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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-39515

 

American Well Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

20-5009396

(State of incorporation)

(I.R.S. Employer
Identification Number)

 

75 State Street, 26th Floor

Boston, MA 02109

(Address of registrant’s principal executive offices)

(617) 204-3500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Class A common stock,
par value of $0.01 per share

 

AMWL

 

The New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of April 30, 2022, the number of shares of the registrant’s Class A common stock outstanding was 233,359,518, the number of shares of the registrant’s Class B common stock outstanding was 27,390,397 and the number of shares of the registrant’s Class C common stock outstanding was 5,555,555.

 

 


American Well Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended March 31, 2022

TABLE OF CONTENTS

 

 

 

Page

 

PART I

Financial Information

3

Item 1.

Financial Statements

3

 

Condensed Consolidated Balance Sheet as of March 31, 2022 (unaudited) and December 31, 2021

3

 

Condensed Consolidated Statement of Operations and Comprehensive Loss (unaudited) for the three months ended March 31, 2022 and 2021

4

 

Condensed Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2022 and 2021

5

 

Condensed Consolidated Statement of Cash Flows (unaudited) for the three months ended March 31, 2022 and 2021

7

 

Notes to the Unaudited Condensed Consolidated Financial Statements

8

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II

Other Information

36

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

Item 3.

Defaults Upon Senior Securities

37

Item 4.

Mine Safety Disclosures

37

Item 5.

Other Information

37

Item 6.

Exhibits

38

 

 

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN WELL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

176,934

 

 

$

746,416

 

Investments

 

 

497,972

 

 

 

 

Accounts receivable ($2,212 and $2,054, from related parties and net of
   allowances of $
1,609 and $1,809, respectively)

 

 

47,146

 

 

 

51,375

 

Inventories

 

 

8,025

 

 

 

7,530

 

Deferred contract acquisition costs

 

 

1,250

 

 

 

1,697

 

Prepaid expenses and other current assets

 

 

21,824

 

 

 

20,278

 

Total current assets

 

 

753,151

 

 

 

827,296

 

Restricted cash

 

 

795

 

 

 

795

 

Property and equipment, net

 

 

1,892

 

 

 

2,235

 

Goodwill

 

 

440,697

 

 

 

442,761

 

Intangible assets, net

 

 

145,347

 

 

 

152,409

 

Operating lease right-of-use asset

 

 

15,448

 

 

 

16,422

 

Deferred contract acquisition costs, net of current portion

 

 

2,577

 

 

 

2,028

 

Other assets

 

 

1,891

 

 

 

1,722

 

Investment in minority owned joint venture (Note 2)

 

 

 

 

 

168

 

Total assets

 

$

1,361,798

 

 

$

1,445,836

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,496

 

 

$

12,156

 

Accrued expenses and other current liabilities

 

 

35,917

 

 

 

58,711

 

Contingent consideration liabilities

 

 

13,870

 

 

 

 

Operating lease liability, current

 

 

2,663

 

 

 

1,918

 

Deferred revenue ($1,499 and $1,860 from related parties, respectively)

 

 

68,843

 

 

 

68,841

 

Total current liabilities

 

 

128,789

 

 

 

141,626

 

Other long-term liabilities

 

 

4,517

 

 

 

5,136

 

Contingent consideration liabilities, net of current portion

 

 

 

 

 

16,450

 

Operating lease liability, net of current portion

 

 

13,717

 

 

 

14,694

 

Deferred revenue, net of current portion ($19 and $22 from related
   parties, respectively)

 

 

5,987

 

 

 

7,055

 

Total liabilities

 

 

153,010

 

 

 

184,961

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares
   issued or outstanding as of March 31, 2022 and as of December 31, 2021

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000,000,000 Class A shares authorized, 232,746,662 and
   
229,402,453 shares issued and outstanding, respectively; 100,000,000 Class B shares authorized,
    
