TABULA RASA HEALTHCARE, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited consolidated financial
statements and related notes and other financial information included in Part 1,
Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated
financial statements and related notes thereto for the year ended December 31,
2020, included in our 2020 Form 10-K.



Forward-Looking Statements



This discussion contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements are
identified by words such as "believe," "will," "may," "estimate," "continue,"
"anticipate," "intend," "should," "plan," "expect," "predict," "could,"
"potentially," or the negative of these terms or similar expressions. You should
read these statements carefully because they discuss future expectations,
contain projections of future results of operations or financial condition, or
state other "forward-looking" information. These statements relate to our future
plans, objectives, expectations, intentions and financial performance and the
assumptions that underlie these statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, (i)
the impacts of the ongoing COVID-19 pandemic and other health epidemics; (ii)
our ability to adapt to changes or trends within the market for healthcare in
the U.S.; (iii) a significant increase in competition from a variety of
companies in the health care industry; (iv) developments and changes in laws and
regulations, including increased regulation of the healthcare industry through
legislative action and revised rules and standards; (v) the extent to which we
are successful in gaining new long-term relationships with clients or retaining
existing clients; (vi) the growth and success of our clients, which is difficult
to predict and is subject to factors outside of our control; (vii) our ability
to maintain relationships with a specified drug wholesaler; (viii) increasing
consolidation in the healthcare industry; (ix) managing our growth effectively;
(x) fluctuations in operating results; (xi) failure or disruption of our
information technology and security systems; (xii) dependence on our senior
management and key employees; (xiii) our future indebtedness and our ability to
obtain additional financing, reduce expenses or generate funds when necessary;
and (xiv) the risks described in Part I, Item 1A of our 2020 Form 10-K and our
subsequent filings with the Securities and Exchange Commission. Forward-looking
statements are based on our management's beliefs and assumptions and on
information currently available to our management. These statements, like all
statements in this report, speak only as of their date, and we undertake no
obligation to update or revise these statements in light of future developments,
except as required by applicable law. We caution investors that our business and
financial performance are subject to substantial risks and uncertainties.



                                    Overview



Tabula Rasa HealthCare, Inc. is a healthcare technology company advancing the
safe use of medications by creating solutions designed to empower pharmacists,
providers, and patients to optimize medication regimens. Our advanced
proprietary technology, MedWise®, identifies the cause of medication-related
problems, including adverse drug events, so healthcare professionals can
minimize harm and reduce medication-related risks. Our software and services
help improve patient outcomes and lower healthcare costs through reduced
hospitalizations, emergency department visits, and healthcare utilization. We
believe we have the most extensive clinical tele-pharmacy network in the United
States, or U.S., with seven call centers across the country, a number of which
are tethered to academic institutions. Health plans and pharmacies nationwide
use our solutions to assist them in meeting a range of value-based payment
requirements. Our vision and mission are supported by our industry-recognized
leadership team, our significant investments and collaborations to advance
precision pharmacotherapy research and its application in clinical practice, and
our culture.



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We operate our business through two segments, CareVention HealthCare and MedWise
HealthCare, which accounted for 75% and 25% of our revenue, respectively, for
the three months ended September 30, 2021, and accounted for 74% and 26% of our
revenue, respectively, for the nine months ended September 30, 2021. In
comparison, the CareVention HealthCare and MedWise HealthCare segments accounted
for 71% and 29% of our revenue, respectively, for the three months ended
September 30, 2020, and accounted for 68% and 32% of our revenue, respectively
for the nine months ended September 30, 2020. Our CareVention HealthCare segment
provides our clients, primarily Programs of All-Inclusive Care for the Elderly,
or PACE, programs, with medication fulfillment services, cloud-based software,
pharmacy benefit management solutions, and clinical pharmacist services at the
point of care. Our MedWise HealthCare segment provides our clients with
cloud-based pharmacy software and clinical pharmacy programs.



Our results for the three and nine months ended September 30, 2021 reflected
improved product and service revenues on a year-over-year basis, offset by
increased cost of product revenue, increased cost of service revenue, and
increased operating expenses, which primarily include research and development
expenses, sales and marketing expenses, and general and administrative expenses.
Our total revenues for the three and nine months ended September 30, 2021 were
$86.6 million and $245.6 million, respectively, compared to $70.5 million and
$220.2 million for the three and nine months ended September 30, 2020,
respectively. We incurred net losses of $17.1 million and $57.7 million for the
three and nine months ended September 30, 2021, respectively, compared to net
losses of $21.6 million and $50.3 million for the three and nine months ended
September 30, 2020, respectively. Adjusted EBITDA for the three and nine months
ended September 30, 2021 was $5.7 million and $15.3 million, respectively,
compared to $5.1 million and $17.0 million for the three and nine months ended
September 30, 2020, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Non-GAAP Financial Measures -
Adjusted EBITDA" for our definition of Adjusted EBITDA, why we present Adjusted
EBITDA, and a reconciliation of net loss to Adjusted EBITDA.

Substantially all our revenue is recognized in the U.S. and substantially all
our long-lived assets are located in the U.S.

CareVention HealthCare



CareVention HealthCare primarily services PACE, which is a Centers for Medicare
& Medicaid Services, or CMS, sponsored program providing comprehensive medical
and social services to adults age 55 and older who need a nursing facility level
of care but can live safely in community settings. Our clients include ArchCare
Senior Life, Trinity Health, Palm Beach PACE, and St. Paul's PACE. We access the
market through a number of different brands, including CareKinesis, Capstone
Risk Adjustment Services, PACElogic, TruChart, PeakTPA, PersonifilRx, and
Pharmastar.



Our largest CareVention HealthCare offering is our medication fulfillment
services, which are built around our novel and proprietary Medication Risk
Mitigation Matrix, or MRM Matrix, designed to enable clinicians to increase
patient safety, create individualized medication regimens, promote adherence,
and eliminate unnecessary prescriptions. Our medication fulfillment and reminder
packaging services utilize the MRM Matrix technology to reduce
medication-related risk for the high-cost, high-risk PACE population. The
CareVention HealthCare suite of offerings also includes risk adjustment
services, pharmacy benefit management, or PBM, solutions, cloud-based electronic
health records solutions, and third-party administration services, which are all
specifically tailored to the PACE market. Our CareVention HealthCare segment
serves more than 140 healthcare organizations.



