GENEDX HOLDINGS CORP. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our audited financial statements for the year endedDecember 31, 2021 and the related notes in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . This discussion contains forward-looking statements and involves numerous risks and uncertainties. Actual results may differ materially from the results described in or implied by the forward-looking statements. You should carefully read the section entitled "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from these forward-looking statements.
Overview
We are a leading health intelligence company-one that can unlock insights from data, leading to healthier lives and a healthier society. We are focused on delivering a portfolio of genomic and data solutions to guide patients through their family health journey. That includes family planning, delivery, pediatrics, hereditary cancer screening, and rare disorders for children and adults. OnJune 1, 2017 , we signed a contribution and funding agreement and other agreements withIcahn School of Medicine at Mount Sinai , or ISMMS, whereby ISMMS contributed certain assets and liabilities related to our operations, provided certain services to us, and also committed to funding us up to$55.0 million in future capital contributions in exchange for equity in Legacy Sema4, of which$55.0 million was drawn as ofDecember 31, 2019 . Following the transaction, we commenced operations as a commercial entity that could effectively engage diverse patient populations and health care institutions at scale. We have since established a market leading health intelligence platform, accelerating the use of genomics and leveraging large-scale clinical data to enhance the standard of care through extensive precision medicine solutions. Our business was further strengthened inApril 2022 by the acquisition ofGeneDx , a leader in genomic testing and analysis for rare disorders. We believe the transaction positionsSema4 as one of the largest and most advanced providers of genomic testing in theU.S. and further strengthens our health information database to transform patient care and improve therapeutic development. We now maintain a database that includes patient data available for research on approximately 12 million patients from a number of public and proprietary sources. More than five million patients are available with clinical data through our partnership health systems and genomic testing solutions that may include structured and unstructured data available for deeper curation to construct more comprehensive natural histories of patients.
Currently, we derive the majority of our revenue from our diagnostic test
solutions. Our diagnostic business generates revenue and engages with healthcare
professionals working with patients primarily through our
OurReproductive Health /Women's Health solutions sequence and analyze an industry-leading number of genes and use interpretive information tools to translate raw sequencing and clinical data efficiently and accurately into digestible clinical reports that guide decision-making by patients and physicians. These solutions also include Sema4 Signal Hereditary Cancer, which determines if a patient carries an inherited genetic change that increases the risk of cancer or informs on cancer treatment. Our Pediatrics/NICU offerings include testing solutions for children, both inpatient in the neonatal intensive care unit (NICU) and pediatric intensive care unit (PICU) and outpatient for developmental delay and neurodevelopmental delay as well as rare disease for children and adults. We have the industry-leading exome, which includes comprehensive CNV (copy number variation) analysis and have an extensive database of over 375,000 clinically sequenced exomes and more than two million structured phenotypes. We will be discontinuing our somatic tumor profiling business byDecember 31, 2022 . This business represents less than 1% of our revenue and approximately$35 million of our annual expenses. We expect that exiting this business will result in significant cost savings during the second half of 2022 and 2023, and will positively impact our gross margins. Additionally, beginning in May of 2020 throughMarch 31, 2022 , we provided diagnostic testing services to identify the presence of COVID-19. We have expanded beyond diagnostic testing to enter into service agreements with third parties to provide diagnostic testing, research, and related data aggregation reporting services. We have established and continue to seek strategic relationships with pharmaceutical and biotech, orBiopharma , companies to enable innovation across the entire drug 40
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lifecycle, from next-generation drug discovery and development, to post-market efficacy surveillance, to informing on bioavailability, toxicity, tolerability, and other features critical to drug development.
Factors Affecting Our Performance
We believe several important factors have impacted, and will continue to impact, our performance and results of operations. While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See the section titled "Item 1A. Risk Factors" for more information. Number of resulted tests A test is resulted once the appropriate workflow is completed and details are provided to the ordered patients or healthcare professional for reviews, which corresponds to the timing of our revenue recognition. We believe the number of resulted tests in any period is important and useful to our investors because it directly correlates with long-term patient relationships and the size of our genomic database.
Success obtaining and maintaining reimbursement
Our ability to increase the number of billable tests and our revenue therefrom will depend on our success in achieving reimbursement for our tests from third-party payors. Reimbursement by a payor may depend on several factors, including a payor's determination that a test is appropriate, medically necessary, cost-effective, and has received prior authorization. Since each payor makes its own decision as to whether to establish a policy or enter into a contract to provide coverage for our tests, as well as the amount it will reimburse us for a test, seeking these approvals is a time-consuming and costly process. In cases where we or our partners have established reimbursement rates with third-party payors, we face additional challenges in complying with their procedural requirements for reimbursement. These requirements often vary from payor to payor and are reassessed by third-party payors regularly. As a result, in the past we have needed additional time and resources to comply with the requirements. Third-party payors may decide to deny payment or seek to recoup payments for tests performed by us that they contend were improperly billed, not medically necessary or against their coverage determinations, or for which they believe they have otherwise overpaid. As a result, we may be required to refund payments already received, and our revenues may be subject to retroactive adjustment as a result of these factors among others. In particular, we are currently engaged in discussions with one of our third-party payors regarding certain overpayments we allegedly received from the payor for services that the payor alleges are not covered by, or were not otherwise properly billed to, the payor. As a result of this matter and other potential settlements with payors, we have established certain liabilities and reversed certain of our previously recorded revenue. We intend to seek to resolve this matter and any other recovery or recoupment claims in a mutually satisfactory manner, although it is possible that any such settlement may also result in lowered contracted reimbursement rates for our tests. For more information regarding this matter, see Note 4, "Revenue Recognition" to our unaudited condensed consolidated financial statements included within this Quarterly Report. We expect to continue to focus our resources on increasing the adoption of, and expanding coverage and reimbursement for, our current and any future tests we may develop or acquire. If we fail to expand and maintain broad adoption of, and coverage and reimbursement for, our tests, our ability to generate revenue and our future business prospects may be adversely affected.
