SOC Telemed Reports Third Quarter 2020 Results

Specialists On Call, Inc. and Subsidiaries and AffiliatesCONSOLIDATED BALANCE SHEETS(In thousands, except shares and per share amounts) (Unaudited)

ASSETS

September 30, 2020

December 31, 2019

CURRENT ASSETS

Cash and cash equivalents (from Variable interest entities $1,589 and $3,509, respectively)

$      2,395

$      4,541

Accounts receivable, net of allowance for doubtful accounts of $458 and $538 (from Variable interest entities, net of allowance $8,339 and $10,125, respectively)

8,820

10,545

Prepaid expenses and other current assets

3,611

843

Total current assets

14,826

15,929

Property and equipment, net

3,905

2,387

Capitalized software costs, net

8,669

7,647

Intangible assets, net

6,348

7,429

Goodwill

16,281

16,281

Deposits and other assets

289

321

Total assets

$     50,318

$     49,994

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities

Accounts payable (from Variable interest entities $868 and $1,882, respectively)

$      4,581

$       3,435

Accrued expenses (from Variable interest entities $1,948 and $1,226, respectively)

10,051

6,078

Deferred revenues

523

516

Capital lease obligations

9

48

Total current liabilities

15,164

10,077

Puttable option liabilities

518

1

Deferred revenues

1,013

807

Related party - Convertible bridge notes payable, net of unamortized issuance costs

3,982

-

Long term debt, net of unamortized discount and debt issuance costs

80,523

77,140

Total liabilities

$   101,200

$     88,025

COMMITMENTS AND CONTINGENCIES (Note 11)

CONTINGENTLY REDEEMABLE PREFERRED STOCK (Redeemable convertible preferred stock, $0.001 par value; 21,816,134 and 21,805,134 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 21,816,134 and 21,805,134 shares issued and outstanding as of September 30, 2020 and December 31, 2019 respectively; aggregate liquidation preference of $79,094 and, $62,466 as of September 30, 2020 and December 31, 2019 respectively).

78,514

61,907

STOCKHOLDERS' DEFICIT

Common stock, $0.001 par value; 132,034,637 and 132,034,637 shares authorized as of September 30, 2020 and December 31, 2019; 84,370,027 and 84,370,027 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively.

84

84

Treasury stock 223,157 shares, at cost, as of September 30, 2020 and December 31, 2019

(768)

(768)

Additional paid-in capital

82,728

87,118

Accumulated deficit

(211,440)

(186,372)

Total stockholders' deficit

(129,396)

(99,938)

Total liabilities, contingently redeemable preferred stock and stockholders' deficit

$      50,318

$      49,994

Specialists On Call, Inc. and Subsidiaries and AffiliatesCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except shares and per share amounts)(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenues

$   15,132

$   17,052

$   43,493

$   49,615

Cost of revenues

9,534

9,853

29,277

30,251

Operating expenses

Selling, general and administrative

11,993

8,135

30,267

25,805

Changes in fair value of contingent consideration

-

(258)

-

(1,712)

Total operating expenses

11,993

7,878

30,267

24,093

Loss from operations

(6,395)

(678)

(16,051)

(4,729)

Other income (expense)

Gain (Loss) on puttable option liabilities

(412)

-

(517)

-

Interest expense

(2,853)

(2,650)

(8,469)

(7,495)

Interest expense – Related party

(21)

-

(21)

-

Total other expense

(3,286)

(2,650)

(9,007)

(7,495)

Loss before income taxes

(9,681)

(3,328)

(25,058)

(12,224)

Income tax expense

7

2

10

5

Net loss and comprehensive loss

$   (9,688)

$   (3,330)

$  (25,068)

$  (12,229)

Accretion of redeemable convertible preferred stock

(2,152)

(1,412)

(5,670)

(4,054)

Net loss attributable to common stockholders

$  (11,840)

$  (4,742)

$  (30,738)

$  (16,283)

Net loss per share attributable to common stockholders

Basic

$(0.14)

$(0.06)

$(0.36)

$(0.19)

Diluted

$(0.14)

$(0.06)

$(0.36)

$(0.19)

Weighted-average shares used to compute net loss per share attributable to common stockholders:

