The following discussion and analysis of the financial condition and results of
operations of Sharecare, Inc. (for purposes of this section, "the Company,"
"Sharecare," "we," "us" and "our") should be read together with the Company's
audited financial statements as of and for the years ended December 31, 2020,
2019 and 2018, and Sharecare's unaudited interim financial statements as of
September 30, 2021 and for the three and nine months ended September 30, 2021
and 2020 in each case together with the related notes thereto, included
elsewhere in this Quarterly Report on Form 10-Q. Actual results may differ
materially from those contained in any forward-looking statements.
Cautionary Statement Regarding Forward-Looking Statements
Some of the statements and information in this Quarterly Report on Form 10-Q
contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Generally, statements that are not historical
facts, including statements concerning possible or assumed future actions,
business strategies, events or results of operations, are forward-looking
statements. These statements may be preceded by, followed by or include the
words "believes," "estimates," "expects," "forecasts," "may," "will," "should,"
"seeks," "plans," "scheduled," "anticipates," "possible," "continue," "might,"
"potential" or "intends" or similar expressions. Forward-looking statements
contained in this report include, but are not limited to, statements regarding
our expectations as to:
a.our business, operations and financial performance, including:
i.future business plans and growth opportunities, including revenue opportunity
available from new or existing clients and expectations regarding the
enhancement of platform capabilities and addition of new solution offerings;
ii.developments and projections relating to our competitors and the digital
healthcare industry;
iii.the impact of the COVID-19 pandemic on our business and the actions we may
take in response thereto;
iv.our future acquisitions, partnerships or other relationships with third
parties;
v.our future capital requirements as we expand our business following
consummation of the Business Combination and sources and uses of cash, including
our ability to obtain additional capital in the future and fully access our
Revolving Facility; and
vi.our ability to recognize performance-based revenue;
b.our status as an EGC and our intention to take advantage of accommodations
available to EGCs under the JOBS Act;
c.our success in retaining or recruiting, or changes required in, our officers
key employees or directors, including our ability to increase our headcount as
we expand our business following the consummation of the Business Combination;
and
d.the other estimates and matters described in this Quarterly Reports on Form
10-Q under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
These forward-looking statements are based on information available as of the
date of this report, and current expectations, forecasts and assumptions, and
involve a number of judgments, risks and uncertainties. Important factors could
cause actual results to differ materially from those indicated or implied by
forward-looking statements include, but are not limited to, those set forth in
this report and in the "Risk Factors" section of our Annual Report on Form
10-K/A filed with the SEC on May 11, 2021, our Quarterly Report on From 10-Q
filed with the SEC on May 26, 2021, our Current Report on Form 8-K filed with
the SEC on July 8, 2021 and in our other filings with the SEC. Accordingly,
forward-looking statements should not be relied upon as representing our views
as of any subsequent date, and we do not undertake any obligation to update
forward-looking statements to reflect events or circumstances after the date
they were made, whether as a result of new information, future events or
otherwise, except as may be required under applicable securities laws.
Should one or more of these risks or uncertainties materialize, or should any of
the underlying assumptions prove incorrect, actual results may vary in material
respects from those expressed or implied by these forward-looking statements.
You should not place undue reliance on these forward-looking statements.
Overview
We are a leading digital healthcare platform company that helps members
consolidate and manage various components of their health in one place,
regardless of where they are on their health journey. Our comprehensive platform
is a health and well-being digital hub that unifies elements of individual and
community health into one experience in order to enable members to live better,
longer lives. We are driven by our philosophy that we are "All Together Better"
as well as our goal to turn individual progress into community transformation.
Given a unique blend of expertise across technology, media, and
                                       27
--------------------------------------------------------------------------------
  Table of Contents
healthcare, we have, through a number of strategic acquisitions and integration
of key technologies and capabilities over the last ten years, built our platform
into what we believe is the most comprehensive and seamless experience currently
available in the digital healthcare space.
Our business combines business-to-business and direct-to-consumer sales models
and functions on a more distinctive business-to-business-to-person model.
Focusing on the individual, we aim to provide a solution that we believe is more
comprehensive than other digital platforms by bringing together scientifically
validated clinical programs and engaging content to deliver a personalized
experience for our members, whether they come to us by way of the workplace, the
exam room, or the living room.
We derive net revenue from multiple stakeholders and while we are focused on the
individual's unique experience, our platform is purpose-built to seamlessly
connect stakeholders to the health management tools they need to drive
engagement, establish sustained participation, increase satisfaction, reduce
costs, and improve outcomes. As we expand our offerings and look to further
develop our technologies, we continue to consider the distinct needs of each
division as well as opportunities to better connect and cross-sell while we grow
and integrate our solutions into one seamless platform.
Our one platform can be disaggregated into three different client channels:
•Enterprise:  Our enterprise channel includes a range of clients - from large
employers and healthcare systems to government agencies and health plans - that
use our platform to engage with their populations, dynamically measure the
impact of that engagement, and efficiently deliver health and wellness services.
•Provider:  Our suite of data- and information-driven solutions for healthcare
providers are tailored to improve productivity and efficiency and enhance
patient care and management while upholding the latest compliance, security, and
privacy standards.
•Consumer Solutions:  Our robust platform and suite of digital products and
medical expert knowledge provides members with personalized information,
programs, and resources to improve their health and well-being, and affords
sponsors the opportunity to integrate their brands into Sharecare's consumer
experience in a highly contextual, relevant, and targeted environment.
Recent Developments Affecting Comparability
COVID-19 Impact
The continued global impact of COVID-19 has resulted in various emergency
measures to combat the spread of the virus. With the development of variants and
increased vaccination rates, the status of ongoing measures varies widely
depending on the country and locality.
While Sharecare is an essential business for its customers, the pandemic has not
had a significant negative impact to its consolidated financial position,
results of operations, and cash flows related to this matter, as a result of the
broader economic impact and the prolonged disruption to the economy, customers
may be facing liquidity issues and may be slower to pay or altogether withdraw
from their commitments; however, the ultimate financial impact related to the
pandemic is still unknown.
Given the volatility of the circumstances surrounding the pandemic, Sharecare
has evaluated potential risks to its business plan. The economic slowdown could
delay Sharecare's sales objectives for new business for its digital product; the
decline in non-urgent medical appointments could lessen the demand for medical
record transfers in the ROI business; and Blue Zone communities may see a
decrease in spending due to social distancing. In addition, Sharecare may be
impacted by currency fluctuations, as the U.S. Dollar has gained strength during
the pandemic, with the biggest impact thus far being to the Brazilian Real.
Key Factors and Trends Affecting our Operating Performance
Our financial condition and results of operations have been, and will continue
to be, affected by a number of factors, including our success with respect to
the following:
•Expanding our Footprint.  We believe that our current client base represents a
small fraction of potential clients that could benefit from our highly
differentiated solutions. We will continue to invest in our sales and marketing
                                       28
--------------------------------------------------------------------------------
  Table of Contents
efforts and leverage our partner relationships to continue to acquire new
clients, including individuals, providers, employers, health plans, government
organizations, and communities.
•Expanding our Existing Client Relationships.  We also believe that there is
significant opportunity to generate growth by maintaining and expanding our
relationships with existing clients, including:
•increasing engagement and enrollment of eligible members at our existing
enterprise clients through continued sales and marketing efforts, including
targeted next-generation digital modeling and marketing, and capitalizing on
insights from claims ingestion (the process by which we receive and process
information from our clients), population risk stratification and incentives
management;
•promoting our marketplace of existing targeted digital therapeutics to close
gaps in care in high-cost areas (with incremental fee per enrollee), which we
believe represents a $1 billion revenue opportunity within our currently
contracted clients; and
•expanding our relationships with our top 25 provider clients with an
opportunity to extend our provider products and services to more than 4,000
additional healthcare sites.
•Offering Additional Solutions.  We believe there is significant opportunity to
cross-sell our provider solutions to existing accounts, including deploying our
value-based care and payment integrity solutions to approximately 6,000 health
system clients.
•Growing our Platform.  We are constantly evaluating the marketplace for ways to