Ability to lower the costs associated with performing our tests
Reducing the costs associated with performing our diagnostic tests is both our focus and a strategic objective. We source, and will continue to source, components of our diagnostic testing workflows from third parties. We also rely upon third-party service providers for data storage and workflow management.
Increasing adoption of our services by existing and new customers
Our performance depends on our ability to retain and broaden the adoption of our
services with existing customers as well as our ability to attract new
customers. Our success in retaining and gaining new customers is dependent on
the market's confidence in our services and the willingness of customers to
continue to seek more comprehensive and integrated genomic and clinical data
insights.
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Investment in platform innovation to support commercial growth
We are seeking to leverage and deploy our platforms to develop a pipeline of future disease-specific research and diagnostic and therapeutic products and services. We have limited experience in the development or commercialization of clinical or research products in connection with our database and platform. We operate in a rapidly evolving and highly competitive industry. Our business faces changing technologies, shifting provider and patient needs, and frequent introductions of rival products and services. To compete successfully, we must accurately anticipate technology developments and deliver innovative, relevant, and useful products, services, and technologies on time. As our business evolves, the competitive pressure to innovate will encompass a wider range of products and services. We must continue to invest significant resources in research and development, including investments through acquisitions and partnerships. These investments are critical to the enhancement of our current diagnostics and health information and data science technologies from which existing and new service offerings are derived. We expect to incur significant expenses to advance these development efforts, but they may not be successful. New potential services may fail at any stage of development and, if we determine that any of our current or future services are unlikely to succeed, we may abandon them without any return on our investment. If we are unsuccessful in developing additional services, our growth potential may be impaired. Key Performance Indicators We use the following key financial and operating metrics to evaluate our business and operations, measure our performance, identify trends affecting our business, project our future performance, and make strategic decisions. These key financial and operating metrics should be read in conjunction with the following discussion of our results of operations and financial condition together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this report. The principal focus of our commercial operations is to offer our diagnostic tests through both our direct sales force and laboratory distribution partners. Test volume correlates with genomic database size and long-term patient relationships. Thus, test volumes drive database diversity and enable potential identification of variants of unknown significance and population-specific insights. The number of tests resulted is a key indicator that we use to assess the operational efficiency of our business. Once the appropriate workflow is completed, the test is resulted and details are provided to ordered patients or healthcare professionals for reviews. During the six months endedJune 30, 2022 , we resulted 276,171 tests in our laboratories, 73,408 tests of which were for COVID-19, compared to the six months endedJune 30, 2021 , in which we resulted 357,785 tests in our laboratories, 218,757 of which were for COVID-19. This 46% increase in resulted volumes, excluding COVID-19 tests volumes, was as a result of the inclusion of volumes fromGeneDx's laboratories following the closing of theGeneDx acquisition.
COVID-19 Impact
COVID-19 has had, and continues to have, an extensive impact on the global
health and economic environments since the initial outbreak in
While test volumes have since improved, we continue to experience changes in the mix of tests due to the impact of COVID-19. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat it and the economic impact on local, regional, national and international markets and supply chains. Therefore, COVID-19 could continue to have a material impact on our results of operations, cash flows, and financial condition for the foreseeable future. InMarch 2020 , the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), was signed into law which was a stimulus bill that, among other things, provided assistance to qualifying businesses and individuals and included funding for the healthcare system. We received$5.4 million in 2020 as part of the stimulus, comprised of$2.6 million received under theProvider Relief Fund (the "PRF"), and$2.8 million received under the Employee Retention Credit (the "ERC"). In 2021, we received an additional$5.6 million under the PRF. 42
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Funds provided under the PRF to healthcare providers are not loans and will not be required to be repaid; however, as a condition to receiving these payments, providers must agree to certain terms and conditions and submit sufficient documentation demonstrating that the funds are being used for healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic. We have concluded it is probable that all terms and conditions associated with the funds received under the PRF distribution have been met. As a result, we recorded the funds received under the PRF in other income in the statements of operations and comprehensive loss during the periods in which we received the funds. Funds provided under the ERC are refundable tax credits for 50% of qualified wages paid to employees during the pandemic. A company is eligible for the ERC if it has not received a Paycheck Protection Program loan under the CARES Act and (1) its operations have been fully or partially suspended because of COVID-19 or (2) its gross receipts in a calendar quarter in 2020 declined by more than 50% from the same period in 2019. At the time of applying for the ERC, we concluded that it was reasonably possible the eligibility requirements would be met; however, due to a change in circumstances, we are re-evaluating our position. As such, we deferred the recognition of the funds received under the ERC and recorded the proceeds in other liabilities on the condensed consolidated balance sheets.
At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act or other stimulus initiatives.