The CareVention HealthCare segment revenue model is primarily based on payments
on a per-member per-month, or PMPM, basis, payments on a subscription basis,
payments on a transaction basis, and payments for charges and dispensing fees
for medication fulfillment.



MedWise HealthCare

Our MedWise HealthCare segment is primarily comprised of service offerings from
our acquisitions of SinfoníaRx, now known as MedWiseRx, in September 2017 and
PrescribeWellness in March 2019. As a result of these acquisitions, we believe
we are a leading provider of Medication Therapy Management, or MTM, software and
services for Medicare, Medicaid, and commercial health plans; and, we are also a
leading provider of cloud-based patient engagement software and services to
nearly 19,000 pharmacies nationwide.



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Approximately 19,000 retail pharmacies and more than 400 health plans, including
several Blue Cross Blue Shield organizations, Express Scripts, Humana,
UnitedHealth Group, and WellCare, utilize our MedWise HealthCare solutions to
execute a range of clinical programs. These programs support MTM, Enhanced MTM,
Medicare Part D Star Ratings improvement programs, Healthcare Effectiveness Data
and Information Set (HEDIS) quality measures, and post-hospital discharge care
transitions through a combination of our nearly 30,000 PrescribeWellness network
pharmacists and/or our clinical tele-pharmacy call centers across the country
employing more than 300 pharmacists. Within our MedWise HealthCare segment, we
offer our cloud-based software and clinical pharmacist services through a number
of different brands, including Tabula Rasa HealthCare®, MedWise®, MedWise MTM,
PrescribeWellness, and DoseMeRx.



The Enhanced MTM program was a five-year Centers for Medicare & Medicaid
Services Innovation ("CMMI") Part D pilot that began January 1, 2017 and is
scheduled to end on December 31, 2021. The Company believes that the decision by
CMMI to not extend the EMTM Pilot Program is not a reflection of the financial
savings or improved quality of care the Company has delivered and recently
documented in CMMI's August 2021 report, but is based on the EMTM Pilot Program
as a whole, which covered six distinct regions across the country, 1.9 million
Part D beneficiaries during 2019, and multiple vendors testing new types of
member targeting, outreach and clinical interventions.



The MedWise HealthCare segment revenue model is primarily based on payments on a
PMPM basis, payments on a subscription basis, and payments on a fee-for-service
basis for each clinical intervention.



Our Strategy

In early 2020, we disclosed a long-term growth strategy based on three key
tenets:

Further penetration of the PACE market by leveraging our existing CareVention

HealthCare client base (90% of all PACE organizations utilize at least one of

our solutions) and cross-selling to increase our average PMPM fee; organic

1) member growth within our existing clients in part due to the acceleration of

the National PACE Association's PACE 2.0 initiative designed to significantly

increase enrollment to 200,000 by 2028; and continued investments in our

offerings to attract new PACE clients and, more broadly, Medicare Advantage

    organizations.




    Accelerating the adoption of our MedWise software and clinical pharmacy

2) programs by health plans across all lines of business, including Medicare Part

C and Part D, Medicaid managed care, and commercial clients with a focus on

    self-insured employer groups.

Increasing the number of pharmacies licensing the entire PrescribeWellness

3) solution set, including our MedWise module launched in July 2020, across our

    growing pharmacy footprint of nearly 19,000 pharmacies nationwide.

To supplement our organic growth, we made a total of six acquisitions from the
beginning of 2018 through 2020, and we continue to evaluate strategic
acquisitions across both segments of our business. As a result of our most
recent acquisition, Personica, in October 2020, and our organic member growth,
our PACE clients had a combined patient census of 44,947 as of December 31,
2020, as compared to 31,820 and 27,690 patients as of December 31, 2019 and

2018, respectively.



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                              Key Business Metrics



We continually monitor certain corporate metrics, including the following key
metrics, that are useful in evaluating and managing our operating performance
compared to that of other companies in our industry.




                      Three Months Ended
                        September 30,                Change
                      2021          2020           $          %

                               (Dollars in thousands)
Revenues           $   86,586    $   70,506    $  16,080      23 %
Net loss             (17,111)      (21,589)        4,478      21
Adjusted EBITDA         5,717         5,094          623      12

                      Nine Months Ended
                        September 30,                Change
                      2021          2020           $          %

                               (Dollars in thousands)
Revenues           $  245,575    $  220,167    $  25,408      12 %
Net loss             (57,684)      (50,336)      (7,348)    (15)

Adjusted EBITDA        15,279        17,035      (1,756)    (10)




We monitor the key metrics set forth in the preceding table to help us evaluate
trends, establish budgets, measure the effectiveness and efficiency of our
operations, and gauge our cash generation. We discuss Adjusted EBITDA in more
detail in "Non-GAAP Financial Measures - Adjusted EBITDA." We also monitor
revenue retention rate on an annual basis, which is described in our 2020 Form
10-K.



                    Factors Affecting our Future Performance



General



We believe that our future success depends on many factors, including our
ability to maintain and grow our relationships with existing clients, expand our
client base, continue to enter new markets, and expand our offerings to meet
evolving market needs. While these areas present significant opportunity, they
also present risks that we must manage to ensure successful results. Please
refer to "Item 1A - Risk Factors" in our 2020 Form 10-K for a discussion of
certain risks and uncertainties that may impact our future success.



COVID-19 Pandemic



On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency caused by a new strain of coronavirus ("COVID-19") and the
risks to the international community. In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic ("COVID-19 pandemic"), based on the rapid
increase in exposure globally. The full impact of the COVID-19 pandemic
continues to present a substantial public health and economic challenge around
the world.

We continue to closely monitor the impact of COVID-19 pandemic on both our
employees and operations. In response to the pandemic, we have implemented
measures to protect the health and safety of our employees, including hybrid and
remote work arrangements, reduced density in our buildings, guidelines to ensure
safe business travel, and safety protocols for on-site employees, including
social distancing, enhanced cleaning, contact tracing.



During 2020, we experienced challenges with revenue growth as the COVID-19
pandemic delayed the closing of client contracts and, in some cases, shifted
project priorities and timelines, which we believed resulted in fewer business
wins during 2020 and reduced future revenue. Overall census growth for PACE was
below historical levels during 2020 and the first quarter of 2021, which reduced
the CareVention HealthCare segment growth. However, since the second quarter of
2021, we have experienced some recovery from the COVID-19 pandemic impact,
including with respect to PACE census growth. During the third quarter of 2021,
our net census growth for PACE remained at pre-pandemic levels with monthly
sequential growth, which positively impacted revenue within our CareVention
HealthCare segment. The PACE population also benefited from the high level of
vaccinations administered to seniors across the U.S.