27,390,397 and 26,913,579 shares issued and outstanding, respectively; 200,000,000 Class C
    shares authorized
5,555,555 issued and outstanding as of March 31, 2022 and as of December 31,
    2021

 

 

2,658

 

 

 

2,620

 

Additional paid-in capital

 

 

2,076,605

 

 

 

2,054,275

 

Accumulated other comprehensive income

 

 

(10,555

)

 

 

(6,353

)

Accumulated deficit

 

 

(881,321

)

 

 

(811,284

)

Total American Well Corporation stockholders’ equity

 

 

1,187,387

 

 

 

1,239,258

 

Non-controlling interest

 

 

21,401

 

 

 

21,617

 

Total stockholders’ equity

 

 

1,208,788

 

 

 

1,260,875

 

Total liabilities and stockholders’ equity

 

$

1,361,798

 

 

$

1,445,836

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

AMERICAN WELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

 

 

 

 

 

( $1,215 and $8,845 from related parties, respectively)

 

$

64,232

 

 

$

57,599

 

Costs and operating expenses:

 

 

 

 

 

 

Costs of revenue, excluding depreciation and amortization of intangible assets

 

 

36,765

 

 

 

35,705

 

Research and development

 

 

37,481

 

 

 

23,040

 

Sales and marketing

 

 

21,154

 

 

 

13,732

 

General and administrative

 

 

32,716

 

 

 

21,354

 

Depreciation and amortization expense

 

 

6,598

 

 

 

2,506

 

Total costs and operating expenses

 

 

134,714

 

 

 

96,337

 

Loss from operations

 

 

(70,482

)

 

 

(38,738

)

Interest income and other (expense) income, net

 

 

108

 

 

 

61

 

Loss before expense from income taxes and loss from
   equity method investment

 

 

(70,374

)

 

 

(38,677

)

Benefit (Expense) from income taxes

 

 

332

 

 

 

(309

)

Loss from equity method investment

 

 

(211

)

 

 

(819

)

Net loss

 

 

(70,253

)

 

 

(39,805

)

Net loss attributable to non-controlling interest

 

 

(216

)

 

 

(617

)

Net loss attributable to American Well Corporation

 

$

(70,037

)

 

$

(39,188

)

Net loss per share attributable to common stockholders,
   basic and diluted

 

$

(0.26

)

 

$

(0.16

)

Weighted-average common shares outstanding, basic and diluted

 

 

268,002,110

 

 

 

243,544,647

 

Net loss

 

$

(70,253

)

 

$

(39,805

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Unrealized (loss) gain on available-for-sale investments

 

 

(1,251

)

 

 

34

 

Foreign currency translation

 

 

(2,951

)

 

 

(52

)

Comprehensive loss

 

 

(74,455

)

 

 

(39,823

)

Less: Comprehensive loss attributable to
   non-controlling interest

 

 

(216

)

 

 

(617

)

Comprehensive loss attributable to American Well Corporation

 

$

(74,239

)

 

$

(39,206

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

AMERICAN WELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

American Well
Corporation
Stockholders’

 

 

Noncontrolling

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

 

Interest

 

 

Equity

 

Balances as of January 1, 2022

 

 

261,871,587

 

 

$

2,620

 

 

$

2,054,275

 

 

$

(6,353

)

 

$

(811,284

)

 

$

1,239,258

 

 

$

21,617

 

 

$

1,260,875

 

Exercise of common stock options

 

 

976,644

 

 

 

10

 

 

 

2,455

 

 

 

 

 

 

 

 

 

2,465

 

 

 

 

 

 

2,465

 

Vesting of restricted stock units

 

 

1,398,305

 

 

 

14

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock under employee stock purchase plan

 

 

425,114

 

 

 

4

 

 

 

1,497

 

 

 

 

 

 

 

 

 

1,501

 

 

 

 

 

 

1,501

 

Issuance of common stock related to Conversa earn-out settlement

 

 

1,020,964

 

