NANTHEALTH, INC.
The following is a discussion and analysis of our financial condition and the
results of operations as of and for the periods presented below. The following
discussion and analysis should be read in conjunction with the "Consolidated
Financial Statements" and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q ("Quarterly Report"). This discussion contains
forward-looking statements that are based on the beliefs, assumptions, and
information currently available to our management, and are subject to known and
unknown risks, uncertainties, and other factors that may cause our actual
results to differ materially from those expressed or implied by such
forward-looking statements. These risks, uncertainties, and other factors
include, among others, those described in greater detail elsewhere in this
Quarterly Report and in our Annual Report on Form 10-K, particularly in Item 1A,
"Risk Factors".
Overview
NantHealth, Inc. ("we" or "us") provides enterprise solutions that help
businesses transform complex data into actionable insights. By offering
efficient ways to move, interpret, and visualize complex and highly sensitive
information, we help our customers in healthcare, life sciences, logistics,
telecommunications, and other industries, to automate, understand, and act on
data while keeping it secure and scalable.
Our product portfolio comprises the latest technology in payer/provider
collaboration platforms for real-time coverage decision support (NaviNet and
Eviti), and data solutions that include multi-data analysis, reporting and
professional services offerings (Quadris). In addition, OpenNMS, a subsidiary of
ours, helps businesses monitor and manage network health and performance.
Altogether, we generally derive revenue from SaaS subscription fees, support
services, professional services, and revenue sharing through collaborations with
complementary businesses.
We market certain of our solutions as a comprehensive integrated solution that
includes our clinical decision support, payer engagement solutions, data
analysis and network monitoring and management. We also market our clinical
decision support, payer engagement solutions, data analysis and network
monitoring and management on a stand-alone basis. To accelerate our commercial
growth and enhance our competitive advantage, we intend to continue to:
•introduce new marketing, education and engagement efforts and foster
relationships across the health care community to drive adoption of our products
and services;
•strengthen our commercial organization to increase our NantHealth solutions
customer base and to broaden usage of our solutions by existing customers;
•develop new features and functionality for NantHealth solutions to address the
needs of current and future healthcare provider and payer, self-insured employer
and biopharmaceutical company customers, as well as logistics,
telecommunications and other customers through OpenNMS; and
•publish scientific and medical advances.
The acquisition of OpenNMS, an enterprise-grade open-source network management
company, expands and diversifies our software portfolio and service offerings,
adding AI technologies, and enhancing cloud and SaaS capabilities. We believe
OpenNMS will provide our customers with a new set of services to maintain
reliable network connections for critical data flows that enable patient data
collaboration and decision making at the point of care.
Since our inception, we have devoted substantially all our resources to the
development and commercialization of NantHealth solutions. To complement our
internal growth and expertise, we have made several strategic acquisitions of
companies, products and technologies. We have incurred significant losses since
our inception and, as of March 31, 2022 , our accumulated deficit was
approximately $1.1 billion . We expect to continue to incur operating losses over
the near term as we expand our commercial operations and invest further in
NantHealth solutions.
We plan to (i) continue investing in our infrastructure, including but not
limited to solution development, sales and marketing, implementation and
support, (ii) continue efforts to make infrastructure investments within an
overall context of maintaining reasonable expense discipline, (iii) add new
customers through maintaining and expanding sales, marketing and solution
development activities, (iv) expand our relationships with existing customers
through delivery of add-on and complementary solutions and services and
(v) continue our commitment of service in support of our customer satisfaction
programs.
- 30 -
--------------------------------------------------------------------------------Purchase of Convertible Notes
OnApril 13, 2021 , we and our wholly owned subsidiary,NaviNet (the "Guarantor") entered into a note purchase agreement (the "Note Purchase Agreement") withHighbridge Capital Management, LLC and one of its affiliates ("Highbridge") andNant Capital, LLC ("Nant Capital "), an entity affiliated with Dr.Patrick Soon-Shiong , our Executive Chairman, to issue and sell$137.5 million in aggregate principal amount of our 4.5% convertible senior notes due 2026 (the "2021 Notes") in a private placement pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act. The Note Purchase Agreement includes customary representations, warranties and covenants by us. Under the terms of the Note Purchase Agreement, we have agreed to indemnify the buyers against certain liabilities. The 2021 Notes were issued onApril 27, 2021 . The 2021 Notes will mature onApril 15, 2026 , unless earlier repurchased, redeemed or converted. OnApril 27, 2021 , in connection with the issuance of the 2021 Notes, we entered into a Third Amended and Restated Promissory Note which amends and restates our promissory note, datedJanuary 4, 2016 , as amended onMay 9, 2016 , and onDecember 15, 2016 , between us andNant Capital , to, among other things, extend the maturity date of the promissory note toOctober 1, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes. OnApril 27, 2021 , in connection with the issuance of the 2021 Notes, we entered into a Second Amended and Restated Promissory Note which amends and restates our promissory note, datedAugust 8, 2018 , as amended onDecember 31, 2020 , between us andNant Capital , to, among other things, extend the maturity date of the promissory note toDecember 31, 2026 and to subordinate the Second Promissory Note in right of payment to the 2021.
COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the novel coronavirus (COVID-19) a pandemic. In the same month, the President ofthe United States declared a State of National Emergency due to the COVID-19 outbreak. The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. To date, there has been no material adverse impact to our business from the COVID-19 pandemic. Given the unprecedented and evolving nature of the pandemic, the future impact of these changes and potential changes on us and our contractors, consultants, customers, resellers and partners is unknown at this time. However, in light of the uncertainties regarding economic, business, social, health and geopolitical conditions, our revenues, earnings, liquidity, and cash flows could be adversely affected, whether on an annual or quarterly basis. Continued impacts of the COVID-19 pandemic could materially adversely affect our current and long-term accounts receivable, as our negatively impacted customers from the pandemic may request temporary relief, delay, or not make scheduled payments. In addition, the deployment of our solutions may represent a large portion of our customers' investments in software technology. Decisions to make such an investment are impacted by the economic environment in which the customers operate. Uncertain global geopolitical, economic and health conditions and the lack of visibility or the lack of financial resources may cause some customers to reduce, postpone or terminate their investments, or to reduce or not renew ongoing paid services, adversely impacting our revenues or timing of revenue. Health conditions in some geographic areas where our customers operate could impact the economic situation of those areas. These conditions, including the COVID-19 pandemic, may present risks for health and limit the ability to travel for our employees, which could further lengthen our sales cycle and delay revenue and cash flows in the near-term.
Nasdaq Delisting
OnFebruary 18, 2022 , we received a notice (the "Notice") fromThe Nasdaq Stock Market LLC ("Nasdaq") informing us that for the last 30 consecutive business days, the bid price of our common stock had closed below$1.00 per share, which is the minimum required closing bid price for continued listing on Nasdaq pursuant to Listing Rule 5450(a)(1) (the "Bid Price Requirement"). The Notice has no immediate effect on our Nasdaq listing or trading of our common stock. We have 180 calendar days, or untilAugust 17, 2022 , to regain compliance. To regain compliance, the closing bid price of our common stock must be at least$1.00 per share for a minimum of ten consecutive business days. If we do not regain compliance byAugust 17, 2022 , we may be eligible for additional time to regain compliance or if we are otherwise not eligible, we may request a hearing before aHearings Panel .
2017 Asset Purchase Agreement with
OnAugust 3, 2017 , we entered into an asset purchase agreement (the "APA") with Allscripts Healthcare Solutions, Inc.("Allscripts"), pursuant to which we agreed to sell toAllscripts substantially all of the assets of our provider/patient engagement solutions business, including our FusionFX solution and components of its NantOS software connectivity solutions (the "Business"). OnAugust 25, 2017 , we andAllscripts completed the sale pursuant to the APA. - 31 - --------------------------------------------------------------------------------Allscripts conveyed to us 15,000,000 shares of our common stock at par value of$0.0001 per share that were previously owned byAllscripts as consideration for the transaction. We retired the shares of stock.Allscripts also paid$1.7 million of cash consideration to us as an estimated working capital payment, and we recorded a receivable of$1.0 million related to final working capital adjustments. We are also responsible for payingAllscripts for fulfilling certain customer service obligations of the business post-closing. Concurrent with the closing and as contemplated by the APA, we andAllscripts modified the amended and restated mutual license and reseller agreement datedJune 26, 2015 , which was further amended onDecember 30, 2017 , such that, among other things, we committed to deliver a minimum of$95.0 million of total bookings over a ten-year period ("Bookings Commitment") from referral transactions and sales of certainAllscripts products under this agreement (see Note 9 of the Consolidated Financial Statements). We also agreed thatAllscripts shall receive at least$0.5 million per year in payments from bookings (the "Annual Minimum Commitment"). If the total payments received byAllscripts from bookings during such period are less than the Annual Minimum Commitment, we shall pay toAllscripts the difference between the Annual Minimum Commitment and the total amount received byAllscripts from bookings during such period. In the event of a Bookings Commitment shortfall at the end of the ten-year period, we may be obligated to pay 70% of the shortfall, subject to certain credits. We will earn 30% commission fromAllscripts on each software referral transaction that results in a booking withAllscripts . We account for the Bookings Commitment at its estimated fair value over the life of the agreement. The total estimated liability was$35.8 million and$35.7 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively. - 32 - --------------------------------------------------------------------------------
Non-GAAP Net Loss from Continuing Operations and Non-GAAP Net Loss Per Share from Continuing Operations
Adjusted net loss from continuing operations and adjusted net loss per share from continuing operations are financial measures that are not prepared in conformity withUnited States generally accepted accounting principles (U.S. GAAP). Our management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor's overall understanding of the financial results for our core business. Additionally, it provides a basis for the comparison of the financial results for our core business between current, past and future periods. Other companies may define these measures in different ways. Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance withU.S. GAAP.