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Our MedWise HealthCare segment continues to be impacted by the COVID-19
pandemic. Changes made by Centers for Medicare & Medicaid Services ('CMS") to
their Medicare Part D Star Ratings improvement programs for health plans in
response to COVID-19 have negatively impacted our medication safety services
revenues. In addition, the COVID-19 pandemic has elevated the role of retail
pharmacies and created strong demand for pharmacists and pharmacy technicians.
As a result, we have faced challenges in hiring to staff our call centers to
support our health plan clients.



Given the daily evolution of the COVID-19 pandemic and the global responses to
curb its spread, as well as the factors discussed in Part Item 1A, "Risk
Factors" in our 2020 Form 10-K and elsewhere on this Quarterly Report on Form
10-Q, we are not able to predict the continuing effects that the COVID-19
pandemic may have on our results of operations, financial condition, or
liquidity for the remainder of 2021 and beyond. We continue to actively monitor
the COVID-19 pandemic and are prepared to mitigate potential adverse impacts to
our business, including our financial position, liquidity, operations,
suppliers, industry, and workforce.



                    Components of Our Results of Operations



Revenue

Our revenue is derived from our product sales and service activities under our
CareVention HealthCare and MedWise HealthCare segments. For the three months
ended September 30, 2021 and 2020, product sales revenue represented 58% and 56%
of our total revenue, respectively, and service revenue represented 42% and 44%
of our total revenue, respectively. For the nine months ended September 30, 2021
and 2020, product sales revenue represented 57% and 53% of our total revenue,
respectively, and service revenue represented 43% and 47% of our total revenue,
respectively.



CareVention HealthCare



PACE Product Revenue

We provide medication fulfillment pharmacy services to PACE organizations. While
the majority of medications are routinely filled in order to treat chronic
conditions, the mix and quantity of medications can vary. Revenue from
medication fulfillment services is generally billed monthly or weekly, depending
on whether the PACE organization is contracted with a pharmacy benefit manager,
and recognized when medications are delivered and control has passed to the
client. At the time of delivery, we have performed substantially all our
performance obligations under our client contracts. We do not experience a
significant level of returns or reshipments.



PACE Solutions



We provide services to PACE organizations, and these services primarily include
medication safety services and health plan management services, which consist of
risk adjustment services, PBM solutions, electronic health records solutions,
and third-party administration services. Revenue related to these services
primarily consists of a fixed monthly fee assessed based on number of members
served, or per member per month, a fee for each claim adjudicated, and
subscription fees. These fees are recognized when we satisfy our performance
obligation to stand ready to provide PACE services, which occurs when our
clients have access to the PACE services. We generally bill for PACE services on
a monthly basis as the services are provided.



MedWise HealthCare



Product Revenue

We provide COVID-19 test kits to pharmacies and other clients. Revenue from the
sale of these products is generally billed when test kits are shipped and is
recognized as we satisfy our performance obligations to deliver the test kits
and provide the test results. We do not experience a significant level of
returns or reshipments.



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Medication Safety Services



We provide medication safety services, which include identification of high-risk
individuals, medication regimen reviews including patient and prescriber
counseling, and targeted interventions to increase adherence and close gaps in
care. Revenue related to these services primarily consists of per member per
month fees and fees for each medication review and clinical encounter completed.
Revenue is recognized when we satisfy our performance obligation to stand ready
to provide medication safety services, which occurs when our clients have access
to the medication safety services and when medication reviews and clinical
encounters are completed. We generally bill for the medication safety services
on a monthly basis.

Software Subscription and Services

We provide software as a service, or SaaS, solutions, which allow for the
identification of individuals with high medication-related risk, for patient
communication and engagement, for documentation of clinical interventions, for
optimizing medication therapy, for targeting adherence improvement, and for
precision dosing. Revenues related to these software services primarily consist
of monthly subscription fees and are recognized monthly as we meet our
performance obligation to provide access to the software. Revenue for
implementation and set up services is generally recognized over the contract
term as the software services are provided. We generally bill for the software
services on a monthly basis.

Cost of Revenue (exclusive of depreciation and amortization)

Product Cost



Cost of product revenue includes all costs directly related to the fulfillment
and distribution of medications under our CareVention HealthCare offerings.
Costs consist primarily of the purchase price of the prescription medications we
dispense. For the three months ended September 30, 2021 and 2020, medication
costs represented 81% and 80% of our total product costs, respectively. For the
nine months ended September 30, 2021 and 2020, medication costs represented 81%
and 79% of our total product costs, respectively. In addition to costs incurred
to purchase the medications we dispense, other costs include shipping;
packaging; expenses associated with operating our medication fulfillment
centers, including salaries and related costs, such as stock-based compensation
for personnel; technology expenses; direct overhead expenses; and allocated
indirect overhead costs. We allocate indirect overhead costs among functions
based on employee headcount.



Service Cost



Cost of service revenue includes all costs directly related to servicing our
CareVention HealthCare and MedWise HealthCare service contracts. These costs
primarily consist of labor costs, including stock-based compensation, outside
contractors, expenses related to supporting our software platforms, direct
overhead expenses, and allocated indirect overhead costs. We allocate indirect
overhead costs among functions based on employee headcount.

Research and Development Expenses

Our research and development expenses consist primarily of salaries and related
costs, including stock-based compensation, for personnel in our research and
development functions. These personnel include employees engaged in scientific
research, healthcare analytics, the design and development of new scientific
algorithms, and the enhancement of our software and technology platforms.
Research and development expenses also include fees paid to third-party
consultants, costs related to quality assurance and testing, and other allocated
facility-related overhead and expenses.



We capitalize certain costs incurred in connection with obtaining or developing
the proprietary software platforms that support our product and service
contracts, including third-party contractors and payroll costs for employees
directly involved with the software development. Capitalized software
development costs are amortized beginning when the software project is
substantially completed and the asset is ready for its intended use. Costs
incurred during the preliminary project stage and post implementation stage, as
well as maintenance and training costs, are expensed as incurred. We continue to
focus our research and development efforts on adding new features and
applications to increase the functionality and enhance the ease of use of our
existing suite of software solutions.



