snce-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			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 001-39727

SCIENCE 37 HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware			84-4278203
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
800 Park Offices Drive, Suite 3606 Research Triangle Park, North Carolina			27709
(Address of Principal Executive Offices)			(Zip Code)

Registrant's telephone number, including area code: (984) 377-3737

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Shares of Common Stock, $0.0001 par value per share	SNCE	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-T (§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	o
Non-accelerated filer	x	Smaller reporting company	x
		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 2, 2023, there were 117,111,905 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

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Science 37 Holdings, Inc.

Form 10-Q

For the Quarter Ended June 30, 2023

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			Page
Cautionary Note Regarding Forward-Looking Statements			3
Part I.	Financial Information
	Item 1.	Financial Statements	5
		Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (unaudited)	5
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022 (unaudited)	6
		Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	7
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	8
		Notes to Condensed Consolidated Financial Statements (unaudited)	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
	Item 4.	Controls and Procedures	29

Part II.	Other Information
	Item 1.	Legal Proceedings	30
	Item 1A.	Risk Factors	30
	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	30
	Item 3.	Defaults Upon Senior Securities	30
	Item 4.	Mine Safety Disclosures	30
	Item 5.	Other Information	30
	Item 6.	Exhibits	31
Signatures			32

“We,” “us,” “our,” the “Company,” or “Science 37,” unless the context otherwise requires, means Science 37 Holdings,

Inc. and its subsidiaries.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including, but not limited to, statements regarding our future results of operations and financial position, business strategy, plans and prospects, existing and prospective products, research and development costs, timing and likelihood of success, and plans and objectives of management for future operations and results, are forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “can,” “could,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “might,” “should,” “will,” or “would,” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These statements involve known and unknown risks, uncertainties and other important factors, many of which are beyond the Company’s control, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include:

•expectations regarding the Company’s strategies and future financial performance, including its future business plans or objectives, prospective performance and opportunities and competitors, revenues, backlog conversion, products and services, pricing, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures, and ability to invest in growth initiatives and pursue merger, acquisition, divestiture, investment, partnership and similar opportunities, as well as regarding its cost reduction programs and anticipated cost savings;

•risks related to the Company’s technology, intellectual property, data privacy and cybersecurity practices;

•risks related to the Company’s reliance on third parties;

•risks related to general economic and financial market conditions, including the impact of ongoing supply chain disruptions and inflationary cost pressures and the possibility of an economic recession; instability in the global banking system; the political, legal and regulatory environment; and the industries in which the Company operates;

•the risk that the Company will need to raise additional capital to execute its business plan, which may not be available on acceptable terms or at all;

•limited liquidity and trading of the Company’s securities, including the possibility the Company’s common stock may be delisted from The Nasdaq Stock Market LLC;

•volatility in the price of Science 37’s securities due to a variety of factors, including changes in the competitive and highly regulated industries in which Science 37 operates, variations in performance across competitors and changes in laws and regulations affecting Science 37’s business;

•geopolitical risk and changes in applicable laws or regulations;

•the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors;

•operational risks; and

•litigation and regulatory enforcement risks, including the diversion of management time and attention and the additional costs and demands resulting therefrom on the Company’s resources.

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and other risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Furthermore, we operate in an evolving environment. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in our forward-looking statements. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on the Company’s current expectations and beliefs and are based upon information available to us as of the date of this Quarterly Report on Form 10-

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Q, and while we believe such information forms a reasonable basis for such statements, that information may be limited or incomplete. Our forward-looking statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. The Company will not and does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Part I - Financial Information

Item 1. Financial Statements

Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	(unaudited)
(In thousands, except share data)	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	65,003	$	108,091
Accounts receivable and unbilled services, net	14,832		10,992
Prepaid expenses and other current assets	6,921		7,121
Total current assets	86,756		126,204
Other assets	200		244
Total assets	$	86,956	$	126,448

