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Tabula Rasa HealthCare, Inc. Common Stock (NASDAQ:TRHC)
Q4 2019 Earnings Call
Feb 27, 2020, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 Tabula Rasa HealthCare earnings conference call. [Operator instructions] I would now like to hand the conference over to your speaker, Mr. Kevin Dill. Please go ahead.

Kevin Dill -- General Counsel

Thank you, and good afternoon. 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 most recent Form 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. Cal?

Cal Knowlton -- Chief Executive Officer, chairman, and Founder

Thank you, Kevin. Good evening and thank you for joining us for our fourth-quarter and full-year 2019 earnings call. With me today are Dr. Orsula Knowlton, co-founder, chief marketing, and business development officer; Mr.

Brian Adams, our chief financial officer; and Dr. Kevin Boesen, our chief sales officer. Orsula and Kevin will both be available to respond to questions after we conclude our prepared remarks. 2019 ended on a solid note with fourth-quarter total revenue of $73 million, near the high end of our guidance range and up 28% versus a year ago.

Non-GAAP adjusted EBITDA of $8 million exceeded the high end of our guidance. For the full-year 2019, total revenue of $285 million increased 39%. Non-GAAP adjusted EBITDA of $38 million increased 30%. We are pleased to report another year of 20% or better organic growth, plus three important developments I'd like to highlight for the year, including, one, growth in our core PACE market; two, the significant investments in sales and marketing and in research and development; and three, the March 2019 acquisition of PrescribeWellness.

First, our core PACE market continues to exhibit strength fueled by a 14% increase in our membership and nearly $10 million of cross-sell revenue recognized during 2019. This has increased our per member per month, or PMPM fee, 10% versus a year ago to $490. Note, this figure is less than 50% of the potential PMPM fee of $1,100. This is an indication that our comprehensive family of CareVention product offerings remains underpenetrated.

Based on new pay center openings and industry enrollment beginning to trend higher under the PACE 2.0 initiative, along with a strong 2019 selling season, we are confident that 2020 will be another robust year. Second, during 2019, we made significant investment in sales and marketing to fuel future growth and in research and development to continue to innovate and advance our proprietary Medication Safety technology platform, including the launch of our Precision Pharmacotherapy Research & Development Institute in Lake Nona, Florida. For instance, GAAP research and development spend in 2019 increased 78% to $21.7 million, which is 7.6% of revenue versus 6% in 2018. Including capitalized software, R&D spend increased 104% to $36.2 million or 12.7% of revenue versus 8.7% in 2018.

During 2019, in addition to streamlining the Medication Risk Stratification process, the team initiated three major research products with different universities and is focused toward increasing peer-reviewed publication. In fact, we received 182 citations during 2019, which translates to someone giving reference to the work completed by our team every two days. For the year 2019, sales and marketing spending increased 162% to $25.3 million or 8.9% of revenue versus 4.7% of revenue in 2018. As we have discussed on our last few earnings calls, we have been adding to our direct sales team to better target the health plan market, and we are excited about the new opportunities building in our sales pipeline for 2020 and beyond.

Given the timing of our sales investments through calendar-year 2019, we began to see significantly more sales opportunities enter our funnel during Q4 and into Q1 of this year. For example, the number of sales leads in the first two months of 2020 is up nearly threefold versus the same period last year. We have a healthy sales pipeline across our three target markets: PACE, pharmacists, and payer market. Last, our March acquisition of PrescribeWellness greatly expanded our total addressable market by its strong pharmacy footprint and synergies to deliver clinical programs on behalf of health plans, as well as diversifying our revenue mix, driving services revenue to 52% of total revenue and software-related revenue to 16% of total revenue.

Before turning over to Brian to cover the financial highlights, I wanted to reiterate our key 2020 growth drivers, including, one, continued success with our cross-selling activities within PACE; two, accelerating the adoption of our MedWise solutions by health plans across all business lines, for example, Medicare, Medicaid and commercial; and three, increasing the number of pharmacists licensing the MedWise platform. We signed important new deals in 2019 during the fourth quarter, including Magellan and Blue Cross Blue Shield of Arkansas. Plus, we have seen encouraging interest from pharmacists looking to license our tools outside of our recently launched MedWise pilot, validating our strategy to propagate the use of MedWise across new populations and in new settings. A recent industry article identifying tools to help pharmacies meet operational and clinical goals highlighted the use of MedWise by the owner of 22 Central Iowa Pharmacy.

