SEC Filing - Sharecare, Inc.

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shcr-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________

FORM 10-Q

_____________________________________________


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended June 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission file number 001-39535

SHARECARE, INC.

(Exact name of registrant as specified in its charter)


Delaware						85-1365053
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

255 East Paces Ferry Road NE, Suite 700 Atlanta, Georgia						30305
(Address of Principal Executive Offices)						(Zip Code)

(404) 671-4000

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	SHCR	The Nasdaq Stock Market LLC
Warrants, each warrant exercisable for one share of common stock, each at an exercise price of $11.50 per share	SHCRW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of August 4, 2023, there were 357,125,351 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

Table of Contents

Sharecare, Inc.

Table of Contents


		Page
Part I. Financial Information
Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (unaudited)	1
	Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 (unaudited)	2
	Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2023 and 2022 (unaudited)	3
	Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33

Part II. Other Information
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
Signatures		36

Table of Contents

Part I - Financial Information

ITEM 1. FINANCIAL STATEMENTS

SHARECARE, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share and per share amounts)


	As of June 30, 2023		As of December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	144,162	$	182,508
Accounts receivable, net (net of allowance for doubtful accounts of $8,145 and $7,197, respectively)	123,856		116,877
Other receivables	2,329		4,114
Prepaid expenses	10,420		12,612
Other current assets	4,890		4,515
Total current assets	285,657		320,626
Property and equipment, net	4,595		5,082
Other long-term assets	20,426		20,362
Intangible assets, net	152,763		163,114
Goodwill	191,946		191,817
Total assets	$	655,387	$	701,001
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Accounts payable	$	25,719	$	8,838
Accrued expenses and other current liabilities (Note 3)	79,569		81,627
Deferred revenue	6,931		9,032
Contract liabilities, current	768		1,535
Total current liabilities	112,987		101,032
Warrant liabilities	3,307		2,441
Long-term debt	364		—
Other long-term liabilities	9,565		16,723
Total liabilities	126,223		120,196
Commitments and contingencies (Note 7)
Series A redeemable convertible preferred stock, $0.0001 par value; 5,000,000 shares authorized; 5,000,000 shares issued and outstanding, aggregate liquidation preference of $50,000 as of June 30, 2023 and December 31, 2022	58,205		58,205
Stockholders’ equity:
Common stock $0.0001 par value; 600,000,000 and 600,000,000 shares authorized; 356,593,964 and 354,463,620 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	35		35
Additional paid-in capital	1,139,594		1,120,024
Accumulated other comprehensive loss	(2,370)		(2,794)
Accumulated deficit	(666,677)		(595,820)
Total Sharecare, Inc. stockholders’ equity	470,582		521,445
Noncontrolling interest in subsidiaries	377		1,155
Total stockholders’ equity	470,959		522,600
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	655,387	$	701,001

The accompanying notes are an integral part of these consolidated financial statements.

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SHARECARE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue (inclusive of $18,045 and $8,051 of related party revenue for the three months ended June 30, 2023 and 2022, respectively, and $36,793 and $15,619 of related party revenue for the six months ended June 30, 2023 and 2022, respectively)	$	110,353	$	103,823	$	226,648	$	204,533
Costs and operating expenses:
Costs of revenue (exclusive of depreciation and amortization; inclusive of $9,534 and $0 of related party costs for three months ended June 30, 2023 and 2022, respectively, and $20,396 and $0 of related party costs for the six months ended June 30, 2023 and 2022, respectively)	62,948		53,238		130,840		104,730
Sales and marketing	14,959		14,155		30,309		28,666
Product and technology	17,035		17,680		37,843		37,101
General and administrative	35,371		43,491		69,490		99,489
Depreciation and amortization	14,184		10,901		28,965		20,778
Total costs and operating expenses	144,497		139,465		297,447		290,764
Loss from operations	(34,144)		(35,642)		(70,799)		(86,231)
Other income (expense):
Interest income	1,646		102		3,326		131
Interest expense	(453)		(539)		(882)		(1,031)
Other (expense) income	(2,631)		6,827		(2,201)		19,672
Total other (expense) income	(1,438)		6,390		243		18,772
Loss before income tax expense	(35,582)		(29,252)		(70,556)		(67,459)
Income tax expense	(65)		(269)		(96)		(361)
Net loss	(35,647)		(29,521)		(70,652)		(67,820)
Net loss attributable to noncontrolling interest in subsidiaries	(504)		(496)		(850)		(594)
Net loss attributable to Sharecare, Inc.	$	(35,143)	$	(29,025)	$	(69,802)	$	(67,226)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.10)	$	(0.08)	$	(0.20)	$	(0.19)
Weighted-average common shares outstanding, basic and diluted	354,049,808		347,334,401		353,490,234		346,122,333

Net loss	$	(35,647)	$	(29,521)	$	(70,652)	$	(67,820)
Other comprehensive loss adjustments:
Foreign currency translation	189		(1,206)		496		(975)
Comprehensive loss	(35,458)		(30,727)		(70,156)		(68,795)
Comprehensive loss attributable to noncontrolling interest in subsidiaries	(489)		(662)		(778)		(460)
Comprehensive loss attributable to Sharecare, Inc.	$	(34,969)	$	(30,065)	$	(69,378)	$	(68,335)

The accompanying notes are an integral part of these consolidated financial statements.

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SHARECARE, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share amounts)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Noncontrolling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	5,000,000	$	58,205	354,463,620	$	35	$	1,120,024	$	(2,794)	$	(595,820)	$	1,155	$	522,600
Stock options exercised	—	—		281,042	—		282		—		—		—		282
Common stock issued upon vesting of restricted stock units	—	—		1,759,615	—		—		—		—		—		—
Issuance of warrants in connection with debt and revenue arrangements	—	—		—	—		14		—		—		—		14
Cumulative effect of adopting ASU 2016-13	—	—		—	—		—		—		(1,055)		—		(1,055)
Share-based compensation	—	—		—	—		10,406		—		—		—		10,406
Net income (loss) attributable to noncontrolling interest in subsidiaries	—	—		—	—		—		—		—		(346)		(346)
Currency translation adjustment	—	—		—	—		—		250		—		57		307
Repurchased shares of common stock related to exercise of employee stock options	—	—		(214,984)	—		(396)		—		—		—		(396)
Net income (loss) attributable to Sharecare, Inc.	—	—		—	—		—		—		(34,659)		—		(34,659)
Other	—	—		—	—		(131)		—		—		—		(131)
Balance at March 31, 2023	5,000,000	$	58,205	356,289,293	$	35	$	1,130,199	$	(2,544)	$	(631,534)	$	866	$	497,022
Stock options exercised	—	—		188,023	—		170		—		—		—		170
Common stock issued upon vesting of restricted stock units	—	—		2,013,098	—		—		—		—		—		—
Issuance of warrants in connection with debt and revenue arrangements	—	—		—	—		14		—		—		—		14
Share-based compensation	—	—		—	—		12,329		—		—		—		12,329
Net income (loss) attributable to non-controlling interest in subsidiaries	—	—		—	—		—		—		—		(504)		(504)
Currency translation adjustment	—	—		—	—		—		174		—		15		189
Taxes paid related to net share settlement of equity awards	—	—		(346,450)	—		(511)		—		—		—		(511)
Shares repurchased	—	—		(1,550,000)	—		(2,607)		—		—		—		(2,607)
Net income (loss) attributable to Sharecare, Inc.	—	—		—	—		—		—		(35,143)		—		(35,143)
Balance at June 30, 2023	5,000,000	$	58,205	356,593,964	$	35	$	1,139,594	$	(2,370)	$	(666,677)	$	377	$	470,959

