The following discussion and analysis of our financial condition and results of
our operations should be read together with our condensed consolidated financial
statements, including the related notes thereto, included elsewhere in this
report. The following discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those set forth under "Risk Factors"
and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in
this report.



Prior to October 30, 2020, we were known as Healthcare Merger Corp. On October
30, 2020, we completed the Merger Transaction with Legacy SOC Telemed and, for
accounting purposes, Healthcare Merger Corp. was deemed to be the acquired
entity. Unless the context otherwise requires, references in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" to
"we," "our," "us," the "Company" or "SOC Telemed" are intended to mean the
business and operations of SOC Telemed, Inc. and its consolidated subsidiaries
as they currently exist.



Overview



We are the leading provider of acute care telemedicine services and technology
to U.S. hospitals and healthcare systems, based on number of customers. We
provide technology-enabled clinical solutions, which include acute
teleNeurology, telePsychiatry, teleCritical Care (ICU), telePulmonology,
teleCardiology and other specialties. We support time-sensitive specialty care
when patients are vulnerable and may not otherwise have access. Our solution was
developed to support complex workflows in the acute care setting by integrating
our cloud-based software platform, Telemed IQ, with a panel of consult
coordination experts and a network of clinical specialists to create a seamless,
acute care telemedicine solution.



We derive a substantial portion of our revenues from consultation fees generated
under contracts with facilities that access our Telemed IQ software platform and
clinical provider network. In general, our contracts are non-cancellable and
typically have an initial one-to-three-year term, with an automatic renewal
provision. They provide for a predetermined number of consultations for a fixed
monthly fee and consultations in excess of the monthly allotment generate
additional consultation fees, which we characterize as variable fee revenue.
Revenues are driven primarily by the number of facilities, the consultations
from our facilities, the number of services contracted for by a facility, the
contractually negotiated prices of our services, and the negotiated pricing that
is specific to that particular facility.



For the three months ended September 30, 2021, our revenues were $26.7 million,
representing 76% year-over-year growth compared to revenues of $15.1 million for
the three months ended September 30, 2020, including an incremental $9.7 million
revenue from the acquisition (the "Acquisition") of Access Physicians Management
Services Organization, LLC ("Access Physicians"), a multi-specialty acute care
telemedicine provider, in March 2021. Additionally, we experienced higher core
consultation volume during the three months ended September 30, 2021, as
compared to the three months ended September 30, 2020, due to the Acquisition
and the impact of the COVID-19 pandemic on the utilization of our core services
during the prior year period. For the nine months ended September 30, 2021, our
revenues were $66.5 million, representing 53% year-over-year growth compared to
revenues of $43.5 million for the nine months ended September 30, 2020,
including an incremental $18.5 million revenue from the Acquisition. We
experienced higher core consultation volume during the nine months ended
September 30, 2021, as compared to the nine months ended September 30, 2020, due
to the Acquisition and the impact of the COVID-19 pandemic on the utilization of
our core services. In recent periods, we have seen an improvement in our
utilization rates for these services. For the three months ended September 30,
2021 and 2020, our net losses were $10.6 million and $9.7 million, respectively.
For the nine months ended September 30, 2021 and 2020, our net losses were $37.7
million and $25.1 million, respectively. This increase was primarily due to our
investments in growth, transaction costs associated with the Acquisition, and
costs related to transitioning to becoming a public company.



                                       27





Recent Developments



On October 28, 2021, the Board approved certain strategic, operational and
organizational plans to improve productivity and reduce complexity in the way we
manage our business. In connection with these actions, we expect to reduce
non-clinical headcount by approximately 12%. We also plan to downsize, vacate or
close certain facilities and terminate certain contracts in connection with the
restructuring plan. We estimate that we will incur up to $3.0 million in costs
in connection with the restructuring, approximately $2.0 million for severance
and termination benefits and approximately $1.0 million for site closures and
other exit and disposal costs. These actions are expected to be substantially
completed by the end of 2021. We estimate annualized benefits from the
restructuring plan of approximately $7.0 million to $9.0 million after calendar
year 2021.



On November 10, 2021, we entered into an amendment to the Term Loan Agreement
with SLR Investment, pursuant to which the net revenue milestone for the Term B
Loan was reduced from $55.0 million to $51.5 million on a trailing six-month
basis, which made the tranche immediately available to be drawn. In connection
with the amendment, we borrowed the full $12.5 million of the Term B Loan on
November 10, 2021.



COVID-19 Update



The COVID-19 pandemic had an impact on the utilization levels of our core
services when it was declared a global pandemic in March 2020, and, as a result,
our financial condition and year-to-date results of operations have been
negatively impacted. Immediately following the declaration of COVID-19 as a
global pandemic, the utilization levels of our core services decreased by
approximately 40% in the aggregate. We have seen improvement in the utilization
rates of these solutions in recent periods and have nearly returned to normal
utilization levels in the third quarter of 2021.



The future impact of the COVID-19 pandemic on our operational and financial
performance will depend on certain developments, including the duration and
spread of the pandemic and the emergence of new variants of COVID-19, the impact
on our customers and our sales cycles, the impact on our marketing efforts, and
the effect on our suppliers, all of which are uncertain and cannot be predicted.
Public and private sector policies and initiatives to reduce the transmission of
COVID-19 and disruptions to our and our customers' operations and the operations
of our third-party suppliers, along with any related global slowdown in economic
activity, may result in decreased revenues and increased costs, and we expect
such impacts on our revenues and costs to continue through the duration of the
pandemic. Further, the economic effects of COVID-19 have financially constrained
some of our prospective and existing customers' healthcare spending, offset by
the increasing awareness that telemedicine can be a more cost-efficient model
for hospitals and health systems to provide access to critical, clinical
specialists and mitigate business disruption by assuring continuity of access to
those providers. We have taken measures in response to the COVID-19 pandemic,
including temporarily closing our offices and implementing a work-from-home
policy for our workforce; suspending employee travel and in-person meetings;
modifying our clinician provisioning protocols; and adjusting our supply chain
and equipment levels. We may take further actions that alter our business
operations as may be required by federal, state or local authorities or that we
determine are in the best interests of our employees, customers, and
stockholders. The net impact of these dynamics may negatively impact our ability
to acquire new customers, complete implementations, and renew contracts with or
sell additional solutions to our existing customers. The extent to which the
COVID-19 pandemic may materially impact our financial condition, liquidity or
results of operations is uncertain. It is possible that the COVID-19 pandemic,
the measures taken by the U.S. government, as well as state and local
governments in response to the pandemic, and the resulting economic impact may
materially and adversely affect our results of operations, cash flows and
financial positions as well as our customers.



We believe our business is well-positioned to benefit from the trends that are
accelerating digital transformation of the health care industry as a result of
the COVID-19 pandemic. The COVID-19 pandemic has had a significant impact on the
telemedicine market by increasing utilization, awareness and acceptance among
patients and providers. In the current environment, telemedicine has been
promoted at the highest levels of government as a key tool for on-going
healthcare delivery while access to healthcare facilities remains limited due to
constraints in healthcare facilities' resources and general patient fear of
traditional in-person visits. Moreover, with clinicians quarantined or otherwise
relegated to their homes due to safety issues, telemedicine has provided a
solution for remote providers to continue to care for patients and for hospitals
to access additional specialists to augment remaining staff. During the COVID-19
pandemic, the U.S. Congress and the Centers for Medicare and Medicaid Services
("CMS") have significantly reduced regulatory and reimbursement barriers for
telemedicine. As a result, telemedicine spending increased starting in 2020, and
we expect this trend to continue after the public health emergency. In addition
to Medicare and Medicaid, many states have issued executive orders or permanent
legislation removing or reducing the regulatory and reimbursement barriers

for
telemedicine.



