1LIFE HEALTHCARE, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "goal," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential" and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. In addition, statements including "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report. This discussion includes both historical information and forward-looking statements based upon current expectations that involve risk, uncertainties and assumptions. Our results of operations include the results of operations of Iora since the close of our acquisition onSeptember 1, 2021 . Our actual results may differ materially from management's expectations and those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, our ability to timely and successfully achieve the anticipated benefits and potential synergies of our acquisition ofIora Health, Inc. and the continuing impact of the COVID-19 pandemic, societal and governmental responses and macroeconomic challenges and uncertainties, including inflationary pressures, as well as those discussed in "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. In addition, this Quarterly Report includes forward-looking statements about the occurrence of any event, change, or other circumstance that could delay or prevent closing of the proposed Amazon Merger or give rise to the termination of the Merger Agreement pertaining to the Amazon Merger. The forward-looking statements contained herein do not assume the consummation of the proposed transaction with Amazon unless specifically stated otherwise. Overview Our mission is to transform health care for all through our human-centered, technology-powered model. Our vision is to delight millions of members with better health and better care while reducing the total cost of care. We are a membership-based primary care platform with seamless digital health and inviting in-office care, convenient to where people work, shop, live and click. We are disrupting health care from within the existing ecosystem by simultaneously addressing the frustrations and unmet needs of key stakeholders, which include consumers, employers, providers, and health networks. We have developed a modernized healthcare membership model based on direct consumer enrollment and third-party sponsorship across commercially insured and Medicare populations. Our membership model includes seamless access to 24/7 digital health services paired with inviting in-office care routinely covered by most health care payers. Our technology drives high monthly active usage within our membership, promoting ongoing and longitudinal patient relationships for better health outcomes and high member retention. Our technology also helps our service-minded team in building trust and rapport with our members by facilitating proactive digital health outreach as well as responsive on-demand virtual and in-office care. Our digital health services and our well-appointed offices, which tend to be located in highly convenient locations, are staffed by a team of clinicians who are not paid on a fee-for-service basis, and therefore free of misaligned compensation incentives prevalent in health care. Additionally, we have developed clinically and digitally integrated partnerships with health networks, better coordinating more timely access to specialty care when needed by members. Together, this approach allows us to engage in value-based care across all age groups, including through At-Risk arrangements with Medicare Advantage payers and CMS, in which One Medical is responsible for managing a range of healthcare services and associated costs of our members. Our focus on simultaneously addressing the unfulfilled needs and frustrations of key stakeholders has allowed us to consistently grow the number of members we serve. As ofSeptember 30, 2022 , we have grown to approximately 815,000 total members including 775,000 Consumer and Enterprise members and 40,000 At-Risk members, 214 medical offices in 26 markets, and have greater than 8,500 enterprise clients acrossthe United States . 28 --------------------------------------------------------------------------------
Proposed Acquisition by Amazon
OnJuly 20, 2022 , we entered into the Merger Agreement with Amazon. Subject to the terms and conditions of the Merger Agreement, Amazon will acquire the Company for$18 per share in an all-cash transaction valued at approximately$3.9 billion , including the Company's net debt. As a result of the Amazon Merger, subject to the terms and conditions of the Merger Agreement, the Company will merge with a subsidiary of Amazon and become a wholly-owned subsidiary of Amazon. The consummation of the Amazon Merger is subject to a number of closing conditions, including, among others, the approval from our shareholders, and the receipt of certain regulatory approvals, as well as other customary closing conditions. Under the Merger Agreement, Amazon has agreed to provide senior unsecured interim debt financing to the Company in an aggregate principal amount of up to$300.0 million to be funded in up to ten tranches of$30.0 million per month, beginning onMarch 20, 2023 until the earlier of the closing of the Amazon Merger and the termination of the Merger Agreement pursuant to its terms, with a maturity date of 24 months after the termination of the Merger Agreement pursuant to its terms. The Company will agree to certain restrictive covenants and events of default customary for transactions of this type in connection with the debt financing, and other terms and conditions to be set forth in definitive agreements to be entered into by the parties in connection with the financing. The Merger Agreement contains certain customary termination rights for the Company and Amazon. Upon termination of the Merger Agreement in accordance with its terms, under certain specified circumstances, Amazon will be obligated to pay to the Company a termination fee equal to$195.0 million in cash. If the Merger Agreement is terminated under other certain specified circumstances the Company will be obligated to pay to Amazon a termination fee equal to$136.0 million in cash. See the section titled "Risk Factors-Risks Related to our Proposed Transaction with Amazon" included under Part II, Item 1A of this Quarterly Report on Form 10-Q for more information regarding the risks associated with the Amazon Merger.
Impact of COVID-19 on Our Business
The COVID-19 pandemic has impacted and may continue to impact our operations, and net revenues, expenses, collectability of accounts receivables and other money owed, capital expenditures, liquidity, and overall financial condition. While we experienced negative impacts to our business from the COVID-19 pandemic during the first half of 2020, beginning in the second half of 2020 and through 2021, we believe the COVID-19 pandemic helped drive an increase in Consumer and Enterprise membership and increase in commercial revenue due to new and expanded service offerings, and an increase in our aggregate billable services primarily driven by COVID-19 related visits. For example, we believe COVID-19 caused our value proposition to resonate with a broader audience of consumers seeking access to primary care, as well as with a broader audience of employers focusing on safely reopening their workplaces and managing the ongoing health and well-being of employees and their families. As a result, we experienced increased demand for our memberships beginning in the second half of 2020 and through 2021.
In addition, we expanded our service offering in part as a response to COVID-19 and launched several new billable services, including:
•COVID-19 testing, and counseling across all of our markets, including in our offices and in several mobile COVID-19 testing sites;
•COVID-19 vaccinations in select geographies;
•Healthy Together, our COVID-19 screening and testing program for employers, schools and universities;
•Mindset by One Medical, our behavioral health service integrated within primary care;
•One Medical Now, an expansion of our 24/7 on-demand digital health solutions to employees of enterprise clients located in geographies where we are not yet physically present; and,
•Remote Visits, where our providers perform typical primary care visits with our members remotely
Towards the tail end of 2021, we started to experience a decline in
COVID-related visits while we have not yet seen non-COVID-related primary care
visits return to their pre-COVID levels, which negatively impacted our
commercial revenue. Starting in the fourth quarter of 2021, the Omicron variant
caused a spike in COVID-19 cases. This caused an increase in hospitalizations
among At-Risk members, which negatively impacted our medical claims expense. We
also saw an increase in the number of providers who were required to quarantine
as a result of potential exposure to the virus, which caused some
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supply constraint in our ability to meet member demand for appointments. The
effects of the Omicron variant appeared to peak in mid-January 2022 , and the
impact has since decreased. However, future COVID-19 outbreaks or variants may
cause additional reductions in visits and increased hospitalizations of At-Risk
members, which may negatively impact our results of operations and cause our
revenue and margins to fluctuate across periods.
