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Tabula Rasa HealthCare, Inc. Common Stock (TRHC) Q1 2019 Earnings Call Transcript

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TRHC earnings call for the period ending March 31, 2019.

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Tabula Rasa HealthCare, Inc. Common Stock (TRHC -3.30%)
Q1 2019 Earnings Call
May. 08, 2019, 6:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, ladies and gentlemen, and welcome to the first-quarter 2019 Tabula Rasa HealthCare, Inc. earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce corporate counsel for Tabula Rasa HealthCare, Mr.

Kevin Dill.

Kevin Dill -- Corporate Counsel

Thank you, and good evening. I'm Kevin Dill, corporate counsel for Tabula Rasa HealthCare. The company intends to avail itself of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements made during this call will be forward-looking statements within the meaning of that law.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause Tabula Rasa HealthCare's actual results to differ materially from those expressed or implied by the forward-looking statements. These risks and uncertainties include the developing nature of the market for technology-enabled healthcare products and services and potential changes to laws and regulations that may impact our clients. For additional information on the risks facing Tabula Rasa HealthCare, please refer to our filings with the SEC, including the risk factors section of our 10-K filed on March 1, 2019. A recording of this call is accessible through a link on the investor relations page of our website and it will be available for 90 days.

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

Calvin Knowlton -- CEO, Chairman, and Founder

Thank you, Kevin. Good evening, and thank you for joining us for our first quarter 2019 earnings call. Also with me today are Dr. Orsula Knowlton, co-founder and chief marketing business development officer, who will provide an update on our markets and new business activities; and Mr.

Brian Adams, our chief financial officer, who will provide our financial update on the first quarter, as well as our latest outlook for fiscal 2019. A quick glance at the numbers for the first quarter. Revenue was 61 million, representing a 39% growth; and adjusted EBITDA was 5.8 million, representing a 35% growth. I would like to start with a story about a problem that is a hidden dark cloud.

It is a hidden dark cloud that no one talks about. If this problem were a disease, it would be the third leading cause of death in the United States, taking 170,000 people's lives last year. And for those it doesn't kill, it just ruins quality of life. The name of the dark cloud is adverse drug events.

A recent article in Annals of Pharmacotherapy from researchers at UC San Diego noted that in 2016, the cost of drug-related morbidity and mortality was $528.4 billion, which represents 16% of the total U.S. healthcare expenditures in 2016. This is $100 billion more than we spent on medications in 2016. Then in April of this year, Forbes highlighted a 56-page treatise that was released by the Lown Institute, entitled Medication Overload: America's Other Drug Problem.

The Lown Institute is a nonpartisan Boston-based think tank dedicated to transforming America's high cost, low-value system. In the report, they noted that every day, 750 older people over 65 in the United States are hospitalized due to serious side effects from medications. The report also stated in the past decade, prescribing multiple medications to individual patients has reached epidemic proportions. In 1994, 14% of seniors took five or more medicines, prescription medicines.

In 2014, 42% of seniors in the U.S. took five or more prescription medicines, a 300% increase. Taking five or more meds is termed polypharmacy. At five or more meds, older adults are 88% more likely to seek outpatient care for an adverse drug event.

When one adds over-the-counter meds to these data, the number of seniors taking five or more meds rises from 42% to 67%. Around the world, polypharmacy is the new normal, and it gets worse. At six or more meds, aside from adverse drug events, older adults are twice as likely to experience delirium. At 10 or more meds, impaired cognition is 2.5 times more likely, and 20% of our seniors take 10 or more meds.

The Lown report noted three drivers of medication overload. The first driver of medication overload is the U.S. has developed a culture of prescribing. 20 years of direct-to-consumer advertising takes its toll, plus it creates an expectation, think patient demand, that there is a pill for every ill.

Medications in the U.S. are now considered "care." The second driver of medication overload is fragmentation of care, which manifest as a pervasive lack of coordination or communication among a patients' various providers. In addition, often prescriptions are written to treat what appears to be a new condition when in reality, prescribers are treating a side effect of another drug or a combination of other drugs. This is called the prescribing cascade.

The third driver of medication overload in the report is termed information and knowledge gap. Now Tabula Rasa checks the box addressing this information and knowledge gap for pharmacotherapy. But back to the report, the main reason for this gap, according to the Lown report, is that from professional school to continuing education, nowhere is learning about the dangers of multidrug combinations mandated. In addition, clinical guidelines offer little guidance and can even cause medication overload.

One example of that in the Lown report was a physician quoted from Maryland who said, "If I lower my patient's blood pressure with many meds to the point where they fall and break their hip, I still get paid. But if their blood pressure is above the target, I fail the guideline". The risk of an adverse drug event, as the report indicates, increases by 7 to 10% with each medication, whether it's over-the-counter or prescription. And yet the literature reports that 55 to 75% of adverse drug events are deemed preventable.

Moving away from the Lown report, what is TRHC doing to solve this terrible problem? Using rigorous pharmacotherapy science, pharmacokinetics, pharmacogenomics, pharmacodynamics and chronopharmacology, TRHC has created and deployed the first science based multidrug analysis software called MedWise that has repeatedly demonstrated significant reductions in adverse drug events, falls, ER visits and hospitalizations in the elderly. There are three phases of our strategic approach. The first is design and development of our medication risk identification and mitigation software. This phase started in 2011 and is continuing.

