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Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC)Q4 2018 Earnings Conference CallFeb. 28, 2019, 5:00 p.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Tabula Rasa HealthCare Incorporated Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to Kevin Dill, Corporate Counsel and Chief Compliance Officer. You may begin.
Kevin J. Dill -- General Counsel & Chief Compliance Officer
Thank you, and good evening. I'm Kevin Dill, General 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 10-K. 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 now to Dr. Calvin Knowlton, CEO, Chairman and Founder of Tabula Rasa HealthCare. Cal?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thank you, Kevin, and good evening. Thank you for joining us for our fourth quarter and full year 2018 earnings call. Also with me tonight are Dr. Orsula Knowlton, Co-Founder and Chief Marketing and Business Development Officer, who will provide an update on our new business activity; and Mr. Brian Adams, our Chief Financial Officer, who will provide our financial update on the fourth quarter and full year as well as an initial outlook for fiscal 2019.
In 2018, we saw strength across our entire organization, as we delivered a 53% revenue increase, and a 70% adjusted EBITDA increase compared to 2017. Further, we continued to see constant and consistent growth in PACE, expanding our PACE membership by 20%. We built out our PACE offerings with selective strategic acquisitions. Our product service mix continues to see service revenue expansion from 19% in 2016 to 41% in 2017, and 45% in 2018. We expanded our leadership position in the Medication Therapy Management market. We received our enhanced Medication Therapy Management year one results, whereby our Medication Risk Mitigation interventions exceeded expectations with net savings of $37 million, or $2,500 per person in reduced medical expenses.
We announced our first international expansion. We entered the hospital market with our acquisition of DoseMe. And by year-end, TRHC entities had serviced 7.5 million patients in the United States. With our new analytics department, we have been able to show that our Medication Risk Mitigation interventions consistently demonstrate a four point reduction in Medication Risk Score, which translates most importantly from a quality perspective to reduce morbidity as well as the medical savings especially hospitalization admission reduction, falls reduction and ER-visit-reduction.
I referenced our acquisition of DoseMe, and I'd like to dig into that opportunity a bit. DoseMe represents a great strategic fit for Tabula Rasa, that not only brings our precision medicine and science-based approach to the dosing of potentially dangerous narrow-therapeutic parenteral medications, but it also opens up an opportunity for us in the hospital market with their 125 hospital healthcare system clients in the US, Western Europe and Australia.
Turning to Enhanced Medication Therapy Management, we just moved into year three of our EMTM pilot. One of the things we are focused upon is leveraging the community pharmacists to provide more of the interventions. At year-end, we had trained more than 400 community pharmacists at 300 locations in the Northern Plains. These partners conducted more than 100 interventions in the second quarter of 2018 and by the fourth quarter it was over 1,100 interventions. Now we anticipate they will complete more than 10,000 interventions in 2019. Beyond the EMTM project, in 2019, we intend to expand to a large number of community pharmacies by a network collaboration.
Another recent development which we officially announced last week and mentioned on our last quarterly call as part of our Tabula Rasa 2.0 efforts is the launch in the location of our new Scientific Precision Pharmacotherapy Research & Development Institute in Lake Nona, Orlando, Florida. The Research and Development Institute is committed to the continued development of proprietary products for optimizing medication regimens and to achieving validation and recognition of these products by the scientific and regulatory communities. Our goal by year-end is to have additional TRHC pharmacokinetic, pharmacogenomic scientist in the location at Lake Nona. Lake Nona is particularly a market that's rich with PhDs focused on pharmacokinetics. To maintain our vanguard status globally, in medication risk identification and mitigation, the emphasis at Lake Nona is to continue adding pertinent attributes to our medication risk identification and mitigation software, in addition to submitting germane NIH grants. Our enhanced research and development science group is a necessity to develop home and advance the products we need for the coming years.
Last week, we were able to participate in the annual invitational Lake Nona Impact conference, I'd like to share just a bit of what I heard and learned while I was there. This innovation forum is an annual meeting of C level healthcare leadership leaders throughout the United States to continue the future of healthcare and well-being discussion. Our 17th Surgeon General of United States Dr. Richard Carmona open the program with an ongoing criticism of our healthcare system that it is not in fact healthcare, but sick care, considering the 70% of chronic disease is preventable. We made excellent contacts during the meeting and feel that we are positioned very well to support the medication safety well-being needs in the United States and around the world.
Before I turn the call over to Orsula, I want to take a moment to touch on our plans to expand our sales force spearheaded by Dr. Kevin Boesen in his new role as Chief Sales Officer. Kevin is leading our enhanced sales organization to support all sales and cross-selling efforts and will ultimately be responsible for all direct and channel sales efforts. Our focus is to expand the adoption of MedWise in the health plans, healthcare system, hospitals, community pharmacies and any financially at risk healthcare organization. We believe that this is a great position for Kevin. And I expect he will really thrive as he helps Tabula Rasa to expand our footprint into these marketplaces.
So 2018 was a busy year for us. And I believe we are well positioned in the market and have the scale and the infrastructure in place to capitalize on the opportunities ahead of us. Medication adverse events is rampant and it's a pandemic.
I'll now turn the call over to Orsula to talk about all the recent happenings in new business. Orsula?
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Thanks, Cal, and thank you to everyone on the call. We are pleased to report a 2018 revenue retention rate of 99% consistent with 2017 and higher than 2016 at 98%. Similarly our client retention rate was 96%, an increase over both 2017 and 2016, which were 95% and 93%, respectively. As with all aspects of Tabula Rasa business in 2018, including our successful adds of new clients and new services, we are excited about the future starting in 2019.