We believe some of the precautionary measures and challenges resulting from the
COVID-19 pandemic may continue or be reinstated upon the occurrence of future
outbreaks of variants. Such actions or events may present additional challenges
to our business, financial condition and results of operations. As a result, we
cannot assure you that any increase in membership, aggregate reimbursement and
revenue or reduction in medical claims expense, or any increased trends in
visits, are indicative of future results or will be sustained, including
following the COVID-19 pandemic, or that we will not experience additional
impacts associated with COVID-19, which could be significant. Our results may
also continue to fluctuate across periods due to the future COVID-19 outbreaks
or variants. Additionally, it is unclear what the impact of the COVID-19
pandemic will be on future utilization, medical expense patterns, and the
associated impact on our business and results of operations.
Our Business Model
Our business is driven by growth in Consumer and Enterprise members, and At-Risk members (see also "Key Metrics and Non-GAAP Financial Measures"). We have developed a modernized membership model based on direct consumer enrollment and third-party sponsorship. Our membership model includes seamless access to 24/7 digital health paired with inviting in-office care routinely covered by most health care payers. Consumer and Enterprise members join either individually as consumers by paying an annual membership fee or are sponsored by a third party. At-Risk members are members for whom we are responsible for managing a range of healthcare services and associated costs. Digital health services are delivered via our mobile app and website, through such modalities as video and voice encounters, chat and messaging. Our in-office care is delivered in our medical offices, and as ofSeptember 30, 2022 , we had 214 medical offices, compared to 177 medical offices as ofSeptember 30, 2021 . We derive net revenue, consisting of Medicare revenue and commercial revenue, from multiple stakeholders, including consumers, employers and health networks such as health systems and government and private payers.
Medicare Revenue
Medicare revenue consists of (i) Capitated Revenue and (ii) fee-for-service and other revenue that is not generated from Consumer and Enterprise members.
We generate Capitated Revenue from At-Risk arrangements with Medicare Advantage
payers and CMS. Under these At-Risk arrangements, we generally receive capitated
payments, consisting of each eligible member's risk adjusted health care premium
per member per month ("PMPM"), for managing a range of healthcare services and
associated costs for such members. The risk adjusted health care premium PMPM is
determined by payers and based on a variety of patients' factors such as age and
demographic benchmarks, and further adjusted to reflect the underlying
complexity of a member's health conditions. These fees give us revenue economics
that are contractually recurring in nature for a majority of our Medicare
revenue. Capitated Revenue represents 98% of Medicare revenue and 50% of total
net revenue, respectively, for the three months ended September 30, 2022 and 98%
and 20% for the three months ended September 30, 2021 .
We generate fee-for-service and other revenue from fee-for-service visits for
Other Patients not covered under At-Risk arrangements and from certain payers
for clinical start-up, administration, or on-going coordination of care
activities associated with providing care to At-Risk members and other Medicare
patients.
Commercial Revenue
Commercial revenue consists of (i) partnership revenue, (ii) net fee-for-service revenue and (iii) membership revenue.
We generate our partnership revenue from (i) our health network partners with
whom we have clinically and digitally integrated, on a PMPM basis, (ii) largely
fixed price or fixed price per employee contracts with enterprise clients for
medical services and (iii) COVID-19 on-site testing services for enterprise
clients, schools and universities where we typically bill such customers a fixed
price per service performed. For our health network arrangements that provide
for PMPM payments, when our medical offices provide professional clinical
services to covered members, we, as administrator, perform billing and
collection services on behalf of the health network, and the health network
receives the fees for services provided, including those paid by members'
insurance plans. In those circumstances, we earn and receive PMPM payments from
the health network partners in lieu of per visit fees for services from member
office visits.
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--------------------------------------------------------------------------------Our net fee-for-service revenue primarily consists of reimbursements received from our members' or other patients' health insurance plans or those with billing rates based on our agreements with our health network partners for healthcare services delivered to Consumer and Enterprise members on a fee-for-service basis.
We generate our membership revenue through the annual membership fees charged to either consumer members or enterprise clients, as well as fees paid for our One Medical Now service offering. As ofSeptember 30, 2022 , our list price for new members for an annual consumer membership was$199 . Our enterprise clients typically pay a discounted fee collected in advance, based on a rate per employee per month. Our membership fee revenue and partnership revenue are contractual and, with the exception of our COVID-19 on-site testing services, generally recurring in nature. Membership revenue and partnership revenue as a percentage of commercial revenue was 72% and 63% for each of the three months endedSeptember 30, 2022 and 2021, respectively. Membership revenue and partnership revenue as a percentage of total net revenue was 35% and 50% for the three months endedSeptember 30, 2022 and 2021, respectively.