Acquisition of
InJanuary 2022 , we and our wholly-owned subsidiaries,Orion Merger Sub I, Inc. , or Merger Sub I, andOrion Merger Sub II, LLC , or Merger Sub II, entered into an Agreement and Plan of Merger and Reorganization (which we refer to, as amended, as the "Acquisition Merger Agreement"), withGeneDx, Inc. , aNew Jersey corporation, orGeneDx , and a wholly-owned subsidiary of OPKO Health, Inc., or OPKO,GeneDx Holding 2, Inc., orHoldco , and OPKO to acquire 100% ofGeneDx (which we refer to as the "Acquisition"). Subject to the terms and conditions of the Acquisition Merger Agreement, we agreed to pay consideration to OPKO for the Acquisition of (i)$150 million in cash at the closing of the Acquisition, subject to certain adjustments as provided in the Acquisition Merger Agreement, (ii) 80 million shares of our Class A common stock to be issued at the closing of the Acquisition and (iii) up to$150 million payable following the closing of the Acquisition, if certain revenue-based milestones were achieved for each of the fiscal years endingDecember 31, 2022 andDecember 31, 2023 . These milestone payments, if and to the extent earned under the terms of the Acquisition Merger Agreement, will be satisfied through the payment and/or issuance of a combination of cash and shares of our Class A common stock (valued at$4.86 per share, subject to adjustment for stock splits and similar changes), with such mix to be determined in our sole discretion. The Acquisition closed onApril 29, 2022 . Our net loss for the three and six months endedJune 30, 2022 includes the results of operations ofGeneDx from the date of acquisition. We expect to leverage the combined health information database ofSema4 andGeneDx to partner with additional health systems and biopharma companies to transform patient care and therapeutic development and enable precision medicine for all. Concurrently with the execution of the Acquisition Merger Agreement, we entered into subscription agreements with certain institutional investors, pursuant to, and on the terms and subject to the conditions of which, these investors collectively subscribed for 50 million shares of our Class A common stock for an aggregate purchase price equal to$200 million (which we refer to as the "Acquisition PIPE Investment ").The Acquisition PIPE Investment was consummated substantially concurrently with the closing of the Acquisition.
Components of Results of Operations
Revenue
We derive the majority of our revenue from diagnostic testing services, which primarily relate toReproductive Health /Women's Health , Pediatrics/NICU and COVID-19. We also recognize revenue from collaboration service agreements withBiopharma companies and other third parties pursuant to which we provide diagnostic testing and related data aggregation reporting services. As discussed above, we discontinued COVID-19 testing services as ofMarch 31, 2022 and no longer provide such testing services. We also intend to discontinue our somatic tumor profiling business byDecember 31, 2022 .
We recognize revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration which we expect to be entitled to in exchange for those goods or services.
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Diagnostic Test Revenue
We primarily generate revenue from performing diagnostic testing services for three groups of customers: healthcare professionals working with patients with third-party insurance coverage or without third-party insurance coverage or those who elect to self-pay; and institutional clients, such as hospitals, clinics, state governments and reference laboratories. Customers are billed upon delivery of test results. The amount of revenue recognized for diagnostic testing services depends on a number of factors, such as contracted rates with our customers and third-party insurance providers, insurance reimbursement policies, payor mix, historical collection experience, price concessions and other business and economic conditions and trends. To date, the majority of our diagnostic test revenue has been earned from orders received for patients with third-party insurance coverage. Our ability to increase our diagnostic test revenue will depend on our ability to increase our market penetration, obtain contracted reimbursement coverage from third-party payors, enter into contracts with institutions, and increase our reimbursement rate for tests performed.
Other Revenue
We generate revenue from providing diagnostic testing and related data aggregation reporting services under both short-term and long-term project-based collaboration and service agreements with third parties. The terms of these contracts generally include non-refundable upfront payments, which we record as contract liabilities, and variable payments based upon the achievement of certain milestones during the contract term. With respect to existing collaboration and service agreements, our revenue may fluctuate period to period due to the pattern in which we may deliver our services, our ability to achieve milestones, the timing of costs incurred, changes in estimates of total anticipated costs that we expect to incur during the contract period, and other events that may not be within our control. Our ability to increase our revenue will depend on our ability to enter into contracts with third-party partners.
Cost of Services
The cost of services reflect the aggregate costs incurred in performing services. These costs include expenses for reagents and laboratory supplies, personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees directly involved in revenue generating activities, shipping and handling fees, costs of third-party reference lab testing and phlebotomy services and allocated genetic counseling, facility and IT costs associated with delivery services. Allocated costs include depreciation of laboratory equipment, facility occupancy, and information technology costs. The cost of services are recorded as the services are performed. We expect the cost of services to generally increase in line with the anticipated growth in diagnostic testing volume and services we provide under our collaboration service agreements. However, we expect the cost per test to decrease over the long term due to the efficiencies we may gain from improved utilization of our laboratory capacity, automation, and other value engineering initiatives. These expected reductions may be offset by new tests which often have a higher cost per test during the introductory phases before we can gain efficiencies. The cost per test may fluctuate from period to period.
Research and Development Expenses
Research and development expenses represent costs incurred to develop our
technology and future test offerings. These costs are principally associated
with our efforts to develop the software we use to analyze data and process
customer orders. These costs primarily consist of personnel-related expenses
(comprising salaries and benefits), stock-based compensation for employees
performing research and development, innovation and product development
activities, costs of reagents and laboratory supplies, costs of consultants and
third-party services, equipment and related depreciation expenses,
non-capitalizable software development costs, research funding to our research
partners as part of research and development agreements and allocated facility
and information technology costs associated with genomics medical research.
Research and development costs are generally expensed as incurred and certain
non-refundable advanced payments provided to our research partners are expensed
as the related activities are performed.
We generally expect our research and development expenses to continue to
increase as we innovate and expand the application of our platforms. However, we
expect research and development expenses to decrease as a percentage of revenue
in the long term, although the percentage may fluctuate from period to period
due to the timing and extent of our development and commercialization efforts
and fluctuations in our compensation-related charges.
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Selling and Marketing Expenses
Selling and marketing expenses primarily consist of personnel-related expenses (comprising salaries, and benefits) and stock-based compensation for employees performing commercial sales, account management, marketing, and allocation of genetic counseling services related to medical education. Selling and marketing costs are expensed as incurred. We generally expect our selling and marketing expenses will continue to increase in absolute dollars as we expand our commercial sales and marketing and counseling teams and increase marketing activities. However, we expect selling and marketing expenses to decrease as a percentage of revenue in the long term, subject to fluctuations from period to period due to the timing and magnitude of these expenses.
