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EX-99.3 - EX-99.3 - Tabula Rasa HealthCare, Inc.a18-39935_1ex99d3.htm
EX-99.2 - EX-99.2 - Tabula Rasa HealthCare, Inc.a18-39935_1ex99d2.htm
EX-23.1 - EX-23.1 - Tabula Rasa HealthCare, Inc.a18-39935_1ex23d1.htm
8-K/A - 8-K/A - Tabula Rasa HealthCare, Inc.a18-39935_18ka.htm

Exhibit 99.4

 

TABULA RASA HEALTHCARE, INC.

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

On August 31, 2018, TRHC MEC Holdings, LLC, a Delaware limited liability company (“Purchaser”) and wholly-owned subsidiary of Tabula Rasa HealthCare, Inc., a Delaware corporation (“TRHC” or the “Company”) entered into, and consummated the transactions contemplated by, a Membership Interest Purchase Agreement (the “Purchase Agreement”), by and among Purchaser, each member (each, a “Seller” and collectively, the “Sellers”) of Mediture LLC, a Minnesota limited liability company, and eClusive L.L.C., a Minnesota limited liability company (collectively, “Mediture”), and Kelley Business Law, PLLC, solely in its capacity as the Seller Representative. Pursuant to the Purchase Agreement, each Seller assigned, transferred and sold to Purchaser, and Purchaser purchased from such Sellers, all of the issued and outstanding membership and/or economic interests of Mediture (collectively, the “Transaction”).

 

At the closing of the Transaction, TRHC paid (i) $18.5 million in cash consideration, subject to adjustments set forth in the Purchase Agreement, and (ii) issued 45,561 shares of TRHC common stock (valued at $76.82 per share).  A portion of the cash consideration is being held in escrow to secure potential claims by TRHC for indemnification under the Purchase Agreement and in respect of adjustments to the purchase price.

 

The material terms of the Purchase Agreement were previously disclosed by the Company in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on September 4, 2018 (the “Acquisition 8-K”) and the foregoing is qualified in its entirety by reference to the Purchase Agreement, which is attached as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 8, 2018.

 

The following unaudited pro forma financial statements should be read in conjunction with the historical financial statements and accompanying notes of the Company included in the Quarterly Report on Form 10-Q as of and for the three and nine months ended September 30, 2018, filed with the SEC on November 8, 2018, the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 14, 2018, the Acquisition 8-K, as well as Amendment No. 1 to the Acquisition 8-K, the notes to the unaudited pro forma combined financial statements included in this Amendment No. 1 to the Acquisition 8-K, and the historical financial statements and related notes of the Mediture business included as Exhibits to this Amendment No. 1 to the Acquisition 8-K.

 

The presentation of the unaudited pro forma statement of income reflects the combined results of operations as if the acquisition had occurred on January 1, 2017, the beginning of the Company’s 2017 fiscal year, and excludes items related to the acquisition that are nonrecurring and includes items that are directly attributable to the acquisition, expected to have a continuing impact, and are factually supportable.

 

The preliminary allocation of the purchase consideration presented in Note 2 and used to prepare the unaudited pro forma financial statements is based on a preliminary valuation of assets acquired and liabilities assumed. Accordingly, the purchase price allocation is considered preliminary and may materially change before final determination. The preliminary pro forma purchase price adjustments have been made solely for the purpose of providing the unaudited pro forma financial statements included herewith. A final determination of these fair values shall be based on the actual net tangible and intangible assets of Mediture that exist as of the closing date of the transaction. In addition, the unaudited pro forma financial statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the acquisition.  No assurance can be given with respect to the estimated revenue opportunities and operating cost savings that are expected to be realized as a result of the acquisition. The unaudited pro forma financial statements also does not reflect pro forma adjustments for non-recurring charges related to integration activities or exit costs that may be incurred by the Company or Mediture in connection with the acquisition.

 

The unaudited pro forma combined statements of operations are based on the estimates and assumptions set forth in the notes hereto. The unaudited pro forma combined statements of operations are provided for informational purposes only and are not necessarily indicative of results that would have occurred had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma statements of operations do not purport to

 


 

be indicative of the future financial position or operating results of the combined operations. Transactions between the Company and Mediture during the periods presented were eliminated in the unaudited pro forma financial statements.

 

TABULA RASA HEALTHCARE, INC.

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

(In thousands, except share and per share amounts)

 

 

 

Historical

 

Mediture

 

Pro forma

 

Pro forma

 

 

 

Tabula Rasa HealthCare, Inc.

 

Acqusition

 

Adjustments

 

Tabula Rasa HealthCare, Inc.