Key Factors Affecting Our Performance
•Acquisition of Net New Members. Our ability to increase our membership will enable us to drive financial growth as members drive our commercial revenue and Medicare revenue. We believe that we have significant opportunities to increase members in our existing geographies through (i) new sales to consumers and enterprise clients, (ii) expansion of the number of enrolled members, including dependents, within our enterprise clients, (iii) expansion of the number of At-Risk members including Medicare Advantage participants or Medicare members for which we are at risk as a result of CMS' Direct Contracting Program, (iv) expansion of Medicare Advantage payers, with whom we contract and (v) adding other potential services. •Components of Revenue. Our ability to maintain or improve pricing levels for our memberships and the pricing under our contracts with health networks will also impact our total revenue. As ofSeptember 30, 2022 , our list price for new members for an annual consumer membership was$199 . Our enterprise clients typically pay a discounted fee collected in advance, based on a rate per employee per month. In geographies where our health network partners pay us on a PMPM basis for Consumer and Enterprise members, to the extent that the PMPM rate changes, our partnership revenue will change. Similarly, if the largely fixed price or number of employees covered by fixed price per employee arrangements change or the number of COVID-19 on-site tests or vaccinations changes, our partnership revenue will also change. Our net fee-for-service revenue is dependent on (i) our billing rates and third-party payer contracted rates through agreements with health networks, (ii) the mix of members who are commercially insured and (iii) the nature and frequency of visits. Our net fee-for-service revenue may also change based on the services we provide to commercially insured Other Patients as defined in "Key Metrics and Non-GAAP Financial Measures" below. Our Medicare revenue is dependent on (i) the percentage of members in At-Risk contracts, (ii) our contracted percentage of premium, (iii) our ability to accurately document the acuity of our At-Risk members, and (iv) the services we provide to Other Patients who are Medicare participants. In the future, we may add additional services for which we may charge in a variety of ways. To the extent the net amounts we charge our members, patients, partners, payers and clients change, our net revenue will also change. •Medical Claims Expense. The nature of our contracting with Medicare Advantage payers and CMS requires us to be financially responsible for a range of healthcare services of our At-Risk members. Our care model focuses on leveraging the primary care setting as a means of reducing unnecessary or avoidable health care costs and balancing the cost of care with the impact of our service on medical claims expense. We are liable for potentially large medical claims should we not effectively manage our At-Risk members' health. We call the ratio between medical claims expense divided by Capitated Revenue the "Medical Claims Expense Ratio". As we sign up new At-Risk members, our Medical Claims Expense Ratio is likely to increase initially due to a potential increase in medical claims expense from a lag in improvement in health outcomes with member tenure. Similarly, there may be a lag in adequately documenting the health status of our members, resulting in different Capitated Revenue compared to what is indicated by the health status of an At-Risk member. We believe that the Medical Claims Expense Ratio for a given set of At-Risk members can improve over time as we help improve their health outcomes relative to their underlying health conditions, though 31 -------------------------------------------------------------------------------- the ratio may fluctuate for any given customers or cohort of customers depending on future outbreaks or variants of COVID-19 and associated increases in medical claims expense. •Cost of Care, Exclusive of Depreciation and Amortization. Cost of care primarily includes our provider and support employee-related costs for both virtual and in-office care, occupancy costs, medical supplies, insurance and other operating costs. Providers include doctors of medicine, doctors of osteopathy, nurse practitioners, physician assistants and behavioral health specialists. Support employees include registered nurses, phlebotomists, health coaches, and administrative assistants assisting our members with all non-medical related services. Virtual care includes video visits and other synchronous and asynchronous communication via our app and website. A large portion of these costs are relatively fixed regardless of member utilization of our services. Our care model focuses on leveraging the primary care setting as a means of reducing unnecessary or avoidable health care costs and balancing the cost of care with the impact of increased service levels on medical claims expense. An increase in cost of care may help us in reducing total health care costs for our members. For Consumer and Enterprise members, this reduction in total health care costs typically accrues to the benefit of our enterprise clients or our members' health insurance plans through lower claims costs, or our members through lower deductibles, making our membership more competitive. For our At-Risk members, reductions in total health care costs typically accrue directly to us, to our health network partners such as Medicare Advantage payers and CMS, or to our At-Risk members, making our membership more competitive. As a result, we seek to balance the cost of care based on a variety of considerations. For example, cost of care as a percentage of net revenue may decrease if our net revenue increases. Similarly, our cost of care as a percentage of net revenue may increase if we decide to increase our investments in our providers or support employees to try to reduce our medical claims expense. As we open new offices, and expand into new geographies, we expect cost of care to increase. Our cost of care, exclusive of depreciation and amortization, also excludes stock-based compensation. •Care Margin. Care Margin is driven by net revenue, medical claims expense, and cost of care. We believe we can (i) improve revenue over time by signing up more members and increasing the revenue per member, (ii) reduce Medical Claims Expense Ratio over time from primary care engagement and population health management, improving member health and satisfaction, while reducing the need for avoidable and costly care, and (iii) reduce cost of care as a percentage of revenue by better leveraging our fixed cost base and technology. •Investments in Growth. We expect to continue to focus on long-term growth through investments in sales and marketing, technology research and development, and existing and new medical offices. We are working to enhance our digital health and technology offering and increase the potential breadth of our modernized platform solution. In particular, we plan to launch new offices and enter new geographies. As we expand to new geographies, we expect to make significant upfront investments in sales and marketing to establish brand awareness and acquire new members. Additionally, we intend to continue to invest in new offices in new and existing geographies. As we invest in new geographies, in the short term, we expect these activities to increase our operating expenses and cost of care; however, in the long term we anticipate that these investments will positively impact our results of operations.
•Seasonality. Seasonality affects our business in a variety of ways. In the near term, we expect these typical seasonal trends to fluctuate due to future outbreaks or variants of the COVID-19 pandemic.
Medicare Revenue: We recognize Capitated Revenue from At-Risk members ratably
over their period of enrollment. We typically experience the largest portion of
our At-Risk member growth in the first quarter, as the Medicare Advantage
enrollment from the prior Medicare Annual Enrollment Period ("AEP") becomes
effective January 1 . Throughout the remainder of year, we can continue to enroll
new At-Risk members predominantly through (i) new Medicare Advantage enrollees
joining us outside AEP, (ii) through expanding the Medicare Advantage plans we
are participating in, and (iii) adding additional geographies where we
participate in At-Risk arrangements.
Commercial Revenue: Our partnership and membership revenue are predominantly
driven by the number of Consumer and Enterprise members, and recognized ratably
over the period of each contract. While Consumer and Enterprise members have the
opportunity to buy memberships throughout the year, we typically experience the
largest portion of our Consumer and Enterprise member growth in the first and
fourth quarter of each year, when enterprise customers tend to make and
implement decisions on their employee benefits. Our net fee-for-service revenue
is typically
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--------------------------------------------------------------------------------highest during the first and fourth quarter of each year, when we generally experience the highest levels of reimbursable visits.
Medical Claims Expense: Medical claims expense is driven by our At-Risk members and varies seasonally depending on a number of factors, including the weather and the number of business days in a quarter. Typically, we experience higher utilization levels during the first and fourth quarter of the year.