Liabilities, redeemable convertible preferred stock and stockholders’ equity
Current liabilities:
Accounts payable	$	5,955	$	7,206
Accrued expenses and other liabilities	10,002		11,364
Deferred revenue	2,840		4,606
Total current liabilities	18,797		23,176
Non-current liabilities:
Deferred revenue	4,149		3,654
Operating lease liabilities	392		716
Commissions payable	1,300		1,336
Other long-term liabilities	71		180
Total liabilities	24,709		29,062
Commitments and Contingencies (Note 11)
Redeemable convertible preferred stock:
Redeemable convertible preferred stock, $0.0001 par value; 100,000,000 shares authorized, 0 issued and outstanding at June 30, 2023 and December 31, 2022, respectively	—		—
Stockholders’ equity:
Common stock, $0.0001 par value; 400,000,000 shares authorized, 117,107,326 and 116,432,029 issued and outstanding at June 30, 2023 and December 31, 2022, respectively	12		12
Additional paid-in capital	359,326		350,247
Accumulated other comprehensive income	215		193
Accumulated deficit	(297,306)		(253,066)
Total stockholders’ equity	62,247		97,386
Total liabilities, preferred stock and stockholders’ equity	$	86,956	$	126,448

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

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Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2023		2022		2023		2022
Revenue	$	15,351	$	19,275	$	29,437	$	37,961

Operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	9,964		13,842		21,074		29,828
Selling, general and administrative	16,593		28,183		37,073		58,337
Impairment of long-lived assets	5,679		—		13,480		—
Depreciation and amortization	143		4,230		357		7,699
Restructuring costs	3,373		—		3,602		—
Total operating expenses	35,752		46,255		75,586		95,864
Loss from operations	(20,401)		(26,980)		(46,149)		(57,903)

Other income (expense):
Interest income	813		95		1,743		189
Sublease income	33		240		65		479
Change in fair value of earn-out liability	—		20,900		110		96,400
Other income (expense), net	(24)		(88)		25		(105)
Total other income (expense), net	822		21,147		1,943		96,963
(Loss) income before income taxes	(19,579)		(5,833)		(44,206)		39,060
Income tax expense (benefit)	—		—		—		(1)
Net (loss) income	$	(19,579)	$	(5,833)	$	(44,206)	$	39,061

(Loss) earnings per share:
Basic	$	(0.17)	$	(0.05)	$	(0.38)	$	0.34
Diluted	$	(0.17)	$	(0.05)	$	(0.38)	$	0.31
Weighted average common shares outstanding:
Basic	116,919		115,995		116,734		115,693
Diluted	116,919		115,995		116,734		126,185

Comprehensive (loss) income
Net (loss) income	(19,579)		(5,833)		(44,206)		39,061
Foreign currency translation	9		27		22		27
Total comprehensive (loss) income	$	(19,570)	$	(5,806)	$	(44,184)	$	39,088

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

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Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

Three and Six Months Ended June 30, 2023 and 2022

(unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
(In thousands)	Shares	Amount
Balance at December 31, 2022	116,432	$	12	$	350,247	$	193	$	(253,066)	$	97,386
Stock-based compensation	—	—		5,286		—		—		5,286
Adoption of current expected credit loss standard	—	—		—		—		(33)		(33)
Proceeds from option exercises	30	—		12		—		—		12
Proceeds from issuance of stock under the employee stock purchase plan	267	—		75		—		—		75
Net loss	—	—		—		—		(24,628)		(24,628)
Foreign currency translation, net of tax	—	—		—		13		—		13
Balance at March 31, 2023	116,729	$	12	$	355,620	$	206	$	(277,727)	$	78,111
Stock-based compensation	—	—		3,709		—		—		3,709
Proceeds from option exercises	52	—		14		—		—		14
RSUs vested	326	—		(17)		—		—		(17)
Net loss	—	—		—		—		(19,579)		(19,579)
Foreign currency translation, net of tax	—	—		—		9		—		9
Balance at June 30, 2023	117,107	$	12	$	359,326	$	215	$	(297,306)	$	62,247


