Unless the context otherwise requires, all references in this section to as "Talkspace," the "Company," "we," "us" or "our" refer to the business of Talkspace, Inc. and its subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes contained in this Quarterly Report and the financial statements and related notes contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021. This discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. As a result of many factors, such as those discussed in Part I, Item 1A, "Risk Factors" of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and "Forward-Looking Statements" sections and elsewhere in this Quarterly Report, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

As a healthcare company enabled by a purpose-built technology platform, Talkspace offers convenient and affordable access to a fully-credentialed network of highly qualified providers. We are a leading virtual behavioral health company and, since Talkspace's founding in 2012, we have connected millions of patients, who we refer to as our members, with licensed mental health providers across a wide and growing spectrum of care through virtual counseling, psychotherapy and psychiatry. We created a purpose-built platform to address the vast, unmet and growing demand for mental health services of our members, serving our business-to-consumer ("B2C") channel, comprised of individual consumers who subscribe directly to our platform, and our business-to-business ("B2B") channel, comprised of large enterprise clients such as Google and Expedia and large health plans and employee assistance programs ("health plan clients") such as Aetna, Cigna, Premera and Optum (collectively, our "clients"), who offer their employees and insured members access to our platform while their employer is under an active contract with Talkspace, or at in-network reimbursement rates, where applicable.

As of March 31, 2022, we had over 64,000 active members receiving care through our B2C and B2B channels, including approximately 22,200 B2C active members, and approximately 76.5 million B2B eligible lives. We consider members "active" (i) in the case of our B2C members, commencing on the date such member initiates contact with a provider on our platform until the term of their monthly, quarterly or bi-annual subscription plan expires, unless terminated early, and (ii) in the case of our B2B members, if such members have engaged on our platform during the preceding 25 days, such as sending a text, video or audio message to, or participating in a video call with, a provider, completing a satisfaction or progress report survey or signing up for our platform. While a growth in active members typically highlights strong engagement with our members, not all active members are associated with revenue in that particular period. We consider B2B lives "eligible" if such persons are eligible to receive treatment on the Talkspace platform, in the case of our enterprise clients, while their employer is under an active contract with Talkspace, or, in the case of health plan clients, at an agreed upon reimbursement rate through insurance under an employee assistance program or other network behavioral health paid benefit program. There may be instances where a person may be covered through multiple solutions, typically through behavioral health plans and employee assistance programs. In these instances, the person is counted each time they are covered in the B2B eligible lives calculation, which may cause this amount to reflect a higher number of members than we actually serve. For the three months ended March 31, 2022, our clinicians completed 90,600 B2B sessions related to members covered under our health plan clients, as compared to 53,900 completed B2B sessions for the three months ended March 31, 2021.

The behavioral health market has traditionally been underserved for a number of reasons, including as a result of inadequate access, a limited universe of qualified providers, high cost and social stigma. We believe virtual is the ideal modality for mental health treatment because it removes or reduces these burdens associated with traditional face-to-face mental health services by improving convenience through 24/7 access to our platform, providing more accessible entry level price points, and reducing associated stigmas by promoting transparency, increasing ease of access and preserving privacy. Our platform connects consumers in need, including many of whom have never had an opportunity to benefit from high-quality behavioral healthcare, with experienced providers across all 50 U.S. states.

Through our psychotherapy offerings, our licensed therapists and counselors treat mental health conditions in over 21 specializations, such as depression, anxiety, trauma and other human challenges. Through our psychiatry offerings, our board-certified psychiatrists and prescription-eligible nurse practitioners treat a higher acuity patient demographic, including those who may have pharmacological needs. Like the traditional face-to-face models, Talkspace providers are able to treat a wide range of mental health conditions, such as schizophrenia-spectrum disorders, bipolar disorders and depression, including through prescription medication and management from psychiatrists, up and until the point that the provider, in their discretion, feels it prudent to refer the member to a face-to-face psychiatrist to address potential needs for "controlled substances" under the federal Controlled Substances Act, which generally prohibits the prescribing and dispensing of controlled substances via telehealth without performing an in-person examination.