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We expect our research and development expenses will increase in absolute
dollars as we increase our research and development efforts to further
strengthen and enhance our software solutions and service offerings, but will
decrease as a percentage of revenue in the long term as we expect our revenue to
increase at a greater rate than such expenses.



Sales and Marketing Expenses

Sales and marketing expenses consist principally of salaries, commissions,
bonuses, and stock-based compensation and employee benefits for sales,
marketing, and account management personnel, as well as travel costs related to
sales, marketing, and account management activities. Marketing costs also
include costs for communication and branding materials, conferences, trade
shows, public relations, and allocated overhead.

We expect our sales and marketing expenses to increase in absolute dollars as we
strategically invest to grow our sales, account management, and marketing
infrastructure as we introduce new products and enter new markets, but decrease
as a percentage of revenue in the long term.

General and Administrative Expenses

General and administrative expenses consist principally of employee-related
expenses, including salaries, benefits, and stock-based compensation, for
employees who are responsible for information systems, administration, human
resources, finance, strategy, legal, and executive management, as well as other
corporate expenses associated with these functional areas. General and
administrative expenses also include professional fees for legal, consulting,
and accounting services, and allocated overhead. General and administrative
expenses are expensed when incurred.



We expect that our general and administrative expenses will increase in absolute
dollars as we expand our infrastructure and continue to comply with the
requirements applicable to public companies, but decrease as a percentage of
revenue in the long term.

Depreciation and Amortization Expenses

Depreciation and amortization expenses are primarily attributable to our capital
investment in equipment, our capitalized software, and acquisition-related
intangibles.

Interest Expense



Interest expense is primarily attributable to interest expense associated with
our 2026 Convertible Notes, our 2020 Credit Facility (as defined below), and the
promissory notes related to the Personica acquisition purchase consideration.
Interest expense also includes the amortization of debt discount and debt
issuance costs related to our various debt arrangements.



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                             Results of Operations

The following table summarizes our results of operations for the three and nine
months ended September 30, 2021 and 2020 (in thousands):

                                                                                   Three Months Ended                                  Nine Months Ended
                                                                                     September 30,                 Change                September 30,                 Change
                                                                                   2021          2020           $           %          2021          2020           $           %
Revenue:
Product revenue                                                            

$ 50,636 $ 39,365 $ 11,271 29 % $ 139,496 $ 115,825 $ 23,671 20 %
Service revenue

35,950 31,141 4,809 15 106,079 104,342 1,737 2
Total revenue

                                                                       86,586        70,506       16,080       23         245,575       220,167       25,408       12
Cost of revenue, exclusive of depreciation and amortization shown below:
Product cost                                                                        38,770        28,638       10,132       35         105,326        84,879       20,447       24
Service cost                                                               

22,392 20,610 1,782 9 67,126 64,140 2,986 5
Total cost of revenue, exclusive of depreciation and amortization

        61,162        49,248       11,914       24         172,452       149,019       23,433       16
Operating expenses:
Research and development                                                             4,984         5,101        (117)      (2)          14,893        13,750        1,143        8
Sales and marketing                                                                  6,218         5,030        1,188       24          18,786        15,597        3,189       20
General and administrative                                                 

16,870 15,620 1,250 8 54,360 48,914 5,446 11
Change in fair value of acquisition-related contingent consideration expense

             -         2,005      (2,005)    (100)               -         2,605      (2,605)    (100)
Depreciation and amortization                                              

12,099 12,199 (100) (1) 35,343 32,323 3,020 9
Total operating expenses

40,171 39,955 216 1 123,382 113,189 10,193 9
Loss from operations

                                                              (14,747)      (18,697)        3,950       21        (50,259)      (42,041)      (8,218)     (20)
Interest expense, net                                                                2,230         4,722      (2,492)     (53)           6,959        14,000      (7,041)     (50)
Loss before income taxes                                                   

(16,977) (23,419) 6,442 28 (57,218) (56,041) (1,177) (2)
Income tax expense (benefit)

                                                           134       (1,830)        1,964      107             466       (5,705)        6,171      108
Net loss                                                                   

$ (17,111) $ (21,589) $ 4,478 21 $ (57,684) $ (50,336) $ (7,348) (15)

Comparison of the Three Months Ended September 30, 2021 and 2020

Product Revenue



Product revenue increased $11.3 million, or 29%, to $50.6 million for the three
months ended September 30, 2021 compared to the same period in 2020. New
business acquired from the October 2020 Personica acquisition contributed
approximately $1.9 million to this increase. Excluding the Personica
acquisition, approximately $6.3 million of the increase was attributable to
increased medication fulfillment volume from growth in the number of patients
served by our existing clients, medication mix of prescriptions filled, and
payer mix. Medications dispensed by our community pharmacy network on behalf of
CareVention HealthCare contributed $2.6 million to the increase as a result

of
amended client agreements.



Service Revenue

Service revenue increased $4.8 million, or 15%, to $36.0 million for the three
months ended September 30, 2021 compared to the same period in 2020.

CareVention HealthCare service revenues increased by approximately $3.5 million,
or 31%, to $14.7 million for the three months ended September 30, 2021, as
compared to the same period in 2020. The acquisition of Personica in October
2020 contributed approximately $2.2 million to the increase. The remaining
increase was attributable to new clients and growth with existing clients.



Service revenues generated by our MedWise HealthCare segment increased by
approximately $1.3 million, or 7%, to $21.2 million for the three months ended
September 30, 2021, as compared to the same period in 2020. This increase is
attributable to a $1.7 million increase in software subscription services
related to a new partnership with a leading online health insurance marketplace.
This increase was offset by a $350 thousand decrease in medication safety
services, which was primarily a result of a large MTM client contract that did
not renew in 2021 and reduced fees in the final year of the EMTM pilot program.



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Cost of Product Revenue



Cost of product revenue increased $10.1 million, or 35%, to $38.8 million for
the three months ended September 30, 2021 as compared to the same period in
2020. New business acquired from the Personica acquisition contributed
approximately $1.8 million to the increase in cost of product revenue. Excluding
the Personica acquisition, approximately $5.3 million of the change was due to
increased medication volume from growth in the number of patients served by our
existing customers. Medications dispensed by our community pharmacy network on
behalf of CareVention HealthCare contributed $2.6 million to the increase as a
result of amended client agreements. The increase in cost of product revenue was
also due to a $295 thousand increase in distribution charges related to higher
shipping volume for the medications we fulfilled. The remaining increase in cost
of product revenue was primarily attributable to an increase in employee
compensation costs, including stock-based compensation, due to increased
headcount to support our overall growth.



