1LIFE HEALTHCARE, INC. The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements and accompanying notes included elsewhere in this Annual Report. This discussion includes both historical information and forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Our results of operations include the results of operations of Iora for the period from the close of our acquisition onSeptember 1, 2021 onward. 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 Annual Report on Form 10-K. In addition, this Annual 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. FromDecember 31, 2016 throughDecember 31, 2022 , inclusive of our acquisition of Iora, we grew our membership by 207%. During the twelve months endedDecember 31, 2022 as compared to the twelve months endedDecember 31, 2017 , inclusive of our acquisition of Iora, our net revenue grew 491%, our digital interactions grew 243%, and the number of in-office visits grew 52%. As ofDecember 31, 2022 , we have grown to approximately 836,000 total members including 796,000 Consumer and Enterprise members and 40,000 At-Risk members, 221 medical offices in 27 markets, and have greater than 9,000 enterprise clients acrossthe United States .
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 indirect subsidiary of Amazon. The consummation of the Amazon Merger is subject to a number of closing conditions, including, among others, the receipt of certain regulatory approvals, as well as other customary closing conditions. Under the Merger Agreement, and pursuant to an Interim Loan and Guaranty Agreement (the "Loan 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 65 -------------------------------------------------------------------------------- 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. Among other terms and conditions, the Company has agreed to certain restrictive covenants and events of default customary for transactions of this type in connection with the debt financing. We intend to draw on the Loan Agreement, beginningMarch 2023 , if the Amazon Merger has not closed prior to that date. 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 I, Item 1A of this Annual Report on Form 10-K 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.
If some of the precautionary measures related to the COVID-19 pandemic are
reinstated or some of the challenges related to the COVID-19 pandemic resurface,
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 our recent increase in membership, aggregate reimbursement, and revenue
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. 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.
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted
on March 27, 2020 . Intended to provide economic relief to those impacted by the
COVID-19 pandemic, the CARES Act includes various tax and lending provisions,
among others. Under the CARES Act, we received income grants of $1.8 million and
$2.6 million from the Provider Relief Fund administered by the Department of
Health and Human Services ("HHS"), which we recognized as Grant income during
the years ended December 31, 2021 and 2020, respectively. The Company did not
receive any income grants from HHS during the year ended December 31, 2022 .
Please see Note 5, "Revenue Recognition" to our consolidated financial
statements in Part IV, Item 15 of this Annual Report on Form 10-K.
Acquisition of Iora
OnSeptember 1, 2021 , we acquired all outstanding equity and capital stock ofIora Health, Inc. ("Iora"), a human-centered, value-based primary care group with built-for-purpose technology focused on serving the Medicare population, for an aggregate purchase consideration of approximately$1.4 billion . Iora developed an innovative, technology-enabled, and relationship-based health care delivery model designed to provide value-based primary care and aims to deliver superior health outcomes and lower overall health care costs primarily for the Medicare population. During 2021, we incurred approximately$39.5 million expenses related to this transaction. Our results of operations include the activity of Iora beginning from the close of our acquisition onSeptember 1, 2021 . See Note 8, "Business Combinations" to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.
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 ofDecember 31, 2022 , we had 221 medical offices, compared to 182 medical offices as ofDecember 31, 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. 66 --------------------------------------------------------------------------------
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 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 49% of total net revenue, respectively, for the year endedDecember 31, 2022 . 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, primarily 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 payments from the health network partners in lieu of per visit fees for services from member office visits. See "Business-Our Health Network Partnerships" in Part I, Item 1 of this Annual Report on Form 10-K.
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 ofDecember 31, 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 70% and 63% for the years endedDecember 31, 2022 and 2021, respectively. Membership revenue and partnership revenue as a percentage of total net revenue was 34% and 50% for the years endedDecember 31, 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 (now
redesigned and renamed the ACO REACH Program), (iv) expansion of Medicare
Advantage payers, with whom we contract, and (v) adding other potential
services.