 

 

10

 

 

 

4,288

 

 

 

 

 

 

 

 

 

4,298

 

 

 

 

 

 

4,298

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

12,085

 

 

 

 

 

 

 

 

 

12,085

 

 

 

 

 

 

12,085

 

Capital contributed by selling shareholders of acquired businesses

 

 

 

 

 

 

 

 

2,019

 

 

 

 

 

 

 

 

 

2,019

 

 

 

 

 

 

2,019

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(2,951

)

 

 

 

 

 

(2,951

)

 

 

 

 

 

(2,951

)

Unrealized losses on available-for-sale
   securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

(1,251

)

 

 

 

 

 

(1,251

)

 

 

 

 

 

(1,251

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70,037

)

 

 

(70,037

)

 

 

(216

)

 

 

(70,253

)

Balances as of March 31, 2022

 

 

265,692,614

 

 

 

2,658

 

 

 

2,076,605

 

 

 

(10,555

)

 

 

(881,321

)

 

 

1,187,387

 

 

 

21,401

 

 

 

1,208,788

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

AMERICAN WELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

 

 

 

Common Stock

 

 

Treasury

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

American
Well
Corporation
Stockholders’

 

 

Noncontrolling

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

 

Interest

 

 

Equity

 

Balances as of January 1, 2021

 

 

235,604,105

 

 

 

2,357

 

 

$

(37,568

)

 

 

1,841,405

 

 

$

297

 

 

$

(582,359

)

 

$

1,224,132

 

 

$

22,065

 

 

$

1,246,197

 

Exercise of common stock options

 

 

3,474,375

 

 

 

34

 

 

 

 

 

 

10,096

 

 

 

 

 

 

 

 

 

10,130

 

 

 

 

 

 

10,130

 

Vesting of restricted stock units

 

 

853,842

 

 

 

9

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of treasury stock purchased in 2020

 

 

 

 

 

 

 

 

37,568

 

 

 

(15

)

 

 

 

 

 

(37,553

)

 

 

 

 

 

 

 

 

 

Shares withheld related to net share settlement and retired treasury stock in 2021

 

 

(402,060

)

 

 

(4

)

 

 

 

 

 

4

 

 

 

 

 

 

(9,771

)

 

 

(9,771

)

 

 

 

 

 

(9,771

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

8,642

 

 

 

 

 

 

 

 

 

8,642

 

 

 

 

 

 

8,642

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

Unrealized gains on available-for-sale
   securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

34

 

 

 

 

 

 

34

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39,188

)

 

 

(39,188

)

 

 

(617

)

 

 

(39,805

)

Balances as of March 31, 2021

 

 

239,530,262

 

 

 

2,396

 

 

 

 

 

 

1,860,123

 

 

 

279

 

 

 

(668,871

)

 

 

1,193,927

 

 

 

21,448

 

 

 

1,215,375

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

AMERICAN WELL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(70,253

)

 

$

(39,805

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization expense

 

 

6,598

 

 

 

2,506

 

Provisions for credit losses

 

 

(200

)

 

 

260

 

Amortization of deferred contract acquisition costs

 

 

391

 

 

 

335

 

Amortization of deferred contract fulfillment costs

 

 

133

 

 

 

173

 

Noncash compensation costs incurred by selling shareholders

 

 

2,025

 

 

 

 

Stock-based compensation expense

 

 

12,075

 

 

 

8,642

 

Loss on equity method investment

 

 

211

 

 

 

819

 

Deferred income taxes

 

 

(443

)

 

 

 

Changes in operating assets and liabilities, net of acquisition:

 

 

 

 

 

 

Accounts receivable

 

 

4,290

 

 

 

7,357

 

Inventories

 

 

(495

)

 

 

(238

)

Deferred contract acquisition costs

 

 

(501

)

 

 

(203

)

Prepaid expenses and other current assets

 

 

(1,838

)

 

 