General and Administrative Expenses
General and administrative expenses primarily consist of personnel-related expenses (comprising salaries and benefits) and stock-based compensation for employees in executive leadership, legal, finance and accounting, human resources, information technology, strategy and other administrative functions. In addition, these expenses include office occupancy and information technology costs. General and administrative costs are expensed as incurred. We generally expect our general and administrative expenses to continue to increase in absolute dollars as we increase headcount and incur costs associated with operating as a public company, including expenses related to legal, accounting, and regulatory matters; maintaining compliance with requirements of Nasdaq and of theSEC ; director and officer insurance premiums and investor relations. We expect these expenses to decrease as a percentage of revenue in the long term as revenue increases, although the percentage may fluctuate from period to period due to fluctuations in our compensation-related charges.
Related Party Expenses
Related party expenses consist of amounts due to ISMMS for expenses under our Transition Services Agreement with ISMMS, or the ISMMS TSA, which expired at the end of the first quarter of 2021, and other service agreements. In addition,GeneDx and OPKO entered into a Transition Services Agreement dated as ofApril 29, 2022 , or the OPKO TSA, pursuant to which OPKO has agreed to provide, at cost, certain services in support of the Acquisition of theGeneDx business throughDecember 31, 2022 , subject to certain limited exceptions, in order to facilitate the transactions contemplated by the Acquisition Merger Agreement. Additional information can be found in the audited financial statements in Note 7, "Related Party Transactions" included within our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and our unaudited condensed consolidated financial statements in Note 7, "Related Party Transactions" included within this Quarterly Report. We generally expect related party expenses to decrease as we establish our own internal and external resources to fulfill the administrative and other services we have historically procured from ISMMS and following the expiration of the OPKO TSA. Interest Income
Interest income consists of interest earned on money market funds.
Interest Expense
Interest expense consists of interest costs related to our finance leases and our long-term debt arrangements, including unused line fee and the amortization of deferred transaction costs related to the loan and security agreement entered into withSilicon Valley Bank to provide a$125 million revolving credit facility described elsewhere in this report. No amounts have been drawn under the revolving credit facility as ofJune 30, 2022 .
Other Income
Other income consists of funding received under the CARES Act. We recognized$5.6 million of additional funding received under the CARES Act during the first quarter of 2021 and the amount is included in other income for the six months endedJune 30, 2021 . 45
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Comparison of the three months ended
The following table sets forth our results of operations for the periods presented:
Three months ended
2022 2021 (1)
(in thousands)
Revenue
Diagnostic test revenue $ 34,004 $ 44,803
Other revenue 2,165 2,212
Total revenue 36,169 47,015
Cost of services 65,767 48,179
Gross profit (loss) (29,598) (1,164)
Research and development 27,168 11,952
Selling and marketing 36,118 18,574
General and administrative 68,034 12,870
Related party expenses 1,731 888
Loss from operations (162,649) (45,448)
Other income (expense), net:
Change in fair market value of warrant and earn-out contingent
liabilities 28,182 -
Interest income 382 9
Interest expense (790) (722)
Other income 56 -
Total other income (expense), net 27,830 (713)
Loss before income taxes $ (134,819) $ (46,161)
Income tax provision 49,077 -
Net loss and comprehensive loss $
(85,742)
(1) As previously disclosed in Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , certain adjustments were made to reclassify certain expenses between cost of services and operating expenses. The adjustments are reflected as disclosed. Revenue Change Three months ended June 30, 2021 to 2022 2022 2021 $ % (dollars in thousands) Diagnostic test revenue$ 34,004 $ 44,803 $ (10,799) (24) % Other revenue 2,165 2,212 (47) (2) % Total revenue$ 36,169 $ 47,015 $ (10,846) (23) %
Total revenue decreased by
Diagnostic test revenue period over period overall decreased by$10.8 million , or 24%, to$34.0 million for the three months endedJune 30, 2022 , from$44.8 million for the three months endedJune 30, 2021 . The decrease was primarily attributable to a reversal of revenue recorded in the second quarter of 2022 related to a third party-payor's allegation regarding certain overpayments we allegedly received from the payor for services alleged to be uncovered by, or were not otherwise properly billed to, the payor. This revenue reversal relates both to this matter and other potential settlements with payors, and the vast majority of this revenue reversal was related to periods prior to the second quarter of 2022. For more information regarding this matter, see Note 4, "Revenue Recognition" to our unaudited condensed consolidated financial statements included within this Quarterly Report. This decrease was offset by an increase of$26.1 million in revenue due to theGeneDx acquisition and its revenue generated for May andJune 2022 . 46
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Other revenue decreased by a nominal amount for the three months ended
Cost of Services
Change
Three months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Cost of services $ 65,767 $ 48,179 $ 17,588 37 %
Cost of services increased by $17.6 million , or 37%, to $65.8 million for the
three months ended June 30, 2022 , from $48.2 million for the three months ended
June 30, 2021 . The increase was primarily driven by the following components: a
$5.4 million increase in overall personnel-related expenses driven by increase
in headcount; and a $13.8 million increase in lab reagents, supplies and kits
driven by increased sales volume. This increase was offset by a $1.6 million
decrease in outside labor costs as the need for temporary hires contracted to
perform COVID-19 testing activities was no longer required.
Research and Development
Change
Three months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Research and development $ 27,168 $ 11,952 $ 15,216 127 %
Research and development expense increased by $15.2 million , or 127%, to $27.2
million for the three months ended June 30, 2022 , from $12.0 million for the
three months ended June 30, 2021 . The increase was primarily attributable to a
$6.9 million increase in stock-based compensation expense; a $6.1 million
increase in other personnel-related expenses driven by increase in headcount; an
increase of $1.7 million in consultant services for product development related
activities; and an increase of $0.4 million in depreciation and amortization
expense.
Selling and Marketing
Change
Three months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Selling and marketing $ 36,118 $ 18,574 $ 17,544 94 %
Selling and marketing expense increased by $17.5 million , or 94%, to $36.1
million for the three months ended June 30, 2022 , from $18.6 million for the
three months ended June 30, 2021 . The increase was primarily attributable to a
$12.8 million increase in personnel-related costs driven by increase in
headcount; a $1.0 million increase in other lab services for genetic counseling
related to medical education; a $1.0 million increase in information
technology-related expenses; a $1.3 million increase in business travel and
business expenses due to the lifting of COVID-19 travel restrictions.
