AMERICAN WELL CORPORATION Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations, including descriptions of our business plan and strategies, are forward-looking statements. These statements often include words such as "anticipate," "expect," "suggests," "plan," "believe," "intend," "estimates," "targets," "projects," "should," "could," "would," "may," "will," "forecast," or the negative of these terms, and other similar expressions, although not all forward-looking statements contain these words. The forward-looking statements and projections are subject to and involve risks, uncertainties and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections.
Important factors that may materially affect such forward-looking statements and projections include the following:
• weak growth and increased volatility in the telehealth market; • our history of losses and the risk we may not achieve profitability; • inability to adapt to rapid technological changes;
• our ability to successfully launch our new Converge telehealth platform
without significant cost overruns or disruptions to our business and our
customers' acceptance of this new platform;
• our limited number of significant clients and the risk that we may lose
their business;
• increased competition from existing and potential new participants in the
healthcare industry;
• changes in healthcare laws, regulations or trends and our ability to operate
in the heavily regulated healthcare industry;
• compliance with regulations concerning personally identifiable information
and personal health industry;
• slower than expected growth in patient adoption of telehealth and in
platform usage by either clients or patients;
• inability to grow our base of affiliated and non-affiliated providers
sufficient to serve patient demand;
• our ability to comply with federal and state privacy regulations and the
significant liability that could result from a cybersecurity breach or our
failure to comply with such regulations;
• our ability to establish and maintain strategic relationships with third
parties;
• our ability to complete, integrate and realize the anticipated benefits of
strategic acquisitions;
• the impact of the COVID-19 pandemic on our business or on our ability to
forecast our business's financial outlook;
• the risk that the insurance we maintain may not fully cover all potential
exposures; and
• inability to remediate material weaknesses or maintain effective internal
control over financial reporting.
The foregoing list of factors is not exhaustive and does not necessarily include all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. The information in this Quarterly Report should be read carefully in conjunction with other uncertainties and potential events described in our Form 10-K filed with theSEC onMarch 26, 2021 (the "Form 10-K"). The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report. Except as required by law or regulation, we do not undertake any obligation to update any forward-looking statements to reflect subsequent events or circumstances
Overview
We are a leading telehealth company enabling digital delivery of care for healthcare's key stakeholders. We empower our clients at the enterprise level with the core technology and services necessary to successfully develop and distribute telehealth programs that meet their strategic, operational, and social objectives under their own brands. The Amwell Platform is a complete
26
--------------------------------------------------------------------------------
digital care delivery solution that equips our health system, health plan and
innovator, including government, clients with the tools to enable new models of
care for their patients and members. Our scalable technology embeds with our
clients' existing offerings and clinical workflows, spanning the continuum of
care and enabling care delivery across a wide variety of clinical, retail,
school and home settings. Our client-focused approach drives our success as one
of the largest telehealth companies. As of September 30, 2021 , we powered the
digital care programs of over 55 health plans, which support over 36,000
employers and collectively represent more than 80 million covered lives, as well
as over 150 of the nation's largest health systems, encompassing more than 2,000
hospitals. Since inception, we have powered over 12 million telehealth visits
for our clients, including 4.3 million in the nine months ended September 30,
2021 .
Healthcare today faces many challenges. Choice and access can be limited, care
delivery is fragmented and inefficient, and costs continue to rise and shift to
consumers while health outcomes have not improved. The healthcare industry is
evolving to meet these challenges with innovative care models and new regulatory
frameworks to promote more effective outcomes. As healthcare's key stakeholders
demand innovative technology solutions that streamline care delivery, lower
costs, expand access and improve outcomes, we believe there is significant
opportunity for transformation.
We believe Amwell makes this digital care transformation possible for the
healthcare ecosystem. The Amwell Platform enables care delivery across the full
healthcare continuum - from primary and urgent care in the home to high acuity
specialty consults, such as telestroke and telepsychiatry, in the hospital. We
support both on-demand and scheduled consultations and offer 40 pre-packaged
care modules and programs that power over 100 unique use cases today. Our
platform can be fully embedded into our clients' patient/member portals and
provider workflows. Providers can launch telehealth directly from their native
EHRs, with seamless integration to their payer eligibility and claims systems.