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity
(In thousands)	Shares	Amount
Balance at December 31, 2021	114,991	$	11	$	323,666	$	—	$	(202,078)	$	121,599
Stock-based compensation	—	—		7,557		—		—		7,557
Proceeds from option exercises	723	1		130		—		—		131
Net income	—	—		—		—		44,894		44,894
Balance at March 31, 2022	115,714	$	12	$	331,353	$	—	$	(157,184)	$	174,181
Stock-based compensation	—	—		7,103		—		—		7,103
Proceeds from option exercises	538	—		369		—		—		369
Net loss	—	—		—		—		(5,833)		(5,833)
Foreign currency translation, net of tax	—	—		—		27		—		27
Balance at June 30, 2022	116,252	$	12	$	338,825	$	27	$	(163,017)	$	175,847

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

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Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
(In thousands)	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(44,206)	$	39,061
Adjustments to reconcile net income (loss) income to net cash used in operating activities:
Depreciation and amortization	357		7,699
Non-cash lease expense related to operating lease right-of-use assets	—		567
Stock-based compensation	8,709		13,687
Gain on change in fair value of earn-out liability	(110)		(96,400)
Long-lived asset impairment	13,480		—
Loss (gain) on foreign currency exchange rates	(17)		104
Provision for doubtful accounts	388		32
Changes in operating assets and liabilities:
Accounts receivable and unbilled services	(4,262)		(2,507)
Prepaid expenses and other current assets	202		(378)
Other assets	34		94
Accounts payable	(3,258)		(6,250)
Accrued expenses and other current liabilities	(2,416)		(5,879)
Deferred revenue	(1,270)		(5)
Operating lease liabilities	(324)		(294)
Other, net	(32)		115
Net cash used in operating activities	(32,725)		(50,354)
Cash flows from investing activities:
Payments related to capitalized software development costs	(9,714)		(16,228)
Purchase of internal-use software	(750)		—
Purchases of property and equipment	(27)		(159)
Net cash used in investing activities	(10,491)		(16,387)
Cash flows from financing activities:
Proceeds from stock option exercises	26		472
Proceeds from issuance of stock under the employee stock purchase plan	75		—
Payments related to tax withholdings for share-based compensation	(17)		—
Net cash provided by financing activities	84		472
Effect of foreign currency exchange rate changes on cash	44		(3)
Net decrease in cash and cash equivalents	(43,088)		(66,272)
Cash and cash equivalents, beginning of period	108,091		214,601
Cash and cash equivalents, end of period	$	65,003	$	148,329
Supplemental disclosures of non-cash activities
Balance in accounts payable, accrued expenses and other current liabilities, and capitalized stock-based compensation related to capitalized software and fixed asset additions	$	(3,345)	$	(4,152)
Balance in prepaid expenses and other current assets related to stock option exercises	$	—	$	28

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

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Company Background and Basis of Presentation

Description of Business

Science 37 Holdings, Inc. and its subsidiaries (the “Company” or “Science 37”) is a leader in patient-centric clinical trials and in supporting novel approaches to decentralized clinical trial designs. Science 37 pioneered the concept of patient-centric clinical trials with a very simple premise: that clinical trials should begin with the patient.

Through its patient-centric approach, Science 37 reduces the impact of the geographic barriers associated with conventional physical clinical trial sites, enabling recruitment of virtually any patient. Science 37 believes that centering the clinical trial around the patient with personalized support addresses current industry needs around patient recruitment, retention, representation, and engagement. To expand clinical trial access, Science 37 offers a unique model to existing non-research focused healthcare networks to seamlessly participate without the traditional site infrastructure costs.

Science 37’s patient-centric model is powered by a proprietary end-to-end unified technology platform and its team of employees with significant therapeutic and subject matter expertise. As the backbone of Science 37’s offering, the proprietary unified technology platform standardizes and orchestrates the process for clinical trials across Science 37’s specialized network of patient communities, telemedicine investigators, flexible mobile nurse networks, remote coordinators, and robust network of technology integrations. The Company operates under one reporting segment.

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the Company’s financial condition and results of operations have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements of the Company, but does not include all the disclosures required by GAAP.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current period presentation. Specifically, on the face of the condensed consolidated balance sheets, commissions payable, which has increased as a percentage of total assets and was previously included in other long-term liabilities, has been reclassified to a separate financial statement line item. In addition, long-term earn-out liability, which was previously disclosed as a separate financial statement line item has been reclassified to other long-term liabilities, due to the immaterial nature of the balance.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to: (1) revenue recognition, (2) allowance for doubtful accounts, (3) long-lived asset recoverability, (4) useful lives of long-lived assets, (5) stock-based compensation, and (6) fair value measurements, including the fair value of the contingent liability related to the Earn-Out Shares (as defined below) as further discussed in Note 8 “Fair Value Measurements” and Note 12 “Earn-Out Shares”.

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

In January 2023, following the release of our next generation unified technology platform during 2022, the Company reassessed the useful life of its unified technology platform in relation to its revenue generating activities. Based on this review, the Company determined the useful life of its unified technology platform, in relation to revenue generating activities, was longer than the useful life previously used for amortization purposes in the Company’s financial statements. As a result, the Company increased the useful life of its unified technology platform for amortization purposes from three to five years effective January 1, 2023. The effects of this change in accounting estimate over the previous estimated useful life for the three and six months ended June 30, 2023 was zero because the Company’s unified technology platform was fully impaired in both the fourth quarter of 2022 and for the six months ended June 30, 2023 as discussed under Note 3 “Capitalized Software, net”.

Emerging Growth Company and Smaller Reporting Company Status

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. The Company has elected to use the extended transition period under the JOBS Act until such time the Company is not considered to be an EGC. The adoption dates discussed in the section below reflect this election.

The Company is also a smaller reporting company as defined in Item 10(f) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure requirements, including, among other things, providing only two years of audited financial statements. To the extent the Company takes advantage of such reduced disclosure requirements, it may make the comparison of its financial statements with other public companies difficult or impossible.

Accounting Pronouncements Recently Adopted

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The standard replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted ASU 2016-13 effective January 1, 2023 and recorded a cumulative effect adjustment for the impact to retained earnings. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. This is primarily based on the Company’s assessment of historical credit losses, customers’ creditworthiness, and the fact that the Company’s trade receivables are short term in duration.

2. Revenue from Contracts with Customers

Unsatisfied Performance Obligations

As of June 30, 2023, the aggregate amount of transaction price allocated to the unsatisfied performance obligations was $147.1 million. The Company expects to recognize this revenue over the remaining contract term of the individual projects, with remaining contract terms generally ranging from one month to 5.1 years. The amount of unsatisfied performance obligations is lower than the potential contractual revenue since it excludes revenue that is constrained. Revenue amounts excluded due to constraints include those amounts under contracts that (i) are wholly unperformed in which the customer has a unilateral right to cancel the arrangement, or (ii) require the Company to undertake numerous activities to fulfill the performance obligations, including various activities that are outside of the Company’s control.

Timing of Billing and Performance

During the three and six months ended June 30, 2023, the Company recognized approximately $1.2 million and $4.5 million of revenue, respectively, that was included in the deferred revenue balance at the beginning of the periods. During the three and six months ended June 30, 2023, revenue recognized from performance obligations partially satisfied in previous periods was $1.1 million and $4.0 million, respectively. These cumulative catch-up adjustments primarily related to contract modifications executed in the current period, which resulted in changes to the transaction price and changes in estimates such as estimated total costs.

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Accounts Receivable, Unbilled Services, and Deferred Revenue

Accounts receivable and unbilled services (including contract assets) consisted of the following:


(In thousands)	June 30, 2023		December 31, 2022
Accounts receivable	$	11,928	$	8,235
Unbilled services	4,123		3,555
Total accounts receivable and unbilled services	16,051		11,790
Allowance for doubtful accounts	(1,219)		(798)
Total accounts receivable and unbilled services, net	$	14,832	$	10,992

As of June 30, 2023 and December 31, 2022, contract assets of $4.1 million and $3.6 million, respectively, were included in unbilled services.

Deferred revenue as of June 30, 2023 and December 31, 2022 was $7.0 million and $8.3 million, respectively. Changes in the Company’s accounts receivable, unbilled services and deferred revenue balances were impacted by timing differences between the Company’s satisfaction of performance obligations under its contracts, achievement of billing milestones, and customer payments.

Revenue by Geography

Substantially all of the Company’s revenue for the three and six months ended June 30, 2023 and 2022 was derived from services performed within the United States. No other country represented more than 10% of total revenue for these periods.

Concentration of Credit Risk

Financial assets that subject the Company to credit risk primarily consist of cash and cash equivalents, accounts receivable and unbilled services. Based on the short-term nature and historical realization of the financial assets, as well as the reputable credit ratings of the financial institutions holding the deposits, the Company believes it bears minimal credit risk. Certain balances exceed Federal Deposit Insurance Corporation (FDIC) insured limits or are invested in money market accounts with investment banks that are not FDIC insured.

For both the three months ended June 30, 2023 and 2022, two customers individually (totaling 27.5% and 29.6% of revenues, respectively) accounted for greater than 10% of revenue. For the six months ended June 30, 2023 and 2022, three and two customers, respectively, individually (totaling 34.5% and 32.4% of revenues, respectively) accounted for greater than 10% of revenue.

As of June 30, 2023 and December 31, 2022, five and two customers, respectively, individually (totaling 69.3% and 39.1% of accounts receivable, net, respectively) accounted for greater than 10% of accounts receivable, net.

3. Capitalized Software, net

For the six months ended June 30, 2023 and 2022, the Company capitalized $13.1 million and $20.4 million, respectively, of internal-use software and recognized amortization expense of $0.4 million and $7.4 million, respectively.

In addition, on January 31, 2023, the Company purchased scheduling software at a cost of $0.8 million. The acquired software will be integrated into the Company’s unified technology platform over an approximate nine month period. This purchase and integration will enable increased scheduling efficiencies and related cost savings and demonstrates the Company’s continuous improvement and cost reduction commitments.

The net book value of the Company’s internal use software totaling $13.5 million during the six months ended June 30, 2023 was impaired due to the carrying value of the asset group being greater than the fair value. The Company considered the market capitalization valuation during the six months ended June 30, 2023, which was adversely impacted by sustained declines in the Company’s stock price, in determining the fair value of the asset group. The market capitalization was trading below cash and cash equivalents and stockholders' equity at June 30, 2023 which required the

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

Company to recognize the long-lived asset impairment. The Company remains confident in the utility of the long-lived assets and there has been no change as to their intended use.

No long-lived asset impairment expense was recognized for the six months ended June 30, 2022.

4. Leases

The following table presents lease liability maturities and balance sheet classification as of June 30, 2023:


(in thousands)
Years Ending December 31,	Operating Leases
2023 (excluding the six months ended June 30, 2023)	$	341
2024	599
2025	138
2026	12
2027 and thereafter	—
Total future minimum lease payments	1,090
Less imputed interest	(62)
Total lease liability	$	1,028

Balance Sheet classification of lease liabilities reported as of June 30, 2023:
Current liabilities: Accrued expenses and other liabilities	$	636
Non-current liabilities: Operating lease liabilities	392
Total	$	1,028

5. Restructuring Costs

On November 10, 2022, the Company committed to and commenced a cost reduction program to materially change the Company’s management structure and better align resources with our then-current business needs and going forward financial objectives. The cost reduction program included one-time termination benefits for 81 employees (approximately 15% of the Company’s workforce at the time of the reduction). The Company’s Board of Directors approved the program on November 9, 2022, and the majority of the affected employees were informed of the program beginning on November 10, 2022.

On April 11, 2023, the Company commenced an additional phase of its cost reduction program. In a continued effort to align the organization relative to core business needs and go forward financial objectives, this phase included a reduction in force affecting approximately 140 employees (representing approximately 30% of total employees prior to these actions). The Company’s Board of Directors approved the reduction in force on March 30, 2023 and the majority of the affected employees were informed on April 11, 2023. The cost reduction program was substantially complete as of June 30, 2023.

During the six months ended June 30, 2023, the Company recognized $3.6 million of restructuring costs. There were no restructuring costs for the six months ended June 30, 2022. Total costs and cash expenditures for both phases of the cost reduction program are estimated at $6.7 million to $7.0 million, substantially all of which are related to one-time employee severance and benefits costs. The Company may continue to incur additional restructuring costs during and beyond 2023 related to its cost reduction program. The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the cost reduction program.

Restructuring liabilities are included in accrued expenses and other liabilities on the condensed consolidated balance sheets. Activity related to the restructuring liabilities was as follows:

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)


(In thousands)	June 30, 2023
Balance at beginning of period	$	772
Restructuring costs	3,602
Payments	(3,671)
Balance at end of period	$	703

The Company expects the restructuring accruals as of June 30, 2023 will be paid in 2023, pursuant to the terms of one-time benefits.

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


(In thousands)	June 30, 2023		December 31, 2022
Prepaid expenses	$	2,114	$	2,834
Capitalized commission cost, net	4,477		3,945
Other	330		342
Total prepaid expenses and other current assets	$	6,921	$	7,121

7. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:


(In thousands)	June 30, 2023		December 31, 2022
Compensation, including bonuses, fringe benefits, and payroll taxes	$	4,880	$	5,750
Professional fees, investigator fees, and pass-through expenses	1,993		2,527
Commissions payable	1,623		1,529
Restructuring costs	703		772
Current portion of operating lease liabilities	636		606
Other	167		180
Total accrued expenses and other liabilities	$	10,002	$	11,364

8. Fair Value Measurements

Financial instruments, including cash and cash equivalents, are recorded at cost, which approximates fair value. Former holders of shares of Science 37, Inc. (“Legacy Science 37”) common stock were allocated Earn-Out Shares in connection with the completion of the October 2021 merger with LifeSci Acquisition II Corp. (the “Merger”) (for more information on the Merger transaction, please refer to Note 1 “Company Background and Basis of Presentation” and Note 3 “Business Combination” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed on March 6, 2023). These Earn-Out Shares are accounted for as a liability and require fair value measurement on a recurring basis. Due to the significant unobservable inputs that are required to value these shares, they are classified as Level 3 in the fair value hierarchy. Please refer to Note 12 “Earn-Out Shares” for additional details surrounding the valuation methodology for the Earn-Out Shares.

None of the Company’s non-financial assets or liabilities are subject to fair value measurement on a non-recurring basis. There were no transfers between fair value measurement levels during the six months ended June 30, 2023.

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The following table summarizes the fair values of the Company’s assets and liabilities that were measured and reported at fair value on a recurring basis as of June 30, 2023:


(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	62,978	$	—	$	—	$	62,978
Total	$	62,978	$	—	$	—	$	62,978
Liabilities:
Earn-out liability related to shareholders	$	—	$	—	$	60	$	60
Total	$	—	$	—	$	60	$	60

The following table summarizes the fair values of the Company’s assets and liabilities that were measured and reported at fair value on a recurring basis as of December 31, 2022:


(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	104,138	$	—	$	—	$	104,138
Total	$	104,138	$	—	$	—	$	104,138
Liabilities:
Earn-out liability related to shareholders	$	—	$	—	$	170	$	170
Total	$	—	$	—	$	170	$	170

9. Earnings (Loss) Per Share

The following table presents the calculation of basic and diluted earnings (loss) per share for the Company’s common stock:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share amounts)	2023		2022		2023		2022
Numerator:
Net (loss) income	$	(19,579)	$	(5,833)	$	(44,206)	$	39,061
Denominator:
Basic weighted average common shares outstanding	116,919		115,995		116,734		115,693
Effect of dilutive securities:
Stock options	—		—		—		10,428
Restricted stock units	—		—		—		65
Diluted weighted average common shares outstanding	116,919		115,995		116,734		126,185
Earnings (loss) per share:
Basic	$	(0.17)	$	(0.05)	$	(0.38)	$	0.34
Diluted	$	(0.17)	$	(0.05)	$	(0.38)	$	0.31

Potential common shares that are considered anti-dilutive are excluded from the computation of diluted earnings per share. Potential common shares related to stock-based awards issued under stock-based compensation programs and shares issuable pursuant to the employee stock purchase plan may be determined to be anti-dilutive based on the application of the treasury stock method. Potential common shares are also considered anti-dilutive in periods when the Company incurs a net loss. Earn-Out Shares are contingent upon the price of the Company’s common stock over a specified period of time and the target stock prices have not been achieved as of the end of the reporting period.

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

The number of potential shares outstanding that were anti-dilutive, and were excluded from the computation of diluted earnings per share, weighted for the portion of the period they were outstanding, were as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
(In thousands)	2023	2022	2023	2022
Stock options	15,383	27,413	19,777	16,321
Restricted stock units	15,104	321	12,479	—
ESPP	200	—	241	—
Earn-out shares	12,500	12,500	12,500	12,500
Total anti-dilutive shares	43,187	40,234	44,997	28,821

10. Related-Party Transactions

For the three and six months ended June 30, 2023, the Company had revenue of $0.6 million and $0.7 million, respectively, from Pharmaceutical Product Development, LLC (“PPD”), a wholly-owned subsidiary of Thermo Fisher Scientific, Inc. and a shareholder who beneficially owns 5% or more of the Company’s common stock. For the three and six months ended June 30, 2022, the Company had revenue of $2.1 million and $4.4 million, respectively, from PPD. In addition, as of June 30, 2023 and December 31, 2022, the Company had receivables of $0.3 million and $0.7 million, respectively, from PPD.

11. Commitments and Contingencies

Legal Proceedings

The Company is subject to proceedings incidental to its business. The Company records accruals for claims, suits, investigations, and proceedings when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews these contingencies regularly and records or adjusts accruals related to such matters to reflect the impact and status of any settlements, rulings, advice of counsel or other information pertinent to a particular matter. Gain contingencies are not recognized. Legal costs associated with contingencies are expensed as incurred. Since these matters are inherently unpredictable, assessing contingencies is highly subjective and requires judgments about future events.

Commitments and Contingencies

As of June 30, 2023, the Company had no material contingent losses recorded.

Please refer to Note 4 “Leases” for information regarding lease commitments and Note 12 “Earn-Out Shares” for information regarding the contingent obligation related to the Earn-Out Shares.

12. Earn-Out Shares

In accordance with the October 2021 Merger, former holders of shares of Legacy Science 37 preferred and common stock and former holders of options to purchase shares of Legacy Science 37 common stock are entitled to receive their respective pro rata shares of up to 12,500,000 additional shares of the Company’s common stock (the “Earn-Out Shares”) if certain triggering events are met within three years from the date of the Merger (the “Triggering Events”). For more information on the Merger transaction, please refer to Note 1 “Company Background and Basis of Presentation” and Note 3 “Business Combination” to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 6, 2023.

As of December 31, 2022, the stockholders and option holders were estimated to receive approximately 11,131,713 and 1,368,287 Earn-Out Shares, respectively, based on the fully diluted capitalization table of Legacy Science 37. The fair value of the Earn-Out Shares was approximately $0.02 (Trigger 1) and approximately $0.01 (Trigger 2) per share as of December 31, 2022.

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

As of June 30, 2023, the stockholders and option holders were estimated to receive approximately 11,235,381 and 1,264,619 Earn-Out Shares, respectively. The fair value of the Earn-Out Shares was approximately $0.01 (Trigger 1) and approximately $0.00 (Trigger 2) per share as of June 30, 2023.

Through the third quarter of 2022, the estimated fair value of the Earn-Out Shares was determined using a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earn-Out Period using the most reliable information available. This valuation method falls into Level 3 fair value hierarchy for inputs used in measuring fair value and is based on inputs that are unobservable and significant to the overall fair value measurement. Unobservable inputs are inputs that reflect the Company's judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. To the extent that the valuation is based on models or inputs that are unobservable in the market, the determination of fair value requires management to exercise a high degree of judgment. Change in significant unobservable inputs could result in a higher or lower fair value measurement of the liability associated with the Earn-Out Shares. Based on the first year Monte Carlo simulation valuation model results, the change in the Company’s stock price and the relative immaterial nature of the earn-out liability, the fair value of the Earn-Out Shares for both the six months ended June 30, 2023 and the three months ended December 31, 2022 was determined using a valuation methodology that the Company believes approximates the fair value of the Earn-Out Shares that would be determined using the Monte Carlo simulation valuation model.

