulfillment services, clinical pharmacist services at the point-of-care, cloud-based software, and health plan management services through a number of different brands, including CareKinesis,Capstone Performance Systems , PeakTPA, PersonifilRx, Pharmastar, Mediture, and Cognify. The majority of ourCareVention HealthCare product and service offerings are fortified by our novel and proprietary Medication Risk Mitigation Matrix, or MRM Matrix, designed to increase patient safety, create and promote adherence to individualized medication regimens, and reduce the total medication burden by eliminating unnecessary prescriptions. Our medication fulfillment and reminder packaging services utilize the MRM Matrix technology to reduce medication-related risk for the high-cost, high-risk PACE population.The CareVention HealthCare suite of offerings also includes risk adjustment services, pharmacy benefit services, electronic health records solutions and third-party administration services, which are all specifically tailored to the PACE market.The CareVention HealthCare segment revenue model is based on payments on a per-member per-month, or PMPM, basis, payments on a subscription basis, payments on a transaction basis, and charges and dispensing fees for
medication fulfillment.
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MedWise HealthCare OurMedWise HealthCare segment is primarily comprised of service offerings from our acquisitions of SinfoníaRx inSeptember 2017 and PrescribeWellness inMarch 2019 . As a result of these acquisitions, we are a leading provider of Medication Therapy Management, or MTM, software and services for Medicare, Medicaid, and commercial health plans and also a leading provider of cloud-based patient engagement software and services to more than 15,000 pharmacies nationwide. More than 350 health plans including severalBlue Cross Blue Shield organizations, Express Scripts, Humana, UnitedHealth Group, and WellCare utilize ourMedWise HealthCare solutions to execute a range of clinical programs. These programs support MTM, Enhanced MTM (a five-yearCenter for Medicare & Medicaid Innovation Part D pilot that beganJanuary 1, 2017 ), Medicare Part D Star Ratings, Healthcare Effectiveness Data and Information Set quality measures, and post-hospital discharge care transitions through a combination of our nearly 30,000 PrescribeWellness network pharmacists and/or our clinical tele-pharmacy call centers across the country employing nearly 500 pharmacists. Within ourMedWise HealthCare business unit, we offer our cloud-based software and clinical pharmacist services through a number of different brands, including MedWise, SinfoníaRx, RxCompanion, PrescribeWellness, and DoseMeRx.The MedWise HealthCare segment revenue model is based on payments on a PMPM basis, payments on a subscription basis, and payments on a fee-for-service basis for each clinical intervention. Our Strategy
In early 2020, we articulated a long-term growth strategy based on three key tenets:
Further penetration of the PACE market by leveraging our existing CareVention
HealthCare membership base and cross-selling to increase our average PMPM fee,
1) growth within our existing clients in part due to the acceleration of the
increase enrollment, and continued investments in our offerings to attract new
PACE customers.
Accelerating the adoption of our MedWise software and clinical pharmacy2) programs by health plans across all lines of business, including Medicare,
Medicaid, and commercial clients.
Increasing the number of pharmacists licensing the PrescribeWellness solution
3) set, including the MedWise platform, across our growing pharmacy footprint of
more than 15,000 pharmacies nationwide.
We believe demographic, legislative, and industry trends support our long-term
growth targets. According to data from the U.S. Census Bureau , the number of
Americans age 65 and older is expected to reach 74.1 million by 2030, which will
represent more than one in five Americans. An April 2020 report from the Lown
Institute noted polypharmacy (defined as five or more medications) has reached
"epidemic proportions". The Institute stated that 40% of seniors (age 65+) are
taking five or more prescription medications to treat the growing prevalence of
multiple chronic conditions including heart disease, diabetes, asthma, high
blood pressure, and cancer.
From a legislative perspective, important drivers that will support our growth
are: the long-term transition to value-based care; CMS Medicare Part C and Part
D regulations governing Star Ratings; the ongoing Enhanced MTM pilot, and a
changing pharmacy landscape, including the expanding scope and role of community
pharmacists as highlighted by new state laws, for example, Ohio SB 265, which
recognized pharmacists as providers.
From an industry perspective, we are addressing a large and growing medication
therapy problem, which encompasses adverse drug events, or ADEs, compounded by
the demographic trends described above. In 2018, there were 5.8 billion
prescriptions dispensed in the U.S. per IQVIA Institute , an increase of 2.7%
from 2017. That year, prescriptions for chronic, persistent conditions accounted
for more than two-thirds of the total dispensed prescriptions. Also in 2018, a
review published in the Annals of Pharmacology estimated the annual cost of
prescription-related morbidity and mortality resulting from non-optimized
medication therapy at $528.4 billion including 275,689 deaths per year.