Key Metrics and Non-GAAP Financial Measures
We review a number of operating and financial metrics, including members,
Medical Claims Expense Ratio, Care Margin and Adjusted EBITDA, to evaluate our
business, measure our performance, identify trends affecting our business,
formulate our business plan and make strategic decisions. These key metrics are
presented for supplemental informational purposes only and should not be
considered a substitute for financial information presented in accordance with
GAAP. Care Margin and Adjusted EBITDA are not financial measures of, nor do they
imply, profitability. We have not yet achieved profitability and, even in
periods when our net revenue exceeds our cost of care, exclusive of depreciation
and amortization, we may not be able to achieve or maintain profitability. The
relationship of operating loss to cost of care, exclusive of depreciation and
amortization is also not necessarily indicative of future performance.
Other companies may not publish similar metrics, or may present similarly titled
key metrics that are calculated differently. As a result, similarly titled
measures presented by other companies may not be directly comparable to ours and
these key metrics should be considered in addition to, not as a substitute for,
or in isolation from, measures prepared in accordance with GAAP, such as net
loss. We provide investors and other users of our financial information with a
reconciliation of Care Margin and Adjusted EBITDA to their most closely
comparable GAAP financial measure. We encourage investors and others to review
our financial information in its entirety, not to rely on any single financial
measure and to view Care Margin and Adjusted EBITDA in conjunction with loss
from operations and net loss, respectively.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands except for members) (in thousands except for members)
Members (as of the end of the period)
Consumer and Enterprise 775,000 683,000 775,000 683,000
At-Risk 40,000 32,000 40,000 32,000
Total 815,000 715,000 815,000 715,000
Net revenue $ 261,369 $ 151,333 $ 771,310 $ 393,101
Medical Claims Expense Ratio 78 % 87 % 82 % 87 %
Care Margin $ 48,499 $ 46,805 $ 136,249 $ 150,559
Adjusted EBITDA $ (39,755) $ (6,074) $ (107,234) $ 5,704
Members
Members include both Consumer and Enterprise members as well as At-Risk members
as defined below. Our number of members depends, in part, on our ability to
successfully market our services directly to consumers including
Medicare-eligible as well as non-Medicare eligible individuals, to Medicare
Advantage health plans and Medicare Advantage enrollees, to employers that are
not yet enterprise clients, as well as our activation rate within existing
enterprise clients. We define estimated activation rate for any enterprise
client at a given time as the percentage of eligible lives enrolled as members.
While growth in the number of members is an important indicator of expected
revenue growth, it also informs our management of the areas of our business that
will require further investment to support expected future member growth. Member
numbers as of the end of each period are rounded to the thousands.
Consumer and Enterprise Members
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A Consumer and Enterprise member is a person who has registered with us and has
paid for membership for a period of at least one year or whose membership has
been sponsored by an enterprise or other third party under an agreement having a
term of at least one year. Consumer and Enterprise members do not include trial
memberships, our virtual only One Medical Now users, or any temporary users. Our
number of Consumer and Enterprise members depends, in part, on our ability to
successfully market our services directly to consumers and to employers that are
not yet enterprise clients and our activation rate within existing clients.
Consumer and Enterprise members may include individuals who are: (i)
Medicare-eligible and (ii) have paid for a membership or whose membership has
been sponsored by an enterprise or other third party. Consumer and Enterprise
members do not include any At-Risk members as defined below. Consumer and
Enterprise members help drive commercial revenue. As of September 30, 2022 , we
had 775,000 Consumer and Enterprise members.
At-Risk Members
An At-Risk member is a person for whom we are responsible for managing a range of healthcare services and associated costs. At-Risk members help drive Medicare revenue. As ofSeptember 30, 2022 , we had 40,000 At-Risk members.
Members (in thousands)*
[[Image Removed: onem-20220930_g1.jpg]]*Number of members is shown as of the end of each period.
Other Patients
An "Other Patient" is a person who is neither a Consumer and Enterprise member nor an At-Risk member, and who has received digital or in-person care from us over the last twelve months. As ofDecember 31, 2021 , we had 21,000 Other Patients.
Medical Claims Expense Ratio
We define Medical Claims Expense Ratio as medical claims expense divided by
Capitated Revenue. The nature of our contracting with Medicare Advantage payers
and CMS requires us to be financially responsible for a range of healthcare
services of our At-Risk members. Our care model focuses on leveraging the
primary care setting as a means of reducing unnecessary or avoidable health care
costs and balancing our cost of care with the impact of our service levels on
medical claims expense. We are liable for potentially large medical claims
should we not effectively manage our At-Risk members' health. We therefore
consider the Medical Claims Expense Ratio to be an important measure to monitor
our performance. As we sign up new At-Risk members or open new offices to serve
these members, our Medical Claims Expense Ratio is likely to increase initially
due to a potential increase in medical claims expense from a lag in improvement
in health outcomes with member tenure. Similarly, there may be a lag in
adequately documenting the health status of our members, resulting in different
Capitated Revenue compared to what is indicated by the health status of an
At-Risk member. We believe that the Medical
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Claims Expense Ratio for a given set of At-Risk members can improve over time as
we help improve their health outcomes relative to their underlying health
conditions, though the ratio may fluctuate for any given customers or cohort of
customers depending on future outbreaks or variants of COVID-19 and associated
increases in medical claims expense.
The following table provides a calculation of the Medical Claims Expense Ratio
for the three and nine months ended
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)Medical claims expense$ 102,216 $ 26,085 $ 316,082 $ 26,085 Capitated Revenue$ 130,811 $ 29,872 $ 383,962 $ 29,872 Medical Claims Expense Ratio 78 % 87 % 82 % 87 % Care Margin We define Care Margin as income or loss from operations excluding depreciation and amortization, general and administrative expense and sales and marketing expense. We consider Care Margin to be an important measure to monitor our performance, specific to the direct costs of delivering care. We believe this margin is useful to both us and investors to measure whether we are effectively pricing our services and managing the health care and associated costs, including medical claims expense and cost of care, of our At-Risk members successfully.