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•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 of December 31, 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, 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.
•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
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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, including seasonal trends such as influenza and COVID-19.
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 the 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, (iii) adding additional geographies where we
participate in At-Risk arrangements, and (iv) aligning additional Medicare
patients to us as part of our ACO REACH participation.
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 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.
Year Ended December 31,
2022 2021 2020
(in thousands except for members)
Members (as of the end of the period)
Consumer and Enterprise 796,000 703,000 549,000
At-Risk 40,000 33,000 -
Total 836,000 736,000 549,000
Net revenue $ 1,045,547 $ 623,315 $ 380,223
Care margin $ 184,389 $ 188,133 $ 145,264
Adjusted EBITDA $ (144,101) $ (34,858) $ (13,890)
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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
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 ofDecember 31, 2022 , we had 796,000 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 ofDecember 31, 2022 , we had 40,000 At-Risk members.
Members (in thousands)*
[[Image Removed: onem-20221231_g2.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, 2022 , we had 7,000 Other Patients. 70 --------------------------------------------------------------------------------
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. See "Risk Factors-Risks Related to Taxation and Accounting Standards" included under Part I, Item 1A of this Annual Report on Form 10-K for additional information on risks related to estimates and judgments about liability for medical claims that are incurred but not yet reported. 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. The following table provides a calculation of the Medical Claims Expense Ratio for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 (in thousands) (in thousands) Medical claims expense$ 419,659 $ 116,543 Capitated Revenue$ 517,395 $ 126,609 Medical Claims Expense Ratio 81 % 92 %
Medical Claims Expense Ratio Cohort Trends: 2018 (and prior) to 2022
The following graph presents the historical Medical Claims Expense Ratio and includes our performance in the ACO Reach Program beginning in 2022. We believe the 2018 and prior to 2022 cohorts are a fair representation of our overall patient population because they include patients across geographies and demographics.
[[Image Removed: onem-20221231_g3.jpg]]
(1) The 2022 performance year data includes Medicare Advantage and the ACO REACH Program (formerly CMS' Direct Contracting Program).
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The following graph presents our At-Risk members by sign-up year and includes
members from the ACO REACH Program beginning in 2022. We believe the 2018 and
prior to 2022 cohorts are a fair representation of our overall patient
population because they include patients across geographies and demographics.
[[Image Removed: onem-20221231_g4.jpg]]
(1) The 2022 performance year data includes Medicare Advantage and the ACO REACH Program (formerly CMS' Direct Contracting Program).
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:
Year Ended December 31,
2022 2021 2020
(in thousands)
Loss from operations $ (419,695) $ (243,484) $ (71,359)
Sales and marketing* 97,065 61,994 36,967
General and administrative* 415,834 323,127 157,282
Depreciation and amortization 91,185 46,496 22,374
Care margin$ 184,389 $ 188,133 $ 145,264 Care margin as a percentage of net revenue 18 % 30 %
38 %
*Includes stock-based compensation
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--------------------------------------------------------------------------------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, change in the fair value of our redeemable convertible preferred stock warrant liability, 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 Annual 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:
•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:
Year Ended December 31,
2022 2021 2020
(in thousands)
Net loss $ (397,847) $ (254,641) $ (89,421)
Interest income (2,015) (798) (1,809)
Interest and other income (expense) 11,681 13,757 13,434
Depreciation and amortization 91,185 46,496 22,374
Stock-based compensation 146,916 112,298 35,095
Change in fair value of redeemable convertible preferred stock warrant liability
- - 6,560
Provision for (benefit from) income taxes (31,514) (1,802) (123)
Legal or advisory costs (1) (2) 547 16,514 -
Acquisition and integration costs 36,946 33,318 -
Adjusted EBITDA $ (144,101) $ (34,858) $ (13,890) Approximately
Contingencies".
Amount excludes approximately
advisory costs from Adjusted EBITDA starting from the first quarter of 2021.