The second phase of our strategic approach is documentation of impact and outcomes, and this phase started in 2013 and also is ongoing. MedWise technology has been launched in PACE, an Enhanced Medication Therapy Management program and an array of health plans that are at financial risk for hospitalizations, resulting in a positive economic clinical and humanistic outcome. The traction is firm, the interest is high, the value is measurable and the reimbursement is congealing. After design and documentation, the third phase of our strategic approach is deployment.

Our novel solution needs to be deployed ubiquitously. This phase started in earnest last year once our solution impact on outcomes was validated. How do we intend to deploy? I'll share four points about deployment. One tactic for scaling deployment is through our recent acquisition of PrescribeWellness.

PrescribeWellness acquisition provides us reach into their software platform that pharmacists use in more than 10,000 pharmacies. Through PrescribeWellness' integration with these pharmacies' medication management systems, we will be offering our MedWise multidrug risk analysis solution and medication decision support tools to tens of thousands of U.S. pharmacists. A second tactic for scaling deployment is complemented with our TRHC University.

Through our TRHC University, we have created online accredited CE courses as a prerequisite to enable community pharmacists to become certified MedWise pharmacists. We have been doing this for three years in the Enhanced Medication Therapy Management CNS pilot, training over 400 pharmacists in addition to training our own in-house certified MedWise pharmacists. The third tactic for deployment is beyond our borders. The interest in adverse drug event identification and mitigation is not limited to the U.S.

Two weeks ago, we had pharmacist leaders from Hong Kong and Taiwan come to our offices in Moorestown for in-person MedWise certification. We have a letter of intent with them, which would propagate our MedWise software-as-a-service to pharmacists in certain Asian countries. This is promising. And while we don't expect any incremental revenue from outside the U.S.

in the near term, we continue to develop relationships and expose international pharmacy leaders to our offering, which we believe will support our long-term growth plans. The fourth tactic for deployment is to hospitals and universities. Last week, we had pharmacist leaders from a large hospital software company, as well as folks from the University of Maryland's Medication Therapy Management, their pharmacist team, come to our offices in Moorestown for in-person MedWise certification. As Orsula will discuss in more detail, these integrations are critical to exposing clinicians to our medication risk tools and will eventually put us in position to intervene prospectively before medication is prescribed, as we do in PACE.

Our process for disseminating our needed life-saving software and decision support tools is thoughtful, deliberate and methodical. The rollout will be two to three years, not months. Who is our real focus? Pharmacists are the key to this dissemination. The software pharmacists have now in community and hospital pharmacies universally checks just one drug against one drug, providing superficial binary information based upon literature reports with no underlying science to understand neither the root cause of the multidrug interaction nor what to do about them.

MedWise provides root causation, actionable tools and enhances patient safety and quality, as well as reducing pharmacy and medical expenditures. Now are, or should pharmacist be interested in using this broader science? Well, with robotics in pharmacy exploding, we are on the path of medication dispensing becoming fully automated in the United States with the assistance of certified pharmacy technicians. Pharmacists are keenly aware that their need in the future will be as concierge type medication coaches. In spite of the technology with artificial intelligence and machine learning, which we're involved in, Eric Topol opined in his recent book, Deep Medicine, he said, "While artificial intelligence can do plenty of inferring and extrapolating, it can't reason and it has no common sense.

Human healthcare providers will never be replaced". So the adverse drug event problem is huge and growing every year. Our strategic solution is timely, effective and unique. Before I turn this over to Orsula, I would like to comment on our recent acquisitions and our sales initiative.

First, we have aligned with, and acquired, some companies to help solidify our leading position in the PACE market. We have organized Cognify, Mediture, Peak and Capstone under the CareVention umbrella. They are fully integrated and collaborating, which is yielding cross-selling results. Second, DoseMe is integrated fully and penetrating the hospital pharmacy sector, both in the United States and abroad, which will open the doors for MedWise sales in hospitals.

Third, Sinfonía's and PrescribeWellness integrations are progressing in marketing, HR, legal, compliance, sales, R&D and finance. The IT integrations have commenced and will take at least a year. Our clients and potential clients are clearly seeing the value of bringing these companies together to provide more comprehensive solutions as evidenced by our growing pipeline. I know we will have some exciting announcements later this year, which will showcase rationale for these strategic combinations.

Also, as we have talked about over the last year, our TRHC 2.0 organizational deep dive is on track and will be completed this year. And due to the acquisitions, we have the partners we need, as well as an executive bench of exceptional talent and intellect with skills, experience and vision. Turning now to our mounting sales force. Our chief sales officer, Kevin Boesen, former CEO and Founder of SinfoniaRx, has quickly integrated the PrescribeWellness sales team within his corporate sales efforts.

We now have a dozen people dedicated to sales reporting to Kevin Boesen. Kevin will be available to respond to any questions after Brian finishes his presentation. Last month, we hired Kevin Barton as AVP for business development reporting to Kevin Boesen. When at Walmart, Kevin Barton led their efforts to integrate SinfoniaRx's companion software in all Walmart pharmacies, resulting in improved performance and national ranking for Walmart.