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While optimizing consumers' access to care, we believe our platform also provides benefits to providers through expanded reach, steady access to member leads, reduced administrative burdens, more efficient time utilization and data-driven insights. These features, together with continuous training and professional growth opportunities we offer, empower providers to deliver what we believe will enable an enhanced care journey, higher member lifetime engagement, meaningful outcomes and greater margins when compared to face-to-face treatment.

Operating Segments

We operate our business in a single segment and as one reporting unit, which is how our chief operating decision maker (who is our interim chief executive officer) reviews financial performance and allocates resources.

Key Business Metrics

We monitor the following key metrics to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions. We believe the following metrics are useful in evaluating our business:



                                                               Three Months Ended
                                                                    March 31,
(in thousands except number of health plan and
enterprise clients or otherwise indicated)                  2022                 2021
Number of B2C active members at period end                       22.2                 33.6
Number of B2B eligible lives at period end (in
millions)                                                        76.5                 49.5
Number of completed B2B sessions                                 90.6                 53.9
Number of health plan clients at period end                        16                   10
Number of enterprise clients at period end                        189                   91
Total number of active members at period end                     64.5                 58.7



Active Members: We consider members "active" (i) in the case of our B2C members, commencing on the date such member initiates contact with a provider on our platform until the term of their monthly, quarterly or bi-annual subscription plan expires, unless terminated early, and (ii) in the case of our B2B members, if such members have engaged on our platform during the preceding 25 days, such as sending a text, video or audio message to, or participating in a video call with, a provider, completing a satisfaction or progress report survey or signing up for our platform. While a growth in active members typically highlights strong engagement with our members, not all active members are associated with revenue in that particular period.

B2B Eligible Lives: We consider B2B lives "eligible" if such persons are eligible to receive treatment on the Talkspace platform, in the case of our enterprise clients, while their employer is under an active contract with Talkspace, or, in the case of health plan clients, at an agreed upon reimbursement rate through insurance under an employee assistance program or other network behavioral health paid benefit program. There may be instances where a person may be covered through multiple solutions, typically through behavioral health plans and employee assistance programs. In these instances, the person is counted each time they are covered in the B2B eligible lives calculation, which may cause this amount to reflect a higher number of members than we actually serve.

Non-GAAP Financial Measures

In addition to our financial results determined in accordance with GAAP, we believe adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We use adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. We believe that the use of adjusted EBITDA is helpful to our investors as it is a metric used by management in assessing the health of our business and our operating performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as a tool for comparison. A reconciliation is provided below for this non-GAAP financial measure to net loss, the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review our GAAP financial measure and the reconciliation of our non-GAAP financial measure to its most directly comparable GAAP financial measure, and not to rely on any single financial measure to evaluate our business.


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Adjusted EBITDA

Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance. Because adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes and in evaluating acquisition opportunities.

We calculate adjusted EBITDA as net loss adjusted to exclude (i) interest and other expenses (income), net, (ii) tax expense, (iii) depreciation and amortization, (iv) stock-based compensation expense and (v) certain non-recurring expenses, where applicable



The following table presents a reconciliation of adjusted EBITDA from the most
comparable GAAP measure, net loss for the three months ended March 31, 2022 and
2021:

                                      Three Months Ended
                                           March 31,
(in thousands)                        2022          2021
Net loss                            $ (20,360 )   $ (12,738 )
Add:
Depreciation and amortization             429           462
Financial (income) expense, net (1)      (869 )         173
Taxes on income                            21             8
Stock-based compensation                2,368         1,513
Adjusted EBITDA                     $ (18,411 )   $ (10,582 )

(1) For the three months ended March 31, 2022, financial (income) expense, net, primarily consisted of $0.9 million in gains resulting from the revaluation of warrant liabilities. For the three months ended March 31, 2021, financial (income) expense, net, primarily consisted of $0.2 million in losses resulting from the revaluation of warrant liabilities.