First, we are focused on our enhanced ability to expand into our existing markets. One such example is the payer market, where we are leveraging the recent integration at SinfoniaRx, it's capabilities and client roster. Some key successes of SinfoniaRx in 2018 include a six-fold increase in the number of Medicare plans that achieved a comprehensive medication review or a CMR conversion rate of 85% or more which is the current five star cut point. We had four plans reach that in 2017 and 29 plans in 2018. Overall, SinfoniaRx completed 450,000 CMRs which translate into over 1 million recommended intervention. Sinfonia also had a full soft (ph) launch of RxCompanion, their technology with the New York health plan and through the fast licensing of RxCompanion with the national retail pharmacy chains, community pharmacies completed over 3.1 million in-store intervention resulting in the improvement of their medication adherence metrics and overall network performance.
Second, we are thrilled to be in a new market as a result of the DoseMe acquisition. We have done extensive research on this market, including a survey that we distributed during the third quarter to 250 PACE prescribers from across 18 states, who already see the TRHC medication risk score in their workflow. 50% of prescribers responded that they there are more confident in prescribing when using the medication risk score. 85% indicated that they reconsider their medication choice, when the risk score is affected by a new prescription. 90% more likely to de-prescribe a medication or remove the number of medications the person is taking as a result of the medication risk score and over 90% said that they both would use their medication risk score again, given the opportunity and will recommend it for use by other prescribers in and outside of PACE.
It is now our goal to take the system to other healthcare and hospital systems. We believe that DoseMe bolsters our get-to-market strategy and capabilities in the market. Preventing adverse drug event, medication optimization, performance improvement programs and how we plan to market the implementation of our decision support tools at the point of care. The value we bring in addition to quality and outcomes improvement include the economic benefit of affording downstream effects of adverse drug events along with reducing hospital length of stay and readmissions.
We are involved in the conversation of medication safety and performance improvement most recently through our attendance at the Institute for Health Improvement 2018 national forum. Over 5,000 health professionals checking quality improvement methods to help solve some of their biggest challenges, including adverse drug event prevention were in attendance. During the conference, we saw higher interest including from those members participating in IHI signature program, Age-Friendly Health Systems.
Age-Friendly Health Systems is an initiative of the John A. Hartford Foundation, the Institute for Healthcare Improvement, the American Hospital Association and the Catholic Health Association of the United States. In case you're not aware, the goal of this initiative is to develop an Age-Friendly Health Systems framework and rapidly spread to 20% of US hospitals and health systems by 2020. The four essential components of an Age-Friendly Health Systems are known as the 4Ms Framework for age-friendly care and include; What Matters, align care with specific health outcome goal. Mentation; prevent, identify, treat, and manage dementia, depression, and delirium. Mobility; ensuring that older adults move safely in order to maintain, function and to do What Matters. And of course, Medication. If medication is necessary, use Age-Friendly medications that do not interfere with What Matters, Mobility or Mentation. Considering that adverse drug events are the fourth-leading cause of death in the United States, we envisioned a great opportunity to support the success of this important program for our elderly population.
We also attended the 2019 Health Information Management Systems Society or HIMSS global conference two weeks ago, where healthcare providers and innovators use new technologies to improve performance and solve problem. While many TRHC members have attended HIMSS for years, this year we exhibited at their innovation showcase. Cal had the opportunity to present in the innovation theater as well. His presentation had an excellent response from the audience, including ideas to get into new markets from audience participants. It was an exciting time for us and we had numerous positive conversations with interested folks and look forward to the follow up. Finally, to assure our success in this space, we are working on public API integrations using SMART on FHIR and CDS Hooks with major health information platform vendors. We have a number in process and have had one recently validated.
We are pleased to share that athenahealth has completed their validation of our API integration, which we tested through a collaboration with one of our client physician practice group. athenahealth has more than 100,000 providers and 100 million patients who are using it's Health Information Technology platform. The solution that was validated with athenahealth embed our SMART on FHIR application within their EHR. A prescriber will be able to see the medication risk score, cut through to additional visualization of risk and consult with the certified MedWise Advisor. Our team will be working closely with athena's marketplace group with the expectation that we will have our integration -- integrated technology generally available by the fourth quarter of 2019. So more on new markets during our next quarterly call.
Looking back at 2018, we had wonderful growth in our Program of All-inclusive Care for the Elderly or PACE service lines and continue to demonstrate market leadership. Overall, we are seeking early signs of success on the industry PACE 2.0 initiative, which is to double the census by 2021 and to service 100,000 participants by 2028. An example of an encouraging move we saw in December was the State of North Carolina approved PACE expansion of providers to serve a broader portion of the state population. This marks the first expansion of service areas of North Carolina initiated by the state since they were established over a decade ago. We have also been contacted by start-ups in the states that do not currently have PACE, as well as start-ups in states that have not had a new sponsor in years. Our overall PACE growth for our medication risk management and comprehensive pharmacy services in 2018 was consistent with prior years at 18% product revenue growth and 20% patient growth.