 

 

 

 

 

 

 

(Note 3)

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Product revenue

 

$

82,603

 

$

 

$

 

$

82,603

 

Service revenue

 

64,357

 

7,886

 

(109

)(a)

72,134

 

Total revenue

 

146,960

 

7,886

 

(109

)

154,737

 

Cost of revenue, exclusive of depreciation and amortization shown below:

 

 

 

 

 

 

 

 

 

Product cost

 

62,007

 

 

(82

)(a)

61,925

 

Service cost

 

37,125

 

6,027

 

48

(a), (b)

43,200

 

Total cost of revenue

 

99,132

 

6,027

 

(34

)

105,125

 

Operating (income) expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

8,515

 

 

 

8,515

 

Sales and marketing

 

6,985

 

107

 

 

7,092

 

General and administrative

 

20,229

 

1,402

 

(1,404

)(c)

20,227

 

Change in fair value of acquisition-related contingent consideration (income) expense

 

40,385

 

 

 

40,385

 

Depreciation and amortization

 

12,110

 

235

 

668

(d)

13,013

 

Total operating expenses

 

88,224

 

1,744

 

(736

)

89,232

 

Income (loss) from operations

 

(40,396

)

115

 

661

 

(39,620

)

Other (income) expense:

 

 

 

 

 

 

 

 

 

Interest expense

 

415

 

3

 

624

(e)

1,042

 

Total other expense

 

415

 

3

 

624

 

1,042

 

Income (loss) before income taxes

 

(40,811

)

112

 

37

 

(40,662

)

Income tax expense (benefit)

 

(4,107

)

 

37

(f)

(4,070

)

Net income (loss) 

 

$

(36,704

)

$

112

 

$

0

 

$

(36,592

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

(36,704

)

 

 

 

 

$

(36,592

)

Diluted

 

$

(36,704

)

 

 

 

 

$

(36,592

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.93

)

 

 

 

 

$

(1.92

)

Diluted

 

$

(1.93

)

 

 

 

 

$

(1.92

)

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

18,989,334

 

 

 

40,387

(g)

19,029,721

 

Diluted

 

18,989,334

 

 

 

40,387

(g)

19,029,721

 

 

See accompanying notes to unaudited pro forma financial statements.

 


 

TABULA RASA HEALTHCARE, INC.

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2017

(In thousands, except share and per share amounts)

 

 

 

Historical

 

Mediture

 

Pro forma

 

Pro forma

 

 

 

Tabula Rasa HealthCare, Inc.

 

Acqsuition

 

Adjustments

 

Tabula Rasa HealthCare, Inc.

 

 

 

 

 

 

 

(Note 3)

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

Product revenue

 

$

98,523

 

$

 

$

 

$

98,523

 

Service revenue

 

36,023

 

11,669

 

(140

)(a)

47,552

 

Total revenue

 

134,546

 

11,669

 

(140

)

146,075

 

Cost of revenue, exclusive of depreciation and amortization shown below:

 

 

 

 

 

 

 

 

 

Product cost

 

75,123

 

 

(105

)(a)

75,018

 

Service cost

 

18,532

 

8,951

 

112

(a), (b)

27,595

 

Total cost of revenue

 

93,655

 

8,951

 

7

 

102,613

 

Operating (income) expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

5,628

 

 

 

5,628

 

Sales and marketing

 

5,542

 

78

 

 

5,620

 

General and administrative

 

21,181

 

1,281

 

(802

)(c)

21,660

 

Change in fair value of acquisition-related contingent consideration (income) expense

 

(6,173

)

 

 

(6,173

)

Depreciation and amortization

 

9,512

 

141

 

1,002

(d)

10,655

 

Total operating expenses

 

35,690

 

1,500

 

200

 

37,390

 

Income (loss) from operations

 

5,201

 

1,218

 

(347

)

6,072

 

Other (income) expense:

 

 

 

 

 

 

 

 

 

Interest expense

 

688

 

4

 

938

(e)

1,630

 

Total other expense

 

688

 

4

 

938

 

1,630

 

Income (loss) before income taxes

 

4,513

 

1,214

 

(1,285

)

4,442

 

Income tax expense (benefit)

 

(9,783

)

 

(27

)(f)

(9,810

)

Net income (loss)

 

$

14,296

 

$

1,214

 

$

(1,258

)

$

14,252

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

14,296

 

 

 

 

 

$

14,252

 

Diluted

 

$

14,296

 

 

 

 

 

$

14,252

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.85

 

 

 

 

 

$

0.85

 

Diluted

 

$

0.76

 

 

 

 

 

$

0.76

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

16,730,418

 

 

 

45,561

(g)

16,775,979

 

Diluted

 

18,774,374

 

 

 

45,561

(g)

18,819,935

 

 

See accompanying notes to unaudited pro forma financial statements.

