Acquisition

12 Months Ended

Mar. 31, 2024

On November 1, 2021, the Company completed its acquisition (the “Lemonaid Acquisition”) of Lemonaid Health, Inc. (“Lemonaid” or “Lemonaid Health”) and acquired all of the outstanding equity of Lemonaid Health. The purchase price consideration was $424.7 million, which includes the value of 26,825,241 shares of the Company’s Class A common stock valued at $314.4 million as of the acquisition date, the fair value of the pre-acquisition service portion of stock-based awards that were vested as of the Lemonaid Acquisition of $8.4 million, and cash payment of approximately $101.9 million, of which $13.0 million was placed in escrow to cover a potential purchase price adjustment and to secure the indemnification obligations of the former equity holders of Lemonaid Health. In May 2023, $6.0 million of the escrow amount was released and the remaining escrow amount will be released during the first quarter of the fiscal year ended March 31, 2025.

The purchase price consideration excluded stock consideration of 3,747,027 shares issued by the Company to certain holders that are subject to vesting restrictions tied to continuing employment with the Company, which was recognized as selling, general, and administrative expenses post-acquisition. See Note 15, “Equity Incentive Plans and Stock-Based Compensation,” for additional details. The Company also incurred acquisition costs of $9.4 million directly related to the Lemonaid Acquisition, which were recorded within general and administrative expenses on the consolidated statements of operations and comprehensive loss.

The Company accounts for acquisitions using the acquisition method with the purchase price being allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. The following is the allocation of the consideration transferred to acquired identifiable assets and assumed liabilities, net of cash acquired, in the Lemonaid Acquisition as of the acquisition date:


	Amount
	(in thousands)
Cash	$	7,711
Prepaid expenses and other current assets	3,388
Property and equipment, net	1,019
Intangible Assets:
Customer relationships	14,900
Partnerships	23,200
Trademark	11,000
Developed technology	24,100
Non-compete agreements	2,800
Operating lease right-of-use asset	848
Other assumed assets	407
Accounts payable	(3,106)
Accrued liabilities	(4,218)
Operating lease liability	(971)
Deferred tax liability	(6,645)
Other assumed liabilities	(1,311)
Total acquired identifiable assets and liabilities	73,122
Goodwill	351,598
Total consideration transferred	$	424,720

Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The fair value measurements of the identified intangible assets were based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in ASC Topic 820, Fair Value Measurement ("ASC 820"). The fair values of the trade name and the developed technology were determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets, including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate. The fair value of customer relationships was determined using

the replacement cost approach. This approach consists of developing an estimate of the current cost of a similar new asset having the nearest equivalent utility to the asset or group of assets being valued and involves the estimation of all the costs incurred and accumulated in the development effort and application of any related obsolescence factors. The fair value of partnerships was determined using the multi-period excess earnings method. This involves forecasting the net earnings expected to be generated by the asset, reducing them by appropriate returns on contributory assets, and then discounting the resulting net cash flows to a present value using an appropriate discount rate. The fair value of the non-compete agreements was determined using the with and without method, a variation of the income approach. The with and without method is based on the difference between cash flows for two different scenarios. For the first scenario, the prospective cash flows for the business are projected assuming the non-compete agreements are in place, and for the second scenario, the prospective cash flows for the business are estimated assuming that the non-compete agreements are not in place.

Amortization expense related to identified intangible assets is recognized on a straight-line basis over the assets’ useful lives of two to seven years. Amortization expense is recognized within cost of revenue for developed technology, sales and marketing expense for customer relationships, partnerships and trademark, and general and administrative expense for non-compete agreements, in the consolidated statements of operations and comprehensive loss. Amortization related to Lemonaid Acquisition intangible assets for years ended March 31, 2024, 2023, and 2022 was $11.4 million, $16.5 million, and $7.3 million, respectively. See Note 10, “Balance Sheet Components — Intangible Assets” for additional information regarding the impairment of intangible assets.

The excess of the consideration paid over the fair value of the net assets acquired was recorded as goodwill. The acquired goodwill of $351.7 million is assigned to the Consumer and Research Services segment and represented future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. For results of the Company's goodwill impairment analysis performed during the fiscal year ended March 31, 2024, see Note 10, “Balance Sheet Components — Goodwill.” The goodwill recognized upon acquisition is not expected to be deductible for income tax purposes.

As a result of the acquisition and due to basis differences created from the accounting for the combination, the Company acquired a net deferred tax liability of $6.6 million. The Company’s deferred tax liabilities were partially offset with its deferred tax assets causing a release of the Company’s income tax valuation allowance. The release resulted in an income tax benefit of $3.5 million for the fiscal year ended March 31, 2022. The Company had a remaining foreign deferred tax liability of $3.1 million as of March 31, 2022, which was reversed in the fiscal year ended March 31, 2023 due to impairment charges related to an acquired intangible asset.

From the closing of the Lemonaid Acquisition date through March 31, 2022, the Company recognized revenue of $19.2 million and net loss of $22.3 million related to Lemonaid Health. The pro forma financial information in the table below summarizes the combined results of operations for the Company and Lemonaid Health as if the companies had been combined as of April 1, 2020. The pro forma revenue and net loss is presented for informational purposes only and does not purport to be indicative of the results of future operations or the results that would have occurred had the transaction taken place on April 1, 2020.


	Year Ended March 31,
	2022
	(in thousands)
Pro forma revenue(1)	$	295,025
Pro forma net loss(1)	$	(241,382)

(1)As if the Lemonaid Acquisition was consummated on April 1, 2020.

The pro forma financial information includes pro forma adjustments related to the valuation and allocation of the purchase price, primarily amortization of acquired intangible assets, additional stock-based compensation expense related to accelerated vesting of options in connection with the acquisition, additional stock-based compensation expense related to replacement awards issued in connection with the acquisition, amortization of representation and warranty insurance procured in connection with the acquisition, and direct transaction costs reflected in the historical financial statements.