The accompanying notes are an integral part of these consolidated financial statements.

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SHARECARE, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share amounts)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Noncontrolling Interest		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	5,000,000	$	58,205	345,788,707	$	35	$	1,042,164	$	(2,061)	$	(477,113)	$	1,811	$	564,836
Stock options exercised	—	—		2,414,986	—		2,337		—		—		—		2,337
Common stock issued upon vesting of restricted stock units	—	—		73,617	—		—		—		—		—		—
Issuance of warrants in connection with debt and revenue arrangements	—	—		–	—		19		—		—		—		19
Issuance of stock for WhitehatAI earnout	—	—		132,587	—		—		—		—		—		—
Issuance of stock for doc.ai escrow shares	—	—		677,680	—		—		—		—		—		—
Share-based compensation	—	—		–	—		33,681		—		—		—		33,681
Net income (loss) attributable to noncontrolling interest in subsidiaries	—	—		–	—		—		—		—		(98)		(98)
Currency translation adjustment	—	—		–	—		—		(69)		—		300		231
Net income (loss) attributable to Sharecare, Inc.	—	—		–	—		—		—		(38,201)		—		(38,201)
Other	—	—		(5,097)	—		—		—		—		—		—
Balance at March 31, 2022	5,000,000	$	58,205	349,082,480	$	35	$	1,078,201	$	(2,130)	$	(515,314)	$	2,013	$	562,805
Stock options exercised	—	—		2,497,188	—		2,658		—		—		—		2,658
Common stock issued upon vesting of restricted stock units	—	—		346,698	—		—		—		—		—		—
Issuance of warrants in connection with debt and revenue arrangements	—	—		—	—		14		—		—		—		14
Share-based compensation	—	—		—	—		18,558		—		—		—		18,558
Net income (loss) attributable to noncontrolling interest in subsidiaries	—	—		—	—		—		—		—		(496)		(496)
Currency translation adjustment	—	—		—	—		—		(1,040)		—		(166)		(1,206)
Net income (loss) attributable to Sharecare, Inc.	—	—		—	—		—		—		(29,025)		—		(29,025)
CareLinx working capital adjustment	—	—		—	—		(659)		—		—		—		(659)
Balance at June 30, 2022	5,000,000	$	58,205	351,926,366	$	35	$	1,098,772	$	(3,170)	$	(544,339)	$	1,351	$	552,649

The accompanying notes are an integral part of these consolidated financial statements.

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SHARECARE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands, except share and per share amounts)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(70,652)	$	(67,820)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	28,965		20,778
Non-cash interest expense	394		493
Amortization of contract liabilities	(902)		(2,190)
Accretion of contract liabilities	136		440
Lease right-of-use assets expense	1,885		3,017
Change in fair value of warrant liability and contingent consideration	(42)		(18,742)
Share-based compensation	21,667		51,287
Deferred income taxes	58		(592)
Other	4,338		2,467
Changes in operating assets and liabilities:
Accounts receivable, net	(9,883)		3,406
Prepaid expenses and other assets	(2,235)		(4,786)
Accounts payable and accrued expenses	6,888		(27,421)
Operating lease liabilities	244		197
Deferred revenue	(2,101)		(446)
Net cash used in operating activities	(21,240)		(39,912)
Cash flows from investing activities:
Purchases of property and equipment	(1,063)		(1,066)
Capitalized internal-use software costs	(14,119)		(23,150)
Net cash used in investing activities	(15,182)		(24,216)
Cash flows from financing activities:
Payments for shares repurchased	(2,723)		—
Proceeds from exercise of common stock options	1,372		4,996
Payments on financing lease obligations	(710)		(243)
Net cash (used in) provided by financing activities	(2,061)		4,753
Effect of exchange rates on cash and cash equivalents	137		(156)
Net decrease in cash and cash equivalents	(38,346)		(59,531)
Cash and cash equivalents at beginning of period	182,508		271,105
Cash and cash equivalents at end of period	$	144,162	$	211,574
Supplemental disclosure of cash flow information:
Cash paid for interest	$	517	$	532
Cash paid for income taxes	$	32	$	23
Non-cash investing and financing activities:
CareLinx working capital adjustment	$	—	$	659
Supplemental cash flow information related to leases:
Cash paid for amounts included in the measurement of lease liabilities	$	2,047	$	3,661
Assets obtained in exchange for lease obligations	$	1,812	$	3,304

The accompanying notes are an integral part of these consolidated financial statements.

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

1.Nature of Business and Significant Accounting Policies

Nature of Business

Sharecare, Inc. (“Sharecare” or the “Company”) was founded in 2009 to develop an interactive health and wellness platform and began operations in October 2010. Sharecare’s virtual health platform is designed to help people, patients, providers, employers, health plans, government organizations, and communities optimize individual and population-wide well-being by driving positive behavior change. The platform is designed to connect each stakeholder to the health management tools they need to drive engagement, establish sustained participation, increase satisfaction, reduce costs, and improve outcomes. Sharecare bridges scientifically validated clinical programs with content to deliver a personalized experience for its members, beginning with the RealAge® test, Sharecare’s health risk assessment that shows members the true age of their body, capitalizing on people’s innate curiosity of how “young” they are to draw them into the platform. The Sharecare platform provides members with a personalized action plan to guide and educate them on the habits and behaviors making the biggest impact, both positive and negative, on their RealAge. Sharecare provides the resources members need to manage their health through lifestyle or disease management and coaching programs, such as diabetes management and smoking cessation, well-being solutions, such as financial health and anxiety management; care navigation tools such as find-a-doctor, prescription savings, clinical decision support, medical records, home health, and more. Sharecare recently launched Sharecare+, a digital-first, comprehensive advocacy solution designed to deliver value through benefits navigation, clinical engagement, virtual care, and chronic case and utilization management. Additionally, Sharecare provides secure, automated release of information, audit and business consulting services to streamline the medical records process for medical facilities. Sharecare delivers value via its provider, enterprise, and life sciences channels.