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To supplement our organic growth, we made a total of six acquisitions from the beginning of 2018 throughOctober 2020 , and we continue to evaluate strategic acquisitions across both segments of our business. OurMarch 2019 acquisition of PrescribeWellness allowed us to expand our target markets for ourMedWise HealthCare technology to include 61,800 pharmacy practice settings across America. In addition to enhancing our capacity, PrescribeWellness's pharmacy customers, which are located within five miles of 300 million people in theU.S. , also created a local setting to deliver more clinical programs, such as MTM for our health plan clients. Our acquisitions of Cognify (a provider of electronic health record solutions), Mediture (a provider of electronic health record solutions and third-party administrative services), PeakTPA (a provider of third-party administrative services), and Personica (a provider of pharmacy benefit services) have broadened our portfolio ofCareVention HealthCare solutions to sell to our existing PACE clients. Our PACE clients had a combined patient census of 31,820 at the end of 2019, which represented an increase of 15% from 27,690 at the end of 2018. Key Business Metrics We continually monitor certain corporate metrics, including the following key metrics, that are useful in evaluating and managing our operating performance compared to that of other companies in our industry. Three Months Ended September 30, Change 2020 2019 $ % (Dollars in thousands) Revenues$ 70,506 $ 74,270 $ (3,764) (5) % Net loss (21,589) (8,104) (13,485) (166) Adjusted EBITDA 5,094 10,576 (5,482) (52) Nine Months Ended September 30, Change 2020 2019 $ % (Dollars in thousands) Revenues$ 220,167 $ 211,484 $ 8,683 4 % Net loss (50,336) (25,612) (24,724) (97)
Adjusted EBITDA 17,035 29,919 (12,884) (43)
We monitor the key metrics in the preceding table to help us evaluate trends,
establish budgets, measure the effectiveness and efficiency of our operations,
and gauge our cash generation. We discuss Adjusted EBITDA in more detail in
"Non-GAAP Financial Measures - Adjusted EBITDA." We also monitor revenue
retention rate and client retention rate on an annual basis, which are described
in our 2019 Form 10-K.
Factors Affecting our Future Performance
We believe that our future success will be dependent on many factors, including
our ability to maintain and grow our relationships with existing clients, expand
our client base, continue to enter new markets, and expand our offerings to meet
evolving market needs. While these areas present significant opportunity, they
also present risks that we must manage to ensure successful results. Please
refer to "Item 1A - Risk Factors" in our 2019 Annual Report and this Quarterly
Report on Form 10-Q for a discussion of certain risks and uncertainties that may
impact our future success.
Recent Developments
Corporate Reorganization
Effective January 1, 2020 , in order to facilitate the administration, management
and development of our business and minimize the burden on our tax and
regulatory reporting obligations, we implemented a reorganization pursuant to
which all of our domestic subsidiaries, other than CK Solutions, LLC , merged
with and into our wholly-owned subsidiary CareKinesis, Inc. , which had
previously changed its legal name on December 20, 2019 to TRHC OpCo, Inc. In the
second quarter of 2020, TRHC OpCo, Inc. further changed its name to Tabula Rasa
HealthCare Group, Inc. , or the TRHC Group . Following such reorganization, our
only directly owned subsidiary is TRHC Group , which is the parent of CK
Solutions, LLC , three DoseMe foreign subsidiaries, and, subsequent to the end of
the third quarter of
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2020, Personica. Please see Note 17 in this Quarterly Report on Form 10-Q for additional information regarding the Personica transaction.
COVID-19 Pandemic
OnJanuary 30, 2020 , theWorld Health Organization , or theWHO , announced a global health emergency caused by a new strain of coronavirus originating inWuhan, China , or the COVID-19 outbreak, and the risks to the international community as the virus spreads globally beyond its point of origin. InMarch 2020 , theWHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this Quarterly Report on Form 10-Q. As such, it is uncertain as to the full magnitude of the impact that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation and the ramification on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects that the COVID-19 outbreak may have on our results of operations, financial condition, or liquidity for 2020 or 2021. However, we are dependent on our workforce to sell and deliver our products and services. Developments such as social distancing and shelter-in-place directives could impact our ability to deploy our workforce effectively. These same developments may affect the operations of our suppliers and customers, as their own workforces and operations are disrupted by efforts to curtail the spread of this virus. As a result of the ongoing COVID-19 pandemic, we have experienced challenges with revenue growth. The pandemic has delayed the closing of contracts across both ourCareVention HealthCare and MedWise HealthCare segments and, in some cases, shifted project timelines to 2021, which we believe resulted in fewer new business wins during the first three quarters of 2020. Overall census growth for Programs of All-Inclusive Care for the Elderly ("PACE") has remained below historical levels, which has affected the Company'sCareVention HealthCare segment growth. OurMedWise HealthCare segment also has experienced delays in the timing of implementation and closing of new business and a negative impact from COVID-19 on medication adherence initiatives, which are seasonally weighted toward the second half of the calendar year. However, the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. For example, we have not seen any delays in the scheduled PACE center openings through the third quarter of 2020, and we believe that the current backlog of new extension centers and new PACE organizations under contract to open over the next 12 months could represent in excess of$75 million in annual revenue when the centers are operating at full capacity. We do not yet know the full extent of potential delays or impacts on our business, financing or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely. Components of Our Results of Operations Revenue
Our revenue is derived from our product sales and service activities under ourCareVention HealthCare and MedWise HealthCare segments. For the three months endedSeptember 30, 2020 and 2019, product sales represented 56% and 47% of our total revenue, respectively, and service revenue represented 44% and 53% of our total revenue, respectively. For the nine months endedSeptember 30, 2020 and 2019, product sales represented 53% and 47% of our total revenue, respectively, and service revenue represented 47% and 53% of our total revenue, respectively.CareVention HealthCare PACE Product Revenue
We provide medication fulfillment pharmacy services to PACE organizations, and,
while the majority of medications are routinely filled in order to treat chronic
conditions, the mix and quantity of medications can vary. Revenue from
medication fulfillment services is generally billed monthly and recognized when
medications are delivered and control has passed to the client. At the time of
delivery, we have performed substantially all of our performance obligations
under our client contracts. We do not experience a significant level of returns
or reshipments.