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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 per month, 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, and 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 primarily 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 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 theProvider Relief Fund administered by HHS during the years endedDecember 31, 2021 and 2020. The purpose of the payment is to reimburse us for healthcare-related expenses or lost revenues attributable to COVID-19. The Company did not receive any income grants from the HHS for the year-endedDecember 31, 2022 .
The following table summarizes our Company's net revenue by primary source as a percentage of net revenue. Amounts may not sum due to rounding.
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Year Ended December 31,
2022 2021 2020
Net revenue:
Capitated revenue 49 % 20 % - %
Fee-for-service and other revenue 1 % 0.5 % - %
Total Medicare revenue 51 % 21 % - %
Partnership revenue 25 % 36 % 42 %
Net fee-for-service revenue 15 % 29 % 39 %
Membership revenue 10 % 14 % 18 %
Grant income - % 0.3 % 0.7 %
Total commercial revenue 49 % 79 % 100 %
Total net revenue 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.
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.
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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 consolidated statement of operations. Interest and other income (expense) also consists of the gain recognized upon the settlement of contingent consideration.
Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liability
Prior to our initial public offering inJanuary 2020 , we classified our redeemable convertible preferred stock warrants as a liability in our consolidated balance sheets. We remeasured the redeemable convertible preferred stock warrant liability to fair value at each reporting date and recognized changes in the fair value of the redeemable convertible preferred stock warrant liability as a component of other income (expense), net in our consolidated statements of operations. Upon the closing of our initial public offering, the warrants to purchase shares of redeemable convertible preferred stock became exercisable for shares of common stock, at which time we adjusted the redeemable convertible preferred stock warrant liability to fair value prior to reclassifying the redeemable convertible preferred stock warrant liability to additional paid-in capital. As a result, following the closing of our initial public offering, the warrants are no longer subject to fair value accounting.
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.
Net Loss Attributable to Noncontrolling Interest
InSeptember 2014 , we entered into a joint venture agreement with a healthcare system to jointly operate physician-owned primary care offices in a market. We had the responsibility for the provision of medical services and for the day-to-day operation and management of the offices, including the establishment of guidelines for the employment and compensation of the physicians. Based upon this and other provisions of the operating agreement that indicated that we directed the economic activities that most significantly affect the economic performance of the joint venture, we determined that the joint venture was a variable interest entity and we were the primary beneficiary. Accordingly, we consolidated the joint venture and the healthcare system's interest was shown within equity (deficit) as noncontrolling interest. The healthcare system's share of earnings was recorded in the consolidated statements of operations as net loss attributable to noncontrolling interest. 76 -------------------------------------------------------------------------------- EffectiveApril 1, 2020 , we terminated the joint venture agreement with the healthcare system and transferred our ownership interest in the joint venture to the healthcare system. As a result, we determined that the joint venture no longer met the definition of a variable interest entity and accordingly, we determined that the joint venture was no longer required to be consolidated under the variable interest entity model. The joint venture was deconsolidated in the consolidated financial statements as ofApril 1, 2020 and we derecognized all assets and liabilities of the joint venture. We did not record a gain or loss in association with the deconsolidation as we did not retain any noncontrolling interest in the joint venture and no consideration was transferred as a result of the ownership interest transfer to the healthcare system. The consolidated statement of operations for the year endedDecember 31, 2020 includes the operations of the joint venture through the date of deconsolidation. The consolidated balance sheets as ofDecember 31, 2022 andDecember 31, 2021 and the consolidated statement of operations for the years endedDecember 31, 2022 and 2021 do not include the operations of the joint venture.
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.