broaden and enhance our client and member experience, improve clinical results,
and increase revenue through product innovation, partnerships, and acquisitions.
We intend to continue to leverage our expertise through adding digital
therapeutics partnerships as well as the acquisition of products and services
that are directly relevant to our existing clients. Additionally, we believe our
strong and embedded client relationships provide us with unique perspectives
into their evolving needs and the needs of their populations.
•Evolving our Products to Cater to an Evolving Industry.  As the digital
healthcare industry grows, we closely monitor evolving consumer trends and
organizations' needs so that we may adapt our platform to better suit our
clients' demands. Since March 2020, the COVID-19 pandemic greatly accelerated
the demand for virtual care solutions and resulted in rapid growth and increased
adoption of digital health technologies, which Sharecare was in a unique
position to undertake. By building on our deep expertise in handling and
managing mass health data, we launched a suite of distinct but complementary
digital tools and programs to address the evolving emotional, educational,
clinical, and operational challenges introduced by the pandemic. We intend to
continue to look for opportunities to leverage our platform and expertise to
provide first-mover solutions to evolving and future demands in the digital
healthcare industry.
•Acquisitions.  We believe that our proven track record of successful
acquisitions coupled with the flexibility and capabilities of our platform
uniquely positions us to continue opportunistically pursuing attractive M&A
opportunities. We believe this potential is further accentuated by our multiple
client channels and constantly expanding member base. Future acquisitions could
drive value and growth in a host of ways including access to new customers and
potential cross-sell opportunities; unlocking new customer channels or
geographies; adding new solutions to serve our existing client base; and adding
new capabilities to enhance our existing solution offering or the efficiency of
our platform. In addition, we believe our acquisition track record demonstrates
our ability to realize synergies and optimize performance of potential M&A
partners.
                                       29
--------------------------------------------------------------------------------
  Table of Contents
Components of Our Results of Operations
Revenue
The enterprise channel provides employers and health plans with health
management programs for large populations, including digital engagement,
telephonic coaching, incentives, biometrics, digital therapeutics, home health
offerings, and subscriptions to Sharecare platforms. Revenue is recognized on a
per member per month ("PMPM") basis or as services are provided. Provider
revenue is primarily based on health document requests filled in the health data
services business line, as well as subscription fees for various technology
related services that assist providers with performance and maximizing
reimbursement. Consumer solutions revenue is generated mostly through ad
sponsorships to Sharecare's extensive member database.
Costs of Revenue
Costs of revenue primarily consists of costs incurred in connection with
delivering our various revenue generating activities, including personnel
related expenses. Costs are primarily driven by volumes related to requests,
engagement, and incentive fulfillment. The major components that make up our
cost of revenue are personnel costs to support program delivery as well as
customer service along with share-based compensation, data management fees
related to file processing, and variable fees to deliver specific services that
may require third party vendors, direct marketing, fulfillment, transaction
fees, or other costs that can be reduced to offset a decline in revenue. Because
our growth strategy includes substantial opportunity to scale low-personnel cost
products, we would anticipate future revenue to grow at a faster rate than cost
of revenue as those low-personnel cost products mature. Costs of revenue do not
include depreciation or amortization, which are accounted for separately.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee-related expenses,
including salaries, benefits, commissions, employment taxes, travel, and
share-based compensation costs for our employees engaged in sales, account
management, marketing, public relations and related support. In addition, these
expenses include marketing sponsorships and engagement marketing spend. These
expenses exclude any allocation of occupancy expense and depreciation and
amortization.
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, marketing, public relations and related support
personnel to capture an increasing amount of our market opportunity and
upsell/cross-sell within our existing client base. As we scale our sales and
marketing personnel in the short- to medium-term, we expect these expenses to
increase in both absolute dollars and as a percentage of revenue.
Product and Technology Expenses
Product and technology expenses include personnel and related expenses for
software engineering, information technology infrastructure, business
intelligence, technical account management, project management, security,
product development and share-based compensation. Product and technology
expenses also include indirect hosting and related costs to support our
technology, outsourced software, and engineering services. Our technology and
development expenses exclude any allocation of occupancy expense and
depreciation and amortization.
We expect our technology and development expenses to increase for the
foreseeable future as we continue to invest in the development of our technology
platform. Our technology and development expenses may fluctuate as a percentage
of our total revenue from period to period partially due to the timing and
extent of our technology and development expenses.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses for
our executive, finance, legal, and human resources departments plus all indirect
staff in the divisions not attributable to Sales, Marketing or Product and
Technology. They also include professional fees, share-based compensation, and
all rent, utilities and maintenance related costs. Our general and
administrative expenses exclude any allocation of depreciation and amortization.
We expect our general and administrative expenses to increase for the
foreseeable future following the completion of the Business Combination due to
the additional legal, accounting, insurance, investor relations, and other costs
that we will incur as a public company, as well as other costs associated with
continuing to grow our business. However, we expect our general and
administrative expenses to remain steady as a percentage of our total revenue
over the near-term. Our general and
                                       30
--------------------------------------------------------------------------------
  Table of Contents
administrative expenses may fluctuate as a percentage of our total revenue from
period to period partially due to the timing and extent of our general and
administrative expenses.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation of fixed
assets, amortization of software, amortization of capitalized software
development costs and amortization of acquisition-related intangible assets.
Interest expense
Interest expense primarily relates to interest incurred on our long-term debt
and the amortization of debt issuance costs.
Other Expense
Other expense primarily relates to changes in fair value of contingent
consideration and warrant liabilities.
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020
The following table presents our unaudited Consolidated Statement of Operations
for the three-months ended September 30, 2021 and 2020, and the percentage
change between the two periods:
                                                                       Three Months Ended September 30,
(in thousands)                                      2021                   2020              $ Change               % Change
Revenue                                      $    105,618              $   80,236          $   25,382                        32  %
Costs and operating expenses:
Costs of revenue (exclusive of
amortization and depreciation below)               51,255                  36,905              14,350                        39  %
Sales and marketing                                12,492                   6,338               6,154                        97  %
Product and technology                             16,334                  10,459               5,875                        56  %
General and administrative                         46,307                  15,402              30,905                       201  %
Depreciation and amortization                       8,751                   6,056               2,695                        45  %
Total costs and operating expenses                135,139                  75,160              59,979                        80  %
Income (loss) from operations                     (29,521)                  5,076             (34,597)                      682  %
Other income (expense)
Interest income                                        20                       8                  12                       150  %
Interest expense                                  (12,836)                 (8,102)             (4,734)                      (58) %
Loss on extinguishment of debt                     (1,148)                      -              (1,148)                      100  %
Other income (expense)                                (86)                     41                (127)                      310  %
Total other expense                               (14,050)                 (8,053)             (5,997)                      (74) %
Net loss before taxes and loss from
equity method investment                          (43,571)                 (2,977)            (40,594)                    (1364) %
Income tax (expense) benefit                          507                     467                  40                        (9) %
Loss from equity method investment                      -                  (3,902)              3,902                       100  %
Net loss                                          (43,064)                 (6,412)         $  (36,652)                     (572) %
Net (loss) income attributable to
non-controlling interest in
subsidiaries                                           51                    (104)                155                      (149) %
Net loss attributable to Sharecare,
Inc.                                         $    (43,115)             $   (6,308)         $  (36,807)                     (583) %