Kevin Barton clearly understands the value that our tools bring to pharmacists, and he is charged with conveying the MedWise platform to the PrescribeWellness network and beyond. Last month, Kevin Boesen also launched our first sales team dedicated to selling MedWise into the managed Medicaid space. Lastly, our research team continues to focus on enhancing our science in the MedWise platform, thereby increasing the value and precision of our suite of medication risk identification and mitigation tools, as well as increasing our intellectual property vanguard position. From a macro perspective, we are experiencing meaningful tailwinds, which Orsula will address.

After Orsula, Brian will review our financials and our updated forecast. Orsula?

Orsula Knowlton -- Co-Founder and Chief Marketing Business Development Officer

Thanks, Cal. The U.S. is on the crest of a major shift toward value-based care. That is paying for outcomes as opposed to the traditional way on volume of services provided.

While previous administrations have supported value-based care, the current has made its support even more clear. During a recent interview with Adam Boehler, senior advisor to the secretary and deputy administrator for innovation and quality director, he stated that the goal of CMMI is to change payment to lower costs and improve quality for patients. We need to accelerate our efforts toward doing this and thinking differently about it. He noted that the problem is paying for volume.

Thus, there is an increased reliance on value-based care as the solution to escalating healthcare costs and negative outcomes. Both political parties agree that it's the key to the future of American healthcare. In fact, as Adam Boehler clearly identified in his recent interview, furthering the transition and embracing value-based care is one of HHS's top four priorities, which include patients as consumers, providers as accountable guides, paying for outcomes, prevention of disease before it occurs. As Cal alluded, this is a promising tailwind for Tabula Rasa as we have proven that our solution works well in value-based care settings.

With that in mind, I want to take a moment to highlight one of the positive regulatory tailwinds that was recently introduced. In April, HHS secretary, Alex Azar, took a huge step in expanding value-based care when he announced the new primary care initiative payment model, which requires payment for health and outcomes rather than fee-for-service. This is a voluntary program that could shift a quarter of the Medicare recipients currently in fee-for-service into a value-based care model, representing over 10 million members. One of the two models would pay primary care physicians a risk-adjusted flat rate per member and a set amount per visit with bonuses up to 50% of the savings for keeping their patients healthy and at home with only a 10% downside.

The second model is a direct contracting model for larger healthcare system-based practices. Clearly, HHS wants both large and small practices to participate and to be incentivized to care more for patient's welfare and less about the volume of patients per hour. Seema Verma, the CMS administrator, also mentioned that she is considering incorporating similar models into state Medicaid programs, which should expand our opportunity even further. TRHC certainly has a history of supporting at-risk primary care practices in a way that is collaborative and effective in enhancing care and outcomes.

And as providers take on increasing levels of risk, tools and services like ours become even more valuable along with the clinical pharmacist who delivers it. I'd like to take a moment to outline how we are uniquely positioned for success. First, similar to PACE, we enable providers to confidently accept risk while using our services and tools to manage medication regimens, resulting in improved health outcomes. We are already supporting providers who are early adopters of value-based care payment models, including Landmark Health, Tandigm Health where certified MedWise pharmacists mitigate medication risk along with Oak Street Health.

Second, we are in the midst of preparing to scale for an expansion of value-based care opportunities in primary care through our latest version of our public APIs, leveraging the most recent SMART on FHIR and CDS-Hooks technologies. This will enable the integration of our medication decision support tools into HRs used in primary care. In this API integration model, our MedWise risk score provides adverse drug event risk alerts in workflow. The certified MedWise pharmacist employed by the practice or by Tabula Rasa is a major component of the medication risk management process, both for the individual consumer and for the risk population.

Third, our PrescribeWellness network of eventually certified MedWise community pharmacists will be able to both initiate and monitor changes, along with educating consumers about preventative health and behavioral changes that are often required for better outcomes right in the community. Thus, we believe that our solutions can support and improve medications therapy outcomes through adverse drug event risk prevention and management no matter how the healthcare system evolves. We are uniquely positioned to handle whatever 2020 and the future brings, whether it's Medicare expansion, Medicare for all, our EMTM and Part D efforts can scale to accommodate the larger population. We know that patient engagement is the key to health outcomes, consumers want better quality, TRHC delivers.

From a business development standpoint, we couldn't be more pleased to have Kevin Boesen as our chief sales officer. As Cal mentioned, Kevin has recruited new talent, organized a national team of direct sales individuals to address our primary markets, not counting sales support implementation and client development. The combined prospect list includes four targeted segments. First, national payers and community pharmacies; second, regional health plans along with national for-profit plans; third, managed Medicaid plans; and fourth, PACE and similar special needs plans.

We now have a laser-focused dedicated team that will bring our value-based solutions to market. We are excited to provide product training across all sales segments this month and are acting with a sense of urgency, which is Tabula Rasa's fundamental No. 4. Some highlights from the first quarter include acquisition of PrescribeWellness, which as Cal mentioned, has its software embedded into thousands of community pharmacies.

Together with SinfoniaRX, we now offer a unique and robust air force/ground force solution that is already resonating with payers. PrescribeWellness and SinfoniaRx having begun integration of solutions that will result in new opportunities for payers and pharmacies to engage patients. First, through the use of the prescribed bonus pharmacy network, SinfoniaRX clients will be able to achieve even better performance, leveraging direct consumer contact to complete comprehensive medication reviews or CMRs. Second, PrescribeWellness technologies will also be used to support improved quality scores, like STAR and HEDIS measures for SinfoniaRx clients.