Year Ended
2022 2021
% of % of
Amount Revenue Amount Revenue
(dollar amounts in thousands)
Net revenue:
Medicare revenue $ 528,909 51 % $ 129,979 21 %
Commercial revenue 516,638 49 % 493,336 79 %
Total net revenue 1,045,547 100 % 623,315 100 %
Operating expenses:
Medical claims expense 419,659 40 % 116,543 19 %
Cost of care, exclusive of depreciation and
amortization shown separately below 441,499 42 % 318,639 51 %
Sales and marketing (1) 97,065 9 % 61,994 10 %
General and administrative (1) 415,834 40 % 323,127 52 %
Depreciation and amortization 91,185 9 % 46,496 7 %
Total operating expenses 1,465,242 140 % 866,799 139 %
Loss from operations (419,695) (40) % (243,484) (39) %
Other income (expense), net:
Interest income 2,015 - % 798 - %
Interest and other income (expense) (11,681) (1) % (13,757) (2) %
Total other income (expense), net (9,666) (1) % (12,959) (2) %
Loss before income taxes (429,361) (41) % (256,443) (41) %
Provision for (benefit from) income taxes (31,514) (3) % (1,802) - %
Net loss $ (397,847) (38) % $ (254,641) (41) %
(1)Includes stock-based compensation, as follows:
Year Ended December 31,
2022 2021
% of % of
Amount Revenue Amount Revenue
(dollar amounts in thousands)
Sales and marketing $ 3,618 - % $ 4,136 1 %
General and administrative 143,298 14 % 108,162 17 %
Total $ 146,916 14 % $ 112,298 18 %
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Comparison of the Years Ended
Net Revenue
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Net revenue:
Capitated revenue $ 517,395 $ 126,609 $ 390,786 309 %
Fee-for-service and other revenue 11,514 3,370 8,144 242 %
Total Medicare revenue 528,909 129,979 398,930 307 %
Partnership revenue 257,309 224,051 33,258 15 %
Net fee-for-service revenue 157,239 181,811 (24,572) (14) %
Membership revenue 102,090 85,711 16,379 19 %
Grant income - 1,763 (1,763) (100) %
Total commercial revenue 516,638 493,336 23,302 5 %
Total net revenue $ 1,045,547 $ 623,315 $ 422,232 68 %
Medicare revenue increased $398.9 million for the year ended December 31, 2022
compared to the same period in 2021. The increase was mainly due to (i) twelve
months of revenue contribution in 2022 from our acquired Iora business as
compared with four months of revenue contribution in 2021; (ii) an increase in
the number of At-Risk members in 2022 compared to 2021; and (iii) an increase in
PMPM fees.
Commercial revenue increased $23.3 million , or 5%, for the year ended
December 31, 2022 compared to the same period in 2021. The increase was
primarily due to an increase in Consumer and Enterprise members by 93,000, or
13%, from 703,000 as of December 31, 2021 to 796,000 as of December 31, 2022 ,
partially offset by a decrease in total billable visits, driven by a reduction
in COVID-19 related visits.
Partnership revenue increased $33.3 million , or 15%, for the year ended
December 31, 2022 compared to the same period in 2021. The increase was
primarily a result of the 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 year
ended December 31, 2022 .
Net fee-for-service revenue decreased $24.6 million , or 14%, for the year ended
December 31, 2022 compared to the same period in 2021. The decrease was
primarily due to a decrease in total billable visits, driven by a reduction in
COVID-19 related visits.
Membership revenue increased $16.4 million , or 19%, for the year ended
December 31, 2022 compared to the same period in 2021. The increase was
primarily due to an increase in Consumer and Enterprise members by 93,000, or
13%, from 703,000 as of December 31, 2021 to 796,000 as of December 31, 2022 , as
well as an increase in revenue realized per member.
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Operating Expenses
Medical claims expense
Year Ended
December 31,
2022 2021 $ Change % Change
(dollar amounts in thousands)
Medical claims expense $ 419,659 $ 116,543 $ 303,116 260 %
Medical claims expense increased$303.1 million , or 260%, for the year endedDecember 31, 2022 compared to the same period in 2021. The increase was mainly due to (i) twelve months of medical claims expenses in the current year from our acquired Iora business as compared with four months of medical claims expenses in 2021 and (ii) an increase in the number of At-risk members in 2022 compared to 2021.