Basic

84,874,870

84,581,205

84,874,870

84,581,205

Diluted

84,874,870

84,581,205

84,874,870

84,581,205

Specialists On Call, Inc. and Subsidiaries and AffiliatesCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

Nine Months Ended September 30,

Cash flows from operating activities:

2020

2019

Net loss

$   (25,068)

$   (12,229)

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation and amortization

4,008

3,150

Stock-based compensation

1,280

1,115

Loss on puttable option liabilities

517

-

Change in fair value of contingent consideration

-

(1,712)

Bad debt expense

64

150

Accrued interest on convertible bridge debt (related party)

21

-

Paid-in kind interest on senior debt

2,310

2,055

Amortization of debt issuance costs and accretion of original issuance discount

1,073

920

Change in assets and liabilities, net of acquisitions

Accounts receivable, net of allowance

1,661

(262)

Prepaid expense and other current assets

(599)

(32)

Deposits and other assets

32

-

Accounts payable

891

214

Accrued expenses and other liabilities

1,657

(2,012)

Deferred revenues

213

(93)

Net cash used in operating activities

(11,940)

(8,736)

Cash flows from investing activities:

Capitalization of software development costs

(3,252)

(3,002)

Purchase of property and equipment

(1,724)

(973)

Net cash used in investing activities

(4,976)

(3,975)

Cash flows from financing activities:

Principal payments under capital lease obligations

(66)

(104)

Proceeds from long term debt, net of issuance costs

3,961

12,867

Exercise of stock options

-

19

Payment of deferred transaction related costs

(63)

-

Issuance of contingently redeemable preferred stock, net of offering costs

10,938

-

Net cash provided by financing activities

14,770

12,782

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

5(2,146)

771

Cash and cash equivalents at beginning of the period

4,541

3,989

Cash and cash equivalents at end of the period

$      2,395

$      4,060

Specialists On Call, Inc. and Subsidiaries and AffiliatesRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES(In thousands, except per share data)(Unaudited)

Three Months Ended September 30,,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

2020

2019

2020

2019

Change

% Change

Change

% Change

(dollars in thousands)

Revenues

$

15,132

$

17,052

$

43,493

$

49,615

$

(1,920)

(11)

%

$

(6,122)

(12)

%

Cost of revenues

9,534

9,853

29,277

30,251

(319)

(3)

%

(974)

(3)

%

Gross profit

5,598

7,199

14,216

19,364

(1,601)

(22)

%

(5,148)

(27)

%

Add:

Depreciation and amortization (a)

1,004

719

2,807

1,898

285

40

%

909

48

%

Equipment leasing costs (b)

15

61

57

208

(46)

(75)

%

(151)

(73)

%

Adjusted gross profit

$

6,617

$

7,979

$

17,080

$

21,470

(1,362)

(17)

%

(4,390)

(20)

%

Adjusted gross margin      (as a percentage of revenues)

44

%

47

%

39

%

43

%

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

2020

2019

2020

2019

Change

% Change

Change

% Change

(dollars in thousands)

Net loss

$

(9,688)

$

(3,330)

$

(25,068)

$

(12,229)

$

(6,358)

191

%

$

(12,839)

105

%

Add:

Interest expense (c)

2,874

2,650

8,490

7,495

224

8

%

995

13

%

Income tax expense (benefit) (d)

7

2

10

5

5

250

%

5

100

%

Depreciation and amortization (a)

1,401

1,130

4,008

3,150

271

24

%

858

27

%

Stock-based compensation (e)

1,033

252

1,280

1,115

781

310

%

165

15

%

Gain/(Loss) on puttable option      revaluation (f)

412

—

517

—

412

*

517

*

Changes in fair value of contingent      consideration (g)

—

(258)

—

(1,712)

258

*

1,712

*

Integration, acquisition, transaction,      and severance costs (h)

1,018

31

3,521

1,050

987

3,184

%

2,471

235

%

Adjusted EBITDA

$

(2,943)

$

477

$

(7,242)

$

(1,126)

(3,420)

(717)

%

(6,116)

543

%

*        Percentage not meaningful

(1)           Selling, general, and administrative expenses include the following expenses for the periods presented:

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Stock-Based

Compensation

Depreciation and Amortization

Integration

Costs

Stock-Based

Compensation

Depreciation and Amortization

Integration

Costs

(dollars in thousands)

Sales and marketing

$

3

$

—

$

—

$

100

$

—

$

—

Research and development

8

—

—

8

—

—

Operations

10

—

—

11

—

—

General and administrative

1,012

397

1,018

133

411

31

$

1,033

$

397

$

1,018

$

252

$

411

31

(1)           Selling, general, and administrative expenses include the following expenses for the periods presented:

Nine Months Ended September 30, 2020

Nine Months Ended September 30, 2019

Stock-Based

Compensation

Depreciation and Amortization

Integration

Costs

Stock-Based

Compensation

Depreciation and Amortization

Integration

Costs

(dollars in thousands)

Sales and marketing

$

18

$

—

$

—

$

671

$

—

$

—

Research and development

48

—

—

38

—

—

Operations

45

—

—

34

—

—

General and administrative

1,169

1,201

3,521

372

1,252

1,050

$

1,280

$

1,201

$

3,521

$

1,115

$

1,252

$

1,050

Explanation of Non-GAAP Adjustments

(a) 

Amortization and depreciation consists primarily of depreciation of fixed assets, amortization of capitalized software development costs and amortization of acquisition-related intangible assets, such as customer relationships, non-compete agreements, and trade names acquired in connection with business combinations. While depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced or updated in the future, and these measures do not reflect any cash requirements for these replacements or updates. Additionally, we incur amortization of acquisition-related intangible assets based on the portion of the purchase price allocated to intangible assets and the estimated useful lives of such assets. However, the purchase price allocated to these assets is not necessarily reflective of the cost we would incur to internally develop the intangible asset and we do not believe these charges are reflective of our operating results in the period incurred. We eliminate these non-cash charges from our non-GAAP operating results to facilitate an understanding of our operating and financial performance from period-to-period.

(b) 

Equipment leasing costs consist of the cost of procuring equipment through lease financing. We ceased this practice in the second quarter of 2017. We eliminate these charges from our non-GAAP operating results to facilitate an understanding of our operating and financial performance from period-to-period.

(c) 

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our term loan agreement. We eliminate these cash and non-cash expenses from our non-GAAP operating results to facilitate an understanding of our operating and financial performance from period-to-period within our presentation of adjusted EBITDA. Adjusted EBITDA is widely used by investors to measure a company's operating performance without regard to items, such as interest benefit and expense, income tax benefit and expense, depreciation and amortization, stock-based compensation, and other charges and income. We believe adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry as this metric generally eliminates the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance.

(d) 

We incur income tax expenses or benefits that are related to prior periods. We eliminate these expenses from our non-GAAP operating results to facilitate an understanding of our operating and financial performance from period-to-period within our presentation of adjusted EBITDA.

(e) 

Stock-based compensation expense consists primarily of expenses for stock options. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our operating and financial performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods. We evaluate our performance both with and without these measures because stock-based compensation is a non-cash expense and can vary significantly over time based on the timing, size, nature and design of the awards granted, and is influenced in part by certain factors that are generally beyond our control, such as the volatility of the market value of our common stock. In addition, we eliminate stock-based compensation expense from our non-GAAP operating results to facilitate an understanding of our operating and financial performance from period-to-period.

(f) 

Gain (loss) on puttable option liabilities consists of changes in the fair value of puttable option liabilities. We eliminate these non-cash expenses from our non-GAAP operating results to facilitate an understanding of our operating and financial performance from period-to-period.

(g)

Changes in fair value of contingent consideration consists of the change in fair value of contingent consideration associated with a business combination in August 2018.

(h) 

Integration, acquisition, transaction and executive severance costs represent the transaction and business integration costs related to our recent business combination with Healthcare Merger Corp., including incremental expenses incurred to affect business combinations such as advisory, legal, accounting, valuation, and other professional or consulting fees, as well as other related incremental executive severance costs. We exclude these costs from our non-GAAP results as they have no direct correlation to the operation of our business, and because we believe that the non-GAAP financial measures excluding these costs provide useful information about our spending trends to facilitate an understanding of our operating and financial performance from period-to-period.