Non-GAAP net loss from continuing operations excludes the effects of (1) stock-based compensation expense, (2) change in fair value of derivatives liability, (3) change in fair value of the Bookings Commitment, (4) noncash interest expense related to convertible notes, (5) intangible amortization, and (6) the impacts of certain income tax benefits and provisions from noncash activity.
The following table reconciles Net loss from continuing operations attributable toNantHealth to Net loss from continuing operations attributable toNantHealth - Non-GAAP for the three months endedMarch 31, 2022 and 2021 (Unaudited): Three Months Ended (Dollars in thousands, except per share amounts)
2022 2021
Net loss from continuing operations attributable to
Stock-based compensation expense from continuing operations 1,390 883 Change in fair value of derivatives liability - (4) Change in fair value of Bookings Commitment 94 2,463 Noncash interest expense related to convertible notes 37 323 Intangible amortization from continuing operations 2,232 2,212 Tax benefit resulting from certain noncash tax items (40) (43)
Total adjustments to GAAP net loss from continuing operations
attributable to
3,713 5,834
Net loss from continuing operations attributable to
$
(12,237)
Weighted average basis common shares outstanding 115,521,243 111,319,061
Net loss per common share from continuing operations attributable
to
$ (0.11) $ (0.09) - 33 -
--------------------------------------------------------------------------------
The following table reconciles Net loss per common share from continuing
operations attributable to
Three Months Ended
(Dollars in thousands, except per share amounts)
2022 2021
Net loss per common share from continuing operations attributable
to
$ (0.14) $ (0.14)
Adjustments to GAAP net loss per common share from continuing
operations attributable to
Stock-based compensation expense from continuing operations 0.01 0.01 Change in fair value of derivatives liability - - Change in fair value of Bookings Commitment - 0.02 Noncash interest expense related to convertible notes - - Intangible amortization from continuing operations 0.02 0.02 Tax benefit resulting from certain noncash tax items - -
Total adjustments to GAAP net loss per common share from
continuing operations attributable to
0.03 0.05
Net loss per common share from continuing operations attributable
to NantHealth - Non-GAAP $ (0.11) $ (0.09)
- 34 ---------------------------------------------------------------------------------
Components of Our Results of Operations
Revenue
We generate our revenue from the sale of SaaS, maintenance, and services. Our systems infrastructure and platforms support the delivery and implementation of value-based care models across the healthcare continuum, and the maintenance of reliable network connections. We generate revenue from the following sources: Software-as-a-service related - SaaS related revenue is generated from our customers' access to and usage of our hosted software solutions on a subscription basis for a specified contract term. In SaaS arrangements, the customer cannot take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period. Solutions sold under a SaaS model include our Eviti platform solutions andNaviNet . Maintenance - Maintenance revenue includes technical support or maintenance on OpenNMS software during the contract term. Our networking monitoring solutions typically consist of a term-based subscription to the OpenNMS software license and maintenance, which entitle customers to unspecified software updates and upgrades on a when-and-if-available basis. Revenue is recognized over the maintenance or support term. Professional services - Professional services revenue is generated from consulting services to help customers install, integrate and optimize OpenNMS, sponsored development, and training to assist customers deploy and use OpenNMS solutions. Sponsored development relates to professional services to build customer specific functionality, features, and enhancements into the OpenNMS open source platform. Typically, revenue is recognized over time using direct labor hours as a measure of progress.