The following table provides a reconciliation of loss from operations, the most closely comparable GAAP financial measure, to Care Margin:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Loss from operations $ (117,278) $ (72,690) $ (307,314) $ (147,635)
Sales and marketing* 26,382 14,380 72,034 37,639
General and administrative* 116,081 93,070 305,539 234,611
Depreciation and amortization 23,314 12,045 65,990 25,944
Care Margin $ 48,499 $ 46,805 $ 136,249 $ 150,559
Care Margin as a percentage of net revenue 19 % 31 % 18 % 38 %
* Includes stock-based compensation
Adjusted EBITDA
We define Adjusted EBITDA as net income or loss excluding interest income, interest and other income (expense), depreciation and amortization, stock-based compensation, provision for (benefit from) income taxes, certain legal or advisory costs, and acquisition and integration costs that we do not consider to be expenses incurred in the normal operation of the business. Such legal or advisory costs may include but are not limited to expenses with respect to evaluating potential business combinations, legal investigations, or settlements. Acquisition and integration costs include expenses incurred in connection with the closing and integration of acquisitions, which may vary significantly and are unique to each acquisition. We started to exclude prospectively from our presentation certain legal or advisory costs from the first quarter of 2021 and acquisition and integration costs from the second quarter of 2021, because amounts incurred in the prior periods were insignificant relative to our consolidated operations. We include Adjusted EBITDA in this Quarterly Report because it is an important measure upon which our management assesses and believes investors should assess our operating performance. We consider Adjusted EBITDA to be an important measure to both management and investors because it helps illustrate underlying trends in our business and our historical operating performance on a more consistent basis.
Adjusted EBITDA has limitations as an analytical tool, including:
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•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized may have to be replaced in the future, and Adjusted
EBITDA does not reflect cash used for capital expenditures for such replacements
or for new capital expenditures;
•Adjusted EBITDA does not include the dilution that results from stock-based compensation or any cash outflows included in stock-based compensation, including from our purchases of shares of outstanding common stock; and
•Adjusted EBITDA does not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments.
The following table provides a reconciliation of net loss, the most closely
comparable GAAP financial measure, to Adjusted EBITDA, calculated as set forth
above:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Net loss $ (112,037) $ (78,603) $ (296,705) $ (159,208)
Interest income (630) (535) (1,151) (719)
Interest and other income (expense) (76) 4,464 8,725 10,149
Depreciation and amortization 23,314 12,045 65,990 25,944
Stock-based compensation 38,496 28,534 107,751 81,194
Provision for (benefit from) income taxes (4,535) 1,984 (18,183) 2,143
Legal or advisory costs (1) - 521 547 16,088
Acquisition and integration costs 15,713 25,516 25,792 30,113
Adjusted EBITDA $ (39,755) $ (6,074) $ (107,234) $ 5,704 Approximately
and Contingencies" for additional details.
Components of Our Results of Operations
Net Revenue
We generate net revenue through Medicare revenue and commercial revenue. We generate Medicare revenue from Capitated Revenue and fee-for-service and other revenue. We generate commercial revenue from partnership revenue, net fee-for-service revenue, and membership revenue.
Capitated Revenue. We generate Capitated Revenue from At-Risk arrangements with payers including Medicare Advantage plans and CMS. Under these At-Risk arrangements, we receive capitated payments, consisting of each eligible member's risk adjusted health care premium PMPM, for managing a range of healthcare services and associated costs for such members. The risk adjusted health care premium per month is determined by payers and based on a variety of a patient's factors such as age and demographic benchmarks, and further adjusted to reflect the underlying complexity of a member's health conditions. Capitated Revenue is recognized in the month in which eligible members are entitled to receive healthcare benefits during the contract term. We expect our Capitated Revenue to increase as a percentage of total net revenue in future periods.
Fee-For-Service and Other Revenue. We generate fee-for-service and other revenue from fee-for-service visits for Other Patients not covered under At-Risk arrangements and from certain payers for clinical start-up, administration, on-going coordination of care activities associated with providing care to At-Risk members and other Medicare patients.
Partnership Revenue. We generate partnership revenue from (i) our health network
partners on a PMPM basis, (ii) largely fixed price or fixed price per employee
contracts with enterprise clients for medical services and (iii) COVID-19
on-site testing services for enterprise clients, schools and universities for
which we typically bill such customers a fixed price per service performed.
Under our partnership arrangements, we generally receive fees that are linked to
PMPM, fixed price, fixed price per employee, fixed price per service, or
capitation arrangements. All partnership revenue is recognized during the period
in which we are obligated to provide professional clinical services to the
member, employee, or participant, as applicable, and
36
--------------------------------------------------------------------------------associated management, operational and administrative services to the health network partner, enterprise client, schools and universities.
Net fee-for-service revenue. We generate net fee-for-service revenue from providing primary care services to patients in our offices when we bill the member or their insurance plan on a fee-for-service basis as medical services are rendered. While significantly all of our patients are members, we occasionally also provide care to non-members.
Membership Revenue. We generate membership revenue from the annual membership fees charged to either consumer members or enterprise clients, who purchase access to memberships for their employees and dependents. Membership revenue also includes fees we receive from enterprise clients for trial memberships or for access to our One Medical Now service offering. Membership revenue is recognized ratably over the contract period with the individual member or enterprise client.
Grant Income. Under the CARES Act, we were eligible for and received grant
income from the
The following table summarizes our net revenue by primary source as a percentage of net revenue. Amounts may not sum due to rounding.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net revenue:
Capitated revenue 50 % 20 % 50 % 8 %
Fee-for-service and other revenue 1 % 0.4 % 1 % 0.2 %
Total Medicare revenue 51 % 20 % 51 % 8 %
Partnership revenue 25 % 36 % 25 % 42 %
Net fee-for-service revenue 14 % 30 % 15 % 34 %
Membership revenue 10 % 14 % 10 % 16 %
Grant income - % - % - % 0.4 %
Total commercial revenue 49 % 80 % 49 % 92 %
Total net revenue 100 % 100 % 100 % 100 %
Operating Expenses
Medical Claims Expense
Medical claims expenses primarily consist of certain third-party medical expenses paid by payers contractually on behalf of us, including costs for inpatient and outpatient services, certain pharmacy benefits and physician services but excludes cost of care, exclusive of depreciation and amortization. We expect our medical claims expense to increase in absolute dollars as our Capitated Revenue increases in future periods.