Some of the limitations of adjusted EBITDA include (i) adjusted EBITDA does not properly reflect capital commitments to be paid in the future and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and adjusted EBITDA does not reflect these capital expenditures. Our adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. In evaluating adjusted EBITDA, you should be aware that in the future we will incur expenses similar to the adjustments described herein. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these expenses or any unusual or non-recurring items. Adjusted EBITDA should not be considered as an alternative to loss before income taxes, net loss, loss per share, or any other performance measures derived in accordance with U.S. GAAP. When evaluating our performance, you should consider adjusted EBITDA alongside other financial performance measures, including our net loss and other GAAP results.

Components of Results of Operations

Revenues

We generate revenues from the sale of monthly, quarterly, bi-annual and annual membership subscriptions to our therapy platform as well as supplementary a la carte offerings, payments from members and their respective insurance companies and annually contracted platform access fees paid to us by our enterprise clients for the delivery of therapy services to their members or employees. We recognize B2C member subscription revenues ratably over the subscription period, beginning when therapy services commence. B2C members may cancel at any time and will receive a pro-rata refund for the subscription price.

We recognize contracted revenue from our enterprise clients from the commencement of their contracted term through the annual period based primarily on a per-member-per month model. We recognize revenues from services provided to insured members at a point in time, as virtual therapy session is rendered. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service. Contracts with our enterprise clients are for one or more years with the ability to provide 60 days advance notice prior to termination at each year mark during the term. On occasion and depending on the client, we allow a 60 or 90 day intra-year termination notice but only after the client has completed the first year of service.

Revenue growth is generated from increasing our eligible covered lives through contracting with enterprise clients and health plans, and increasing membership subscriptions.


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Cost of Revenues

Cost of revenues is comprised of therapist payments and hosting costs. Cost of revenues is largely driven by the size of our provider network that is required to service the growth of our customer base, in addition to the growth of our health plan and enterprise clients.

We designed our business model and our provider network to be scalable and to leverage a hybrid model of both employee providers and independently contracted providers to support multiple growth scenarios. The compensation paid to our independently contracted providers is variable, and the amount paid to a provider is generally based on the amount of time committed by such provider to our members. In addition, our network supervisors have broad authority to approve the payment of incentive bonuses to providers with certain licenses during periods of higher demand for providers with such licenses. For our employee providers, they receive a fixed-salary and discretionary bonuses, where applicable.

While we expect increased investments to support accelerated growth and the required investment to scale our provider network, we also expect increased efficiencies and economies of scale. Our cost of revenues as a percentage of revenues is expected to fluctuate from period to period depending on the interplay of these aforementioned factors.

Total employee provider headcount was 290 as of March 31, 2022, as compared to 102 as of March 31, 2021.

Operating Expenses

Operating expenses consist of research and development, clinical operations, sales and marketing, and general and administrative expenses.

Total corporate employee headcount was 222 as of March 31, 2022, as compared to 164 as of March 31, 2021.

Research and Development Expenses

Research and development expenses include personnel and related expenses for software development and engineering, information technology infrastructure, security and privacy compliance and product development (inclusive of stock-based compensation for our research and development employees), third-party services and contractors related to research and development, information technology, software-related costs, and cost savings related to the application of research grant proceeds.

We expect research and development expenses will increase on an absolute dollar basis as we continue to grow our platform and product offerings; however, the anticipated corresponding future revenue growth is expected to result in lower research and development expenses as a percentage of revenue.

Clinical Operations Expenses

Clinical operations expenses are associated with the management of our provider network of therapists. Such costs are comprised of costs related to recruiting, onboarding, credentialing, training and ongoing quality assurance activities (inclusive of stock-based compensation for our clinical operations employees), costs of third-party services and contractors related to recruiting and training and software-related costs.

We expect clinical operations expenses will increase on an absolute dollar basis as we continue to grow our provider network and product offerings; however, the anticipated corresponding future revenue growth is expected to result in lower clinical operations expenses as a percentage of revenue.