Because of this new capability of combining SinfoniaRx call center and PrescribeWellness community pharmacy network, we are seeing high interest for integration of these combined platforms, which will support the growing demand and potential explosive growth for MTM in various settings and the completion of processes that are critical for health plan customer success. Third, we have incorporated Tabula Rasa's Enhanced Medication Therapy Management model into SinfoniaRx's MTM RFP responses. This will provide greater overall value for clients in our new value-based care world. Lastly, we are pleased to have SinfoiaRx selected as the preferred MTM provider by a national not-for-profit group of health insurers.

Some of these and other health plan clients are customers of both SinfoniaRx and PrescribeWellness already. We are seeing a willingness to pay for the combined value that these two organizations bring to health plans and excitement about the integration of the TRHC medication decision support tools into these solutions. Now I would like to highlight recent success of our January acquired company, DoseMe. DoseMe CEO moved to the United States in January, establishing a strong U.S.

presence for the company. We are pleased with their first quarter progress of adding one of our nation's leading health systems in New Jersey and another in Florida with 15 hospitals during the first quarter. In Florida, the DoseMeRx technology was integrated directly through Cerner electronic health record technology. DoseMeRx used by hundreds of hospital-based clinical pharmacists brings standardization and medication safety to dosing perennial medications.

The DoseMeRx pipeline is robust, and we expect to be able to bring our MedWise solution into hospitals along with DoseMe. We have started discussions with a few pilot prospects already. I would like to conclude with my last topic, that is the program for all-inclusive care for the elderly or PACE, which is the first fully at-risk model of value-based care. In PACE, we continue to manage medication safety along with organizational performance while improving cost and outcomes such as reductions in hospital admissions.

Some recent happenings include that first, in March, we participated in the National PACE Association Spring Policy Forum. During the policy session, they spoke about anticipated changes in the Medicare payment model, which will result in a modest increase for PACE on average. Second, the association recently published a paper regarding the savings that PACE brings to state Medicaid programs. The report identified a 13% or $516 per member per month savings.

Lastly, CMMI sent their second letter to Medicaid directors regarding the various innovative programs in which they should participate, including PACE. We envision that one day, CMS may require states to participate in PACE or other innovative programs to receive their Medicaid dollars. Some additional highlights include that we hosted clients to communicate the impetus for the recent PACE solutions acquisitions recognizing that TRHC can now provide enhanced services and technology, enabling clients to deliver more efficient advanced care. For instance, we launched our first combined direct integrated software with Mediture in February at one of our clients StayWell Senior Care in North Carolina.

Indeed, the result is greater efficiency and improved client satisfaction. Our plan is to roll this out for the rest of our mutual clients. And considering the data that we have from these various services; our goal is to support our clients with an integrated data analytics package to further enhance client's performance in the near future. From a growth standpoint, all PACE client segments added new or expanded services during the first quarter.

PACE of the Ozarks, a start-up organization in Arkansas opened and is using three of our solutions. Our medication safety services signed and will begin a mature PACE organization in Northern California on June 1. We will start a new PACE program in Southern California scheduled to start on July 1 and have one long standing program in the South pending final approval expected to begin this summer. Indeed, we have had great cross-selling results.

In addition to what I just mentioned, we signed a new PACE start-up organization in Indiana, two PACE programs in Michigan began with our Medicare risk adjustment services and our health plan management services added four new PACE clients. Our PACE Technical Assistant Center or TAC has over a dozen clients with consulting engagements to open, expand our market their PACE locations throughout the U.S Our cross-selling efforts continue to support additional new and expansion growth in 2019. We are pleased with the collaboration and the growth trajectory of our PACE solution providers. A question you may be considering is what is the size of the total addressable market if all PACE used all of our solutions? Considering that we only have 25 to 30% market share, we have a great runway to continue on this path and estimate the market to have a run rate of nearly a billion dollars over the next several years.

With that, I'll turn the call over to Brian, our CFO. Brian?

Brian Adams -- Chief Financial Officer

Thank you, Orsula. To finish up our prepared remarks this evening, I'll review the first quarter in detail and provide our outlook into the second quarter and full-year 2019. But before I dig into the numbers, I also wanted to express how pleased I am with the company's performance in the first quarter. The markets we are targeting are clearly understanding the value of our recent acquisitions and the additions that they bring to Tabula Rasa's solutions.

And I believe that we are extremely well positioned for a successful 2019. For the first quarter of 2019, Tabula Rasa generated total revenue of $61 million, a 39% increase year over year. Excluding recent acquisitions, this represented 19% organic growth. Product revenue in the quarter was $31 million, representing 14% growth in comparison to the first quarter of 2018.

We maintain our 20% growth forecast for product revenue for the full year. Service revenue came in at $30 million in the quarter compared to $16.8 million last year, an increase of 79% from the first quarter of 2018. Recent acquisitions contributed $8.9 million to the increase. The organic growth rate for service revenue was 26% and primarily due to the growth in our medication risk management services.