Basis of Presentation and Consolidation Policy

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of Sharecare, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Segment Information

The Company operates as a single operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources for the entire company.

Unaudited Interim Financial Information

The accompanying interim Consolidated Balance Sheets as of June 30, 2023 and the Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022, Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for each of the three month periods within the six months ended June 30, 2023 and 2022, and Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 are unaudited. These unaudited interim consolidated financial statements are presented in accordance with the rules and regulations of the SEC and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2023, the Company’s consolidated results of operations for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 30, 2023 and 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year or any other future interim or annual periods. The information contained within the unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s annual financial statements for the year ended December 31, 2022.

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

Use of Estimates

The preparation of these unaudited interim consolidated financial statements in conformity with GAAP requires the use of management estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include revenue recognition and income taxes. The Company bases its estimates on historical experience, known trends, and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Concentration of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company’s cash deposits are held with well-known financial institutions and may exceed federally insured limits. The Company grants credit to its customers in the normal course of business and generally requires no collateral from its customers.

Fair Value Measurements

The carrying value of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates fair value due to their short-term nature.

The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires management to maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

•Level 1 — Quoted prices in active markets for identical assets or liabilities

•Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

•Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability

Assets and Liabilities that are Measured at Fair Value on a Non-recurring Basis

Assets and liabilities that may be measured at fair value on a non-recurring basis relate primarily to the Company’s tangible fixed assets and other intangible assets. For these assets, the Company does not periodically adjust the carrying value to fair value except in the event of an impairment. When the Company determines that an impairment has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recorded within operating loss in the Consolidated Statements of Operations and Comprehensive Loss.

Further, in connection with business combinations and asset acquisitions, the values of certain assets acquired have been recorded at fair value using Level 3 inputs. The fair values of definite-lived intangible assets acquired in these acquisitions were estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that an asset is expected to generate in the future. The Company develops internal estimates for the expected cash flows from acquired assets and estimates of discount rates used in the present value calculations. In certain instances, the Company also estimates fair value based on market multiples of comparable companies, when using the market approach.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable, net, consists of trade accounts receivable which are due under normal trade terms requiring payment, typically within 45 days from the invoice date. The allowance for doubtful accounts is based on management's

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

estimate for expected credit losses for outstanding trade accounts receivable and is recorded as an offset to accounts receivable. Changes in the allowance for doubtful accounts are classified as general and administrative expense in the Consolidated Statements of Operations and Comprehensive Loss. The Company determines expected credit losses based on historical write-off experience, an analysis of the aging of outstanding receivables, customer payment patterns, and adjusts based on expectations of changes in macro-economic conditions and customer-specific information that may impact the collectability of outstanding receivables. The Company reassesses the adequacy of the allowance for doubtful accounts each reporting period. For the six months ended June 30, 2023, the allowance for doubtful accounts includes $1.1 million of amounts recorded upon adoption of ASU 2016-13 on January 1, 2023.

The changes in the allowance for doubtful accounts are as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Allowance for doubtful accounts – beginning balance	$	8,426	$	6,740	$	7,197	$	6,212
Provision for doubtful accounts	1,095		1,061		2,085		1,712
Amounts written off and other adjustments	(1,376)		11		(1,137)		(112)
Allowance for doubtful accounts – ending balance	$	8,145	$	7,812	$	8,145	$	7,812

Contract Liabilities

In connection with certain acquisitions, the Company has recognized current and noncurrent contract liabilities, representing off-market values associated with certain wellness program royalty agreements (amortization will continue through 2023). Amortization of these contract liabilities was $0.5 million for three months ended June 30, 2023, all of which was included within cost of revenues in the Consolidated Statements of Operations and Comprehensive Loss. Amortization of these contract liabilities was $1.1 million for three months ended June 30, 2022, of which $0.4 million was included within cost of revenues and $0.7 million was included in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.

Amortization of these contract liabilities was $0.9 million for six months ended June 30, 2023, all of which was included within cost of revenues in the Consolidated Statements of Operations and Comprehensive Loss. Amortization of these contract liabilities was $2.2 million for six months ended June 30, 2022, of which $0.9 million was included within cost of revenues and $1.3 million was included in general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss. Additionally, the Company has recognized certain contract liabilities due to a related party in the amount of $17.2 million, related to service agreements, which is included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Deferred Revenue

The Company records contract liabilities pursuant to ASC 606 which consist of deferred revenue and contract billings in excess of earned revenue.

Deferred revenues arise from contracts that permit upfront billing and the collection of fees covering the entire contractual service period, which is generally six to twelve months and in advance of the satisfaction of the performance obligations identified within the related contract. As of June 30, 2023 and December 31, 2022, such fees were $6.9 million and $9.0 million, respectively. The Company recognized $5.5 million of revenue during the three months ended June 30, 2023 that was included in deferred revenue at December 31, 2022. The Company recognized $11.6 million of revenue during the six months ended June 30, 2023 that was included in deferred revenue at December 31, 2022.

Revenue Recognition

Performance-Based Revenue

Certain contracts place a portion of fees at risk based on achieving certain performance metrics, such as customer cost savings, and/or clinical outcomes improvements (performance-based). The Company uses the most likely amount method to estimate variable consideration for these performance guarantees. The Company includes in the transaction price some, or all, of a variable consideration amount only to the extent that it is not probable that a significant reversal in the amount of

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company utilizes customer data to measure performance. Performance-based fees subject to refund that the Company has not recognized as revenues are generally due to either: (1) data from the customer is insufficient or incomplete to measure performance; or (2) interim performance measures indicate that it is not probable that the Company will meet the relevant performance target(s). As of June 30, 2023 and December 31, 2022, such fees included within deferred revenue were $5.6 million and $4.4 million, respectively.

In the event that performance measures 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. Approximately $1.0 million and $2.5 million of revenues recognized during the three months ended June 30, 2023 and 2022, respectively, were performance-based. During the three months ended June 30, 2023, $0.6 million of revenue was recognized, which related to services provided prior to December 31, 2022.