Cost of Revenue
Cost of revenue includes associated salaries and fringe benefits, stock-based compensation, consultant costs, direct reimbursable travel expenses, depreciation related to software developed for internal use, depreciation related to lab equipment, and other direct engagement costs associated with the design, development, sale and installation of systems, including system support and maintenance services for customers. System support includes ongoing customer assistance for software updates and upgrades, installation, training and functionality. All service costs, except development of internal use software and deferred implementation costs, are expensed when incurred. Amortization of deferred implementation costs are also included in cost of revenue. Cost of revenue associated with each of our revenue sources consists of the following types of costs:
Software-as-a-service related - SaaS related cost of revenue includes personnel-related costs, amortization of deferred implementation costs, amortization of internal-use software, and other direct costs associated with the delivery and hosting of our subscription services.
Maintenance - Maintenance cost of revenue includes personnel-related costs, amortization of internal-use software, and other direct costs associated with the ongoing support or maintenance provided to our customers.
Professional services - Professional services cost of revenue include personnel-related costs and other direct costs associated with consulting, sponsored development, and training provided to our customers.
We plan to continue to expand our capacity to support our growth, which will result in higher cost of revenue in absolute dollars. We expect cost of revenue to decrease as a percentage of revenue over time as we expandNantHealth solutions and realize economies of scale.
Operating Expenses
Our operating expenses consist of selling, general and administrative, research
and development, amortization of acquisition-related assets, and impairment of
intangible assets, including internal-use software.
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--------------------------------------------------------------------------------Selling, general and administrative
Selling, general and administrative expense consists primarily of personnel-related expenses for our sales and marketing, finance, legal, human resources, and administrative associates, stock-based compensation, advertising and marketing promotions ofNantHealth solutions, and corporate shared services fees fromNantWorks . This includes amortization of deferred commission costs. It also includes trade show and event costs, sponsorship costs, point of purchase display expenses and related amortization as well as legal costs, facility costs, consulting and professional fees, insurance and other corporate and administrative costs. We continue to review our other selling, general and administrative investments and expect to drive cost savings through greater efficiencies and synergies across our company. Additionally, we expect to continue to incur additional costs for legal, accounting, insurance, investor relations and other costs associated with operating as a public company, including costs associated with other regulations governing public companies as well as increased costs for directors' and officers' liability insurance and an enhanced investor relations function. However, we expect our selling, general and administrative expense to decrease as a percentage of revenue over the long term as our revenue increases and we realize economies of scale.
Research and development
Research and development expenses consist primarily of personnel-related costs for associates working on development of solutions, including salaries, benefits and stock-based compensation. Also included are non-personnel costs such as consulting and professional fees to third-party development resources.
Substantially all our research and development expenses are related to developing new software solutions and improving our existing software solutions.
We expect our research and development expenses to continue to increase in absolute dollars and as a percentage of revenue as we continue to make investments in developing new solutions and enhancing the functionality of our existing solutions. However, we expect our research and development expenses to decrease as a percentage of revenue over the long term as we realize economies of scale from our developed technology.
Amortization of acquisition related assets
Amortization of acquisition related assets consists of noncash amortization expense related to our non-revenue generating technology as well as amortization expense that we recognize on intangible assets that we acquired through our investments.
Interest Expense, Net
Interest expense, net primarily consists of interest expense associated with our outstanding borrowings, including coupon interest expense, amortization of debt discounts and amortization of deferred financing offering cost, offset by interest income earned on our cash and cash equivalents.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency gains (losses), changes in the fair value of the Bookings Commitment and other non-recurring items.
Provision for (Benefit from) Income Taxes
Provision for income taxes consists ofU.S. federal and state and foreign income taxes. We are required to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. To date, we have no significantU.S. federal, state and foreign cash income taxes because of our current and accumulated net operating losses ("NOLs"). We record a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, we consider all the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When we establish or reduce the valuation allowance against the deferred tax assets, our provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Net Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests consists of losses related to minority ownership of components of our business.