                                       31
--------------------------------------------------------------------------------
  Table of Contents
Revenue
Revenue increased $25.4 million, or 32%, from $80.2 million for the three months
ended September 30, 2020 to $105.6 million for the three months ended
September 30, 2021, respectively. Overall, we saw gains from new product lines
(digital therapeutics and health security programs), newly acquired product
lines as well as organic growth in existing lines for an increase of $32.7
million. Offsetting this growth were negative impacts related to COVID-19 and
the expected attrition of one contract related to a previous acquisition,
accounting for a combined reduction of $47.5 million.
The channel revenue changed as follows: Enterprise channel increased by $16.8
million (from $46.0 million for 2020 to $62.8 million for 2021), the Provider
channel increased by $5.0 million (from $19.2 million for 2020 to $24.1 million
for 2021) and the Consumer channel increased by $3.6 million (from $15.1 million
for 2020 to $18.7 million for 2021). Increases in the Enterprise channel (37%)
were attributable to a combination of new product and client gains in the
digital, digital therapeutics, health security and community programs, offset by
the impact of COVID-19 and expected contract attrition from a previous
acquisition. The Provider channel increase (26%) was attributable to continued
demand recovery compared to the prior year, along with increased volumes and new
customers. The Consumer channel increase (24%) was due to adding new customer
brands and increased pharmaceutical advertising spend.
Costs of Revenue
Costs of revenue increased $14.4 million, or 39%, from $36.9 million for the
three months ended September 30, 2020 to $51.3 million for the three months
ended September 30, 2021. The increase was due to increased sales. The
percentage increase in costs of revenue was higher than the percentage increase
in revenue primarily resulting from increased staffing and growth as the prior
period was impacted by COVID-19 related cost reductions.
Sales and Marketing
Sales and marketing expense increased $6.2 million, or 97%, from $6.3 million
for the three months ended September 30, 2020 to $12.5 million for the three
months ended September 30, 2021. New headcount along with return of compensation
to pre-COVID-19 levels accounted for $2.6 million of the increase. Variable
compensation increased $1.2 million, primarily related to commissions tied to
the increasing sales. Consultant expenses of $1.3 million were incurred to
advance engagement metrics across our client base and support ramping new
business. The remainder of the increase is attributable to non-recurring
stock-based compensation and severance expenses of $0.5 million and a
sponsorship credit that occurred in the prior period.
Product and Technology
Product and technology expenses increased $5.9 million, or 56%, from $10.5
million for the three months ended September 30, 2020 to $16.3 million for the
three months ended September 30, 2021. The increase was primarily attributable
to new resources related to growth and acquisitions along with platform and
security expenses to support additional staff and customers, specifically the
new health security programs that started in 2021.
General and Administrative
General and administrative expense increased $30.9 million, or 201%, from $15.4
million for the three months ended September 30, 2020 to $46.3 million for the
three months ended September 30, 2021. Non-cash stock compensation expense
accounted for $9.3 million of the increase. In addition, non-recurring fees
increased by $15.4 million, primarily as a result of the Business Combination
and our other acquisition activity. The other increases are attributable to
additional resources needed to support growth and public company compliance
initiatives, along with increased insurance and legal expense tied to being a
public company.
Depreciation and Amortization
Depreciation and amortization increased $2.7 million, or 45%, from $6.1 million
for the three months ended September 30, 2020 to $8.8 million for the three
months ended September 30, 2021. The increase was primarily related to
acquisition-related intangibles as well as placing platform-related developed
software into service.
Interest Expense
Interest expense increased $4.7 million, from $8.1 million for the three months
ended September 30, 2020 to $12.8 million for the three months ended
September 30, 2021. The increase is attributable to the write-off of deferred
financing fees
                                       32
--------------------------------------------------------------------------------
  Table of Contents
on convertible debt of $12.1 million, offset by lower interest expense in the
three months ended September 30, 2021 due to the retirement of debt and lower
outstanding loan balances.
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table presents our unaudited Consolidated Statement of Operations
for the nine-months ended September 30, 2021 and 2020, and the percentage change
between the two periods:

                                                                      Nine Months Ended September 30,
(in thousands)                                     2021                 2020              $ Change               % Change
Revenue                                      $   293,686            $  240,392          $   53,294                        22  %
Costs and operating expenses:
Costs of revenue (exclusive of
amortization and depreciation below)             144,283               117,153              27,130                        23  %
Sales and marketing                               36,047                24,227              11,820                        49  %
Product and technology                            52,600                31,606              20,994                        66  %
General and administrative                        85,060                53,085              31,975                        60  %
Depreciation and amortization                     22,601                19,103               3,498                        18  %
Total costs and operating expenses               340,591               245,174              95,417                        39  %
Loss from operations                             (46,905)               (4,782)            (42,123)                      881  %
Other income (expense)
Interest income                                       49                    61                 (12)                      (20) %
Interest expense                                 (26,941)              (23,525)             (3,416)                       15  %
Loss on extinguishment of debt                    (1,148)                    -              (1,148)                      100  %
Other expense                                    (20,815)                 (270)            (20,545)                     7609  %
Total other expense                              (48,855)              (23,734)            (25,121)                      106  %
Net loss before taxes and loss from
equity method investment                         (95,760)              (28,516)            (67,244)                      236  %
Income tax (expense) benefit                         520                   694                (174)                      (25) %
Loss from equity method investment                     -                (3,902)              3,902                      (100) %
Net loss                                     $   (95,240)           $  (31,724)         $  (63,516)                      200  %
Net (loss) income attributable to
non-controlling interest in
subsidiaries                                         (31)                 (372)                341                       (92) %
Net loss attributable to Sharecare,
Inc.                                         $   (95,209)           $  (31,352)         $  (63,857)                      204  %