(167

)

Other assets

 

 

(169

)

 

 

39

 

Accounts payable

 

 

(4,601

)

 

 

1,023

 

Accrued expenses and other current liabilities

 

 

(8,446

)

 

 

(17,666

)

Other long-term liabilities

 

 

(16

)

 

 

(19

)

Deferred revenue

 

 

(952

)

 

 

(4,195

)

Net cash used in operating activities

 

 

(62,191

)

 

 

(41,139

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(68

)

 

 

(148

)

Investment in less than majority owned joint venture

 

 

 

 

 

(2,548

)

Purchases of investments

 

 

(499,223

)

 

 

 

Net cash used in investing activities

 

 

(499,291

)

 

 

(2,696

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from exercise of common stock options

 

 

2,536

 

 

 

9,297

 

Proceeds from employee stock purchase plan

 

 

1,501

 

 

 

 

Payments for the purchase of treasury stock

 

 

 

 

 

(9,383

)

Payment of deferred offering costs

 

 

 

 

 

(1,613

)

Payment of contingent consideration

 

 

(11,790

)

 

 

 

Net cash provided by financing activities

 

 

(7,753

)

 

 

(1,699

)

Effect of exchange rates changes on cash, cash equivalents, and restricted cash

 

 

(247

)

 

 

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(569,482

)

 

 

(45,534

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

747,211

 

 

 

942,711

 

Cash, cash equivalents, and restricted cash at end of period

 

$

177,729

 

 

$

897,177

 

Cash, cash equivalents, and restricted cash at end of period:

 

 

 

 

 

 

Cash and cash equivalents

 

 

176,934

 

 

 

896,382

 

Restricted cash

 

 

795

 

 

 

795

 

Total cash, cash equivalents, and restricted cash at end of period

 

$

177,729

 

 

$

897,177

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash (refunded) paid for income taxes

 

$

(454

)

 

$

741

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Additions to property and equipment included in accrued expenses and accounts payable

 

$

 

 

$

23

 

Issuance of common stock in settlement of earnout

 

$

4,298

 

 

$

 

Repurchase of common stock

 

$

 

 

$

388

 

Receivable related to exercise of common stock options

 

$

4

 

 

$

833

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

AMERICAN WELL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(unaudited)

1. Organization and Description of Business

Description of Business

American Well Corporation (the “Company”) was incorporated under the laws of the State of Delaware in June 2006. The Company is headquartered in Boston, Massachusetts. The Company is a leading enterprise software company enabling digital delivery of care for healthcare’s key stakeholders. The Company empowers our clients with the core technology and services necessary to successfully develop and distribute virtual care programs that meet their strategic, operational, financial and clinical objectives under their own brands.

Acquisitions

On August 9, 2021 and August 27, 2021, the Company completed the acquisitions of Conversa Health Inc. (“Conversa”) and SilverCloud Health Holdings, Inc. (“SilverCloud”), respectively (together, the “Acquisitions”). Conversa is a leader in automated virtual healthcare. SilverCloud is a leading digital mental health platform. See Note 7 “Business Combinations”.

Liquidity and Capital Resources

The Company expects that its cash, cash equivalents and investments balance as of March 31, 2022 of $674,906 will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next twelve months.

 

2. Summary of Significant Accounting Policies

There have been no material changes to the significant accounting policies described in the Company’s Form 10-K for the fiscal year ended December 31, 2021, that have had a material impact on the consolidated financial statements and related notes.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary for the fair statement of the Company’s the financial position, results of operations and cash flows at the dates and for the periods indicated. The interim results for the three months ended March 31, 2022 are not necessarily indicative of results for the full 2022 calendar year or any other future interim periods. The information included in the interim financial statements should be read in conjunction with the annual consolidated financial statements and accompanying notes included in the Form 10-K.