Providers, patients and members can access this care through a full range of
Carepoints™, including via mobile, web, phone and our proprietary kiosks and
carts that support multi-way video, phone or secure messaging interactions. As
of September 30, 2021 , approximately 80,000 of our active providers use the
Amwell Platform to serve their patients and members. When needed, we augment and
extend our clients' clinical capabilities with AMG, a nationwide clinical
network of over 5,000 multi-disciplinary providers covering 50 states with
24/7/365 coverage.
Amwell exists to empower healthcare's leading players, who have earned the deep
trust of their patients and members over decades, and does not aim to compete
with or replace them. We help our clients white-label and embed telehealth
within their existing healthcare offerings for their patients and members. Thus,
we enable our provider customers to offer a seamless experience that blends
online convenience when needed with in-person care by known, trusted providers
as part of a complete care program that offers patients continuity of care. In
this way, providers can use our telehealth platform as an effective augmentation
and not a replacement of their traditional care delivery.
Our Business Model
The Amwell Platform is a complete digital care delivery solution that equips our health system, health plan and innovator partners with the tools to enable new models of care for their patients and members. We sell the Amwell Platform on a subscription basis, which with our modular platform architecture allows our clients to introduce innovative telehealth use cases over time, expanding our subscription revenue opportunity. To support the Amwell Platform, we offer professional services on a fixed fee and time and material basis and a range of patient and provider access Carepoints that support hospital and home use cases and access to AMG, our affiliated medical group that provides clinical services on a fee-for-service basis. The combination of the platform, services and Carepoints allows our clients to deploy telehealth solutions across their full enterprise, deepening their relationships with existing and new patients and members through improved care access and coordination, cost, and quality. Our contracts are typically three years in length but may be longer for our largest strategic customer partners. Total subscription fees received from Health System, Health Plan and Innovator clients were$26.7 million and$25.8 million for the three months endedSeptember 30, 2021 and 2020, respectively, and$78.1 million and$72.0 million for the nine months endedSeptember 30, 2021 and 2020, respectively.
Health Systems
For our health system customers, the Amwell Platform's primary function is to
facilitate consultations between patients and providers affiliated with the
health system. Our typical contracts with health systems are mainly the platform
subscription, but also include services delivered by AMG to complement the
health system provider resources, services for technology integration, marketing
and Carepoints. Subscription fees are recurring and are determined based on the
initial forecasted number of overall consultations throughout the entire health
system on the Amwell Platform and net patient revenue of the health system.
Subscriptions include a maximum number of consultations that can be delivered on
the platform and similar to a cellular phone plan, when consultations exceed the
contractual maximum, overages result in higher subscription fees in the
following annual period. As the
27
--------------------------------------------------------------------------------health system expands its use of the Amwell Platform through additional modules, there is a corresponding increase in subscription fees.
To supplement a health system's own network of healthcare providers, health systems often choose to purchase clinical services from AMG to deliver care for certain specialties such as telepsychiatry, behavioral health therapy and general urgent care, or to simply operate as backup providers on nights and weekends. AMG services are provided on a fee-for-service basis.
Health Plans
For our health plan clients, the Amwell Platform functions to provide better access to care, better coordination of care and the ability to direct care referrals to providers owned or affiliated with the respective health plan. All of these functions lower the overall cost of care for health plan clients: improved population access to needed services reduces unneeded ED usage and better coordination of care can improve outcomes and lower the overall cost of care. Currently, our typical health plan contract includes a recurring subscription fee based on the number of members who have access to our platform plus additional subscription fees associated with the various programs we offer the health plan. Our health plan clients mainly purchase clinical services for their members through AMG. They may also maintain relationships with other in network provider organizations to deliver care on the Amwell Platform on their behalf. These visit consultations are charged on a fee-for-service basis and range in price based on the type of consultation and the specialty of the provider.
Innovators
Amwell has a number of unique customers that use our platform in various ways to support their products. For example, we support: (i) Philips' sleep apnea products and programs, (ii) a joint-venture withCleveland Clinic and Amwell, (iii) Meuhedet's advanced, hybrid-virtual international health plan. Our contracts with our innovator customers vary from simple subscription fee-only contracts, where an innovator customer embeds our technology within their product, to broad subscription fee and services contracts that resemble a blend of our health system and health plan profile contracts.