The pharmacists used MedWise to review complex multi-drug medication regimen while also leveraging PrescribeWellness to gain insights into medication this year. These pharmacies are participating in our pharmacy network, supporting the Enhanced Medication Therapy Management Program for Part D patients. According to their pharmacy director, pharmacists are improving patient outcomes by assessing the risk level of a patient for an adverse drug event using the MedWise Risk Score. This allows their community and long-term pharmacy location to be a part of the value-based healthcare movement.

Finally, the owner of the pharmacies noted that he is now looking for ways to extend the benefits of MedWise to a broader patient population in his local market. Let me now turn it over to Brian.

Brian Adams -- Chief Financial Officer

Thank you, Cal. A couple of highlights from the quarter include another strong period of performance from our PACE segment, driving product growth of 25% versus a year ago and 8% on a sequential basis. And non-GAAP adjusted EBITDA of $8 million, which was $1 million ahead at the high end of our guidance range due to favorable expense management. Now turning to financial results.

For the fourth quarter of 2019, we generated total revenue of $73.2 million, an increase of 28% compared to a year ago. For the full year, total revenue of $284.7 million, which increased 39% on a reported basis and 20% on an organic basis. Fourth-quarter product revenue of $37.8 million increased to 25% versus a year ago while service revenue of $35.4 million increased 30%. For the full year, product revenue of $137.1 million increased 22% versus a year ago while service revenue of $147.6 million increased 61%.

The strong year-over-year growth in our service revenue of $56.1 million was driven by contributions from acquisitions, namely PrescribeWellness and 17% organic growth within our service offerings. Gross margin, excluding depreciation and amortization expense, was 34.3% in the quarter and represented a 150-basis point improvement versus 32.8% a year ago. For the full year, gross margin of 36.3% represented a 370-basis point improvement versus 32.6% a year ago. The increase during Q4 and the full-year 2019 is primarily the result of the ongoing shift in our revenue mix toward services, which includes SaaS.

SaaS revenue accounted for 16% of total revenue during 2019 versus just 4% during 2018. Increasing the mix of services and SaaS revenue is a major focal point and an important driver in improving and meeting our long-term gross margin target range of 40% to 45%. As we have noted previously, over time, we expect an increasing bias toward licensing MedWise for internal use by employed clinical pharmacists versus the full outsourcing model that dominates today. Product gross margin, excluding depreciation and amortization, was 25.7% in the quarter, compared to 24% a year ago.

As we expected, the increase in margins is the result of our recent transition to a new prime vendor. For the full year, product gross margin improved more modestly to 25.4% and from 24.7% in 2018 given the timing of implementation with our new prime vendor. Service gross margin, excluding depreciation and amortization, was 43.5% in the quarter, compared to 42.5% a year ago. For the full year, service gross margin improved more than 400 basis points to 46.5% from 42.4% in 2018.

The increase in service gross margin is primarily the result of higher margins on the SaaS offering from the PrescribeWellness acquisition in March of 2019. Operating expenses of $33.6 million, excluding the impact of the change in fair value related to acquisition-related contingent consideration, represented 45.9% of total revenue in the quarter, up 77% from the $19 million or 33.2% of total revenue a year ago. For the full year, operating expenses of $132.2 million, excluding the impact to the changing fair value to the acquisition-related contingent consideration, represented 46.4% of total revenue, up nearly twofold from $66.9 million or 32.7% in 2018. The increase is due to several initiatives.

The launch of our Precision Pharmacotherapy Research & Development Institute, investments related to our recent acquisitions, and the build-out of our sales infrastructure. As previously stated, we expect improvement in our operating leverage to begin to materialize over the next two to three years as we capitalize on expanding our sales force, execute on synergies resulting from the acquisition, and continue to integrate our platforms and infrastructure. In terms of adjusted EBITDA, we generated $8 million in the quarter, compared to $8.5 million a year ago. Adjusted EBITDA margin for the quarter was 10.9%, compared to 14.7% a year ago.