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PACE Solutions
We provide services to PACE organizations, and these services primarily include
medication safety services and health plan management services, which consist of
risk adjustment services, electronic health records solutions, and third party
administration services. Revenue related to these services primarily consists of
a fixed monthly fee assessed based on number of members served, or per member
per month, and subscription fees which are recognized when we satisfy our
performance obligation to stand ready to provide PACE services, which occurs
when our clients have access to the PACE services. We generally bill for PACE
services on a monthly basis as the services are provided.
MedWise HealthCare
Product Revenue
We provide COVID-19 test kits to pharmacies and other clients. Revenue from the sale of these products is generally billed when test kits are shipped and is recognized as we satisfy our performance obligations to deliver the test kits and provide the test results. We do not experience a significant level of returns or reshipments. Medication Safety Services We provide medication safety services, which include identification of high-risk individuals, medication regimen reviews including patient and prescriber counseling, and targeted interventions to increase adherence and close gaps in care. Revenue related to these services primarily consists of per member per month fees and fees for each medication review and assessment completed. Revenue is recognized when we satisfy our performance obligation to stand ready to provide medication safety services, which occurs when our clients have access to the medication safety service, and when medication reviews and assessments are completed. We generally bill for the medication safety services on a monthly basis.
Software Subscription and Services
We provide software as a service, or SaaS, solutions, which allow for the identification of individuals with high medication-related risk, for patient communication and engagement, for documentation of clinical interventions, for optimizing medication therapy, for targeting adherence improvement, and for precision dosing. In addition, we provide implementation and set up assistance services related to the SaaS solutions. Revenues related to these software services primarily consists of monthly subscription fees and are recognized monthly as we meet our performance obligation to provide access to the software. Revenue for implementation and set up services is generally recognized when the services are provided. We generally bill for the software services on a monthly basis.
Cost of Revenue (exclusive of depreciation and amortization)
Product Cost Cost of product revenue includes all costs directly related to the fulfillment and distribution of medications under ourCareVention HealthCare offerings. Costs consist primarily of the purchase price of the prescription medications we dispense. For the three months endedSeptember 30, 2020 and 2019, medication costs represented 80% of our total product costs. For the nine months endedSeptember 30, 2020 and 2019, medication costs represented 79% of our total product costs. In addition to costs incurred to purchase the medications we dispense, other costs include shipping, packaging, expenses associated with operating our medication fulfillment centers, including salaries and related costs, such as stock-based compensation, for personnel, and technology expenses. Such costs also include direct overhead expenses, as well as allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount. 35 Table of Contents Service Cost Cost of service revenue includes all costs directly related to servicing ourCareVention HealthCare and MedWise HealthCare service contracts, which primarily consist of labor costs, including stock-based compensation, outside contractors, and expenses related to supporting our software platforms. Cost of service revenue also includes direct overhead expenses, as well as allocated indirect overhead costs. We allocate indirect overhead costs among functions based on employee headcount.
Research and Development Expenses
Our research and development expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in our research and development functions, which include software engineers and employees engaged in scientific research, healthcare analytics, and the design and development of new scientific algorithms and the enhancement of our software and technology platforms; fees paid to third-party consultants; costs related to quality assurance and testing; and other allocated facility-related overhead and expenses. We capitalize certain costs incurred in connection with obtaining or developing the proprietary software platforms that support our product and service contracts, including third-party contractors and payroll costs for employees directly involved with the software development. Capitalized software development costs are amortized beginning when the software project is substantially complete and the asset is ready for its intended use. Costs incurred during the preliminary project stage and post implementation stage, as well as maintenance and training costs, are expensed as incurred. We continue to focus our research and development efforts on adding new features and applications to increase the functionality and enhance the ease of use of our existing suite of software solutions. We expect our research and development expenses will increase in absolute dollars as we increase our research and development efforts to further strengthen and enhance our software solutions and service offerings, but will decrease as a percentage of revenue in the long term as we expect our revenue to increase at a greater rate than such expenses. Sales and Marketing Expenses
Sales and marketing expenses consist principally of salaries, commissions, bonuses, stock-based compensation and employee benefits for sales and marketing personnel, as well as travel costs related to sales, marketing, and account management activities. Marketing costs also include costs for communication and branding materials, conferences, trade shows, public relations, and allocated overhead.
We expect our sales and marketing expenses to increase in absolute dollars as we strategically invest to grow our sales, account management, and marketing infrastructure as we introduce new products and enter new markets, but decrease as a percentage of revenue in the long term.
General and Administrative Expenses
General and administrative expenses consist principally of employee-related expenses, including salaries, benefits and stock-based compensation, for employeeswho are responsible for information systems, administration, human resources, finance, legal and executive management as well as other corporate expenses associated with these functional areas. General and administrative expenses also include professional fees for legal, consulting and accounting services and allocated overhead. General and administrative expenses are expensed when incurred. We expect that our general and administrative expenses will increase in absolute dollars as we expand our infrastructure and continue to comply with the requirements applicable to public companies, but decrease as a percentage of revenue in the long term.
Change in Fair Value of Acquisition-related Contingent Consideration
We classify our acquisition-related contingent consideration as a liability.
Acquisition-related contingent consideration is subject to remeasurement at each
balance sheet date. Any change in the fair value of such acquisition-related
contingent consideration is reflected in our consolidated statements of
operations as a change in fair value of the
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liability. We adjust the carrying value of the acquisition-related contingent consideration until the contingency is finally determined or final payment
is made.