Visits
Amwell's clinical affiliate AMG has built a network of over 5,000 providers who are registered and credentialed to deliver care on the Amwell Platform. This clinical network is designed and operated in a way that allows us to meet the aggregate visit demand requirements of our health plan and health system clients, spanning a broad mix of specialties including, for example, internal medicine, Family Medicine, Psychiatry, Gynecology, Anesthesiology, Nutritionist, Sleep Medicine, Pain Management, Psychology, Pulmonology, Urology, Health Coach, Orthopedic Surgery, Case Manager, Emergency Medicine, Gastroenterology, Nephrology, Pediatrician, Lactation Consultant, Social Worker, Vascular Surgery. AMG earns fee-for-service revenue for each episode of care delivered on the Amwell Platform by its providers with fees varying by physician specialty or clinical program. These clinical fees vary significantly from$59 to more than$800 per consultation or case based on the specialty and may require an additional module subscription, as in the case of telepsychiatry. Fees received from AMG-related visits were$30.0 million and$28.5 million for the three months endedSeptember 30, 2021 and 2020, respectively. Fees received from AMG-related visits were$85.4 million and$90.9 million for the nine months endedSeptember 30, 2021 and 2020, respectively.
Services & Carepoints
We offer a full suite of paid, supporting services to our clients to enable their telehealth offerings, including professional services to facilitate telehealth implementation, workflow design, systems integration and service expansion. To help our clients promote adoption and utilization, we offer patient and provider engagement services through our internal digital engagement agency.
Our customers often deploy telemedicine through a variety of our proprietary
Carepoints, which are medical carts and kiosks designed for various clinical and
community settings. These Carepoints enable providers to deliver digital care
into clinical care locations, such as the ED and clinics, as well as into
community settings such as retail stores, community centers, employer sites,
skilled nursing facilities and schools. Carepoints consist of hardware
integrated into our Platform but can also be deployed
28
--------------------------------------------------------------------------------independent of our software solution. Our Carepoints are designed by our product development teams and manufactured through partner and contract relationships.
Fees received from the provision of services and Carepoints were$5.4 million and$8.3 million for the three months endedSeptember 30, 2021 and 2020, respectively. Fees received from the provision of services and Carepoints were$16.5 million and$21.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Acquisitions We have expanded and intend to continue to expand our platform through research and development as well as the pursuit of selective acquisitions. We have completed multiple acquisitions since our inception, which we believe have expanded the channels that we serve and our distribution capabilities as well as broadening our service offering. Our acquisitions of SilverCloud and Conversa add proven longitudinal care and behavioral healthcare capabilities to our digital care enablement platform. SilverCloud is a leading digital mental health platform. Conversa is a leader in automated virtual healthcare.
For further information, see Note 7, "Business Combinations" of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Key Factors Affecting Our Performance
We believe our future growth, success and performance are dependent on many factors, including those set forth below. While these factors present significant opportunities for us, they also represent the challenges that we must successfully address in order to grow our business and improve our results of operations. Telehealth Utilization Telehealth utilization is a key driver of our business. A client's overall utilization of its telehealth platform provides an important measure of the value they derive. Telehealth utilization drives our business in three important ways. First, to the extent a client succeeds with its telehealth program and sees good usage, they are more likely to renew and potentially expand their contract with us. Second, our health systems agreements typically include a certain number of visits conducted by their own providers annually and provide that as certain volume thresholds are exceeded, its annual license fees will rise to reflect this growing value. Third, to the extent that clients utilize provider services from AMG, Amwell derives revenue from clinical fees. We expect that our future revenues will be driven by the growing adoption of telehealth and our ability to maintain and grow market share within that market. COVID-19 has dramatically accelerated telehealth adoption seen in both overall volumes and embracement of delivering higher acuity care in a virtual medium. Peak COVID-19 pandemic visit growth reflected several factors. Many patients needed assessment for respiratory or other COVID-19-like symptoms and sought to be assessed for possible referral to hospital or testing facilities. In addition, many patients, especially those with health vulnerabilities, sought to avoid going into brick