Revenue
Revenue increased $53.3 million, or 22%, from $240.4 million for the nine months
ended September 30, 2020 to $293.7 million for the nine months ended
September 30, 2021, respectively. Overall, we saw gains from new product lines
(digital therapeutics and health security programs) and newly acquired products
as well as organic growth in existing lines for an increase of $78.0 million.
Offsetting this growth was the negative impact related to COVID-19 and the
expected attrition of one contract related to a previous acquisition, accounting
for a combined reduction of $24.3 million. The COVID-19 impact is primarily
attributable to overall concern about the economy that affected long-term
contract decisions. Currency translation fluctuations, mostly from our Brazil
operations, negatively impacted revenues by $0.5 million.
The channel revenue changed as follows: Enterprise channel increased by
$33.9 million (from $142.4 million for 2020 to $176.4 million for 2021), the
Provider channel increased by $6.8 million (from $59.5 million for 2020 to $66.3
million for 2021) and the Consumer channel increased by $12.6 million (from
$38.5 million for 2020 to $51.0 million for 2021). Increases in the Enterprise
channel (24%) were attributable to a combination of new product and client gains
in the digital, digital therapeutics, health security and community programs,
offset by the impact of COVID-19 and expected contract attrition from a previous
acquisition. The Provider channel increase (11%) was attributable to continued
demand recovery compared to the prior year, along with increased volumes and new
customers. The Consumer channel increase (33%) was due to adding new customer
brands and increased pharmaceutical advertising spend.
                                       33
--------------------------------------------------------------------------------
  Table of Contents
Costs of Revenue
Costs of revenue increased $27.1 million, or 23%, from $117.2 million for the
nine months ended September 30, 2020 to $144.3 million for the nine months ended
September 30, 2021. The increase was due to increased sales. The percentage
increase in costs of revenue was higher than the percentage increase in revenue
primarily resulting from increased staffing and growth as the prior period was
impacted by COVID-19 related cost reductions.
Sales and Marketing
Sales and marketing expense increased $11.8 million, or 49%, from $24.2 million
for the nine months ended September 30, 2020 to $36.0 million for the nine
months ended September 30, 2021. The increase was due to multiple factors but
primarily related to $6.3 million in higher salaries and commissions as we ramp
revenue and sales efforts and $4.2 million consulting expense to advance
engagement metrics and provide sales and marketing support for growth and new
product roll out. Also contributing to the increase was $0.9 million in non-cash
stock option expense and $0.3 million of non-recurring expense related to our
transition to being a public company.
Product and Technology
Product and technology expenses increased $21.0 million, or 66%, from $31.6
million for the nine months ended September 30, 2020 to $52.6 million for the
nine months ended September 30, 2021. The largest variance was non-cash stock
compensation expense of $10.8 million for the nine months ended September 30,
2021, which was, mostly related to the acquisition of doc.ai. The continued
investment in product and tech staffing and outside contract services accounted
for $6.1 million of the increase, of which $3.6 million is from doc.ai. The
remaining increase is related to platform and consulting fees as we ramp new
technologies and volume increases related to the revenue ramp.
General and Administrative
General and administrative expense increased $32.0 million, or 60%, from $53.1
million for the nine months ended September 30, 2020 to $85.1 million for the
nine months ended September 30, 2021. The increase was due mostly to
non-recurring costs of becoming a public company and acquisition expenses of
$16.6 million and non-cash stock compensation expense of $7.4 million. Staffing
increases and business insurance increases, both tied to being a public company
accounted for the remainder of the increase.
Depreciation and Amortization
Depreciation and amortization increased $3.5 million, or 18%, from $19.1 million
for the nine months ended September 30, 2020 to $22.6 million for the nine
months ended September 30, 2021. The increase was related to our continued
investment in product enhancements and new products, as well as amortization
incurred on recently acquired intangible assets.
Interest Expense
Interest expense increased $3.4 million, from $23.5 million for the nine months
ended September 30, 2020 to $26.9 million for the nine months ended
September 30, 2021. The increase is attributable to the write-off of deferred
financing fees on convertible debt in connection with its settlement, offset by
a reduction in interest expense due to the retirement of debt and lower loan
balances during the nine months ended September 30, 2021.
Other Expense
Other expense increased $20.5 million, from $0.3 million for the nine months
ended September 30, 2020 to $20.8 million for the nine months ended
September 30, 2021. This increase is comprised mostly non-cash mark-to-market
adjustments tied to the change in the per share price of the Company's common
stock.