                                       28




Key Factors Affecting SOC Telemed's Performance





The following factors have been important to our business and we expect them to
impact our business, results of operations and financial condition in future
periods:



Attracting new facilities



Sustaining our growth requires continued adoption of our clinical solutions and
platform by new and existing facilities. We will continue to invest in building
brand awareness as we further penetrate our addressable markets. Our revenue
growth rate and long-term profitability are affected by our ability to increase
our number of facilities because we derive a substantial portion of our revenues
from fixed and variable consultation fees. Our financial performance will depend
on our ability to attract, retain and cross-sell additional solutions to
facilities under favorable contractual terms. We believe that increasing our
facilities is an integral objective that will provide us with the ability to
continually innovate our services and support initiatives that will enhance
experiences and lead to increasing or maintaining our existing recurring revenue
streams.


Expanding number of consultations on the SOC Telemed platform


Our revenues are generated from consultations performed on our platform. We also
realize variable revenue from facilities in connection with the completion of
consultations that are in excess of their contracted number of monthly
consultations. Accordingly, our consultation fee revenue generally increases as
the number of visits increase. Consultation fee revenue is driven primarily by
the number of consultations and facility utilization of our network of providers
and the contractually negotiated prices of our services. Our success in driving
increased utilization within the facilities under contract depends in part on
the expansion of service lines with existing customers and the effectiveness of
our customer success organization which we deploy on-site and through targeted
engagement programs. We believe that increasing our current facility utilization
rate is a key objective in order for our customers to realize tangible clinical
and financial benefits from our solutions.



Continued investment in growth





We plan to continue investing in our business, including our internally
developed Telemed IQ software platform, so we can capitalize on our market
opportunity and increasing awareness of the clinical and financial value that
can be realized with telemedicine. We expect to continue to make focused
investments in marketing to drive brand awareness, increase the number of
opportunities and expand our digital footprint. We also intend to continue to
invest in our customer success function to target expansion of our business and
to attract new facilities. Although we expect these activities will increase our
net losses in the near term, we believe that these investments will contribute
to our long-term growth and positively impact our business and results of
operations.



Key Performance Measures



We review several key performance measures, discussed below, to evaluate
business and results, measure performance, identify trends, formulate plans and
make strategic decisions. We believe that the presentation of such metrics is
useful to our investors because they are used to measure and model the
performance of companies such as ours, with recurring revenue streams.



                                       29





Number of facilities



We believe that the number of facilities using our platform are indicators of
future revenue growth and our progress on our path to long-term profitability
because we derive a substantial portion of our revenues from consultation fees
under contracts with facilities that provide access to our professional provider
network and platform. A facility represents a distinct physical location of a
medical care site. The Acquisition of Access Physicians contributed 193
facilities as of September 30, 2021.



               As of September 30,
                2021            2020
Facilities         1,087          843




Bookings



We believe that new bookings are an indicator of future revenue growth and
provide investors with useful information on period-to-period performance as
evaluated by management and as a comparison to our past financial performance.
Prior to the Acquisition, we defined bookings as the minimum contractual value
for the initial 12 months of a contract as of the contract execution date, which
amount included the minimum fixed consultation revenue, upfront implementation
fees and technology and support fees, but excluded estimates of variable revenue
for utilization in excess of the contracted amounts of consultations. Following
the Acquisition, we changed our definition of bookings to reflect the annual
recurring revenue from new contracts signed during a given period, which we
believe more closely represents the annual revenues expected from those new
agreements and creates a single definition for bookings between SOC Telemed and
Access Physicians. As now defined, bookings represent the estimated annual
recognized revenue for the initial 12 months of a contract as of the contract
execution date. The minimum fixed consultation revenue, estimated variable fee
revenue, 12 months of amortized upfront implementation fees, and technology and
support fees are included in bookings. The minimum fixed consultation fee,
variable fee revenue, as well as the technology and support fees are invoiced
and recognized as revenues on a monthly basis. The upfront implementation fees
are invoiced upon contract signing and accounted for as deferred revenues and
amortized over our average customer relationship period. Bookings for the nine
months ended September 30, 2021, are inclusive of activity from Access
Physicians for the full period. Bookings attributable to Access Physicians prior
to the closing date of the Acquisition were $5.1 million.



             Three Months Ended          Nine Months Ended
                September 30,              September 30,
              2021          2020          2021         2020
                         (dollars in thousands)

Bookings   $    9,038      $ 2,588     $   24,178     $ 8,289




Number of implementations



An implementation is the process by which we enable a new service offering at a
facility. We determine a new service offering has been enabled when facilities
are fully able to access our platform, which typically involves designing the
solution, credentialing and privileging physicians, testing and installing
telemedicine technologies, and training facility staff. Implementations result
in new customers utilizing our services or delivery of new services to existing
customers and are an indicator of revenue growth. Implementations for the nine
months ended September 30, 2021, are inclusive of activity from Access
Physicians for the full period. Implementations attributable to Access
Physicians prior to the closing date of the Acquisition were 38.



                     Three Months Ended          Nine Months Ended
                       September 30,               September 30,
                    2021             2020        2021           2020
Implementations          66             55           272          211




                                       30





Number of consultations



Because our consultation fee revenue generally increases as the number of visits
increase, we believe the number of consultations provides investors with useful
information on period-to-period performance as evaluated by management and as a
comparison to our past financial performance. We define core consultations as
consultations utilizing our 11 core services. Telemed IQ / other consultations
are defined as consultations performed by other physician networks utilizing our
technology platform, Telemed IQ. We experienced increased core consultation
volume and Telemed IQ / other consultation volume for the three and nine months
ended September 30, 2021, as compared to the three and nine months ended
September 30, 2020, respectively, due to the impact of the COVID-19 pandemic on
the utilization of our core services during the respective 2020 period. Core
consultations for the nine months ended September 30, 2021, include 71,002 core
consultations attributable to Access Physicians since the closing date of the
Acquisition.



                                     Three Months Ended           Nine Months Ended
                                        September 30,               September 30,
                                      2021          2020         2021          2020
Core consultations                     75,865       32,126       178,111        98,686

Telemed IQ / other consultations 64,878 47,800 188,211


   113,926
Total consultations                   140,743       79,926       366,322       212,612



Components of Results of Operations





Revenues



We enter into contracts with hospitals or hospital systems, physician practice
groups, and other users. Under the contracts, the customers pay a fixed monthly
fee for access to our Telemed IQ software platform and our clinical provider
network. The fixed monthly fee provides for a predetermined number of monthly
consultations. Should the number of consultations exceed the contracted amount,
the customer also pays a variable consultation fee for the additional
utilization. To facilitate the delivery of the consultation services, facilities
use telemedicine equipment, which is either provided and installed by us or
procured by the customer from external vendors. Customers of Access Physicians
are sold a telemedicine cart with a computer and camera in order to properly
facilitate meetings between patients, on-site health professionals, and remote
physicians. We also provide the facilities with user training as well as
technology and support services, which include monitoring and maintenance of our
telemedicine equipment and access to our reporting portal. Prior to the start of
a contract, customers make upfront non-refundable payments when contracting

for
implementation services.


Revenue is driven primarily by the number of facilities, the number of services contracted for by the facilities, the utilization of our services and the contractually negotiated prices of our services.

We recognize revenue using a five-step model:





  1) Identify the contract(s) with a customer;




  2) Identify the performance obligation(s) in the contract;




  3) Determine the transaction price;




    4)  Allocate the transaction price to the performance obligations in the
        contract; and




  5) Recognize revenue when (or as) it satisfies a performance obligation.