and mortar facilities - and indeed our health systems' clients preferred wherever possible to treat patients remotely at home for non-COVID-19 related ongoing healthcare needs. Finally, we saw significant expansion of reimbursement for telehealth during the COVID-19 crisis, which made telehealth more affordable for many people. We continue to experience these levels of telehealth adoption and usage of our platform and products. In both the nine months endedSeptember 30, 2021 and 2020, our clients completed 4.3 million visits on the Amwell Platform. Visits in the nine months endedSeptember 30, 2020 were driven by the height of the COVID-19 pandemic while visits in the nine months endedSeptember 30, 2021 were driven by expanded utilization of the platform evident by a larger number of clients' own providers using the Amwell Platform. During the nine months endedSeptember 30, 2021 our clients' own providers performed over 75% of the total visits performed on the Amwell Platform versus 70% of total visits performed on the Amwell Platform during the nine months endedSeptember 30, 2020 . Comparatively, throughout 2019 and throughFebruary 2020 , or pre-COVID-19, clients' own providers delivering care represented 40% whereas AMG providers typically performed more than 60% of the total overall visits on the Amwell Platform. Total Overall Quarterly Visits Quarter Ended Overall Visits Performed by Customer Providers September 30, 2021 1,425,000 75 % June 30, 2021 1,300,000 75 % March 31, 2021 1,575,000 80 % December 31, 2020 1,550,000 75 % September 30, 2020 1,400,000 75 % June 30, 2020 2,200,000 75 % 29
--------------------------------------------------------------------------------
Active Providers An important indicator of the value of our Amwell Platform to our clients is the number of non-AMG providers that are active on the Amwell Platform. We define "Active Providers" as providers that have delivered a visit on the Amwell Platform at least once in the last 12 months. Active Providers demonstrate the prevalence of telehealth within our clients in both home and hospital environments. We believe Active Providers is a measure of our success in delivering on our mission of enabling access to care. We expect that the overall number of Active Providers will increase over time as a result of several factors: • the number of modules and use cases deployed within health systems • the adoption of telehealth by providers across the spectrum of care • the number of programs offered through health plans
• the continued improvement in the regulatory environment for telehealth,
including reimbursement for telehealth services
• the ongoing consumerization of healthcare
A significant number of providers were added to the platform in Q2 and Q3 of
2020 by our Health Plan but predominately by our Health System customers to
handle the anticipated extraordinary increase in COVID-related
consultations. Additional AMG providers were also added to absorb COVID-related
spikes in care. As the 12 month measurement period for "Active Providers"
advanced beyond the peak COVID period of Q2 2020, these extraordinary
COVID-related additional AMG and customer providers cycled out of the Active
Provider count thus we experienced a reset to the core base in Q2 2021. We
continue to experience growth in core active providers as seen in our most
recent quarter, Q3 2021, where approximately 9,000 active providers were added
to our platform all coming from our Health System and Health Plan customers.
Total Active Providers
Quarter Ended Total Active Providers Customer Providers AMG
September 30, 2021 80,000 76,000 4,000
June 30, 2021 71,000 67,000 4,000
March 31, 2021 81,000 76,000 5,000
December 31, 2020 72,000 68,000 4,000
September 30, 2020 62,000 58,000 4,000
June 30, 2020 57,000 53,000 4,000
Regulatory Environment
Our operations are subject to comprehensive United States federal, state and
local and international regulation in the jurisdictions in which we do business.
Our ability to operate profitably will depend in part upon our ability, and that
of our affiliated providers, to maintain all necessary licenses and to operate
in compliance with applicable laws and rules. The COVID-19 pandemic has resulted
in a reduction of regulatory and reimbursement barriers for telehealth,
including removing the originating site restrictions for fee for service
Medicare; the expansion of Medicare and commercial reimbursement for telehealth
and an easing of state licensure policies for providers. However, it is
uncertain how long the relaxed policies will remain in effect, and there can be
no guarantee that once the COVID-19 pandemic is over that such restrictions will
not be reinstated or changed in a way that adversely affects our business. For
additional discussion of this factor, see "Item 1A. Risk Factors-Risks Related
to Government Regulation."
Seasonality
Visit volumes typically follow the annual flu season, rising during quarter four
and quarter one and falling in the summer months. The future impact of COVID-19
on seasonality is unknown as there could be additional surges and demand on
telehealth visits. While we sell to and implement our solutions to clients
year-round, we experience some seasonality in terms of when we enter into
agreements with our clients and when we launch our solutions to members.