Non-GAAP Financial Measures
In addition to our financial results determined in accordance with U.S. GAAP, we
believe the non-GAAP measures adjusted EBITDA, adjusted net income (loss), and
adjusted earnings (loss) per share ("adjusted EPS"), are useful in evaluating
our operating performance. We use adjusted EBITDA, adjusted net income (loss),
and adjusted EPS to evaluate our ongoing operations and for internal planning
and forecasting purposes. We believe that these non-GAAP financial measures,
when taken together with the corresponding GAAP financial measure, provides
meaningful supplemental information regarding our performance by excluding
certain items that may not be indicative of our business, results of operations,
or outlook. In
                                       34
--------------------------------------------------------------------------------
  Table of Contents
particular, we believe that the use of adjusted EBITDA, adjusted net income
(loss), and adjusted earnings (loss) per share (adjusted EPS) is helpful to our
investors as they are metrics used by management in assessing the health of our
business and our operating performance. However, non-GAAP financial information
is presented for supplemental informational purposes only, has limitations as an
analytical tool, and should not be considered in isolation or as a substitute
for financial information presented in accordance with U.S. GAAP. In addition,
other companies, including companies in our industry, may calculate
similarly-titled non-GAAP measures differently or may use other measures to
evaluate their performance, all of which could reduce the usefulness of
our non-GAAP financial measure as a tool for comparison. The reconciliations of
adjusted EBITDA, adjusted net income (loss), and adjusted EPS to net income
(loss), the most directly comparable financial measures stated in accordance
with U.S. GAAP, are provided below. Investors are encouraged to review the
reconciliations and not to rely on any single financial measure to evaluate our
business.
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that management uses to assess our
operating performance. Because adjusted EBITDA facilitates internal comparisons
of our historical operating performance on a more consistent basis, we use this
measure for business planning purposes and to evaluate our performance.
We calculate adjusted EBITDA as net income (loss) adjusted to exclude
(i) depreciation and amortization, (ii) interest income, (iii) interest expense,
(iv) loss on extinguishment of debt, (v) other expense (income) (non-operating),
(vi) loss from equity method investment, (vii) income tax (benefit) expense,
(viii) share-based compensation, (ix) severance, (x) warrants issued with
revenue contracts, and (xi) transaction and closing costs. We do not view the
items excluded as representative of our ongoing operations.
The following table presents a reconciliation of adjusted EBITDA from the most
comparable GAAP measure, net loss, for the three and nine months ended
September 30, 2021 and 2020 (in thousands):

                                                 Three Months Ended            Nine Months Ended
                                                   September 30,                 September 30,
                                                 2021           2020          2021           2020
Net loss                                     $  (43,064)     $ (6,412)     $ (95,240)     $ (31,724)
Add:
Depreciation and amortization                     8,751         6,056         22,601         19,103
Interest income                                     (20)           (8)           (49)           (61)
Interest expense                                 12,836         8,102         26,941         23,525
Loss on extinguishment of debt                    1,148             -          1,148              -
Other expense (income)                               86           (41)        20,815            270
Loss from equity method investments                   -         3,902              -          3,902
Income tax benefit                                 (507)         (467)          (520)          (694)
Share-based compensation                         11,130           630         25,517          6,443
Severance                                           700           506            965          2,303
Warrants issued with revenue contracts(a)            21            91             59            354
Transaction and closing costs                    16,822           965         18,844          1,153
Adjusted EBITDA(b)                           $    7,903      $ 13,324      $  21,081      $  24,574


____________
(a)Represents the non-cash value of warrants issued to clients for meeting
specific revenue thresholds.
(b)Includes non-cash amortization associated with contract liabilities recorded
in connection with acquired businesses.
Adjusted Net Income (Loss)
Adjusted net income (loss) is a key performance measure that management uses to
assess our operating performance. Because adjusted net income (loss) facilitates
internal comparisons of our historical operating performance on a more
consistent basis, we use this measure for business planning purposes and to
evaluate our performance.
                                       35
--------------------------------------------------------------------------------
  Table of Contents
We calculate Adjusted net income (loss) as net income (loss) attributable to
Sharecare, Inc. adjusted to exclude (i) amortization of acquired intangibles,
(ii) amortization of deferred financing fees, (iii) change in fair value of
warrant liability and contingent consideration, (iv) loss from equity method
investments, (v) share-based compensation, (vi) severance, (vii) warrants issued
with revenue contracts, (viii) transaction and closing costs, and (ix) the
related income tax adjustments. We do not view the items excluded as
representative of our ongoing operations.
Adjusted EPS
Adjusted EPS is a key performance measure that management uses to assess our
operating performance. Because adjusted EPS facilitates internal comparisons of
our historical operating performance on a more consistent basis, we use this
measure for business planning purposes and to evaluate our performance.
We calculate Adjusted EPS as adjusted net income (loss), as defined above,
divided by the number of weighted average common shares outstanding - basic and
diluted. We do not view the items excluded as representative of our ongoing
operations.
The following table presents a reconciliation of adjusted net income (loss) and
adjusted EPS from the most comparable GAAP measure, net loss, for the three and
nine months ended September 30, 2021 and 2020 (in thousands , except share
numbers and per share amounts):
                                                           Three Months Ended                             Nine Months Ended
                                                           September 30, 2021                            September 30, 2021
                                                      2021                    2020                   2021                   2020

Net losses may occur Sharecare, Inc. $ (43,115) $

(6,308) $ (95,209) $ (32,312)
Add a touch of untouchables (a) weakening

                  1,425                    943                  3,653                  2,982
Amortization of deferred financing fees                 12,135                  2,195                 15,466                  5,616
Change in fair value of warrant liability and
contingent consideration                                    63                     30                 21,719                    302
Loss from equity method investments                          -                  3,902                      -                  3,902
Share-based compensation                                11,130                    630                 25,517                  6,443
Severance                                                  700                    506                    965                  2,303
Warrants issued with revenue contracts                      21                     91                     59                    354
Transaction and closing costs                           16,822                    965                 18,844                  1,153
Adjusted net income (loss) (b)                  $         (819)         $   

2,954 $ (8,986) $ (9,257)


Weighted-average common shares outstanding,
basic and diluted                                  334,982,150            222,927,484            263,558,268            220,150,504

Loss per share                                  $        (0.13)         $  

(0.03) USD (0.36) USD (0.15)
Adjusted earnings (losses) per share

              $         0.00          $   

0.01 US Dollar (0.03) $ (0.04)



(a)Represents non-cash expenses related to the amortization of intangibles in
connection with acquired businesses.
(b)The income tax effect of the Company's non-GAAP reconciling items are offset
by valuation allowance adjustments of the same amount because the Company is in
a full valuation allowance position for all periods presented.

Liquidity and Capital Resources
We measure liquidity in terms of our ability to fund the cash requirements of
our business operations, including working capital and capital expenditure
needs, contractual obligations and other commitments, with cash flows from
operations and other sources of funding. Our ability to expand and grow our
business will depend on many factors, including our working capital needs and
the evolution of our operating cash flows.
We had $325.9 million in cash and cash equivalents as of September 30, 2021. Our
principal commitments as of September 30, 2021, consist of operating leases and
purchase commitments. See Note 12 to Sharecare's consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q.
We believe our operating cash flows, together with our cash on hand, which
includes the cash we obtained as a result of the Business Combination, will be
sufficient to meet our working capital and capital expenditure requirements in
the short-term,
                                       36
--------------------------------------------------------------------------------
  Table of Contents
i.e., the 12 months from the date of this Quarterly Report on Form 10-Q. Our
long-term liquidity needs include cash necessary to support our business growth.
We believe that the potential financing capital available to us in the future is
sufficient to fund our long-term liquidity needs, however, we are continually
reviewing our capital resources to determine whether we can meet our short- and
long-term goals and we may require additional capital to do so. We may also need
additional cash resources due to potential changes in business conditions or
other developments, including unanticipated regulatory developments, significant
acquisitions, and competitive pressures. We expect our capital expenditures and
working capital requirements to continue to increase in the immediate future as
we seek to expand our solution offerings. To the extent that our current
resources are insufficient to satisfy our cash requirements, we may need to seek
additional equity or debt financing. If the needed financing is not available,
or if the terms of financing are less desirable than we expect, we may be forced
to decrease our level of investment in new product offerings and related
marketing initiatives or to scale back our existing operations, which could have
an adverse impact on our business and financial prospects.
The following table summarizes our cash flow activities for the periods
presented:
                                                                   Nine Months Ended September 30,
(in thousands)                                                       2021                   2020
Net cash (used in)/provided by operating activities             $    (31,857)         $       9,309
Net cash used in investing activities                                (97,445)               (15,180)
Net cash provided by financing activities                            432,780                  6,091


Operating Activities
Net cash used in operating activities for the nine months ended September 30,
2021 was $31.9 million, a decrease of $41.2 million from $9.3 million of cash
provided by operating activities for the nine months ended September 30, 2020.
Cash used during this period included the $95.2 million net loss for the nine
months ended September 30, 2021, net of non-cash items and PIK interest payments
totaling $74.9 million, and a decrease from changes in operating assets and
liabilities of $11.6 million. The total cash used in operating activities
includes non-operational acquisition and closing costs associated with becoming
a public company of $16.8 million. Cash provided by operations during the prior
period included the $31.7 million net loss for the nine months ended
September 30, 2020 and $13.1 million cash provided net of non-cash items. This
result for the prior period was offset by cash used in changes in operating
assets and liabilities of $3.8 million.
The operating activity cash change over the prior period of $41.2 million was a
function of PIK interest paid as part of the settlement of debt, deal costs
associated with becoming a public company that affected net loss and changes in
operating assets and liabilities, specifically an increase in accounts
receivables offset by an increase in accounts payable and deferred revenue.
Accounts receivable increased due to new customers related to health security
programs. Accounts payable increased due to Business Combination related
expenses. Deferred revenue increased related to new health security program and
doc.ai related customers.
Investing Activities
Net cash used in investing activities for the nine months ended September 30,
2021 was $97.4 million compared to $15.2 million of net cash used in investing
activities for the nine months ended September 30, 2020. The increase in cash
outflows was primarily due to cash paid in the acquisitions of doc.ai and
CareLinx and cash paid in connection with software development for new products
and current product enhancements.
Financing Activities
Net cash provided by financing activities for the nine months ended
September 30, 2021 was $432.8 million, primarily due to cash received from the
net proceeds from the Business Combination with Falcon Capital Acquisition Corp.
of $426.2 million, proceeds from issuance of redeemable convertible preferred
stock of $50.0 million, the draw down on our Senior Secured Credit Agreement of
$20.0 million and proceeds from exercised common stock options of $3.5 million .
Cash provided by financing activities were offset by $66.2 million for the
repayment of debt.
Net cash provided by financing activities for the nine months ended
September 30, 2020 was $6.1 million, which was primarily due to cash received
from the draw down on our Senior Secured Credit Agreement (as defined herein),
offset by the partial repayment of our outstanding indebtedness.
                                       37
--------------------------------------------------------------------------------
  Table of Contents
Contractual Obligations
There were no material changes to contractual obligations since last presented
in our latest annual report except for the Company settling substantially all of
its existing indebtedness during July 2021, totaling $178.4 million in
connection with the consummation of the Business Combination. The Company still
maintains its Senior Secured Credit Agreement.
Financing Arrangements
Senior Secured Credit Agreement
In March 2017, we refinanced our existing debt through the execution of the
Senior Secured Credit Agreement among the Borrowers, the Lenders and the
Administrative Agent.
The Senior Secured Credit Agreement provides for the Revolving Facility with
total commitments of $60.0 million. Availability under the Revolving Facility is
generally subject to a borrowing base based on a percentage of applicable
eligible receivables. Borrowings under the Revolving Facility generally bear
interest at a rate equal to, at the applicable Borrower's option, either (a) a
base rate or (b) a rate based on LIBOR, in each case, plus an applicable margin.
The applicable margin is based on a fixed charge coverage ratio and ranges from
(i) 1.75% to 2.25% for U.S. base rate loans and (ii) 2.75% to 3.25% for LIBOR.
The Credit Agreement matures on February 10, 2023.
In connection with the consummation of the Business Combination, Legacy
Sharecare, the other Borrowers, the Lenders and the Administrative Agent,
entered into the Sixth Amendment. Pursuant to the Sixth Amendment, the
Administrative Agent and Lenders provided certain consents with respect to the
consummation of the Business Combination and related transactions and certain
amendments were made to the terms of the Senior Secured Credit Agreement to
reflect the Business Combination amd related transactions. The Company and
certain other subsidiaries of Legacy Sharecare executed joinders to become a
party to the Senior Secured Credit Agreement as required by the Sixth Amendment
in July 2021.
The Senior Secured Credit Agreement contains a number of customary affirmative
and negative covenants and we were in compliance with those covenants as of
September 30, 2021. As of September 30, 2021, there were $243 thousand of
borrowings outstanding under the Revolving Facility.
In connection with the consummation of the Business Combination, we repaid all
outstanding amounts under the Senior Secured Credit Agreement. In the future, we
may incur additional borrowings under the Senior Secured Credit Agreement. See
Note 7 to Sharecare's consolidated financial statements included elsewhere in
this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future material effect on our financial condition,
results of operations, liquidity or cash flows.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. The
preparation of the consolidated financial statements in conformity with GAAP
requires management to make a number of estimates and assumptions relating to
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported amounts of revenue and expenses during
the periods presented. We evaluate our significant estimates on an ongoing
basis, including, but not limited to, revenue recognition, the valuation of
assets and liabilities acquired, and the useful lives of intangible assets
acquired in business combinations and the valuation of common stock. We base our
estimates on historical experience and various other assumptions that we believe
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from those
estimates.
We believe that the accounting policies described below involve a significant
degree of judgment and complexity. Accordingly, we believe these are the most
critical to aid in fully understanding and evaluating our consolidated financial
condition and results of operations. For further information, see Note 1, to
Sharecare's consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q.
Revenue Recognition
Revenue is recognized when control of the promised good or service is
transferred to the client, in an amount that reflects the consideration we
expect to be entitled to in exchange for that good or service. Sales and
usage-based taxes are excluded
                                       38
--------------------------------------------------------------------------------
  Table of Contents
from revenue. We do not have any contracts that include significant financing
fees. We are the principal in all outstanding revenue arrangements. We serve a
diverse group of clients.
Enterprise Revenue
The enterprise channel provides employers and health plans with health
management programs for large populations, including digital engagement,
telephonic coaching, incentives, biometrics, digital therapeutics, home care
health offerings, and subscriptions to Sharecare platforms. Revenue is
recognized on a per member per month ("PMPM") basis or as services are provided.
Member participation fees are generally determined by multiplying the
contractually negotiated member rate by the number of members eligible for
services during the month. Member participation rates are established during
contract negotiations with clients, often based on a portion of the value the
programs are expected to create. Contracts with health plans, health care
systems and government organizations generally range from three to five years
with several comprehensive strategic agreements extending up to ten years in
length. Contracts with larger employer clients typically have two- to
four-year terms.
Health management program contracts often include a fee for the subscription of
the Sharecare digital platform and various other platforms under doc.ai, which
may also be sold on a stand-alone basis. These services allow members to access
Sharecare's proprietary mobile application with a comprehensive suite of health
and wellness management programs, content, and tools. Revenue is recognized on a
per member or a fixed fee basis as the services are provided. The subscription
to the Sharecare digital platform also includes services such as marketing to
the member population, configuration of the platform to be employer/provider
specific and the set-up of challenges and incentives. These services are
recognized over time as the services are performed. Any termination clauses may
impact the contract duration.
Sharecare's Blue Zones Project is a community well-being improvement initiative
designed to change the way people experience the world around them by
encouraging and promoting better lifestyle choices, such as commuting, eating,
and social habits. Because healthier environments naturally nudge people toward
healthier choices, Blue Zones Project focuses on influencing the Life Radius®,
the area close to home in which people spend 90% of their lives. Blue Zones
Project best practices use people, places, and policy as levers to transform
those surroundings. These contracts normally include two performance
obligations, the discovery period and the subsequent content delivery for each
year of engagement. The revenue is recognized based on the relative standalone
selling price of the performance obligations evenly over time. These contracts
do not include termination clauses and often have two- to four-year terms.
Certain contracts place a portion of fees at risk based on achieving certain
performance metrics, such as cost savings, and/or clinical outcomes improvements
(performance-based). We use the most likely amount method to estimate variable
consideration for these performance guarantees. We include in the transaction
price some or all of an amount of variable consideration only to the extent that
it is probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable
consideration is subsequently resolved. We utilize customer data in order to
measure performance.
In the event performance levels are not met by the end of the measurement
period, typically one year, some or all of the performance-based fees are
required to be refunded. During the settlement process under a contract, which
generally occurs six to eight months after the end of a contract year,
performance-based fees are reconciled and settled.
Prior to January 1, 2019, performance-related adjustments (including any amounts
recorded as revenue that were ultimately refunded), changes in estimates, or
data reconciliation differences may have caused recognition or reversal of
revenue in a current year that pertained to services provided during a prior
year. Performance-related adjustments to revenue were not recognized (to the
extent that performance-based services are provided, and the price is not fixed
or determinable). Effective with the adoption of ASU 2014-09, Revenue from
Contracts with Customers (Topic 606), on January 1, 2019,
performance-related revenue is recorded based on the most likely amount to be
earned after applying the constraint that a significant reversal of revenue will
not occur in future periods.
Clients are generally billed monthly for the entire amount of the fees
contractually due for the prior month's enrollment, which typically includes the
amount, if any, that is performance-based and may be subject to refund should
performance targets not be met. Fees for participation are typically billed in
the month after the services are provided. Deferred revenues arise from
contracts that permit upfront billing and collection of fees covering the entire
contractual service period, generally 6-12 months. A limited number of contracts
provide for certain performance-based fees that cannot be billed until after
they are reconciled with the client.
Provider Revenue
Our provider channel revenue is primarily based on the volume of health document
requests fulfilled and recognized upon satisfactory delivery to the client. In
addition, provider revenue is derived from subscription fees for various
technology-
                                       39
--------------------------------------------------------------------------------
  Table of Contents
related services that assist providers with efficiency and productivity and
enhanced patient care. Subscription fees are recognized ratably over the
contractual period.
Consumer Solutions Revenue
Our consumer solutions channel generates revenue mostly through ad sponsorships
and content delivery. Content delivery revenue is recognized when the content is
delivered to the client and the transaction has met the other criteria listed
above. Ad sponsorship revenue is recognized when the contractual page views or
impressions are delivered to the client.
Certain customer transactions may contain multiple performance obligations that
may include delivery of content, page views, and ad sponsorship over time. To
account for each of these elements separately, the delivered elements must be
capable of being distinct and must be distinct in the context of the contract.
Revenue is allocated based on the stand-alone or unbundled selling price for
each performance obligation as the services are provided.
Business Combinations
We account for business acquisitions in accordance with ASC Topic 805, Business
Combinations. We measure the cost of an acquisition as the aggregate of the
acquisition date fair values of the assets transferred and liabilities assumed
and equity instruments issued. Transaction costs directly attributable to the
acquisition are expensed as incurred. We record goodwill for the excess of
(i) the total costs of acquisition and fair value of any
noncontrolling interests over (ii) the fair value of the identifiable net assets
of the acquired business.
The acquisition method of accounting requires us to exercise judgment and make
estimates and assumptions based on available information regarding the fair
values of the elements of a business combination as of the date of acquisition,
including the fair values of identifiable intangible assets, deferred tax asset
valuation allowances, liabilities related to uncertain tax positions, and
contingencies. We must also refine these estimates over a one-year measurement
period, to reflect any new information obtained about facts and circumstances
that existed as of the acquisition date that, if known, would have affected the
measurement of the amounts recognized as of that date. Estimates and assumptions
that we must make in estimating the fair value of future acquired technology,
user lists, and other identifiable intangible assets include future cash flows
that we expect to generate from the acquired assets. If the subsequent actual
results and updated projections of the underlying business activity change
compared with the assumptions and projections used to develop these values, we
could record impairment charges. In addition, we have estimated the economic
lives of certain acquired assets and these lives are used to calculate
depreciation and amortization expense. If our estimates of the economic lives
change, depreciation or amortization expenses could be accelerated or slowed,
which could materially impact our results of operation.
New Accounting Pronouncements
See Note 1, to Sharecare's consolidated financial statements included elsewhere
in this Quarterly Report on Form 10-Q.
Emerging Growth Company Accounting Election
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being
required to comply with new or revised financial accounting standards until
private companies are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can choose not to
take advantage of the extended transition period and comply with the
requirements that apply to non-emerging growth companies, and any such election
to not take advantage of the extended transition period is irrevocable.
Following the consummation of the Business Combination, we expect to remain an
emerging growth company at least through the end of the 2022 fiscal year and
expect to continue to take advantage of the benefits of the extended transition
period. This may make it difficult or impossible to compare our financial
results with the financial results of another public company that is either not
an emerging growth company or is an emerging growth company that has chosen not
to take advantage of the extended transition period exemptions for emerging
growth companies because of the potential differences in accounting standards
used.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
We have in the past and may in the future be exposed to certain market risks,
including interest rate, foreign currency exchange, and financial instrument
risks, in the ordinary course of our business. Currently, these risks are not
material to our financial condition or results of operations, but they may be in
the future.
                                       40

———————————- —————- ——————

details of the situation

© Edgar Online, Source Views

.