Additionally, there was an increase of $0.8 million in amortization expense
related to acquisition intangible assets.
General and Administrative
Change
Three months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
General and administrative $ 68,034 $ 12,870 $ 55,164 429 %
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General and administrative expense increased by$55.2 million , or 429%, to$68.0 million for the three months endedJune 30, 2022 , from$12.9 million for the three months endedJune 30, 2021 . The decrease was primarily attributable to$13.9 million and$11.9 million increases in stock-based compensation expense and other personnel-related costs driven by increase in headcount; a$18.2 million increase in professional services incurred in connection with the Acquisition related to due diligence, advisory, legal and business integration services; a$3.9 million increase in information technology related expenses due to increased cloud storage requirements; a$2.0 million increase in insurance expenses driven by the commencement of director's insurance policy; a$3.1 million increase in depreciation and amortization expense driven by computer equipment and acquisition intangibles; a$1.0 million increase in tax expenses; and a$1.0 million increase due to reallocation of certain costs between departments during the fourth quarter of 2021 as a result of a change in estimate. Related Party Expenses Change Three months ended June 30, 2021 to 2022 2022 2021 $ % (dollars in thousands) Related party expenses$ 1,731 $ 888 $ 843 95 % Related party expenses increased by$0.8 million , or 95%, to$1.7 million for the three months endedJune 30, 2022 , from$0.9 million for the three months endedJune 30, 2021 . The increase was primarily attributable to fees related to support certain services pursuant to the OPKO TSA as a result of the acquisition ofGeneDx and an increase in information technology related services provided by ISMMS. Interest Income Change Three months ended June 30, 2021 to 2022 2022 2021 $ % (dollars in thousands) Interest income $ 382$ 9 $ 373 4144 % Interest income increased by$0.4 million , or 4144%, to$0.4 million for the three months endedJune 30, 2022 , from a nominal amount for the three months endedJune 30, 2021 . The increase was due to increases in the average cash balances held in interest-bearing and money market deposit accounts. Interest Expense Change Three months ended June 30, 2021 to 2022 2022 2021 $ % (dollars in thousands) Interest expense $ (790)$ (722) $ (68) 9 %
Interest expense increased by a nominal amount for the three months ended
Other Income
Change
Three months ended June 30 , 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Other income $ 56 $ - $ 56 100 %
Other income increased by a nominal amount for the three months ended
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Comparison of the six months ended
The following table sets forth our results of operations for the periods
presented:
Six months ended June 30,
2022 2021 (1)
(in thousands)
Revenue
Diagnostic test revenue $ 86,499 $ 107,563
Other revenue 3,611 3,653
Total revenue 90,110 111,216
Cost of services 114,083 116,703
Gross profit (loss) (23,973) (5,487)
Research and development 48,483 65,085
Selling and marketing 65,665 53,940
General and administrative 110,818 114,908
Related party expenses 3,015 2,685
Loss from operations (251,954) (242,105)
Other income (expense), net:
Change in fair market value of warrant and earn-out contingent
liabilities 41,372 -
Interest income 409 30
Interest expense (1,598) (1,445)
Other income 56 5,584
Total other income (expense), net 40,239 4,169
Loss before income taxes $ (211,715) $ (237,936)
Income tax provision 49,077 -
Net loss and comprehensive loss $ (162,638) $ (237,936)
(1) As previously disclosed in Note 2, "Summary of Significant Accounting
Policies" to our consolidated financial statements included in our Annual Report
on Form 10-K for the year ended December 31, 2021 , certain adjustments were made
to reclassify certain expenses between cost of services and operating expenses.
The adjustments are reflected as disclosed.
Revenue
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Diagnostic test revenue $ 86,499 $ 107,563 $ (21,064) (20) %
Other revenue 3,611 3,653 (42) (1) %
Total revenue $ 90,110 $ 111,216 $ (21,106) (19) %
Total revenue decreased by
Diagnostic test revenue period over period overall decreased by$21.1 million , or 20%, to$86.5 million for the six months endedJune 30, 2022 , from$107.6 million for the six months endedJune 30, 2021 . The decrease was primarily attributable to a reversal of revenue recorded in the second quarter of 2022 related a third party-payor's allegation regarding certain overpayments we allegedly received from the payor for services alleged to be uncovered by, or were not otherwise properly billed to, the payor. This revenue reversal relates both to this matter and other potential settlements with payors, and the vast majority of this revenue reversal was related to periods prior to the second quarter of 2022. For more information regarding this matter, see Note 4, "Revenue Recognition" to our unaudited condensed consolidated financial statements included within this Quarterly Report. This decrease was offset by an increase of$26.1 million in revenue due to theGeneDx acquisition and its revenue generated for May andJune 2022 . 49
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Other revenue decreased by a nominal amount for the six months ended
Cost of Services
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Cost of services $ 114,083 $ 116,703 $ (2,620) (2) %
Cost of services decreased by $2.6 million , or 2%, to $114.1 million for the six
months ended June 30, 2022 , from $116.7 million for the six months ended
June 30, 2021 . The decrease was primarily driven by the following components: a
$15.0 million decrease in stock-based compensation expense is due to the higher
expense recorded in the first quarter of 2021 as a result of the increased fair
value of the awards and related expenses recorded under liability accounting; a
$4.1 million decrease in outside labor costs as the need for temporary hires
contracted to perform COVID-19 testing activities was no longer required; and a
$2.1 million decrease in inventory obsolescence write-off as a result of
discontinuing COVID-19 testing. These decreases were offset by a $13.8 million
increase in lab reagents, supplies and kits driven by increased sales activities
and an increase of $4.6 million in other personnel-related expenses driven by
increase in headcount.