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Sales and Marketing Expenses

Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, travel and stock-based compensation costs for our employees engaged in sales and account management. We expect our sales expenses to increase as we continue to invest in the expansion of our health plan and enterprise business. We expect to hire additional sales personnel and related account management personnel to properly service our increasing client base, to develop additional growth opportunities within existing clients and to develop new market opportunities.

Marketing expenses consist primarily of advertising and marketing expenses for consumer acquisition and engagement, as well as personnel costs, including salaries, benefits, bonuses, stock-based compensation expense for marketing employees, third-party services and contractors. Marketing expenses also include third-party software subscription services, third-party independent research, participation in trade shows, brand messaging and costs of communications materials that are produced for our clients to generate greater awareness and utilization of our platform among our health plan and enterprise clients.

Consumer marketing expenses are primarily driven by investments to grow and retain our consumer base and may fluctuate as a percentage of our total revenue from period to period due to the timing and extent of our advertising and marketing expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, including salaries, benefits, bonuses and stock-based compensation expense for our executive, finance, accounting, legal and human resources functions, as well as professional fees, occupancy costs, and other general overhead costs. We expect to incur additional general and administrative expenses in compliance, legal, investor relations, director's and officer's insurance, and professional services related to our compliance and reporting obligations as a public company. We also anticipate that as we continue to grow as a company our general and administrative expenses will increase on an absolute dollar basis. However, we expect our general and administrative expenses to decrease as a percentage of our total revenue over the next several years.

Financial (income) expense, net

Financial (income) expense, net includes the impact from (i) non-cash changes in the fair value of our warrant liabilities, (ii) issuance costs related to our warrant liabilities, (iii) interest earned on cash equivalents deposited in our bank accounts and (iv) other financial expenses in connection with bank charges.

Taxes on income

Our taxes on income consists primarily of foreign income taxes related to income generated by our subsidiary organized under the laws of Israel. If we expand the scale of our international business activities, any changes in the U.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future.

We have a full valuation allowance for our U.S. deferred tax assets, including federal and state NOLs. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized through expected future taxable income in the United States.





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Results of Operations



The following table presents the results of operations for the three months
ended March 31, 2022 and 2021 and the dollar and percentage change between the
respective periods:


                                            Three Months Ended
                                                March 31,                        Variance
                                          2022              2021             $              %
(in thousands, except percentages,
share and per share data)
Consumer revenue                      $      17,260     $     18,564     $   (1,304 )         (7.0 )
Commercial revenue                           12,890            8,593          4,297           50.0
Total revenue                                30,150           27,157          2,993           11.0
Cost of revenues                             15,129            9,814          5,315           54.2
Gross profit                                 15,021           17,343         (2,322 )        (13.4 )
Operating expenses:
Research and development, net                 5,035            2,964          2,071           69.9
Clinical operations                           1,776            2,077           (301 )        (14.5 )
Sales and marketing                          21,408           22,251           (843 )         (3.8 )
General and administrative                    8,010            2,608          5,402              *
Total operating expenses                     36,229           29,900          6,329           21.2
Operating loss                               21,208           12,557          8,651           68.9
Financial (income) expense, net                (869 )            173         (1,042 )            *
Loss before taxes on income                  20,339           12,730          7,609           59.8
Taxes on income                                  21                8             13              *
Net loss                              $      20,360     $     12,738     $    7,622           59.8
Net loss per share (1):
Basic and Diluted                     $        0.13     $       0.93     $    (0.79 )        (85.7 )
Weighted average number of common
shares (1):
Basic and Diluted                       154,083,443       13,762,205


* Percentage not meaningful.

(1) Prior period results have been adjusted to reflect the exchange of Old Talkspace's common stock for Talkspace's common stock at an exchange ratio of approximately 1.134140 in June 2021 as a result of the Business Combination.