This was ahead of our guidance range of $6 million to $7 million due to better expense management. For the full year, adjusted EBITDA of $37.9 million increased 29% and represented a margin of 13.3% versus 14.4% a year ago. Research and development costs, including stock compensation, increased 37% to $5.1 million or 7% of revenue, compared to 6.5% last year. For the full year, R&D increased 78% to $21.7 million or 7.6% of revenue versus 6% in 2018.

Sales and marketing costs, including stock compensation, increased 149% to $6.7 million or 9.1% of revenue, compared to 4.7% last year. For the full year, sales and marketing increased 161% to $25.3 million or 8.9% of revenue versus 4.7% in 2018. G&A costs, including stock compensation, increased 52% to $12.1 million or 16.5% of revenue, compared to 13.9% last year. For the full year, G&A increased 81% to $50.9 million or 17.9% of revenue versus 13.8% in 2018.

And lastly, depreciation and amortization costs more than doubled to $9.8 million or 13.3% of revenue, compared to 18.2% last year. Our GAAP net loss of $6.8 million compares to GAAP net loss of $10.6 million a year ago. GAAP net loss per diluted share for the quarter was $0.33, compared to a GAAP net loss per diluted share of $0.54 for the same period last year. The net loss per diluted share calculations are based on a diluted share count of $20.9 million for the quarter versus $19.4 million a year ago.

For the full year, our GAAP net loss of $32.4 million compares to GAAP net loss of $47.3 million a year ago. GAAP net loss per diluted share was $1.57, compared to GAAP net loss per diluted share of $2.48 for 2018. The net loss per diluted share calculations are based on a diluted share count of $20.6 million for 2019 versus $19.1 million for 2018. Adjusted net income per diluted share for the quarter was $0.13, compared to adjusted net income per diluted share of $0.21 a year ago.

The net income per diluted share calculations are based on a diluted share count of $23 million for the quarter versus $22.8 million a year ago. For the full year, adjusted net income per diluted share was $0.79, compared to adjusted net income per diluted share of $0.77 from 2018. The net income per diluted share calculations are based on diluted share count of $22.9 million for 2019 versus $22 million for 2018. Turning to the balance sheet.

As of December 31, 2019, we had $42.5 million of unrestricted cash, compared to $47.3 million last quarter and $20.3 million at the end of 2018. We currently have $60 million available on our line of credit with nothing drawn. To wrap up my comments today, I'll provide an outlook on the first quarter of 2020 and our initial outlook for the full-year 2020. For the first quarter of 2020, we anticipate revenue to be in the range of $68.5 million to $73.5 million.

Adjusted EBITDA to be in the range of $4 million to $5 million, a net loss to be in the range of $13.2 million to $12.5 million. In terms of linearity throughout 2020, we expect the first quarter to mark the revenue low point for the year, followed by a material sequential increase each quarter as we benefit from the seasonal strength in MTM and the conversion of opportunities in our pipeline. We expect profitability to follow a similar path. For the full-year 2020, we anticipate total revenue to be in the range of $332 million to $352 million.

Note our guidance range is wider than it has been historically due to the overall growth of the business and the changing revenue mix with an increased focus on the payer market. The sales pipeline is exponentially larger versus the year ago, including larger opportunities and average deal sizes. Adjusted EBITDA to be in the range of $46 million to $52 million. The midpoint of the 2020 margin range, 14.3%, represents a 100-basis point increase from where we landed in 2019 and 150 basis point expansion versus the midpoint of the full-year 2019 guidance provided last quarter and is consistent with my prior comments.

And net loss to be in the range of $31 million to $27 million. These net loss projections do not include any future adjustments to contingent consideration liabilities related to M&A. We expect to generate $15 million to $20 million of free cash during 2020. And looking beyond 2020, recall, we provided long-term targets during the analyst investor day at the end of January, including revenue growth of 20% to 25%, gross margin of 40% to 45% and adjusted EBITDA margin of 20-plus percent.

For modeling purposes, we anticipate margin expansion in 2021 to be at a slower rate versus 2020 with the key factor being 2019 is an easier comparison and an anomaly given the dilutive impact of our acquisition of DoseMe, the launch of our R&D Institute in Florida and the significant expansion of our sales force, as highlighted earlier. Overall, I'm pleased with Tabula Rasa's performance in 2019. We ended the year at the midpoint of our initial guidance ranges for both revenue and adjusted EBITDA that we provided post the March acquisition of PrescribeWellness, despite the loss of the large contract we discussed last quarter. Our traditional PACE market remains robust, with continued strong membership growth and cross-sell efforts that exceeded internal expectations in 2019.