Gross margins, excluding depreciation and amortization, of 32% this quarter compared to 28% in the same period last year. As we have discussed in the past, first quarter is generally the period in which we have the lowest gross margin due to the seasonality of the SinfoniaRx business. First quarter of 2019 was also favorably impacted by the recent software acquisitions, which generally carry a higher margin. We had previously set a long-term gross margin target of 35 to 40%, and we now expect to reach the high end of that range this year.

As such, we are updating our longer-term gross margin target to 40 to 45%. Gross margin, excluding depreciation -- product gross margin excluding depreciation and amortization, was 24% in the first quarter of 2019, consistent with last quarter and compares to 23% for the same period last year. This was in line with our expectations for the quarter based on recent client onboarding. Service gross margin, excluding depreciation and amortization of 39% in the first quarter of 2019, compares to 35% in the first quarter of 2018.

SinfoniaRx had a material increase in gross margin during the first quarter, approximately 1,000 basis points due to improved staffing ratios compared to last year. PrescribeWellness also contributed to the increase in margins, which was expected given the SaaS nature of their business, which in general carries a higher margin. We expect the contribution from these two businesses will put us in a position to meet our longer-term gross margin targets this year. Overall, service revenue made up 49% of total revenue this year compared to 38% last year.

We've made it clear that this shift is deliberate, and we expect it to continue as a result of our recent acquisitions and growth strategy. Our operating expenses represented 52% of total revenue this quarter, down from 63% in the same period a year ago. When you exclude depreciation, amortization, stock compensation and the impact of the change in fair value to the contingent consideration, operating expenses would have represented 30%, up from 20% in the first quarter of 2018. This increase is in line with our expectations as operating expenses reflects Tabula Rasa 2.0 initiative, along with the incremental cost in 2019 for DoseMe and the Precision Pharmacotherapy Research and Development Institute.

We generated $5.7 million in adjusted EBITDA in the first quarter compared to $4.3 million a year ago. This exceeded the top end of our quarterly guidance. You will recall, we did not update adjusted EBITDA for PrescribeWellness at the time of the acquisition for the quarter, which contributed about $500,000 to the variance. Adjusted EBITDA margin for the first quarter of 2019 was 9.3% compared to 9.8% in the first quarter last year.

This is in line with our expectations for the quarter based on some of the investments we are making which commenced earlier this year. Our GAAP net loss of $11 million compares to a GAAP net loss of $18.1 million in the first quarter of 2018. The primary factors contributing to the net loss were stock-based compensation of $6.9 million; depreciation and amortization of $6.3 million; acquisition-related expenses of $3.6 million; interest expense of $2.7 million; and changes in fair value of acquisition-related contingent consideration of $1.2 million related to Cognify and DoseMe. GAAP net loss per diluted share for the first quarter of 2019 was $0.54 compared to $0.96 for the same period last year.

The net loss per diluted share calculations are based on share count of 20.4 million for the first quarter of 2019 versus 18.8 million for the first quarter of 2018. Adjusted net income per diluted share for the first quarter of 2019 was $0.10, consistent with the first quarter of 2018. The adjusted net income per diluted share calculations are based on a diluted share count of 22.9 million for the first quarter of 2019 versus 21.1 million for the first quarter of 2018. Our adjusted net income per diluted share for the quarter excludes stock-based compensation, amortization of acquired intangibles, noncash interest expense related to the amortization of debt discount and stock -- and issuance costs, acquisition-related expenses, changes in fair value contingent consideration, as well as the impact on income taxes using a normalized tax rate.

Turning to the balance sheet. As of March 31, 2019, we had an unrestricted cash balance of $49.6 million compared to cash at the end of last quarter of $20.3 million. The increase is primarily the result of the net proceeds from the $325 million convertible Senior subordinated note offering in February. We used proceeds from the note of $35.8 million to pay the cost of the convertible hedge and mort transactions, $148.6 million to acquire PrescribeWellness; $43.2 million to pay off the earnout in connection with the acquisition of SinfoniaRx; and $45 million to pay down our line of credit.

Currently, we have nothing drawn on that line. I'll close out my comments today with our outlook for the second quarter and full-year 2019. For the second quarter of 2019, we anticipate revenue to be in the range of 68 to $73 million; adjusted EBITDA to be in the range of 8.5 to $9.5 million; and net loss to be in the range of 10.9 to $10.1 million. For full-year 2019, we are reiterating the guidance we previously provided for revenue and adjusted EBITDA and updating net income guidance as a result as a result of purchase accounting for PrescribeWellness and DoseMe.

We anticipate total revenue to be in the range of 280 to $290 million. Of that revenue, we expect product revenue of $140 million and service revenue of $145 million at the midpoint of the range. We expect adjusted EBITDA to be in the range of 36 to $41 million. As mentioned previously, our guidance includes expected losses in 2019 attributable to DoseMe, as well as costs related to the Precision Pharmacotherapy Research and Development Institute.

As we've previously communicated, we do not expect to have an adjusted EBITDA margin any higher than what we realized in 2018, which was 14%. After folding in DoseMe and the research institute, we expect to be less than 100 basis points below our 2018 margin at the midpoint of our guidance. Again, a very reasonable investment related to the future potential we are creating. We expect net loss to be in the range of 39.3 to $35.1 million.