Research and Development
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Research and development $ 48,483 $ 65,085 $ (16,602) (26) %
Research and development expense decreased by $16.6 million , or 26%, to $48.5
million for the six months ended June 30, 2022 , from $65.1 million for the six
months ended June 30, 2021 . The decrease was primarily attributable to a $26.9
million decrease in stock-based compensation expense due to the higher expense
recorded in the first quarter of 2021 as a result of the increased fair value of
the awards and related expenses recorded under liability accounting and a
decrease in cost incurred for reagents and laboratory supplies and laboratory
software of $1.0 million for research and development activities, which was
partially offset by an increase of $8.7 million in other personnel-related
expenses driven by increase in headcount; an increase of $1.7 million in
consultant services for product development related activities; and an increase
of $1.0 million in depreciation and amortization expense.
Selling and Marketing
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Selling and marketing $ 65,665 $ 53,940 $ 11,725 22 %
Selling and marketing expense increased by $11.7 million , or 22%, to $65.7
million for the six months ended June 30, 2022 , from $53.9 million for the six
months ended June 30, 2021 . The increase was primarily attributable to a $18.2
million increase in personnel-related costs driven by increase in headcount,
which was offset by a $15.5 million decrease in stock-based compensation expense
due to the higher expense recorded in the first quarter of 2021 as a result of
the increased fair value of the awards and related expenses recorded under
liability accounting. Additionally, a $2.5 million increase in business travel
and business expenses due to the lifting of COVID-19 travel restrictions; a $2.0
million increase in consulting service expenses to support revenue cycle
transformation initiatives; an increase of $1.6 million in other lab services
for genetic counseling related to medical education; an increase of $1.0 million
in information technology-related expenses; an increase of $1.0 million in
amortization expense for acquisition intangible assets; and an increase of $0.9
million in sponsored research.
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General and Administrative
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
General and administrative $ 110,818 $ 114,908 $ (4,090) (4) %
General and administrative expense decreased by $4.1 million , or 4%, to $110.8
million for the six months ended June 30, 2022 , from $114.9 million for the six
months ended June 30, 2021 . The decrease was primarily attributable to a $66.8
million decrease in stock-based compensation expense due to the higher expense
recorded in the first quarter of 2021 as a result of the increased fair value of
the awards and related expenses recorded under liability accounting. This
decrease was partially offset by an increase in expenses of $24.7 million for
professional services incurred in connection with the Acquisition related to due
diligence, advisory, legal and business integration services; an increase of
$21.9 million in other personnel-related costs driven by increase in headcount;
a $6.3 million increase in information technology related expenses due to
increased cloud storage requirements; a $3.7 million increase in insurance
expenses driven by the commencement of director's insurance policy; a $2.8
million increase in depreciation and amortization expense driven by intangibles
and computer equipment; a $2.0 million increase due to reallocation of certain
costs between departments during the fourth quarter of 2021 as a result of a
change in estimate; a $1.0 million increase in state income taxes; and a $0.4
million increase in travel and business expenses due to the lifting of COVID-19
travel restrictions.
Related Party Expenses
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Related party expenses $ 3,015 $ 2,685 $ 330 12 %
Related party expenses increased by $0.3 million , or 12%, to $3.0 million for
the six months ended June 30, 2022 , from $2.7 million for the six months ended
June 30, 2021 . The increase was primarily attributable to fees related to
support certain services pursuant to the OPKO TSA as a result of the acquisition
of GeneDx .
Interest Income
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Interest income $ 409 $ 30 $ 379 1263 %
Interest income increased by $0.4 million , or 1263%, to $0.4 million for the six
months ended June 30, 2022 , from a nominal amount for the six months ended
June 30, 2021 . The increase was due to increases in the average cash balances
held in interest-bearing and money market deposit accounts.
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Interest expense $ (1,598) $ (1,445) $ (153) 11 %
Interest expense increased by $0.2 million , or 11%, to $1.6 million for the six
months ended June 30, 2022 , from $1.4 million for the six months ended June 30,
2021 . The increase was driven by the unused line fee and amortization of
deferred transaction costs related to the loan and security agreement entered
into with Silicon Valley Bank at the end of 2021.
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Other Income
Change
Six months ended June 30, 2021 to 2022
2022 2021 $ %
(dollars in thousands)
Other income $ 56 $ 5,584 $ (5,528) (99) %
Other income decreased by $5.5 million , to $0.1 million for the six months ended
June 30, 2022 , from $5.6 million for the six months ended June 30, 2021 . This
was attributable to the $5.6 million in funding that was received and recognized
as other income under the CARES Act in the first quarter of 2021.
Reconciliation of Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only 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 measures as tools for comparison. A reconciliation is provided below for each 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 measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business. Non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Non-GAAP financial measures. Other limitations include that Non-GAAP financial measures do not reflect:
•all expenditures or future requirements for capital expenditures or contractual commitments;
•changes in our working capital needs;
•provision for income taxes, which may be a necessary element of our costs and ability to operate;
•the costs of replacing the assets being depreciated, which will often have to be replaced in the future;
•the non-cash component of employee compensation expense; and
•the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations.
Adjusted Gross Profit and Adjusted Gross Margin
Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue less cost of services, excluding stock-based compensation expense and restructuring costs. We define Adjusted Gross Margin as our Adjusted Gross Profit divided by our revenue. We believe these non-GAAP financial measures are useful in evaluating our operating performance compared to that of other companies in our industry, as these metrics generally eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.