Cost of Care, Exclusive of Depreciation and Amortization
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Cost of care, exclusive of depreciation and
amortization $ 441,499 $ 318,639 $ 122,860 39 %
The $122.9 million , or 39%, increase in cost of care, exclusive of depreciation
and amortization, for the year ended December 31, 2022 compared to the same
period in 2021 was primarily due to increases in provider employees and support
employee-related expenses of $86.9 million , occupancy costs of $28.9 million ,
and medical supply costs of $2.4 million . This was partially offset by a
decrease in COVID-19 testing sites and related security expenses of $3.7 million
. In addition to growth in our existing offices, we added 39 offices during the
year, bringing our total number of offices to 221 as of December 31, 2022 . The
cost of care in 2022 includes a full year of expenses for offices acquired as
part of the Iora acquisition, as compared with four months of such expenses in
2021.
Cost of care, exclusive of depreciation and amortization, as a percentage of net
revenue decreased from 51% for the year ended December 31, 2021 to 42% for the
year ended December 31, 2022 . The decrease was primarily due to the impact of
our acquired Iora business.
Sales and Marketing
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Sales and marketing $ 97,065 $ 61,994 $ 35,071 57 %
Sales and marketing expenses increased $35.1 million , or 57%, for the year ended
December 31, 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 a full year of sales and marketing expenses from our acquired
Iora business as compared with four months of such expenses in 2021.
General and Administrative
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Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
General and administrative $ 415,834 $ 323,127 $ 92,707 29 %
The $92.7 million , or 29%, increase in general and administrative expenses for
the year ended December 31, 2022 compared to the same period in 2021 was
primarily due to higher employee-related expenses of $96.0 million , as we
expanded our team to support our growth, a $8.4 million increase in enterprise
software costs, and $7.5 million increase in travel and employee costs. The
increase was partially offset by a decrease of $26.3 million in legal and
professional services costs. The general and administrative expenses in 2022
includes a full year of general and administrative expenses from our acquired
Iora business as compared with four months of such expenses in 2021.
Depreciation and Amortization
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Depreciation and amortization
96 % Depreciation and amortization expenses increased$44.7 million , or 96%, for the year endedDecember 31, 2022 compared to the same period in 2021. This increase was primarily due to amortization expenses recognized related to intangible assets acquired through the Iora acquisition, depreciation expenses recognized related to new medical offices, capitalization of software development, and upgraded office software during the year endedDecember 31, 2022 . The depreciation and amortization expenses in 2022 include a full year of depreciation and amortization expenses from our acquired Iora business as compared with four months of such expenses in 2021.
Other Income (Expense)
Interest Income
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Interest income $ 2,015 $ 798 $ 1,217 153 %
Interest income increased $1.2 million , or 153%, for the year ended December 31,
2022 compared to the same period in 2021. The increase was primarily due to
higher interest yields from investments and money market funds, and partially
offset by a decrease in interest earned from a loan to Iora entered into prior
to the date of the acquisition.
Interest and Other Income (Expense)
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Interest and other income (expense)
(15) %
Interest and other income (expense) decreased$2.1 million , or 15%, for the year endedDecember 31, 2022 compared to the same period in 2021. The decrease was primarily due to$1.6 million net unrealized gain recorded for the indemnification asset recognized as a result of the Iora acquisition and$0.5 million gain recorded for contingent consideration related to an acquisition. 80 --------------------------------------------------------------------------------
Provision for (Benefit from) Income Taxes
Year Ended
December 31,
2022 2021 Change % Change
(dollar amounts in thousands)
Provision for (benefit from) income taxes
The provision for (benefit from) income taxes increased$29.7 million from a benefit of$1.8 million for the year endedDecember 31, 2021 to a benefit of$31.5 million for the year endedDecember 31, 2022 . The increase was primarily due to impact of amortization on book basis of identified intangibles and changes in need for valuation allowance.
