snce-20230930

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 September 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 November 2, 2023, there were 119,397,205 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

Table of Contents

Science 37 Holdings, Inc.

Form 10-Q

For the Quarter Ended September 30, 2023

Table of Contents


			Page
Cautionary Note Regarding Forward-Looking Statements			3
Part I.	Financial Information
	Item 1.	Financial Statements	5
		Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (unaudited)	5
		Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022 (unaudited)	6
		Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022 (unaudited)	7
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (unaudited)	9
		Notes to Condensed Consolidated Financial Statements (unaudited)	10
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31

Part II.	Other Information
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	32
	Item 3.	Defaults Upon Senior Securities	32
	Item 4.	Mine Safety Disclosures	32
	Item 5.	Other Information	32
	Item 6.	Exhibits	33
Signatures			34

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

Inc. and its subsidiaries.

Table of Contents

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-Q, and while we believe such information forms a reasonable basis for such statements, that information may be limited or

Table of Contents

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.

Table of Contents

Part I - Financial Information

Item 1. Financial Statements

Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


	(unaudited)
(In thousands, except share data)	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	56,407	$	108,091
Accounts receivable and unbilled services, net	12,591		10,992
Prepaid expenses and other current assets	6,543		7,121
Total current assets	75,541		126,204
Other assets	186		244
Total assets	$	75,727	$	126,448

Liabilities, preferred stock and stockholders’ equity
Current liabilities:
Accounts payable	$	6,665	$	7,206
Accrued expenses and other liabilities	8,355		11,364
Deferred revenue	3,084		4,606
Total current liabilities	18,104		23,176
Non-current liabilities:
Deferred revenue	4,710		3,654
Operating lease liabilities	47		716
Commissions payable	1,062		1,336
Other long-term liabilities	60		180
Total liabilities	23,983		29,062
Commitments and Contingencies (Note 11)
Preferred stock:
Preferred stock, $0.0001 par value; 100,000,000 shares authorized, 0 issued and outstanding at September 30, 2023 and December 31, 2022, respectively	—		—
Stockholders’ equity:
Common stock, $0.0001 par value; 400,000,000 shares authorized, 119,118,653 and 116,432,029 issued and outstanding at September 30, 2023 and December 31, 2022, respectively	12		12
Additional paid-in capital	362,755		350,247
Accumulated other comprehensive income	207		193
Accumulated deficit	(311,230)		(253,066)
Total stockholders’ equity	51,744		97,386
Total liabilities, preferred stock and stockholders’ equity	$	75,727	$	126,448

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

Table of Contents

Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except per share data)	2023		2022		2023		2022
Revenue	$	14,887	$	16,249	$	44,324	$	54,210

Operating expenses:
Cost of revenue (exclusive of depreciation and amortization)	8,972		12,157		30,048		41,985
Selling, general and administrative	14,740		24,485		51,813		82,822
Impairment of long-lived assets	5,533		—		19,013		—
Depreciation and amortization	164		4,870		520		12,569
Restructuring costs	22		—		3,624		—
Total operating expenses	29,431		41,512		105,018		137,376
Loss from operations	(14,544)		(25,263)		(60,694)		(83,166)

Other income (expense):
Interest income	732		559		2,475		748
Sublease income	(2)		240		64		719
Change in fair value of earn-out liability	—		1,200		110		97,600
Other income (expense), net	(109)		(264)		(84)		(369)
Total other income (expense), net	621		1,735		2,565		98,698
Income (loss) before income taxes	(13,923)		(23,528)		(58,129)		15,532
Income tax expense (benefit)	1		—		1		(1)
Net income (loss)	$	(13,924)	$	(23,528)	$	(58,130)	$	15,533

(Loss) earnings per share:
Basic	$	(0.12)	$	(0.20)	$	(0.50)	$	0.13
Diluted	$	(0.12)	$	(0.20)	$	(0.50)	$	0.12
Weighted average common shares outstanding:
Basic	118,146		116,412		117,210		115,935
Diluted	118,146		116,412		117,210		126,717

Comprehensive (loss) income
Net income (loss)	(13,924)		(23,528)		(58,130)		15,533
Foreign currency translation	(8)		125		14		152
Total comprehensive income (loss)	$	(13,932)	$	(23,403)	$	(58,116)	$	15,685

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

Table of Contents

Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

Three and Nine Months Ended September 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
Restricted stock units vested, net of shares withheld for taxes	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
Stock-based compensation	—	—		3,670		—		—		3,670
Proceeds from option exercises	150	—		41		—		—		41
Proceeds from issuance of stock under the employee stock purchase plan	163	—		44		—		—		44
Restricted stock units vested, net of shares withheld for taxes	1,699	—		(326)		—		—		(326)
Net loss	—	—		—		—		(13,924)		(13,924)
Foreign currency translation, net of tax	—	—		—		(8)		—		(8)
Balance at September 30, 2023	119,119	$	12	$	362,755	$	207	$	(311,230)	$	51,744

Table of Contents


	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
Stock-based compensation	—	—		5,981		—		—		5,981
Proceeds from option exercises	322	—		178		—		—		178
Net loss	—	—		—		—		(23,528)		(23,528)
Foreign currency translation, net of tax	—	—		—		125		—		125
Balance at September 30, 2022	116,574	$	12	$	344,984	$	152	$	(186,545)	$	158,603