We're optimistic that the sales force investments we've made in 2019, early wins and the resulting growth in the pipeline will convert into even stronger sales momentum outside of PACE in the years ahead. With that said, I would like to turn the call back over to Cal for his closing remarks. Cal?

Cal Knowlton -- Chief Executive Officer, chairman, and Founder

Thank you, Brian, and thank each of you for joining our call. Sincere thanks to our sophisticated team members who have enabled us to continue to propagate our disruptive MedWise Medication Safety Solution. We look forward to continued solid growth in 2020. Operator, please open the call to questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question will come from Ryan Daniels with William Blair.

Ryan Daniels -- William Blair and Company -- Analyst

Hey, guys. Thanks for taking the questions. Brian, maybe one for you. In regards to the wider revenue range this year, I appreciate some of the volatility there given the size of the pipeline.

But can you provide a little bit of color, maybe at the midpoint, of how visible your revenue is for the full year and then maybe some of the key puts and takes to get you toward the higher or lower end of the range?

Brian Adams -- Chief Financial Officer

Sure. So at this point, Ryan, we've got about a 10% bogey that we've got to go and win at this point, so to get to the midpoint of the range. And in conversations with Kevin, and I'm sure he'll expand in future questions today, we feel pretty good about that number based on what's in the pipeline. We've got a number of pretty large opportunities that could put us at the high end.

But we did spend last year building out the sales infrastructure, so we felt it was appropriate to put a little bit of a wider range and a bigger target given the fact that we've now got a team that's out there actually selling. And so the midpoint of the range would be about 10% to go.

Ryan Daniels -- William Blair and Company -- Analyst

OK, that's helpful. And then you talked about one of the potential things being conversion within your current client base. Is that when you referenced converting MTM to EMTM? And if that's the case, can you talk about what the type of momentum you're seeing in that specific opportunity?

Brian Adams -- Chief Financial Officer

Maybe we'll have Kevin take that one. But I think that your question was, can we talk a little bit about conversion in the pipeline and what we're expecting to see.

Ryan Daniels -- William Blair and Company -- Analyst

Yes. What is that exactly? Is that just MTM to EMTM? And then kind of what level of strength are you seeing or what opportunity?

Kevin Boesen -- Chief Sales Officer

Thanks, Brian. Probably, what's building -- this is Kevin Boesen. But what's building in that pipeline from a conversion standpoint probably more than a traditional MTM to an EMTM is new programs by Medicaid and commercial payers. There are some Medicare plans that are looking to add the MedWise or the EMTM solution to their existing programs but not necessarily forecasting any changes that CMS would do to change requirements in the MTM model.

So a lot of it is in other markets or, as Cal mentioned, community pharmacies taking on some of that delivery and opportunity as well. We've seen some good strength in the collaboration of how we've aligned our payer and our pharmacist business unit in that we have this pharmacy network that can provide clinical services. The payers are excited about that. It's a great patient engagement strategy, and likewise, the community pharmacies are excited about our payer relationships and the opportunity to provide services in some of those other markets.

Ryan Daniels -- William Blair and Company -- Analyst

That's super helpful fact this year. Thank you.

Operator

Thank you. Our next question will come from Matthew Gillmor with Baird.

Matthew Gillmor -- Baird -- Analyst

Thanks for the question. I wanted to ask about the payer deals you signed in the fourth quarter. I think last call, we talked about Magellan. I know you mentioned Blue Cross Blue Shield of Arkansas, which was, I think, a new disclosure.

So I was hoping you could talk about that relationship and sort of the nature of the services you're providing. Is that on the MedWise side or is that PrescribeWellness? Or if you could just provide some details, that'd be great.

Kevin Boesen -- Chief Sales Officer

Sure. The Arkansas, Blue Cross Blue Shield contract is something that came through the PrescribeWellness side. Their interest is in working specifically with community pharmacies to deliver services. It's very much gap in care closure focused, so leveraging the community pharmacists to provide more support for patients with diabetes, hypertension, dyslipidemia, high cholesterol.