Cost of Service Revenue

Cost of service revenue increased $1.8 million, or 9%, to $22.4 million for the
three months ended September 30, 2021, as compared to the same period in 2020.

Cost of service revenue related to our CareVention HealthCare segment increased
$2.8 million, or 38%, to $10.3 million for the three months ended September 30,
2021, as compared to the same period in 2020. Of the total increase, $1.1
million related to the acquisition of Personica in October 2020. The remaining
increase was primarily attributable to an increase in employee costs and
investments in infrastructure in order to better scale the delivery of
third-party administrative services into markets outside of PACE.



Cost of service revenue related to our MedWise HealthCare segment decreased $1.1
million, or 8%, to $12.1 million for the three months ended September 30, 2021,
as compared to the same period in 2020. This decrease was due to hiring
challenges during the quarter which resulted in lower employee compensation
costs, a decrease in the use of contract resources to deliver medication safety
interventions, and reduced printing and postage expenses.

Research and Development Expenses

Research and development expenses decreased slightly by $117 thousand, or 2%, to
$5.0 million for the three months ended September 30, 2021, as compared to the
same period in 2020. The decrease was primarily attributable to a higher
capitalization rate related to development initiatives to enhance the software
supporting our CareVention HealthCare and MedWise HealthCare offering, partially
offset by increased technology-related expenses for new project management tools
to support our software development teams.



Sales and Marketing Expenses



Sales and marketing expenses increased $1.2 million, or 24%, to $6.2 million for
the three months ended September 30, 2021 from $5.0 million for the three months
ended September 30, 2020. The increase was primarily attributable to a $573
thousand increase in employee compensation costs related to additional headcount
and increased employee benefits costs, including bonus and commission expense, a
$227 thousand increase in marketing and public relations related expenses,
including consulting and advertising services, and a $177 thousand increase in
travel and conference related spend. The remaining increase was primarily
attributable to increased software licenses and technology-related expenses
related to an enhanced client and marketing management tool.

General and Administrative Expenses

General and administrative expenses increased $1.3 million, or 11%, to
$16.9 million for the three months ended September 30, 2021, as compared to the
same period in 2020. The increase in general and administrative expenses was
primarily attributable to higher employee compensation costs of $1.3 million
mainly due to increased costs for health insurance premiums and other
supplemental benefits, including bonus expense. Also contributing to the
increase in general administrative expenses was a $211 thousand increase in
business insurance premiums and a $165 thousand increase in bad debt expense.
The acquisition of Personica contributed $127 thousand to the increase in
expenses, which consisted primarily of employee compensation costs, including
stock-based compensation, and consulting expenses.

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Partially offsetting these increases was a reduction in acquisition related
costs of $572 thousand incurred in the prior year related to the acquisition of
Personica that was completed on October 5, 2020.

Acquisition-related Contingent Consideration Expense

During the third quarter of 2020, we elected to accelerate the payment of the
acquisition-related contingent consideration for an aggregate payment amount of
$13.4 million, which was satisfied by cash payments of $6.4 million and the
issuance of 135,434 shares of our common stock, with a fair value of $6.9
million. During the three months ended September 30, 2020, we recorded a $2.0
million charge to increase the fair value of the Cognify acquisition-related
contingent consideration primarily due to the accelerated payment. No charges
were incurred during the three months ended September 30, 2021 as the final
amount of the Cognify acquisition-related contingent consideration liability was
determined and fixed as of December 31, 2020. In the first quarter of 2021, we
made the final cash payment of $166 thousand in full satisfaction of the
remaining acquisition-related contingent consideration liability.

Depreciation and Amortization Expenses

Depreciation and amortization expenses decreased slightly to $12.1 million for
the three months ended September 30, 2021 from $12.2 million for the three
months ended September 30, 2020. This decrease was primarily due to a $1.2
million decrease in amortization expense mainly due to increased amortization
expense in the third quarter of 2020 related to changes in the estimated useful
lives of certain intangible assets during 2020, and a $160 thousand decrease in
depreciation expense. The decrease was partially offset by a $1.3 million
increase in the amortization of capitalized software related to new software
functionality placed into service since 2020 to support our CareVention
HealthCare and MedWise HealthCare segments.



Interest Expense



Interest expense for the three months ended September 30, 2021 was $2.2 million,
a decrease of $2.5 million compared to the three months ended September 30,
2020. Of the total decrease, approximately $3.0 million related to the adoption
of ASU 2020-06 on January 1, 2021, which significantly reduced the amount of
debt discount to be amortized. The decrease was partially offset by $314
thousand of interest expense on the 2020 Credit Facility and $112 thousand of
interest expense on the acquisition-related notes payable related to the
Personica acquisition.



Income Taxes



For the three months ended September 30, 2021, we recorded income tax expense of
$134 thousand primarily related to indefinite-lived deferred tax liabilities for
goodwill amortization, which resulted in an effective tax rate of (0.8)%.The
effective tax rate differs from the U.S. statutory tax rate primarily due to the
full valuation allowance recorded that is currently limiting the realizability
of our net deferred tax assets as of September 30, 2021. Accordingly, the tax
benefit was limited due to unbenefited losses in the three months ended
September 30, 2021.



For the three months ended September 30, 2020, we recorded an income tax benefit
of $1.8 million, which resulted in an effective tax rate of 7.8%. The effective
tax rate differed from the U.S. statutory tax rate primarily due to an increase
in the valuation allowance that limited the realizability of our net deferred
tax assets as of September 30, 2020. Accordingly, the tax benefit was limited
due to unbenefited losses in the three months ended September 30, 2020.



We calculate the provision for income taxes during interim periods by applying
the estimated annual effective tax rate for the full year ordinary income or
loss to the respective reporting period's year-to-date income or loss, while
also adding any income tax expense or benefit related to discrete items
occurring within that interim period.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Product Revenue

Product revenue increased $23.7 million, or 20%, to $139.5 million for the nine
months ended September 30, 2021 compared to the same period in 2020. New
business acquired from the October 2020 Personica acquisition contributed
approximately $6.2 million to this increase. Excluding the Personica
acquisition, approximately $12.9 million of the increase was due to increased
medication fulfillment volume from growth in the number of patients served

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by our existing clients, medication mix of prescriptions filled, and payer mix.
Medications dispensed by our community pharmacy network on behalf of CareVention
HealthCare contributed $4.0 million to the increase as a result of amended
client agreements. The increase in product revenue was partially offset by a
$491 thousand decrease in COVID-19 test kits sold through our CareVention
HealthCare segment and PrescribeWellness pharmacy network.