Our remaining 2019 outlook assumes an effective tax rate of 15%, and we do not expect to be a cash taxpayer in 2019 for federal taxes. Our net loss projection does not include any future change in fair value of acquisition-related contingent consideration for DoseMe and Cognify acquisitions. As Cal and Orsula expressed, this was a very strong start to 2019 for Tabula Rasa. We have built an incredibly solid foundation on which to grow organically and through our acquisitions.

And we're really beginning to feel the effects of favorable industry tailwinds. That concludes my prepared remarks, and I'll turn the call back over to Cal for closing. Cal?

Calvin Knowlton -- CEO, Chairman, and Founder

Thank you, Brian. I think we've all stressed on this call that we're incredibly pleased with everything that Tabula Rasa has accomplished thus far in 2019 and where we're going. And because we were a little long-winded on this call, I'm going to truncate it here with my remarks and thank everyone and then we'll open the thing for questions. Please, operator?

Questions & Answers:


[Operator instructions] And our first question comes from the line of Mohan Naidu with Oppenheimer. Your line is now open.

Mohan Naidu -- Oppenheimer -- Analyst

Thanks for taking my questions. Cal, maybe to begin with, there are so many opportunities for you guys right now and maybe a part of this is for Kevin as well. How are you guys prioritizing resources in different markets when you think about health plans, the pharmacies and the hospital segment? And where do you see the near-term opportunities versus long-term opportunities for deal flow?

Calvin Knowlton -- CEO, Chairman, and Founder

Thank you, Mohan. Kevin Boesen, do you want to take that one for us?

Kevin Boesen -- Chief Sales Officer

Thanks for the question. The way to think about short-term versus long-term is looking at the existing client base that both Sinfonia -- or I guess Sinfonia, Tabula Rasa and PrescribeWellness have in the payer market and looking at cross-selling opportunities. So there's a great deal of excitement around a Sinfonia client, for example, that's using call center services to now have a broad access to over 10,000 pharmacies, the ability to speak with a trusted pharmacist about questions and using the Tabula Rasa science. So a lot of what we're doing from a marketing standpoint is really focusing on that.

The second longer term is really some of the new markets. Orsula mentioned, having two of the folks that we have on our team specifically going into the managed Medicaid space. Sinfonia and PrescribeWellness have existing Medicaid clients. And so, there's good models that we're looking on expanding.

But there is, again, a great deal of excitement in the Medicaid space of really focusing on a MedWise solution that focuses on medication safety, reducing overall healthcare costs. So as Orsula mentioned, we have the sales team aligned as a national payer focus for one group, regional plans for another group and managed Medicaid for a third group in the payer space.

Brian Adams -- Chief Financial Officer

And just to build on that for a second, Mohan. I think what's important to note is the fact that we have models that are already launched and commercial, and we're really just leveraging those into new markets. So from an operations perspective, this is not something new. We're just targeting some other markets.

Mohan Naidu -- Oppenheimer -- Analyst

Thanks for that color. Maybe Orsula, on DoseMe product, the two new deals that you talked about in New Jersey and Florida, that does not include the MedWise product right now, right? It's just pure DoseMe?

Orsula Knowlton -- Co-Founder and Chief Marketing Business Development Officer

That is correct, yes.

Mohan Naidu -- Oppenheimer -- Analyst

OK. Last question for me. Any updates on the Portugal pilot? And I guess the visit from Hong Kong and Taiwan, that sounds very interesting, how can that translate into a deal flow? Or how should we think about that becoming a contract eventually?

Calvin Knowlton -- CEO, Chairman, and Founder

Yes, this is Cal. The Portugal one is still going along. It's slower than we thought with some problems with IT over there that we're working through. But it'll happen.

The other part of the world that's really interested, what they want to do is they have leaders over there that want to be a train and the trainer type of effect. And so that was the first foray they had with a few of their leaders come over here and have the training. We don't think that's going to be a near term -- maybe a contract, but it's not going to be near-term revenue. This is going to be a year or two.

Brian Adams -- Chief Financial Officer

Yes. This is Brian. It's going to take us a while to really develop what the operating model looks like there. But in an international setting, we are really looking for these folks to be channel partners for us.

And so that's really the intention of kind of trying to develop that type of relationship.

Calvin Knowlton -- CEO, Chairman, and Founder

I think, Mohan, the other thing that we're -- that's happening in Europe is the patient privacy laws have gotten very strict. And so, we're kind of working through that from an IT perspective too.

Mohan Naidu -- Oppenheimer -- Analyst

That's great. Thanks a lot for all the color.


And our next question comes from the line of Ryan Daniels with William Blair. Your line is now open.

Ryan Daniels -- William Blair and Company -- Analyst

Guys, thanks for taking the questions. Brian, one for you. I think you mentioned that the SinfoniaRx gross margins were up about 1,000 basis points year over year. Can you go into a bit more detail about what you did on the staffing front and how sustainable that type of gross margin improvement for that specific business line is going forward?

Brian Adams -- Chief Financial Officer

Sure. So some of the changes that went into effect going into this year were really a result of the fact that we had a pretty significant increase in revenues and the requirement related to our customers. There's been a significant increase in the number of comprehensive medication reviews that need to be completed in order to maintain certain star ratings. And so, it really was generated out of demand from our customers because as those were released late last year, we were able to kind of reposition in the first quarter when typically, we do have a lower margin because the qualification period is taking place.