Cost of Care, Exclusive of Depreciation and Amortization
Cost of care primarily includes provider and support employee-related costs for
both virtual and in-office care, occupancy costs, medical supplies, insurance
and other operating costs. Providers include doctors of medicine, doctors of
osteopathy, nurse practitioners, physician assistants, and behavioral health
specialists. Support employees include registered nurses, phlebotomists, health
coaches, and administrative assistants assisting our members with all
non-medical related services. Virtual care includes video visits and other
synchronous and asynchronous communication via our app and website. A large
portion of these costs are relatively fixed regardless of member utilization of
our services. As we open new offices, and expand into new geographies, we expect
cost of care to increase. Our cost of care, exclusive of depreciation and
amortization, also excludes stock-based compensation.
37
--------------------------------------------------------------------------------Sales and Marketing
Sales and marketing expenses consist of employee-related expenses, including salaries and related costs, commissions and stock-based compensation costs for our employees engaged in marketing, sales, account management and sales support. Sales and marketing expenses also include advertising production and delivery costs of communications materials that are produced to generate greater awareness and engagement among our clients and members, third-party independent research, trade shows and brand messages and public relations costs. We expect our sales and marketing expenses to increase as we strategically invest to expand our business. We expect to hire additional sales personnel and related account management and sales support personnel to capture an increasing amount of our market opportunity. We also expect to continue our brand awareness and targeted marketing campaigns. As we scale our sales and marketing, we expect these expenses to increase in absolute dollars.
General and Administrative
General and administrative expenses include employee-related expenses, including salaries and related costs and stock-based compensation for all employees except sales and marketing teams, which are included in the sales and marketing expenses. In addition, general and administrative expenses include corporate technology, occupancy costs, legal and professional services expenses.
We expect our general and administrative expenses to increase over time due to the additional costs associated with continuing to grow our business.
Depreciation and Amortization
Depreciation and amortization consist primarily of depreciation of property and equipment and amortization of capitalized software development costs.
Other Income (Expense)
Interest Income
Interest income consists of income earned on our cash and cash equivalents, restricted cash and marketable securities.
Interest and Other Income (Expense)
Interest and other income (expense) consists of interest costs associated with our notes payable issued pursuant to our convertible senior notes (the "2025 Notes"). Interest and other income (expense) also consists of remeasurement adjustment related to our indemnification asset. Upon the close of the Iora acquisition, as part of the merger agreement (the "Iora Merger Agreement"), certain shares of our common stock were placed into a third-party escrow account to satisfy any then pending and unsatisfied or unresolved claim for indemnification for any indemnifiable loss incurred by us pursuant to the indemnity provisions of the Iora Merger Agreement. The indemnification asset is subject to remeasurement at each reporting date until the shares are released from escrow, with the remeasurement adjustment reported as interest and other income (expense) in our condensed consolidated statement of operations. Interest and other income (expense) also consists of the gain recognized upon the settlement of contingently returnable consideration.
Provision for (Benefit from) Income Taxes
We account for income taxes using an asset and liability approach. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Valuation allowances are provided when
necessary to reduce net deferred tax assets to an amount that is more likely
than not to be realized.
In determining whether a valuation allowance for deferred tax assets is
necessary, we analyze both positive and negative evidence related to the
realization of deferred tax assets and inherent in that, assess the likelihood
of sufficient future taxable income. We also consider the expected reversal of
deferred tax liabilities and analyze the period in which these would be expected
to reverse to determine whether the taxable temporary difference amounts serve
as an adequate source of future taxable income to support the realizability of
the deferred tax assets.
38
--------------------------------------------------------------------------------Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our net revenue for those periods. Percentages presented in the following tables may not sum due to rounding.
Comparison of the Three and Nine Months Ended
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
(dollar amounts in thousands) (dollar amounts in thousands)
Net revenue:
Medicare revenue $ 133,291 51 % $ 30,462 20 % $ 392,307 51 % $ 30,462 8 %
Commercial revenue 128,078 49 % 120,871 80 % 379,003 49 % 362,639 92 %
Total net revenue 261,369 100 % 151,333 100 % 771,310 100 % 393,101 100 %
Operating expenses:
Medical claims expense 102,216 39 % 26,085 17 % 316,082 41 % 26,085 7 %
Cost of care, exclusive of
depreciation and amortization
shown separately below 110,654 42 % 78,443 52 % 318,979 41 % 216,457 55 %
Sales and marketing (1) 26,382 10 % 14,380 10 % 72,034 9 % 37,639 10 %
General and administrative (1) 116,081 44 % 93,070 62 % 305,539 40 % 234,611 60 %
Depreciation and amortization 23,314 9 % 12,045 8 % 65,990 9 % 25,944 7 %
Total operating expenses 378,647 145 % 224,023 148 % 1,078,624 140 % 540,736 138 %
Loss from operations (117,278) (45) % (72,690) (48) % (307,314) (40) % (147,635) (38) %
Other income (expense), net:
Interest income 630 - % 535 - % 1,151 - % 719 - %
Interest and other income
(expense) 76 - % (4,464) (3) % (8,725) (1) % (10,149) (3) %
Total other income (expense),
net 706 - % (3,929) (3) % (7,574) (1) % (9,430) (2) %
Loss before income taxes (116,572) (45) % (76,619) (51) % (314,888) (41) % (157,065) (40) %
Provision for (benefit from)
income taxes (4,535) (2) % 1,984 1 % (18,183) (2) % 2,143 1 %
Net loss $ (112,037) (43) % $ (78,603) (52) % $ (296,705) (38) % $ (159,208) (41) %
(1) Includes stock-based compensation, as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
(dollar amounts in thousands) (dollar amounts in thousands)
Sales and marketing $ 1,706 1 % $ 884 1 % $ 3,974 1 % $ 2,871 1 %
General and administrative 36,790 14 % 27,650 18 % 103,777 13 % 78,323 20 %
Total $ 38,496 15 % $ 28,534 19 % $ 107,751 14 % $ 81,194 21 %
39--------------------------------------------------------------------------------
Net Revenue
Three Months Ended September 30, Nine Months Ended September 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Net revenue:
Capitated revenue $ 130,811 $ 29,872 $ 100,939 338 % $ 383,962 $ 29,872 $ 354,090 1185 %
Fee-for-service and other
revenue 2,480 590 1,890 320 % 8,345 590 7,755 1314 %
Total Medicare revenue 133,291 30,462 102,829 338 % 392,307 30,462 361,845 1188 %
Partnership revenue 66,173 54,547 11,626 21 % 190,509 165,604 24,905 15 %
Net fee-for-service revenue 35,797 44,835 (9,038) (20) % 113,051 132,713 (19,662) (15) %
Membership revenue 26,108 21,489 4,619 21 % 75,443 62,559 12,884 21 %
Grant income - - - - % - 1,763 (1,763) (100) %
Total commercial revenue 128,078 120,871 7,207 6 % 379,003 362,639 16,364 5 %
Total net revenue $ 261,369 $ 151,333 $ 110,036 73 % $ 771,310 $ 393,101 $ 378,209 96 %
Medicare revenue increased $102.8 million for the three months ended September
30, 2022 compared to the same period in 2021. Medicare revenue increased $361.8
million for the nine months ended September 30, 2022 compared to the same period
in 2021. The increase was mainly due to three months of revenue contribution in
the current quarter from our acquired Iora business as compared with one month
of revenue contribution in 2021.
