23ANDME HOLDING CO. The following discussion and analysis provide information that management
believes is relevant to an assessment and understanding of our consolidated
results of operations and financial condition. You should read the following
discussion and analysis of our financial condition and results of operations in
conjunction with the Fiscal 2022 Form 10-K, including the audited consolidated
financial statements of
In addition to historical information, this discussion and analysis contains
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties, including those discussed in the Fiscal 2022 Form 10-K
and our subsequent reports filed with the
Overview
We pioneered direct-to-customer genetic testing through our PGS products and services. Our PGS business provides customers with a full suite of genetic reports, including information on customers' genetic ancestral origins, personal genetic health risks, and chances of passing on certain rare carrier conditions to their children, as well as reports on how genetics can affect responses to medications. We believe that by providing customers with direct access to their genetic information, we can empower them to make better decisions by arming them with information about their risks of developing certain diseases or conditions and by highlighting opportunities for prevention and mitigation of disease. We provide customers with an engaging experience, including access to frequent updates to their genetic health and ancestry reports and new product features, the ability to connect with genetic relatives, and a subscription option for extended health insights. Customers have the option to participate in our research programs and over 80% of our customers have done so. We analyze consenting customers' genotypic data together with phenotypic data they provide to us concerning their physical characteristics, family origins, lifestyle, and other habits. We analyze this data using our proprietary machine learning and other analytic techniques in order to discover insights into whether and how particular genetic variants affect the likelihood of individuals developing specific diseases. These insights may highlight opportunities to develop a drug to treat or cure a specific disease.
We completed our acquisition of
Our Therapeutics business focuses on the use of genetic insights to validate and
develop novel therapies to improve patients' lives. We currently have research
programs across several therapeutic areas, including oncology, respiratory, and
cardiovascular diseases. In
Our second most advanced program, 23ME-00610, is an antibody that blocks the
suppression of T-cells by tumors and reactivates their immune response.
23ME-00610 is wholly owned by us, and this program entered Phase 1 clinical
trials in
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We operate in two reporting segments: Consumer & Research Services and
Therapeutics. The Consumer & Research Services segment consists of our PGS and
telehealth business, as well as research services that we perform under
agreements with third parties, including the GSK Agreement, relating to the use
of our genotypic and phenotypic data to identify promising drug targets. The
Therapeutics segment consists of revenues from the out-licensing of intellectual
property associated with identified drug targets and expenses related to
therapeutic product candidates under clinical development. For the three months
ended
The table below reflects our revenue for the three months endedJune 30, 2022 and 2021: Three Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Consumer & Research Services Revenue$ 64,513 $ 59,239 $ 5,274 9 % Total Revenue$ 64,513 $ 59,239 $ 5,274 9 %
The table below reflects our two segments' Adjusted EBITDA (as defined below)
for the three months ended
Three Months Ended
June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Consumer & Research Services
Adjusted EBITDA (1) $ (16,997 ) $ (505 ) $ (16,492 ) NM (2)
Therapeutics
Adjusted EBITDA (1) $ (18,465 ) $ (18,303 ) $ (162 ) 1 %
(1) Adjusted EBITDA is the measure of segment profitability reported to our Chief Executive Officer ("CEO"), who is our chief operating decision-maker ("CODM"). We define Adjusted EBITDA as net income before net interest income, net other income (expense), changes in fair value of warrant liabilities, income tax benefit, depreciation and amortization of fixed assets, amortization of internal use software, amortization of acquired intangible assets, non-cash stock-based compensation expense, acquisition-related costs, and expenses related to other charges, if applicable, for the period. See "-Adjusted EBITDA" below for a reconciliation of Adjusted EBITDA to net loss.
(2) Not Meaningful
Key Factors Affecting Results of Operations
We believe that our performance and future success depend on several factors that present significant opportunities for us but also pose risks and challenges, including those set forth in Part I, Item 1A., "Risk Factors," of the Fiscal 2022 Form 10-K.