So it's an opportunity that came from that relationship and their interest in community pharmacies, so they're very pleased with the outcomes that they've seen in that program. They've been a great partner to work with, and we're looking at expansion opportunities and including increasing the use of MedWise from a patient targeting standpoint.

Matthew Gillmor -- Baird -- Analyst

And then as a follow-up, Calvin mentioned getting MedWise licensed by more pharmacists as one of the key goals for 2020. I was hoping you could talk a little bit about the ability and the willingness for pharmacists to pay and kind of how you're thinking about the pricing model given that it allows pharmacists to participate in these value-based care programs. I just wanted to get a sense for their ability to buy these services.

Brian Adams -- Chief Financial Officer

Matt, this is Brian. We already have some pharmacists that are licensing the platform, as you know, with some of the at-risk provider groups that we're partnered with, but that's more on an enterprise basis. And the goal that Cal outlined was to have more pharmacists, more so in the independent pharmacies, license the platform. We launched a pilot very recently.

We have a number of pharmacies that are involved in that pilot, and part of it is to really understand what is the ROI that we're able to deliver for the pharmacy and the willingness to pay. So that's going to run over the next few months, so our expectation is that the bulk of those pharmacies that we ultimately on-board as licensing and paying customers, they're going to happen in the second half of this year once we have some more information. So we don't have all of that ironed out just yet. Although as Cal commented, we have a large number of pharmacists and individuals that are interested in licensing the platform outside of those that have decided to or we've allowed to participate in the pilot.

Matthew Gillmor -- Baird -- Analyst

Got it. That's great. Thank you.

Operator

Thank you. Our next question will come from Sean Wieland with Piper Sandler.

Sean Wieland -- Piper Sandler -- Analyst

Hi. Thanks so much. So just to continue on that, you also said, Brian, that you're going to use the licensing model more than the full outsourced model based on the demand that you're seeing. Can you just expand on that a little bit as to why that trend a how that impacts your economics?

Brian Adams -- Chief Financial Officer

I'll take it first, and then maybe I'll turn it over to Kevin. I think that we've continued to see interest from at-risk provider groups and those health plans that employ pharmacists with using our platforms and licensing those. And we're expecting that that trend is going to continue. We have that on a very limited basis today, so even incremental conversion of those opportunities could be pretty significant for us.

But Kevin, I don't know if you want to expand on that.

Kevin Boesen -- Chief Sales Officer

I'd agree with everything that Brian said. I think as we go out and do a lot of education of the at-risk providers or even the payers, when the pharmacist at those plants have the opportunity to see the platform, they very much want to use it themselves. And then there's a great opportunity for them to use it and collaborate with some of the other internal programs that they have. So there's probably a higher interest than I think I would have expected initially in having it be a license model versus a full-service model, sort of anticipating a little bit of the challenges of pharmacists taking on the education around it.

But we've seen probably the opposite in most cases.

Sean Wieland -- Piper Sandler -- Analyst

OK. And does that change your economics at all?

Brian Adams -- Chief Financial Officer

Sure. Over time, those relationships are going to be SaaS-driven, very high margin. But certainly, in the longer term, going to play into how we expect this business mix to shift, and that's ultimately what's going to lead to us being able to achieve those longer-term margin targets of 40% to 45% and EBITDA margin target north of $20 million.

Sean Wieland -- Piper Sandler -- Analyst

OK. Got it. And then just one on the cadence, the seasonality in Q1, we haven't seen revenue down Q4 to Q1 before. Can you comment on that and what you expect the mix to be between products and services?

Brian Adams -- Chief Financial Officer

Sure. So typically, what we see is Q1 is the weakest quarter from the MTM offering standpoint. This is where they're qualifying a lot of their members. And we did have a strong second half of the year, which, as you look toward to the first quarter, modestly down, but we do anticipate that that's going to ramp pretty significantly into Q2 and then the following quarters as well.

But just given the amount of work that goes into qualifying those members is really what's driving the revenue to be more modest in Q1.

Sean Wieland -- Piper Sandler -- Analyst

OK. Thank you very much.

Operator

Our next question will come from Jamie Stockton with Wells Fargo.