The following is a reconciliation of revenue to our Adjusted Gross Profit and
Adjusted Gross Margin for the three months ended
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Three months ended June 30,
2022 2021
(in thousands)
Revenue $ 36,169 $ 47,015
Cost of services 65,767 48,179
Gross Profit (Loss) (29,598) (1,164)
Gross Margin (82)% (2)%
Add:
Stock-based compensation expense 1,810 (306)
Restructuring costs (1) 205 -
Adjusted Gross Profit (Loss) $ (27,583) $ (1,470)
Adjusted Gross Margin (76)% (3)%
__________________(1)Represents costs incurred for restructuring activities, which include severance packages offered to impacted employees and third party consulting costs incurred in the second quarter of 2022.
The following is a reconciliation of revenue to our Adjusted Gross Profit and
Adjusted Gross Margin for the six months ended
Six months ended June 30,
2022 2021
(in thousands)
Revenue $ 90,110 $ 111,216
Cost of services 114,083 116,703
Gross Profit (Loss) (23,973) (5,487)
Gross Margin (27)% (5)%
Add:
Stock-based compensation expense 3,191 18,169
Restructuring costs (1) 311 -
Adjusted Gross Profit $ (20,471) $ 12,682
Adjusted Gross Margin (23)% 11%
_________________
(1)Represents costs incurred for restructuring activities, which include severance packages offered to impacted employees and third party consulting costs incurred in the first half of 2022.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net loss
adjusted for interest expense, net, depreciation and amortization, stock-based
compensation expenses, transaction, acquisition and business integration costs,
restructuring costs, change in fair market value of warrant and earn-out
contingent liabilities and other income. We believe Adjusted EBITDA is useful in
evaluating our operating performance compared to that of other companies in our
industry,
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as this metric generally eliminates the effects of certain factors that may vary from company to company for reasons unrelated to overall operating performance.
The following is a reconciliation of our net loss to Adjusted EBITDA for the
three months ended
Three months ended June 30,
2022 2021
(in thousands)
Net loss $ (85,742) $ (46,161)
Interest expense, net (1) 408 713
Income tax benefit (49,077) -
Depreciation and amortization 8,964 5,619
Stock-based compensation expense 22,721 (519)
Transaction, acquisition and business integration costs (2) 9,099 3,151
Restructuring costs (3) 6,832 -
Change in fair market value of warrant and earn-out contingent
liabilities (4) (28,182) -
Other income (56) -
Adjusted EBITDA $ (115,033) $ (37,197)
__________________
(1)Represents the total of interest expense related to our finance leases and
interest-bearing loans and interest income on money market funds. This also
includes the unused line fee and amortization of deferred transaction costs
related to the loan and security agreement entered into with Silicon Valley
Bank .
(2)Represents professional service costs incurred in connection with pursuing
the business combination transaction that did not meet the requirement for
capitalization in 2021. For the second quarter of 2022, this represents
professional service costs incurred in connection with the Acquisition
transaction, which include due diligence, legal and business integration costs.
(3)Represents costs incurred for restructuring activities, which include
severance packages offered to impacted employees and third party consulting
costs incurred in the second quarter of 2022.
(4)Represents the change in fair market value of the liabilities associated with
our public warrants and private placement warrants and the earn-out shares
issuable under the terms of the merger agreement related to our business
combination with CMLS .
The following is a reconciliation of our net loss to Adjusted EBITDA for the six
months ended
Six months ended June 30,
2022 2021
(in thousands)
Net loss $ (162,638) $ (237,936)
Interest expense, net (1) 1,189 1,415
Income tax benefit (49,077) -
Depreciation and amortization 14,767 10,521
Stock-based compensation expense 40,280 164,443
Transaction, acquisition and business integration costs (2) 13,436 5,105
Restructuring costs (3) 9,561 -
Change in fair market value of warrant and earn-out contingent
liabilities (4) (41,372) -
Other income (5) (56) (5,584)
Adjusted EBITDA $ (173,910) $ (62,036)
__________________
(1)Represents the total of interest expense related to our finance leases and
interest-bearing loans and interest income on money market funds. This also
includes the unused line fee and amortization of deferred transaction costs
related to the loan and security agreement entered into with Silicon Valley
Bank .
(2)Represents professional service costs incurred in connection with pursuing
the business combination transaction that did not meet the requirement for
capitalization in 2021. For the first half of 2022, this represents professional
service costs incurred in connection with the Acquisition transaction, which
include due diligence, legal and business integration costs.
(3)Represents costs incurred for restructuring activities, which include
severance packages offered to impacted employees and third party consulting
costs incurred in the first half of 2022.
(4)Represents the change in fair market value of the liabilities associated with
our public warrants and private placement warrants and the earn-out shares
issuable under the terms of the merger agreement related to our business
combination with CMLS .
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(5)For the six months ended
Liquidity and Capital Resources
OnJuly 22, 2021 , we completed the business combination withCMLS , consummated the related private placement financing, and received net cash proceeds of$510 million . OnNovember 15, 2021 , we entered into a loan and security agreement, or the SVB Agreement, withSilicon Valley Bank , or SVB, whereby SVB agreed to provide a$125 million revolving credit facility with a maturity date ofNovember 15, 2024 . No amounts were drawn as ofDecember 31, 2021 . Advances under the SVB Agreement will bear interest at a floating rate per annum equal to the greater of (1) 4.00% and (2) the prime rate plus an applicable margin. OnApril 29, 2022 , upon the closing of the Acquisition ofGeneDx , we received gross proceeds of$200 million from the issuance of 50 million shares of our Class A common stock pursuant to theAcquisition PIPE Investment . The gross proceeds were partially used to pay for the cash consideration of the Acquisition and transaction costs incurred in connection with the Acquisition.
Management believes that our cash and cash equivalents, and funds available under the SVB Agreement provides us with sufficient liquidity for at least twelve months from the filing date of this Quarterly Report.
Accordingly, the condensed consolidated financial statements included in this Quarterly Report have been prepared on a basis that assumes we will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business. Nevertheless, we may also seek additional funding in the future through the sale of common or preferred equity or convertible debt securities, the entry into other credit facilities or another form of third-party funding or by seeking other debt financing. For example, we may file with theSEC a shelf registration statement, which if declared effective by theSEC , may permit us to sell from time to time additional shares of our Class A common stock or other securities in one or more offerings in amounts, at prices and on the terms that we will determine at the time of offering, although we do not intend to issue shares of our Class A common stock at current market prices.
Material Cash Requirements for Known Contractual Obligations and Commitments
The following is a description of commitments for known and reasonably likely cash requirements as ofJune 30, 2022 andDecember 31, 2021 . We anticipate fulfilling such commitments with our existing cash and cash equivalents, which amounted to$284.6 million and$400.6 million as ofJune 30, 2022 andDecember 31, 2021 , respectively, or through additional capital raised to finance our operations; see "Liquidity and Capital Resources". Our future minimum payments under non-cancellable operating lease agreements were$81.7 million as ofJune 30, 2022 and$68.3 million as ofDecember 31, 2021 . The timing of these future payments, by year, can be found in our audited financial statements in Note 9, "Commitments and Contingencies" included within our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and our unaudited condensed consolidated financial statements in Note 9, "Leases," included within this Quarterly Report, respectively. Our future payments under finance leases were$63.2 million as ofJune 30, 2022 . The timing of these future payments, by year, can be found in our audited financial statements in Note 9, "Commitments and Contingencies" included within our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and our unaudited condensed consolidated financial statements in Note 9, "Leases," included within this Quarterly Report, respectively. 55
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Cash Flows
Six months ended June 30,
2022 2021
(in thousands)
Net cash used in operating activities $ (166,139) $ (67,509)
Net cash used in investing activities $ (134,210) $ (9,475)
Net cash provided by (used) in financing activities $ 197,897 $ (4,647)
Operating Activities
Net cash used in operating activities during the six months ended June 30, 2022
was $166.1 million , which was primarily attributable to a net loss of $162.6
million and a change in fair value of the warrant and earn-out liabilities of
$41.4 million and an income tax benefit of $49.1 million . This was partially
offset by non-cash depreciation and amortization of $14.8 million , non-cash
stock-based compensation expense of $40.3 million , a provision for excess and
obsolete inventory of $0.4 million and non-cash lease expense of $0.3 million .
The net change in our operating assets and liabilities primarily reflected a
$2.3 million increase in inventories driven by an increase in reagents and a
reduction in inventory reserves, a $35.7 million increase in accounts payable
and accrued expenses driven by reserves for refunds to insurance carriers
established during the second quarter of 2022, a $4.8 million decrease in other
current liabilities mainly driven by the payment of 2021 bonuses, offset by the
accrual of the 2022 expected bonus payment, a $2.4 million decrease in accounts
receivable primarily from institutional payors and a $2.9 million decrease in
prepaid expenses and other current assets mainly driven by the amortization of
insurance policy premiums.
Net cash used in operating activities during the six months ended June 30, 2021
was $67.5 million , which was primarily attributable to a net loss of $237.9
million , partially offset by non-cash depreciation and amortization of $10.5
million and non-cash stock-based compensation expense of $164.4 million . The net
change in our operating assets and liabilities primarily reflected a $7.5
million decrease in accounts receivable due to a significant decrease in
COVID-19 tests performed during the second quarter of 2021, a $6.6 million
increase in inventories driven by a higher volume of purchases to support
increasing testing volumes, a $9.7 million increase in prepaid expenses and
other current assets mainly driven by professional services costs directly
related to the business combination transaction, a $10.0 million increase in
accounts payable and accrued expenses due to the timing of vendor payments of
large vendors, and an $7.8 million decrease in other current liabilities mainly
driven by a decline in our bonus accrual following bonus payments in March 2021
and other personnel related expenses.
Investing Activities
Net cash used in investing activities during the six months endedJune 30, 2022 was$134.2 million , which was attributable to$127 million cash consideration for the acquisition ofGeneDx ,$2.7 million in purchases of property and equipment and$4.5 million of costs related to development of internal-use software assets.
Net cash used in investing activities during the six months ended
Financing Activities
Net cash provided by financing activities during the six months endedJune 30, 2022 was$197.9 million , which was driven by proceeds from theAcquisition PIPE Investment , net of issuance costs of$197.7 million , and the exercise of stock options of$1.8 million which was offset by$1.6 million of finance lease principal payments. Net cash used in financing activities during the six months endedJune 30, 2021 was$4.6 million , which was attributable to$2.8 million in payments for the capitalized portion of the transaction costs related to the business combination transaction,$2.0 million in principal payments on our capital lease obligations and$0.8 million in principal payments on our long-term debt obligations, offset by$1.0 million cash received from stock option exercises.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with
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preparation of these unaudited condensed consolidated 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 the unaudited condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Except as described in Note 2, "Summary of Significant Accounting Policies-Recent Accounting Pronouncement Issued but Not Yet Adopted," to our unaudited condensed consolidated financial statements included in this Quarterly Report, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our audited consolidated financial statements and notes thereto included within our Annual Report on Form 10-K for the year endedDecember 31, 2021 . JOBS Act Accounting Election We are considered an "emerging growth company" within the meaning of the JOBS Act. The JOBS Act allows an emerging growth company to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. We have elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. Following the completion of the Business Combination, we will remain an emerging growth company until the earliest of (1)September 1, 2025 , (2) the last day of the fiscal year in which we have total annual gross revenue of at least$1.07 billion , (3) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class A common stock held by non-affiliates exceeded$700.0 million as of the last business day of the second fiscal quarter of such year or (4) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period.
Recent Accounting Pronouncements
Additional information on recent accounting pronouncements can be found in the audited financial statements in Note 2, "Summary of Significant Accounting Policies" included within our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and our unaudited condensed consolidated financial statements in Note 2, "Summary of Significant Accounting Policies" included within this Quarterly Report.
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