New Customer Acquisition
PGS. Our ability to attract new customers is a key factor for the future growth
of our PGS business and our database. Our historical financial performance has
largely been driven by the rate of sales of our PGS kits. Revenue from our PGS
business, primarily composed of kit sales, represented approximately 68% and 81%
of our total revenues for the three months ended
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Purchasing patterns of our kits are largely influenced by product innovation,
marketing spends, and varying levels of price discounting on our products. These
promotional windows have typically aligned with gift-giving portions of the
year, with an emphasis on the holiday period, other gift-giving and
family-oriented holidays such as
Telehealth. Our ability to attract new patients and members is a key factor for
the future growth of our telehealth business. Revenue from our telehealth
business represented approximately 18% of our total revenues for the three
months ended
Engagement of Research Participants
Our ability to conduct research and grow our database of genotypic and phenotypic information depends on our customers' willingness to consent to participate in our research. Over 80% of our customers have consented to participate in research. These customers permit us to use their de-identified data in our research and many of them regularly respond to our research surveys, providing us with phenotypic data in addition to the genetic data in their DNA samples. We analyze this genotypic and phenotypic data and conduct genome-wide association studies and phenome-wide association studies, which enable us to determine whether particular genetic variants affect the likelihood of individuals developing certain diseases.
Our customers can withdraw their consent to participate in research at any time. If a significant number of our customers were to withdraw their consent, or if the percentage of consenting customers were to decline significantly in the future, our ability to conduct research successfully could be diminished, which could adversely affect our business.
Drug Target Productivity of Our Genetics Database
Our genetics database underpins our research programs and enables us to identify
drug targets with novel genetic evidence. As of
Development of Therapeutic Product Candidates
Our ability to successfully identify and develop therapeutic product candidates will determine the success of our Therapeutics business over time. Developing therapeutic product candidates with novel genetic evidence requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. We have over 50 programs in our pipeline in various stages of research and development that have been selected and are being pursued.
We have one therapeutic product candidate, GSK6097608, our joint immuno-oncology
antibody program with GSK, in clinical development, for which we have elected to
take a royalty option. Our wholly-owned immuno-oncology antibody, 23ME-00610,
entered Phase 1 clinical trials in
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Collaborations
Substantially all of our research services revenues are generated from the GSK
Agreement. In
Our ability to enter into new collaboration agreements upon the expiration of the GSK Agreement will affect our research services revenues. If we are unable to enter into additional collaboration agreements, our future research services revenue may decline.
Ability to Commercialize Our Therapeutics Products
Our ability to generate revenue from our therapeutic product candidates depends
on our and our collaborators' ability to successfully complete clinical trials
for our therapeutic product candidates and receive regulatory approval,
particularly in
We believe that our broad portfolio of therapeutic product candidates with novel genetic evidence and validated targets enhances the likelihood that our research and development efforts will yield successful therapeutic product candidates. Nonetheless, we cannot be certain if any of our therapeutic product candidates will receive regulatory approvals. Even if such approvals are granted, we will thereafter need to establish manufacturing and supply arrangements and engage in extensive marketing efforts and expenses prior to generating any revenue from such products. The ultimate commercial success of our products will depend on their acceptance by patients, the medical community, and third-party payors, their ability to compete effectively with other therapies in the market, and the appropriate pricing and reimbursement of the products by third-party payors.
The competitive environment is also an important factor with the commercial success of our therapeutic product candidates, and our ability to successfully commercialize a therapeutic product candidate will depend on whether there are competing therapeutic product candidates in development or already marketed by other companies.
Expansion into New Categories
We launched our 23andMe+ subscription service in
Success of our subscription service will depend upon our ability to acquire and retain subscribing customers over an extended period. Retention of customers will be based on the perceived value of the premium content and features they receive. If we are unable to provide sufficiently compelling new content and features, subscribers may not renew.
Similarly, the success of our telehealth business is dependent on our ability to attract and retain patients and members. Category expansion allows us to increase the number of patients to whom we can provide products and services. It also allows us to offer access to treatment of additional conditions that may already affect our current patients. Expanding into new categories will require financial investments in additional headcount, marketing and customer acquisition expenses, additional operational capabilities, and may require the purchase of new inventory. If we are unable to generate sufficient demand in new categories, we may not recover the financial investments we make into new categories and revenue may not increase in the future.