Depreciation and Amortization Expenses
Depreciation and amortization expenses are primarily attributable to our capital investment in equipment and our capitalized software and acquisition-related intangibles. Interest Expense
Interest expense is primarily attributable to interest expense associated with our 2026 Notes, our revolving credit facility, and our finance lease obligations. It also includes the amortization of debt discount and debt issuance costs related to these various debt arrangements.
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Results of Operations
The following table summarizes our results of operations for the three and nine
months ended
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2020 2019 $ % 2020 2019 $ %
Revenue:
Product revenue 31,141 39,304 (8,163) (21) 104,342 112,164 (7,822) (7) Total revenue
70,506 74,270 (3,764) (5) 220,167 211,484 8,683 4
Cost of revenue, exclusive of depreciation and amortization shown below:
Product cost 28,638 25,931 2,707 10 84,879 74,267 10,612 14
Service cost 20,610 20,510 100 0 64,140 58,998 5,142 9Total cost of revenue, exclusive of depreciation and amortization
49,248 46,441 2,807 6 149,019 133,265 15,754 12
Operating expenses:
Research and development 5,101 5,902 (801) (14) 13,750 16,649 (2,899) (17)
Sales and marketing 5,030 6,884 (1,854) (27) 15,597 18,605 (3,008) (16)
General and administrative 15,620 12,155 3,465 29 48,914 38,781 10,133 26 Change in fair value of acquisition-related contingent consideration expense 2,005 1,510
495 33 2,605 4,516 (1,911) (42)
Depreciation and amortization 12,199 9,142 3,057 33 32,323 24,519 7,804 32 Total operating expenses
39,955 35,593 4,362 12 113,189 103,070 10,119 10 Loss from operations
(18,697) (7,764) (10,933) (141) (42,041) (24,851) (17,190) (69)
Interest expense, net 4,722 4,441 281 6 14,000 11,442 2,558 22
Loss before income taxes (23,419) (12,205) (11,214) (92) (56,041) (36,293) (19,748) (54) Income tax benefit
(1,830) (4,101) 2,271 55 (5,705) (10,681) 4,976 47 Net loss
Comparison of the Three Months Ended
Product Revenue Product revenue increased$4.4 million , or 13%, to$39.4 million for the three months endedSeptember 30, 2020 compared to the same period in 2019.New CareVention HealthCare clients that started services after the end of the third quarter in 2019 contributed$1.2 million to the increase. Increased medication fulfillment volume from growth in the number of patients served by our existing clients, medication mix of prescriptions filled, and payer mix contributed to$2.9 million of the increase. The increase in product revenue was also due to$337 thousand of revenue generated from the sale of COVID-19 test kits during the third quarter of 2020 through ourCareVention HealthCare segment and PrecribeWellness pharmacy network. Service Revenue
Service revenue decreased
Service revenues generated by ourMedWise HealthCare segment decreased by$8.1 million , or 29%, to$19.9 million for the three months endedSeptember 30, 2020 , as compared to the same period in 2019. The main contributor to the decline was a reduction in medication safety services of$6.1 million , largely driven by new restrictions related to comprehensive medications reviews completed with caregivers and prescribers, which temporarily slowed patient engagement during the quarter, and fewer adherence programs resulting from higher adherence rates in 2020 due to health plan actions taken to respond to COVID-19 earlier this year. In addition, data analytics fees decreased$2.8 million due to a new contract with our data aggregation partner, which began in the first quarter of 2020. These decreases were slightly offset by an increase in software subscriptions and software related services revenue of$788 thousand .CareVention HealthCare service revenues decreased slightly by$62 thousand , or 1%, to$11.2 million for the three months endedSeptember 30, 2020 as compared to the same period in 2019. Lower fees from our data analytics contract negatively impacted revenue by$1.2 million . Excluding this impact,CareVention HealthCare service revenues increased$1.2 million , or 10%, as a result of new clients added and growth within existing clients since the third quarter of
2019.
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Cost of Product Revenue
Cost of product revenue increased $2.7 million , or 10%, to $28.6 million for the
three months ended September 30, 2020 as compared to the same period in 2019.
New clients in our CareVention HealthCare segment added since the third quarter
of 2019 contributed $764 thousand to the increase. In addition, increased
medication volume from growth in the number of patients served by our existing
customers, manufacturer price increases, and medication mix of prescriptions
filled for our clients contributed approximately $1.7 million to the change.
This was offset by a decrease in the acquisition cost of medications from our
new purchasing agreement with Thrifty White of $483 thousand . The increase in
cost of product revenue was also due to a $460 thousand increase in distribution
charges related to higher shipping volume for the medications we fulfilled, and
$277 thousand of COVID-19 test kits sold during the third quarter of 2020. The
increases were slightly offset by decreases in travel and technology related
expenses.
Cost of Service Revenue
Cost of service revenue increased slightly from
Cost of service revenue related to ourMedWise HealthCare segment decreased$872 thousand , or 6%, to$13.1 million for the three months endedSeptember 30, 2020 , as compared to the same period in 2019. The decrease is primarily attributable to a reduction in the use of contracted university resources to deliver on medication safety services as well as reduced printing and postage expenses. Cost of service revenue related to ourCareVention HealthCare segment increased$972 thousand , or 15%, to$7.5 million for the three months endedSeptember 30, 2020 , as compared to the same period in 2019. The increase is primarily attributable to increased headcount, including contractors, to support growth in our third party administration services.