We expect to see an increase in rates of member enrollment and momentum in this area throughout the year. When we acquired Peak PACE, Mediture, eClusive and Cognify last year, we believed there existed a clear opportunity within the PACE market for an integrated offering that combine the EHR, analytics, Third Party Health Plan Management Services, consulting along with our proprietary Medication Risk Mitigation Matrix. Across our four primary PACE offerings, we touch approximately 85% of PACE providers today with at least one of our PACE service lines. We saw great success in terms of cross-selling in the last half of 2018. In August of 2018, only 15 PACE providers utilized all of our four core solutions and today the number has grown to 19. We estimate progress on the other side of the spectrum decreasing the number of PACE organizations that use none of our solutions from 21 to 16 as we work on five new PACE organization customers over the past two quarters.
On November 1, we launched our Medication Risk Mitigation services with Rocky Mountain PACE in Colorado Springs, Colorado. Rocky Mountain is unique and that it has leveraged its growth to over to 600 participants at one single PACE center. While not our largest client, the location is now our largest PACE center with TRHC. Rocky Mountain is seeing signs of early success in hospitalization reduction as a result of our collaboration. They also had partnered with Cognify EHR. As noted, they added Medication Risk Mitigation in November and then further expanded into the TRHC service suite with TRHC's Peak Health Plan Management Services.
During the fourth quarter, we also completed the client expansion locations for Mercy LIFE West Philadelphia PACE. CareKinesis started with Mercy LIFE in 2012. Their success has more than doubled since then. We have also maintained an extremely robust pipeline of client expansion locations for 2019, including one in New Jersey, one in Indiana, and two in Florida. We have five start-up organizations under contract in Arkansas, California, Colorado, Florida, and Michigan for a total of nine new centers, all starting with multiple service lines of TRHC in 2019. Finally, we have a wonderful pipeline of new and existing PACE organizations within our services this year.
With that, I'll turn the call over to Brian Adams, our CFO. Brian?
Brian W. Adams -- Chief Financial Officer
Thank you, Orsula, and thank you all for joining us this evening. I want to reiterate calendars with comments that 2018 was a great year for the company, and we took several steps to help support our growth well into the future.
Let me now provide some highlights from 2018 before reviewing the fourth quarter in more detail. For the full year 2018, we saw revenue growth 53% to $204 million. GAAP net loss of $47.3 million compared to GAAP net income of $12.8 million in 2017. The net loss this year was mainly the result of $49.8 million, in charges for adjustments to contingent consideration we will pay in connection with the SinfoniaRx acquisition.
Non-GAAP adjusted EBITDA growth of 70% year-over-year to $29.3 million; GAAP net loss per diluted share of $2.48, compared to net income per diluted share of $0.68 in 2017; and non-GAAP adjusted net income per diluted share of $0.77, compared to non-GAAP adjusted net income per diluted share of $0.42 in 2017, based on a diluted share count of 22 million shares and 18.8 million shares, respectively. The fourth quarter of 2018 Tabula Rasa generated total revenue of $57.3 million, a 32% increase over last year. Product revenue in the quarter was $30.2 million compared to $26.2 million in the same period a year ago. Service revenue came in at $27.2 million in the quarter quarter. an increase of 59% from the fourth quarter of 2017. Gross margins of 33% this quarter compared to 32% in the same period last year. This was in line with our expectations as we saw some impact from the Mediture and Cognify acquisitions. I'll reiterate that our longer-term gross margin target is 35% to 40%, and we continue to make incremental progress against that goal.
Product gross margin was 24% in the fourth quarter of 2018, a slight decline from 25% last year, due to the onboarding of Rocky Mountain PACE. This was a significant new client for Tabula Rasa and as we've commented in the past, we can see temporary positive another negative impacts on gross margin during the time when new clients are aligning with Tabula Rasa's methodologies for managing medication risk.
Service gross margin of 42% in the fourth quarter of 2018 was directly in line with fourth quarter of 2017. Q4 2017 have the first full quarter contribution from the SinfoniaRx business providing a more appropriate comparison than previous quarters. Our operating expenses represented 49% of our total revenue this quarter up from 12% in the same period a year ago. Excluding the impact of change in fair value of acquisition-related contingent consideration, operating expenses would have represented 33% of revenue, up from 28% in the fourth quarter of 2017. These amounts are consistent with last quarter. And as we noted last quarter, operating expenses in the second half of the year have ticked up to reflect investments in Tabula Rasa 2.0, which we believe will support growth during 2018 and beyond.
We generated $8.5 million in adjusted EBITDA in the fourth quarter, compared to $6.5 million a year ago. Adjusted EBITDA margins for the fourth quarter of 2018 was 15% and consistent with fourth quarter of last year. This is in line with our expectations given the incremental spend related to Tabula Rasa 2.0. Our GAAP net loss of $10.6 million compares to a GAAP net income of $10.9 million in the fourth quarter of 2017. The net loss was largely impacted by a charge of $9.1 million related to the change in fair value of acquisition-related contingent consideration for the SinfoniaRx acquisition. The charge we incurred in the fourth quarter of 2018, increased the amount of contingent consideration we will pay in connection with the acquisition.
GAAP net loss per diluted share for the fourth quarter of 2018 was $0.54, compared to GAAP net income per diluted share of $0.55 in the same period last year. The net income and loss per diluted share calculations are based on a diluted share count of $19.4 million for the fourth quarter of 2018 versus $19.9 million for the fourth quarter of 2017. Adjusted net income per diluted share for the fourth quarter of 2018 was $0.21 compared to adjusted net income per diluted share of $0.15 in the fourth quarter of 2017. The net income and loss per diluted share calculations are based on diluted share count of $22.8 million for the fourth quarter of 2018 versus $19.9 million for the fourth quarter of 2017. As a reminder, our adjusted net income per diluted share for the quarter exclude stock-based compensation, amortization of acquired intangibles, payroll tax on stock option exercises, transaction-related expenses, changes in fair value of contingent consideration as well as any resulting impact on income tax.