Non-GAAP Financial Measures
In addition to our financial results determined in accordance with GAAP, we
believe adjusted EBITDA, a non-GAAP measure, is useful in evaluating our
operating performance. We use adjusted EBITDA to evaluate our ongoing operations
and for internal planning and forecasting purposes. We believe that this
non-GAAP financial measure, when taken together with the corresponding GAAP
financial measures, provides meaningful supplemental information regarding our
performance by excluding certain items that may not be indicative of our
business, results of operations or outlook. In particular, we believe that the
use of adjusted EBITDA is helpful to our investors as it is a metric used by
management in assessing the health of our business and our operating
performance.
30
--------------------------------------------------------------------------------
However, non-GAAP financial information is presented for supplemental
informational purposes only, has limitations as an analytical tool and should
not be considered in isolation or as a substitute for financial information
presented in accordance with GAAP. In addition, other companies, including
companies in our industry, may calculate similarly-titled non-GAAP measures
differently or may use other measures to evaluate their performance, all of
which could reduce the usefulness of our non-GAAP financial measure as a tool
for comparison. A reconciliation is provided below for our non-GAAP financial
measure to the most directly comparable financial measure stated in accordance
with GAAP. Investors are encouraged to review the related GAAP financial measure
and the reconciliation of this non-GAAP financial measure to their most directly
comparable GAAP financial measures, and not to rely on any single financial
measure to evaluate our business.
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes and in evaluating acquisition opportunities. We calculate adjusted EBITDA as net loss adjusted to exclude (i) interest income and other income, net, (ii) tax benefit and expense, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) public offering expenses, (vi) acquisition-related income and expenses, (vii) litigation expenses related to the defense of our patents in the patent infringement claim filed by Teladoc and (viii) other items affecting our results that we do not view as representative of our ongoing operations, including direct and incremental expenses associated with the COVID-19 pandemic. We had no such other items during the three and nine months endedSeptember 30, 2021 and 2020. The following table presents a reconciliation of adjusted EBITDA from the most comparable GAAP measure, net loss, for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Net loss$ (50,932 ) $ (64,596 ) $ (128,873 ) $ (178,040 ) Add: Depreciation and amortization 4,340 2,576 9,330 7,371 Interest income and other (expense) income, net 382 (255 ) 97 (1,410 ) Benefit (Expense) from income taxes (5,454 ) 78 (5,042 ) 330 Stock-based compensation 12,388 34,420 31,756 106,516 Public offering expenses(2) - 1,362 1,223 2,039 Acquisition-related expense (income) 7,419 - 8,006 (48 ) COVID-19-related expenses(1) - 191 - 5,933 Litigation expense 371 - 1,918 - Adjusted EBITDA$ (31,486 ) $ (26,224 ) $
(81,585 ) $ (57,309 ) (1) COVID-19-related expenses include non-recurring provider bonus payments,
emergency hosting licensing fees and non-medical provider temporary labor
costs related to on-boarding non-AMG providers incurred in response to the
initial outbreak of the COVID-19 virus as Amwell attempted to scale quickly
to meet unusually high patient and non-AMG provider demand.
(2) Public offering expenses include non-recurring expenses incurred inrelation to our initial public offering for the three and nine months ended
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. Our public offering and acquisition-related expenses, including legal, accounting and other professional expenses, reflect cash expenditures and we expect such expenditures for acquisitions to recur from time to time. Our adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. 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. Adjusted EBITDA should not be considered as an alternative to loss before benefit from income taxes, net loss, earnings per share, or any other performance measures derived in accordance withU.S. GAAP. 31 --------------------------------------------------------------------------------
When evaluating our performance, you should consider adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results.
Components of Statement of Operations
Revenue
The Company has demonstrated continued revenue growth as a direct result increasing acceptance of telehealth, our penetration of the market, and the successful launch of new or expanded products that enable broadened applications of settings for care delivered virtually. Revenue performance is reflective of the strong foundation that has been built, focused around health plans, health systems, our provider network and a consistently increasing visit base. We generate revenues from the use of the Amwell Platform in the form of recurring subscription fees for use of our platform, and related services and Carepoint sales. We also generate revenue from the performance of AMG patient visits.