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 ofDecember 31, 2022 , we had cash, cash equivalents and marketable securities of$262.4 million , compared to$501.9 million as ofDecember 31, 2021 . We believe that our existing cash, cash equivalents, marketable securities and the Loan Agreement 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 Loan Agreement from Amazon 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, and the timing and extent of spend to support the expansion of sales, marketing and development activities, acquisitions and related costs. 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. See "Part I-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." 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 Loan 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 earliest of (i) the 24-month anniversary of the termination of the Merger in accordance with the terms of the Merger Agreement, (ii) if the Merger has not occurred and the Company does not refinance all of its convertible senior notes,January 1, 2025 , (iii) 120 days prior to the maturity date of any indebtedness used to finance the existing 81 -------------------------------------------------------------------------------- convertible senior notes, and (iv)July 22, 2026 . The proceeds will be used for working capital funding requirements and other general corporate purposes of the Company.
The Company's material cash requirements include the following contractual and other obligations:
Debt InMay 2020 , we issued$275.0 million aggregate principal amount of 3.0% convertible senior notes dueJune 2025 in a private offering and inJune 2020 , an additional$41.2 million aggregate principal amount of such notes pursuant to the exercise in full of the over-allotment option by the initial purchasers. The 2025 Notes are unsecured obligations and bear interest at a fixed rate of 3.0% per annum, payable semi-annually in arrears onJune 15 andDecember 15 of each year, commencing onDecember 15, 2020 . As ofDecember 31, 2022 , the principal amount of debt outstanding from the 2025 Notes was$316.3 million . Total interest expense associated with the convertible senior notes is$23.7 million , of which$9.5 million is due within 12 months.
Leases
We have operating lease arrangements for medical offices and our headquarter
office facilities. As of
Other Purchase Obligations
Our other purchase obligations primarily consist of non-cancelable purchase obligations related to professional and technology services and non-cancelable purchase obligations to acquire capital assets. We did not have non-cancellable purchase obligations as ofDecember 31, 2022 .
Summary Statement of Cash Flows
The following table summarizes our cash flows:
Year Ended
December 31,
2022 2021
Net cash used in operating activities $ (211,803) $ (88,566)
Net cash provided by investing activities 27,015 291,804
Net cash provided by financing activities 61,826 27,811
Net (decrease) increase in cash, cash equivalents and restricted
cash $ (122,962) $ 231,049 Cash Flows from Operating Activities
For the year endedDecember 31, 2022 , our net cash used in operating activities was$211.8 million , resulting from our net loss of$397.8 million and net cash used in our working capital of$59.3 million , partially offset by adjustments for non-cash charges of$245.4 million . Cash used in our working capital consisted primarily of a$32.6 million increase in accounts receivables, net, a$30.2 million decrease in operating lease liabilities, a$20.5 million decrease in other liabilities, a$6.6 million decrease in deferred revenue, and a$1.9 million increase in inventory, partially offset by a decrease of$18.6 million in prepaid expenses and other current assets, an increase of$12.5 million in accrued expenses and accounts payable, and a decrease of$1.3 million in other assets. The decrease in other liabilities is mainly due to settlement of a legal liability of$11.5 million . The changes in accounts receivable and deferred revenue are primarily due to timing of billing and cash collections from our health network partners and enterprise clients. The net increase in accrued expenses and accounts payable is primarily related to timing of payments for accrued compensation and accrued interest on our 2025 Notes. For the year endedDecember 31, 2021 , our net cash used in operating activities was$88.6 million , resulting from our net loss of$254.6 million and net cash used by our working capital of$15.7 million , partially offset by adjustments for non-cash charges of$181.7 million . Cash used by our working capital consisted primarily of a$19.0 million increase in prepaid expenses and other current assets, a$20.9 million decrease in operating lease liabilities, and a$16.5 million increase in accounts receivables, net, partially offset by an increase of$20.3 million in other liabilities, an increase of$14.3 million in accrued expenses and accounts payable, an increase of$3.4 million in deferred revenue, and a decrease of$2.8 million in inventory and 82 -------------------------------------------------------------------------------- other assets. The increase in prepaid expenses and other current assets is primarily due to$8.9 million prepaid income taxes and a$6.0 million receivable from insurers related to a legal settlement recovery as described in Note 17 "Commitments and Contingencies" to our consolidated financial statements. The increase in other liabilities is primarily due to an indemnification liability of$13.0 million recognized as part of the Iora acquisition as described in Note 8 "Business Combinations", and a legal settlement liability of$11.5 million as described in Note 17 "Commitments and Contingencies". The changes in accounts receivable and deferred revenue are primarily due to timing of billing and cash collections from our health network partners and enterprise clients. The net increase in accounts payable and accrued expenses is primarily related to timing of payments for accrued compensation and accrued interest on our 2025 Notes.