Turning to the balance sheet. As of December 31st, 2018, we had a cash balance of $20.3 million compared to cash at the end of the last quarter of last year at $13.9 million. The increase is the result of positive cash flow from operations. As of today, we have nothing drawn on our $60 million line of credit. We have outstanding debt of $1.1 million in equipment leases, compared to $1.7 million at the end of last year.
Before reviewing our financial outlook, I want to comment on two additional items. The first is the Sinfonia earn out. Sinfonia has performed extremely well, since the acquisition and we have finalized the calculation for the earn-out payment. The sellers will receive the maximum earn out of $85 million, 50% of which will be paid in stock and 50% of which will be paid in cash.
The second item is our recent convertible debt offering. On February 12th, we closed a $325 million convertible senior subordinated note offering due in 2026, which carries a rate of 1.75%. Tabula Rasa received net proceeds from the offering of approximately $315 million. We used $35.8 million of the net proceeds to pay the cost of the convertible note hedge transactions, which effectively increases the stock conversion price to $105, reflecting approximately a 100% premium to the shares at the time of pricing. The remaining proceeds, we used to pay down our existing line of credit and will be used to pay the Sinfonia earn out and to ensure that we have some capital to support future acquisitions.
I'll close out my comments today with an initial outlook for the first quarter and the full year 2019. For the first quarter of 2019, we anticipate revenue to be in the range of $55 million to $60 million; adjusted EBITDA to be in the range of $4 million to $5 million; and net loss to be in the range of $6.1 million to $5.3 million. I'll remind you that there is some seasonality to the Sinfonia business that depresses the first quarter. In addition, we will see some negative impact on earnings from the DoseMe business as well as the recently launched scientific precision Pharmacotherapy Research Institute. While DoseMe and the Research Institute will have a shorter-term impact on earnings, we believe these are important investments to ensure that we are able to continue to stay on the front edge of medication management and to enhance future growth potential.
For the full year 2019, we anticipate total revenue to be in the range of $250 million to $260 million. Of that total revenue, we expect product revenue of $140 million and service revenue of $115 million at the midpoint of our range. We expect adjusted EBITDA to be in the range of $32 million to $37 million. As mentioned previously, our guidance includes expected losses for 2019 for the DoseMe business, as well as costs related to the recently announced scientific Precision Pharmacotherapy Research Institute.
As we previously communicated, we did not expect to have an adjusted EBITDA margin, any higher than what we realized in 2018. And after folding in DoseMe in the Research Institute, we expect to be about 100 basis points below 2018 margin at the midpoint of our guidance. A very reasonable investment related to the future potential we are creating. As we expect net loss to be in the range of $12.9 million to $9.2 million, our first quarter and full year 2019 outlook assumes an all-in normalized tax rate of 26%, and we do not expect to be a cash taxpayer in 2019 for federal tax. Our net loss projection does not include any impact from the change of fair value of contingent consideration for the DoseMe and Cognify acquisitions and only contemplates cash interest expense associated with the $325 million senior subordinated notes.
I'd like to echo both Cal and Orsula's comments and say that 2018 was another very strong year for Tabula Rasa. And in 2019, we can expect to drive very strong top line growth continued to expand our gross margin and make investments that will position us well to enter new markets and expand our existing footprint.
That concludes my prepared remarks and I'll turn the call back over to Cal for closing comments. Cal?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thank you, Brian. As I think Orsula, Brian and I have all stressed on this call. We are incredibly pleased with everything Tabula Rasa accomplished in 2018. We continue to diversify our business markets, while relying on our unique multi-drug simultaneous interaction score. We are quickly becoming the go-to-provider for Medication Risk Management regardless of the market. As has been the case every quarter, we could not have delivered these results without the ongoing hard work, strategic vision and dedication of all our team members. We entered 2019 with great momentum and a clearly defined growth strategy, in which we will continue to innovate and keep Tabula Rasa on the cutting edge of healthcare as the industry moves from hindsight to insight to foresight. I look forward to continuing to update you throughout the year.
Operator, let's please open the call to questions.
Questions and Answers:Operator
Thank you. (Operator Instructions) Our first question comes from Ryan Daniels of William Blair. Your line is now open.
Ryan Daniels -- William Blair -- Analyst
Yeah, guys. Congrats on the strong end of the year, and thanks for taking the questions. Brian, maybe one for you with the growth in kind of the services business and all the deals you've completed later in 2018, early 2019. I'm just hoping to get a bit more color on the sales and EBITDA cadence for the year. So should we anticipate kind of a similar one half versus second half performance for sales and margins on 2019 or are there any nuances we should think about when building out the model?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yeah. I think that's, that's a good question, Ryan. Appreciate it. And I would expect a very similar cadence as we experienced in 2018 to repeat itself at this point. The Sinfonia business has become a larger percentage of the overall revenue base and there is some seasonality there where first quarter certainly is more depressed and then second, third quarter start to really tick up and then kind of level off in the final quarter of the year. So I would expect a pretty similar cadence.