Revenues. Revenues increased by $3.0 million, or 11.0% to $30.2 million for the three months ended March 31, 2022 from $27.2 million for the three months ended March 31, 2021. The increase was principally due to a 50% growth in B2B revenue driven by an increase in covered lives from health plan clients and new enterprise clients, and a higher number of completed B2B sessions, partially offset by higher revenue reserves on receivables from our existing health plan clients. Enterprise client contracts increased by 98 clients, or 107.7%, to 189 clients as of March 31, 2022 from 91 clients as of March 31, 2021. This increase in the number of enterprise clients increased revenue by $2.4 million, or 72.1%, to $5.7 million for the three months ended March 31, 2022 from $3.3 million for the three months ended March 31, 2021. Revenue, net of reserves, from our health plan clients increased by $1.9 million, or 36.3%, to $7.2 million for the three months ended March 31, 2022 from $5.3 million for the three months ended March 31, 2021. During the three months ended March 31, 2022, the Company recorded an increase in revenue reserves of $1.0 million related to receivables from its health plan clients. B2C member subscriptions revenue decreased by $1.3 million, or 7.0%, to $17.3 million for the three months ended March 31, 2022 from $18.6 million for the three months ended March 31, 2021 due in part to reduced marketing spend, partially offset by a one-time $0.5 million non-cash reversal in deferred revenue associated with customers no longer active on the Company's platform.

We believe that the appeal of our technology platform, the quality of our providers and the cost of our services will continue to represent the primary drivers of revenue growth from B2B clients and B2C members.

Costs of revenues. Cost of revenues increased by $5.3 million, or 54.2%, to $15.1 million for the three months ended March 31, 2022 from $9.8 million for the three months ended March 31, 2021, primarily due to costs associated with an increase of employee providers on our platform and higher therapist compensation expense.





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Gross profit. Gross profit decreased by $2.3 million, or 13.4%, to $15.0 million for the three months ended March 31, 2022 from $17.3 million for the three months ended March 31, 2021. This decrease was primarily due to higher cost of revenues due to an increase of providers on our platform to support our increased demand and higher therapist compensation expense, partially offset by the 11.0% increase in revenues. Gross margin (calculated as gross profit as a percentage of revenues) was 49.8% for the three months ended March 31, 2022, compared to 63.9% during the three months ended March 31, 2021. The decrease in gross margin was due primarily to a revenue shift to our B2B business, higher revenue reserves recorded related to our health plan clients and higher therapist compensation expense during the three months ended March 31, 2022.

Research and development expenses. Research and development expenses increased by approximately $2.1 million, or 69.9%, to $5.0 million for the three months ended March 31, 2022 from $3.0 million for the three months ended March 31, 2021. This was primarily due to an increase in employee-related costs, inclusive of non-cash stock compensation expense.

Clinical operations expenses. Clinical operations expenses decreased by $0.3 million, or 14.5% to $1.8 million for the three months ended March 31, 2022 from $2.1 million for the three months ended March 31, 2021. This was primarily due to a decrease in provider recruitment costs, partially offset by an increase in employee-related costs, inclusive of non-cash stock compensation expense.

Sales and marketing expenses. Sales and marketing expenses decreased by $0.8 million, or 3.8%, to $21.4 million for the three months ended March 31, 2022 from $22.3 million for the three months ended March 31, 2021. The decrease in sales and marketing expenses primarily consisted of a decrease in direct marketing and promotional costs, partially offset by an increase in employee-related costs, inclusive of non-cash stock compensation expense.

General and administrative expenses. General and administrative expenses increased by $5.4 million to $8.0 million for the three months ended March 31, 2022 from $2.6 million for the three months ended March 31, 2021. This increase was driven primarily by an increase in employee-related costs, inclusive of non-cash stock compensation expense, and an increase in insurance costs and consulting and professional fees.

Financial (income) expense, net. Financial income, net was $0.9 million for the three months ended March 31, 2022, compared to financial expense, net of $0.2 million for the three months ended March 31, 2021. The change in financial (income) expense, net was driven primarily by non-cash gains resulting from the revaluation of warrant liabilities during the three months ended March 31, 2022, compared to non-cash losses resulting from the revaluation of warrant liabilities during the three months ended March 31, 2021.

Liquidity and Capital Resources

As of March 31, 2022, we had $184.1 million of cash and cash equivalents, which were held to finance our operations and support a variety of growth initiatives and investments ($198.3 million as of December 31, 2021). We had no debt as of March 31, 2022 or December 31, 2021 and expect to generate operating losses for the foreseeable future.