Commercial revenue increased $7.2 million , or 6%, for the three months ended
September 30, 2022 compared to the same period in 2021. Commercial revenue
increased $16.4 million , or 5% for the nine months ended September 30, 2022
compared to the same period in 2021. The increase was primarily due to an
increase in Consumer and Enterprise members by 92,000, or 13%, from 683,000 as
of September 30, 2021 to 775,000 as of September 30, 2022 , partially offset by a
decrease in total billable visits.
Partnership revenue increased $11.6 million , or 21%, for the three months ended
September 30, 2022 compared to the same period in 2021. Partnership revenue
increased $24.9 million , or 15%, for the nine months ended September 30, 2022
compared to the same period in 2021. The increase was primarily a result of new
and expanded partnerships with health networks, new and expanded on-site medical
services for enterprise clients and an increase in Consumer and Enterprise
members, partially offset by a decrease in COVID-19 on-site testing services for
employers, schools and universities during the three and nine months ended
September 30, 2022 .
Net fee-for-service revenue decreased $9.0 million , or 20%, for the three months
ended September 30, 2022 compared to the same period in 2021. Net
fee-for-service revenue decreased $19.7 million , or 15%, for the nine months
ended September 30, 2022 compared to the same period in 2021. The decrease was
primarily due to a decrease in total billable visits, partially offset by an
increase in Consumer and Enterprise members for the three and nine months ended
September 30, 2022 .
Membership revenue increased $4.6 million , or 21%, for the three months ended
September 30, 2022 compared to the same period in 2021. Membership revenue
increased $12.9 million , or 21%, for the nine months ended September 30, 2022
compared to the same period in 2021. The increase was primarily due to an
increase in Consumer and Enterprise members of 92,000, or 13%, from 683,000 as
of September 30, 2021 to 775,000 as of September 30, 2022 .
40
--------------------------------------------------------------------------------
Operating Expenses
Medical claims expense
Three Months Ended September
30, Nine Months Ended September 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Medical claims expense $ 102,216 $ 26,085 $ 76,131 292% $ 316,082 $ 26,085 $ 289,997 1112%
Medical claims expense increased $76.1 million for the three months ended
September 30, 2022 compared to the same period in 2021. Medical claims expense
increased $290.0 million for the nine months ended September 30, 2022 compared
to the same period in 2021. The increase was mainly due to three months of
medical claims expenses in the current quarter from our acquired Iora business
as compared with one month of medical claims expenses in 2021.
Cost of Care, Exclusive of Depreciation and Amortization
Three Months Ended September
30, Nine Months Ended September 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Cost of care, exclusive of
depreciation and amortization $ 110,654 $ 78,443 $ 32,211 41 % $ 318,979 $ 216,457 $ 102,522 47 %
The $32.2 million , or 41%, increase in cost of care, exclusive of depreciation
and amortization, for the three months ended September 30, 2022 compared to the
same period in 2021 was primarily due to increases in provider employee and
support employee-related expenses of $23.8 million , occupancy costs of $6.1
million , and medical supply costs of $1.1 million . In addition to growth in our
existing offices, we added 37 offices since September 30, 2021 , bringing our
total number of offices to 214 as of September 30, 2022 . The cost of care and
total offices in 2022 include offices from our acquired Iora business.
The $102.5 million , or 47%, increase in cost of care, exclusive of depreciation
and amortization, for the nine months ended September 30, 2022 compared to the
same period in 2021 was primarily due to increases in provider employee and
support employee-related expenses of $72.0 million , occupancy costs of $24.5
million , and medical supply costs of $3.1 million . In addition to growth in our
existing offices, we added 37 offices since September 30, 2021 , bringing our
total number of offices to 214 as of September 30, 2022 . The cost of care and
total offices in 2022 include offices from our acquired Iora business.
Cost of care, exclusive of depreciation and amortization, as a percentage of net
revenue decreased from 52% for the three months ended September 30, 2021 to 42%
for the three months ended September 30, 2022 . Cost of care, exclusive of
depreciation and amortization, as a percentage of net revenue decreased from 55%
for the nine months ended September 30, 2021 to 41% for the nine months ended
September 30, 2022 . The decrease was primarily due to the impact of our acquired
Iora business.
Sales and Marketing
Three Months Ended September Nine Months Ended September
30, 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Sales and marketing $ 26,382 $ 14,380 $ 12,002 83 % $ 72,034 $ 37,639 $ 34,395 91 %
Sales and marketing expenses increased
41
--------------------------------------------------------------------------------Sales and marketing expenses increased$34.4 million , or 91%, for the nine months endedSeptember 30, 2022 compared to the same period in 2021. This increase was primarily due to a$19.8 million increase in advertising expenses and a$11.8 million increase in employee-related expenses. The sales and marketing expenses in 2022 includes sales and marketing expenses from our acquired Iora business. General and Administrative Three Months Ended September 30, Nine Months Ended September 30, % % 2022 2021 $ Change Change 2022 2021 $ Change Change (dollar amounts in thousands) (dollar amounts in thousands) General and administrative$ 116,081 $ 93,070 $ 23,011 25 %$ 305,539 $ 234,611 $ 70,928 30 % The$23.0 million , or 25%, increase in general and administrative expenses for the three months endedSeptember 30, 2022 compared to the same period in 2021 was primarily due to higher employee-related expenses of$27.3 million , as we expanded our team to support our growth, and a$2.1 million increase in enterprise software costs. The general and administrative expenses in 2022 includes general and administrative expenses from our acquired Iora business. The$70.9 million , or 30%, increase in general and administrative expenses for the nine months endedSeptember 30, 2022 compared to the same period in 2021 was primarily due to higher employee-related expense of$75.8 million , as we expanded our team to support our growth, and a$7.2 million increase in enterprise software costs. The general and administrative expenses in 2022 includes general and administrative expenses from our acquired Iora business.