Ryan Daniels -- William Blair -- Analyst
Okay. And then in regards to the margin performance anticipated for 2019, you know, that Street estimates had an increase in EBITDA despite the fact that you said on the Q3 call in the Investor Day that they would be down. I'm actually therefore more curious about the outlook for 2020. Are you still anticipating kind of after an investment year with some of these growth initiatives that we'll see a rebound in EBITDA heading into 2020?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yes. That's our expectation, Ryan. I think that we're going to start to see some incremental stair stepped up going into 2020 based on this investment. I think that the leveling off this year was anticipated earlier in the fall and even almost in the summer as we started to make some plans, but we do expect and are holding that our longer-term EBITDA target is maintained at about 20%.
Ryan Daniels -- William Blair -- Analyst
Okay. That's helpful. And then final question, I'll jump back in the queue. On Rocky Mountain that was an interesting data point that despite not being your largest PACE program by members that are your largest customers. So can you maybe talk about any key learnings there on the sales front? How to drive others either toward that level or to get new clients become and with a bevy of services right upfront? Thank you.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Well, absolutely, we definitely learned from that experience. They are wonderful partner. They certainly took their time evaluating their options. They have to actually remove the previous provider from their building, so there was quite a negotiation there. And I think now that we are -- have an integrated model. We are focused on all offerings firmware visiting with potential customers, including in the start-up mode. They're not always as of in a position to make all those decisions, but we certainly are able to support them through that process.
Ryan Daniels -- William Blair -- Analyst
Okay. Great, thank you.
Operator
Thank you. And our next question comes from Matthew Gillmor of Robert Baird. Your line is now open.
Matthew Gillmor -- Robert Baird -- Analyst
Hi, thanks for the question. I wanted to ask about the priorities for your new sales leadership especially the cross-sell opportunity into SinfoniaRx. You obviously elevated Kevin Boesen as a Chief Sales Officer. So just hoping to understand his team's priorities for 2019. And then get a sense for your goals for the year as we're integrating Symphony offering with the Tabula Rasa capabilities and taking that to the Sinfonia clients?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yeah, Matt. This is Cal. We have the number of initiatives planned for 2019. One of the top ones we're working on right now is that it says that Sinfonia crossover with MedWise. We just had numerous meetings on that and conferences about it. We have a plan set forth for how that's going to happen. And it's nice because they have a disease management angle in their software and we have the Medication Risk Mitigation Identification and Mitigation angle. So they really complement, but and will be using MedWise actually be the main platform as we roll this out. As far as the showing it's going on right now. We've got a lot of things happening on the opioid front that we can't be confirmed yet on -- this is how you, but there's cross selling going on right now in the first quarter. And we have a very large expectation with that, just like we do in PACE, with the cross-selling it's going on there.
And then the other things we're really focused on we're really keen on is with those me is the hospitalization opportunities for us. And that's a huge opportunity globally with our restore events that lengthen the stay in the hospital and then -- and whether if it's a DRG company that -- I mean the process where they care about that or whether it's a single-payer system that cares about, but there's a lot of interest in cutting down the average drug events during this today. And lastly, we're really keen also on taking off of the EMTM project we've had with the 300 pharmacies that we've certified and 400 and some pharmacists. We really going to have a huge initiative this year on taking the software to many, many pharmacies through some collaboration we're establishing that will exponentially, literally, exponentially propagate pharmacies with this in the United States. So that's kind of the four main things that we're really focused on right now.
Matthew Gillmor -- Robert Baird -- Analyst
Okay, great. And then maybe get an update on your M&A priorities as well. You've obviously raised a good amount of cash with the convert offering. So just hoping you could -- you put some parameters around that the types of acquisitions that you'd be interested in. And then I guess specifically in the event if you did a larger deal should we assume that there would be some revenue and EBITDA associated with that?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
This is Cal, again. I think that -- just like we saw with Sinfonia, we're always looking for technology that can bring us into a new market and that's kind of a very key thing for us right now. So in other ways, we have this core, and it can be used in so many places, and so we have to be discern -- we will be discrete about how we do it and we're going to look at somebody or some technology we can partner with that will help us do that. And that would -- Brian, I would say that we definitely would be looking in all -- I said, will, should -- we'll be looking for accretive top and bottom.
Brian W. Adams -- Chief Financial Officer
That's right. Yeah. So, Matt, I would agree with what Cal says. Anything we're looking at, at this point would be expected to be both accretive on the top and on the bottom.
Matthew Gillmor -- Robert Baird -- Analyst
Got it. Thank you.
Brian W. Adams -- Chief Financial Officer
Thanks, Matt.
Operator
Thank you. Our next question comes from Nina Deka of Piper Jaffray. Your line is now open.
Nina Deka -- Piper Jaffray -- Analyst
Hi, congrats on the quarter and the great finish to 2018.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Thanks, Nina.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thank you, Nina.
Nina Deka -- Piper Jaffray -- Analyst
So to what degree are the expansion opportunities that you discussed into the new markets factored into the guidance that you provided today for FY 2019?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Nina, that's a great question. So, I would say, in terms of materially expansion into the hospital market is not really factored into our guidance right now. It's still very early days with the recent acquisition of DoseMe and starting to integrate the two offerings. So at this point, we have really just factored in the DoseMe stand-alone business growth and have not factored in any sort of real cross-sell at this point, although we do anticipate to see some of that happened before the end of the year.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Yeah.
Nina Deka -- Piper Jaffray -- Analyst
And how about the athenahealth opportunity?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Similarly since that really won't be launched until the end of the year. We would not expect to see material revenues in 2019 related to it.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Yes, and I just want to qualify that this is involved with healthcare organization. So it's not necessarily the hospital market, it's ACO, outpatient clinics, the healthcare organizations market.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yes, they are involved in hospitals, obviously, but also in infusion companies. And we haven't talked about too much, but the the TAM that DoseMe estimates just in US is about $500 million revenue. So it's a very, very large opportunity for us would be very conservative, Brian, aren't we?