Approximately $2.1 million and $4.4 million of revenues recognized during the six months ended June 30, 2023 and 2022, respectively, were performance-based. During the six months ended June 30, 2023, $0.7 million was recognized in revenue that related to services provided prior to December 31, 2022. As of June 30, 2023 and 2022, the cumulative amount of performance-based revenues that had met the criteria for recognition and had been recognized but had not yet been settled with customers, totaled $4.4 million and $5.1 million, respectively.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenues that are non-cancellable and have not yet been recognized due to unsatisfied or partially satisfied performance obligations. This includes deferred revenues and amounts that will be invoiced and recognized as revenues in future periods. As of June 30, 2023, future estimated revenue related to performance obligations with terms of more than one year that are unsatisfied or partially unsatisfied at the end of the reporting period was approximately $91.6 million. As of June 30, 2023, the Company expects to recognize revenue on approximately 77% of these unsatisfied performance obligations over the following 24 months and the remainder thereafter.

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Enterprise	$	64,052	$	59,889	$	134,244	$	119,660
Provider	29,191		26,402		58,165		51,118
Life Sciences	17,110		17,532		34,239		33,755
Total Revenue	$	110,353	$	103,823	$	226,648	$	204,533

Other (Expense) Income

For the three and six months ended June 30, 2023 and 2022, other income consisted of the following (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Re-measurement of contingent consideration	$	770	$	4,475	$	908	$	11,252
Re-measurement of warrant liabilities	(866)		1,899		(866)		7,490
Other	(2,535)		453		(2,243)		930
Total other (expense) income	$	(2,631)	$	6,827	$	(2,201)	$	19,672

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

Recently Adopted Accounting Standards

As an emerging growth company (“EGC”), the Jumpstart Our Business Startups Act (“JOBS Act”) allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are applicable to private companies (that is, those that have not had a registration statement declared effective under the Securities Act of 1933, as amended (the “Securities Act”), or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Company has elected to use this extended transition period under the JOBS Act until such time as the Company is no longer considered to be an EGC. The adoption dates discussed below reflect this election.

Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which is intended to improve the timing of recognition, and enhance the accounting and disclosure, of credit losses on financial assets. This update modified the existing accounting guidance related to the impairment evaluation for available-for-sale debt securities, reinsurance recoverables, and accounts receivables and could result in the creation of an allowance for credit losses as a contra-asset account. The ASU requires a cumulative-effect change to retained earnings (accumulated deficit) in the period of adoption, to the extent applicable. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within the fiscal year. The Company adopted ASU 2016-13 on January 1, 2023, and the adoption did not have a material impact on the Company’s unaudited interim consolidated financial statements, with the primary impact being the increase in allowance for doubtful accounts related to our trade accounts receivable. The adoption adjustment was recorded to accumulated deficit, as shown in the Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit).

2. Fair Value Measurements

The Company’s financial instruments consist of cash equivalents, accounts receivable, accounts payable, accrued liabilities, warrant liabilities, and contingent consideration liabilities. Cash equivalents are comprised of money market funds stated at amortized cost, which approximates fair value at the balance sheet dates, due to the short period of time to maturity. Accounts receivable, accounts payable, and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected settlement date. The warrant liabilities and contingent consideration liabilities are recorded at estimated fair value.

The following tables present the fair value hierarchy for assets and liabilities measured at fair value as of June 30, 2023 (in thousands):


	June 30, 2023
	Level 1		Level 2		Level 3		Total Fair Value
Cash equivalents
Money market funds	$	122,940	$	—	$	—	$	122,940
Total cash equivalents at fair value	$	122,940	$	—	$	—	$	122,940

Liabilities
Warrant liabilities	$	3,307	$	—	$	—	$	3,307
Contingent consideration – other liabilities	—		—		971		971
Total liabilities at fair value	$	3,307	$	—	$	971	$	4,278

The warrants included in the units issued during the initial public offering by Falcon Capital Acquisition Corp. “FCAC” and the warrants issued by FCAC simultaneously with its initial public offering in a private placement, were both classified within Level 1 as they are publicly traded and have an observable market price in an active market. Additionally, the warrant liabilities are exercisable for one share of common stock at an exercise price of $11.50.

Contingent consideration was classified within Level 3 as it was valued using certain unobservable inputs. The fair value of the contingent consideration is estimated based on the Company’s stock price and number of shares expected to be issued

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

related to acquisitions in prior years and are estimated using a Monte Carlo simulation with inputs for the Company’s stock price, expected volatility, risk-free rate, first and second earnout hurdles and expected term.

The following is a schedule of changes to the contingent consideration — other liabilities classified as Level 3 for the periods presented (in thousands):


December 31, 2022	$	1,879
Re-measurement of contingent consideration	(908)
June 30, 2023	$	971

3. Balance Sheet Components

Accrued Expenses and Other Current Liabilities

As of June 30, 2023 and December 31, 2022, accrued expenses and other current liabilities consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Accrued expenses	$	23,098	$	18,526
Accrued compensation	15,409		23,762
Accrued media costs	3,059		4,515
Accrued taxes	1,665		1,602
Operating lease liabilities, current	2,043		2,941
Contract liabilities due to a related party, current	17,208		10,000
Accrued expenses due to a related party	15,415		18,011
Accrued other	1,672		2,270
Total accrued expenses and other current liabilities	$	79,569	$	81,627

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

4. Goodwill and Other Intangible Assets

Intangible assets and the related accumulated amortization for each class of intangible asset as of June 30, 2023 were as follows (in thousands):


	June 30, 2023
	Cost		Accumulated Amortization		Net		Weighted Average Remaining Life
Definite-lived, intangible assets
Technology – features/content	$	65,875	$	(24,646)	$	41,229	8.5
Trade name	3,549		(1,757)		1,792		8.1
Customer relationships	77,849		(36,591)		41,258		9.2
Internal-use software	169,216		(110,851)		58,365		2.0
Total definite-lived, intangible assets	$	316,489	$	(173,845)	$	142,644

Intangible assets not subject to amortization
Internal-use software projects in process	$	5,089	$	—	$	5,089
Indefinite-lived, trade names	5,030		—		5,030
Total intangible assets not subject to amortization	10,119		—		10,119
Total intangible assets	$	326,608	$	(173,845)	$	152,763

The following tables set forth the changes in the carrying amount of the Company’s goodwill for the period presented (in thousands):


December 31, 2022	$	191,817
Foreign currency translation adjustment	129
June 30, 2023	$	191,946

Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subjected to annual tests of impairment. The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter and between annual tests if an event occurs or circumstances change that would indicate that it is more likely than not that the carrying amount may be impaired. The Company initially evaluates qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, a quantitative assessment of the fair value of a reporting unit is performed to test goodwill for impairment using a combination of income and market approaches. The Company continues to monitor the price of its common stock in relation to goodwill impairment. Based on the Company's qualitative analysis for the second quarter of 2023, it was determined that it was not more likely than not that the fair value of the Sharecare reporting unit was less than the carrying value. There have been no impairments of goodwill since the Company’s inception.