Now I don't necessarily feel like that's going to be sustainable for the full year, although we do expect that there will be some accretion and benefit from this enhanced staffing model. So I do think that we'll continue to see some expansion of margins for that business. This was an extreme benefit for this quarter.

Ryan Daniels -- William Blair and Company -- Analyst

OK. That's helpful and makes sense. And then I apologize I got booted out during the first question you may have been answering this. But I'm curious, either for Kevin or Orsula, when you talk about the direct contracting model and kind of CMS's push to potentially move 10 million, 11 million patients into that over the next few years, how do you balance the potential to go to what could be systems and smaller physician groups, which are going to be numerous in size, managing those patients with the investment -- so a big opportunity but the investment that that could take from a sales standpoint to get out in front of all those individuals? Is this something that you do internally or look for partnerships with vendors who are already with those physician groups? How do you think about that as it approaches pretty quickly here?

Calvin Knowlton -- CEO, Chairman, and Founder

Kevin, you want to take that one? Or Orsula?

Kevin Boesen -- Chief Sales Officer

Yes. It's a great question. And I think in terms of looking at the changes in healthcare and how do we position ourselves is important. One of the things as we think about models like that is really leveraging the new workforce that we pick up with PrescribeWellness, where you have a community pharmacist in a lot of the areas that are really targeting this expansion and the ability through the PrescribeWellness platform, as well as different payer relationships that Tabula Rasa has existing, to both manage that patient population to help those pharmacists become more equipped to work with providers in a more collaborative model, using both the existing PrescribeWellness software, as well as enhancing that with the medication decision science that Tabula Rasa has.

So it's really one of the ways that we're looking at leveraging that is saying, all right, we've got 10,000 pharmacists in these communities that can really partner and work with these doctors. How do we empower them with the use of better technology?

Orsula Knowlton -- Co-Founder and Chief Marketing Business Development Officer

Kevin, I was just going to add that we do have partnerships that we've established, for instance, with the technology companies where we're in their marketplace. We are in the marketplace of Athena right now. We envision that that would be very helpful for people looking for medication risk management resources or value-based care as those value-based care programs start to roll out.

Ryan Daniels -- William Blair and Company -- Analyst

Right now, I'll keep it at two in the interest of time. Thanks.


And our next question comes from the line of Sean Wieland with Piper Jaffray. Your line is now.

Sean Wieland -- Piper Jaffray -- Analyst

Hi. Thank you. So on PrescribeWellness, do you have any early proof points on your ability to improve consumer engagement for either the MTM services from Sinfonia or within the EMTM pilot?

Calvin Knowlton -- CEO, Chairman, and Founder

Kevin, you're probably best to talk about some of the earlier proof points and what you're doing on the sales side.

Kevin Boesen -- Chief Sales Officer

We do. So PrescribeWellness -- and there's two advantages that we pick up working with them that the payers are really excited about. One is the access to the pharmacist. The patients see a pharmacist, particularly ones that we're targeting 30x to 40x a year.

So that patient engagement strategy of leveraging the pharmacy is important. The other piece of it is the technology that PrescribeWellness has and using some of that technology that the stores do, whether it be voice messaging, text messaging, email, and applying that technology specifically on the Sinfonia side. So there is data in terms of what we've done with PrescribeWellness already in terms of improved engagement, and it's definitely significant. And as cutpoints for patient engagement, Star Ratings, things like that escalate, we have a clear advantage now in the market because of the relationship.

Sean Wieland -- Piper Jaffray -- Analyst

All right. And you were talking about the tie in of PrescribeWellness to Sinfonía and the call centers. And I know probably the improvement in gross margins is not related to that. But is there a potential for another lift in gross margins as you integrate PrescribeWellness into the SinfoniaRx call center business?

Calvin Knowlton -- CEO, Chairman, and Founder

Absolutely, Sean. There's definitely an opportunity to continue to improve margins as a result of the acquisition.

Sean Wieland -- Piper Jaffray -- Analyst

Super thanks so much.


And our next question comes from the line of Stephanie Demko with Citi. Your line is now open

Stephanie Demko -- Citi -- Analyst

Hey, guys. Thank you for taking my questions. Cal, could you give us some color on the consumer-facing business line and how we can expect this to evolve now that you've added PrescribeWellness?

Kevin Dill -- Corporate Counsel

Could you just repeat yourself? You broke up just a little bit for us.

Stephanie Demko -- Citi -- Analyst

Sure thing. I just wanted to get some color on the consumer facing business side and maybe how that can evolve now that you have PrescribeWellness?

Calvin Knowlton -- CEO, Chairman, and Founder

Well, there's a couple of thing there, Steph. My MedWise is in play with that, and we're going to be offering that to the -- once the pharmacists have the MedWise certification, if they want to offer that as an upsell to their patients on their iPhone and so forth, the MyMedWise is what they'll be using, and that will be tethered right to the local community pharmacy's database. And the patient will be able to, let's say they want to go to 7-Eleven and get something for sleep or something for their dad, they'll be able to load it in there, it will show them right away what's happening to the risk score. They'll be able to have an instant message or a way to contact the local pharmacist, or if there's not a local pharmacist, then we'll do in one of our call centers.