Jamie Stockton -- Wells Fargo Securities -- Analyst

Good evening. Thanks for taking my questions. I guess maybe just to follow up on what Sean was just asking about, maybe more specifically for the PACE business. It sounded like last quarter, you guys talked about signing a lot of business.

You expected some of it to launch, I think, early in 2020. Can you just give us an update, I guess, maybe on how things have gone and the cadence for the PACE organizations that you've already got signed that are going to go live this year? What is that going to look like? Are we going to see most of the business early in the year and then a relatively steady level of business? Or is it going to continue to ramp?

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

Hi, Jamie, this is Orsula. Well, our cross-selling certainly has begun. And with regard to existing what's already signed, last year at this time, we had about eight new clients and expansion scheduled. At this point, we have over 20 for 2020, so exciting year for us.

That is made up of client expansion, new client start-ups, as well as client expansions with multiple locations. So typically, we do bring on new larger programs later in the year, and we expect that to happen this year as well.

Jamie Stockton -- Wells Fargo Securities -- Analyst

OK. And then just maybe specifically because I think a lot of us think about this. I think your commentary is kind of like holistic, thinking about what you're doing for just PACE organizations, but a lot of us think about it along the products and services lines. Should we think about maybe the product revenue or the traditional pharmacy revenue ramping earlier in the year and some of the cross-sell stuff hitting later in the year?

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

I don't know that's necessarily earlier in the year.

Brian Adams -- Chief Financial Officer

Jamie, the way that -- this is Brian. The way that we've modeled it out at this point is a pretty consistent growth rate for the PACE visits throughout the entire year, although there is an opportunity to see some of that accelerate in the latter half of the year. But what we've currently modeled and guided to is about a 20% growth rate.

Jamie Stockton -- Wells Fargo Securities -- Analyst

OK. And then maybe my only other question was just PrescribeWellness contribution during the quarter.

Brian Adams -- Chief Financial Officer

Sure. So it's Brian. PrescribeWellness, maybe just even to recap for the year, and I don't know if Cal or anybody else has comments on the PrescribeWellness performance, but I think the business has really done significantly better than we had expected when we completed the acquisition. So we're all extremely pleased with not only the financial performance, but the team that we've inherited and feel quite lucky about having on board with us now.

And so if you look at the revenue contribution specifically for Q3, it's about $8.5 million or -- excuse me, for Q4.

Jamie Stockton -- Wells Fargo Securities -- Analyst

That's great. Thank you.

Operator

Thank you. [Operator instructions] Our next question will come from Steve Halper with Cantor.

Steve Halper -- Cantor Fitzgerald -- Analyst

Hi. One housekeeping question and then another. What did you say the free cash flow would be for 2020?

Brian Adams -- Chief Financial Officer

$15 million to $20 million, Steve.

Steve Halper -- Cantor Fitzgerald -- Analyst

OK. And that's after the interest expense, correct?

Brian Adams -- Chief Financial Officer

That's correct.

Steve Halper -- Cantor Fitzgerald -- Analyst

OK. And then in the 2020 guide, did you make any assumptions about the expanded CVS contract?

Brian Adams -- Chief Financial Officer

At this point, we haven't. So should that come through the way we hope, that could put us at the higher end of our guidance. But at this point, the midpoint did not assume a significant contribution from that new contract.

Steve Halper -- Cantor Fitzgerald -- Analyst

And why is that? Is that it just takes time to get that thing going?

Kevin Boesen -- Chief Sales Officer

Yes, Steve, this is Kevin. It does. So that contract is to help and work with CVS, approach payers with the opportunity to provide and use us for additional services. So we're in the process and CVS is in the process of talking to their payers about what makes the most sense for 2020.

So we just haven't forecasted that because of that.

Steve Halper -- Cantor Fitzgerald -- Analyst

Great. Thank you.

Operator

Thank you. Our next question will come from David Grossman with Stifel.

David Grossman -- Stifel Financial Corp. -- Analyst

Thank you. Brian, I don't know if I got the numbers right, but just based on the PrescribeWellness contribution in the quarter, it looks like service revenues may have been flat year over year. So first of all, am I getting that right? And if that is right, perhaps, you could explain why the organic growth rate decelerated so much in the fourth quarter.