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Investments in Growth and Innovation
Our research platform is based on a continually growing database of genotypic and phenotypic information. Our database allows us to conduct analyses in a multi-directional fashion, by searching for genetic signatures of particular diseases or the likelihood of a particular genetic variant causing disease in a particular individual or group of individuals who share the same trait. Our platform enables us to rapidly and serially conduct studies across an almost unlimited number of conditions at unprecedented statistical power, yielding insights into the causes and potential treatments of a wide variety of diseases.
We believe that our research platform enables us to rapidly identify genetically validated drug targets with improved odds of clinical success. With our state-of- the-art bioinformatics capabilities, we analyze the trillions of data points in our database, optimizing the use of our resources, to genetically validate drug targets, inform patient selection for clinical trials, and increase the probability of success of our programs. We plan to advance new drugs through the rapid selection of those with compelling clinical promise.
We expect to continue investing in our business to capitalize on market opportunities and the long-term growth of our company. We intend to make significant investments in therapeutics research and development efforts and in marketing to acquire new customers and drive brand awareness, and also expect to incur software development costs as we work to enhance our existing products, expand the depth of our subscription service, and design new offerings, including additional primary care offerings. In addition, we expect to incur additional expenses as a result of operating as a public company. The expenses we incur may vary significantly by quarter depending, for example, on when significant hiring takes place, and as we focus on building out different aspects of our business.
COVID-19 Impact
We are continuing to closely monitor the impact of the COVID-19 pandemic in all aspects of our business. We rely entirely on third-party vendors in our PGS and telehealth supply chain, including our PGS kit and array manufacturers, order fulfillment vendor, our DNA-processing lab vendor, and drug suppliers for our pharmacy business. These vendors have independent responses to managing the effect of the COVID-19 pandemic, and we have not experienced any significant disruptions in our ability to fulfill and process PGS or telehealth orders to date. If we experience delays or other challenges in obtaining supplies necessary for the production, fulfillment, or distribution of the products or services we offer, it could negatively affect our ability to satisfy our obligations to customers and maintain our operations in a cost-efficient manner and have a material adverse effect on our business.
With respect to our telehealth services, the COVID-19 pandemic has increased awareness, acceptance, and usage of virtual medical care and pharmacy services, resulting in greater consumer trial and use of telehealth. While we believe that these trends present significant opportunities for our telehealth services, it is uncertain whether the increase in demand caused by COVID-19 will continue.
In our Therapeutics segment, the advancement of our programs requires our scientists to have physical access to our laboratory facilities on a continuing basis, and we have implemented health and safety protocols and procedures to keep our laboratory facilities operating during the COVID-19 pandemic. In addition, despite the introduction and continued administration of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. We cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including the Omicron, Delta, and other variants and other areas that may affect our business operations. Despite our mitigation efforts, we may experience delays or an inability to execute on our clinical and preclinical development plans, reduced revenues or other adverse impacts to our business, which are described in more detail in Part I, Item 1A., "Risk Factors," of the Form 10-K. The duration of the COVID-19 pandemic and the impact of the efforts being made to contain it or to flatten the spread of the disease cannot be predicted with any accuracy, and this uncertainty could have a material impact on our financial results for the foreseeable future.
We have taken other measures in response to the ongoing COVID-19 pandemic, including closing our offices and implementing a work-from-home policy for most of our workforce, and amplifying monitoring of our inventory levels and supply chain. Notwithstanding these measures, the spread of COVID-19 has at certain times impacted our staffing and attendance in our laboratory facilities. We may take further actions that alter our business operations that we determine are in the best interests of our employees, customers, and stockholders or as may be required by federal, state, or local authorities.
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Basis of Presentation
The condensed consolidated financial statements and accompanying notes of the
Company included elsewhere in this Form 10-Q include the accounts of
As discussed above, we operate in two reporting segments: Consumer & Research Services and Therapeutics. The Consumer & Research Services segment consists of our PGS and telehealth business, as well as research services that we perform under agreements with third parties, including the GSK Agreement, relating to the use of our genotypic and phenotypic data to identify promising drug targets. The Therapeutics segment consists of revenues from the out-licensing of intellectual property associated with identified drug targets and expenses related to therapeutic product candidates under clinical development. Substantially all our revenues are derived from our Consumer & Research Services segment.