The unaudited condensed consolidated financial statements include the accounts of American Well Corporation, its wholly-owned subsidiaries, those of professional corporations, which represent variable interest entities in which American Well has an interest and is the primary beneficiary (“PC”), and National Telehealth Network (“NTN”), an entity in which American Well controls fifty percent or more of the voting shares (see Note 4). Intercompany accounts and transactions have been eliminated in consolidation.

The Company’s reporting currency is the U.S. dollar. The Company determines the functional currency of each subsidiary based on the currency of the primary economic environment in which each subsidiary operates. Items included in the financial statements of such subsidiaries are measured using that functional currency. Foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Gains or losses from foreign currency remeasurement and settlements are included in interest income and other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

For consolidated entities where American Well owns or is exposed to less than 100% of the economics, the net loss attributable to noncontrolling interests is recorded in the condensed consolidated statements of operations and comprehensive loss equal to the percentage of the economic or ownership interest retained in each entity by the respective non-controlling party. The noncontrolling interests are presented as a separate component of stockholders’ deficit in the condensed consolidated balance sheets.

8


 

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, revenue recognition, the estimated customer relationship period that is used in the amortization of deferred contract acquisition costs, the valuation of assets and liabilities acquired in business combinations, the useful lives of intangible assets and property and equipment and the valuation of common stock. The Company bases its estimates on historical experience, known trends, and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Due to the COVID-19 global pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and has not experienced any significant impact to its estimates and assumptions as a result of the COVID-19 pandemic. On an ongoing basis, the Company will continue to closely monitor the COVID-19 impact on its estimates and assumptions.

Segment Information

The Company’s chief operating decision makers (CODMs), its two Chief Executive Officers, review financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company operates and manages its business as one reportable and operating segment. In addition, substantially all of the Company’s revenue and long-lived assets are attributable to operations in the United States for all periods presented.

 

Variable Interest Entities

The Company evaluates its ownership, contractual and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex and involve judgment. If the Company determines that an entity in which it holds a contractual or ownership interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its condensed consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively.

The aggregate carrying value of total assets and total liabilities included on the condensed consolidated balance sheets for the PCs after elimination of intercompany transactions were $23,753 and $1,556, respectively, as of March 31, 2022 and $29,770 and $1,485, respectively as of December 31, 2021.

Total revenue included on the condensed consolidated statements of operations and comprehensive loss for the PCs after elimination of intercompany transactions was $18,392 and $17,569 for the three months ended March 31, 2022 and 2021, respectively. Net loss included on the condensed consolidated statements of operations and comprehensive loss was not material for the three months ended March 31, 2022 and 2021.

Investment in Minority Owned Joint Venture

The Company and Cleveland Clinic partnered to form a joint venture, under the name CCAW, JV LLC, to provide broad access to comprehensive and high acuity care services via digital care delivery. The Company does not have a controlling financial interest in CCAW, JV LLC, but it does have the ability to exercise significant influence over the operating and financial policies of CCAW, JV LLC. Therefore, the Company accounts for its investment in CCAW, JV LLC using the equity method of accounting. The joint venture is considered a variable interest entity under ASC 810-10, but the Company is not the primary beneficiary as it does not have the power to direct the activities of the joint venture that most significantly impact its performance. The Company’s evaluation of ability to impact performance is based on Cleveland Clinic’s managing directors and Cleveland Clinic’s ability to appoint and remove the chairperson who has the ability to cast the tie breaking vote on the most significant activities.

In 2020 the Company contributed $2,940 as its initial investment for a 49% interest in CCAW, JV LLC. The agreement also requires aggregate total capital contributions by the Company up to an additional $11,800 in two phases, which is yet to be defined.