Research and Development Expenses
Research and development expenses decreased$801 thousand , or 14%, to$5.1 million for the three months endedSeptember 30, 2020 as compared to the same period in 2019. The decrease includes a reduction of$336 thousand in stock-based compensation expense, primarily related to performance-based equity awards and common stock awarded during the third quarter of 2019. The remaining decrease is primarily attributable to lower payroll costs resulting from the realignment of resources associated with our Company's reorganization inJanuary 2020 to better support our customers and business objectives. Sales and Marketing Expenses Sales and marketing expenses decreased$1.9 million , or 27%, from$6.9 million for the three months endedSeptember 30, 2020 to$5.0 million for the comparable period in 2020. The decrease includes$1.2 million of employee compensation costs, including stock-based compensation, for personnel previously included in sales and marketing,who are now dedicated to corporate strategy initiatives and recorded in general and administrative expenses. The change in allocation resulted from our Company's reorganization inJanuary 2020 to better align resources in order to support the achievement of our business objectives. The remaining decrease in sales and marketing expenses was primarily due to a decrease in conference and travel-related expenses as a result of the COVID-19 pandemic. 39 Table of Contents
General and Administrative Expenses
General and administrative expenses increased
The increase in general and administrative expenses was primarily attributable to higher employee compensation costs of$2.7 million . The increase in compensation costs included a$2.6 million increase related to additional headcount and the realignment of resources dedicated to serving administrative functions to support the achievement of our business objectives as a result of our Company's reorganization inJanuary 2020 , a$2.0 million increase in stock-based compensation expense related to equity awards granted during 2020, and a$1.9 million reduction in bonus expense. Acquisition costs related to the purchase of Personica, which was completed inOctober 2020 , contributed$573 thousand to the increase.
Acquisition-related Contingent Consideration Expense
During the three months ended
During third quarter of 2020, we elected to accelerate the payment of the acquisition-related contingent consideration, based on favorable projections of business performance, for an aggregate payment amount equal to$13.4 million , which was partially satisfied by a cash payment of$5.9 million and the issuance of 135,434 shares of our common stock, with a fair value of$6.9 million . We are required to make a final cash payment in full satisfaction of the remaining acquisition-related contingent consideration liability during the fourth quarter of 2020. During the three months endedSeptember 30, 2020 , we recorded a$2.0 million charge for the change in the fair value of the Cognify acquisition-related contingent consideration primarily due to the accelerated payment. During the three months endedSeptember 30, 2019 , we recorded a$1.3 million charge to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to an amendment of certain definitions used in the calculation of the contingent consideration set forth in the stock purchase agreement and the decreased discount period to the final measurement date. The Cognify contingent consideration was based on a multiple of the excess of certain PACE solutions' 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement. During the three months endedSeptember 30, 2019 , we recorded a$210 thousand charge related to the fair value adjustment of the final DoseMe acquisition-related contingent consideration amount. The DoseMe acquisition-related contingent consideration was paid in full during the third quarter of 2019.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased$3.1 million , or 33%, from$9.1 million for the three months endedSeptember 30, 2019 to$12.2 million for the three months endedSeptember 30, 2020 . This increase was primarily due to a$1.5 million increase in the amortization of capitalized software related to new software functionality placed into service since 2019 to support ourCareVention HealthCare and MedWise HealthCare segment, and a$1.4 million increase in the amortization of intangible assets due to a change in the estimated useful lives of certain intangible assets. Interest Expense Interest expense for the three months endedSeptember 30, 2020 was$4.7 million , an increase of$281 thousand compared to the three months endedSeptember 30, 2019 . The increase is primarily due an increase of$253 thousand of interest expense on the 2026 Notes, which were issued inFebruary 2019 . The remaining increase in interest expense is mostly attributable to a decrease in interest capitalized related to the borrowings attributed to software development projects. 40 Table of Contents Income Taxes For the three months endedSeptember 30, 2020 , we recorded an income tax benefit of$1.8 million , which resulted in an effective tax rate of 7.8%. The effective tax rate differs from theU.S. statutory tax rate primarily due to an increase in the valuation allowance that is currently limiting the realizability of our net deferred tax assets as ofSeptember 30, 2020 . Accordingly, the tax benefit was limited due to unbenefited losses in the three months endedSeptember 30, 2020 . We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period's year to date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period. For the three months endedSeptember 30, 2019 , we recorded an income tax benefit of$4.1 million , which resulted in an effective tax rate of 33.6%. The tax benefit primarily consists of$2.1 million based on the estimated effective tax rate for the full year and$1.9 million of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period.
Comparison of the Nine Months Ended
Product Revenue
Product revenue increased$16.5 million , or 17%, to$115.8 million for the nine months endedSeptember 30, 2020 compared to the same period in 2019.New CareVention HealthCare clients that started services after the end of the first quarter in 2019 contributed$6.7 million to the increase. Increased medication fulfillment volume from growth in the number of patients served by our existing clients, medication mix of prescriptions filled, and payer mix contributed$8.8 million to the increase. The increase in product revenue was also due to$1.0 million of revenue generated from the sale of COVID-19 test kits during the second and third quarters of 2020 through ourCareVention HealthCare segment and PrecribeWellness pharmacy network. Service Revenue Service revenue decreased$7.8 million , or 7%, to$104.4 million for the nine months endedSeptember 30, 2020 from$112.2 million for the nine months endedSeptember 30, 2019 . Service revenues generated by ourMedWise HealthCare segment decreased by$8.2 million to$70.0 million for the nine months endedSeptember 30, 2020 , as compared to$78.3 million for the same period in 2019. We experienced a$12.0 million decrease in medication safety services driven by the completion of fewer comprehensive medication reviews during the nine months endedSeptember 30, 2020 . The reduction was partially due to new restrictions related to comprehensive medications reviews completed with caregivers and prescribers, which temporarily slowed patient engagement during the quarter, and fewer adherence programs resulting from higher adherence rates in 2020 due to health plan actions taken to respond to COVID-19 earlier this year. In addition, data analytics fees were down$4.7 million due to a new contract with our data aggregation partner, which began in the first quarter of 2020. These decreases were offset by an increase in software subscription and software related services revenue of$8.5 million , which was primarily attributable to the PrescribeWellness acquisition completed onMarch 5, 2019 .CareVention HealthCare service revenues increased by$420 thousand , or 1%, to$34.3 million for the nine months endedSeptember 30, 2020 as compared to the same period in 2019. Lower fees from our data analytics contract negatively impacted revenue by$3.2 million . Excluding this impact,CareVention HealthCare service revenues increased$3.6 million , or 11%. The increase was a result of new clients and growth with existing clients added since the first quarter
of
2019.