Service Revenue

Service revenue increased $1.7 million, or 2%, to $106.1 million for the nine
months ended September 30, 2021 compared to the same period in 2020.

Service revenue generated by our CareVention HealthCare increased by
approximately $8.7 million, or 25%, to $43.0 million for the nine months ended
September 30, 2021, as compared to the same period in 2020. The acquisition of
Personica in October 2020 contributed $6.3 million to the increase. The
remaining increase was attributable to new clients added and growth with
existing clients since the second quarter of 2020.



Service revenues generated by our MedWise HealthCare decreased approximately
$6.9 million, or 10%, to $63.1 million for the nine months ended September 30,
2021, as compared to the same period in 2020. Medication safety services
decreased $8.6 million primarily as a result of a large MTM client contract that
did not renew in 2021 and reduced fees in the final year of the EMTM pilot
program. This decrease was offset by an increase in software subscription
services of $1.7 million related to a new partnership with a leading online

health insurance marketplace.



Cost of Product Revenue

Cost of product revenue increased $20.5 million, or 24%, to $105.3 million for
the nine months ended September 30, 2021, as compared to the same period in
2020. New business acquired from the Personica acquisition contributed
approximately $5.8 million to the increase. Excluding the Personica acquisition,
increased medication volume from growth in the number of patients served by our
existing customers contributed approximately $10.0 million to the change.
Medications dispensed by our community pharmacy network on behalf of CareVention
HealthCare contributed $4.0 million to the increase as a result of amended
client agreements. The increase in cost of product revenue was also due to a
$425 thousand increase in distribution charges related to higher shipping volume
for the medications we fulfilled. The increase in cost of product revenue was
partially offset by a $394 thousand decrease of COVID-19 test kits sold.



Cost of Service Revenue

Cost of service revenue increased $3.0 million, or 5%, to $67.1 million for the
nine months ended September 30, 2021 from $64.1 million for the nine months
ended September 30, 2020.

Cost of service revenue related to our CareVention HealthCare segment increased
$8.0 million, or 36%, to $30.1 million for the nine months ended September 30,
2021, as compared to the same period in 2020. Of the total increase, $3.2
million related to the acquisition of Personica in October 2020. The remaining
increase was primarily related to investments in infrastructure, including
increased personnel and employee costs, in order to better scale the delivery of
third-party administrative services into markets outside of PACE.



Cost of service revenue related to our MedWise HealthCare segment decreased $5.0
million, or 12%, to $37.0 million for the nine months ended September 30, 2021,
as compared to the same period in 2020. This decrease was comprised of lower
employee compensation costs due to a decrease in headcount, a decrease in the
use of contracted resources, and reduced printing and postage expenses resulting
from fewer clinical interventions performed.

Research and Development Expenses

Research and development expenses increased $1.1 million, or 8%, to
$14.9 million for the nine months ended September 30, 2021, as compared to the
same period in 2020. Stock-based compensation costs increased $1.7 million
primarily as a result of equity awards granted during 2021. The increase in
stock-based compensation expense was offset by a decrease in employee
compensation costs, excluding stock-based compensation, and professional
services primarily due to increased capitalization rates of development
initiatives to enhance the software supporting our CareVention HealthCare and
MedWise HealthCare offerings.

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Sales and Marketing Expenses



Sales and marketing expenses increased $3.2 million, or 20%, to $18.8 million
for the nine months ended September 30, 2021 from $15.6 million for the nine
months ended September 30, 2020. The increase was primarily attributable to a
$1.9 million increase in employee compensation costs, of which $908 thousand
related to an increase in stock-based compensation expense. The remaining
increase in employee compensation costs was related to additional employee
headcount and increased costs related to employee benefits, including bonus. The
increase also consisted of a $626 thousand increase in marketing-related
expenses, including consulting and public relations services, and a $384
thousand increase in software licenses and technology-related expenses,
primarily related to an enhanced client and marketing management tool. The
remaining increase was attributable to increased travel and conference spend.

General and Administrative Expenses

General and administrative expenses increased $5.4 million, or 11%, to
$54.4 million for the nine months ended September 30, 2021, as compared to the
same period in 2020. The acquisition of Personica contributed $499 thousand to
the increase in expenses, which consisted primarily of employee compensation
costs, including stock-based compensation, and consulting services. Excluding
costs related to the Personica acquisition, general and administrative expenses
increased by approximately $4.9 million.



The increase in general and administrative expenses was primarily attributable
to higher employee compensation costs of $4.1 million, which included a $2.5
million increase in stock-based compensation expense primarily related to equity
awards granted during 2021. The remaining increase in employee costs was
primarily related to increased costs for health insurance premiums and other
supplemental benefits, including bonus expense. The increase in general and
administrative expenses was also due to a $608 thousand increase in business
insurance premiums. The remaining increases are primarily due to general
increases in expenses including audit fees, recruiting expenses, employee
relations, as well as bad debt expense.

Acquisition-related Contingent Consideration Expense

During the third quarter of 2020, we elected to accelerate the payment of the
acquisition-related contingent consideration for an aggregate payment of $13.4
million, which was satisfied by cash payments of $6.4 million and the issuance
of 135,434 shares of our common stock, with a fair value of $6.9 million. During
the nine months ended September 30, 2020, we recorded a $2.6 million charge to
increase the fair value of the Cognify acquisition-related contingent
consideration primarily due to the accelerated payment. No charges were incurred
during the nine months ended September 30, 2021, as the final amount of the
Cognify acquisition-related contingent consideration liability was determined
and fixed as of December 31, 2020. In the first quarter of 2021, we made the
final cash payment of $166 thousand in full satisfaction of the remaining
acquisition-related contingent consideration liability.

Depreciation and Amortization Expenses

Depreciation and amortization expenses increased $3.0 million, or 9%, to
$35.3 million for the nine months ended September 30, 2021 from $32.3 million
for the nine months ended September 30, 2020. This increase was due to a $3.6
million increase in the amortization of capitalized software related to new
software functionality placed into service since 2020 to support our CareVention
HealthCare and MedWise HealthCare segments. This increase was partially offset
by a $468 thousand decrease in amortization expense primarily due to higher
amortization expense in the third quarter of 2020 related to changes in the
estimated useful lives of certain intangible assets during 2020.