Brian W. Adams -- Chief Financial Officer
Yeah.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
On, how we're doing -- how we're...
Brian W. Adams -- Chief Financial Officer
I would say that $500 million it's just the DoseMe product stand-alone, not including the overlap of the Tabula Rasa offering as well.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
That's correct. Yeah.
Nina Deka -- Piper Jaffray -- Analyst
Okay.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Most of their installations now are in the US, believe it or not, of their 125 installations over 100 of them are in the US.
Nina Deka -- Piper Jaffray -- Analyst
Okay. That's helpful. Thank you. And what was your organic growth for 2018?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
So organic growth for 2018 was about 20% overall.
Nina Deka -- Piper Jaffray -- Analyst
Okay, great. Thanks. I'll jump back in queue.
Operator
Thank you. Our next question comes from Stephanie Demko with Citi. Your line is now open.
Stephanie Demko -- Citi -- Analyst
Hey, guys. Thank you for taking my questions. Great quarter. (multiple speakers) I appreciate that. First one's for Brian, I thought -- could you give us a little more color on maybe in a collaboration just how you should think about the revenue share of that model and its contribution to this year?
Brian W. Adams -- Chief Financial Officer
So right now we're not expecting any real material contribution from athena to revenues given the fact that it's really going to be a Q4, I would say launch within their customer base. So I would be looking for any material contribution to 2020 at this point.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
But we are very interested about it.
Stephanie Demko -- Citi -- Analyst
How should we think about the revenue model itself as you move into the EHR space?
Brian W. Adams -- Chief Financial Officer
Yeah. So there's going to be two pieces there would be a monthly recurring fee for utilization of the services and then there will be an escalation component if they want to access our call centers and pharmacists.
Stephanie Demko -- Citi -- Analyst
On a per fee basis?
Brian W. Adams -- Chief Financial Officer
Yeah, that's right.
Stephanie Demko -- Citi -- Analyst
Got it. And then next one will be on the R&D Institute side. It sounds like you're doing a lot in product development for MTM and EMTM there. With that in mind, how do you see that influencing the PMPM for your EMTM offering?
Brian W. Adams -- Chief Financial Officer
So we do think over time we're going to have the ability to continue to increase that PMPM just based on the pure fact that the ROI that we delivered in year one and we're hopeful that that's going to increase in year two is a pretty significant for a health plan. So we do feel like we're in a position right now to expand that. And our hope is that through further development at the research institute that will continue to drive more significant savings for our customers and be able to expand the PMPM that we're able to charge there.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
And I think that we -- if you just think about PACE, let's just go there for a second. We have barely scratched the surface on what we can offer for PACE organizations from that will come out of the R&D Institute. I mean we're working on, obviously different genes now, we're working on -- not just the metabolic enzyme genes, but we're working on the genes that are receptors and the genes that transport drugs around the body. There is also some new stuff that will be coming out in the next year that has to do with like some sensors that can help people understand how a patient at home is doing. And so we're involved in some of that. So there is -- this whole personalized patient centric care model is just blossoming. And we've got so much opportunity to continue down that path particularly located there which is where a whole bunch of the innovation is going on. So I think we're going to continue to upsell, I mean, we hardly are doing enough right now in the pharmacogenomics and PACE. And we've just expanded that immensely in this quarter. So and that's an upsell. So there's a lot of opportunity for us, Stephanie.
Stephanie Demko -- Citi -- Analyst
(inaudible) to hear. Thank you guys for taking my questions.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thanks.
Operator
Thank you. And our next question comes from Mohan Naidu of Oppenheimer. Your line now open.
Mohan Naidu -- Oppenheimer -- Analyst
Thanks for taking my questions. Let me add my congratulations as well. Cal, just a couple more questions on DoseMe product. You can give us some insights on how current hospitals are using DoseMe and how you can integrate your own core services into that? And within the US, the 100 or so locations you talked about R&D in value-based reimbursement setting and what is the driver for the hospitals to pull this product right now?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
A lot of it is -- good question. Thank you. A lot of is quality. The way that the narrow therapeutic index medications that are injected and hospitals are done right now is mostly through a lot of blood draws to see where the trough is, and then just recalculate using algorithms how much to give -- going to give on the next dose. And with DoseMe, you don't really need to do that. It's based on inference, and you can do, maybe one or two draws during that time of the antibiotic for example for a week or so. And that's all you need. And so it cuts down on expense, it increases the quality and decreases the problems. The problems with narrative pre-index drugs, particularly some of the strong antibiotics and some of the oncology medicine or -- we'll just leave it there. They cause a lot of side effects when the peak goes above where it should. And like kidney damage and ear problems stuff like that. So you reduce the chance of problems that for the patient, you increase the quality, you will help with our workflow immensely. And we -- the way it works right now it's a stand-alone in the cloud system, that's very easy to use. Be happy to give you a drive through some point if you like. It's very easy to use and it's also been now accepted by a couple of those -- three of the largest electronic health record companies in the country. That are will be incorporating it with SMART on FHIR, so it won't be stand-alone, but it will be built into their systems. So that's kind of how we're doing the integration.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Right. And I just want to comment that recently I was out on -- kind of the sales call we know many people in the roles of chief pharmacists and hospitals and healthcare systems around US, and the consolidation of hospitals is really a concern for the role of the chief of pharmacy in understanding the need to scale, but also the need to standardize our systems and processes. So that seems to be a very key issue of having a tax system that they could use across the entire 15 hospitals to 20 hospitals that continue to consolidate.