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Cost of Product Revenue
Cost of product revenue increased $10.6 million , or 14%, to $84.9 million for
the nine months ended September 30, 2020 , as compared to the same period in
2019. New clients in our CareVention HealthCare segment added since the third
quarter of 2019 contributed $3.9 million to the increase. In addition, increased
medication volume from growth in the number of patients served by our existing
customers, manufacturer price increases, and medication mix of prescriptions
filled for our clients contributed approximately $5.7 million to the change.
This was offset by a decrease in the acquisition cost of medications from our
new purchasing agreement with Thrifty White of $1.5 million . The increase in
cost of product revenue was also due to a $1.6 million increase in distribution
charges related to higher shipping volume for the medications we fulfilled and
$860 thousand of COVID-19 test kits sold to clients during the nine monthsendedSeptember 30, 2020 . Cost of Service Revenue Cost of service revenue increased$5.1 million , or 9%, from$59.0 million for the nine months endedSeptember 30, 2019 to$64.1 million for the nine months endedSeptember 30, 2020 .
Cost of service revenue related to ourMedWise HealthCare segment increased$1.9 million , or 5%, to$42.0 million for the nine months endedSeptember 30, 2020 , as compared to the same period in 2019. The acquisition of PrescribeWellness contributed$2.4 million to the total increase and primarily consisted of employee compensation and technology costs. OurMedWise HealthCare segment also experienced a$1.4 million increase in fees for community pharmacies to perform clinical interventions services. This increase was partially offset by a reduction in the use of contracted university resources to deliver on medication safety services as well as reduced printing and postage expenses. Cost of service revenue related to ourCareVention HealthCare segment increased$3.3 million , or 17%, to$22.1 million for the nine months endedSeptember 30, 2020 , as compared to the same period in 2019. The increase was attributable to an increase in costs primarily related to additional headcount, including contractors, to support growth in our third party administration services.
Research and Development Expenses
Research and development expenses decreased$2.9 million , or 17%, to$13.8 million for the nine months endedSeptember 30, 2020 , as compared to the same period in 2019. The decrease was mostly due to a reduction of$1.9 million in stock-based compensation expense, primarily related to performance-based equity awards and common stock awarded during 2019. The remaining decrease is primarily attributable to lower payroll costs resulting from the realignment of resources associated with our Company's reorganization inJanuary 2020 to better support our customers and business objectives. Sales and Marketing Expenses Sales and marketing expenses decreased$3.0 million , or 16%, from$18.6 million for the nine months endedSeptember 30, 2019 to$15.6 million for the comparable period in 2020. The decrease includes$3.7 million of employee compensation costs, including stock-based compensation, for personnel previously included in sales and marketing,who are now dedicated to corporate strategy initiatives and recorded in general and administrative expenses. The change in allocation resulted from our Company's reorganization inJanuary 2020 to better align resources in order to support the achievement of our business objectives. This decrease was offset by an increase of$1.3 million as a result of the acquisition of PrescribeWellness, which primarily related to employee compensation. The remaining decrease in sales and marketing expenses is attributable to a decrease in conference and travel-related expenses as a result of the COVID-19 pandemic.
General and Administrative Expenses
General and administrative expenses increased$10.1 million , or 26%, to$48.9 million for the nine months endedSeptember 30, 2020 , as compared to the same period in 2019. The acquisition of PrescribeWellness contributed$387 thousand to the increase in expenses, which consisted of employee compensation costs, including stock-based 42 Table of Contents
compensation, and technology costs. Excluding costs related to the acquisition,
general and administrative expenses increased by approximately
The increase in general and administrative expenses was primarily attributable to higher employee compensation costs of$11.6 million , which included a$5.8 million increase in stock-based compensation expense related to equity awards granted during 2020. The increase in employee compensation costs was also due to the realignment of resources dedicated to serving administrative functions to support the achievement of our business objectives as a result of our Company's reorganization inJanuary 2020 . These included moving resources accounting for$3.7 million to corporate strategy from sales and marketing, and$1.8 million from the transition of key employees, previously included in cost of revenues, to executive roles. Additional headcount to support the overall growth of our operations contributed$2.3 million to the increase in compensation costs, which was partially offset by a$2.0 million reduction in bonus expense. The increase in general and administrative expenses was also due to higher technology related expenses of$1.6 million to support the overall growth of the business. A decrease in acquisition related costs of$2.8 million related to the larger acquisition of PrescribeWellness in the first quarter of 2019 partially offset these increases. The remainder of the variance was primarily due to a reduction in travel and meeting costs as a result of the COVID-19 pandemic.