Cash Flows from Investing Activities
For the year endedDecember 31, 2022 , our net cash provided by investing activities was$27.0 million , resulting primarily from sales and maturities of marketable securities of$166.0 million , partially offset by purchases of marketable securities of$54.9 million , acquisition of business of$10.4 million , and purchases of property and equipment of$73.7 million related to leasehold improvements, computer equipment, and furniture and fixtures for new offices, remodels and improvements to existing offices, capitalization of internal-use software development costs, and office hardware and software. For the year endedDecember 31, 2021 , our net cash provided by investing activities was$291.8 million , resulting primarily from sales and maturities of marketable securities of$624.0 million , partially offset by purchases of marketable securities of$215.3 million , acquisition of business and issuance of note receivable of$53.3 million and purchases of property and equipment of$63.6 million related to leasehold improvements, computer equipment, and furniture and fixtures for new offices, remodels and improvements to existing offices, capitalization of internal-use software development costs, and office hardware and software.
Cash Flows from Financing Activities
For the year endedDecember 31, 2022 , our net cash provided by financing activities was$61.8 million , resulting primarily from exercise of stock options of$58.9 million and proceeds from employee stock purchase plan of$2.5 million , and payment received from acquisition related contingent consideration of$0.5 million .
For the year ended
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
While our significant accounting policies are described in greater detail in Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements included in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Business Combinations
Accounting for business combinations requires us to allocate the fair value of purchase considerations to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values, which were determined primarily using the income method. The excess of the fair value of purchase consideration over the fair values of these identified assets and liabilities is recorded as goodwill. Such valuations require us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, revenue growth rates, medical claims expense, cost of care expenses, operating expenses, trademark royalty rate, contributory asset charges, discount rate, contract terms, and useful life from acquired payer contracts with Medicare Advantage plans and CMS.
Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Allocation of purchase consideration to identifiable assets and liabilities affects our amortization expense, as acquired finite-lived intangible assets are amortized over the useful
83
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life, whereas any indefinite lived intangible assets, including goodwill, are
not amortized. During the measurement period, which is not to exceed one year
from the acquisition date, we may record adjustments to the assets acquired and
liabilities assumed, with the corresponding offset to goodwill. Upon the
conclusion of the measurement period, any subsequent adjustments are recorded to
earnings.
Revenue Recognition
We recognize revenue from contracts with customers using the five-step method described in Note 2 of the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We generate net revenue through Medicare revenue and commercial revenue. We
generate Medicare revenue primarily from Capitated At-Risk arrangements with
Medicare Advantage payers and CMS. We generate commercial revenue from
partnership revenue, net fee-for-service revenue, and membership revenue. We
recognize partnership revenue from contracts with health systems to provide
professional clinical services and the associated management and administrative
services. Our contracts with health systems contain multiple performance
obligations which require an allocation of the transaction price to each
performance obligation based on their relative standalone selling price. We
determine standalone selling price, or SSP, for all our performance obligations
using observable inputs, such as standalone sales and historical contract
pricing. SSP is consistent with our overall pricing objectives, taking into
consideration the type of services. SSP also reflects the amount we would charge
for that performance obligation if it were sold separately in a standalone sale,
and the price we would sell to similar customers in similar circumstances.