So that's kind of the plan on that. We also are starting on another model that's not fully baked yet that will work collaboratively with a couple of other companies that will permit us to -- a couple other companies that are doing some direct-to-consumer stuff right now. And that will permit us to license some of our materials and our pharmacists, so to speak, to evoke this mild direct-to-consumer initiative. So we've done some focus groups on that already and some marketing groups with a number -- a lot of clients -- a lot of patients that they've looked at.

So we're kind of cooking that on the side and we'll be able to unveil that hopefully by next quarter or the quarter thereafter.

Stephanie Demko -- Citi -- Analyst

And I look forward to hearing more about it. And then this next one is for Brian. So correct me if I'm wrong, but I believe you guys are coming up on your AmerisourceBergen contract this month. Could you give us any color on that renewal and maybe how we should think about the impact on margins given you've really changed in scale over the past three years?

Brian Adams -- Chief Financial Officer

Sure. So we are not going to be renewing with AmerisourceBergen. We've actually signed a contract, it will be disclosed in the Q with Thrifty White and they're going to be acting as our -- essentially a GPO for us. Now what I will say is that when we rolled out of a different GPO arrangement a couple of years ago, we were able to maintain our current pricing structure, although we were much smaller than the GPO buying group at the time.

So there will be some incremental margin improvement, but that won't happen until the second half of this year and it's probably going to be, I would say, about 100 basis points or so on the product side.

Stephanie Demko -- Citi -- Analyst

Got it. And that should annualize into first half of next year also and continue, or will that --

Brian Adams -- Chief Financial Officer

No, that will continue.

Stephanie Demko -- Citi -- Analyst

Thank you, guys. Appreciate it.


And our next question comes from the line of Matt Gillmor with Robert Baird. Your line is now open.

Matt Gillmor -- Robert W. Baird and Company -- Analyst

Hey, thanks for taking the question. Appreciate all the comments. I guess I wanted to ask about the PACE revenue progression in your outlook. I think growth this quarter was 18% and then the guidance you provided at 1 40 implies a little bit of an acceleration as the year progresses.

So can you maybe just sort of talk about that acceleration? What's driving it and sort of the line of sight to some of the onboarding that I assume are part of that?

Brian Adams -- Chief Financial Officer

Sure. I'll take that, Matt. Yes, I mean the overall growth rate on the product side this quarter was a little bit light. And really, that's the result of a recent client closure that is impacting us in the short term.

But we have enough in the pipeline and already signed moving into the latter half of this year that we feel very confident in the 20% projection that we talked about. So that's about it.

Matt Gillmor -- Robert W. Baird and Company -- Analyst

OK. And then maybe one follow-up to some of your prepared remarks. I heard there was a comment about SinfoniaRx being selected by a national nonprofit insurer. I just wanted to maybe understand that relationship.

Is that business that starts this year or is it effective for 2020?

Orsula Knowlton -- Co-Founder and Chief Marketing Business Development Officer

Kevin, would like to comment on that?

Kevin Boesen -- Chief Sales Officer

Yes, it really -- so what it does is it allows an opportunity for members within that organization to do some direct contracting. And the programs that are included in that MTM, it's MTM broad. So if it's a Medicare program, it'll likely be a 2020, but it also gives us the opportunity to launch some commercial programs, Medicaid programs, other programs within the current calendar year.

Brian Adams -- Chief Financial Officer

Kevin, I think it might be helpful to just give them some perspective on the number of lives that are covered by that organization.

Kevin Boesen -- Chief Sales Officer

Yes, it's a large organization, it's about 100 million.


And our next question comes from the line of Frank Sparacino with First Analysis. Your line is now open.

Frank Sparacino -- First Analysis -- Analyst

Hi, guys. Given the time, I'll just catch up with you offline.

Calvin Knowlton -- CEO, Chairman, and Founder

Thanks, Frank.


And our next question comes from the line of Jamie Stockton with Wells Fargo. Your line is now open.

Jamie Stockton -- Wells Fargo Securities -- Analyst

Hey, thanks for taking the question. Maybe just one quick one. The services business, I know there's some noise in there because of the acquisitions that drove part of the kind of higher sequential revenue. But I think, Brian, maybe you even mentioned earlier that like the Sinfonia business is usually a little seasonally weaker, but services were still up sequentially.

So is there anything that we should think about as being a driver of the sequential improvement outside of the acquisitions?

Brian Adams -- Chief Financial Officer

Yes. I mean I would say that a number of our relationships that we secured last year have expanded quite nicely going into 2019, and that's really driving a good bit of the organic growth that you're seeing there, which was about 26% this quarter. So continuing to see an interest and value from the customer side. And so we've been pretty pleased with the expansion of a number of those relationships this year.


[Operator signoff]

Duration: 59 minutes

Call participants:

Kevin Dill -- Corporate Counsel

Calvin Knowlton -- CEO, Chairman, and Founder

Orsula Knowlton -- Co-Founder and Chief Marketing Business Development Officer

Brian Adams -- Chief Financial Officer

Mohan Naidu -- Oppenheimer -- Analyst

Kevin Boesen -- Chief Sales Officer

Ryan Daniels -- William Blair and Company -- Analyst

Sean Wieland -- Piper Jaffray -- Analyst

Stephanie Demko -- Citi -- Analyst

Matt Gillmor -- Robert W. Baird and Company -- Analyst

Frank Sparacino -- First Analysis -- Analyst

Jamie Stockton -- Wells Fargo Securities -- Analyst

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