Revenues are recognized when we satisfy our performance obligation to provide
telemedicine consultation services as requested. These consultations covered by
the fixed monthly fee, consultations that incur a variable fee, use of
telemedicine equipment, training, maintenance, and support are substantially the
same and have the same pattern of transfer. Therefore, we have determined these
represent a series of distinct services provided over a period of time in a
single performance obligation. Access Physicians sells telemedicine carts to its
customers and satisfaction of this performance obligation occurs upon delivery
to the customer when control of the telemedicine cart is transferred. Revenues
from telemedicine cart sales is recognized at a point in time, upon delivery. We
have assurance-type warranties that do not result in separate performance
obligations. Upfront nonrefundable fees do not result in the transfer of
promised goods or services to the customer; therefore, we defer this revenue and
recognize it over the average customer life of 48 months. Deferred revenue
consists of the unamortized balance of nonrefundable upfront fees and
maintenance fees, which are classified as current and non-current based on when
we expect to recognize revenue.



See "- Critical Accounting Policies and Estimates - Revenue Recognition" for a more detailed discussion of our revenue recognition policy.





                                       31





Cost of Revenues



Cost of revenues primarily consists of fees paid to our physicians, costs
incurred in connection with licensing our physicians, equipment leasing,
maintenance and depreciation, amortization of capitalized software development
costs (internal-use software), and costs related to medical malpractice
insurance. Cost of revenues is driven primarily by the number of consultations
completed in each period. Our business and operational models are designed to be
highly scalable and leverage variable costs to support revenue-generating
activities. We will continue to invest additional resources in our platform,
providers, and clinical resources to expand the capability of our platform and
ensure that customers are realizing the full benefit of our offerings. The level
and timing of investment in these areas could affect our cost of revenues in the
future.


Gross Profit and Gross Margin





Our gross profit is our total revenues minus our total cost of revenues, and our
gross margin is our gross profit expressed as a percentage of our total
revenues. Our gross margin has been and will continue to be affected by a number
of factors, most significantly the fees we charge and the number of
consultations we complete.



Selling, General and Administrative Expenses





Our selling, general and administrative expenses consist of sales and marketing,
research and development, operations, and general and administrative expenses.
Personnel costs are the most significant component of selling, general and
administrative expenses and consist of salaries, benefits, bonuses, stock-based
compensation expense, and payroll taxes. Selling, general and administrative
expenses also include overhead costs for facilities, professional fees, and
shared IT related expenses, including depreciation expense.



Sales and Marketing



Sales and marketing expenses consist primarily of personnel and related expenses
for our sales, customer success, and marketing staff, including costs of
communications materials that are produced to generate greater awareness and
utilization among our facilities. Marketing costs also include third-party
independent research, trade shows and brand messages, public relations costs and
stock-based compensation for our sales and marketing employees. Our sales and
marketing expenses exclude any allocation of occupancy expense and depreciation
and amortization.


Research and development





Research and development, or R&D expense, consists primarily of engineering,
product development, support and other costs associated with products and
technologies that are in development. These expenses include employee
compensation, including stock-based compensation. We expect R&D expenses as a
percentage of revenues to vary over time depending on the level and timing of
our new product development efforts, as well as the development of our clinical
solutions and other related activities.



                                       32





Operations


Operations expenses consist primarily of personnel and related expenses for our physician licensing, credentialing and privileging, project management, implementation, consult coordination center, revenue cycle management, and clinical provisioning functions.





General and Administrative



General and administrative expenses include personnel and related expenses of,
and professional fees incurred by, our executive, finance, legal, information
technology infrastructure, and human resources departments. They also include
stock-based compensation, all facilities costs including utilities,
communications and facilities maintenance, and professional fees (including
legal, tax, and accounting). Additionally, during 2020, we incurred significant
integration, acquisition, transaction and executive severance costs in
connection with the Merger Transaction, including incremental expenses such as
advisory, legal, accounting, valuation, and other professional or consulting
fees, as well as other related incremental executive severance costs. During
2021, we have incurred significant integration, acquisition, severance and
transaction costs in connection with the Acquisition and restructuring.



Depreciation and Amortization

Depreciation and amortization consists primarily of depreciation of fixed assets, amortization of capitalized software development costs (internal-use software) and amortization of acquisition-related intangible assets.

Changes in Fair Value of Contingent Consideration


Changes in fair value of contingent consideration consist of changes in the fair
value of contingent consideration associated with the Acquisition of Access
Physicians in March 2021. See Note 4, Business Combinations, to our condensed
consolidated financial statements included elsewhere in this report for further
information.


Gain on Contingent Shares Issuance Liabilities





Gain on contingent shares issuance liabilities consists of the change in the
fair value of (1) 1,875,000 shares of our Class A common stock held by HCMC's
sponsor and subsequently distributed to its permitted transferees which were
modified and became subject to forfeiture in connection with the closing of the
Merger Transaction, and (2) 350,000 private placement warrants granted to HCMC's
sponsor and subsequently distributed to its permitted transferees as part of the
Merger Transaction. The contingent shares issuance liabilities are revalued at
their fair value every reporting period. See Note 6, Fair Value of Financial
Instruments, and Note 12, Contingent Shares Issuance Liabilities, to our
condensed consolidated financial statements included elsewhere in this report
for further information.


Loss on Puttable Option Liabilities





Loss on puttable option liabilities consists of changes in the fair value of
puttable option liabilities. These puttable options are no longer outstanding as
they were exercised as part of the Merger Transaction on October 30, 2020.




Interest Expense



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 Facility and the Subordinated
Note.



                                       33





Results of Operations



The following table sets forth our consolidated statements of operations data
for the periods indicated:



                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2021          2020          2021          2020
                                                              (in thousands)
Consolidated Statement of Operations
data:
Revenues                                   $   26,684     $  15,132     $  66,465     $  43,493
Cost of revenues                               18,561         9,534        45,265        29,277
Operating expenses

Selling, general and administrative            21,247        11,993        64,987        30,267
Changes in fair value of contingent
consideration                                    (318 )           -        (3,265 )           -
Total costs and expenses                       39,490        21,527       106,987        59,544
Loss from operations                          (12,806 )      (6,395 )     (40,522 )     (16,051 )
Gain on contingent shares issuance
liabilities                                     4,081             -         9,725             -
Loss on puttable option liabilities                 -          (412 )           -          (517 )
Interest expense                               (1,775 )      (2,853 )      (5,047 )      (8,469 )
Interest expense - Related party                    -           (21 )     

(2,026 )         (21 )
Loss before income taxes                      (10,500 )      (9,681 )     (37,870 )     (25,058 )
Income tax benefit (expense)                     (146 )          (7 )         171           (10 )
Net loss                                   $  (10,646 )   $  (9,688 )   $ (37,699 )   $ (25,068 )

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020





Revenues



             Three Months Ended
                September 30,
              2021          2020        Change       % Change
                         (dollars in thousands)
Revenues   $   26,684     $ 15,132     $ 11,552             76 %




Revenues increased by $11.6 million, or 76%, for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020,
primarily due to the Acquisition, which contributed $9.7 million in incremental
revenue. The increase was also due to an increase in fixed fees of $1.3 million
attributable to new implementations and facilities and an increase in variable
fee revenue of $0.6 million driven by an increase in core consultation volume.



             Nine Months Ended
               September 30,
             2021          2020        Change       % Change
                         (dollars in thousands)
Revenues   $  66,465     $ 43,493     $ 22,972             53 %




Revenues increased by $23.0 million, or 53% for the nine months ended September
30, 2021, compared to the nine months ended September 30, 2020, primarily due to
the Acquisition, which contributed $18.5 million in incremental revenue. The
increase was also due to an increase in fixed fees of $3.5 million attributable
to new implementations and facilities and an increase in variable fee revenue of
$1.0 million driven by an increase in core consultation volume.



                                       34




Cost of Revenues and Gross Margin





                     Three Months Ended
                        September 30,
                      2021          2020       Change       % Change
                                 (dollars in thousands)
Cost of revenues   $    18,561     $ 9,534     $ 9,027             95 %
Gross margin                30 %        37 %




Cost of revenues increased by $9.0 million, or 95%, for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020,
primarily due to the Acquisition, which contributed $6.6 million in incremental
costs. The increase was also driven by an increase of $2.2 million in physician
fees due to an increase in our scheduled hours over the same period due to the
recovery of demand for services and an increase of $0.2 million in equipment,
licensing, and medical malpractice costs.



Gross margin was 30% for the three months ended September 30, 2021, compared to
37% for the three months ended September 30, 2020. The increase in demand for
our services related to the recovery in core consultation volume required us to
increase the number of our scheduled hours resulting in increased physician

fees.



                     Nine Months Ended
                       September 30,
                     2021          2020        Change       % Change
                                 (dollars in thousands)
Cost of revenues   $  45,265     $ 29,277     $ 15,988             55 %
Gross margin              32 %         33 %




Cost of revenues increased by $16.0 million, or 55%, for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020,
primarily due to the Acquisition, which contributed $12.3 million in incremental
costs. The increase was also driven by an increase of $2.5 million in physician
fees due to an increase in our scheduled hours over the same period due to the
recovery of demand for services and an increase of $1.2 million in equipment,
licensing, and medical malpractice costs.



Gross margin was 32% for the nine months ended September 30, 2021, compared to
33% for the nine months ended September 30, 2020. The increase in core
consultation volume in the 2021 period due to increased demand for our services
was able to offset margin pressure from increased scheduled hours as discussed
above.


Selling, General and Administrative Expenses





                                                   Three Months Ended
                                                      September 30,
                                                   2021          2020         Change        % Change
                                                               (dollars in thousands)
Selling, general and administrative expenses:
Sales and marketing                             $    2,371     $   1,936     $     435             23 %
Research and development                               637           398           239             60 %
Operations                                           2,656         2,357           299             13 %
General and administrative                          15,583         7,302         8,281            113 %
Total                                           $   21,247     $  11,993     $   9,254             77 %




Sales and marketing expenses increased by $0.4 million, or 23%, for the three
months ended September 30, 2021, compared to the three months ended September
30, 2020. This increase was due to investment in our go-to-market strategy and
additional headcount for our sales and marketing teams.



                                       35




Research and development expenses increased by $0.2 million, or 60%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, as we continue to invest in product development.


Operations expenses increased by $0.3 million, or 13%, for the three months
ended September 30, 2021, compared to the three months ended September 30, 2020.
This increase was due to salaries, benefits and stock-based compensation
associated with increased headcount for our operations team including revenue
cycle management, credentialing, licensing and privileging personnel.



General and administrative expenses increased by $8.3 million, or 113%, for the
three months ended September 30, 2021, compared to the three months ended
September 30, 2020, primarily due to $4.3 million attributable to the
Acquisition, a $1.1 million increase in stock-based compensation and
modifications to stock-based awards in connection with the Merger Transaction
and the Acquisition, and other costs associated with transitioning to a public
company.


The following table reflects the portion of the total selling, general and administrative expenses related to stock-based compensation, depreciation and amortization and integration costs for the three months ended September 30, 2021, compared to the three months ended September 30, 2020:





                                                          Three Months Ended September 30, 2021                       Three Months Ended September 30, 2020
                                                                      Depreciation                                                Depreciation
                                                 Stock-Based              and               Integration        Stock-Based             and             Integration
                                                 Compensation         Amortization           Costs (1)        Compensation        Amortization          Costs (1)
                                                                                              (dollars in thousands)

Sales and marketing                             $          151       $            -       $             -     $           3       $           -       $           -
Research and development                                   185                    -                     -                 8                   -                   -
Operations                                                 169                    -                     -                10                   -                   -

General and administrative                               2,151             

  1,296                 2,228             1,012                 397               1,018
Total                                           $        2,656       $        1,296       $         2,228     $       1,033       $         397       $       1,018




  (1) Represents integration, acquisition, transaction and executive severance
      costs.




                                                   Nine Months Ended
                                                     September 30,
                                                   2021          2020         Change        % Change
                                                               (dollars in thousands)
Selling, general and administrative expenses:
Sales and marketing                             $    7,358     $   4,920     $   2,438             50 %
Research and development                             1,695           940           755             80 %
Operations                                           7,718         6,539         1,179             18 %
General and administrative                          48,216        17,868        30,348            170 %
Total                                           $   64,987     $  30,267     $  34,720            115 %




Sales and marketing expenses increased by $2.4 million, or 50%, for the nine
months ended September 30, 2021, compared to the nine months ended September 30,
2020. This increase was due to investment in our go-to-market strategy and
additional headcount for our sales and marketing teams.



                                       36




Research and development expenses increased by $0.8 million, or 80%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, as we continue to invest in product development.


Operations expenses increased by $1.2 million, or 18%, for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020. This
increase was due to salaries, benefits and stock-based compensation associated
with increased headcount for our operations team including revenue cycle
management, credentialing, licensing and privileging personnel.



General and administrative expenses increased by $30.3 million, or 170%, for the
nine months ended September 30, 2021, compared to the nine months ended
September 30, 2020, primarily due to a $10.7 million increase in stock-based
compensation and modifications to stock-based awards in connection with the
Merger Transaction and the Acquisition, $8.1 million attributable to the
Acquisition, $4.6 million in integration, acquisition, transaction and executive
severance costs in connection with the Merger Transaction and the Acquisition,
and other costs associated with transitioning to a publicly traded company.



The following table reflects the portion of the total selling, general and
administrative expenses related to stock-based compensation, depreciation and
amortization and integration costs for the nine months ended September 30, 2021,
compared to the nine months ended September 30, 2020:



                                                         Nine Months Ended September 30, 2021                        Nine Months Ended September 30, 2020
                                                                      Depreciation                                                Depreciation
                                                 Stock-Based              and              Integration       Stock-Based              and              Integration
                                                 Compensation         Amortization          Costs(1)         Compensation         Amortization          Costs(1)
                                                                                              (dollars in thousands)

Sales and marketing                             $          494       $            -       $           -     $           18       $            -       $           -
Research and development                                   459                    -                   -                 48                    -                   -
Operations                                                 484                    -                   -                 45                    -                   -
General and administrative                              11,856                2,993               8,137              1,169                1,201               3,521
Total                                           $       13,293       $        2,993       $       8,137     $        1,280       $        1,201       $       3,521




  (1) Represents integration, acquisition, transaction and executive severance
      costs.




Loss from Operations



                         Three Months Ended
                            September 30,
                          2021          2020       Change      % Change
                                    (dollars in thousands)
Loss from operations   $    12,806     $ 6,395     $ 6,411           100 %




Loss from operations increased by $6.4 million for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020. The
increase in loss from operations was due to an increase in selling, general and
administrative expenses primarily due to stock-based compensation, costs
associated with transitioning to a publicly traded company, and transaction
costs in connection with the Acquisition.



                                       37





                         Nine Months Ended
                           September 30,
                         2021          2020        Change      % Change
                                    (dollars in thousands)
Loss from operations   $  40,522     $ 16,051     $ 24,471           152 %




Loss from operations increased by $24.5 million for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020. The
increase in loss from operations was due to an increase in selling, general and
administrative expenses primarily due to stock-based compensation, costs
associated with transitioning to a publicly traded company, and transaction
costs in connection with the Acquisition.



Change in Fair Value of Contingent Consideration



                                                 Three Months Ended
                                                   September 30,
                                              2021                2020          Change         % Change
                                                               (dollars in thousands)
Change in fair value of contingent
consideration                              $       318         $        -     $      318                *




  * Percentage not meaningful




Change in fair value of contingent consideration increased by $0.3 million for
the three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. This increase was due to the re-assessment of the fair value
of contingent consideration recorded in connection with the Acquisition.



                                                 Nine Months Ended
                                                   September 30,
                                               2021              2020         Change         % Change
                                                              (dollars in thousands)
Change in fair value of contingent
consideration                              $      3,265       $        -     $   3,265                *




  * Percentage not meaningful




Change in fair value of contingent consideration increased by $3.3 million for
the nine months ended September 30, 2021 as compared to the nine months ended
September 30, 2020. This increase was due to the re-assessment of the fair value
of contingent consideration recorded in connection with the Acquisition.



Gain on Contingent Shares Issuance Liabilities





                                                 Three Months Ended
                                                   September 30,
                                               2021              2020          Change         % Change
                                                              (dollars in thousands)
Gain on contingent shares issuance
liabilities                                $      4,081       $         -     $   4,081                *




  * Percentage not meaningful




Gain on contingent shares issuance liabilities was $4.1 million for the three
months ended September 30, 2021, due to the re-measurement of the fair value of
contingent shares issuance liabilities subsequent to the Merger Transaction.



                                                 Nine Months Ended
                                                   September 30,
                                               2021              2020         Change         % Change
                                                              (dollars in thousands)
Gain on contingent shares issuance
liabilities                                $      9,725       $        -     $   9,725                *




  * Percentage not meaningful




                                       38





Gain on contingent shares issuance liabilities was $9.7 million for the nine
months ended September 30, 2021, due to the re-measurement of the fair value of
contingent shares issuance liabilities subsequent to the Merger Transaction.



Loss on Puttable Option Liabilities





                                        Three Months Ended
                                           September 30,
                                       2021            2020       Change      % Change
                                                   (dollars in thousands)

Loss on puttable option liabilities $ - $ 412 $ (412 )


          *




  * Percentage not meaningful




Loss on puttable option liabilities decreased to $0 for the three months ended
September 30, 2021, because the puttable options ceased to be outstanding upon
their exercise in connection with the closing of the Merger Transaction in

the
fourth quarter of 2020.



                                         Nine Months Ended
                                           September 30,
                                       2021            2020       Change      % Change
                                                   (dollars in thousands)

Loss on puttable option liabilities $ - $ 517 $ (517 )


          *




  * Percentage not meaningful




Loss on puttable option liabilities decreased to $0 for the nine months ended
September 30, 2021, because the puttable options ceased to be outstanding upon
their exercise in connection with the closing of the Merger Transaction in the
fourth quarter of 2020.



Interest Expense



                     Three Months Ended
                        September 30,
                      2021          2020        Change      % Change
                                 (dollars in thousands)
Interest expense   $    1,775      $ 2,874     $ (1,099 )         (38 )%




Interest expense decreased by $1.1 million, or 38%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, primarily due to the payoff of then-outstanding debt at the closing of the Merger Transaction in the fourth quarter of 2020.





                     Nine Months Ended
                       September 30,
                      2021         2020        Change      % Change
                                (dollars in thousands)
Interest expense   $    7,073     $ 8,490     $ (1,417 )         (17 )%




                                       39




Interest expense decreased by $1.4 million, or 17%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, primarily due to the payoff of then-outstanding debt at the closing of the Merger Transaction in the fourth quarter of 2020.





Income Tax Benefit (Expense)



                                 Three Months Ended
                                    September 30,
                                  2021           2020      Change      % Change
                                            (dollars in thousands)
Income tax benefit (expense)   $      (146 )     $  (7 )   $  (139 )           *




  * Percentage not meaningful




Income tax expense increased by $0.1 million for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020 as a
result of an adjustment to the release of the valuation allowance recorded
related to the deferred tax liability recognized in connection with the
Acquisition.



                                 Nine Months Ended
                                   September 30,
                                 2021           2020       Change      % Change
                                            (dollars in thousands)
Income tax benefit (expense)   $     171       $  (10 )   $    181             *




  * Percentage not meaningful




Income tax expense decreased by $0.2 million for the nine months ended September
30, 2021, compared to the nine months ended September 30, 2020 as a result of
the release of a valuation allowance upon recording a deferred tax liability in
connection with the Acquisition.



Net Loss



             Three Months Ended
                September 30,
              2021          2020        Change       % Change
                         (dollars in thousands)
Net loss   $    10,646     $ 9,688     $    958             10 %




Net loss increased by $1.0 million, or 10%, for the three months ended September
30, 2021, compared to the three months ended September 30, 2020. The change in
net loss was due to the increase in the loss from operations as described above,
a gain on contingent shares issuance liabilities, and a decrease in interest
expense.



             Nine Months Ended
               September 30,
             2021          2020        Change       % Change
                         (dollars in thousands)
Net loss   $  37,699     $ 25,068     $ 12,631             50 %




Net loss increased by $12.6 million, or 50%, for the nine months ended September
30, 2021, compared to the nine months ended September 30, 2020. The change in
net loss was due to the increase in the loss from operations as described above,
a gain on contingent shares issuance liabilities, and a decrease in interest
expense.



                                       40




Certain Non-GAAP Financial Measures





We believe that, in addition to our financial results determined in accordance
with U.S. generally accepted accounting principles ("GAAP"), adjusted gross
profit, adjusted gross margin, and adjusted EBITDA, all of which are non-GAAP
financial measures, are useful in evaluating our business, results of
operations, and financial condition.



                          Three Months Ended          Nine Months Ended
                             September 30,              September 30,
                           2021          2020         2021          2020
                                      (dollars in thousands)
Adjusted gross profit   $    9,476     $  6,617     $  25,011     $ 17,080
Adjusted gross margin           36 %         44 %          38 %         39 %
Adjusted EBITDA         $   (5,592 )   $ (2,943 )   $ (15,561 )   $ (7,242 )
However, our use of the terms adjusted gross profit, adjusted gross margin and
adjusted EBITDA may vary from that of others in our industry. Adjusted gross
profit, adjusted gross margin and adjusted EBITDA should not be considered as an
alternative to gross profit, net loss, net loss per share or any other
performance measures derived in accordance with GAAP as measures of performance.
Adjusted gross profit, adjusted gross margin and adjusted EBITDA have important
limitations as analytical tools and you should not consider them in isolation or
as a substitute for analysis of our results as reported under GAAP. Some of
these limitations include:



? adjusted EBITDA does not reflect the significant interest expense on our debt;

? although depreciation and amortization are non-cash charges, the assets being

depreciated and amortized will often have to be replaced in the future, and

adjusted EBITDA does not reflect any expenditures for such replacements; and






  ? other companies in our industry may calculate these financial measures

differently than we do, limiting their usefulness as comparative measures.






We compensate for these limitations by using these non-GAAP financial measures
along with other comparative tools, together with GAAP measurements, to assist
in the evaluation of operating performance. Such GAAP measurements include gross
profit, net loss, net loss per share and other performance measures. In
evaluating these financial measures, you should be aware that in the future we
may incur expenses similar to those eliminated in the presentation of our
non-GAAP financial measures. Our presentation of non-GAAP financial measures
should not be construed as an inference that our future results will be
unaffected by unusual or nonrecurring items. When evaluating our performance,
you should consider these non-GAAP financial measures alongside other financial
performance measures, including the most directly comparable GAAP measures set
forth in the reconciliation tables below and our other GAAP results.



                                       41




Adjusted Gross Profit and Adjusted Gross Margin





Adjusted gross profit and adjusted gross margin are non-GAAP financial measures
that our management uses to assess our overall performance. We define adjusted
gross profit as GAAP gross profit, plus depreciation and amortization (including
internal-use software), equipment leasing costs and stock-based compensation.
Our practice of procuring equipment through lease financing ceased in the second
quarter of 2017. We define adjusted gross margin as our adjusted gross profit
divided by our revenues. We believe adjusted gross profit and adjusted gross
margin provide our management and investors consistency and comparability with
our past financial performance and facilitate period-to-period comparisons of
operations, as these metrics eliminate the effects of depreciation and
amortization and equipment lease costs. The following table presents a
reconciliation of adjusted gross profit from the most comparable GAAP measure,
gross profit, for the periods presented:



                               Three Months Ended          Nine Months Ended            Three Months Ended               Nine Months Ended
                                  September 30,              September 30,                 September 30,                   September 30,
                                2021          2020         2021          2020          2021             2020            2021            2020
                                                                                      Change          % Change         Change         % Change
                                                                           (dollars in thousands)
Revenues                     $   26,684     $ 15,132     $  66,465     $ 43,493     $    11,552              76 %    $    22,972             53 %
Cost of revenues                 18,561        9,534        45,265       29,277           9,027              95 %         15,988             55 %
Gross profit                      8,123        5,598        21,200       14,216           2,525              45 %          6,984             49 %

Add:


Depreciation and
amortization                      1,322        1,004         3,766        2,807             318              32 %            959             34 %
Equipment leasing costs               -           15             8           57             (15 )          (100 )%           (49 )          (86 )%

Stock-based


compensation(1)                      31            -            37            -              31               *               37              *

Adjusted gross profit $ 9,476 $ 6,617 $ 25,011 $ 17,080

           2,859              43 %          7,931             46 %
Adjusted gross margin
(as a percentage of
revenues)                            36 %         44 %          38 %         39 %



* Percentage not meaningful

(1) Stock-based compensation relates to participation by physicians in our ESPP.






Adjusted gross profit increased by $2.9 million and $7.9 million, or 43% and
46%, for the three and nine months ended September 30, 2021, respectively,
compared to three and nine months ended September 30, 2020, respectively. This
increase was primarily due to an increase in demand for core consultations and
the Acquisition over the same periods.



                                       42





Adjusted EBITDA



We believe that adjusted EBITDA enhances an investor's understanding of our
financial performance as it is useful in assessing our operating performance
from period-to-period by excluding certain items that we believe are not
representative of our core business. Adjusted EBITDA consists of net loss before
interest, taxes, depreciation and amortization (including internal-use
software), stock-based compensation, loss on puttable option liabilities, gain
on contingent shares issuance liabilities, gain on change in fair value of
contingent consideration, and integration, acquisition, transaction and
executive severance costs. 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. The
following table reconciles net loss to adjusted EBITDA:



                             Three Months Ended           Nine Months Ended           Three Months Ended             Nine Months Ended
                                September 30                September 30,                September 30                  September 30,
                                                                                     Change          Change         Change         Change
                              2021          2020         2021          2020             $              %               $             %
                                                                       (dollars in thousands)
Net loss                   $  (10,646 )   $ (9,688 )   $ (37,699 )   $ (25,068 )   $      (958 )          10 %    $   (12,631 )         50 %
Add:
Interest expense                1,775        2,874         7,073         8,490          (1,099 )         (38 )%        (1,417 )        (17 )%
Income tax (benefit)
expense                           146            7          (171 )          10             139             *             (181 )          *
Depreciation and
amortization                    2,618        1,401         6,759         4,008           1,217            87 %          2,751           69 %
Stock-based
compensation                    2,686        1,033        13,330         1,280           1,653           160 %         12,050          941 %
Loss on puttable
option
liabilities                         -          412             -           517            (412 )        (100 )%          (517 )       (100 )%
Gain on contingent
shares issuance
liabilities                    (4,081 )          -        (9,725 )           -          (4,081 )           *           (9,725 )          *
Gain on change in fair
value of contingent
consideration                    (318 )          -        (3,265 )           -            (318 )           *           (3,265 )          *
Integration,
acquisition,
transaction, and
executive
severance costs                 2,228        1,018         8,137         3,521           1,210           119 %          4,616          131 %
Adjusted EBITDA            $   (5,592 )   $ (2,943 )   $ (15,561 )   $  (7,242 )        (2,649 )          90 %         (8,319 )        115 %




  * Percentage not meaningful




Adjusted EBITDA decreased by $2.6 million and $8.3 million for the three and
nine months ended September 30, 2021, respectively, compared to the three and
nine months ended September 30, 2020, respectively. This change was mainly
driven by revenues increasing over the same period, primarily due to an increase
in revenue due to the Acquisition and new implementations and facilities, offset
by an increase in physician fees as a result of a higher volume of core
consultations in the 2021 periods resulting from an increased demand for our
services, and an increase in selling, general, and administrative expenses from
the Acquisition, focused investments in our go-to-market function and other
marketing to drive brand awareness.



                                       43




Liquidity and Capital Resources





As of September 30, 2021, our principal source of liquidity was cash and cash
equivalents of $37.7 million. We believe that our cash and cash equivalents as
of September 30, 2021, together with the $12.5 million borrowed under the Term B
Loan in November 2021 and the remaining availability under our Term Loan
Facility, and our expected revenues will be sufficient to meet our capital
requirements and fund our operations for at least the next 12 months. We expect
our principal sources of liquidity will continue to be our cash and cash
equivalents and any additional capital we may obtain through additional equity
or debt financings. Our future capital requirements will depend on many factors,
including investments in growth and technology. We may in the future enter into
arrangements to acquire or invest in complementary businesses, services, and
technologies which may require us to seek additional equity or debt financing.



Indebtedness



Term Loan Facility



On March 26, 2021, we entered into the Term Loan Agreement with SLR Investment,
as collateral agent on behalf of the individual lenders, providing for a Term
Loan Facility of up to $125.0 million. Under the Term Loan Facility, $85.0
million was immediately available and borrowed on March 26, 2021, in two
tranches consisting of $75.0 million ("Term A1 Loan") and $10.0 million ("Term
A2 Loan" and, together with the Term A1 Loan, the "Term A Loans") to finance a
portion of the closing cash consideration for the Acquisition. An additional $15
million will be made available subject to the terms and conditions of the Term
Loan Agreement in two tranches as follows: (i) a $2.5 million ($12.5 million if
the Term A2 Loan is earlier prepaid) to be drawn by June 20, 2022 ("Term B
Loan"), subject to no event of default as defined in the Term Loan Agreement and
the Company achieving the net revenue milestone of at least $55.0 million on a
trailing six-month basis by June 20, 2022; and (ii) a $12.5 million to be drawn
by December 20, 2022 ("Term C Loan"), subject to no event of default as defined
in the Term Loan Agreement and the Company achieving the net revenue milestone
of at least $65.0 million on a trailing six-month basis by December 20, 2022.
The Term Loan Facility also provides for an uncommitted term loan in the
principal amount of up to $25.0 million ("Term D Loan" and, collectively with
the Term A Loans, the Term B Loan and the Term C Loan, the "Term Loans"), which
availability is subject to the sole and absolute discretionary approval of the
lenders and the satisfaction of certain terms and conditions in the Term Loan
Agreement.



Borrowings under the Term Loan Facility bear interest at a rate per annum equal
to 7.47% plus the greater of (a) 0.13% and (b) LIBOR (the "Applicable Rate"),
payable monthly in arrears beginning on May 1, 2021. Until May 1, 2024, the
Company will pay only interest monthly. However, the Term Loan Agreement has an
interest-only extension clause which offers the Company the option to extend the
interest-only period for six months until November 1, 2024, after having
achieved two conditions: (i) a minimum of six months of positive EBITDA prior to
January 31, 2024; and (ii) being in compliance with the net revenue financial
covenant described below. In either case, the maturity date for each Term Loan
is April 1, 2026.



The Term Loan Agreement includes two financial covenants requiring (i) the
maintenance of a minimum liquidity level of at least $5.0 million at all times;
and (ii) minimum net revenues measured quarterly on a trailing twelve-month
basis of at least $81.8 million on March 31, 2022, $88.2 million on June 30,
2022, $94.5 million on September 30, 2022, $100.9 million on December 31, 2022,
and thereafter 60% of projected net revenues in accordance with an annual plan
to be submitted to the lenders commencing on March 31, 2023. The Term Loan
Agreement also contains customary affirmative and negative covenants which, in
certain circumstances, would limit the Company's ability to engage in mergers or
acquisitions and dispose of any of its subsidiaries.



The Term Loan Facility is guaranteed by all of the Company's wholly owned subsidiaries, including the entities acquired pursuant to the Acquisition, subject to customary exceptions. The Term Loan Facility is secured by first priority security interests in substantially all of the Company's assets, subject to permitted liens and other customary exceptions.


On June 4, 2021, we used a portion of the proceeds from our public offering that
was completed in June 2021 to make a payment of $10.5 million to repay the Term
A2 Loan, including related prepayment premiums and accrued interest. As of
September 30, 2021, the outstanding principal balance of these Term Loans was
$75.0 million.



On November 10, 2021, we entered into an amendment to the Term Loan Agreement,
pursuant to which the net revenue milestone for the Term B Loan was reduced from
$55.0 million to $51.5 million on a trailing six-month basis, which made the
tranche immediately available to be drawn. In connection with the amendment, we
borrowed the full $12.5 million of the Term B Loan on November 10, 2021.



See Note 10, Debt, in our condensed consolidated financial statements included elsewhere in this report for further information.





                                       44





Subordinated Note



On March 26, 2021, the Company issued the Subordinated Note in an aggregate
principal amount of $13.5 million in favor of SOC Holdings LLC, an affiliate of
Warburg Pincus, for proceeds at closing of $11.5 million, which proceeds were
used to finance a portion of the closing cash consideration for the Acquisition.
The unpaid balance of the Subordinated Note accrues interest at an escalating
rate per annum initially equal to 7.47% plus the Applicable Rate under the Term
Loan Facility, increasing to 10.87% plus the Applicable Rate on September 30,
2021, and then an additional 2.00% each year thereafter, and will be added to
the principal amount of the Subordinated Note on a monthly basis. The maturity
date of the Subordinated Note is the earliest to occur of September 28, 2026,
and the occurrence of a change of control. The Subordinated Note is fully
subordinated to the Term Loan Facility and may only be repaid in accordance with
the terms of the Term Loan Agreement. The Subordinated Note further provides
that we are obligated to repay a portion of the principal amount outstanding
under the Term Loan Facility and the balance of the Subordinated Note from the
proceeds of any offering by us of our equity securities. On June 4, 2021, we
used a portion of the proceeds from our public offering that was completed in
June 2021 to make a payment of $13.7 million to repay the balance of the
Subordinated Note.



See Note 10, Debt, in our condensed consolidated financial statements included elsewhere in this report for further information.





Cash Flows



The following table shows a summary of our cash flows for the periods presented:



                                               Nine Months Ended
                                                 September 30,
                                              2021          2020
                                                (in thousands)
Net cash (used in) provided by:
Operating activities                        $ (28,170 )   $ (11,940 )
Investing activities                          (94,394 )      (4,976 )
Financing activities                          121,537        14,770

Net decrease in cash and cash equivalents $ (1,027 ) $ (2,146 )






Operating Activities



Net cash used in operating activities for the nine months ended September 30,
2021, was $28.2 million, consisting primarily of a net loss of $37.7 million and
an increase in working capital of $1.3 million, offset by non-cash charges of
$10.8 million. The changes in working capital were primarily due to an increase
in accounts receivable and a decrease in prepaid expenses and other current
assets due to timing of payments. The non-cash charges primarily consisted of
depreciation, amortization, stock-based compensation expense, provision for
accounts receivable allowances, and non-cash interest expense, changes in fair
value of contingent consideration and gain on contingent share issuance
liabilities.



Net cash used in operating activities for the nine months ended September 30,
2020, was $11.9 million, consisting primarily of a net loss of $25.1 million,
offset by a change in working capital of $3.9 million and net non-cash charges
of $9.3 million. The changes in working capital were primarily due to an
increase in accounts receivable and an increase in accrued liabilities due to
timing of payments and growth of our operations. The non-cash charges primarily
consisted of depreciation, amortization, stock-based compensation, provision for
accounts receivable allowances, and non-cash interest expense.



Investing Activities


Net cash used in investing activities in the nine months ended September 30, 2021, was $94.4 million, consisting of $90.3 million in net cash paid in connection with the Acquisition, $3.1 million in capitalized software development costs, and $1.0 million in purchases of property and equipment.





Net cash used in investing activities in the nine months ended September 30,
2020, was $5.0 million, consisting of $3.3 million in capitalized labor and $1.7
million in purchases of property and equipment.



                                       45





Financing Activities



Net cash provided by financing activities in the nine months ended September 30,
2021, was $121.5 million, consisting of $94.5 million of net proceeds from
borrowings under the Term Loan Facility and proceeds from the Subordinated Note
issued in connection with the Acquisition and $51.5 million of net proceeds from
the issuance of Class A common stock in the public offering that was completed
in June 2021, offset by $24.5 million in partial repayment of borrowings under
the Term Loan Facility and Subordinated Note.



Net cash provided by financing activities in the nine months ended September 30,
2020, was $14.8 million, consisting of $10.9 million of net proceeds from the
issuance of contingently redeemable preferred stock and $4.0 million of net
proceeds from the issuance of convertible bridge notes.



Off-Balance Sheet Arrangements





We did not have during the periods presented, and currently do not have, any
off-balance sheet financing arrangements or any relationships with
unconsolidated entities or financial partnerships, including entities sometimes
referred to as structured finance or special purpose entities, that were
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes.



Critical Accounting Policies and Estimates


Management's discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with GAAP. The preparation of our financial statements requires us to
make estimates and assumptions for the reported amounts of assets, liabilities,
revenue, expenses and related disclosures. Our estimates are based on our
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions and any such differences may
be material.



While our significant accounting policies are more fully described in Note 2,
Summary of Significant Accounting Policies, to our condensed consolidated
financial statements included elsewhere in this report, we believe the following
discussion addresses our most critical accounting policies, which are those that
are most important to our financial condition and results of operations and
require our most difficult, subjective and complex judgments.



Revenue Recognition



Our revenues are generated from service contracts with customer hospitals or
physician practice groups. Revenues are recognized when we satisfy our
performance obligation to provide telemedicine consultation services as
requested. These consultations covered by the fixed monthly fee, consultations
that incur a variable fee, use of telemedicine equipment, training, maintenance,
and support are substantially the same and have the same pattern of transfer.
Therefore, we have determined these represent a series of distinct services
provided over a period of time in a single performance obligation. Upfront
nonrefundable fees do not result in the transfer of promised goods or services
to the customer; therefore, we defer this revenue and recognize it over the
average customer life of 48 months. Deferred revenue consists of the unamortized
balance of nonrefundable upfront fees and maintenance fees, which are classified
as current and non-current based on when we expect to recognize revenue.



Business Combinations



We apply the acquisition method of accounting for business acquisitions. The
results of operations of the businesses acquired by us are included as of the
respective acquisition date. We allocate the fair value of purchase
consideration to the assets acquired and liabilities assumed, based on their
estimated fair values. The excess of the fair value of purchase consideration
over the value of these identifiable assets and liabilities is recorded as
goodwill. When determining the fair value of assets acquired and liabilities
assumed, management makes significant estimates and assumptions, especially with
respect to the fair value of acquired intangible assets. We may adjust the
preliminary purchase price allocation, as necessary, for up to one year after
the acquisition closing date if we obtain more information regarding asset
valuations and liabilities assumed. Acquisition-related expenses are recognized
separately from the business combination and are expensed as incurred.



                                       46





Stock-Based Compensation


We maintain an equity incentive plan to provide long-term incentives for employees, consultants and members of the Board. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and directors.





We recognize compensation costs related to stock options granted to employees
based on the estimated fair value of the awards on the date of grant. We
estimate the grant date fair value, and the resulting stock-based compensation
expense, using the Black-Scholes option pricing model. The grant date fair value
of stock-based awards is expensed on a straight-line basis over the period
during which the employee is required to provide service in exchange for the
award, which is typically the vesting period. We estimate forfeitures based

on
historical experience.



Prior to the Merger Transaction, Legacy SOC Telemed estimated the fair value of
stock-based awards using the Black-Scholes option-pricing model, which required
the input of highly subjective assumptions. Our assumptions were as follows:



Fair value - Because the common stock of Legacy SOC Telemed was not publicly
traded prior to the Merger Transaction, we had to estimate the fair value of the
common stock. The board of directors considered numerous objective and
subjective factors to determine the fair value of the common stock at each
meeting in which awards were approved.



Expected volatility - Because the common stock of Legacy SOC Telemed was not
publicly traded prior to the Merger Transaction, the expected volatility was
derived from the average historical volatilities of publicly traded companies
within our industry that we considered to be comparable to our business over a
period approximately equal to the expected term for employees' options and the
remaining contractual life for nonemployees' options. In evaluating similarity,
we considered factors such as stage of development, risk profile, enterprise
value and position within the life sciences industry. Subsequent to the Merger
Transaction, we do not have sufficient history of our publicly traded stock;
therefore, we continue to estimate volatility using this methodology.



Expected term - We determined and continue to determine the expected term based
on the average period the stock options are expected to remain outstanding using
the simplified method, generally calculated as the midpoint of the stock
options' vesting term and contractual expiration period, as we do not have
sufficient historical information to develop reasonable expectations about
future exercise patterns and post-vesting employment termination behavior.



Risk-free rate - The risk-free interest rate was and continues to be based on
the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S.
Treasury notes with remaining terms similar to the expected term of the options.



Expected dividend yield - We utilized and continue to utilize a dividend yield
of zero, as we do not currently issue dividends, nor do we expect to do so

in
the future.



The following assumptions were used to calculate the fair value of stock options
granted to employees:



                                   Nine Months Ended
                                     September 30,
                              2021 (1)         2020 (2)
Expected dividends                    -                0.0 %
Weighted-average volatility           -               80.0 %
Expected term (in years)              -              1 - 5
Risk-free interest rate               -       0.15% - 0.40 %



(1) No new grants issued for the nine months ended September 30, 2021.

(2) No new grants were issued in the year ended December 31, 2020. These


    assumptions relate to option modifications in 2020.




                                       47





We valued all outstanding performance stock units ("PSUs") applying an approach
that incorporated a Monte Carlo simulation, which involved random iterations
that took different future price paths over each one of the components of the
PSUs based on the appropriate probability distributions (which are based on
commonly applied Black Scholes inputs). The fair value was determined by taking
the average of the grant date fair values under each Monte Carlo simulation
trial.



The fair value of each grant made for the nine months ended September 30, 2021,
was estimated on the grant date using the Monte Carlo simulation with the
following assumptions:



                                 Nine Months Ended
                                  September 30,
                               2021            2020 (1)
Current stock price        $   7.43 - 7.52             -
Expected volatility           55.0% - 65.0 %           -
Expected term (in years)               3.5             -
Risk-free interest rate       0.24% - 0.33 %           -



(1) No PSUs were issued for the nine months ended September 30, 2020.

Contingent Shares Issuance Liabilities and Puttable Option Liabilities





We recognize derivatives as either an asset or liability measured at fair value
in accordance with ASC 815, Derivatives and Hedging. The puttable options were
our derivative financial instruments and were recorded in the consolidated
balance sheets at fair value. We do not enter into derivative transactions for
speculative or trading purposes. Contingent shares issuance liabilities reflect
our liability to provide a variable number of shares to HCMC's sponsor and its
permitted transferees if certain publicly traded stock prices are met at various
points in time. The liability was recorded at fair value at the date of the
Merger Transaction and is revalued at each reporting period using a Monte Carlo
simulation that factors in the current price of our Class A common stock, the
estimated likelihood of a change in control, and the vesting criteria of the
award.


Impairment of Goodwill and Long-lived Assets

Goodwill represents the excess of the purchase price over the fair value of the
net tangible and intangible assets acquired in a business combination. Goodwill
is not amortized but is tested for impairment annually on December 31 or more
frequently if events or changes in circumstances indicate that the asset may be
impaired. An impairment charge is recognized for the excess of the carrying
value of goodwill over its implied fair value. We compare the estimated fair
value of a reporting unit to its book value, including goodwill. If the fair
value exceeds book value, goodwill is considered not to be impaired and no
additional steps are necessary. However, if the book value of a reporting unit
exceeds its fair value, an impairment loss will be recognized in an amount equal
to that excess, limited to the total amount of goodwill allocated to that
reporting unit. Our annual goodwill impairment test resulted in no impairment
charges in any of the periods presented in the consolidated financial
statements.



Intangible assets resulted from business acquisitions and include hospital
contract relationships, non-compete agreements, and trade names. Hospital
contract relationships are amortized over a period of 6 to 17 years, non-compete
agreements are amortized over a period of 4 to 5 years, and trade names are
amortized over a period of 2 to 5 years. All intangible assets are amortized
using the straight-line method.



Long-lived assets (property and equipment and capitalized software costs) used
in operations are reviewed for impairment whenever events or changes in
circumstances indicate that carrying amounts may not be recoverable. Upon
indication of possible impairment of long-lived assets held for use, we evaluate
the recoverability of such assets by measuring the carrying amount of the
long-lived asset group against the related estimated undiscounted future cash
flows of the long-lived asset group. For long-lived assets to be held and used,
we recognize an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based on
the difference between the carrying amount and fair value. There were no
impairment losses through September 30, 2021.



                                       48




Recently Adopted Accounting Pronouncements





See the sections titled "Summary of Significant Accounting Policies - Recently
Issued Accounting Pronouncements - Accounting pronouncements issued but not yet
adopted" in Note 2 to our condensed consolidated financial statements included
elsewhere in this report for more information.



Emerging Growth Company



Pursuant to the JOBS Act, an emerging growth company is provided the option to
adopt new or revised accounting standards that may be issued by FASB or the SEC
either (i) within the same periods as those otherwise applicable to non-emerging
growth companies or (ii) within the same time periods as private companies.
Following the completion of the Merger Transaction, we intend to take advantage
of the exemption for complying with new or revised accounting standards within
the same time periods as private companies. Accordingly, the information
contained herein may be different than the information you receive from other
public companies.



We also intend to take advantage of some of the reduced regulatory and reporting
requirements of emerging growth companies pursuant to the JOBS Act so long as we
qualify as an emerging growth company, including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404(b)
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation, and exemptions from the requirements of holding non-binding
advisory votes on executive compensation and golden parachute payments.

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