We review the contract terms and conditions to evaluate the timing and amount of
revenue recognition, the related contract balances, and our remaining
performance obligations. For our contracts with health systems, we estimate the
variable consideration related to customer rebates or discounts based on our
assessment of historical, current and forecasted performance. These evaluations
require significant judgment that could affect the timing and amount of revenue
recognized.
The transaction price for our capitated At-Risk arrangements with payers
including Medicare Advantage payers and CMS is variable as it primarily includes
PMPM fees for our At-Risk members. PMPM fees can fluctuate throughout the
contract based on the health status (acuity) of each individual member. In
certain contracts, PMPM fees also include "risk adjustments" for items such as
risk shares. The adjustment to the PMPM fees must be estimated due to reporting
lag times, and requires significant judgment. These are estimated using the
expected value methodology based on historical data and actuarial inputs. Final
adjustments related to the contracts may take up to 18 months due to reserves
for claims incurred but not reported. The Capitated Revenue, net of risk shares
and adjustments, is recognized in the month in which eligible members are
entitled to receive healthcare benefits during the contract term. Subsequent
changes in PMPM fees and the amount of revenue to be recognized are reflected
through subsequent period adjustments to properly recognize the ultimate
capitation amount.
For our capitated revenue arrangements, we concluded that we are the principal,
and report revenues on a gross basis. In this assessment, we consider if we
obtain control of the specified services before they are transferred to our
customers, as well as other indicators such as the party primarily responsible
for fulfillment.
Medical Claims Expense
Medical claims expenses are costs for third-party health care service providers
that provide medical care to our At-Risk members for which we are contractually
obligated to pay through our At-Risk arrangements. The IBNR claims liability is
recorded at the contract level and consist of the Company's Capitated Revenue
attributed from enrolled At-Risk members less actual paid medical claims
expense. If the Capitated Revenue exceeds the actual medical claims expense at
the end of the reporting period, such surplus is recorded as capitated accounts
receivable within accounts receivable, net in the consolidated balance sheets.
If the actual medical claims expense exceeds the Capitated Revenue, such deficit
is recorded as capitated accounts payable within other current liabilities in
the consolidated balance sheets. Actual claims expense will differ from the
estimated liability due to factors in estimated and actual member utilization of
healthcare services, the amount of charges and other factors. We assess our
estimates with an independent actuarial expert to ensure our estimates represent
the best, most reasonable estimate given the data available to us at the time
the estimates are made. The actuarial models consider significant assumptions
such as completion factors and per member per month claim trends, as well as
other factors such as health care professional contract rate changes, membership
volume and demographics, the introduction of new technologies and benefit plan
changes.
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We measure stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. For stock option awards issued with market-based vesting conditions, the grant date fair value is determined based on multiple stock price paths developed through the use of a Monte Carlo simulation that incorporates into the valuation the possibility that the market condition may not be satisfied. A Monte Carlo simulation requires the use of various assumptions, including the underlying stock price, volatility, and the risk-free interest rate as of the valuation date, corresponding to the length of the time remaining in the performance period, and expected dividend yield. The expected term represents the derived service period for the respective tranches, which is the longer of the explicit service period or the period in which the market conditions are expected to be met. Stock-based compensation expense associated with market-based awards is recognized over the derived requisite service using the accelerated attribution method, regardless of whether the market conditions are achieved. If the related market conditions are achieved earlier than the derived service period, the stock-based compensation expense will be recognized as a cumulative catch-up expense from the grant date to that point in time in achieving the share price goal. We continue to use judgment in evaluating the expected volatility and expected term utilized in our stock-based compensation expense calculation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates of expected volatility and expected term, which could materially impact our future stock-based compensation expense.
Recent Accounting Pronouncements
Please see Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.
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