Cost of Revenues, Excluding Amortization of Intangible Assets
Cost of revenue primarily consists of hosting fees paid to our hosting providers, costs incurred in connection with our professional services, technical and hosting support, and costs for running our affiliated provider network operations team. These costs primarily include employee-related expenses (including salaries, bonuses, benefits, stock-based compensation and travel). Cost of revenues are primarily driven by the size of our provider network and the hosting and technical support required to service our platform customers. Our business models are designed to be scalable and to leverage fixed costs to generate higher revenues. While we currently expect increased investments to support accelerated growth, we also expect increased efficiencies and economies of scale. Our quarterly cost of revenues as a percentage of revenues is expected to fluctuate from period to period depending on the interplay of these aforementioned factors.
Operating Expenses
Operating expenses consist of research and development, sales and marketing, and general and administrative expenses.
Research and Development Expenses
Research and development expenses include personnel and related expenses for software and hardware engineering, information technology infrastructure, security and compliance and product development (inclusive of stock-based compensation for our research and development employees). Research and development expenses also include the periodic outsourcing of similar functions to third party specialists. Due to the quarantine and isolation strategies employed by governmental authorities, health systems and health plans to deal with the COVID-19 pandemic, a significant portion of healthcare was forced to be delivered virtually. Our health plan and health system customers believe that overall utilization of telemedicine and care delivered virtually will continue to increase during and after the COVID-19 crisis. By partnering with our customers during the crisis, we understand the increased volume and additional types of care they intend to deliver virtually on our platform. We originally expected this increase in volume, evolution and advancement of telemedicine usage to occur over the next few years but we have now adjusted our research and development strategies to match the views of our customer partners, thus accelerating the expansion of our platform volume capacity and the development of additional functionality through new programs and modules. While an increase in the research and development expense is expected in the near-term future periods, the corresponding future revenue growth is expected to result in lower expenses as a percentage of revenue. Our research and development expenses may also fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our research and development expenses. We are accelerating our multiyear technology investment in 2021 to accommodate the anticipated significant growth in market demand for increasingly broad and sophisticated telehealth enablement infrastructure following COVID-19.
Sales and Marketing Expenses
Sales expenses consist primarily of employee-related expenses, including
salaries, benefits, commissions, travel and stock-based compensation costs for
our employees engaged in sales. We expect our sales expenses to increase as we
continue to invest in the expansion of our business. We expect to hire
additional sales personnel and related account management and sales support
personnel to properly service our growing client base and to identify and
capitalize on new strategic market opportunities.
32
--------------------------------------------------------------------------------
Marketing expenses consist primarily of personnel and related expenses
(inclusive of stock-based compensation) for our marketing staff, including costs
of communications materials that are produced to generate greater awareness and
utilization of our platform among our clients and their users. Marketing costs
also include third-party independent research, participation in trade shows,
brand messaging, and public relations costs.
Our sales and marketing expenses will fluctuate as a percentage of our total
revenue from period to period due to the seasonality of our total revenue and
the timing and extent of our advertising and marketing expenses.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses, and professional fees incurred by finance, legal, human resources, information technology, our executives, and executive administration staff. They also include stock-based compensation for employees in these departments and expenses related to auditing, consulting, legal, and corporate insurance. We expect our general and administrative expenses to increase for the foreseeable future due to costs that we incur as a new public company, as well as other costs associated with continuing to grow our business. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over the next several years. Our general and administrative expenses may fluctuate as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and administrative expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense includes the amortization of intangible assets and depreciation related to our fixed assets. Amortization of intangible assets consists of the amortization of acquisition-related intangible assets, which are customer relationships, contractor relationships, technology and trade names.
Interest Income and Other Income (Expense), Net
The balance of interest income and other income (expense), net, consists predominantly of interest income on our money-market and short-term investments. We did not incur material interest expenses in the period as there were no outstanding debts or notes payables.
Provision for Income Taxes
The income tax provision and benefit were primarily due to state and foreign income tax expense, offset by a partial release of the valuation allowance.
Deferred tax assets are reduced by a valuation allowance to the extent
management believes it is not more likely than not to be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income. Management makes estimates and judgments about future taxable
income based on assumptions that are consistent with our plans and estimates.
33--------------------------------------------------------------------------------
© Edgar Online, source