Depreciation and Amortization
Three Months Ended September Nine Months Ended September
30, 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Depreciation and amortization
94 % $ 65,990 $ 25,944 $ 40,046 154 %
Depreciation and amortization expenses increased $11.3 million , or 94%, for the
three months ended September 30, 2022 compared to the same period in 2021.
Depreciation and amortization expenses increased $40.0 million , or 154%, for the
nine months ended September 30, 2022 compared to the same period in 2021. This
increase was primarily due to depreciation and amortization expenses recognized
related to new medical offices, capitalization of software development, upgraded
office software, and the Iora acquisition during the three and nine months ended
September 30, 2022 .
Other Income (Expense)
Interest Income
Three Months Ended September Nine Months Ended September
30, 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Interest income $ 630 $ 535 $ 95 18 % $ 1,151 $ 719 $ 432 60 %
Interest income increased $0.1 million , or 18%, for the three months ended
September 30, 2022 compared to the same period in 2021. Interest income
increased $0.4 million , or 60% for the nine months ended September 30, 2022 . The
increase was primarily due to higher interest yields from investments and money
market fund, and partially offset by a decrease in interest earned from a loan
to Iora.
42
--------------------------------------------------------------------------------Interest and Other Income (Expense)
Three Months Ended September 30, Nine Months Ended September 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Interest and other income
(expense) $ 76 $ (4,464) $ 4,540 (102)% $ (8,725) $ (10,149) $ 1,424 (14) %
Interest and other income (expense) decreased $4.5 million , or 102%, for the
three months ended September 30, 2022 compared to the same period in 2021.
Interest and other income (expense) decreased $1.4 million , or 14%, for the nine
months ended September 30, 2022 compared to the same period in 2021. The
decrease was primarily due to $2.4 million unrealized gain recorded for the
indemnification asset recognized as a result of the Iora acquisition and $0.5
million gain recorded for contingently returnable consideration related to an
acquisition.
Provision for (Benefit from) Income Taxes
Three Months Ended September Nine Months Ended September
30, 30,
% %
2022 2021 $ Change Change 2022 2021 $ Change Change
(dollar amounts in thousands) (dollar amounts in thousands)
Provision for (benefit from)
income taxes $ (4,535) $ 1,984 $ (6,519) (329)% $ (18,183) $ 2,143 $ (20,326) (948) %
Provision for (benefit from) income taxes decreased $6.5 million from a
provision of $2.0 million for the three months ended September 30, 2021 to a
benefit of $4.5 million for the three months ended September 30, 2022 . Provision
for (benefit from) income taxes decreased $20.3 million from a provision of $2.1
million for the nine months ended September 30, 2021 to a benefit of $18.2
million for the nine months ended September 30, 2022 . The decrease was primarily
due to amortization of identified intangibles.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily with the issuance of the 2025 Notes, our initial public offering, the sale of redeemable convertible preferred stock, and to a lesser extent, the issuance of term notes under credit facilities. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$267.2 million , compared to$501.9 million as ofDecember 31, 2021 . We believe that our existing cash, cash equivalents, marketable securities, and the interim debt funding from Amazon will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of available cash, cash equivalents and marketable securities, cash flows from operating activities, and access to private and public financing sources, including the interim debt financing as described below. Our principal commitments consist of the principal amount of debt outstanding from convertible senior notes dueJune 2025 and obligations under our operating leases for office space. We expect capital expenditures to increase in future periods to support growth initiatives in existing and new markets. We may be required to seek additional equity or debt financing. Our future capital requirements will depend on many factors, including our pace of new member growth and expanded enterprise client and health network relationships, our pace and timing of expansion of new medical offices or services in existing and new markets, the timing and extent of spend to support the expansion of sales, marketing and development activities, acquisitions and related costs, and the impact of the COVID-19 pandemic. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations would be harmed, and we may be forced to adjust our growth plans and capital expenditures as a result. See "Part II-Item 1A-Risk Factors - In order to support the growth of our business, we may need to incur additional indebtedness or seek capital through new equity or debt financings, which sources of additional capital may not be available to us on acceptable terms or at all." 43 --------------------------------------------------------------------------------
In addition, given the uncertainty around the duration and extent of the COVID-19 pandemic, we cannot accurately predict at this time the future potential impact of the pandemic on our business, results of operations, financial condition or liquidity.
There have been no material changes to our material cash requirements from
contractual and other obligations as of
OnJuly 20, 2022 , we entered into a Merger Agreement with Amazon. We have agreed to various covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the effective time. Outside of certain limited exceptions, we may not take, agree, resolve, announce an intention, enter into any formal or informal agreement or otherwise make a commitment to do certain actions without Amazon's consent, including, but not limited to:
•acquiring businesses and disposing of significant assets;
•incurring expenditures above specified thresholds;
•entering into material contracts;
•issuing additional equity or debt securities, or incurring additional indebtedness; and
•repurchasing shares of our outstanding common stock.
We do not believe these restrictions will prevent us from meeting our ongoing costs of operations, working capital needs, or capital expenditure requirements.
Additionally, under the Merger Agreement, Amazon has agreed to provide senior unsecured interim debt financing to us in an aggregate principal amount of up to$300.0 million to be funded in up to ten tranches of$30.0 million per month, beginning onMarch 20, 2023 until the earlier of the closing of the Amazon Merger and the termination of the Merger Agreement pursuant to its terms, with a maturity date of 24 months after the termination of the Merger Agreement pursuant to its terms. We will agree to certain restrictive covenants and events of default customary for transactions of this type in connection with the interim debt financing, and other terms and conditions to be set forth in definitive agreements to be entered into by the parties in connection with the financing.
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