Our primary cash needs are to fund operating activities and invest in technology development. Our future capital requirements will depend on many factors including our growth rate, contract renewal activity, the timing and extent of investments to support product development efforts, our expansion of sales and marketing activities, the introduction of new and enhanced service offerings, and the continuing market acceptance of virtual behavioral services. Additionally, we may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies.

We currently anticipate to be able to fund our cash needs for at least the next twelve months using available cash and cash equivalent balances as of March 31, 2022. However, in the future we may still require additional capital to respond to technological advancements, competitive dynamics or technologies, customer demands, business opportunities, challenges, acquisitions or unforeseen circumstances and we may determine to engage in equity or debt financings or enter into credit facilities for other reasons. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. If we raise additional funds through the issuance of equity or convertible debt or other equity-linked securities, our existing stockholders could experience significant dilution. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.


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Cash Flows from Operating, Investing and Financing Activities

The following table presents the summary condensed consolidated cash flow information for the periods presented:



Cash Flows

                                              Three Months Ended
                                                   March 31,
                                               2022          2021

(in thousands) Net cash used in operating activities $ (15,146 ) $ (3,879 ) Net cash used in investing activities

              (88 )       (319 )

Net cash provided by financing activities 1,505 722 Net decrease in cash and cash equivalents $ (13,729 ) $ (3,476 )






Operating Activities

Net cash used in operating activities was $15.1 million and $3.9 million for the three months ended March 31, 2022 and 2021, respectively. The increase in net cash used in operating activities was driven primarily by the negative impact from a higher net loss during the current-year period and favorable timing of payments on our accounts payable balances during the same prior-year period, partially offset by the favorable timing on collections of receivables during the current-year period. The higher net loss for the three months ended March 31, 2022 was driven primarily by higher general and administrative expenses and higher cost of revenues.

Investing Activities

Net cash used in investing activities was $0.1 million for the three months ended March 31, 2022, compared to $0.3 million in net cash provided by investing activities for the three months ended March 31, 2021. The change was driven primarily by a decrease in the purchases of computer equipment and software during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Financing Activities

Net cash provided by financing activities was $1.5 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively. The increase was primarily driven by higher proceeds from the exercise of stock options, partially offset by payments for employee taxes withheld related to vested stock-based awards.

Contractual Obligations, Commitments and Contingencies

As of March 31, 2022, we did not have any short-term or long-term debt, capital lease obligations, long-term operating lease obligations, or significant long-term liabilities.

Our commercial contract arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a client's data or if our service infringes a third party's intellectual property rights. To date, we have not incurred any material costs as a result of such indemnifications.

We have also agreed to indemnify our officers and directors for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by us, arising out of that person's services as our director or officer or that person's services provided to any other company or enterprise at our request. We maintain director and officer liability insurance coverage that would generally enable us to recover a portion of any future amounts paid. We may also be subject to indemnification obligations by law with respect to the actions of our employees under certain circumstances and in certain jurisdictions.

Off-Balance Sheet Arrangements

We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our condensed consolidated financial statements.


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Critical Accounting Policies and Estimates

The Company's condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Reference is also made to the Company's consolidated financial statements and notes thereto found in its Annual Report on Form 10-K for the year ended December 31, 2021.

The Company's accounting policies are essential to understanding and interpreting the financial results reported on the condensed consolidated financial statements. The significant accounting policies used in the preparation of the Company's consolidated financial statements are summarized in Note 2 to those statements and the notes thereto found in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Certain of those policies are considered to be particularly important to the presentation of the Company's financial results because they require management to make difficult, complex or subjective judgments, often as a result of matters that are inherently uncertain.

During the three months ended March 31, 2022, there were no material changes to matters discussed under the heading "Critical Accounting Policies and Estimates" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements

Information regarding recent accounting developments and their impact on our results can be found in "Part I, Item 1. Financial Statements - Note 2 - Significant Accounting Policies" of this Quarterly Report.

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