- 36 -
--------------------------------------------------------------------------------Results of Operations
The following table sets forth our Consolidated Statements of Operations data for each of the periods indicated (Unaudited):
Three Months Ended
(Dollars in thousands) March 31,
2022 2021
Revenue
Software-as-a-service related $ 15,771 $ 15,757
Maintenance 464 383
Professional services 138 27
Total software-related revenue 16,373 16,167
Other - 3
Total net revenue 16,373 16,170
Cost of Revenue
Software-as-a-service related 5,563 5,535
Maintenance 369 207
Professional services - 7
Amortization of developed technologies 1,247 1,247
Total software-related cost of revenue 7,179 6,996
Other - 47
Total cost of revenue 7,179 7,043
Gross Profit 9,194 9,127
Operating Expenses
Selling, general and administrative 14,980 12,502
Research and development 5,715 5,013
Amortization of acquisition-related assets 985 985
Total operating expenses 21,680 18,500
Loss from operations (12,486) (9,373)
Interest expense, net (3,450) (3,568)
Other income (expense), net 6 (2,570)
Loss from continuing operations before income taxes (15,930) (15,511)
Provision for (benefit from) income taxes 20 (8)
Net loss from continuing operations (15,950) (15,503)
Income from discontinued operations, net of tax attributable to
- 4
Net loss (15,950) (15,499)
Net loss attributable to noncontrolling interests - (91)
Net loss attributable to NantHealth $
(15,950)
- 37 -
--------------------------------------------------------------------------------The following table sets forth our Consolidated Statements of Operations data as a percentage of revenue for each of the periods indicated (Unaudited):
Three Months Ended
March 31,
2022 2021
Revenue
Software-as-a-service related 96.3 % 97.4 % Maintenance 2.8 % 2.4 % Professional services 0.8 % 0.2 % Total software-related revenue 99.9 % 100.0 % Other - % - % Total net revenue 100.0 % 100.0 % Cost of Revenue Software-as-a-service related 34.0 % 34.2 % Maintenance 2.3 % 1.3 % Professional services - % 0.1 % Amortization of developed technologies 7.5 % 7.7 % Total software-related cost of revenue 43.8 % 43.3 % Other - % 0.3 % Total cost of revenue 43.8 % 43.6 % Gross Profit 56.2 % 56.4 % Operating Expenses Selling, general and administrative 91.6 % 77.3 % Research and development 34.9 % 31.0 % Amortization of acquisition-related assets 6.0 % 6.1 % Total operating expenses 132.5 % 114.4 % Loss from operations (76.3) % (58.0) % Interest expense, net (21.1) % (22.1) % Other income (expense), net - % (15.9) % Loss from continuing operations before income taxes (97.3) % (95.9) % Provision for (benefit from) income taxes 0.1 % - % Net loss from continuing operations (97.4) % (95.9) %
Income from discontinued operations, net of tax attributable to
- % - %
Net loss (97.4) % (95.9) %
Net loss attributable to noncontrolling interests - % (0.6) %
Net loss attributable to NantHealth (97.4) % (95.3) %
- 38 -
--------------------------------------------------------------------------------
Comparison of the Three Months Ended
Revenue
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Software-as-a-service related $ 15,771 $ 15,757 $ 14 0.1 %
Maintenance 464 383 81 21.1 %
Professional services 138 27 111 411.1 %
Total software-related revenue 16,373 16,167 206 1.3 %
Other - 3 (3) (100.0) %
Total net revenue $ 16,373 $ 16,170 $ 203 1.3 %
Total revenue increased $0.2 million , or 1.3%, for the three months ended March
31, 2022 , compared to the prior year period, due to a $0.2 million increase in
software-related revenue.
The increase of
We believe that significant opportunities exist for expanded cross-selling
across our products and across our existing customer base, including Eviti,
Cost of Revenue
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Software-as-a-service related $ 5,563 $ 5,535 $ 28 0.5 %
Maintenance 369 207 $ 162 78.3 %
Professional services - 7 (7) (100.0) %
Amortization of developed technologies 1,247 1,247 - - %
Total software-related cost of revenue 7,179 6,996 183 2.6 %
Other - 47 (47) (100.0) %
Total cost of revenue $ 7,179 $ 7,043 $ 136 1.9 %
Total cost of revenue increased
- 39 -
--------------------------------------------------------------------------------Selling, General and Administrative
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Selling, general and administrative $ 14,980 $ 12,502 $ 2,478 19.8 %
Selling, general and administrative expenses increased $2.5 million , or 19.8%
for the three months ended March 31, 2022 , compared to the prior year period.
The increase was driven by $1.4 million in higher consulting and professional
costs attributable to the migration of our information technology infrastructure
to the cloud, our enterprise resource planning implementation project,
compliance expenses and legal fees. In addition, higher personnel costs totaling
$1.0 million were attributable to growth in the OpenNMS business and an increase
in stock-based compensation.
Research and Development
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Research and development $ 5,715 $ 5,013 $ 702 14.0 %
Research and development expenses increased $0.7 million or 14.0% for the three
months ended March 31, 2022 , compared to the prior year period. The increase was
primarily driven by $0.9 million in higher costs attributable to the OpenNMS
business to drive product development initiatives.