9


 

During the three months ended March 31, 2021, the Company made a capital contribution of $2,548, related to a portion of the phase one capital commitment. In April 2022 the Company made a capital contribution of $1,960 related to a portion of the phase one capital commitment. For the three months ended March 31, 2022 and 2021, the Company recognized a loss of $211 and $819 as its proportionate share of the joint venture’s results of operations, respectively. Accordingly, the carrying value of the equity method investment as of March 31, 2022 and December 31, 2021 was $(43) and $168, respectively. As the share of losses exceeds the carrying amount of the investment, the carrying amount as of March 31, 2022 it is included in the balance of accrued expenses and other current liabilities on the condensed consolidated balance sheet.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, investments and accounts receivable. The Company invests its excess cash with large financial institutions that the Company believes are of high credit quality. Cash and cash equivalents are invested in highly rated money market funds. At times, the Company’s cash balances with individual banking institutions are in excess of federally insured limits. The Company’s investments are invested in U.S. government agency bonds. The Company has not experienced any losses on its deposits of cash, cash equivalents or investments. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company performs ongoing assessments and credit evaluations of its customers to assess the collectability of the accounts based on a number of factors, including past transaction experience, age of the accounts receivable, review of the invoicing terms of the contracts, and recent communication with customers. The Company has not experienced significant credit losses from its accounts receivable. As of March 31, 2022 and December 31, 2021, one customer accounted for 14% and 19% of outstanding accounts receivable, respectively.

During the three months ended March 31, 2022 and 2021, sales to one customer (who was a related party during the 2021 period noted) represented 26% and 25% of the Company’s total revenue, respectively.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions and clarifying and amending existing guidance. The guidance was adopted effective January 1, 2021 and did not have a material impact on the condensed consolidated financial statements and disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. The guidance was adopted effective July 1, 2021 and impacted the accounting of acquired deferred revenue for the Conversa and SilverCloud acquisitions that occurred in August 2021.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (‘‘ASU 2016-13’’), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (‘‘ASU 2019-05’’). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. The Company adopted ASU 2016-13 and the related clarifications in 2021. The adoption did not have a material effect on the Company’s consolidated financial statements.

10


 

3. Revenue

The following table presents the Company’s revenues disaggregated by revenue source:

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Platform subscription

 

$

28,691

 

 

$

24,596

 

Visits

 

 

30,736

 

 

 

27,821

 

Other

 

 

4,805

 

 

 

5,182

 

Total Revenue

 

$

64,232

 

 

$

57,599

 

 

Accounts Receivable, Net

Accounts receivable primarily consist of amounts billed currently due from customers. Accounts receivable are presented net of an allowance for credit losses, which is an estimate of amounts that may not be collectible. In determining the amount of the allowance at each reporting date, the Company makes judgments about general economic conditions, historical write-off experience and any specific risks identified in customer collection matters, including the aging of unpaid accounts receivable and changes in customer financial conditions. Account balances are written off after all means of collection are exhausted and the potential for non-recovery is determined to be probable. Adjustments to the allowance for credit losses are recorded as general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

Changes in the allowance for credit losses were as follows:

 

 

 

Three Months Ended March 31, 2022

 

 

Year Ended December 31, 2021

 

Allowance for credit losses, beginning of the
   period

 

$

1,809

 

 

$

1,556

 

Provisions

 

 

(200

)

 

 

714

 

Write-offs

 

 

 

 

 

(461

)

Allowance for credit losses, end of the period

 

$

1,609

 

 

$

1,809

 

 

The Company has rights to consideration for services completed but not billed at the reporting date. Unbilled receivables are classified as receivables when the Company has the right to invoice the customer. The amount of unbilled accounts receivable included within accounts receivable on the consolidated balance sheet was $4,856 and $5,697 as of March 31, 2022 and December 31, 2021, respectively. The amount of unbilled accounts receivable included within other assets on the consolidated balance sheet was $684 and $781 as of March 31, 2022 and December 31, 2021, respectively.

Deferred Revenue

Contract liabilities consist of deferred revenue and include billings in advance of performance under the contract. Such amounts are recognized as revenue over the contractual period. For the three months ended March 31, 2022 and 2021, the Company recognized revenue of $23,147 and $