Acquisition-related Contingent Consideration Expense
During the nine months ended
During third quarter of 2020, we elected to accelerate the payment of the acquisition-related contingent consideration for an aggregate payment amount equal to$13.4 million , which was partially satisfied by a cash payment of$5.9 million and the issuance of 135,434 shares of our common stock, with a fair value of$6.9 million . We are required to make a final cash payment in full satisfaction of the remaining acquisition-related contingent consideration liability during the fourth quarter of 2020. During the nine months endedSeptember 30, 2020 , we recorded a$2.6 million charge to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to the accelerated payment. During the nine months endedSeptember 30, 2019 , we recorded a$3.7 million charge to increase the fair value of the Cognify acquisition-related contingent consideration primarily due to an amendment of certain definitions used in the calculation of the contingent consideration set forth in the stock purchase agreement and the decreased discount period to the final measurement date. The Cognify contingent consideration was based on a multiple of the excess of certain PACE solutions' 2021 revenues and Adjusted EBITDA over their 2018 revenues and Adjusted EBITDA, as defined in the stock purchase agreement.
During the nine months endedSeptember 30, 2019 , we recognized an aggregate$817 thousand charge related to fair value adjustments for the SinfoníaRx, Peak PACE, and DoseMe acquisition-related contingent considerations, which were all subsequently paid in full during 2019.
Depreciation and Amortization Expenses
Depreciation and amortization expenses increased$7.8 million , or 32%, from$24.5 million for the nine months endedSeptember 30, 2019 to$32.3 million for the nine months endedSeptember 30, 2020 . This increase was primarily due to a$4.0 million increase in the amortization of capitalized software related to new software functionality placed into service since 2019 to support ourCareVention HealthCare and MedWise HealthCare segments. Amortization expense also increased by$1.9 million as a result of intangible assets from PrescribeWellness inMarch 2019 and by$1.4 million as a result of changes in the estimated useful lives of certain intangible assets. Depreciation expense increased by$594 thousand primarily related to the completion of expanded office space at ourMoorestown, New Jersey headquarters, the purchase of additional equipment for our pharmacy inMoorestown, New Jersey , and the completion of our new research facility inLake Nona ,Florida during the third quarter of 2019. Interest Expense Interest expense for the nine months endedSeptember 30, 2020 was$14.0 million , an increase of$2.6 million compared to the nine months endedSeptember 30, 2019 . The increase is primarily due an increase of$2.8 million of interest expense on the 2026 Notes, which were issued inFebruary 2019 . The increase
was partially offset by a$351 43 Table of Contents
thousand decrease in interest expense on the Amended and Restated 2015 Line of Credit and a decrease in interest expense on finance leases.
Income Taxes For the nine months endedSeptember 30, 2020 , we recorded an income tax benefit of$5.7 million , which resulted in an effective tax rate of 10.2%. The effective tax rate differs from theU.S. statutory tax rate primarily due to an increase in the valuation allowance that is currently limiting the realizability of our net deferred tax assets as ofSeptember 30, 2020 . Accordingly, the year to date tax benefit was limited due to unbenefited losses in the nine months endedSeptember 30, 2020 . We calculate the provision for income taxes during interim periods by applying the estimated annual effective tax rate for the full year ordinary income or loss to the respective reporting period's year to date income or loss, while also adding any income tax expense or benefit related to discrete items occurring within that interim period. For the nine months endedSeptember 30, 2019 , we recorded an income tax benefit of$10.7 million , which resulted in an effective tax rate of 29.4%. The tax benefit primarily consists of$6.0 million based on the estimated effective tax rate for the full year and$4.1 million of windfall tax benefits generated from the vesting of restricted stock, disqualifying dispositions and exercising of nonqualified stock options during the period. 44 Table of Contents NON-GAAP FINANCIAL MEASURES Adjusted EBITDA To provide investors with additional information about our financial results, we disclose Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA consists of net income (loss) plus certain other expenses, which includes interest expense, provision (benefit) for income tax, depreciation and amortization, change in fair value of acquisition-related contingent consideration expense (income), severance expense incurred in 2020 in connection with the Company's reorganization, acquisition-related expense and stock-based compensation expense. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue. We present Adjusted EBITDA because it is one of the measures used by our management and board of directors to understand and evaluate our core operating performance, and we consider it an important supplemental measure of performance. We believe this metric is commonly used by the financial community, and we present it to enhance investors' understanding of our operating performance and cash flows. We believe Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations.
Our management uses Adjusted EBITDA:
? as a measure of operating performance to assist in comparing performance from
period to period on a consistent basis;
? to prepare and approve our annual budget; and
? to develop short- and long-term operational plans.
Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. In particular:
although depreciation and amortization are non-cash charges, the assets being
? depreciated and amortized may have to be replaced in the future, and Adjusted
EBITDA does not reflect cash capital expenditure requirements for such
replacements or for new capital expenditure requirements;
? Adjusted EBITDA does not reflect cash interest income or expense;
? Adjusted EBITDA does not reflect changes in, or cash requirements for, our
working capital needs;
? Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based
compensation;
? Adjusted EBITDA does not reflect severance related payments incurred in 2020 in
connection with the Company's reorganization;
? Adjusted EBITDA does not reflect tax payments that may represent a reduction in
cash available to us; and
other companies, including companies in our industry, may calculate Adjusted
? EBITDA or similarly titled measures differently, which reduces its usefulness
as a comparative measure.