Amortization of Acquisition-related Assets
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Amortization of acquisition-related assets $ 985 $ 985 $ - - %
Amortization of acquisition-related assets was flat at
- 40 -
--------------------------------------------------------------------------------
Interest Expense, net
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Interest expense, net $ 3,450 $ 3,568 $ (118) (3.3) %
Interest expense, net decreased by $0.1 million , or 3.3% for the three months
ended March 31, 2022 , compared to the prior year period. This decrease was
driven by $0.3 million in less noncash interest expense attributable to the
lower debt issuance costs on the 2021 Notes issued in April 2021 as compared to
the 5.5% senior convertible notes that matured in December 2021 (the "2016
Notes"). This decrease was partially offset by $0.1 million in higher
convertible debt interest driven by the convertible notes issued in 2021, and an
increase in additional interest on the Nant Capital Note of $0.1 million .
See the section entitled "Liquidity and Capital Resources" below and refer to
Note 8 and Note 16 to the accompanying Consolidated Financial Statements for
further discussion of our convertible notes and the note with Nant Capital .
Other Income (Expense), net
Three Months Ended Period-To-Period Change
(Dollars in thousands) March 31,
2022 2021 Amount Percent
Other income (expense), net $ 6 $ (2,570) $ 2,576 (100.2) %
The decrease of $2.6 million Other income (expense), net for the three months
ended March 31, 2022 compared to the prior year period was driven by the change
in the fair value of the Bookings Commitment. The change in the fair value of
the Bookings Commitment is a result of macroeconomic factors. The change in fair
value for the three months ended March 31, 2022 was a loss of $0.1 million ,
compared to a loss of $2.5 million for the three months ended March 31, 2021 .
- 41 -
--------------------------------------------------------------------------------Liquidity and Capital Resources
Sources of Liquidity
As of
We believe our existing cash and cash equivalents, and our ability to borrow on the$125.0 million promissory note withNant Capital, LLC ("Nant Capital ") (see Note 16) will be sufficient to fund operations through at least 12 months following the issuance date of the financial statements. We continue to have our Chairman and CEO's intent and ability to support our operations with additional funds as required. We may also seek to sell additional equity, through one or more follow-on public offerings or in separate financings, or sell additional debt securities, or obtain a credit facility. However, we may not be able to secure such financing in a timely manner or on favorable terms. We may also consider selling off components of our business. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of our existing products as well as products in development, we may need additional funds to meet our needs sooner than planned. To date, our primary sources of capital have been the private placement of membership interests prior to our IPO, debt financing agreements, including promissory notes withNant Capital and affiliates, convertible notes, the sale of our common stock, revenue generated from our products and services, and proceeds from the sale of components of our business. Convertible Notes OnApril 13, 2021 , we and our wholly owned subsidiary,NaviNet entered into a Note Purchase Agreement withHighbridge and Nant Capital and issued$137.5 million in aggregate principal amount of our 2021 Notes in a private placement. The 2021 Notes were issued onApril 27, 2021 . The total net proceeds from this offering were approximately$136.8 million , after deducting Highbridge's debt issuance costs of$0.1 million and$0.6 million in debt issuance costs paid to third parties in connection with the 2021 Notes offering. The 2021 Notes will mature onApril 15, 2026 , unless earlier repurchased, redeemed or converted. OnApril 27, 2021 , concurrent with the 2021 Notes issuance, we used the proceeds to prepay the remaining$31.9 million of principal amount of the 2016 Notes held by Highbridge and$0.6 million of accrued interest on such 2016 Notes. OnApril 27, 2021 , in connection with the issuance of the 2021 Notes, we provided a notice of a fundamental change (as defined in the indenture governing the 2016 Notes) and an offer to repurchase all our outstanding 2016 Notes. OnMay 25, 2021 , we purchased$55.6 million of the outstanding 2016 Notes, including accrued and unpaid interest thereon. OnDecember 15, 2021 , the maturity date of the 2016 notes, we paid the remaining$9.5 million of the outstanding principal balance on the 2016 Notes, including accrued and unpaid interest thereon.