Brian Adams -- Chief Financial Officer

Sure. David, you do have that pretty much right. At this point, if you do recall, we had forecasted about $6 million worth of revenue from the CVS contract that was canceled in the third quarter for Q4. So we had really planned for that to be staffed during that time frame, and so we had pulled some of the work forward into Q1, 2 and 3 in order to accommodate that.

And so the growth rate on the first half of the year, which was much more significant than what you saw in Q3 and Q4 as a result of that.

David Grossman -- Stifel Financial Corp. -- Analyst

So basically, there was a $6 million divot from the loss of CVS on the service line in the fourth quarter?

Brian Adams -- Chief Financial Officer

That's right.

David Grossman -- Stifel Financial Corp. -- Analyst

OK. And how does that play out then as 2020 progresses? Does the new contract start contributing in a way that that growth rate improves in the first quarter? Or do we still have that headwind since you pulled forward revenue last year and we're not fully ramped yet in 2020? I'm just trying to get a sense of what to expect for service revenue, organic growth as 2020 progresses.

Brian Adams -- Chief Financial Officer

So there's going to be some pickup related to PrescribeWellness for Q1 and Q2. But on an organic basis, I would say that there's going to be modest growth in the first quarter, somewhere between, let's call it, 5% in Q1. And so we are starting to build off of that base. but that's an appropriate expectation.

David Grossman -- Stifel Financial Corp. -- Analyst

Got it. And then as you look at your guide for the year, I just want to make sure I understood you correctly, where you talked about that you needed about 10%. So does that mean -- to hit the midpoint. Does that mean you have visibility on the low end of the range today and that, to get to the midpoint of the range, you need basically another $30-some-odd million of revenue to book over the course of the year?

Brian Adams -- Chief Financial Officer

That's right. And just to put that in perspective, when you look back a year ago, where we were and what we guided, we were somewhere in the 5% to 10% range. And now, this year, we're saying we're going to be closer to 10% at the midpoint. So this is not an unusual place for us to be.

We have a little bit larger of a bogey this year given the sales infrastructure that's in place and the opportunities that we see in the pipeline that we expect to convert. So we think that it was appropriate to kind of put the band out that we did. But yes, I mean, we have clear visibility as to how we get to the low end of the range than we would need to close about $35 million or so in order to get to the midpoint.

David Grossman -- Stifel Financial Corp. -- Analyst

Got it. And Kevin, just while you're on the line. I know you spoke a moment about the pipeline, but can you give us a little more granularity of kind of what's in the pipeline that could close in 2020? You don't have to obviously name names, but just give us a better flavor for the type of revenue that's in there and the type of customer and the size of those deals because I think you did mention that you were up a lot year over year.

Kevin Boesen -- Chief Sales Officer

Yes. I was going to give the names, but then you said I didn't have to. So what we're seeing in the pipeline, we're heavily focused the sales team on the expansion of MedWise in the payer space. So the majority of what we're really focusing on is the EMTM type of model in different markets.

So the majority of what we have, probably half of what we have in the pipeline, are those contracts and they involve commercial payers, Medicaid payers and then some add-on services, like I mentioned, in the Medicare space. So for example, a Medicare plan that wants to target patients on opioids from a medication safety standpoint. So those programs, what are nice about them is they're not calendar year-related so that we can start on midyear. So those are the types of programs that we're expecting to fill that need within 2020.

David Grossman -- Stifel Financial Corp. -- Analyst

Got it. Great. Thanks very much.

Operator

Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any further remarks.

Cal Knowlton -- Chief Executive Officer, chairman, and Founder

Well, thank you very much for everyone that participated. And again, we are very optimistic on our 2020 disruptive solution to continue the solid growth on medication safety. And we didn't mention we do have a couple of other things in the pipeline that are fairly interesting, and we'll be able to share this with you, hopefully, in the next month or two.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Kevin Dill -- General Counsel

Cal Knowlton -- Chief Executive Officer, chairman, and Founder

Brian Adams -- Chief Financial Officer

Ryan Daniels -- William Blair and Company -- Analyst

Kevin Boesen -- Chief Sales Officer

Matthew Gillmor -- Baird -- Analyst

Sean Wieland -- Piper Sandler -- Analyst

Jamie Stockton -- Wells Fargo Securities -- Analyst

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

Steve Halper -- Cantor Fitzgerald -- Analyst

David Grossman -- Stifel Financial Corp. -- Analyst

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