Amortization expense for intangible assets during the three months ended June 30, 2023 and 2022 totaled $13.5 million and $10.2 million, respectively. Amortization expense for intangible assets during the six months ended June 30, 2023 and 2022 totaled $27.4 million and $19.4 million, respectively. Amortization expense is included in depreciation and amortization in the Consolidated Statements of Operations and Comprehensive Loss.

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

The following is a schedule of estimated future amortization expense for intangible assets as of June 30, 2023 (in thousands):


Year ending December 31:
Remainder of 2023	$	25,695
2024	42,187
2025	26,283
2026	14,459
2027	10,783
Thereafter	23,237
Total	$	142,644

5. Income Taxes

As a result of the Company’s history of net operating losses, the Company has provided for a full valuation allowance against its deferred tax assets, with the exception of its German and French operations. For the three months ended June 30, 2023, the Company recognized income tax expense of less than $0.1 million, primarily due to state income tax. For the three months ended June 30, 2022, the Company recognized an income tax expense of $0.3 million, primarily due to tax on foreign income and the valuation of the Brazilian deferred tax asset. For the six months ended June 30, 2023, the Company recognized income tax expense of less than $0.1 million, primarily due to state income tax. For the six months ended June 30, 2022, the Company recognized income tax expense of $0.4 million, primarily due to tax on foreign income and the valuation of the Brazilian deferred tax asset.

6. Common Stock and Stockholders’ Equity

Warrants

In connection with debt and equity financings and certain partnership arrangements, the Company may issue warrants. Warrants classified as liabilities generally vest immediately and are exercisable upon issuance and have an expiration of seven years from the date of issuance. Warrants classified as equity generally vest after three years from the date of issuance and have an expiration of seven years from the date of issuance.

As of June 30, 2023, the following warrants to purchase common stock were issued and outstanding:


Classification	Warrants Outstanding	Exercise Price per Share
Equity	1,171,652	$4.21 - $5.61
Liability	17,433,334	$11.50

The Company has also entered into, and may in the future enter into, contractual arrangements with certain customers and other parties and earnout arrangements in connection with acquisitions that, in each case, provide for the issuance of warrants and/or common stock upon the achievement of specified milestones. As of June 30, 2023, these agreements provide for the issuance of up to 5,182,109 shares of common stock and 8,954,277 warrants to purchase shares of common stock. With respect to these arrangements, there were 88,450 warrants earned but not issued as of June 30, 2023.

Share-based Payments

Stock option and restricted stock unit activity, prices, and values during the six months ended June 30, 2023 are as follows (in thousands, except share and per share amounts):

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)


	Options Outstanding						Restricted Stock Units
	Number of Options	Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)		Number of Plan shares outstanding	Weighted-Average Grant Date Fair Value per share
Outstanding as of December 31, 2022	103,557,247	$	2.88	6.88	$	25,753	16,050,794	$	3.21
Granted	—	—					37,614,566	$	1.85
Exercised/Released	(469,065)	$	0.96		$	369	(3,772,713)	$	2.96
Cancelled/Forfeited	(1,309,535)	$	5.20				(1,422,742)	$	4.33
Outstanding as of June 30, 2023	101,778,647	$	2.90	6.38	$	37,157	48,469,905	$	2.12
Vested and/or exercisable as of June 30, 2023	75,115,572	$	1.96	6.02	$	31,875	—	$	—
Vested and/or exercisable as of December 31, 2022	75,439,358	$	1.96	6.50	$	22,030	—	$	—

Vested but unissued restricted stock units as of June 30, 2023 and December 31, 2022 were immaterial.

Share-based compensation expense for employee and nonemployee options and restricted stock units included in the Consolidated Statements of Operations and Comprehensive Loss is as follows for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenues	$	188	$	109	$	299	$	227
Sales and marketing	1,447		981		2,275		2,525
Product and technology	1,155		736		2,223		1,763
General and administrative	9,359		16,351		17,319		46,772
Total share-based compensation expense	$	12,149	$	18,177	$	22,116	$	51,287

Additionally, share-based compensation costs, reflected within additional paid-in capital in the Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended June 30, 2023 and 2022, included approximately $0.6 million and $0.4 million related to capitalizable internally developed software activities, respectively. Share-based compensation, reflected within additional paid-in capital in the Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) costs for the six months ended June 30, 2023 and 2022, included approximately $1.1 million and $1.0 million related to capitalizable internally developed software activities, respectively.

On May 31, 2023, each of the principal executive officer, principal financial officer, other named executive officers, and certain eligible employees of the Company voluntarily elected to forgo up to 25% of their cash base salary for the next 12 months, and in lieu thereof received restricted stock units (“RSUs”) with a value equal to the cash amount they elected to forego over the 12-month period. In consideration for forgoing guaranteed cash compensation, each individual will receive an additional number of RSUs with a value equal to 25% of the amount of cash salary they have elected to forgo. The RSUs were issued in June 2023 and will vest in four equal quarterly installments over the next 12 months, subject to the individual’s continued employment. The ability of the named executive officers and other eligible employees to make such election to forgo guaranteed cash compensation and receive RSUs in lieu thereof was approved by the Compensation and Human Capital Committee of the Company’s board of directors. The unvested RSUs are classified as a liability. As such, share-based compensation costs, reflected within additional paid-in capital in the Consolidated Statement of Redeemable Convertible

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended June 30, 2023 does not reflect the expense associated with these awards. Upon vesting of these RSUs, amounts will be reclassified from liability to equity.

7. Commitments and Contingencies

Legal Matters

From time to time, the Company is subject to litigation in the normal course of business. The Company is of the opinion that, based on the information presently available, the resolution of any such legal matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. The Company has accrued for losses that are both probable and estimable.

We are also party to investigations and legal disputes and losses related to certain matters that are reasonably possible, but at this time, we cannot estimate a loss or range of losses.