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

Table of Contents

Science 37 Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
(In thousands)	2023		2022
Cash flows from operating activities:
Net income (loss)	$	(58,130)	$	15,533
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	520		12,569
Non-cash lease expense related to operating lease right-of-use assets	—		859
Stock-based compensation	12,286		19,425
Gain on change in fair value of earn-out liability	(110)		(97,600)
Long-lived asset impairment	19,013		—
Loss on foreign currency exchange rates	76		282
Provision for doubtful accounts	390		147
Changes in operating assets and liabilities:
Accounts receivable and unbilled services	(2,023)		1,534
Prepaid expenses and other current assets	566		745
Other assets	14		(72)
Accounts payable	(902)		(8,100)
Accrued expenses and other current liabilities	(3,589)		(6,329)
Deferred revenue	(465)		1,165
Operating lease liabilities	(474)		(449)
Other, net	(297)		(86)
Net cash used in operating activities	(33,125)		(60,377)
Cash flows from investing activities:
Payments related to capitalized software development costs	(17,639)		(24,627)
Purchase of internal-use software	(750)		—
Purchases of property and equipment	(31)		(162)
Net cash used in investing activities	(18,420)		(24,789)
Cash flows from financing activities:
Proceeds from stock option exercises	68		672
Proceeds from issuance of stock under the employee stock purchase plan	119		—
Payments related to tax withholdings for share-based compensation	(343)		—
Net cash (used in) provided by financing activities	(156)		672
Effect of foreign currency exchange rate changes on cash	17		132
Net decrease in cash and cash equivalents	(51,684)		(84,362)
Cash and cash equivalents, beginning of period	108,091		214,601
Cash and cash equivalents, end of period	$	56,407	$	130,239
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	$	(1,424)	$	(3,482)
Balance in prepaid expenses and other current assets related to stock option exercises	$	—	$	5

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

Table of Contents

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. 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.

Reclassifications

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”.

Table of Contents

Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

In January 2023, 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 nine months ended September 30, 2023 was zero because the Company’s unified technology platform was fully impaired in both the fourth quarter of 2022 and for the nine months ended September 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 replaced the incurred loss impairment methodology 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 September 30, 2023, the aggregate amount of transaction price allocated to the unsatisfied performance obligations was $144.9 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 4.8 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 nine months ended September 30, 2023, the Company recognized approximately $0.7 million and $5.1 million of revenue, respectively, that was included in the deferred revenue balance at the beginning of the periods. During the three and nine months ended September 30, 2023, revenue recognized from performance obligations partially satisfied in previous periods was $1.2 million and $4.9 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.

Table of Contents

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)	September 30, 2023		December 31, 2022
Accounts receivable	$	10,194	$	8,235
Unbilled services	3,397		3,555
Total accounts receivable and unbilled services	13,591		11,790
Allowance for doubtful accounts	(1,000)		(798)
Total accounts receivable and unbilled services, net	$	12,591	$	10,992

As of September 30, 2023 and December 31, 2022, contract assets of $3.4 million and $3.6 million, respectively, were included in unbilled services.

The following table presents the activity in allowance for doubtful accounts:


(In thousands)	September 30, 2023		December 31, 2022
Balance at beginning of year	$	(798)	$	—
Impact of adoption of ASC 326	(33)		—
Provision for credit losses	(390)		(798)
Write-offs	221		—
Balance at end of period	$	(1,000)	$	(798)

During the three months ended September 30, 2023, the Company wrote off $0.2 million of accounts receivable, all of which was reserved in previous quarters. There were no amounts written off for the nine months ended September 30, 2022. Bad debt expense is included in selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive income (loss).

Deferred revenue as of September 30, 2023 and December 31, 2022 was $7.8 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 nine months ended September 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 the three months ended September 30, 2023 and 2022, one and two customers, respectively, individually (totaling 15.8% and 24.4% of revenues, respectively) accounted for greater than 10% of revenue. For both the nine months ended September 30, 2023 and 2022, two customers individually (totaling 24.4% and 26.9% of revenues, respectively) accounted for greater than 10% of revenue.

Table of Contents

Science 37 Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

As of September 30, 2023 and December 31, 2022, three and two customers, respectively, individually (totaling 46.7% and 39.1% of accounts receivable, net, respectively) accounted for greater than 10% of accounts receivable, net.

3. Capitalized Software, net

For the nine months ended September 30, 2023 and 2022, the Company capitalized $19.0 million and $28.8 million, respectively, of internal-use software and recognized amortization expense of $0.5 million and $12.1 million, respectively.

In addition, on January 31, 2023, the Company purchased scheduling software at a cost of $0.8 million. The acquired software has since been integrated into the Company’s unified technology platform. This purchase and integration enables increased scheduling efficiencies and related cost savings and demonstrates the Company’s continuous improvement and cost reduction commitments.

The Company reviews capitalized software for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the expected undiscounted future cash flow from the use of the capitalized software and its eventual disposition is less than the carrying value, an impairment loss is recognized and measured using the fair value of the related asset.

The net book value of the Company’s internal use software totaling $19.3 million during the nine months ended September 30, 2023 was impaired due to the carrying value of the asset group being greater than the fair value. The fair value of the long-lived asset group was determined based on certain significant unobservable inputs, which represents a level 3 measurement. The key inputs utilized to determine the aggregate fair value of the enterprise-wide long-lived asset group was the closing market price of the Company’s common stock as of September 30, 2023 and an estimated control premium. The Company considered the market capitalization valuation during the nine months ended September 30, 2023, which was adversely impacted by 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 September 30, 2023 which required the Company to recognize the long-lived asset impairment. No long-lived asset impairment expense was recognized for the nine months ended September 30, 2022.

4. Leases

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


(in thousands)
Years Ending December 31,	Operating Leases
2023 (excluding the nine months ended September 30, 2023)	$	138
2024	465
2025 and thereafter	—