Open Market Sale Agreement
OnNovember 12, 2021 , we entered into an Open Market Sale Agreement (the "Sale Agreement") withJefferies LLC (the "Sales Agent") under which we may offer and sell up to$30.0 million of shares of our common stock, par value$0.0001 per share (the "Shares"), from time to time through the Sales Agent. The sales and issuances of the Shares under the Sale Agreement will be made pursuant to our effective shelf registration statement on Form S-3 (the "Registration Statement") that was declared effective onMay 6, 2021 . The Sales Agent is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts to sell the Shares from time to time, consistent with their normal trading and sales practices, applicable state and federal laws, rules and regulations and the rules ofThe Nasdaq Stock Market LLC , based upon instructions from us (including any price, time or size limits or other customary parameters or conditions we may impose). We have agreed to pay the Sales Agent a commission of 3.0% of the aggregate gross proceeds from each sale of the Shares pursuant to the Sale Agreement and to provide the Sales Agent with customary indemnification and contribution rights, including for liabilities under the Securities Act of 1933, as amended. - 42 - --------------------------------------------------------------------------------
Nant Capital Notes
InJanuary 2016 , we executed a demand promissory note withNant Capital (the "Nant Capital Note"), a personal investment vehicle forDr. Soon-Shiong . As ofMarch 31, 2022 , the total advances made byNant Capital to us pursuant to the note was approximately$112.7 million . The Nant Capital Note bears interest at a per annum rate of 5.0% compounded annually and computed on the basis of the actual number of days in the year. When a repayment is made,Nant Capital has the option, but not the obligation, to require us to repay any such amount in cash, Series A-2 units ofNantOmics (based on a per unit price of$1.484 ) held by us, shares of our common stock based on a per share price of$18.6126 (if such equity exists at the time of repayment), or any combination of the foregoing at the sole discretion ofNant Capital . OnApril 27, 2021 , in connection with the issuance of the 2021 Notes, we entered into a Third Amended and Restated Promissory Note which amends and restates its promissory note, datedJanuary 4, 2016 , as amended onMay 9, 2016 , and onDecember 16, 2016 , between us andNant Capital , to, among other things, extend the maturity date of the promissory note toOctober 1, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes. OnAugust 8, 2018 , we executed a promissory note in favor ofNant Capital , with a maturity date ofJune 15, 2022 . OnDecember 31, 2020 , we executed an agreement withNant Capital to amend and restate the original promissory note, allowing us to request advances up a maximum commitment of$125.0 million that bears interest at a per annum rate of 5.5%, extended the maturity date toDecember 31, 2023 , and created an option for the securitization of the debt under the promissory note upon full repayment of the 2016 Notes. Interest payments on outstanding amounts are due onDecember 15th of each calendar year. OnApril 27, 2021 , in connection with the issuance of the 2021 Notes, we andNant Capital entered into a Second Amended and Restated Promissory Note which amends and restates its promissory note, datedAugust 8, 2018 , as amended onDecember 31, 2020 , between us andNant Capital , to, among other things, extend the maturity date of the promissory note toDecember 31, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes. The promissory note includes customary negative covenants. No advances have currently been made under the promissory note. As ofMarch 31, 2022 , we were in compliance with the covenants. If we raise additional funds by issuing equity securities or securities convertible into equity, our stockholders could experience dilution. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products and scale back our business and operations. Capital Expenditures There have been no material changes during the three months endedMarch 31, 2022 to our capital expenditure obligations disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Our principal material cash requirements consist of obligations under our outstanding debt obligations related to the 2021 Notes, Nant Capital Note, Bookings Commitment, and noncancelable leases for our office space. Refer to Note 8, Note 9, Note 10, and Note 16 to the accompanying Consolidated Financial Statements. Additionally, our estimated noncancelable contractual obligations for our enterprise resource planning implementation project through the shared services agreement withNantWorks total approximately$0.7 million . See Note 11 and Note 16 to the accompanying Consolidated Financial Statements.
Cash Flows
The following table sets forth our primary sources and uses of cash for the
periods indicated:
Three Months Ended
(Dollars in thousands) March 31,
2022 2021
Cash (used in) provided by:
Operating activities $ (11,049) $ (9,692)
Investing activities (1,203) (1,141)
Financing activities (758) (204)Effect of exchange rate changes on cash, cash equivalents and restricted cash
(46) 3
Net decrease in cash, cash equivalents and restricted cash $
(13,056)
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To date, our operations have been primarily financed through the proceeds from
related party promissory notes, the issuance of convertible notes, the sale of
components of our business, revenue generated from the sales of our products and
services, and through equity issuances, including net cash proceeds from our
IPO. In June 2016 , we sold 6,900,000 shares of common stock at a price of $14.00
per share, which includes 400,000 shares sold to the underwriter upon exercise
of their overallotment option to purchase additional shares of common stock. We
raised net proceeds of $83.6 million from our IPO, after underwriting fees,
discounts and commissions of $4.9 million and other offering costs of $8.1
million . In December 2016 , we issued convertible notes to a related party and
others for aggregate net proceeds of $102.7 million , $9.9 million from
Cambridge, and $92.8 million from others, after deducting underwriting discounts
and commissions and offering costs of $4.3 million . In February 2020 , we
received $47.3 million in proceeds from the sale of our Connected Care Business.