Standby Letter of Credit

The Company is a guarantor of a $2.5 million standby letter of credit for a non-profit organization focused on the development of a health innovation district in the Southeast United States. The standby letter of credit was issued by a financial institution with the non-profit organization as the obligor and that organization’s landlord as the beneficiary in connection with the non-profit organization’s lease of office space to establish the health innovation district. The Company agreed to guarantee the standby letter of credit as it desired to support the non-profit’s mission to develop the health innovation district.

On July 25, 2023, the financial institution that issued the standby letter of credit made a demand of payment from the Company in its role as guarantor. As of June 30, 2023, the Company recognized a liability in the amount of $2.5 million for the full amount of payment (maximum obligation). The liability was recorded in Other current liabilities in the Consolidated Balance Sheet and the related expense was recognized in Other expense in the Consolidated Statement of Operations and Comprehensive Loss because the guarantee, and the related lease of space, was unrelated to the Company’s business operations. The Company is seeking repayment from the non-profit organization lessee and to the extent that the Company is able to recover any amounts they will be recorded to cash and Other income as they are received.

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

8. Related-Party Transactions

Sul América Serviços de Saúde S.A. (Sul América), is a customer of and owns a 49% interest in Sharecare Brasil Servicios de Consultoria, Ltda. As of June 30, 2023 and December 31, 2022, $0.6 million and $1.4 million, respectively, in receivables were outstanding with Sul América. Revenues recognized for the three month period ended June 30, 2023 and 2022 from Sul América totaled $1.4 million and $2.4 million, respectively. Revenues recognized for the six month period ended June 30, 2023 and 2022 from Sul América totaled $2.6 million and $5.1 million, respectively.

The Series A Preferred Stock is held by a customer that also had an employee serving on the Company’s Board of Directors. During the three month period ended June 30, 2023, the board member ceased employment with the customer. Subsequent to the board member’s termination of employment with the customer, this customer was no longer considered a related party. Due to the mid-year change, the Company will disclose amounts related to this customer through 2023. As of June 30, 2023 and December 31, 2022, $5.6 million and $3.1 million, respectively, in receivables were outstanding from this related party. Additionally, as of June 30, 2023 and December 31, 2022, current assets included $2.4 million and $4.8 million, respectively, associated with this related party related to the amount recorded in excess of cash received which represents a non-cash payment for up front research and development costs related to the issuance of the Series A Preferred Stock. For the three months ended June 30, 2023 and 2022, the Company paid $0 and $0.5 million related to administration fees and stop-loss coverage for employee health insurance, respectively, to a related party. For the six months ended June 30, 2023 and 2022, the Company paid $0 and $1.0 million related to administration fees and stop-loss coverage for employee health insurance, respectively. Revenues recognized for this customer for the three months ended June 30, 2023 and 2022 totaled $4.7 million and $5.6 million, respectively. Revenues recognized for this customer for the six months ended June 30, 2023 and 2022 totaled $9.4 million and $10.6 million, respectively.

Additionally, during the third quarter of 2022, we entered into a revenue contract with the Series A Preferred Stockholder to provide patient advocacy services. Separate from the above disclosed amounts for this related party, revenues recognized related to these distinct services for the three and six months ended June 30, 2023, totaled $10.9 million and $23.0 million, respectively. As of June 30, 2023, there were $28.3 million in receivables, $32.6 million in accrued expenses, $0 of long-term liabilities, $1.7 million of current contract assets, and $5.0 million in long-term contract assets recorded in connection with these distinct agreements. As of December 31, 2022, there were $18.1 million in receivables, $28.0 million in accrued expenses, $6.9 million of long-term liabilities, $1.7 million of current contract assets, and $5.8 million in long-term contract assets recorded in connection with these distinct agreements. The contract assets are being amortized as a reduction of revenue over the contract term. Revenue for the three and six months ended June 30, 2023, included $0.4 million and $0.8 million of amortization of such contract assets, respectively. Additionally, the Company acquired certain intellectual property which was determined to be distinct and recorded an intangible asset of $8.5 million and $7.9 million, as of June 30, 2023 and December 31, 2022, respectively, which is being amortized over its estimated useful life. The Company also entered into separate agreements during the third quarter of 2022 for the purchase of distinct goods and services from that customer for amounts totaling $9.5 million and $20.4 million which are recorded in cost of sales for the three and six months ended June 30, 2023, respectively. Amounts paid under the agreements that were not determined to be distinct were recorded as a reduction of revenues as described above.

The Company has a customer that is affiliated with a member of its Board of Directors that was nominated during the first quarter of 2023. As of June 30, 2023, $1.0 million in receivables were outstanding from this related party and revenues recognized for the three and six months ended June 30, 2023 totaled $1.0 million and $1.8 million, respectively.

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Sharecare, Inc.

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

9. Net Loss Per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Numerator
Net loss	$	(35,647)	$	(29,521)	$	(70,652)	$	(67,820)
Less: Net loss attributable to noncontrolling interests in subsidiaries	(504)		(496)		(850)		(594)
Net loss available to common stockholders	$	(35,143)	$	(29,025)	$	(69,802)	$	(67,226)

Denominator
Weighted-average common shares outstanding, basic and diluted	354,049,808		347,334,401		353,490,234		346,122,333
Net loss per share attributable to common stockholders, basic and diluted	$	(0.10)	$	(0.08)	$	(0.20)	$	(0.19)

The Company’s potential dilutive securities, which include stock options and restricted stock units, redeemable convertible preferred stock, and contingently issuable shares, have been excluded from the computation of diluted net loss per share for the three and six months ended June 30, 2023 and 2022, as they are anti-dilutive and the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common share equivalents presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Stock options and restricted stock units	12,349,481	31,929,513	21,120,393	38,209,897
Redeemable convertible preferred stock	5,000,000	5,000,000	5,000,000	5,000,000
Contingently issuable shares	—	25,675	—	223,952
Total	17,349,481	36,955,188	26,120,393	43,433,849

10. Subsequent Events

The Company considers events or transactions that occur after the balance sheet date, but before the consolidated financial statements are issued, to provide additional evidence relative to certain estimates or identify matters that require additional disclosures. The Company evaluated subsequent events through, August 9, 2023, the date on which the consolidated financial statements were available to be issued, noting no such material events.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2022, 2021, and 2020, together with the related notes thereto, included in our Annual Report on Form 10-K filed with the SEC on March 31, 2023, and Sharecare’s unaudited interim financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022, 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