Mohan Naidu -- Oppenheimer -- Analyst
That's very interesting. Maybe two more questions on the MA side, and I was hoping to hear a little bit more on the opportunities in the current selling season. Now that we have the CMS MLR change and some of the impressive data points from your own pilots. Anything we should expect through 2019 about potentially MA plans deals?
Brian W. Adams -- Chief Financial Officer
Yeah. I do expect. This is Brian, Mohan. We do expect that there will be some opportunities that we closed on the MA side during 2019. And just to talk for a moment more maybe about Kevin both in transitioning into that Head of Sales role. I mean that's really his background. He's been focused in the payer space and selling MTM into that market., And so we feel like he is very well positioned to further offered the Tabula Rasa strategies and products to those customers today that he is already working with. So we have seen an increase in responses that include our MRM capabilities to RFPs and other ongoing processes with potential clients. So short answer is yes, I would expect to see something close to 2019.
Mohan Naidu -- Oppenheimer -- Analyst
Okay, great. And maybe one last one. Any updates on the Portugal pilot and landmark expansion? That would be great.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Well, the Portugal pilot is right where we thought it would be right here in the first quarter and we are right now working through workflow integration with their IT group over there. And that's exactly what we'll be doing this week actually. So I would suspect that, that things going to be launched. They're not -- well, I don't want to say anything. Let's just say it's a little slower process than we would have in the US . So I would -- our thoughts in the second quarter we're going to be launching that thing. We have noted a couple of other pilots that might even beat it because we are so methodical there. But they're very excited about it. They're very embracing of it. And we spent a lot of every week with them on costs and stuff. So it's moving ahead.
Brian W. Adams -- Chief Financial Officer
I'am happy to talk about Landmark. That Phase II continues to move forward, really excited about the progress that we're making there. And there are other Landmark like entities out there that you are probably aware of on the phone that are similarly interested in the medication risk management offering that we have. And landmark, in fact is helping to facilitate and participate in some of those discussions. So pretty excited about their level of continued interest in utilizing the tool.
Mohan Naidu -- Oppenheimer -- Analyst
Thank you very much for all the color. Congratulations again.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thank you, Mohan.
Brian W. Adams -- Chief Financial Officer
Thanks.
Operator
Thank you. And our next question comes from David Grossman of Stifel Financial. Your line is now open. Hi, Mr. Gorssman, if you phone is on mute, please unmute. Here your question comes.
David Grossman -- Stifel Financial -- Analyst
Okay, I'm here. Thank you. Good afternoon. I wondered, if I could just go back to an earlier question. And Brian, maybe you can deconstruct a little bit to revenue growth and margin guidance for us. And what I mean by that is maybe take revenue, what's the acquired component? How much growth do you expect from PACE? And maybe the other service lines? And then similarly using 2018 as a baseline, how to think about margins in the quarter versus some of these investments that you outlined earlier?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yes, David, we typically haven't gone to that level of detail in the past as we've talked about guidance. So I'll give you what comfortable giving at this point. I'd tell you that we expect PACE from the product side to continue to grow at about 20%. We're comfortable with that number historically what we've seen based on the organic additional members that these programs continue to add each month and what we can expect to see from a new business development side as well. And so a kind of -- you can force out our assumptions around the service growth at the same time given that we're targeting about a 25% overall growth rate.
I do expect that gross margins will increase this year going to probably somewhere closer to 34%, something that looks like that. And then the investment related to both DoseMe and the Lake Nona office, I'm estimating to be around $5 million for 2019. So if you kind of -- if you back that off of the numbers we would be actually exceeding the EBITDA margin that we had talked about in the fall. So those are kind of the bigger moving pieces right now. We don't expect the whole lot of movement in gross margin for the product or services side. I think that's going to be relatively consistent, but there's still will be a little bit of a change in mix driving incremental gross margin overall.
David Grossman -- Stifel Financial -- Analyst
All right. Got it. That's actually very helpful. Thank you. And then maybe for Cal or Orsula, the mange Medicaid market and maybe I misunderstood earlier, but I thought that was also an area that you are going to focus on beginning in 2019. So, if I'm remembering that right, could you give us any color in terms of how you expect that market to evolve over the next 12 months to 24 months? And are you seeing any indication of what type of services and how those deals may play out relative to your existing book of business?
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Sure. Well, we certainly are responding to RFPs from Medicaid and states were able to qualify for those. And I think that what the opportunity is that the states are not required to go by the Part D MTM regulations. So we can provide a different level of service provider MedWise Medication Risk Mitigation tools and really be able to demonstrate ROI based on risk classifications that we are able to collect and then deliver to them. So that is under Kevin Boesen and he is actively working in that market.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
That's correct. One thing that I will note on that David is that, in some cases these state Medicaid plans are looking for in local presence to distribute some of these services. So in cases where that is a requirement, we're looking to build out that function, similar to what we did with the enhanced EMTM model where we've got a network of community pharmacies because we think that, that will really enable us to respond well to the state programs where they're looking to keep some of those dollars within the state.
David Grossman -- Stifel Financial -- Analyst
So with that said then would we expect some of those types of deals and to reflect more of the EMTM type deal versus the traditional MTM or the market kind of falling out somewhere in between?