Interest Expense



Interest expense for the nine months ended September 30, 2021 was $7.0 million,
a decrease of $7.0 million compared to the nine months ended September 30, 2020.
Of the total decrease, approximately $8.7 million related to the adoption of ASU
2020-06 on January 1, 2021, which significantly reduced the amount of debt
discount to be amortized. The decrease was partially offset by $842 thousand of
interest expense on the 2020 Credit Facility and $474 thousand of interest
expense on the acquisition-related notes payable related to the Personica
acquisition.



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Income Taxes

On February 12, 2021, we received a private letter ruling from the Internal
Revenue Service, which determined, based on information submitted and
representations made by us, that we met the requirements to deduct the interest
expense resulting from the amortization of the debt discount associated with the
2026 Notes. As a result, during the nine months ended September 30, 2021, we
recorded a deferred tax asset of $26.3 million and a corresponding $26.3 million
increase to our valuation allowance. As of September 30, 2021, we have recorded
a full valuation allowance against our deferred tax assets.



For the nine months ended September 30, 2021, we recorded income tax expense of
$466 thousand primarily related to indefinite-lived deferred tax liabilities for
goodwill amortization, which resulted in an effective tax rate of (0.8)%.The
effective tax rate differs from the U.S. statutory tax rate primarily due to the
full valuation allowance recorded that is currently limiting the realizability
of our net deferred tax assets as of September 30, 2021. Accordingly, the tax
benefit was limited due to unbenefited losses in the nine months ended September
30, 2021.



For the nine months ended September 30, 2020, we recorded an income tax benefit
of $5.7 million, which resulted in an effective tax rate of 10.2%. The effective
tax rate differed from the U.S. statutory tax rate primarily due to an increase
in the valuation allowance that limited the realizability of our net deferred
tax assets as of September 30, 2020. Accordingly, the tax benefit was limited
due to unbenefited losses in the nine months ended September 30, 2020.



We calculate the provision for income taxes during interim periods by applying
the estimated annual effective tax rate for the full year ordinary income or
loss to the respective reporting period's year-to-date income or loss, while
also adding any income tax expense or benefit related to discrete items
occurring within that interim period.



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                          NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA and Adjusted EBITDA Margin

To provide investors with additional information about our financial results, we
disclose Adjusted EBITDA and Adjusted EBITDA margin, each of which is considered
a non-GAAP financial measure. Adjusted EBITDA consists of net loss plus certain
other expenses, which include interest expense, provision (benefit) for income
tax, depreciation and amortization, change in fair value of acquisition-related
contingent consideration expense, settlement costs, severance expense incurred
in 2021 related to a realignment of resources, acquisition-related expense, and
stock-based compensation expense. We consider acquisition-related expense to
include nonrecurring direct transaction and integration costs, severance, and
the impact of purchase accounting adjustments related to the fair value of
acquired deferred revenue. Adjusted EBITDA margin is calculated as Adjusted
EBITDA as a percentage of revenue. We present Adjusted EBITDA and Adjusted
EBITDA margin because they are some of the measures used by our management and
Board of Directors to understand and evaluate our core operating performance,
and we consider them important supplemental measures of performance. We believe
these metrics are commonly used by the financial community, and we present them
to enhance investors' understanding of our operating performance and cash flows.
We believe Adjusted EBITDA and Adjusted EBITDA margin provide investors and
other users of our financial information consistency and comparability with

our
past financial performance.

Our management uses Adjusted EBITDA and Adjusted EBITDA margin:

? as measures of operating performance to assist in comparing performance from

period to period on a consistent basis;

? to prepare and approve our annual budget; and

? to develop short- and long-term operational plans.

Adjusted EBITDA and Adjusted EBITDA margin are not in accordance with, or an
alternative to, measures prepared in accordance with GAAP. In addition, these
non-GAAP measures are not based on any comprehensive set of accounting rules or
principles. As non-GAAP measures, Adjusted EBITDA and Adjusted EBITDA margin
have limitations in that they do not reflect all the amounts associated with our
results of operations as determined in accordance with GAAP. In particular:

although depreciation and amortization are non-cash charges, the assets being

? depreciated and amortized may have to be replaced in the future, and Adjusted

EBITDA and Adjusted EBITDA margin do not reflect cash capital expenditure

requirements for such replacements or for new capital expenditure requirements;

? Adjusted EBITDA and Adjusted EBITDA margin do not reflect cash interest income

or expense;

? Adjusted EBITDA and Adjusted EBITDA margin do not reflect changes in, or cash

requirements for, our working capital needs;

? Adjusted EBITDA and Adjusted EBITDA margin do not reflect the potentially

dilutive impact of stock-based compensation;

? Adjusted EBITDA and Adjusted EBITDA margin do not reflect tax payments that may

represent a reduction in cash available to us; and

other companies, including companies in our industry, may calculate Adjusted

? EBITDA, Adjusted EBITDA margin, or similarly titled measures differently, which

   reduces their usefulness as a comparative measure.

Because of these and other limitations, you should consider Adjusted EBITDA and
Adjusted EBITDA margin alongside GAAP financial performance measures, including
various cash flow metrics, net loss, and our other GAAP financial results. You
should not consider Adjusted EBITDA and Adjusted EBITDA margin in isolation

from, or as a

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substitute for, financial information prepared in accordance with GAAP. You
should be aware that in the future we may incur expenses that are the same as or
similar to some of the adjustments in the current presentation, and we do not
intend to imply that our future results will be unaffected by unusual or
non-recurring items.



The following is a reconciliation of Adjusted EBITDA to our net loss for the
periods presented:




                                                        Three Months Ended September 30,            Nine Months Ended September 30,
                                                           2021                   2020                 2021                  2020
Reconciliation of Net Loss to Adjusted EBITDA
Net loss                                             $        (17,111)      $        (21,589)    $       (57,684)      $       (50,336)
Add:
Interest expense, net                                            2,230                  4,722               6,959                14,000
Income tax expense (benefit)                                       134                (1,830)                 466               (5,705)
Depreciation and amortization                                   12,099                 12,199              35,343                32,323
Change in fair value of acquisition-related
contingent consideration expense                                     -     

            2,005                   -                 2,605
Settlement                                                           -                      -                 500                     -
Severance expense                                                  354                    917                 516                   917
Acquisition-related expense                                          -                    572                 217                   823

Stock-based compensation expense                                 8,011     

            8,098              28,962                22,408
Adjusted EBITDA                                      $           5,717      $           5,094    $         15,279      $         17,035

Total revenue                                        $          86,586      $          70,506    $        245,575      $        220,167
Adjusted EBITDA margin                                            6.6%                   7.2%                6.2%                  7.7%

Adjusted Diluted Net Income (Loss) Per Share, or Adjusted Diluted EPS

Adjusted Diluted EPS excludes the impact of certain items and, therefore, has
not been calculated in accordance with GAAP. We believe the exclusion of these
items assists in providing a more complete understanding of our underlying
operations, results, and trends, allows for comparability with our peer company
index and industry, and enables us to be more consistent with our expected
capital structure on a going forward basis. Our management uses this measure
along with corresponding GAAP financial measures to manage our business and to
evaluate our performance compared to prior periods and the marketplace. We
define Adjusted Diluted EPS as net loss before fair value adjustments for
acquisition-related contingent consideration, amortization of acquired
intangibles, amortization of debt discount and issuance costs, settlement cost,
severance expense incurred in 2021 related to a realignment of resources,
acquisition-related expense, stock-based compensation expense, and the tax
impact using a normalized tax rate on pre-tax income adjusted for those items
expressed on a per share basis using weighted average diluted shares
outstanding. We consider acquisition-related expense to include nonrecurring
direct transaction and integration costs, severance, and the impact of purchase
accounting adjustments related to the fair value of acquired deferred revenue.



Adjusted Diluted EPS is a non-GAAP financial measure and should not be
considered in isolation or as a substitute for financial information provided in
accordance with GAAP. This non-GAAP financial measure may not be computed in the
same manner as similarly titled measures used by other companies. In the future,
we may incur expenses that are the same as or similar to some of the adjustments
in the presentation, and we do not intend to imply that our future results will
be unaffected by unusual or non-recurring items.



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The following table reconciles net loss per share on a diluted basis, the most
directly comparable GAAP measure, to Adjusted Diluted EPS:

                                                   Three Months Ended September 30,                     Nine Months Ended September 30,
                                                     2021                      2020                       2021                      2020

                                                (In thousands except per share amounts)              (In thousands except per share amounts)
Reconciliation of diluted net loss per
share to Adjusted Diluted EPS
GAAP net loss, basic and diluted, and
net loss per share, basic and diluted      $   (17,111)    $ (0.73)    $ (21,589)   $ (0.99)    $   (57,684)    $  (2.48)   $ (50,336)   $ (2.33)
Adjustments:
Change in fair value of
acquisition-related contingent
consideration expense                                 -                     2,005                          -                     2,605
Amortization of acquired intangibles              7,060                     8,291                     21,468                    21,936
Amortization of debt discount and
issuance costs                                      406                     3,280                      1,310                     9,647
Settlement                                            -                         -                        500                         -
Severance expense                                   354                       917                        516                       917
Acquisition-related expense                           -                       572                        217                       823

Stock-based compensation expense                  8,011                     8,098                     28,962                    22,408
Impact to income taxes (1)                          439                   (1,762)                      1,588                   (6,306)
Adjusted net (loss) income and Adjusted
Diluted EPS                                $      (841)    $ (0.04)    $    (188)   $ (0.01)    $    (3,123)    $  (0.13)   $    1,694   $   0.07

The impact to taxes was calculated using a normalized statutory tax rate

(1) applied to pre-tax income or loss adjusted for the respective items above and

then subtracting or adding the tax benefit or provision, respectively, as

     determined for GAAP purposes.




The following table reconciles the diluted weighted average shares of common
stock outstanding used to calculate net loss per share on a diluted basis for
GAAP purposes to the diluted weighted average shares of common stock outstanding
used to calculate Adjusted Diluted EPS:




                                                                                                Three Months Ended           Nine Months Ended
                                                                                                  September 30,               September 30,
                                                                                                2021          2020          2021          2020
Reconciliation of weighted average shares of common stock outstanding, diluted, to
weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS
Weighted average shares of common stock outstanding, basic and diluted for GAAP               23,407,391    21,779,808    23,230,138    21,571,214

Adjustments:

Weighted average dilutive effect of stock options                                                      -             -             -     1,281,367
Weighted average dilutive effect of restricted stock                                                   -             -             -       491,245
Weighted average dilutive effect of contingent shares                                                  -             -             -        74,102

Weighted average shares of common stock outstanding, diluted for Adjusted Diluted EPS (1) 23,407,391 21,779,808 23,230,138 23,417,928

For the three and nine months ended September 30, 2021, we accounted for the

convertible senior subordinated notes utilizing the if-converted method in

accordance with the guidance under ASU 2020-06 effective January 1, 2021 (see

Note 2 in the notes to the consolidated financial statements). Under this

method, we are required to presume that the convertible senior subordinated

(1) notes are converted at the beginning of the current period and settled

entirely in our common stock. However, no potential shares are assumed

outstanding and are excluded from the diluted EPS calculation if including

them would have an anti-dilutive effect. For the three and nine months ended

September 30, 2021, there was no impact on diluted EPS from the convertible

senior subordinated notes as the conversion would have had an anti-dilutive

     effect.

For the three and nine months ended September 30, 2020, under the previous
accounting standard, we accounted for the convertible senior subordinated notes
utilizing the treasury stock method. Under this method, we presumed that we
would settle the notes entirely or partly in cash. The underlying shares
issuable upon conversion of the notes were excluded from the calculation of
diluted EPS, except to the extent that the average stock price for the reporting
period exceeded their conversion price of $69.95 per share. For the three and
nine months ended September 30, 2020, there was no impact on diluted EPS from
the convertible senior subordinated notes as the conversion price exceeded

our
average stock price.





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                        Liquidity and Capital Resources



We incurred a net loss of $57.7 million and $50.3 million for the nine months
ended September 30, 2021 and 2020, respectively. Our primary liquidity and
capital requirements are for research and development, sales and marketing,
general and administrative expenses, debt service obligations, and strategic
business acquisitions. We have funded our operations, working capital needs, and
investments with cash generated through operations, issuance of stock, and
borrowings under our credit facilities. At September 30, 2021, we had
unrestricted cash of $11.3 million. We believe that our operating cash flows and
other sources of liquidity are sufficient to meet our cash requirements for the
next 12 months and beyond.