This Quarterly Report on Form 10-Q includes forward-looking statements regarding, among other things, the plans, strategies and prospects, both business and financial, of Sharecare. These statements are based on the beliefs and assumptions of our management. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. 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:

•our business, operations and financial performance, including:

◦expectations with respect to our financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder;

◦future business plans and growth opportunities, including revenue opportunities available from new or existing clients and expectations regarding the enhancement of platform capabilities and addition of new solution offerings;

◦developments and projections relating to our competitors and the digital healthcare industry;

◦the impact of rising inflation, increasing interest rates, public health emergencies such as the COVID-19 pandemic, financial institution disruptions and other macroeconomics factors on our business and the actions we may take in response thereto;

◦our expectations regarding anticipated and future partnerships or other relationships with third parties and future acquisitions;

◦our future capital requirements and sources and uses of cash, including potential share repurchases and our ability to obtain additional capital in the future and fully access our Revolving Facility; and

◦our ability to recognize performance-based revenue;

•our status as an EGC and our intention to take advantage of accommodations available to EGCs under the JOBS Act;

•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; and

•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 filed with the SEC on March 31, 2023. For example, the Company’s expectations regarding future performance assume business currently under contract and satisfaction by our customers of their contractual obligations under those agreements, which is not within the Company’s control. If a customer fails to satisfy its contractual obligations, actual results could be negatively impacted. 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.

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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 health and well-being interoperable ecosystem unifies the elements of individual and community health so everyone can live better, longer across the dynamic continuum of their healthcare needs. 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 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 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 client channel 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 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.

•Life Sciences: 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.

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 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 with 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;

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◦facilitating intervention with Sharecare+, our high-touch, digital-first advocacy solution driving high quality experience, care, and value support;

◦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 8,500 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. For example, in January 2023, we launched Sharecare+, our digital-first, comprehensive advocacy solution designed to deliver value through benefits navigation, clinical engagement, virtual care, and chronic case and utilization management, and have entered into a multi-year strategic partnership with an affiliate of one of the largest payers to integrate our solution into their health guide services for hundreds of thousands of their members.

•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 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.

•Globalization Efforts and Cost Savings. We have begun certain globalization efforts across our Provider and Enterprise channels that will be rolled out throughout 2023. Through these globalization efforts, we believe there is opportunity to achieve approximately $30 million in annualized cost savings, which will include both operating and capitalized expense reductions. We expect cost savings to be realized during 2023, some of which began in the first quarter of 2023 and will increase as we progress throughout the year. The global shared service center is expected to become operational near the end of 2023.

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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, advocacy solutions, and subscriptions to the Sharecare platform. 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. Life sciences revenue is generated mostly through ad sponsorships to Sharecare’s extensive member database.

Costs of Revenue

Costs of revenue consist of costs incurred in connection with delivering our various revenue generating activities. 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 for employees engaged in delivering products and services to customers, 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, costs associated with exiting a contract, settlement of contractual obligations, 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 fluctuate as we strategically invest to expand our business. As we scale our sales and marketing personnel in the short- to medium-term, we expect these expenses to fluctuate 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 service delivery, sales and marketing, or product and technology. They also include professional fees, share-based compensation, settlement of legal obligations, lease termination expense, enterprise resource planning implementation costs, acquisition related costs, 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 due to the additional legal, accounting, insurance, investor relations, and other costs as a public company, as well as costs associated with continuing to grow our business. Our general and 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.

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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.

Other Income (Expense)

Other income (expenses) primarily relates to the guarantee expense of a standby letter of credit for a third party non-profit organization and changes in the fair value of contingent consideration and warrant liabilities.

Results of Operations

Comparison of the Three Months Ended June 30, 2023 and 2022

The following table presents our unaudited Consolidated Statement of Operations for the three months ended June 30, 2023 and 2022, and the percentage change between the two periods:


	Three Months Ended June 30,
(in thousands)	2023		2022		$ Change		% Change
Revenue	$	110,353	$	103,823	$	6,530	6	%
Costs and operating expenses:
Costs of revenue (exclusive of amortization and depreciation below)	62,948		53,238		9,710		18	%
Sales and marketing	14,959		14,155		804		6	%
Product and technology	17,035		17,680		(645)		(4)	%
General and administrative	35,371		43,491		(8,120)		(19)	%
Depreciation and amortization	14,184		10,901		3,283		30	%
Total costs and operating expenses	144,497		139,465		5,032		4	%
Loss from operations	(34,144)		(35,642)		1,498		(4)	%
Other income (expense)
Interest income	1,646		102		1,544		n.m
Interest expense	(453)		(539)		86		16	%
Other (expense) income	(2,631)		6,827		(9,458)		139	%
Total other (expense) income	(1,438)		6,390		(7,828)		123	%
Net loss before taxes	(35,582)		(29,252)		(6,330)		(22)	%
Income tax expense	(65)		(269)		204		76	%
Net loss	(35,647)		(29,521)		(6,126)		(21)	%
Net loss attributable to noncontrolling interest in subsidiaries	(504)		(496)		(8)		n.m
Net loss attributable to Sharecare, Inc.	$	(35,143)	$	(29,025)	$	(6,118)	(21)	%

____________

n.m. — Percentage change not meaningful

Revenue

Revenue increased $6.5 million, or 6%, from $103.8 million for the three months ended June 30, 2022 to $110.4 million for the three months ended June 30, 2023. Overall, we saw growth from the new advocacy product line of $11.4 million, partially offset by reduced supply of nurses in our nurse on demand business along with updated fee structures with a legacy contract.

The channel revenue changed as follows: enterprise channel increased by $4.2 million (from $59.9 million for 2022 to $64.1 million for 2023), the provider channel increased by $2.8 million (from $26.4 million for 2022 to $29.2 million for 2023)

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and the life sciences channel decreased by $0.4 million (from $17.5 million for 2022 to $17.1 million for 2023). Increases in the enterprise channel of 7% were attributable to a combination of the new advocacy product as well as gains in digital therapeutics, partially offset by reductions in legacy customer services and home health demand. The provider channel increase of 11% was attributable to increased medical record volume and new customers in both the release of information and medical record audit product lines. The life sciences channel decreased 2% due to the expected decrease of Smart Omix deliverables, during the period.

Costs of Revenue

Costs of revenue increased $9.7 million, or 18%, from $53.2 million for the three months ended June 30, 2022 to $62.9 million for the three months ended June 30, 2023. The increase was due to increased sales. The percentage increase in costs of revenue was higher than the percentage increase in revenue primarily from shifts in product mix and the increase of direct costs related to delivery of advocacy services for several large new customers.