Key Business Metrics
We monitor the following key metrics to help us evaluate our business, identify trends, formulate business plans, and make strategic decisions. We believe the following metrics are useful in evaluating our business:
•
PGS Customers. When we refer to our "Customers," this means individuals who have
registered a PGS kit and provided their DNA sample. We view Customers as an
important metric to assess our financial performance because each Customer has
registered a kit and has engaged with us by providing us with their DNA sample.
These Customers may be interested in purchasing additional PGS products and
services or in becoming subscribers to our new 23andMe+ subscription service,
especially if they consent to participate in our research. We had approximately
13.1 million and 11.6 million Customers as of
•
Consenting Customers. "Consenting Customers" are Customers who have affirmatively opted in to participate in our research program. Consenting Customers are critical to our research programs and to the continuing growth of our database, which we use to identify drug targets and to generate new and interesting additional ancestry and health reports. Moreover, Consenting Customers respond to our research surveys, providing useful phenotypic data about their traits, habits, and lifestyles, which we analyze using de-identified data to determine whether a genetic variant makes an individual more or less likely to develop certain diseases. A Consenting Customer is likely to be more engaged with our brand, which may lead to the purchase of our 23andMe+ subscription service and to participation in further research studies, helping us to advance our research. Over 80% of our Customers are Consenting Customers.
•
Subscribers. This metric represents the number of subscribers who have signed up
for our 23andMe+ subscription service, which was launched in
•
Adjusted EBITDA. Adjusted EBITDA is the measure of segment profitability reported to our CEO, the CODM. See "-Adjusted EBITDA" below for a reconciliation of Adjusted EBITDA to net loss.
Components of Results of Operations
Revenue
We recognize revenue in accordance with Topic 606 when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
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Our consolidated revenue is composed primarily of sales of PGS kits to customers and telehealth services which include online medical visits, pharmacy services, and memberships, as well as revenues from target discovery activities as part of our research collaborations through our Consumer & Research Services segment. Additionally, revenue is generated through our collaboration agreements in our Therapeutics segment primarily as a result of the out-licensing of intellectual property to collaboration partners.
See Note 2, "Summary of Significant Accounting Policies," to our accompanying unaudited condensed consolidated financial statements for a more detailed discussion of our revenue recognition policies.
Cost of Revenue, Gross Profit, and Gross Margin
Cost of revenue for PGS primarily consists of cost of raw materials, lab processing fees, personnel-related expenses, including salaries, benefits, and stock-based compensation, shipping and handling, and allocated overhead. Cost of revenue for telehealth primarily consists of personnel-related expenses that we incur for medical services, prescription drug costs, packaging and shipping, and amortization of intangible assets. Cost of revenue for research services primarily consists of personnel-related expenses, including salaries, benefits, and stock-based compensation, and allocated overhead. We expect cost of revenue to increase in the foreseeable future in absolute dollars but gradually decrease as a percentage of revenue over the long term.
Our gross profit represents total revenue less our total cost of revenue, and
our gross margin is our gross profit expressed as a percentage of our total
revenue. Our gross profit and gross margin have been and will continue to be
affected by a number of factors, including the volume of PGS kit sales
recognized, the prices we charge for our PGS products and research services, the
prices we charge for telehealth services (medical visits, pharmacy services, and
memberships), the fees we incur for lab processing PGS kits, the costs we incur
for medical services and prescription drug costs, the revenues from our
collaboration agreements and the personnel costs to fulfill them. We expect our
Consumer & Research Services gross margin to increase over the long term as
subscription revenues become a higher percentage of revenue mix, although our
gross margin may fluctuate from period to period. Substantially all our research
services revenue is currently derived from the GSK Agreement. If we are unable
to add new research services agreements, our research services revenue may
decline substantially following the expiration of the GSK Agreement in
Operating Expenses
Our operating expenses primarily consist of research and development, sales and marketing, and general and administrative expenses. Personnel-related expenses, which include salaries, benefits, and stock-based compensation, is the most significant component of research and development and general and administrative expenses. Advertising and brand-related spend and personnel-related expenses represent the primary components of sales and marketing expenses. Operating expenses also include allocated overhead costs. Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Allocated overhead costs include shared costs associated with facilities (including rent and utilities) and related personnel, information technology and related personnel, and depreciation of property and equipment.
Research and Development Expenses
Our research and development expenses support our efforts to add new services and add new features to our existing services, and to ensure the reliability and scalability of our services across our Consumer and Research Services segment. Research and development expenses also include our efforts to discover and genetically validate new therapeutic product candidates and continue to develop our portfolio of existing therapeutic product candidates, either our own proprietary programs or those in collaboration with partners across our Therapeutics segment. Research and development expenses primarily consist of personnel-related expenses, including salaries, benefits, and stock-based compensation associated with our research and development personnel, collaboration expenses, preclinical and clinical trial costs, laboratory services and supplies costs, third-party data services, and allocated overhead.
We plan to continue to invest in personnel to support our research and development efforts. We intend to make significant investments in therapeutics research and development efforts as we ramp up our clinical trials and continue the GSK collaboration. This multi-year collaboration with GSK is expected to validate drug targets with novel genetic evidence, enable rapid progression of clinical programs, and bring useful new drugs to market. We expect that research and development expenses will increase on an absolute dollar basis in the foreseeable future as we continue to invest in our products, pipeline, and infrastructure for long-term growth. In addition, our research and development expenses may fluctuate as a percentage of revenue from period to period due to the timing and amount of these expenses.
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Sales and Marketing Expenses
Sales and marketing expenses consist primarily of advertising costs, personnel-related expenses, including salaries, benefits, and stock-based compensation associated with our sales and marketing personnel, amortization of intangible assets, and outside services. Outside services are primarily related to sales consultants that support sales of PGS kits.
Advertising and brand costs consist primarily of direct expenses related to television and radio advertising, including production and branding, paid search, online display advertising, direct mail, affiliate programs, marketing collateral, market research and public relations. Advertising production costs are expensed the first time the advertising takes place, and all other advertising costs are expensed as incurred. Deferred advertising costs primarily consist of vendor payments made in advance to secure media spots across varying media channels, as well as production costs incurred before the first time the advertising takes place. Deferred advertising costs are expensed on the first date the advertisements occur. In addition, advertising costs include platform fees due to brokers related to our third-party retailers.
We expect our sales and marketing expenses to gradually decrease as a percentage of revenue over the long term, although our sales and marketing expenses may fluctuate as a percentage of revenue from period to period due to promotional strategies that drive the timing and amount of these expenses.
General and Administrative Expenses
General and administrative expenses primarily consist of personnel-related expenses, including salaries, benefits, and stock-based compensation associated with corporate management, including our CEO office, finance, legal, compliance, regulatory, corporate communications and other administrative personnel. In addition, general and administrative expenses include professional fees for external legal, accounting, and other consulting services, as well as credit card processing fees related to PGS kit sales and telehealth services.
We expect general and administrative expenses to increase for the foreseeable
future as we increase headcount with the growth of our business. We also expect
general and administrative expenses to increase in the near term as a result of
operating as a public company, including expenses associated with compliance
with
Other Income (Expense)
Other income (expense) includes interest income, net, and other income (expense), net. Interest income, net primarily consists of interest income earned on our cash deposits. Other income (expense), net primarily consists of change in fair value of warrants liabilities, effects of changes in foreign currency exchange rates, and other non-operating income and expenditures.
Benefit from Income Taxes
The income tax benefit primarily consists of an adjustment to the
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Results of Operations
Comparisons for Three Months ended
The following table sets forth our unaudited condensed consolidated statements
of operations for the three months ended
Three Months Ended
June 30,
2022 2021 $ Change % Change
(dollars in thousands)
Revenue $ 64,513 $ 59,239 $ 5,274 9 %
Cost of revenue(1) 39,023 28,542 10,481 37 %
Gross profit 25,490 30,697 (5,207 ) (17 %)
Operating expenses:
Research and development(1) 52,009 44,232 7,777 18 %
Sales and marketing(1) 33,434 15,419 18,015 117 %
General and administrative(1) 29,643 12,596 17,047 135 %
Total operating expenses 115,086 72,247 42,839 59 %
Loss from operations (89,596 ) (41,550 ) (48,046 ) 116 %
Other (expense) income:
Interest income, net 245 44 201 457 %
Other income (expense), net (435 ) 14 (449 ) (3,207 %)
Loss before income taxes (89,786 ) (42,026 ) (47,760 ) 114 %
Benefit from income taxes 254 - 254 100 %
Net loss $ (89,532 ) $ (42,026 ) $ (47,506 ) 113 %
(1)Includes stock-based compensation expense as follows:
Three Months Ended
June 30,
2022 2021
(in thousands)
Cost of revenue $ 3,327 $ 798
Research and development 12,076 5,607
Sales and marketing 2,889 903
General and administrative 12,170 2,329
Total stock-based compensation expense
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The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
Three Months Ended
June 30,
2022 2021
(as a percentage of total revenue)
Revenue 100 % 100 %
Cost of revenue 60 % 48 %
Gross margin 40 % 52 %
Operating expenses:
Research and development 80 % 75 %
Sales and marketing 52 % 26 %
General and administrative 46 % 21 %
Total operating expenses 178 % 122 %
Loss from operations (138 %) (70 %)
Other (expense) income:
Interest income, net 0 % 0 %
Other income (expense), net (1 %) 0 %
Loss before income taxes (139 %) (71 %)
Benefit from income taxes 0 % 0 %
Net loss (139 %) (71 %)
Revenue
Total revenue increased by
Cost of Revenue, Gross Profit and Gross Margin
Total cost of revenue increased by
Our gross profit decreased by
Our gross margin declined year over year, from 52% for the three months ended
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Research and Development Expenses
The following table sets forth our research and development expenses for the three months endedJune 30, 2022 and 2021, and the dollar and percentage change between the two periods: Three Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Personnel-related expenses$ 30,740 $ 19,786 $ 10,954 55 % Lab-related research services 7,570 11,145 (3,575 ) (32 %) Depreciation, equipment and supplies 2,114 2,247 (133 ) (6 %) Facilities, other overhead allocation, and other 11,585 11,054 531 5 % Total research and development expenses$ 52,009 $ 44,232 $ 7,777 18 %
Research and development expenses for the three months ended
For the three months ended
Sales and Marketing Expenses
The following table sets forth our sales and marketing expenses for the three months endedJune 30, 2022 and 2021, and the dollar and percentage change between the two periods: Three Months Ended June 30, 2022 2021 $ Change % Change (dollars in thousands) Advertising & brand$ 20,534 $ 9,032 $ 11,502 127 % Personnel-related expenses 6,120 3,055 3,065 100 % Outside services, equipment and supplies 1,424 1,368 56 4 % Depreciation & amortization 3,315 - 3,315 100 % Facilities and other overhead allocation 2,041 1,964 77 4 % Total sales and marketing expenses$ 33,434 $ 15,419 $ 18,015 117 %
Sales and marketing expenses for the three months ended
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General and Administrative Expenses
Total general and administrative expenses increased by
Interest Income, Net
Interest income, net was
Other Income (Expense), Net
Other income (expense), net was
Benefit from Income Taxes
Benefit from income taxes was
Adjusted EBITDA
We evaluate the performance of each segment based on Adjusted EBITDA, which is a non-GAAP financial measure that we define as net income before interest income, net other income (expense), changes in fair value of warrant liabilities, income tax benefit, depreciation and amortization of fixed assets, amortization of internal use software, amortization of acquired intangible assets, non-cash stock-based compensation expense, acquisition-related costs, and expenses related to restructuring and other charges, if applicable for the period. Adjusted EBITDA is a key measure used by our management and our Board of Directors to understand and evaluate our operating performance and trends, to prepare and approve our annual budget, and to develop short- and long-term operating plans. In particular, we believe that the exclusion of the items eliminated in calculating Adjusted EBITDA provides useful measures for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA provides useful information in understanding and evaluating our operating results in the same manner as our management and our Board of Directors. Adjusted EBITDA should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. Other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of Adjusted EBITDA as a tool for comparison. There are a number of limitations related to the use of these non-GAAP financial measures rather than net loss, which is the most directly comparable financial measure calculated in accordance with GAAP.
Some of the limitations of Adjusted EBITDA include (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future, and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures. In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. When evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results.
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The following tables reconcile net loss to Adjusted EBITDA for the three months endedJune 30, 2022 and 2021 on a company-wide basis and for each of our segments: Three Months Ended June 30, 2022 2021 (in thousands) Segment Revenue Consumer & Research Services$ 64,513 $ 59,239 Total revenue (2)$ 64,513 $ 59,239
Segment Adjusted EBITDA
Consumer & Research Services Adjusted EBITDA
(18,465 ) (18,303 )
Unallocated Corporate (1) (14,253 ) (8,467 )
Total Adjusted EBITDA $ (49,715 ) $ (27,275 )
Reconciliation of net loss to Adjusted EBITDA
Net loss $ (89,532 ) $ (42,026 ) Adjustments:
Interest (income) expense, net (245 ) (44 ) Other (income) expense, net 435 (14 ) Income tax benefit (254 ) - Depreciation and amortization 5,104 4,638 Amortization of acquired intangible assets 4,315 - Stock-based compensation expense 30,462 9,637 Total Adjusted EBITDA$ (49,715 ) $ (27,275 ) (1) Certain expenses such as Finance, Legal, Regulatory and Supplier Quality, Corporate Communications, and CEO Office are not reported as part of the reporting segments as reviewed by the CODM. These amounts are included in Unallocated Corporate. (2) There was no Therapeutics revenue for the three months endedJune 30, 2022 and 2021.
Consumer & Research Services
Consumer & Research Services Adjusted EBITDA declined for the three months ended
The foregoing increase to expenses was partially offset by increases in our
total revenue of
Therapeutics
Therapeutics' Adjusted EBITDA slightly declined for the three months ended
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Liquidity and Capital Resources
We have financed our operations primarily through sales of equity securities and
revenue from sales of PGS, telehealth, and research services. During the fiscal
year ended
As of
We expect to continue to incur operating losses and generate negative cash flows from operations for the foreseeable future due to the investments we intend to continue to make in research and development, additional general and administrative costs we expect to incur in connection with operating as a public company, and additional sales and marketing costs we expect to incur as a result of the Lemonaid Acquisition. Cash from operations could also be affected from our customers and other risks set forth in Part I, Item 1A., "Risk Factors," of the Fiscal 2022 10-K. We expect to continue to maintain financing flexibility in the current market conditions. As a result, we may require additional capital resources to execute strategic initiatives to grow our business.
Our future capital requirements will depend on many factors including our revenue growth rate, the timing and extent of spending to support further sales and marketing, and research and development efforts. We may continue to enter into arrangements to acquire or invest in complementary businesses, products, and technologies. We may, as a result of those arrangements or the general expansion of our business, be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would be materially and adversely affected.
For the three months ended
Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended June 30,
2022 2021
(in thousands)
Net cash (used in) operating activities
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Cash Flows from Operating Activities
Net cash used in operating activities of
Net cash used in operating activities of
Cash Flows from Investing Activities
Cash flows from investing activities primarily relate to purchase of property and equipment, prepayments for intangible assets, as well as capitalization of internal-use software costs.
Net cash used in investing activities was
Net cash used in investing activities was
Cash Flows from Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Contractual Obligations and Commitments
Our lease portfolio includes leased offices, dedicated lab facility and storage space, and dedicated data center facility space, with remaining contractual periods from 0.7 years to 9.1 years. Refer to Note 7, "Leases," of our unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q for a summary of our future minimum lease obligations.
In the normal course of business, we enter into non-cancelable purchase
commitments with various parties for purchases. Refer to Note 8, "Commitments
and Contingencies," of our unaudited condensed consolidated financial statements
included elsewhere in this Form 10-Q for a summary of our commitments as of
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
Our annual assessment for goodwill impairment was performed as of
Except as set forth above, there have been no material changes to our critical accounting policies and estimates as compared to those described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Fiscal 2022 Form 10-K.
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