Former Science 37 Shareholders

The Company has determined that the contingent obligation to issue Earn-Out Shares to former Science 37 shareholders is not indexed to the Company's stock under ASC Topic 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity, and therefore equity treatment is precluded. The Triggering Event that determines the issuance of the Earn-Out Shares includes terms that are not solely indexed to the common stock of the Company and, as such, liability classification is required. For the six months ended June 30, 2023, there was a decrease in the fair value of the earn-out liability of $0.1 million, which was recorded as a gain in “Change in fair value of earn-out liability” within the condensed consolidated statements of operations. In accordance with the Merger, Earn-Out Shares attributable to former Science 37 option holders who discontinue providing service before the occurrence of the Triggering Event are reallocated to the remaining eligible former stockholders and former option holders.

The earn-out liability is recorded on the balance sheet as a non-current liability because potential payment of the liability will be settled in the Company’s common shares. The following table presents a reconciliation of changes in the carrying amount of the contingent earn-out liability classified as Level 3 fair value hierarchy using significant unobservable inputs for the six months ended June 30, 2023:


(In thousands)	Earn-Out Liability
Balance at December 31, 2022	$	170
Change in fair value related to option holder forfeitures	—
Change in fair value related to share valuation inputs	(110)
Total change in fair value recognized in earnings	$	(110)
Balance at June 30, 2023	$	60

Former Science 37 Option Holders

The contingent obligation to issue Earn-Out Shares to former Science 37 option holders falls within the scope of ASC 718, Compensation - Stock Compensation, because the option holders are required to continue providing service until the occurrence of the Triggering Event(s). For the three and six months ended June 30, 2023, the Company recorded approximately $0 million and $0.4 million, respectively, in stock-based compensation expense related to the Earn-Out Shares. No unrecognized compensation expense was remaining at June 30, 2023.

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Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

13. Stock-Based Compensation

The Company has two equity-based compensation plans, the Science 37 Holdings, Inc. 2021 Incentive Award Plan (“2021 Plan”) and the 2022 Employment Inducement Incentive Award Plan (“2022 Plan”, and together with the 2021 Plan, the “Plans”). From the 2021 Plan, stock-based compensation awards can be granted to employees, consultants, and non-executive directors. From the 2022 Plan, inducement stock-based awards can be granted to newly hired employees in accordance with Nasdaq Listing Rules. The 2021 Plan allows for the grant of awards in the form of: (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock units (“RSUs”); (vi) dividend equivalents; and (vii) other stock and cash based awards. The 2022 Plan allows for the grant of awards in the form of: (i) non-qualified stock options; (ii) stock appreciation rights; (iii) restricted stock; (iv) RSUs; (v) dividend equivalents; and (vi) other stock and cash-based awards. The Compensation Committee of the Board is responsible for the administration of both Plans. In addition, the Company has an Employee Stock Purchase Plan (the “ESPP”).

The terms of stock-based instruments granted are determined at the time of grant and are typically subject to such conditions as continued employment and the passage of time. The Company has granted 1) stock options, which typically vest at 25% per year and become exercisable after one year of service after the date of issuance, with equal and successive vesting for the next 36 months, as long as the employee provides service to the Company, as defined and 2) RSUs, which are contingent upon continued service and vest over time in annual or bi-annual installments over the vesting period, which is typically 1 to 3 years. In addition, employees, consultants, and directors owning stock options immediately prior to the October 2021 Merger were granted the right to receive a number of Earn-Out Shares as described in Note 12.

The ESPP is a shareholder-approved plan under which substantially all employees may voluntarily enroll to purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock as of the beginning or end of the six-month offering periods. Employees may not purchase more than 5,000 shares annually under the plan.

The following table summarizes stock option awards outstanding as of June 30, 2023, as well as activity during the six months then ended:


(In thousands, except per share amounts)	Number of Options	Weighted Average Exercise Price
Outstanding at December 31, 2022	24,490	$	6.16
Granted	511	0.33
Exercised	(82)	0.32
Forfeited	(13,150)	9.55

SEC Form 10-Q filed by Science 37 Holdings Inc.