 

TABULA RASA HEALTHCARE, INC.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

(In thousands, except share and per share amounts)

 

Note 1. Basis of pro forma preparation

 

The unaudited pro forma combined financial statements are based on the historical consolidated financial statements of Tabula Rasa HealthCare, Inc. (the “Company”) and the historical financial statements of Mediture, after giving effect to the acquisition using the purchase method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and applying the assumptions and adjustments described in the accompanying notes. The unaudited pro forma statement of operations for the year ended December 31, 2017 and nine months ended September 30, 2018 is presented as if the acquisition had occurred on January 1, 2017, the beginning of the Company’s fiscal year.

 

Note 2. Total purchase consideration and preliminary purchase price allocation

 

On August 31, 2018, the Company entered into a membership interest purchase agreement with each member of Mediture LLC and eClusive L.L.C. (collectively, “Mediture”) pursuant to which the Company acquired all of the issued and outstanding membership and/or economic interests of Mediture. Mediture is a provider of electronic health record solutions and third party administrator services in the PACE market and also services several managed long-term care organizations in the State of New York. The consideration for the acquisition was comprised of (i) $18,500 cash consideration paid upon closing, subject to certain customary post-closing

 


 

adjustments, upon the terms and subject to the conditions contained in the purchase agreement and (ii) the issuance of 45,561 shares of the Company’s common stock, based on a value of $3,500 and calculated based on the arithmetic average of the daily volume-weighted average (rounded to two decimal places) trading price per share of the Company’s common stock for the 15 full trading days ended on and including the trading day prior to the closing of the acquisition, using trading prices reported on the NASDAQ Global Market. The stock consideration issued at the closing of the acquisition had an acquisition-date fair value of $3,595 based on the closing trading price on August 31, 2018. A portion of the cash consideration paid at closing is being held in escrow to secure potential claims by the Company for indemnification under the agreement and in respect of adjustments to the purchase price.

 

The total purchase price described above has been allocated to Mediture’s tangible and intangible assets acquired and liabilities assumed as of the acquisition date, based on their estimated relative fair values. The final allocation will be based upon valuations and other analysis for which there is currently insufficient information to make a definitive allocation. Accordingly, the purchase price allocation adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma combined financial statements. The final purchase price allocation will be determined after a complete and thorough analysis within one year after the closing date of the acquisition. As a result, the final acquisition accounting adjustments could differ materially from the pro forma adjustments presented herein. The purchase price of Mediture is allocated to the assets and liabilities to be assumed on the following preliminary basis as disclosed in Note 6 on the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 8, 2018:

 

Purchase price consideration

 

 

 

Cash consideration at closing, net of post-closing adjustments

 

$

17,452

 

Stock consideration at closing

 

3,595

 

Total fair value of acquisition consideration

 

$

21,047

 

 

 

 

 

Purchase Price Allocation

 

 

 

Cash

 

$

2,427

 

Accounts receivable

 

898

 

Prepaid expenses and other current assets

 

136

 

Property and equipment

 

219

 

Trade name

 

300

 

Developed technology

 

2,300

 

Client relationships

 

4,400

 

Non-competition agreement

 

1,300

 

Goodwill

 

13,167

 

Total assets acquired

 

$

25,147

 

 

 

 

 

Accrued expenses and other liabilities

 

(3,811

)

Trade accounts payable

 

(112

)

Other long-term liabilities

 

(177

)

Total purchase price

 

$

21,047

 

 

Note 3. Pro forma adjustments

 

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change including with respect to final purchase price and allocation thereof. Final adjustments could result in a materially different purchase price and/or allocations of the purchase price, which would affect the values assigned to tangible or intangible assets and the amount of depreciation and amortization expense recorded in the combined financial statements. The effect of any changes to the combined statements would depend on the final purchase price

 


 

and the nature and amount of final purchase price allocations and could be material. The following adjustments have been reflected in the unaudited pro forma combined statements of operations:

 

Adjustments to the pro forma statement of operations

 

(a)     Intercompany revenues and cost of revenues

 

Pro forma adjustment represents the elimination of service revenue generated by Mediture from the Company, and elimination of cost of revenue incurred by the Company from Mediture. During the nine months ended September 30, 2018 and the fiscal year ended December 31, 2017, $109 and $140, respectively, of intercompany revenues were generated between Mediture and the Company. During the nine months ended September 30, 2018 and the fiscal year ended December 31, 2017, product costs of $82 and $105, respectively, and service costs of $27 and $35, respectively, were incurred by the Company from Mediture. The pro forma adjustments reflect the elimination of these revenues and cost of revenues as they would be eliminated in consolidation if the acquisition occurred on January 1, 2017.

 

(b)    Stock compensation expense and commission expense

 

On the acquisition date, the Company granted stock option awards to employees of Mediture. The pro forma adjustments reflect estimated additional stock compensation expense of $236 and $354 for the nine months ended September 30, 2018 and the fiscal year ended December 31, 2017, respectively, related to stock option awards granted to employees of Mediture on the acquisition date.

 

During the nine months ended September 30, 2018 and the fiscal year ended December 31, 2017, Mediture incurred commission expense related to an executive employee of $161 and $207, respectively. The pro forma adjustments reflect the elimination of this commission expense from Mediture’s historical financials as they are not expected to have a continuing impact on the results of the combined entity.

 

(c)    Acquisition-related costs, settlement costs, and partner payments

 

The Company incurred $367 of acquisition costs primarily related to legal and advisory fees during the nine months ended September 30, 2018. These costs are reversed in the unaudited pro forma statement of operations as they represent non-recurring charges directly related to the acquisition of Mediture.

 

Mediture incurred $130 of seller costs primarily related to legal and advisory fees during the nine months ended September 30, 2018. These costs are reversed in the unaudited pro forma statement of operations as they represent non-recurring charges directly related to the sale of Mediture to the Company.

 

Mediture incurred $200 of settlement costs related to potential outstanding commissions for a terminated employee as a result of the acquisition. These costs are reversed in the unaudited pro forma income statement as they represent non-recurring charges directly related to the sale of Mediture.

 

During the nine months ended September 30, 2018 and the fiscal year ended December 31, 2017, Mediture incurred approximately $707 and $802, respectively, of compensation and other expenses paid to Mediture’s member partners. The pro forma adjustments reflect the elimination of these expenses from Mediture’s historical financials as they are not expected to have a continuing impact on the results of the combined entity.

 

(d)    Amortization expense

 

Reflects the additional estimated amortization expense related to the acquired intangible assets. The acquired intangible assets and related increased amortization expense based on the preliminary estimate of fair values for the nine months ended September 30, 2018 and year ended December 31, 2017 is as follows:

 


 

 

 

Weighted Average

 

 

 

 

 

 

 

 

 

Amortization Period

 

Preliminary

 

Amortization Expense

 

Amortization Expense

 

 

 

(in years)

 

Fair Value

 

December 31, 2017

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

3.00

 

$

300

 

$

100

 

$

67

 

Client relationships

 

11.86

 

4,400

 

371

 

180

 

Non-competition agreements

 

5.00

 

1,300

 

260

 

248

 

Developed technology

 

8.50

 

2,300

 

271

 

173

 

Total

 

 

 

$

8,300

 

$

1,002

 

$

668

 

 

These estimated fair values and useful lives are considered preliminary and are subject to change based on final purchase price valuation amounts. Changes in fair value or useful life of the acquired intangible assets may be material. The fair values of the intangible assets were preliminarily estimated using income based approaches with the assistance of a third party appraiser. Specifically, the fair values of trademarks and technology were estimated using the relief from royalty method. The Company derived the hypothetical royalty income from the projected revenues of Mediture. The fair value of client relationships was estimated using a multi period excess earnings method. To calculate fair value, the Company used cash flows discounted at a rate considered appropriate given the inherent risks associated with each client grouping. The fair value of the non-competition agreements was estimated using the discounted earnings method by estimating the potential loss of earnings absent the non-competition agreements, assuming the covenantor competes at different time periods during the life of the agreements.

 

The useful lives of the intangible assets were estimated based on the expected future economic benefit of the assets and is being amortized over the estimated useful life in proportion to the economic benefits consumed using the straight-line method.

 

(e)    Interest expense

 

The Company maintains an Amended and Restated Loan Agreement (the “Loan Agreement”) that provides for a $40,000 revolving credit facility, with a $1 million sublimit for cash management services and letters of credit and foreign exchange transactions (the “Credit Facility”). On August 31, 2018 in connection with the acquisition of Mediture, the Company drew down $18,500 on the Company’s Credit Facility.

 

The pro forma adjustment includes increased interest expense of $624 for the nine months ended September 30, 2018 and $938 for the year ended December 31, 2017 associated with the draw down of $18,500 on the Company’s credit facility to finance the closing cash payment of the Mediture acquisition, with interest expense based on an interest rate of 5.00% as of the acquisition date.

 

(f)    Provision for income taxes

 

This represents the tax effect of adjustments to income (loss) before income taxes at the estimated tax rates applicable to the jurisdictions in which the pro forma adjustments are expected to be recorded.

 

(g)    Weighted average common shares outstanding

 

Reflects the adjustment to weighted average shares used in computing basic and diluted net loss per share to account for the number of shares of the Company’s common stock issued in connection with the closing stock consideration payment for the acquisition of Mediture.