In April 2021 , we issued convertible notes to a related party and others for
aggregate net proceeds of $136.8 million , $62.2 million from Nant Capital , and
$74.6 million from Highbridge, after deducting offering costs of $0.7 million .
Operating Activities
Our cash flows from operating activities have been driven by rate of revenue, billings, and collections, the timing and extent of spending to support product development efforts and enhancements to existing services, the timing of general and administrative expenses, and the continuing market acceptance of our solutions.
In addition, our net loss in the three months ended
Cash used in operating activities of$11.0 million during the three months endedMarch 31, 2022 was a result of our continued investments in enhancements to current products, research and development, sales and marketing, and expenses incurred as a public company, including costs associated with public company reporting and corporate governance requirements. During the three months endedMarch 31, 2022 , our net loss of$16.0 million consisted of noncash items largely due to$4.0 million of depreciation and amortization,$1.4 million of stock-based compensation, and a$0.1 million increase in the fair value of the Bookings Commitment liability. Changes in working capital decreased cash$0.6 million during the three months endedMarch 31, 2022 . The decrease in cash was primarily attributable to a$3.7 million decrease in accrued and other current liabilities and a$0.6 million increase in prepaid expenses and other current assets, largely offset by a$2.1 million increase in accounts payable, a$0.9 million increase in related party payables, and a$0.8 million decrease in accounts receivable. Cash used in operating activities of$9.7 million during the three months endedMarch 31, 2021 was a result of our continued investments in enhancements to current products, research and development, sales and marketing, and expenses incurred as a public company, including costs associated with public company reporting and corporate governance requirements. During the three months endedMarch 31, 2021 , our net loss of$15.5 million consisted of noncash items largely due to$3.8 million of depreciation and amortization and a$2.5 million increase in the fair value of the Bookings Commitment liability. Changes in working capital decreased cash$1.6 million during the three months endedMarch 31, 2021 . The decrease in cash was primarily attributable to a$3.5 million decrease in accounts payable and a$1.4 million increase in accounts receivable, largely offset by a$1.8 million increase in accrued and other current liabilities and a$1.7 million increase in related party payables.
Investing Activities
For the three months ended
For the three months ended
Financing Activities
Cash used in financing activities during the three months endedMarch 31, 2022 of$0.8 million was due to repayments of an insurance promissory note, offset by proceeds from exercises of stock options.
Cash used in financing activities during the three months ended
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--------------------------------------------------------------------------------New Accounting Pronouncements
See Note 2 to the accompanying Consolidated Financial Statements for a discussion of new accounting standards.
Related Party Transactions
See Note 16 to the accompanying Consolidated Financial Statements for a discussion of related party transactions.
Critical Accounting Policies and Significant Judgments and Estimates
This Management's Discussion and Analysis of our Results of Operations and Liquidity and Capital Resources is based on our Consolidated Financial Statements, which we have prepared in accordance withU.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the critical accounting policies and estimates discussed in Note 2 to the Consolidated Financial Statements of our Annual Report on 10-K that was filed with theSEC onFebruary 26, 2021 , reflect our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. Refer to Note 2 to the accompanying Consolidated Financial Statements for a discussion of any significant changes to our critical accounting policies and estimates as disclosed in our 10-K.
Smaller Reporting Company Status
Currently, we qualify as a smaller reporting company. As a smaller reporting company, we are eligible and have taken advantage of certain exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification, including, but not limited to: •An opportunity for reduced disclosure obligations regarding executive compensation in our periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures, •An opportunity for reduced financial statement disclosure in registration statements and in annual reports on Form 10-K, which only requires two years of audited financial statements rather than the three years of audited financial statements that are required for other public companies, •An opportunity for reduced audit and other compliance expenses as we are not subject to the requirement to obtain an auditor's report on internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, and •An opportunity to utilize the non-accelerated filer time-line requirements beginning with our annual report for the year endingDecember 31, 2021 and quarterly filings thereafter.
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