Because of these and other limitations, you should consider Adjusted EBITDA
alongside other GAAP-based financial performance measures, including various
cash flow metrics, net income (loss) and our other GAAP financial results and
not in isolation from, or as a substitute for, financial information prepared in
accordance with GAAP. You should be aware that in the future we may incur
expenses that are the same as or similar to some of the adjustments in the
presentation, and we do not intend to imply that our future results will be
unaffected by unusual or non-recurring items.
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The following is a reconciliation of Adjusted EBITDA to our net loss for the
periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Reconciliation of net loss to Adjusted EBITDA
Net loss $ (21,589) $ (8,104) $ (50,336) $ (25,612)
Add:
Interest expense, net 4,722 4,441 14,000 11,442
Income tax benefit (1,830) (4,101) (5,705) (10,681)Depreciation and amortization 12,199 9,142 32,323 24,519 Change in fair value of acquisition-related contingent consideration expense 2,005
1,510 2,605 4,516
Severance expense 917 - 917 -
Acquisition-related expense 572 463 823 4,752Stock-based compensation expense 8,098
7,225 22,408 20,983
Adjusted EBITDA $ 5,094 $ 10,576 $ 17,035 $ 29,919
Adjusted Diluted Net Income (Loss) Per Share, or Adjusted Diluted EPS
Adjusted Diluted EPS excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. We believe the exclusion of these items assists in providing a more complete understanding of our underlying operations, results and trends and allows for comparability with our peer company index and industry and to be more consistent with our expected capital structure on a going forward basis. Our management uses this measure along with corresponding GAAP financial measures to manage our business and to evaluate our performance compared to prior periods and the marketplace. We define Adjusted Diluted EPS as net loss before fair value adjustments for acquisition-related contingent consideration, amortization of acquired intangibles, amortization of debt discount and issuance costs, severance expense incurred in 2020 in connection with the Company's reorganization, acquisition-related expense, stock-based compensation expense, and the tax impact using a normalized tax rate on pre-tax income (loss) adjusted for those items expressed on a per share basis using weighted average diluted shares outstanding. We consider acquisition-related expense to include nonrecurring direct transaction and integration costs, severance, and the impact of purchase accounting adjustments related to the fair value of acquired deferred revenue. Adjusted Diluted EPS is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. In the future, we may incur expenses that are the same as or similar to some of the adjustments in the presentation, and we do not intend to imply that our future results will be unaffected by unusual or non-recurring items.
The following table reconciles net loss per share on a diluted basis, the most directly comparable GAAP measure, to Adjusted Diluted EPS:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(In thousands except per share amounts) (In thousands except per share amounts)
Reconciliation of diluted net loss per
share to Adjusted Diluted EPS
GAAP net loss, basic and diluted, and
net loss per share, basic and diluted $ (21,589) $ (0.99) $ (8,104) $ (0.39) $ (50,336) $ (2.33) $ (25,612) $ (1.25)
Adjustments:
Change in fair value of
acquisition-related contingent
consideration expense 2,005 1,510 2,605 4,516
Amortization of acquired intangibles 8,291 6,927 21,936 18,678
Amortization of debt discount and
issuance costs 3,280 3,012 9,647 7,506
Severance expense 917 - 917 -
Acquisition-related expense 572 463 823 4,752
Stock-based compensation expense 8,098 7,225 22,408 20,983
Impact to income taxes (1) (1,762) (6,049) (6,306) (15,716)
Adjusted net (loss) income and Adjusted
Diluted EPS $ (188) $ (0.01) $ 4,984 $ 0.22 $ 1,694 $ 0.07 $ 15,107 $ 0.66 The impact to taxes was calculated using a normalized statutory tax rate
(1) applied to pre-tax income or loss adjusted for the respective items above and
then subtracting or adding the tax provision or benefit, respectively, as
determined for GAAP purposes.
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The following table reconciles the diluted weighted average shares of common
stock outstanding used to calculate net loss per share on a diluted basis for
GAAP purposes to the diluted weighted average shares of common stock outstanding
used to calculate Adjusted Diluted EPS:
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Reconciliation of weighted average shares of
common stock outstanding, diluted, to
weighted average shares of common stock
outstanding, diluted for Adjusted Diluted EPS
Weighted average shares of common stock
outstanding, basic and diluted for GAAP 21,779,808 20,691,112 21,571,214 20,520,357
Adjustments:
Weighted average dilutive effect of stock
options - 1,555,922 1,281,367 1,577,258
Weighted average dilutive effect of
restricted stock - 809,601 491,245 803,618
Weighted average dilutive effect of
contingent shares - 30,502 74,102 27,037
Weighted average shares of common stock
outstanding, diluted for Adjusted Diluted EPS
(1) 21,779,808 23,087,137 23,417,928 22,928,270
We account for the convertible senior subordinated notes utilizing the
Treasury Stock Method as we currently intend to settle the notes entirely or
partly in cash. Under this method, the underlying shares issuable upon
conversion of the notes are excluded from the calculation of diluted EPS,
(1) except to the extent that the average stock price for the reporting period
exceeds their conversion price of
months ended
convertible senior subordinated notes as the conversion price exceeded our
average stock price.
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Liquidity and Capital Resources
We incurred a net loss of $50.3 million and $25.6 million for the nine months
ended September 30, 2020 and 2019, respectively. Our primary liquidity and
capital requirements are for research and development, sales and marketing,
general and administrative expenses, debt service obligations, and strategic
business acquisitions. We have funded our operations, working capital needs, and
investments with cash generated through operations, issuance of stock, and
borrowings under our credit facilities. At September 30, 2020 , we had
unrestricted cash of $28.7 million .
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