Brian W. Adams -- Chief Financial Officer
No, I would think right now, it's going to be closer to the EMTM PMPM.
David Grossman -- Stifel Financial -- Analyst
Got it. And just one last question on that. Are there certain states that have mandated this, or is this more of a voluntary thing that's happening within the stated Medicaid programs?
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Yeah, I believe some certain states are being mandated to provide us as a way to reduce costs and improve outcomes and reduce total spend. I don't have any detail on that, but I can follow up with you.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
But it is very much a state by state initiative. And most of them, as Brian said are really starting to circle the wagons and make sure that the dollars good portion of dollars stay within the state.
David Grossman -- Stifel Financial -- Analyst
Great. Okay, well, thank you very much.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thank you.
Operator
Thank you. And our next question comes from Jamie Stockton of Wells Fargo. Your line is now open.
Jamie Stockton -- Wells Fargo -- Analyst
Hi, good evening. Thanks.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Hi, Jamie.
Jamie Stockton -- Wells Fargo -- Analyst
I guess maybe, Brian, would you just run through the acquisitions which of the two segments are they really contributing to. I know, I think you guys recast some revenue because of 606 from product into service in 2018. I don't know if that impacts how you're recognizing revenue from some of these recent DoseMe I think it's pretty obvious it's going to be in the services segment, but Cognify, Mediture eClusive, if you could just give us a feel for where that's flowing through that before.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
All of the revenue related to acquisitions last year is falling into the services bucket. So the reclass related specifically to the per member per month fee. We're charging for our PACE customers as receiving their clinical services and the technology for that charge. And so we moved that from product this past year to service.
Jamie Stockton -- Wells Fargo -- Analyst
Okay. That's great. Thank you.
Operator
Thank you. And our next question comes from Frank Sparacino of First Analysis. Your line is now open.
Frank Sparacino -- First Analysis -- Analyst
Hi, guys. Given the time, I'll just keep mine to one. Orsula you talked about the growth in the Medicare plans and the CMR rates, and I'm just curious what were the factors that drove the dramatic growth of 29 versus the four plans?
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
I believe it's the increase in a five-star cut point. So people are going more toward the five-star, or improving their Star Ratings. And in order to do that, the requirement was 85% completion rate.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
In addition to that Frank, we started with a very large new customer in 2018, that drove a significant increase. And we've continued to expand that relationship even into 2019. And we've seen in fact the cut rates go up again going into this year. So we would actually expect continued expansion within our existing customer base for those targets.
Frank Sparacino -- First Analysis -- Analyst
Great. Thank you, guys.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Thank you, Frank.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thanks, Frank.
Operator
Thank you. And our next question comes from Bill Sutherland of Benchmark. Your line is now open.
Bill Sutherland -- Benchmark -- Analyst
Yeah. Like Frank, I'll just look -- keep it to one. Good evening, everybody. On EMTM, I think you've talked in the past, or recent past about potential expansion another pilot. Is that something that we should still think about possible?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yes. I mean, we continue to look at all of the other participating plans as potential partners and so those discussions continue. What we do see though is the fact that this model that we've developed for EMTM, it's really something that we can go out and sell today into the Medicare Advantage. And so that's what we're going to charged Kevin Boesen with doing is taking this existing model into the M&A market, because it's something that can benefit them immediately today, whereas the stand-alone prescription drug benefit plans, I wouldn't expect to see significant expansion outside of the pilot until it's mandated.
Bill Sutherland -- Benchmark -- Analyst
That's the 2020 timeframe?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
It's going to be -- we would think within the next couple of years, we're going to start to see some transition based on compensations with CMS.
Bill Sutherland -- Benchmark -- Analyst
Okay. And then on that organic growth question you just had, Brian so products is all organic and service is -- what would that be for 2019?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
So, right now, product is all organic. There was contribution from the peak PACE business, the Mediture business, and the Cognify business, which in total was about $8 million to $9 million in 2018.
Bill Sutherland -- Benchmark -- Analyst
It was, 2018. So there, nothing is transitioning over to 2019 then, right?
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Well, all of those -- all of their contracts and everything will continue because those business are still fully in place in 2019, but we'll pick up a full year related to those businesses, whereas...
Bill Sutherland -- Benchmark -- Analyst
Yeah, I forgotten that the dates of those. So there is some...
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Yeah. So Peak PACE was acquired May 1st of 2018; Mediture and eClusive were September 1st, Cognify was October 19th.
Bill Sutherland -- Benchmark -- Analyst
Okay, great. Thanks everybody.
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Thank you.
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Thank you.
Operator
Thank you. And this does conclude our question-and-answer session. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.
Duration: 62 minutes
Call participants:Kevin J. Dill -- General Counsel & Chief Compliance Officer
Calvin H. Knowlton -- Chief Executive Officer, Chairman and Founder
Orsula V. Knowlton -- President & Chief Marketing/New Business Development Officer
Brian W. Adams -- Chief Financial Officer
Ryan Daniels -- William Blair -- Analyst
Matthew Gillmor -- Robert Baird -- Analyst
Nina Deka -- Piper Jaffray -- Analyst
Stephanie Demko -- Citi -- Analyst
Mohan Naidu -- Oppenheimer -- Analyst
David Grossman -- Stifel Financial -- Analyst
Jamie Stockton -- Wells Fargo -- Analyst
Frank Sparacino -- First Analysis -- Analyst
Bill Sutherland -- Benchmark -- Analyst
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