Sales and Marketing

Sales and marketing expense increased $0.8 million, or 6%, from $14.2 million for the three months ended June 30, 2022 to $15.0 million for the three months ended June 30, 2023. The increase was attributable to new headcount costs for sales and account management and additional share-based compensation expense.

Product and Technology

Product and technology expenses decreased $0.6 million, or 4%, from $17.7 million for the three months ended June 30, 2022 to $17.0 million for the three months ended June 30, 2023. The decrease was attributable to decreased labor costs tied to our globalization efforts. Offsetting this was an increase in non-cash share-based compensation expense.

General and Administrative

General and administrative expense decreased $8.1 million, or 19%, from $43.5 million for the three months ended June 30, 2022 to $35.4 million for the three months ended June 30, 2023. Non-cash share-based compensation expense accounted for $7.0 million of the reduction with the remainder of the difference tied to lower facility, professional fees and business insurance costs.

Depreciation and Amortization

Depreciation and amortization increased $3.3 million, or 30%, from $10.9 million for the three months ended June 30, 2022 to $14.2 million for the three months ended June 30, 2023. The increase was primarily related to placing platform-related developed software into service.

Other (Expense) Income

Other (expense) income decreased $9.5 million from $6.8 million of income for the three months ended June 30, 2022 to $2.6 million of expense for the three months ended June 30, 2023. In the current period, the expense was driven by a standby letter of credit for a non-profit organization, for which the Company was a guarantor and incurred the cost upon the non-profit organization’s default on its obligation. See Note 7 to Sharecare’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The activity in the prior period was mostly related to non-cash mark-to-market adjustments to contingent consideration and warrant liabilities where the adjustment is tied to the change in the per share price of the Company’s common stock. The Company did not experience similar non-cash mark-to-market adjustments to contingent consideration and warrant liabilities in the current period. See Note 1 to Sharecare’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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Comparison of the Six Months Ended June 30, 2023 and 2022

The following table presents our unaudited Consolidated Statement of Operations for the six months ended June 30, 2023 and 2022, and the percentage change between the two periods:


	Six Months Ended June 30,
(in thousands)	2023		2022		$ Change		% Change
Revenue	$	226,648	$	204,533	$	22,115	11	%
Costs and operating expenses:
Costs of revenue (exclusive of amortization and depreciation below)	130,840		104,730		26,110		25	%
Sales and marketing	30,309		28,666		1,643		6	%
Product and technology	37,843		37,101		742		2	%
General and administrative	69,490		99,489		(29,999)		(30)	%
Depreciation and amortization	28,965		20,778		8,187		39	%
Total costs and operating expenses	297,447		290,764		6,683		2	%
Loss from operations	(70,799)		(86,231)		15,432		(18)	%
Other income (expense)
Interest income	3,326		131		3,195		2439	%
Interest expense	(882)		(1,031)		149		14	%
Other (expense) income	(2,201)		19,672		(21,873)		111	%
Total other income (expense)	243		18,772		(18,529)		99	%
Net loss before taxes	(70,556)		(67,459)		(3,097)		(5)	%
Income tax expense	(96)		(361)		265		73	%
Net loss	(70,652)		(67,820)		$	(2,832)	(4)	%
Net loss attributable to noncontrolling interest in subsidiaries	(850)		(594)		(256)		43	%
Net loss attributable to Sharecare, Inc.	$	(69,802)	$	(67,226)	$	(2,576)	(4)	%

Revenue

Revenue increased $22.1 million, or 11%, from $204.5 million for the six months ended June 30, 2022 to $226.6 million for the six months ended June 30, 2023. Overall, we saw growth from the new advocacy product line of $24.0 million as well as organic growth in medical records business, partially offset by declines in home health demand.

The channel revenue changed as follows: enterprise channel increased by $14.5 million (from $119.7 million for 2022 to $134.2 million for 2023), the provider channel increased by $7.1 million (from $51.1 million for 2022 to $58.2 million for 2023) and the life sciences channel increased by $0.4 million (from $33.8 million for 2022 to $34.2 million for 2023). Increases in the enterprise channel of 12% were attributable to the new advocacy product and increased engagement in digital therapeutics, partially offset by decreased demand in home health. The provider channel increase of 14% was attributable to increased medical record volume and new customers in both the release of information and medical record audit product lines. The life sciences channel increase of 1% was in line with expectations.

Costs of Revenue

Costs of revenue increased $26.1 million, or 25%, from $104.7 million for the six months ended June 30, 2022 to $130.8 million for the six months ended June 30, 2023. The increase was due to increased sales. The percentage increase in costs of revenue was higher than the percentage increase in revenue primarily from shifts in product mix and the increase of direct costs related to delivery of advocacy services for several large new customers.

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Sales and Marketing

Sales and marketing expense increased $1.6 million, or 6%, from $28.7 million for the six months ended June 30, 2022 to $30.3 million for the six months ended June 30, 2023. The increase was attributable to new headcount costs for sales and account management and additional share-based compensation expense.

Product and Technology

Product and technology expenses increased $0.7 million, or 2%, from $37.1 million for the six months ended June 30, 2022 to $37.8 million for the six months ended June 30, 2023. The increase was attributable mostly to increased share-based compensation and severance expense.

General and Administrative

General and administrative expense decreased $30.0 million, or 30%, from $99.5 million for the six months ended June 30, 2022 to $69.5 million for the six months ended June 30, 2023. Non-cash share-based compensation expense and non-operational expenses accounted for $33.6 million of the decrease, partially offset by increases in personnel and content production related expenses.

Depreciation and Amortization

Depreciation and amortization increased $8.2 million, or 39%, from $20.8 million for the six months ended June 30, 2022 to $29.0 million for the six months ended June 30, 2023. The increase was primarily related to placing platform-related developed software into service.

Other (Expense) Income

Other (expense) income decreased $21.9 million from $19.7 million of income for the six months ended June 30, 2022 to $2.2 million of expense for the six months ended June 30, 2023. In the current period, the expense was driven by a standby letter of credit for a non-profit organization, for which the Company was a guarantor and incurred the cost upon the non-profit organization’s default on its obligation. See Note 7 to Sharecare’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. The activity in the prior period was mostly related to non-cash mark-to-market adjustments to contingent consideration and warrant liabilities where the adjustment is tied to the change in the per share price of the Company’s common stock. The Company did not experience similar non-cash mark-to-market adjustments to contingent consideration and warrant liabilities in the current year period. See Note 1 to Sharecare’s consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures