WASHINGTON,
FORM10-Q
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 July 31, 2019
OR
For the quarterly period ended October 31, 2021 | |||||||||||||||||
OR | |||||||||||||||||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
PHREESIA, INC.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter) |
Delaware | 20-2275479 | |||||||
(State or other jurisdiction of
| (I.R.S. Employer
| |||||||
434 Fayetteville St, Suite 1400 Raleigh, NC | ||||||||
(Address of principal executive offices) | (Zip Code) |
Title of each class | Trading
| Name of each exchange
| ||||||||||||
Common Stock, par value $0.01 per share | PHR | The New York Stock Exchange |
☐
Large accelerated filer | Accelerated filer | ☐ | ||||||||||||||||||
Non-accelerated filer | Smaller reporting company | ☐ | ||||||||||||||||||
Emerging growth company |
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Item 1. | ||||||||||||
Item 2. | ||||||||||||
Item 3. | ||||||||||||
Item 4. | ||||||||||||
Item 1. | ||||||||||||
Item 1A. | ||||||||||||
Item 2. | ||||||||||||
Item 6. | ||||||||||||
•the rapidly evolving industry and the market for technology-enabled services in healthcare in the United States being relatively immature and unproven;
•our reliance on a limited number of clients for a substantial portion of our revenue;
•our anticipated growth and growth strategies and our ability to effectively manage that growth;
•the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;
potentially competing•our potential competition with our customers or partners;
•our existing clients not renewing their existing contracts with us, renewing at lower fee levels or declining to purchase additional applications from us;
•our failure to adequately expand our direct sales force impeding our growth;
•our ability to recover the significant upfront costs in our customer relationships;
•our ability to determine the size of our target market;
•liability arising from our collection, use, disclosure, or storage of sensitive data collected from or about patients;
•consolidation in the healthcare industry resulting in loss of clients;
•the uncertainty of the regulatory and political framework;
•the impact of the COVID-19 pandemic on our business and our ability to attract, retain and cross-sell to healthcare provider clients;
our inability to protect the confidentiality of our trade secrets impacting the value of our technology;
•our reliance on third-party vendors, manufacturers and partners to execute our business strategy;
•our inability to implement our solutions for clients resulting in loss of clients and reputation;
•our dependency on our key personnel, and our ability to attract, hire, integrate, and retain key personnel;
•the possibility that we may become subject to future ligitation;
•our future indebtedness;
•our expectations regarding trends in our key metrics and revenue from subscription fees from our provider clients, payment processing fees and fees charged to our life sciencesciences clients by delivering targeted messages to patients; and
•increased expense associated with being a public company.
All forward-looking statements are based on information
The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titledcaption “Risk Factors” and elsewhere in this Quarterly Report on Form10-Q.Factors.”
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on 10-Q. We cannot assure you that the results, events and circumstances reflected in these forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date on which the statements are made. We undertake no obligation to update, and expressly disclaim the obligation to update, any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
PHREESIA Company Blog (https://www.phreesia.com/blog/)
phreesia)
www.phreesia.com/news/)
Assets Current: Cash and cash equivalents Settlement assets Accounts receivable, net of allowance for doubtful accounts of $722,758 and $517,707 Deferred contract acquisition costs Prepaid expenses Total current assets Property and equipment, net of accumulated depreciation and amortization of $32,151,159 and $27,862,007 Capitalized internal-use software, net of accumulated amortization of $17,000,579 and $14,621,135 Deferred contract acquisition costs Intangible assets, net of accumulated amortization of $152,269 and $33,269 Goodwill Other assets Total assets Liabilities, Redeemable Preferred Stock and Stockholder’s Equity (Deficit) Current: Settlement obligations Current portion of long-term debt Current portion of capital leases Accounts payable Accrued expenses Deferred revenue Total current liabilities Long-term debt, net of current portion Capital leases, net of current portion Warrant liability Total liabilities Commitments and contingencies (Note 12) Redeemable preferred stock: Senior A redeemable preferred stock, $0.01 par value - 0 and 14,500,000 shares authorized as of July 31, 2019 and January 31, 2019, respectively; 0 and 13,674,365 issued and outstanding as of July 31, 2019 and January 31, 2019, respectively Series B redeemable convertible preferred stock, $0.01 par value - 0 and 10,820,169 shares authorized as of July 31, 2019 and January 31, 2019, respectively; 0 and 9,197,142 shares issued and outstanding as of July 31, 2019 and January 31, 2019 , respectively Junior convertible preferred stock, $0.01 par value - 0 and 34,000,000 shares authorized as of July 31, 2019 and January 31, 2019, respectively; 0 and 32,746,041 shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively Redeemable preferred stock, $0.01 par value - 0 and 44,000,000 shares authorized as of July 31, 2019 and January 31, 2019, respectively; 0 and 42,560,530 shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively Total redeemable preferred stock Stockholders’ Equity (Deficit): Common stock, $0.01 par value - 500,000,000 and 80,000,000 shares authorized as of July 31, 2019 and January 31, 2019, respectively; 35,759,355 and 1,994,721 shares issued and outstanding as of July 31, 2019 and January 31, 2019, respectively Additional paid-in capital Accumulated deficit Total stockholders’ equity (deficit) Total Liabilities, Redeemable Preferred Stock and Stockholders’ Equity (Deficit) July 31,
2019 January 31,
2019 $ 100,051,186 $ 1,542,514 11,298,451 10,216,739 16,787,723 16,109,035 1,631,384 1,672,706 6,019,043 3,339,788 $ 135,787,787 $ 32,880,782 14,564,348 14,211,018 8,314,329 7,816,060 1,447,079 1,521,400 1,317,731 1,436,731 250,190 250,190 1,306,044 1,145,319 $ 162,987,508 $ 59,261,500 $ 11,298,451 $ 10,216,739 — 97,222 2,317,529 1,869,343 10,979,101 4,159,994 8,250,017 5,097,868 5,782,499 6,487,910 $ 38,627,597 $ 27,929,076 19,208,348 27,917,828 2,298,762 2,401,104 — 5,497,627 $ 60,134,707 $ 63,745,635 — 79,311,317 — 51,871,881 — 32,746,041 — 42,560,530 — 206,489,769 357,594 19,947 380,875,148 — (278,379,941 ) (210,993,851 ) $ 102,852,801 $ (210,973,904 ) $ 162,987,508 $ 59,261,500 October 31, 2021 January 31, 2021 (Unaudited) Assets Current: Cash and cash equivalents $ 400,395 $ 218,781 Settlement assets 16,323 15,488 Accounts receivable, net of allowance for doubtful accounts of $705 and $699 as of October 31, 2021 and January 31, 2021, respectively 35,460 29,052 Deferred contract acquisition costs 1,705 1,693 Prepaid expenses and other current assets 10,450 7,254 Total current assets 464,333 272,268 Property and equipment, net of accumulated depreciation and amortization of $50,838 and $40,148 as of October 31, 2021 and January 31, 2021, respectively 32,755 26,660 Capitalized internal-use software, net of accumulated amortization of $29,838 and $25,476 as of October 31, 2021 and January 31, 2021, respectively 14,079 10,476 Operating lease right-of-use assets 2,005 2,654 Deferred contract acquisition costs 2,456 1,248 Intangible assets, net of accumulated amortization of $907 and $525 as of October 31, 2021 and January 31, 2021, respectively 2,343 2,725 Deferred tax asset 150 658 Goodwill 8,211 8,307 Other assets 2,795 1,670 Total assets $ 529,127 $ 326,666 Liabilities and Stockholders’ Equity Current: Settlement obligations $ 16,323 $ 15,488 Current portion of finance lease liabilities and other debt 4,597 4,864 Current portion of operating lease liabilities 1,116 1,087 Accounts payable 11,602 4,389 Accrued expenses 18,885 18,324 Deferred revenue 12,434 10,838 Total current liabilities 64,957 54,990 Long-term finance lease liabilities and other debt 5,134 6,471 Operating lease liabilities, non-current 1,117 1,899 Total liabilities 71,208 63,360 Commitments and contingencies (Note 11) 0 0 Stockholders’ Equity: Common stock, $0.01 par value - 500,000,000 shares authorized as of both October 31, 2021 and January 31, 2021; 51,289,020 and 44,880,883 shares issued as of October 31, 2021 and January 31, 2021, respectively 513 449 Additional paid-in capital 849,450 579,599 Accumulated deficit (383,487) (311,777) Treasury stock, at cost, 157,612 and 99,520 shares at October 31, 2021 and January 31, 2021, respectively (8,557) (4,965) Total Stockholders’ Equity 457,919 263,306 Total Liabilities and Stockholders’ Equity $ 529,127 $ 326,666 unauditedUnaudited Consolidated Financial Statements
For the three months ended July 31, | For the six months ended July 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue: | ||||||||||||||||
Subscription and related services | $ | 14,003,676 | $ | 10,459,387 | $ | 26,686,304 | $ | 20,461,666 | ||||||||
Payment processing fees | 11,664,507 | 9,173,665 | 23,221,797 | 18,405,192 | ||||||||||||
Life sciences | 5,147,985 | 5,145,776 | 9,217,801 | 9,783,205 | ||||||||||||
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Total revenues | 30,816,168 | 24,778,828 | 59,125,902 | 48,650,063 | ||||||||||||
Expenses: | ||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | 4,210,203 | 3,603,669 | 8,205,913 | 6,826,864 | ||||||||||||
Payment processing expense | 7,100,675 | 5,326,634 | 14,050,009 | 10,916,466 | ||||||||||||
Sales and marketing | 8,120,137 | 6,528,930 | 15,821,750 | 12,775,934 | ||||||||||||
Research and development | 4,689,990 | 3,178,921 | 8,988,672 | 6,287,459 | ||||||||||||
General and administrative | 7,420,179 | 4,649,510 | 13,665,005 | 9,577,529 | ||||||||||||
Depreciation | 2,136,245 | 1,777,156 | 4,291,008 | 3,549,132 | ||||||||||||
Amortization | 1,279,106 | 962,889 | 2,498,444 | 1,875,526 | ||||||||||||
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Total expenses | 34,956,535 | 26,027,708 | 67,520,801 | 51,808,909 | ||||||||||||
Operating loss | (4,140,367 | ) | (1,248,881 | ) | (8,394,899 | ) | (3,158,846 | ) | ||||||||
Other income (expense) | 327,421 | 138,819 | (817,278 | ) | (35,905 | ) | ||||||||||
Change in fair value of warrant liability | (2,883,851 | ) | (593,215 | ) | (3,306,959 | ) | (884,168 | ) | ||||||||
Interest income (expense) | (745,205 | ) | (883,673 | ) | (1,549,487 | ) | (1,731,561 | ) | ||||||||
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Total other income (expense) | (3,301,635 | ) | (1,338,069 | ) | (5,673,724 | ) | (2,651,634 | ) | ||||||||
Loss before provision for income taxes | (7,442,002 | ) | (2,586,950 | ) | (14,068,623 | ) | (5,810,481 | ) | ||||||||
Provision for income taxes | (51,189 | ) | — | (119,177 | ) | — | ||||||||||
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Net loss | (7,493,191 | ) | (2,586,950 | ) | (14,187,800 | ) | (5,810,481 | ) | ||||||||
Preferred stock dividend paid | (14,955,101 | ) | — | (14,955,101 | ) | — | ||||||||||
Accretion of redeemable preferred stock | (48,311,988 | ) | (9,236,353 | ) | (56,175,418 | ) | (11,726,050 | ) | ||||||||
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Net loss attributable to common stockholders, basic and diluted | $ | (70,760,280 | ) | $ | (11,823,303 | ) | $ | (85,318,319 | ) | $ | (17,536,531 | ) | ||||
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Net loss per share attributable to common stockholders, basic and diluted | $ | (10.42 | ) | $ | (6.66 | ) | $ | (19.20 | ) | $ | (9.99 | ) | ||||
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Weighted-average common shares outstanding, basic and diluted | 6,793,363 | 1,776,559 | 4,443,155 | 1,755,268 | ||||||||||||
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Operations
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||
Subscription and related services | $ | 24,365 | $ | 17,468 | $ | 69,069 | $ | 50,196 | ||||||||||||||||||
Payment processing fees | 16,111 | 12,917 | 49,061 | 36,452 | ||||||||||||||||||||||
Life sciences | 15,439 | 8,079 | 37,083 | 20,221 | ||||||||||||||||||||||
Total revenues | 55,915 | 38,464 | 155,213 | 106,869 | ||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | 11,644 | 6,472 | 30,210 | 16,477 | ||||||||||||||||||||||
Payment processing expense | 9,449 | 7,530 | 28,822 | 21,125 | ||||||||||||||||||||||
Sales and marketing | 32,036 | 10,481 | 69,215 | 30,013 | ||||||||||||||||||||||
Research and development | 15,273 | 5,732 | 34,770 | 16,267 | ||||||||||||||||||||||
General and administrative | 18,021 | 10,370 | 46,936 | 28,721 | ||||||||||||||||||||||
Depreciation | 3,719 | 2,447 | 10,717 | 7,125 | ||||||||||||||||||||||
Amortization | 1,513 | 1,546 | 4,744 | 4,531 | ||||||||||||||||||||||
Total expenses | 91,655 | 44,578 | 225,414 | 124,259 | ||||||||||||||||||||||
Operating loss | (35,740) | (6,114) | (70,201) | (17,390) | ||||||||||||||||||||||
Other (expense) income, net | (114) | 62 | (138) | (229) | ||||||||||||||||||||||
Interest (expense) income, net | (311) | (467) | (756) | (1,206) | ||||||||||||||||||||||
Total other expense, net | (425) | (405) | (894) | (1,435) | ||||||||||||||||||||||
Loss before provision for income taxes | (36,165) | (6,519) | (71,095) | (18,825) | ||||||||||||||||||||||
Provision for income taxes | (178) | (194) | (615) | (371) | ||||||||||||||||||||||
Net loss | $ | (36,343) | $ | (6,713) | $ | (71,710) | $ | (19,196) | ||||||||||||||||||
Net loss per share attributable to common stockholders, basic and diluted | $ | (0.71) | $ | (0.17) | $ | (1.44) | $ | (0.51) | ||||||||||||||||||
Weighted-average common shares outstanding, basic and diluted | 51,020,271 | 38,511,370 | 49,943,049 | 37,855,503 |
Redeemable Preferred Stock | Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Junior Preferred | Redeemable Preferred | Common Stock | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amounts | Total | Shares | Amount | APIC | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance, February 1, 2018 | 13,674,365 | $ | 57,022,102 | 9,197,142 | $ | 43,962,340 | 32,746,041 | $ | 32,746,041 | 42,560,530 | $ | 42,560,530 | $ | 176,291,014 | 1,638,331 | $ | 16,383 | — | ($ | 167,699,718 | ) | ($ | 167,683,335 | ) | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | — | (3,223,531 | ) | (3,223,531 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | — | 251,697 | — | 251,697 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | — | — | — | 131,560 | 1,316 | 145,063 | — | 146,379 | ||||||||||||||||||||||||||||||||||||||||||
Accretion of redeemable preferred stock | — | 1,405,838 | — | 1,083,859 | — | — | — | — | 2,489,697 | — | — | (396,760 | ) | (2,092,937 | ) | (2,489,697 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance, April 30, 2018 | 13,674,365 | $ | 58,427,940 | 9,197,142 | $ | 45,046,199 | 32,746,041 | $ | 32,746,041 | 42,560,530 | $ | 42,560,530 | $ | 178,780,711 | 1,769,891 | $ | 17,699 | $ | — | $ | (173,016,186 | ) | $ | (172,998,487 | ) | |||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | — | (2,586,950 | ) | (2,586,950 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | — | 251,697 | — | 251,697 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | — | — | — | 16,057 | 161 | 12,261 | — | 12,422 | ||||||||||||||||||||||||||||||||||||||||||
Accretion of redeemable preferred stock | — | 6,961,126 | — | 2,275,228 | — | — | — | — | 9,236,353 | — | — | (263,958 | ) | (8,972,395 | ) | (9,236,353 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance, July 31, 2018 | 13,674,365 | $ | 65,389,066 | 9,197,142 | $ | 47,321,428 | 32,746,041 | $ | 32,746,041 | 42,560,530 | $ | 42,560,530 | $ | 188,017,064 | 1,785,948 | $ | 17,860 | $ | — | $ | (184,575,531 | ) | $ | (184,557,671 | ) | |||||||||||||||||||||||||||||||
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Balance, February 1, 2019 | 13,674,365 | $ | 79,311,317 | 9,197,142 | $ | 51,871,881 | 32,746,041 | $ | 32,746,041 | 42,560,530 | $ | 42,560,530 | $ | 206,489,769 | 1,994,721 | $ | 19,947 | — | ($ | 210,993,851 | ) | ($ | 210,973,904 | ) | ||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | — | — | (6,694,609 | ) | (6,694,609 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | — | 599,156 | — | 599,156 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | — | — | — | 29,798 | 298 | 36,737 | — | 37,035 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock warrants | — | — | — | — | — | — | — | — | — | — | — | 832,825 | — | 832,825 | ||||||||||||||||||||||||||||||||||||||||||
Accretion of redeemable preferred stock | — | 5,196,259 | — | 2,667,171 | — | — | — | — | 7,863,430 | — | — | (1,468,718 | ) | (6,394,712 | ) | (7,863,430 | ) | |||||||||||||||||||||||||||||||||||||||
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Balance, April 30, 2019 | 13,674,365 | $ | 84,507,576 | 9,197,142 | $ | 54,539,052 | 32,746,041 | $ | 32,746,041 | 42,560,530 | $ | 42,560,530 | $ | 214,353,199 | 2,024,519 | $ | 20,245 | $ | — | $ | (224,083,172 | ) | $ | (224,062,927 | ) | |||||||||||||||||||||||||||||||
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Net loss | — | — | — | — | — | — | — | — | — | — | — | — | (7,493,191 | ) | (7,493,191 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | — | — | 1,467,465 | — | 1,467,465 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | — | — | — | 22,038 | 221 | 40,946 | — | 41,167 | ||||||||||||||||||||||||||||||||||||||||||
Accretion of redeemable preferred stock | — | 27,509,988 | — | 20,802,000 | — | — | — | — | 48,311,988 | (1,508,410 | ) | (46,803,578 | ) | (48,311,988 | ) | |||||||||||||||||||||||||||||||||||||||||
Payment of preferred stock dividends | — | — | — | — | — | — | — | — | — | — | — | (14,955,101 | ) | — | (14,955,101 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in initial public offering, net of issuance costs of $6,083,648 | — | — | — | — | — | — | — | — | 7,812,500 | 78,125 | 124,619,477 | — | 124,697,602 | |||||||||||||||||||||||||||||||||||||||||||
Conversion of preferred stock into common stock and cancellation of redeemable preferred stock | (13,674,365 | ) | (112,017,564 | ) | (9,197,142 | ) | (75,341,052 | ) | (32,746,041 | ) | (32,746,041 | ) | (42,560,530 | ) | (42,560,530 | ) | (262,665,187 | ) | 25,311,535 | 253,115 | 262,412,072 | — | 262,665,187 | |||||||||||||||||||||||||||||||||
Conversion and exercise of preferred stock warrants into common stock | — | — | — | — | — | — | — | — | — | 588,763 | 5,888 | 8,798,699 | — | 8,804,587 | ||||||||||||||||||||||||||||||||||||||||||
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Balance, July 31, 2019 | — | $ | — | — | $ | — | — | $ | — | — | $ | — | $ | — | 35,759,355 | $ | 357,594 | $ | 380,875,148 | $ | (278,379,941 | ) | $ | 102,852,801 | ||||||||||||||||||||||||||||||||
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per share data)
Common Stock | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | APIC | Accumulated Deficit | Treasury stock | Total | |||||||||||||||||||||||||||||||||
Balance, February 1, 2020 | 36,610,763 | $ | 366 | $ | 386,383 | $ | (284,485) | $ | (399) | $ | 101,865 | |||||||||||||||||||||||||||
Net loss | — | — | — | (6,112) | — | (6,112) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 2,872 | — | — | 2,872 | ||||||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units | 988,678 | 10 | 1,727 | — | — | 1,737 | ||||||||||||||||||||||||||||||||
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings | — | — | — | — | (447) | (447) | ||||||||||||||||||||||||||||||||
Balance, April 30, 2020 | 37,599,441 | $ | 376 | $ | 390,982 | $ | (290,597) | $ | (846) | $ | 99,915 | |||||||||||||||||||||||||||
Net loss | — | — | — | (6,371) | — | (6,371) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 3,428 | — | — | 3,428 | ||||||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units | 283,396 | 3 | 735 | — | — | 738 | ||||||||||||||||||||||||||||||||
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings | — | — | — | — | (23) | (23) | ||||||||||||||||||||||||||||||||
Balance, July 31, 2020 | 37,882,837 | $ | 379 | $ | 395,145 | $ | (296,968) | $ | (869) | $ | 97,687 | |||||||||||||||||||||||||||
Net loss | — | — | — | (6,713) | — | (6,713) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 3,316 | — | — | 3,316 | ||||||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units | 406,726 | 4 | 872 | — | — | 876 | ||||||||||||||||||||||||||||||||
Issuance of common stock in secondary public offering, net of issuance costs of $290 | 5,750,000 | 57 | 174,453 | — | — | 174,510 | ||||||||||||||||||||||||||||||||
Balance, October 31, 2020 | 44,039,563 | $ | 440 | $ | 573,786 | $ | (303,681) | $ | (869) | $ | 269,676 | |||||||||||||||||||||||||||
See notes to Unaudited Consolidated Financial Statements | ||||||||||||||||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | APIC | Accumulated Deficit | Treasury stock | Total | |||||||||||||||||||||||||||||||||
Balance, February 1, 2021 | 44,880,883 | $ | 449 | $ | 579,599 | $ | (311,777) | $ | (4,965) | $ | 263,306 | |||||||||||||||||||||||||||
Net loss | — | — | — | (10,974) | — | (10,974) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 5,774 | — | — | 5,774 | ||||||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units | 214,346 | 2 | 498 | — | — | 500 | ||||||||||||||||||||||||||||||||
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings | — | — | — | — | (1,145) | (1,145) | ||||||||||||||||||||||||||||||||
Issuance of common stock in follow-on public offering, net | 5,175,000 | 52 | 245,761 | — | — | 245,813 | ||||||||||||||||||||||||||||||||
Balance, April 30, 2021 | 50,270,229 | $ | 503 | $ | 831,632 | $ | (322,751) | $ | (6,110) | $ | 503,274 | |||||||||||||||||||||||||||
Net loss | — | — | — | (24,393) | — | (24,393) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 7,355 | — | —�� | 7,355 | ||||||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units | 621,897 | 6 | 1,300 | — | — | 1,306 | ||||||||||||||||||||||||||||||||
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings | — | — | — | — | (978) | (978) | ||||||||||||||||||||||||||||||||
Balance, July 31, 2021 | 50,892,126 | $ | 509 | $ | 840,287 | $ | (347,144) | $ | (7,088) | $ | 486,564 | |||||||||||||||||||||||||||
Net loss | — | — | — | (36,343) | — | (36,343) | ||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 7,821 | — | — | 7,821 | ||||||||||||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock units | 396,894 | 4 | 1,342 | — | — | 1,346 | ||||||||||||||||||||||||||||||||
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings | — | — | — | — | (1,469) | (1,469) | ||||||||||||||||||||||||||||||||
Balance, October 31, 2021 | 51,289,020 | $ | 513 | $ | 849,450 | $ | (383,487) | $ | (8,557) | $ | 457,919 |
Six months ended July 31, | ||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (14,187,800 | ) | $ | (5,810,481 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 6,789,451 | 5,424,658 | ||||||
Stock-based compensation expense | 2,066,621 | 503,394 | ||||||
Change in fair value of warrants liability | 3,306,959 | 884,169 | ||||||
Amortization of debt discount | 265,314 | 390,711 | ||||||
Loss on extinguishment of debt | 1,072,813 | — | ||||||
Cost of Phreesia hardware purchased by customers | 318,666 | — | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (678,688 | ) | (1,135,300 | ) | ||||
Prepaid expenses and other assets | (3,656,994 | ) | (367,224 | ) | ||||
Deferred contract acquisition costs | 115,644 | (163,838 | ) | |||||
Accounts payable | 4,548,149 | 875,157 | ||||||
Accrued expenses | 3,329,991 | (511,749 | ) | |||||
Deferred revenue | (705,411 | ) | 855,596 | |||||
|
|
|
| |||||
Net cash provided by operating activities | $ | 2,584,715 | $ | 945,093 | ||||
|
|
|
| |||||
Cash flows used in investing activities: | ||||||||
Capitalized internal-use software | (2,877,714 | ) | (2,469,694 | ) | ||||
Purchase of property and equipment | (2,754,478 | ) | (2,390,158 | ) | ||||
|
|
|
| |||||
Net cash used in investing activities | $ | (5,632,192 | ) | $ | (4,859,852 | ) | ||
|
|
|
| |||||
Cash flows from financing activities: | ||||||||
Proceeds from IPO, net of underwriters’ discounts and commissions | $ | 130,781,250 | $ | — | ||||
Proceeds from revolving line of credit | 9,875,556 | — | ||||||
Payments of revolving line of credit | (17,675,556 | ) | — | |||||
Proceeds from term loan | 20,000,000 | — | ||||||
Repayment of term loan | (1,041,667 | ) | (583,334 | ) | ||||
Repayment of loan payable | (20,000,000 | ) | — | |||||
Payment of preferred stock dividends | (14,955,101 | ) | — | |||||
Payment on capital leases | (1,164,100 | ) | (1,734,209 | ) | ||||
Debt extinguishment costs | (300,000 | ) | — | |||||
Debt issuance costs | (112,004 | ) | — | |||||
Proceeds from issuance of common stock upon exercise of stock options | 78,202 | 158,799 | ||||||
Payment of offering costs | (3,930,431 | ) | — | |||||
|
|
|
| |||||
Net cash (used in) provided by financing activities | $ | 101,556,149 | $ | (2,158,743 | ) | |||
|
|
|
| |||||
Net increase in cash and cash equivalents | 98,508,672 | (6,073,503 | ) | |||||
Cash and cash equivalents – beginning of period | 1,542,514 | 10,502,789 | ||||||
|
|
|
| |||||
Cash and cash equivalents – end of period | $ | 100,051,186 | $ | 4,429,286 | ||||
|
|
|
| |||||
Disclosures of additional investing and financing activities: | ||||||||
Supplemental information: | ||||||||
Property and equipment acquisitions through capital leases | $ | 1,509,945 | $ | 983,275 | ||||
Deferred issuance costs included in accounts payable and accrued expenses | 1,957,966 | — | ||||||
Purchase of property and equipment included in accounts payable | 698,579 | — | ||||||
Issurance of warrants related to debt | 832,825 | — | ||||||
Cashless exercise of common stock warrants | 1,918,782 | — | ||||||
Cash payments for: | ||||||||
Interest | $ | 1,347,126 | $ | 1,317,613 |
Cash Flows
Nine months ended October 31, | ||||||||||||||
2021 | 2020 | |||||||||||||
Operating activities: | ||||||||||||||
Net loss | $ | (71,710) | $ | (19,196) | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
Depreciation and amortization | 15,461 | 11,656 | ||||||||||||
Stock-based compensation expense | 25,976 | 9,616 | ||||||||||||
Amortization of deferred financing costs and debt discount | 216 | 318 | ||||||||||||
Cost of Phreesia hardware purchased by customers | 449 | 604 | ||||||||||||
Deferred contract acquisition costs amortization | 1,709 | 2,280 | ||||||||||||
Non-cash operating lease expense | 730 | 1,228 | ||||||||||||
Change in fair value of contingent consideration liabilities | 209 | — | ||||||||||||
Deferred tax asset | 508 | 279 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Accounts receivable | (6,408) | (5,616) | ||||||||||||
Prepaid expenses and other assets | (5,686) | (1,940) | ||||||||||||
Deferred contract acquisition costs | (2,929) | (1,901) | ||||||||||||
Accounts payable | 9,490 | (2,300) | ||||||||||||
Accrued expenses and other liabilities | (5,563) | 3,982 | ||||||||||||
Lease liability | (779) | (1,419) | ||||||||||||
Deferred revenue | 1,596 | 1,222 | ||||||||||||
Net cash used in operating activities | (36,731) | (1,187) | ||||||||||||
Investing activities: | ||||||||||||||
Capitalized internal-use software | (7,962) | (4,663) | ||||||||||||
Purchase of property and equipment | (16,596) | (6,440) | ||||||||||||
Net cash used in investing activities | (24,558) | (11,103) | ||||||||||||
Financing activities: | ||||||||||||||
Proceeds from issuance of common stock in equity offerings, net of underwriters' discounts and commissions | 245,813 | 174,800 | ||||||||||||
Proceeds from issuance of common stock upon exercise of stock options | 4,062 | 3,351 | ||||||||||||
Treasury stock to satisfy tax withholdings on stock compensation awards | (3,546) | (869) | ||||||||||||
Payment of offering costs | — | (226) | ||||||||||||
Proceeds from employee stock purchase plan | 1,147 | — | ||||||||||||
Insurance financing agreement | — | 2,009 | ||||||||||||
Finance lease payments | (3,175) | (1,797) | ||||||||||||
Principal payments on financing agreements | (873) | (881) | ||||||||||||
Debt issuance costs | — | (69) | ||||||||||||
Loan facility fee payment | (125) | (225) | ||||||||||||
Payment of contingent consideration for acquisitions | (400) | — | ||||||||||||
Net cash provided by financing activities | 242,903 | 176,093 | ||||||||||||
Net increase in cash and cash equivalents | 181,614 | 163,803 | ||||||||||||
Cash and cash equivalents – beginning of period | 218,781 | 90,315 | ||||||||||||
Cash and cash equivalents – end of period | $ | 400,395 | $ | 254,118 |
Supplemental information of non-cash investing and financing information: | ||||||||||||||
Right-of-use assets obtained in exchange for operating lease liabilities | $ | 81 | $ | 4,420 | ||||||||||
Property and equipment acquisitions through finance leases | $ | 2,645 | $ | 6,050 | ||||||||||
Capitalized software acquired through vendor financing | $ | — | $ | 174 | ||||||||||
Cashless transfer of term loan and related accrued fees into increase in debt balance | $ | — | $ | 20,257 | ||||||||||
Cashless transfer of lender fees through increase in debt balance | $ | — | $ | 406 | ||||||||||
Deferred offering costs included in accounts payable and accrued liabilities | $ | — | $ | 64 | ||||||||||
Purchase of property and equipment and capitalized software included in accounts payable | $ | 1,082 | $ | 1,681 | ||||||||||
Capitalized stock-based compensation | $ | 279 | $ | — | ||||||||||
Cash payments for: | ||||||||||||||
Interest | $ | 578 | $ | 1,047 | ||||||||||
(b) Initial The Company completed an initial public offering
in July 2019.
Upon closing of the IPO, the Company’s outstanding shares of Senior A redeemable convertible preferred stock (Senior A Preferred), Senior B redeemable convertible preferred stock (Senior B Preferred, and together with the Senior A Preferred, the Senior Preferred), and the Junior convertible preferred stock (the Junior Preferred, and together with the Senior Preferred, the Convertible Preferred) automatically converted into shares of common stock and all of the outstanding shares of the Company’s redeemable preferred stock (Redeemable Preferred) were automatically extinguished and cancelled at the closing of the IPO (See Note 7). In addition, the Company’s warrants to purchase shares of Senior Preferred were converted into warrants to purchase shares of the Company’s common stock upon the closing of the IPO. Additionally, 588,763 shares of common stock were issued upon the cashless exercise of common stock warrants (See Note 10). Also, in connection with the IPO, the Company paid $14,955,101 in dividends to the Senior Preferred stockholders.
Upon completion of the IPO on July 22, 2019, the Company filed an amended and restated certificate of incorporation to, among other things, state that the aggregate number of shares of stock that the Company is authorized to issue is 500,000,000 shares of common stock, par value $0.01 per share, and 20,000,000 shares of undesignated preferred stock, par value $0.01 per share.
expenses.
The Company effected a0.4551-for-1 reverse split of its common stock on July 3, 2019. The reverse split combined each approximately 2.1973 shares of the Company’s issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion price of its convertible preferred stock. No fractional shares were issued in connection with the reverse split. Any fractional share resulting from the reverse split was rounded down to the nearest whole share, and in lieu of any fractional shares, the Company paid in cash to the holders of such fractional shares an amount equal to the fair market value, as determined by the board of directors, of such fractional shares. All share, per share and related information presented in the financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the reverse stock split.
(d) Liquidity
Phreesia, Inc.
Notes to Unaudited Financial Statements
Management believes that the Company’s cash and cash equivalents at JulyOctober 31, 2019,2021, along with cash generated in the normal course of business, and available borrowing capacity under its February 2019 Credit FacilitySecond Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the "Second SVB Facility") (Note 6), are sufficient to fund its operations for at least the next 12 months. The Company will seek to obtain additional financing, if needed, to successfully implement its long-term strategy. There can be no assurance that additional financing, if needed, can be obtained on terms acceptable to the Company. The ability of the Company to achieve successful operations will depend on, among other things, new business, the retention of customers, and the effectiveness of sales and marketing initiatives. The Company is subject to a number of risks similar to other companies in its stage of business life cycle, including dependence on key individuals, competition in the marketplace, and the need to fund future product and services development.
Consolidated financial statements
Canada and its subsidiaries (collectively, the "Company").
2021.
Phreesia, Inc.
Notes to Unaudited Financial Statements
2020. As of October 31, 2021, the Company had receivables from one entity that accounted for at least 10% of total accounts receivable.
In August 2018, the FASB issued ASU2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which is intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance forinternal-use software. The updated guidance for private companies and emerging growth companies using the extended transition period is effective for interim and annual periods beginning after December 15, 2020, and early2022. Early adoption is permitted. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment fornew standard will apply to all implementation costs incurredbusiness combinations that occur during and after the dateyear of adoption. The Company is currently evaluating the potential impact of this standard on the Company’s financial statements.
In February 2016, the FASB
Phreesia, Inc.
Notes to Unaudited Financial Statements
July 31, | January 31, | |||||||
2019 | 2019 | |||||||
Payment processing fees liability | $ | 2,308,694 | $ | 2,266,621 | ||||
Commission and bonus | 3,244,770 | 320,402 | ||||||
Accrued payment related to acquisition of Vital Score | 350,000 | 350,000 | ||||||
Vacation | 505,890 | 417,467 | ||||||
Other | 1,840,663 | 1,743,378 | ||||||
|
|
|
| |||||
Total | $ | 8,250,017 | $ | 5,097,868 | ||||
|
|
|
|
October 31, 2021 | January 31, 2021 | |||||||||||||
Payroll-related expenses and taxes | $ | 8,257 | $ | 8,946 | ||||||||||
Payment processing fees liability | 3,153 | 2,853 | ||||||||||||
Acquisition-related liabilities | 3,100 | 3,386 | ||||||||||||
Other | 4,375 | 3,139 | ||||||||||||
Total | $ | 18,885 | $ | 18,324 |
Useful Life | July 31, | January 31, | ||||||||||
(years) | 2019 | 2019 | ||||||||||
PhreesiaPads and Arrivals Stations | 3 | $ | 24,976,313 | $ | 22,746,783 | |||||||
Computer equipment | 3 | 16,699,067 | 14,338,489 | |||||||||
Computer software | 3 | 2,166,014 | 2,166,015 | |||||||||
Hardware development | 3 | 1,024,357 | 1,024,357 | |||||||||
Furniture and fixtures | 7 | 678,985 | 646,708 | |||||||||
Leasehold improvements | 2 | 1,170,771 | 1,150,673 | |||||||||
|
|
|
| |||||||||
Total property and equipment | $ | 46,715,507 | $ | 42,073,025 | ||||||||
Less accumulated depreciation and amortization | (32,151,159 | ) | (27,862,007 | ) | ||||||||
|
|
|
| |||||||||
Property and equipment — net | $ | 14,564,348 | $ | 14,211,018 | ||||||||
|
|
|
|
Useful Life | ||||||||||||||||||||
(years) | October 31, 2021 | January 31, 2021 | ||||||||||||||||||
PhreesiaPads and Arrivals Kiosks | 3 | $ | 26,140 | $ | 25,837 | |||||||||||||||
Computer equipment | 3 | 49,867 | 33,558 | |||||||||||||||||
Computer software | 3 to 5 | 5,275 | 5,105 | |||||||||||||||||
Hardware development | 3 | 1,024 | 1,024 | |||||||||||||||||
Furniture and fixtures | 7 | 539 | 539 | |||||||||||||||||
Leasehold improvements | 2 | 748 | 745 | |||||||||||||||||
Total property and equipment | $ | 83,593 | $ | 66,808 | ||||||||||||||||
Less accumulated depreciation | (50,838) | (40,148) | ||||||||||||||||||
Property and equipment — net | $ | 32,755 | $ | 26,660 |
Phreesia, Inc.
Notes to Unaudited Financial Statements
and goodwill
Useful Life | July 31, | January 31, | ||||||||||
|
|
|
| |||||||||
(years) | 2019 | 2019 | ||||||||||
|
|
|
|
|
| |||||||
Acquired technology gross carrying value | 5 | $ | 490,000 | $ | 490,000 | |||||||
Customer relationship gross carrying value | 7 | 980,000 | 980,000 | |||||||||
|
|
|
| |||||||||
Total intangible assets | $ | 1,470,000 | $ | 1,470,000 | ||||||||
Less accumulated amortization | (152,269 | ) | (33,269 | ) | ||||||||
|
|
|
| |||||||||
Net carrying value | $ | 1,317,731 | $ | 1,436,731 | ||||||||
|
|
|
|
2021:
Useful Life | ||||||||||||||||||||
(years) | October 31, 2021 | January 31, 2021 | ||||||||||||||||||
Acquired technology | 5 | $ | 1,410 | $ | 1,410 | |||||||||||||||
Customer relationship | 10 | 1,840 | 1,840 | |||||||||||||||||
Total intangible assets, gross carrying value | $ | 3,250 | $ | 3,250 | ||||||||||||||||
Less accumulated amortization | (907) | (525) | ||||||||||||||||||
Net carrying value | $ | 2,343 | $ | 2,725 |
2020.
2020 (Remaining six months) | $ | 119,000 | ||
Years ending January 31, | ||||
2021 | 238,000 | |||
2022 | 238,000 | |||
2023 | 238,000 | |||
2024 | 224,301 | |||
2025 - thereafter | 260,430 | |||
|
| |||
Total | $ | 1,317,731 | ||
|
|
2021:
October 31, 2021 | |||||
2022 (Remaining three months) | $ | 127 | |||
Fiscal Years Ending January 31, | |||||
2023 | 508 | ||||
2024 | 494 | ||||
2025 | 410 | ||||
2026 - thereafter | 804 | ||||
Total | $ | 2,343 |
Deferred offering costs consist primarilyAccounts receivable
October 31, 2021 | January 31, 2021 | |||||||||||||
Billed | $ | 35,106 | $ | 28,464 | ||||||||||
Unbilled | 1,059 | 1,287 | ||||||||||||
Total accounts receivable, gross | $ | 36,165 | $ | 29,751 | ||||||||||
Less accounts receivable allowances | (705) | (699) | ||||||||||||
Total accounts receivable | $ | 35,460 | $ | 29,052 |
October 31, 2021 | ||||||||
Balance, January 31, 2021 | $ | 699 | ||||||
Bad debt expense | 45 | |||||||
Write-offs and adjustments | (39) | |||||||
Balance, October 31, 2021 | $ | 705 |
October 31, 2021 | January 31, 2021 | |||||||||||||
Prepaid software and business systems | $ | 4,019 | $ | 2,322 | ||||||||||
Prepaid data center expenses | 2,776 | 1,211 | ||||||||||||
Prepaid insurance | 2,855 | 1,311 | ||||||||||||
Other prepaid expenses and other current assets | 800 | 2,410 | ||||||||||||
Total prepaid and other current assets | $ | 10,450 | $ | 7,254 |
(f) Accounts receivable
Accounts receivable2021. Accumulated amortization of capitalized implementation costs for these arrangements was $130 as of JulyOctober 31, 20192021.
July 31, | January 31, | |||||||
2019 | 2019 | |||||||
Billed | $ | 16,778,878 | $ | 15,990,218 | ||||
Unbilled | 731,603 | 635,924 | ||||||
|
|
|
| |||||
Total accounts receivable, gross | $ | 17,510,481 | $ | 16,626,142 | ||||
Less allowance for doubtful accounts | (722,758 | ) | (517,107 | ) | ||||
|
|
|
| |||||
Total accounts receivable | $ | 16,787,723 | $ | 16,109,035 | ||||
|
|
|
|
Phreesia, Inc.
Notes to Unaudited Financial Statements
and contract costs
Contract assets (unbilled accounts receivable) | Contract liabilities (deferred revenue) | |||||||
January 31, 2019 | $ | 635,924 | $ | 6,487,910 | ||||
Amount transferred to receivables from contract assets | (575,859 | ) | — | |||||
Contract asset additions | 671,539 | — | ||||||
Performance obligations satisfied during the period that were included in the contract liability balance at the beginning of the period | — | (7,665,170 | ) | |||||
Increases due to invoicing prior to satisfaction or performance obligations | — | 6,959,759 | ||||||
|
|
|
| |||||
July 31, 2019 | $ | 731,604 | $ | 5,782,499 | ||||
|
|
|
|
assets:
Contract assets (unbilled accounts receivable) | ||||||||
January 31, 2021 | $ | 1,287 | ||||||
Amount transferred to receivables from beginning balance of contract assets | (1,206) | |||||||
Contract asset additions, net of reclassification to receivables | 978 | |||||||
October 31, 2021 | $ | 1,059 |
Deferred revenue | ||||||||
January 31, 2021 | $ | 10,838 | ||||||
Revenue recognized that was included in deferred revenue at the beginning of the period | (10,495) | |||||||
Revenue recognized that was not included in deferred revenue at the beginning of the period | (16,291) | |||||||
Increases due to invoicing prior to satisfaction of performance obligations | 28,382 | |||||||
October 31, 2021 | $ | 12,434 |
Phreesia, Inc.
Notes to Unaudited Financial Statements
July 31, | January 31, | |||||||
2019 | 2019 | |||||||
Beginning balance | $ | 3,194,106 | $ | 2,333,578 | ||||
Additions to deferred contract acquisition costs | 857,935 | 2,500,183 | ||||||
Amortization of deferred contract acquisition costs | (973,578 | ) | (1,639,655 | ) | ||||
|
|
|
| |||||
Ending balance | 3,078,463 | 3,194,106 | ||||||
Deferred contract acquisition costs, current (to be amortized in next 12 months) | 1,631,384 | 1,672,706 | ||||||
Deferred contract acquisition costs, non current | 1,447,079 | 1,521,400 | ||||||
|
|
|
| |||||
Total deferred contract acquisition costs | $ | 3,078,463 | $ | 3,194,106 | ||||
|
|
|
|
Beginning balance, January 31, 2021 | $ | 2,941 | |||||||||
Additions to deferred contract acquisition costs | 2,929 | ||||||||||
Amortization of deferred contract acquisition costs | (1,709) | ||||||||||
Ending balance, October 31, 2021 | 4,161 | ||||||||||
Deferred contract acquisition costs, current (to be amortized in next 12 months) | 1,705 | ||||||||||
Deferred contract acquisition costs, non-current | 2,456 | ||||||||||
Total deferred contract acquisition costs | $ | 4,161 |
Finance leases and other debt
July 31, 2019 | January 31, 2019 | |||||||
Term loan | $ | 20,000,000 | $ | 1,041,667 | ||||
Line of credit | — | 7,800,000 | ||||||
Loan payable | — | 20,000,000 | ||||||
|
|
|
| |||||
Total debt | $ | 20,000,000 | $ | 28,841,667 | ||||
Less current maturities | — | (97,222 | ) | |||||
Less deferred financing costs | (1,050,116 | ) | (995,959 | ) | ||||
Plus accrued interest | 120,556 | — | ||||||
Plus accrued final payment | 137,908 | 169,342 | ||||||
|
|
|
| |||||
Long term debt, net of current portion | $ | 19,208,348 | $ | 27,917,828 | ||||
|
|
|
|
The Company had a loan facility with a commercial bank that provided for a term loan with an original principal amount of $3,500,000finance lease liabilities and a $10,000,000 revolving line of credit, which was later increased to $20,000,000. The term loan was interest only, at a floating per annum rate equal to the Prime Rate as quoted by Wall Street Journal print edition less three-quarters of one percent (0.75%), for 12 months from the date of borrowing followed by 36 monthly payments of principal and interest. The Prime Rate was 5.50% as of January 31, 2019. In addition to principal and interest payments due under the Loan facility, the Company was required to make a final payment fee to the lender due upon the earlier of prepayment or maturity of the term loan, which was equal to 5% of the principal balance, or $175,000 and was paid in connection with the repayment of the term loan. The Company accrued the estimated final payment fee using the effective interest method, with a charge to interest expense of $0 and $5,658 for the three and six months endedother debt:
October 31, 2021 | January 31, 2021 | |||||||||||||
Finance leases | $ | 9,227 | $ | 9,702 | ||||||||||
Financing arrangements | 442 | 1,533 | ||||||||||||
Accrued interest and payments | 62 | 100 | ||||||||||||
Total finance lease liabilities and other debt | 9,731 | 11,335 | ||||||||||||
Less - current portion of finance lease liabilities and other debt | (4,597) | (4,864) | ||||||||||||
Long-term finance lease liabilities and other debt | $ | 5,134 | $ | 6,471 |
Borrowings under the revolving line of credit bore interest at the prime rate plus 1.00% and were limited to the greater of $20,000,000 or an amount determined pursuant to a borrowing base. The revolving credit facility had a maturity date of November 2019. Borrowings under this facility were collateralized by substantially all of the assets of the Company and the Company was required to comply with certain financial covenants related to this facility. The Company was in compliance with all covenants related to the revolving line of credit as of January 31, 2019 and until the total balance of $17,675,556 was fully repaid on July 22, 2019 with proceeds from the IPO. Weighted-average borrowings outstanding under the revolving
Phreesia, Inc.
Notes to Unaudited Financial Statements
line of credit were $5,441,326 and $971,370 for the six months ended July 31, 2019 and 2018, respectively. Interest expense under the revolving line of credit was $0 and $36,654 including amortization of deferred financing costs of $0 and $17,696, for the three months ended July 31, 2019 and 2018, respectively. Interest expense under the revolving line of credit was $166,254 and $73,100 including amortization of deferred financing costs of $12,843 and $35,392, for the six months ended July 31, 2019 and 2018, respectively.
On November 7, 2016,21, 2020, the Company entered into an insurance premium financing agreement in order to finance its premium payments for directors' and officers' insurance. As of October 31, 2021 and January 31, 2021, there was no outstanding principal amount and $673 in outstanding principal under the agreement, respectively. The agreement bore interest at 2.6% per annum. The balance of the financing agreement was paid off during the first quarter of fiscal 2022.
The Company accounted for the settlement of the Loans Payable and the term loan as a debt extinguishment and recorded an expense of $1,072,813, which is included in other income (expense), and is comprised of thewrite-off of $772,813 of deferred financing costs related to these facilities and a $300,000 prepayment fee related to the Loans Payable. The modification of the revolving line of credit was accounted for as an insubstantial modification. The Company incurred fees of $112,004 related to the extinguishment and modification.
Borrowings under the revolving credit facility are subject to a borrowing base equal to 80% of eligible accounts receivable plus a percentage of recurring revenue, as defined, not to exceed $25,000,000 in the aggregate. The Company has $25,000,000 of availability as of July 31, 2019. Borrowings under the revolving credit facilitySecond SVB Facility bear interest, which is payable monthly, at a floating rate equal to the greater of the bank’s primeWall Street Journal Prime Rate or 4.5%. The interest rate less 0.50%, or 5.0% until such time that EBITDA reacheswill decrease by 0.5% upon reaching a defined level after which timeof Adjusted EBITDA as defined in the Second SVB Facility. For the three months ended October 31, 2021, the interest rate is reduced toon the greater of prime less 0.75%, or 4.75%Second SVB Facility was 4.5%. In addition to principal and interest due under the revolving credit facility, the Company is required to pay an annual commitment fee of $100,000$125 per year duringyear. The Second SVB Facility was paid off in late December 2020. The Company has $50,000 of availability as of October 31, 2021.
Phreesia, Inc.
Notes to Unaudited Financial Statements
of $31,646, for the three months ended July 31, 2019. Interest expense related to the revolving credit facility under the new loan agreement was $310,403, including amortization of deferred financing fees of $52,744, for the six months ended July 31, 2019. The Company iswill be required to pay a termination fee based on the length of 0.15% per year for any unused availabilitytime between termination and maturity. The Company will not be required to pay a termination fee if terminated after the fourth anniversary of 1.50% if the revolving credit agreement is terminated prior to its scheduled maturity. The revolving credit facility is due five years from theSecond SVB Effective date, which is February 28, 2024.
The Company’sDate.
2021.
2020 (Remaining six months) | $ | — | ||
Year ending January 31, | ||||
2021 | — | |||
2022 | 6,111,111 | |||
2023 | 6,666,667 | |||
2024 | 6,666,667 | |||
2025 - thereafter | 555,555 | |||
|
| |||
Total long-term debt payments | $ | 20,000,000 | ||
|
|
Total | Finance Leases | Other Debt | ||||||||||||||||||
2022 (Remaining three months) | $ | 1,334 | $ | 1,091 | $ | 243 | ||||||||||||||
Fiscal year ending January 31: | ||||||||||||||||||||
2023 | 4,283 | 4,067 | 216 | |||||||||||||||||
2024 | 3,185 | 3,140 | 45 | |||||||||||||||||
2025 | 773 | 773 | — | |||||||||||||||||
2026 | 156 | 156 | — | |||||||||||||||||
Total long-term debt and finance lease maturities | $ | 9,731 | $ | 9,227 | $ | 504 |
Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||||
Interest expense (1) | $ | (331) | $ | (471) | $ | (815) | $ | (1,305) | |||||||||||||||||||||
Interest income | 20 | 4 | 59 | 99 | |||||||||||||||||||||||||
Interest (expense) income, net | $ | (311) | $ | (467) | $ | (756) | $ | (1,206) | |||||||||||||||||||||
(1) Includes amortization of deferred financing costs and original issue discount. |
stock
Upon completion
Phreesia, Inc.
Notes to Unaudited Financial Statements
8. Preferred stock
Upon completion of the IPO on July 22, 2019, all of the Company’s then outstanding shares of Senior Preferred and Junior Preferred stock automatically converted into an aggregate of 25,311,515 shares ofits common stock and all ofwithholds the Company’s then outstanding 42,560,530 shares of redeemable preferred stock were cancelled. As of July 31, 2019, there were no shares of convertible or redeemable preferred stock issued and outstanding.
In connection with the IPO, the Company’s Amended and Restated Certificate of Incorporation became effective, which authorized 20,000,000 shares of undesignated preferred stock with a par value of $0.01 per share.
Preferred stock dividends of $14,955,101 were paid in connection with the IPO.
9. Equity-based compensation
(a) Stock options
In 2006, the Board of Directors adopted the Company’s 2006 Stock Option Plan, which provided for the issuance of options to purchase up to 151,548 shares of the Company’s common stock to officers, directors, employees, and consultants. Over the years, the Company amended the plan to increase the shares available for issuance. On October 14, 2014, the Company increased theresulting number of vested shares. The shares available for issuance underwithheld are then transferred to the 2006 plan to 4,424,986. The 2006 Stock Option Plan expired in August 2017.
Company's treasury stock at cost.
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
RSUs | $ | 6,432 | $ | 2,684 | $ | 17,273 | $ | 7,505 | ||||||||||||||||||
Stock options | 541 | 632 | 1,691 | 2,111 | ||||||||||||||||||||||
PSUs | 551 | — | 1,588 | — | ||||||||||||||||||||||
ESPP | 297 | — | 398 | — | ||||||||||||||||||||||
Liability awards | 5,305 | — | 5,305 | — | ||||||||||||||||||||||
Total stock based compensation | $ | 13,126 | $ | 3,316 | $ | 26,255 | $ | 9,616 |
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
Stock-based compensation expense recorded to additional paid-in capital(1) | $ | 7,821 | $ | 3,316 | $ | 20,950 | $ | 9,616 | ||||||||||||||||||
Stock-based compensation expense recorded to accrued expenses | 5,305 | — | 5,305 | — | ||||||||||||||||||||||
Total stock-based compensation | 13,126 | 3,316 | 26,255 | 9,616 | ||||||||||||||||||||||
Less stock-based compensation expense capitalized as internal-use software | (197) | — | (279) | — | ||||||||||||||||||||||
Stock-based compensation expense per consolidated statements of operations(2) | $ | 12,929 | $ | 3,316 | $ | 25,976 | $ | 9,616 | ||||||||||||||||||
(1)Stock-based compensation included in the Company's consolidated statements of stockholders' equity is consistent with these amounts. | ||||||||||||||||||||||||||
(2)For the nine months ended October 31, 2021 and 2020, stock-based compensation expense included in the Company's consolidated statements of cash flows is consistent with these amounts. |
In June 2019, the Board of Directors also adopted the Company’s 2019 Employee Stock Purchase Plan (“The ESPP”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s initial public offering. The total shares of common stock initially reserved under the ESPP is limited to 855,873 shares.
The fair value of stock options is estimated on the date of the grant using the Black-Scholes option pricing model for each of the stock option awards granted. The Company historically has been a private company and lacked company-specific historical and implied volatility information for shares. Accordingly, expected volatility is based on the stock volatility for comparable publicly traded companies. The Company uses the simplified method as described in SAB 107 to estimate the expected life of stock options. Forfeitures are recorded when they occur. The risk-free rate is based on the U.S. Treasury yield curve at the time of the grant over the expected term of the stock option grants. The weighted average assumptions are provided below.
Phreesia, Inc.
Notes to Unaudited Financial Statements
For the three months ended | For the six months ended | |||||||||||||||
July 31, | July 31, | July 31, | July 31, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Risk-free interest rate | 1.81 | % | — | 2.18 | % | 2.66 | % | |||||||||
Expected dividends | None | — | None | None | ||||||||||||
Expected term (in years) | 6.25 | — | 6.25 | 6.25 | ||||||||||||
Volatility | 45.90 | % | — | 45.14 | % | 40.00 | % | |||||||||
Weighted average fair market value of grants | $ | 5.54 | — | $ | 4.93 | $ | 2.04 |
Stock option activity for the sixnine months ended JulyOctober 31, 2019 are2021 is as follows:
Number of options | Weighted- average exercise price | Weighted- average remaining contractual life (in years) | Aggregate Intrinsic value | |||||||||||||
Outstanding — January 31, 2019 | 5,055,505 | $ | 2.45 | |||||||||||||
Granted in six months ended July 31, 2019 | 1,220,259 | $ | 8.63 | |||||||||||||
Exercised | (51,836 | ) | $ | 1.51 | ||||||||||||
Forfeited and expired | (24,182 | ) | $ | 4.18 | ||||||||||||
|
| |||||||||||||||
Outstanding and expected to vest — July 31, 2019 | 6,199,746 | $ | 3.66 | 6.65 | $ | 50,628,007 | ||||||||||
|
| |||||||||||||||
Exercisable — July 31, 2019 | 4,014,845 | $ | 1.98 | 5.10 | $ | 39,765,476 | ||||||||||
Amount vested in six months ended July 31, 2019 | 406,421 | $ | 3.90 |
As of July 31, 2019, there are 2,139,683 shares are available for future grant pursuant to the newly adopted 2019 Plan as well as an additional 855,873 shares available for future grant pursuant to the newly adopted ESPP.
Number of
optionsWeighted-
average
exercise priceWeighted-
average
remaining
contractual life
(in years)Aggregate
Intrinsic
valueOutstanding — January 31, 2021 3,211,354 $ 4.67 Granted in nine months ended October 31, 2021 — $ — Exercised (1,030,624) $ 3.06 Forfeited and expired (57,041) $ 8.66 Outstanding and expected to vest — October 31, 2021 2,123,689 $ 5.34 5.70 $ 138,459 Exercisable — October 31, 2021 1,549,528 $ 4.37 5.12 $ 102,524 Amount vested in nine months ended October 31, 2021 265,587 $ 5.88
For the three months ended July 31, 2019 and 2018, the Company recorded stock-based compensation expense for stock options of $653,016 and $251,697, respectively. For the six months ended July 31, 2019 and 2018, the Company recorded stock-based compensation expense for stock options of $1,242,065 and $503,394, respectively.
Phreesia, Inc.
Notes to Unaudited Financial Statements
(b)
On March 25, 2019 and June 20, 2019, the
Restricted stock units | |||||
Unvested, February 1, 2020 | 2,053,038 | ||||
Granted in nine months ended October 31, 2021 | 845,703 | ||||
Vested | (203,355) | ||||
Forfeited and expired | (121,245) | ||||
Unvested, October 31, 2021 | 2,574,141 |
Upon completion related to the modification of restricted stock units.
Performance stock units | |||||
Outstanding, February 1, 2020 | 70,806 | ||||
Granted in nine months ended October 31, 2021 | 9,664 | ||||
Vested | — | ||||
Forfeited and expired | — | ||||
Outstanding, October 31, 2021 | 80,470 |
Nine Months Ended October 31, 2021 | ||||||||
Risk-free interest rate | 0.05 | % | ||||||
Expected dividends | none | |||||||
Expected term (in years) | 0.50 | |||||||
Volatility | 52.5 | % |
10. Stock warrants
As of July 31, 2019 and January 31, 2019, the following warrants to purchase common and preferred stock were outstanding:
Number of warrants | ||||||||||||||
Warrants to purchase | July 31, 2019 | January 31, 2019 | Exercise price Expiration | |||||||||||
Senior A Preferred | — | 116,232 | $ | 2.19 | October 1, 2021 | |||||||||
Senior A Preferred | — | 672,560 | $ | 3.00 | November 1, 2026 | |||||||||
Junior Preferred | — | 489,605 | $ | 0.01 | September 5, 2020 | |||||||||
Redeemable Preferred | 358,244 | $ | 0.01 | September 5, 2020 | ||||||||||
|
|
|
| |||||||||||
Total preferred stock (liability-classified) | — | 1,636,641 | ||||||||||||
|
|
|
| |||||||||||
Common stock | — | 166,952 | $ | 2.02 | October 21, 2025 | |||||||||
Common stock | — | 89,459 | $ | 3.49 | November 1, 2026 | |||||||||
Common stock | 150,274 | — | $ | 8.02 | February 28, 2029 | |||||||||
Common stock (converted from preferred stock warrants) | 153,041 | — | $ | 6.59 | November 1, 2026 | |||||||||
|
|
|
| |||||||||||
Total common stock (equity-classified) | 303,315 | 256,411 | ||||||||||||
|
|
|
|
next two months.
Common | Preferred | |||||||
Balance - January 31, 2019 | 256,411 | 1,636,411 | ||||||
Granted | 150,274 | — | ||||||
Conversion of preferred stock warrants to common stock warrants | 581,798 | — | ||||||
Exercised | (685,168 | ) | (1,636,641 | ) | ||||
|
|
|
| |||||
Balance - July 31, 2019 | 303,315 | — | ||||||
|
|
|
|
fair value hierarchy (in thousands):
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance as of October 31, 2021 | ||||||||||||||||||||
Money market mutual funds | $ | 197,581 | $ | — | $ | — | $ | 197,581 | |||||||||||||||
Total assets | $ | 197,581 | $ | — | $ | — | $ | 197,581 | |||||||||||||||
Acquisition related contingent consideration liabilities | $ | — | $ | — | $ | (1,100) | $ | (1,100) | |||||||||||||||
Total liabilities | $ | — | $ | — | $ | (1,100) | $ | (1,100) |
Warrant Liability | ||||
Balance at January 31, 2019 | $ | 5,497,627 | ||
Change in fair value of stock warrants six months ended July 31, 2019 | 3,306,959 | |||
Conversion of convertible preferred stock warrants | (8,804,586 | ) | ||
|
| |||
Balance at July 31, 2019 | $ | — | ||
|
|
Uponvalue as of January 31, 2021 and indicates the closingclassification of each item within the IPO in July 2019, the Company’s outstanding warrants to purchase sharesfair value hierarchy (in thousands):
Phreesia, Inc.
Notes to Unaudited Financial Statements
11. Fair value measurements
Quoted Prices in Active Markets for Identical Assets
(Level 1)Significant Other Observable Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Balance as of January 31, 2021 Money market mutual funds $ 197,522 $ — $ — $ 197,522 Foreign currency derivative contracts — 148 — 148 Total assets $ 197,522 $ 148 $ — $ 197,670 Acquisition related contingent consideration liabilities $ — $ — $ (1,286) $ (1,286) Total liabilities $ — $ — $ (1,286) $ (1,286)
The carrying value of the Company's debt approximates fair value because the interest rates approximate market rates and the debt maturities are relatively short-term.
Warrant Liability—2021. The warrant liability is relatedforeign currency forward contracts matured during the nine months ended October 31, 2021, and no foreign currency forward contracts remain outstanding as of October 31, 2021.
In connection with the QueueDr acquisition, the Company recorded contingent consideration liabilities within accrued expenses on the accompanying consolidated balance sheets for amounts payable to the warrantsselling shareholders based on collections from QueueDr customers. The Company is required to purchase shares of preferred stock (see Note 10). Uponpay the closingselling shareholders a multiple of the IPO in July 2019, the warrants to purchase the Company’s convertible preferred stock were either converted into warrants to purchase common stock or subjectamount collected on certain customer contracts through November 2022. Certain payments are reduced to the cashless exercise into sharesamount of common stock. As a result,customer collections if the warrant liability was remeasured immediately prior to the closing date of the IPO and reclassified to stockholders’ equity (deficit).
customer contract is canceled. The Company used the Black-Scholes option-pricing model, which incorporated weighted-average inputs and assumptions, to value the warrant liability as of January 31, 2019 and as of the date of conversion. As of January 31, 2019, the warrant liability was valued at $5,497,627 as anon-current liability on the consolidated balance sheet. The following assumptions were used in valuing the warrant liability:
The Black-Scholes method and the following weighted-average inputs and assumptions was utilized to determine the fair value of the warrants asCompany's contingent consideration liabilities was determined using estimated cash flows and likelihoods of January 31, 2019,pre-stock split:
January 31, 2019 | ||||||||||||
Series A | Junior | Redeemable | ||||||||||
Preferred | Preferred | Preferred | ||||||||||
Estimated fair value of preferred stock | $ | 5.80 | $ | 4.88 | $ | 0.01 | ||||||
Exercise price | $ | 2.88 | $ | 0.01 | $ | 0.01 | ||||||
Remaining term (in years) | 7.01 | 1.60 | 1.60 | |||||||||
Risk-free interest rate | 2.6 | % | 2.5 | % | 2.5 | % | ||||||
Expected volatility | 45.1 | % | 45.1 | % | 45.1 | % | ||||||
Dividend yield | 0.0 | % | 0.0 | % | 0.0 | % |
contract cancellation to estimate the expected payout based on collections and active status of the underlying customer contracts. The Black Scholes Method and following assumptions were used to measure the fair market value of the warrant liability upon the conversion date:
Series A | Junior | |||||||
Preferred | Preferred | |||||||
Estimated fair value of preferred stock | $ | 18.00 | $ | 18.00 | ||||
Exercise price | $ | 6.33 | $ | 0.01 | ||||
Remaining term (in years) | 6.55 | 1.13 | ||||||
Risk-free interest rate | 1.9 | % | 1.9 | % | ||||
Expected volatility | 45.9 | % | 45.9 | % | ||||
Dividend yield | 0.0 | % | 0.0 | % |
Phreesia, Inc.
Notes to Unaudited Financial Statements
AsCompany's contingent consideration liabilities is determined based on inputs which are not readily available in public markets. Therefore, the Company refinanced allhas categorized the liabilities as Level 3 in the fair value hierarchy. As of its debt on February 28, 2019 (see Note 6), it believes thatOctober 31, 2021, the face valuemaximum remaining amount payable for the contingent consideration liabilities is $1,148.
the Company's contingent consideration liabilities:
Balance at January 31, 2021 | $ | 1,286 | ||||||
Adjustment to the acquisition-date value | 5 | |||||||
Change in fair value of contingent consideration liabilities | 209 | |||||||
Payments | (400) | |||||||
Balance at October 31, 2021 | $ | 1,100 |
The Company’s cash and cash equivalents includes money market funds which is measured at fair value. The Company consider these investments within Level 1 of the fair value hierarchy.
12. Commitments and contingencies
2020.
Phreesia as lessee
October 31, 2021 | |||||
Operating leases: | |||||
Lease right-of-use assets | $ | 2,005 | |||
Lease liabilities, current | $ | 1,116 | |||
Lease liabilities, non-current | 1,117 | ||||
Total operating lease liabilities | $ | 2,233 | |||
Finance leases: | |||||
Property and equipment, at cost | $ | 22,561 | |||
Accumulated depreciation | (13,802) | ||||
Property and equipment, net | $ | 8,759 | |||
Lease liabilities (included in Current portion of finance lease liabilities and other debt) | $ | 4,200 | |||
Lease liabilities, non-current (included in Long-term finance lease liabilities and other debt) | 5,027 | ||||
Total finance lease liabilities | $ | 9,227 |
October 31, 2021 | |||||
Operating leases: | |||||
Operating lease cost | $ | 801 | |||
Variable lease cost | 207 | ||||
Total operating lease cost | $ | 1,008 | |||
Finance leases: | |||||
Amortization of right-of-use assets | $ | 3,413 | |||
Interest on lease liabilities | 280 | ||||
Total finance lease cost | $ | 3,693 |
October 31, 2021 | |||||||||||
Operating | Finance | ||||||||||
Maturity of lease liabilities | |||||||||||
2022 (remaining three months) | $ | 289 | $ | 1,172 | |||||||
Fiscal year ending January 31, | |||||||||||
2023 | 1,186 | 4,286 | |||||||||
2024 | 793 | 3,224 | |||||||||
2025 | 52 | 791 | |||||||||
Thereafter | — | 158 | |||||||||
Total future minimum lease payments | $ | 2,320 | $ | 9,631 | |||||||
Less: interest | (87) | (404) | |||||||||
Present value of lease liabilities | $ | 2,233 | $ | 9,227 |
October 31, 2021 | |||||
Supplemental cash flow information | |||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||
Operating cash used for operating leases | $ | 905 | |||
Operating cash used for finance leases | 280 | ||||
Financing cash used for finance leases | 3,175 | ||||
Total | $ | 4,360 | |||
Right-of-use assets obtained in exchange for lease liabilities: | |||||
Operating | $ | 81 | |||
Finance | 2,645 | ||||
Total | $ | 2,726 |
As of July 31, 2019, the aggregate minimum net rental payments fornon-cancelable operating leases and firmly committed contracts are as follows:
2020 (Remaining six months) | $ | 870,963 | ||
Year ending January 31, | ||||
2021 | 1,751,115 | |||
2022 | 744,894 | |||
2023 | 224,532 | |||
|
| |||
Total operating lease payments | $ | 3,591,504 | ||
|
|
During the six months ended July 31, 2019 andcircumstances that may be involved in prior years,each particular agreement. To date, the Company entered into several capital leases for equipmenthas not incurred any material costs as a result of such provisions and software. The leases are for30-36 month periods. As of July 31, 2019, the minimum lease payments are as follows:
2020 (Remaining six months) | $ | 1,157,957 | ||
Year ending January 31, | ||||
2021 | 2,319,143 | |||
2022 | 1,536,429 | |||
2023 | 138,054 | |||
Total capital lease payments | $ | 5,151,583 | ||
|
| |||
Less amounts representing interest | (535,292 | ) | ||
|
| |||
Total capital lease payments, net of interest | 4,616,291 | |||
|
| |||
Less current portion | (2,317,529 | ) | ||
|
| |||
Total capital lease payments, net of interest and current portion | $ | 2,298,762 | ||
|
|
Interest expensehave not accrued a
executive officers indemnification provisions.
Phreesia, Inc.
Notes to Unaudited Financial Statements
13. Income taxes
The effective tax rate(c) Contingent consideration for acquisitions
14.2021.
Three months ended July 31, | Six months ended July 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | $ | (7,493,191 | ) | $ | (2,586,950 | ) | $ | (14,187,800 | ) | $ | (5,810,481 | ) | ||||
Preferred stock dividend paid | (14,955,101 | ) | — | (14,955,101 | ) | — | ||||||||||
Accretion of redeemable preferred stock | (48,311,988 | ) | (9,236,353 | ) | (56,175,418 | ) | (11,726,050 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net loss attributable to common stockholders | $ | (70,760,280 | ) | $ | (11,823,303 | ) | $ | (85,318,319 | ) | $ | (17,536,531 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Weighted-average shares of common stock outstanding, basic and diluted | 6,793,363 | 1,776,559 | 4,443,155 | 1,755,268 | ||||||||||||
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| |||||||||
Net loss attributable to common stockholders, basic and diluted | $ | (10.42 | ) | $ | (6.66 | ) | $ | (19.20 | ) | $ | (9.99 | ) | ||||
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Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||||||
Numerator: | |||||||||||||||||
Net loss | $ | (36,343) | $ | (6,713) | $ | (71,710) | $ | (19,196) | |||||||||
Denominator: | |||||||||||||||||
Weighted-average shares of common stock outstanding, basic and diluted | 51,020,271 | 38,511,370 | 49,943,049 | 37,855,503 | |||||||||||||
Net loss per share attributable to common stockholders | $ | (0.71) | $ | (0.17) | $ | (1.44) | $ | (0.51) |
July 31, | ||||||||
2019 | 2018 | |||||||
Redeemable convertible preferred stock (as-converted to common stock) | — | 25,311,535 | ||||||
Stock options to purchase common stock and restricted stock units | 6,649,129 | 5,089,974 | ||||||
Warrants to purchase convertible preferred stock | — | 581,798 | ||||||
Warrants to purchase common stock | 303,315 | 256,411 | ||||||
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| |||||
6,952,444 | 31,239,718 | |||||||
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15.
As of October 31, | ||||||||||||||
2021 | 2020 | |||||||||||||
Stock options to purchase common stock, restricted stock units and performance stock units | 4,859,612 | 5,830,142 | ||||||||||||
Employee stock purchase plan | 34,909 | — | ||||||||||||
Warrants to purchase common stock | — | 75,137 | ||||||||||||
Total | 4,894,521 | 5,905,279 |
Management’s discussion and analysis of financial condition and results of operationsfinal prospectusForm 10-K for our initial public offering dated as of July 17, 2019, or the prospectus, which was filed with the Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act.fiscal year ended January 31, 2021. In addition to historical financial information, the following discussion and analysis and information set forth elsewhere in this Quarterly Report on Form10-Q contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated by these forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Quarterly Report on Form10-Q, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”care.care and safety. As evidenced in industry survey reports from KLAS, we have been recognized as a leader based on our integration capabilities with healthcare provider organizations, the broad adoption of our patient intake functionalities, our response to the COVID-19 pandemic and by overall client satisfaction. Through the SaaS-based Phreesia Platform, which we refer to as the Phreesia Platform or our Platform, we offer our provider clients a robust suite of solutions to manage the patient intake process and an integrated payments solution for secure processing of patient payments. Our Platform also provides life sciences companies with an engagement channel for targeted and direct communication with patients. In the three months ended July 31, 2019 and 2018, our Platform processed $463.8 million and $358.2 million in patient payments, respectively, which represents a $105.6 million, or 29% increase in patient payments processed through our Platform. Additionally, in the six months ended July 31, 2019 and 2018, our Platform processed $925.2 million and $718.3 million in patient payments, respectively, which represents a $206.9 million, or 29% increase in patient payments processed through our Platform.groups.groups andbusiness additionally servesrevenue is generated from clients in the pharmaceutical, biotechnology and medical device industries.and other services, (ii) payment processing fees based on levels of patient payment volume processed through the Phreesia Platform and (iii) fees from life sciencesciences companies to deliver patient engagementmarketing content to patients using the Phreesia Platform. We have strong visibility into our business as the majority of our revenue is derived from recurring subscription fees andre-occurring payment processing fees.organization segmented into several highly targeted and coordinated teams, which are concentrated in Raleigh, North Carolina, New York, New York and Ottawa, Canada.organization. Our demand generation team develops content and identifies prospects that our sales development team researches and qualifies to generate high-grade, actionable sales programs. Our direct sales force executes on these qualified sales programs, partnering with client services to ensure prospects are educated on the breadth of our capabilities and demonstrable value proposition, with the goal of attracting and retaining clients and expanding their use of our Platform over time. Most of our Platform solutions are contracted pursuant to annual, auto-renewing agreements. Our sales typically involve competitive processes and sales cycles have, on average, varied in duration from twothree months to eightsix months, depending on the size of the potential client. In addition, through Phreesia University (Phreesia’sin-house training program), events, client conferences and webinars, we help our provider clients optimize their businesses and, as a result, support client retention.solely within the United States.entirelyprimarily organic and reflects our significant addition of new provider clients and increased revenue from existing clients. Our total revenue increased $6.0 million to $30.8 millionNew provider clients are defined as clients that go live in the three months ended July 31, 2019 from $24.8 millionapplicable period and existing provider clients are defined as clients that go live in any period before the three months ended July 31, 2018, representing an increaseapplicable period.approximately 24%. Our total revenue increased $10.5 milliona novel strain of coronavirus ("COVID-19") a pandemic. There continues to $59.1 million in the six months ended July 31, 2019 from $48.7 million in the six months ended July 31, 2018, representing an increase of approximately 22%. For the three months ended July 31, 2019 and 2018, our net loss was $7.5 million and $2.6 million, respectively, and Adjusted EBITDA
was positive $0.7 million and positive $1.7 million, respectively. For the six months ended July 31, 2019 and 2018, our net loss was $14.2 million and $5.8 million, respectively, and Adjusted EBITDA was positive $0.5 million and positive $2.8 million, respectively. For the three months ended July 31, 2019 and 2018, cash provided by operating activities was $0.6 million and $1.9 million, respectively, and free cash flow was negative $2.4 million and negative $1.1 million, respectively. For the six months ended July 31, 2019 and 2018, cash provided by operating activities was $2.6 million and $0.9 million, respectively, and free cash flow was negative $3.0 million and negative $3.9 million, respectively. For a reconciliation of Adjusted EBITDA to net loss and free cash flow to cash (used in) provided by operating activities and for more informationbe uncertainty as to how we definethe duration and calculate such measures, seeextent to which the section below titled“Non-GAAPglobal COVID-19 pandemic, as well as the emergence of new variants, may adversely impact the Company's business operations, financial measures.”
Recent developments
In July 2019, we closed our initial public offering, or IPO,performance, and results of 10,681,423 shares of common stock, consisting of 7,812,500 shares issued and sold by us and 2,868,923 shares sold by certain of our selling stockholders. The price per share to the public was $18.00. We received aggregate proceeds of $130.8 million from the IPO, net of underwriters’ discounts and commissions of $9.8 million, and before deducting offering costs of approximately $6.1 million.
operations, as well as macroeconomic conditions, at this time.
Metrics
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Key Metrics: | ||||||||||||||||
Provider Clients (average over period) | 1,558 | 1,463 | 1,554 | 1,457 | ||||||||||||
Average revenue per provider client | $ | 16,472 | $ | 13,420 | $ | 31,126 | $ | 26,682 | ||||||||
Patient payment volume (in millions) | $ | 464 | $ | 358 | $ | 925 | $ | 718 |
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Non-GAAP
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||||||||||||
Unaudited | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
Key Metrics: | ||||||||||||||||||||||||||
Provider clients (average over period) | 2,097 | 1,737 | 1,996 | 1,679 | ||||||||||||||||||||||
Average revenue per provider client | $ | 19,299 | $ | 17,490 | $ | 59,196 | $ | 51,604 |
Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||||||||
Unaudited | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
Patient payment volume (in millions) | $ | 682 | $ | 524 | $ | 2,079 | $ | 1,445 | |||||||||||||||
Payment facilitator volume percentage | 79 | % | 80 | % | 78 | % | 82 | % |
Three months ended October 31, | |||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | |||||||||||||||||||
Subscription and related services | $ | 24,365 | $ | 17,468 | $ | 6,897 | 39 | % | |||||||||||||||
Payment processing fees | 16,111 | 12,917 | 3,194 | 25 | % | ||||||||||||||||||
Life sciences | 15,439 | 8,079 | 7,360 | 91 | % | ||||||||||||||||||
Total revenue | $ | 55,915 | $ | 38,464 | $ | 17,451 | 45 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Subscription and related services | $ | 69,069 | $ | 50,196 | $ | 18,873 | 38 | % | ||||||||||||||||||
Payment processing fees | 49,061 | 36,452 | 12,609 | 35 | % | |||||||||||||||||||||
Life sciences | 37,083 | 20,221 | 16,862 | 83 | % | |||||||||||||||||||||
Total revenue | $ | 155,213 | $ | 106,869 | $ | 48,344 | 45 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | $ | 11,644 | $ | 6,472 | $ | 5,172 | 80 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | $ | 30,210 | $ | 16,477 | $ | 13,733 | 83 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Payment processing expense | $ | 9,449 | $ | 7,530 | $ | 1,919 | 25 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Payment processing expense | $ | 28,822 | $ | 21,125 | $ | 7,697 | 36 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Sales and marketing | $ | 32,036 | $ | 10,481 | $ | 21,555 | 206 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Sales and marketing | $ | 69,215 | $ | 30,013 | $ | 39,202 | 131 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Research and development | $ | 15,273 | $ | 5,732 | $ | 9,541 | 166 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Research and development | $ | 34,770 | $ | 16,267 | $ | 18,503 | 114 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
General and administrative | $ | 18,021 | $ | 10,370 | $ | 7,651 | 74 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
General and administrative | $ | 46,936 | $ | 28,721 | $ | 18,215 | 63 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Depreciation | $ | 3,719 | $ | 2,447 | $ | 1,272 | 52 | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Depreciation | $ | 10,717 | $ | 7,125 | $ | 3,592 | 50 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Amortization | $ | 1,513 | $ | 1,546 | $ | (33) | (2) | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Amortization | $ | 4,744 | $ | 4,531 | $ | 213 | 5 | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Other (expense) income, net | $ | (114) | $ | 62 | $ | (176) | (284) | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | |||||||||||||||||||||||
Other expense, net | $ | (138) | $ | (229) | $ | 91 | (40) | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Interest (expense) income, net | $ | (311) | $ | (467) | $ | 156 | (33) | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Interest (expense) income, net | $ | (756) | $ | (1,206) | $ | 450 | (37) | % |
Three months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Provision for income taxes | $ | (178) | $ | (194) | $ | 16 | (8) | % |
Nine months ended October 31, | ||||||||||||||||||||||||||
(in thousands) | 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||||
Provision for income taxes | $ | (615) | $ | (371) | $ | (244) | 66 | % |
We have provided below a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. We have presented Adjusted EBITDA in this Quarterly Report on Form10-Q because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short and long-term operational plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a useful measure forperiod-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
althoughdepreciation
•Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) the potentially dilutive impact ofnon-cash stock-based compensation; or (3) tax payments that may represent a reduction in cash available to us; or (4) net interest expense/expense (income);, net; and
•Other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
Three months ended October 31, | Nine months ended October 31, | ||||||||||||||||||||||||||||||||||
(in thousands, unaudited) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||
Net loss | $ | (36,343) | $ | (6,713) | $ | (71,710) | $ | (19,196) | |||||||||||||||||||||||||||
Interest expense (income), net | 311 | 467 | 756 | 1,206 | |||||||||||||||||||||||||||||||
Provision for income taxes | 178 | 194 | 615 | 371 | |||||||||||||||||||||||||||||||
Depreciation and amortization | 5,232 | 3,993 | 15,461 | 11,656 | |||||||||||||||||||||||||||||||
Stock-based compensation expense | 12,929 | 3,316 | 25,976 | 9,616 | |||||||||||||||||||||||||||||||
Change in fair value of contingent consideration liabilities | — | — | 209 | — | |||||||||||||||||||||||||||||||
Other expense (income), net | 114 | (62) | 138 | 229 | |||||||||||||||||||||||||||||||
Adjusted EBITDA | $ | (17,579) | $ | 1,195 | $ | (28,555) | $ | 3,882 |
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands, unaudited) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net Loss | $ | (7,493 | ) | $ | (2,587 | ) | $ | (14,188 | ) | $ | (5,810 | ) | ||||
Interest (income) expense, net | 745 | 884 | 1,549 | 1,732 | ||||||||||||
Depreciation and amortization | 3,415 | 2,740 | 6,789 | 5,425 | ||||||||||||
Stock-based compensation expense | 1,467 | 252 | 2,067 | 503 | ||||||||||||
Change in fair value warrant liability | 2,884 | 593 | 3,307 | 884 | ||||||||||||
Income tax provision | 51 | — | 119 | — | ||||||||||||
Other (income) expense, net | (327 | ) | (139 | ) | 817 | 36 | ||||||||||
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Adjusted EBITDA | $ | 742 | $ | 1,743 | $ | 461 | $ | 2,769 | ||||||||
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equipment.
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net cash (used in) provided by operating activities | $ | 551 | 1,868 | $ | 2,585 | $ | 945 | |||||||||
Less: | ||||||||||||||||
Purchases of property and equipment | (1,440 | ) | (1,671 | ) | (2,754 | ) | (2,390 | ) | ||||||||
Capitalizedinternal-use software | (1,467 | ) | (1,257 | ) | (2,878 | ) | (2,470 | ) | ||||||||
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Free Cash Flow | $ | (2,356 | ) | $ | (1,060 | ) | $ | (3,047 | ) | $ | (3,915 | ) | ||||
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Components
Revenue
We generate revenue primarily from providing an integrated SaaS-based software and payment platform for the healthcare industry. We derive revenue from subscription fees and related services generated from our provider clients, payment processing fees based on patient payment volume processed through the Phreesia Platform, and from digital patient engagement revenue from life sciences companies to reach, educate and communicate with patients when they are most receptive and actively seeking care.
Our total revenue consists of the following:
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In addition, we receive certain fees for related services from provider clients for professional services associated with our implementation services as well as travel and expense reimbursements, shipping and handling fees, sales of hardware (PhreesiaPads and Arrivals Stations),on-site support and training.
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Cost of revenue (excluding depreciation and amortization)
Our cost of revenue primarily consists of personnel costs, including salaries, benefits, bonuses and stock-based compensation for implementation and technical support, and costs to verify insurance eligibility and benefits, infrastructure costs to operate our SaaS-based Platform such as hosting fees and fees paid to various third-party partners for access to their technology.
Payment processing expense
Payment processing expense consists primarily of interchange fees set by payment card networks and that are ultimately paid to the card-issuing financial institution, assessment fees paid to payment card networks, and fees paid to third-party payment processors and gateways. Payment processing expense may increase as a percentage of payment processing revenue if card networks raise pricing for interchange and assessment fees or if we reduce pricing to our clients.
Sales and marketing
Sales and marketing expense consists primarily of personnel costs, including salaries, benefits, bonuses, stock-based compensation and commission costs for our sales and marketing personnel. Sales and marketing expense also includes costs for advertising, promotional and other marketing activities, as well as certain fees paid to various third-party partners for sales and lead generation. Advertising is expensed as incurred.
Research and development
Research and development expense consists of costs for the design, development, testing and enhancement of our products and services and are generally expensed as incurred. These costs consist primarily of personnel costs, including salaries, benefits, bonuses and stock-based compensation for our development personnel. Research and development expense also includes product management, life sciences analytics costs, third-party partner fees and third-party consulting fees, offset by anyinternal-use software development cost capitalized during the same period.
General and administrative
General and administrative expense consists primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation for our executive, finance, legal, human resources, information technology and other administrative personnel. General and administrative expense also includes consulting, legal, security, accounting services and allocated overhead. We expect general and administrative expense to continue to increase in absolute dollars as we grow our operations and operate as a public company, although we expect such expense to decline as a percentage of total revenue over time.
Depreciation
Depreciation represents depreciation expense for PhreesiaPads and Arrivals Stations, data center and other computer hardware, purchased computer software, furniture and fixtures and leasehold improvements.
Amortization
Amortization primarily represents amortization of our capitalizedinternal-use software related to the Phreesia Platform as well as amortization of acquired intangible assets.
Other income (expense)
Our other income and loss line items consist of the following:
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The following table summarizes the results of our operations for the periods presented:
Three Months Ended July 31, | Six Months Ended July 31, | |||||||||||||||||||||||
(in thousands) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Revenue | ||||||||||||||||||||||||
Subscription and related services | $ | 14,004 | $ | 10,459 | 34 | % | $ | 26,686 | $ | 20,462 | 30 | % | ||||||||||||
Payment processing fees | 11,665 | 9,174 | 27 | % | 23,222 | 18,405 | 26 | % | ||||||||||||||||
Life sciences | 5,148 | 5,146 | 0 | % | 9,218 | 9,783 | (6 | %) | ||||||||||||||||
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Total revenue | $ | 30,816 | $ | 24,779 | 24 | % | $ | 59,126 | $ | 48,650 | 22 | % | ||||||||||||
Expenses | ||||||||||||||||||||||||
Cost of revenue (excluding depreciation and amortization) | 4,210 | 3,604 | 17 | % | 8,206 | 6,827 | 20 | % | ||||||||||||||||
Payments processing expense | 7,101 | 5,327 | 33 | % | 14,050 | 10,916 | 29 | % | ||||||||||||||||
Sales and marketing | 8,120 | 6,529 | 24 | % | 15,822 | 12,776 | 24 | % | ||||||||||||||||
Research and development | 4,690 | 3,179 | 48 | % | 8,989 | 6,287 | 43 | % | ||||||||||||||||
General and administrative | 7,420 | 4,650 | 60 | % | 13,665 | 9,578 | 43 | % | ||||||||||||||||
Depreciation | 2,136 | 1,777 | 20 | % | 4,291 | 3,549 | 21 | % | ||||||||||||||||
Amortization | 1,279 | 963 | 33 | % | 2,498 | 1,876 | 33 | % | ||||||||||||||||
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Total expenses | $ | 34,957 | $ | 26,028 | 34 | % | $ | 67,521 | $ | 51,809 | 30 | % | ||||||||||||
Operating loss | $ | (4,140 | ) | $ | (1,249 | ) | 232 | % | $ | (8,395 | ) | $ | (3,159 | ) | 166 | % | ||||||||
Other income (expense) | ||||||||||||||||||||||||
Other income (expense) | 327 | 139 | 136 | % | $ | (817 | ) | $ | (36 | ) | 2176 | % |
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||||||
(in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
Net cash used in operating activities | $ | (24,529) | $ | (667) | $ | (36,731) | $ | (1,187) | ||||||||||||
Less: | ||||||||||||||||||||
Capitalized internal-use software | (2,939) | (1,926) | (7,962) | (4,663) | ||||||||||||||||
Purchases of property and equipment | (11,566) | (1,781) | (16,596) | (6,440) | ||||||||||||||||
Free cash flow | $ | (39,034) | $ | (4,374) | $ | (61,289) | $ | (12,290) |
Change in fair value of warrant liability | (2,884 | ) | (593 | ) | 386 | % | $ | (3,307 | ) | (884 | ) | 274 | % | |||||||||||
Interest income (expense) | (745 | ) | (884 | ) | (16 | %) | $ | (1,549 | ) | (1,732 | ) | (11 | %) | |||||||||||
Total other income (expense) | $ | (3,302 | ) | $ | (1,338 | ) | 147 | % | $ | (5,674 | ) | $ | (2,652 | ) | 114 | % | ||||||||
Loss before provision for income taxes | $ | (7,442 | ) | $ | (2,587 | ) | 188 | % | $ | (14,069 | ) | $ | (5,810 | ) | 142 | % | ||||||||
Provision for income taxes | (51 | ) | — | — | (119 | ) | — | — | ||||||||||||||||
Net loss | $ | (7,493 | ) | $ | (2,587 | ) | 190 | % | $ | (14,188 | ) | $ | (5,810 | ) | 144 | % | ||||||||
Net loss attributable to common stockholders | $ | (70,760 | ) | $ | (11,823 | ) | 498 | % | $ | (85,318 | ) | $ | (17,537 | ) | 387 | % |
Comparison of the three and six months ended July 31, 2019 and 2018
Revenue
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Revenue | $ | 30,816 | $ | 24,779 | $ | 6,037 | 24 | % |
Total revenue increased $6.0 million to $30.8 million in the three months ended July 31, 2019, as compared to $24.8 million in the three months ended July 31, 2018. Revenue from provider clients increased $6.0 million to $25.7 million in the three months ended July 31, 2019, as compared to $19.6 million in the three months ended July 31, 2018. The increase was attributable to both increased subscription and payment processing revenue from new clients and expansion and cross-selling to existing clients. Our subscription and related services revenue from healthcare provider organizations increased $3.5 million to $14.0 million in the three months ended July 31, 2019, as compared to $10.5 million in the three months ended July 31, 2018 due to new provider clients added during the period and the expansion and cross-selling of products and services offered to existing provider clients. Our revenue from patient payments processed through the Phreesia Platform increased $2.5 million to $11.7 million in the three months ended July 31, 2019, as compared to $9.2 million in the three months ended July 31, 2018 due to the increased payment volume from the addition of more provider clients, expansion of existing provider clients and increased patient financial responsibility for their care. Our revenue from life science clients for digital patient engagement remained consistent for the three months ended July 31, 2019 and July 31, 2018 at $5.1 million.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Revenue | $ | 59,126 | 48,650 | $ | 10,476 | 22 | % |
Total revenue increased $10.5 million to $59.1 million in the six months ended July 31, 2019, as compared to $48.7 million in the six months ended July 31, 2018. Revenue from provider clients increased $11.0 million to $49.9 million in the six months ended July 31, 2019, as compared to $38.9 million in the six months ended July 31, 2018. The increase was attributable to both increased subscription and payment revenue from new clients and expansion and cross-selling to existing clients. Our subscription and related services revenue from healthcare provider organizations increased $6.2 million to $26.7 million in the six months ended July 31, 2019, as compared to $20.5 million in the six months ended July 31, 2018 due to new provider clients added during the period and increased revenue from the expansion of products and services offered to existing provider clients. Our revenue from patient payments processed through the Phreesia Platform increased $4.8 million to $23.2 million in the six months ended July 31, 2019, as compared to $18.4 million in the six months ended July 31, 2018 due to the increased payment volume from the addition of more provider clients, expansion of existing provider clients and increased patient financial responsibility for their care. Our revenue from life science clients for digital patient engagement decreased $0.6 million to $9.2 million in the six months ended July 31, 2019, as compared to $9.8 million in the six months ended July 31, 2018. The decrease was due primarily to the fact that a number of digital payment engagements launched later in the year, as compared to last fiscal year.
Cost of revenue (excluding depreciation and amortization)
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Cost of revenue (excluding depreciation and amortization) | $ | 4,210 | $ | 3,604 | 606 | 17 | % | |||||||||
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Cost of revenue (excluding depreciation and amortization) increased $0.6 million to $4.2 million in the three months ended July 31, 2019, as compared to $3.6 million in the three months ended July 31, 2018. The increase resulted primarily from increases in implementation expenses of $0.2 million, data center hosting of $0.2 million and payments to third party partners of $0.1 million.
Stock compensation incurred related to cost of revenue was $0.04 million and $0 for the three months ended July 31, 2019 and 2018, respectively.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Cost of revenue (excluding depreciation and amortization) | $ | 8,206 | $ | 6,827 | $ | 1,379 | 20 | % | ||||||||
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Cost of revenue (excluding depreciation and amortization) increased $1.4 million to $8.2 million in the six months ended July 31, 2019, as compared to $6.8 million in the six months ended July 31, 2018. The increase resulted primarily from increases in implementation and deployment expenses of $0.9 million, data center hosting of $0.3 million, and payments to third party partners of $0.1 million.
Stock compensation incurred related to cost of revenue was $0.07 and $0 million for the six months ended July 31, 2019 and 2018, respectively.
Payment processing expense
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Payment processing expense | $ | 7,101 | $ | 5,327 | $ | 1,774 | 33 | % | ||||||||
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Payments processing expense increased $1.8 million to $7.1 million in the three months ended July 31, 2019, as compared to $5.3 million in the three months ended July 31, 2018. The increase resulted primarily from increases in payment processing volume which resulted in an increase to interchange and assessment expenses, which are the primary components of our payment processing expense.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Payment processing expense | $ | 14,050 | $ | 10,916 | $ | 3,134 | 29 | % | ||||||||
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Payments processing expense increased $3.1 million to $14.1 million in the six months ended July 31, 2019, as compared to $10.9 million in the six months ended July 31, 2018. The increase resulted primarily from increases in payment processing volume which resulted in an increase to interchange and assessment expenses, which are the primary components of our payment processing expense.
Sales and marketing
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Sales and marketing | $ | 8,120 | $ | 6,529 | $ | 1,591 | 24 | % | ||||||||
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Sales and marketing expense increased $1.6 million to $8.1 million in the three months ended July 31, 2019, as compared to $6.5 million in the three months ended July 31, 2018. The increase was primarily attributable to total compensation increases (including the addition of the analytics and insight team) of $1.4 million.
Stock compensation incurred related to sales and marketing expense was $0.3 million and $0.08 million for the three months ended July 31, 2019 and 2018, respectively.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Sales and marketing | $ | 15,822 | $ | 12,776 | $ | 3,046 | 24 | % | ||||||||
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Sales and marketing expense increased $3.0 million to $15.8 million in the six months ended July 31, 2019, as compared to $12.8 million in the six months ended July 31, 2018. The increase was primarily attributable to total compensation increases (including the addition of the analytics and insight team) of $2.6 million.
Stock compensation incurred related to sales and marketing expense was $0.4 million and $0.1 million for the six months ended July 31, 2019 and 2018, respectively.
Research and development
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Research and development | $ | 4,690 | 3,179 | $ | 1,511 | 48 | % | |||||||||
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Research and development expense increased $1.5 million to $4.7 million in the three months ended July 31, 2019, as compared to $3.2 million in the three months ended July 31, 2018. The increase resulted primarily from increased compensation to our research and development personnel of $1.2 million and an increase in product management of $0.3 million.
Stock compensation incurred related to research and development expense was $0.2 million and $0.06 million for the three months ended July 31, 2019 and 2018, respectively.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Research and development | $ | 8,989 | 6,287 | $ | 2,702 | 43 | % | |||||||||
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Research and development expense increased $2.7 million to $9.0 million in the six months ended July 31, 2019, as compared to $6.3 million in the six months ended July 31, 2018. The increase resulted primarily from increased compensation to our research and development personnel of $2.2 million and an increase in product management of $0.5 million.
Stock compensation incurred related to research and development expense was $0.3 million and $0.1 million for the six months ended July 31, 2019 and 2018, respectively.
General and administrative
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
General and administrative | $ | 7,420 | $ | 4,650 | $ | 2,770 | 60 | % | ||||||||
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General and administrative expense increased $2.8 million to $7.4 million in the three months ended July 31, 2019, as compared to $4.7 million in the three months ended July 31, 2018. The increase resulted primarily from increases in accounting and tax fees, stock compensation expense, salaries, and insurance for coverage obtained for operating as a public company.
Stock compensation incurred related to general and administrative expense was $1.0 million and $0.1 million for the three months ended July 31, 2019 and 2018, respectively.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
General and administrative | $ | 13,665 | $ | 9,578 | $ | 4,087 | 43 | % | ||||||||
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General and administrative expense increased $4.1 million to $13.7 million in the six months ended July 31, 2019, as compared to $9.6 million in the six months ended July 31, 2018. The increase resulted primarily from increases in accounting and tax fees, stock compensation expense, salaries, and insurance for coverage obtained for operating as a public company.
Stock compensation incurred related to general and administrative expense was $1.3 million and $0.2 million for the six months ended July 31, 2019 and 2018, respectively.
Depreciation
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Depreciation | $ | 2,136 | $ | 1,777 | $ | 359 | 20 | % | ||||||||
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Depreciation expense increased $0.4 million to $2.1 million in the three months ended July 31, 2019, as compared to $1.8 million in the three months ended July 31, 2018. The increase was attributable to PhreesiaPad, Arrivals Stations and data center depreciation.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Depreciation | $ | 4,291 | $ | 3,549 | $ | 742 | 21 | % | ||||||||
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Depreciation expense increased $0.7 million to $4.3 million in the six months ended July 31, 2019, as compared to $3.5 million in the six months ended July 31, 2018. The increase was attributable to PhreesiaPad, Arrivals Stations and data center depreciation.
Amortization
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Amortization | $ | 1,279 | $ | 963 | $ | 316 | 33 | % | ||||||||
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Amortization expense increased $0.3 million to $1.3 million in the three months ended July 31, 2019, as compared to $1.0 million in the three months ended July 31, 2018. The increase was due to increased capitalized internal use software development costs as well as the amortization of intangibles
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Amortization | $ | 2,498 | $ | 1,876 | $ | 622 | 33 | % | ||||||||
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Amortization expense increased $0.6 million to $2.5 million in the six months ended July 31, 2019, as compared to $1.9 million in the six months ended July 31, 2018. The increase was due to increased capitalized internal use software development costs as well as the amortization of intangibles.
Other income (expense)
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Other income (expense) | $ | 327 | $ | 139 | $ | 188 | 135 | % | ||||||||
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Other income (expense) consists primarily of foreign currency-related gains for the three months ended July 31, 2019.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Other Income (expense) | $ | (817 | ) | $ | (36 | ) | $ | (781 | ) | 2176 | % | |||||
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The six months ended July 31, 2019 includes a loss recognized on extinguishment of debt of $1.0 million, offset by foreign currency-related losses.
Change in fair value of warrant liability
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Change in fair value of warrant liability | $ | (2,884 | ) | $ | (593 | ) | $ | (2,291 | ) | 386 | % | |||||
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The change in fair value of warrant liability increased $2.3 million, to $2.9 million in the three months ended July 31, 2019, as compared to $0.6 million in the three months ended July 31, 2018. The increase resulted primarily from an increase in the valuation of our preferred stock. The warrants outstanding after our IPO are equity classified.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Change in fair value of warrant liability | $ | (3,307 | ) | $ | (884 | ) | $ | (2,423 | ) | 274 | % | |||||
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The change in fair value of warrant liability increased $2.4 million, to $3.3 million in the six months ended July 31, 2019, as compared to $0.9 million in the six months ended July 31, 2018. The increase resulted primarily from an increase in the valuation of our preferred stock. The warrants outstanding after our IPO are equity classified.
Interest income (expense)
Three Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Interest income (expense) | $ | (745 | ) | $ | (884 | ) | $ | 138 | (16 | %) | ||||||
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Interest income (expense) decreased $0.1 million to ($0.7 million) in the three months ended July 31, 2019, as compared to ($0.9 million) in the three months ended July 31, 2018 primarily attributable to debt refinancing in February 2019 which resulted in a lower interest rate.
Six Months Ended July 31, | ||||||||||||||||
(in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||
Interest income (expense) | $ | (1,549 | ) | $ | (1,732 | ) | $ | 182 | (11 | %) | ||||||
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Interest income (expense) decreased $0.2 million to ($1.5 million) in the six months ended July 31, 2019, as compared to ($1.7 million) in the six months ended July 31, 2018 primarily attributable to debt refinancing in February 2019 which resulted in a lower interest rate.
Seasonality
Largely due to our focus on the healthcare industry, certain seasonal factors may cause us to record higher revenue in some quarters compared with others. For example, we receive a large increase in payment processing revenue during the first two to three months of the calendar year, primarily due to the resetting of patient deductibles at the beginning of each calendar year. Orders for our life sciences solutions are seasonal, primarily due to the annual spending patterns of our clients. This portion of our sales is usually the highest in the fourth quarter of each calendar year. While we believe we have visibility into the seasonality of our business, our rapid growth rate over the last couple years may have made seasonal fluctuations more difficult to detect. If our rate of growth slows over time, seasonal or cyclical variations in our operations may become more pronounced, and our business, results of operations and financial position may be adversely affected.
Liquidity and capital resources
Since our inception in 2005
deposit.
Our credit
BorrowingsAny Company obligations under the Second SVB facilityFacility are collateralizedsecured by a first priority security interest in substantially all of ourthe Company's assets, excludingother than intellectual property (which is subjectproperty. The Second SVB Facility includes a financial covenant that requires the Company to a negative pledge). We are subject to variousachieve specified levels of Adjusted EBITDA, as defined in the Second SVB Facility. This financial reporting requirements and financialcovenant will not be effective if the Company maintains certain levels of liquidity as defined. The Company was in compliance with all covenants under the SVB facility, including maintaining minimum revenue levels and a minimum liquidity level. In addition, there are negative covenants restricting certain activities, including incurring indebtedness or liens, encumbering intellectual property, paying dividends or distributions to stockholders, and making certain investments. The loan may be prepaid at any time for an amount equalrelated to the outstanding balance; plus accrued and unpaid interest; plus an amount equal to 2.75% of the original principal amount of all term loan borrowings; plus a prepayment fee of between 1.0% and 3.0%, depending on how much time prior to the maturity date the prepayment is made.
We used a portion of the net proceeds from the IPO to fully repay our revolving line of credit with Silicon Valley Bank, which had an outstanding balance of $17,675,556Second SVB Facility as of the closingOctober 31, 2021.
Six Months Ended July 31, | ||||||||
(in thousands) | 2019 | 2018 | ||||||
Net cash provided by (used in) operating activities | $ | 2,585 | $ | 945 | ||||
Net cash used in investing activities | (5,632 | ) | (4,860 | ) | ||||
Net cash provided by (used in) financing activities | 101,556 | (2,159 | ) | |||||
Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 98,509 | $ | (6,074 | ) |
2020:
Nine months ended October 31, | ||||||||||||||
(in thousands) | 2021 | 2020 | ||||||||||||
Cash used in operating activities | $ | (36,731) | $ | (1,187) | ||||||||||
Cash used in investing activities | (24,558) | (11,103) | ||||||||||||
Cash provided by financing activities | 242,903 | 176,093 | ||||||||||||
Net increase in cash and cash equivalents | $ | 181,614 | $ | 163,803 |
normal operations.
normal operations.
During the six months ended July 31, 2018, cashfinance lease and loan facility fee payments, $0.9 million used in financing activities was $2.2to purchase treasury stock, $0.3 million principally resulting from $1.7used for payments of net offering costs related to our offering of common stock and $0.1 million in payments to capital leases and $0.6 million in payments on principal long-term debt.
Payments due by period | ||||||||||||||||||||
(in thousands) | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | |||||||||||||||
Long-term debt obligations | $ | 20,000 | $ | — | $ | 6,111 | $ | 13,333 | $ | 556 | ||||||||||
Interest on long-term debt | 5,392 | 1,400 | 2,469 | 972 | 550 | |||||||||||||||
Capital lease obligations | 4,616 | 2,318 | 2,299 | — | — | |||||||||||||||
Operating lease obligations | 3,592 | 871 | 2,721 | — | — | |||||||||||||||
Purchase obligations | 1,548 | 1,548 | — | — | — | |||||||||||||||
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Total | $ | 35,148 | $ | 6,137 | $ | 13,600 | $ | 14,306 | $ | 1,106 | ||||||||||
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principal payments.
Payments due by period | ||||||||||||||||||||||||||||||||
(in thousands) | Total | Less than 1 year | 1-3 years | 4-5 years | More than 5 years | |||||||||||||||||||||||||||
Finance lease obligations | $ | 9,631 | $ | 1,172 | $ | 7,510 | $ | 949 | $ | — | ||||||||||||||||||||||
Operating lease obligations | 2,320 | 289 | 1,979 | 52 | — | |||||||||||||||||||||||||||
Long-term debt obligations | 504 | 243 | 261 | — | — | |||||||||||||||||||||||||||
Interest on long-term debt | 16 | 2 | 14 | — | — | |||||||||||||||||||||||||||
Purchase obligations | 461 | 461 | — | — | — | |||||||||||||||||||||||||||
Total | $ | 12,932 | $ | 2,167 | $ | 9,764 | $ | 1,001 | $ | — |
Recent accounting pronouncements
See Note 3 to our unaudited financial statements included in Part I, Item 1 of this Quarterly Report on Form10-Q for a discussion of recent accounting pronouncements.
pronouncements
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rate risk
currency exchange risk
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Ourhas evaluatedconducted an evaluation as of the date of this Quarterly Report of the effectiveness of the Company’sdesign and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report.procedures. Based on this evaluation, the Company’s Chief Executive Officerour principal executive officer and Chief Financial Officerprincipal financial officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms due to the existencematerial weakness in internal control over financial reporting, described below. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In light of the material weakness described below.However,below, management performed additional analysis and other procedures to ensure that our consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Accordingly, management including our Chief Executive Officer and our Chief Financial Officer, has concludedbelieves that notwithstanding the identified material weaknesses in our internal control over financial reporting, the consolidated financial statements included in this Quarterly Report fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented, in conformityaccordance with U.S. GAAP.2019,2021, we identified a material weakness in our internal control over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.a sufficient complement of personnel with an appropriate degree of knowledge, experience,effective user access and training, commensurate withprogram change controls. Our controls over user access and program change management were ineffective in that they didn’t adequately restrict user and privileged access and program changes related to certain information technology ("IT") systems that support our accountingfinancial reporting processes. User and reporting requirements.privileged access were not appropriately provisioned and program changes were not adequately reviewed prior to being placed in production. As a result, process level automated controls and manual controls that are dependent on the completeness and accuracy of information derived from the lackaffected IT systems were also ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of an insufficient number of IT personnel we hadto identify and assess risks associated with changes in IT environments resulting in inappropriate segregationassignment of duties throughout severaluser and privileged access as well as insufficient documentation for control processes, including the reviewoperations over user access and approvalprogramplanhave been implementing and will continue to hireimplement measures designed to ensure that the control deficiencies contributing to the material weakness are remediated. The remediation actions include: (i) hiring additional accountingIT personnel including an IT compliance oversight function; (ii) developing enhanced risk assessment policies and procedures and developing and implementing enhanced controls with technical accountinga focus on those related to user and privileged access and change management over IT systems impacting financial reporting; and (iii) enhancing documentation underlying information technology controls related to user access and change management on systems supporting financial reporting experienceprocesses. The above remediation will not be considered complete until such time that the controls put in place have a reasonable time to operate and implement improved process level and management review controls.we have been able to test their operating effectiveness. While we intend to implementare implementing a plan to remediate this material weakness, we cannot predict the success of such plan or the outcome of our assessment of these plans at this time. These improvements to our internal control infrastructure are ongoing, including during the preparation of our financial statements as of the end of the period covered by this report. As such, the remediation initiatives outlined above were not sufficient to fully remediate the material weakness in internal control over financial reporting as discussed above. We are committed to continuing to improve our internal control processes and will continue to diligently review our financial reporting controls and procedures.continuing to take steps to remediate the material weaknesschanges in connection with our internal control over financial reporting as describedimplementation of the remediation plans above and the implementation of the ERP, there werehave been no changes in our internal control over financial reporting (as defined byin Rule 13a-15(f) and 15d-15(f) underof the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements. See the section of this Quarterly Report on Form 10-Q titled “Special Note Regarding Forward-Looking Statements.”
and could adversely impact our business.
The market forbusinesses, including our products and services is subject to rapid and significant changes. The market for technology-enabled services that empower healthcare consumers is characterized by rapid technological change, new product and service introductions, increasing patient financial responsibility, consumerism and engagement, the ongoingcompany’s shift to value-based carea fully remote work environment. The pandemic has and reimbursement models, and the entrance ofnon-traditional competitors. In addition, there may be a limited-time opportunity to achieve and maintain a significant share of this market due in part to the rapidly evolving nature of the healthcare and technology industries and the substantial resources available to our existing and potential competitors. The market for technology-enabled services that empower healthcare consumers is relatively new and unproven, and it is uncertain whether this market will achieve and sustain high levels of demand and market adoption.
In order to remain competitive, we are continually involved in a number of projects to compete with these new market entrants by developing new services, growing our client base and penetrating new markets. Some of these projects include the expansion of our integration capabilities with additional EHR and PM solutions, the expansion of our mobile platform, and the recentroll-out of our cost estimation features. These projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of acceptance by our clients. Our integration partners may also decide to develop and offer their own patient engagement solutions that are similar to our Platform offerings.
Our success depends on providing high-quality products and services that healthcare providers use to improve clinical, financial and operational performance and which are used and positively received by patients. If we cannot adapt to rapidly evolving industry standards, technology and increasingly sophisticated and varied healthcare provider and patient needs, our existing technology could become undesirable, obsolete or harm our reputation. We must continue to invest significant resources inmaterially and adversely impact our personnelbusiness and technology in a timely and cost-effective manner in order to enhance our existing products and services and introduce new high-quality products and services that existing clients and potential new clients will want. Our operating results would also suffer if our innovations are not responsive to the needs of our existing clients or potential new clients, are not appropriately timed with market opportunity, are not effectively brought to
market or significantly increase our operating costs. If our new or modified product and service innovations are not responsive to the preferences of healthcare providers and their patients, emerging industry standards or regulatory changes, are not appropriately timed with market opportunity or are not effectively brought to market, we may lose existing clients or be unable to obtain new clients and our results of operations may suffer.
We believedue to, among other factors:
In addition, we have limited insight into trends that might develop and affect our business. We might make errors in predicting and reacting to relevant business, legal and regulatory trends and healthcare reform, which could harm our business. If any of these events occur, it could materially adversely affect our business, financial condition or results of operations.
Finally, our competitors may have the ability to devote more financial and operational resources than we can to developing new technologies and services, including services that provide improved operating functionality, and adding features to their existing service offerings. If successful, their development efforts could render our services less desirable, resulting in the loss of our existing clients or a reduction in the fees we generate from our products and services.
We have growndo not provide access to the Platform and do not charge fees during this initial sales period. For clients that decide to enter into a contract with us, most of these contracts may provide for a preliminary trial period where a subset of providers from the client is granted access to our Platform. Following any such trial period, we aim to increase the number of providers within the client that utilize the Platform. Accordingly, our operating results depend in substantial part on our ability to deliver a successful client and patient experience and persuade our clients and patients to grow their relationship with us over time. As we expect to grow rapidly, in recent periods, and if we fail to manage our growth effectively, our expensesclient acquisition costs could increase more than expected, ouroutpace revenue may not increasegrowth, and we may be unable to implementreduce our business strategy.
We have experienced significant growth in recent periods, which puts strain on our business, operations and employees. We anticipatetotal operating costs through economies of scale such that our operations will continue to rapidly expand. To manage our current and anticipated future growth effectively, we must continue to maintain and enhance our IT infrastructure, financial and accounting systems and controls. We must also attract, train and retain a significant number of qualified sales and marketing personnel, client support personnel, professional services personnel, software engineers, technical personnel and management personnel, and the availability of such personnel, in particular software engineers, may be constrained, including if we experience negative publicity, a strike or other work stoppages that could adversely affect our ability to attract and retain personnel.
A key element of how we manage our growth is our ability to scale our capabilities and satisfactorily implement our solution for our clients’ needs. Our provider clients often require specific features or functions unique to their organizational structure, which, at a time of significant growth or during periods of high demand, may strain our implementation capacity and hinder our ability to successfully implement our solution to our clients in a timely manner. Our success also depends on our ability to satisfactorily integrate our Platform with the PM and EHR systems utilized by our provider clients. If we are unable to address the needsachieve profitability. Any increased or unexpected costs or unanticipated delays, including delays caused by factors outside of our provider clients, including by integratingcontrol, could cause our Platform with the EHR and PM systemsoperating results to suffer.
Failure to effectively manage our growth could also lead us to over-invest or under-invest in developmentvariable sales and operations, result in weaknesses in our infrastructure, systems or controls, give rise to operational mistakes, financial losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of remaining employees. Our growth is expected to require significant capital expenditures and may divert financial resources from other projects such as the development of new applications and services. We may also need to make further investments in our technology and automate portions of our solution or services to decrease our costs. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our revenue may not increase or may grow more slowly than expected andimplementation cycles, we may be unable to implementrecognize revenue to offset expenditures, which could result in fluctuations in our business strategy.
We derive a significant portionquarterly results of operations or otherwise harm our future operating results.
Historically, we have reliedsales and implementation cycle is dependent on a limited numbernumerous factors, including the size and complexity of clients for a substantial portionthe applicable customer. Some of our total revenuenew-client set-up projects are complex and accounts receivable. For fiscal 2019require a lengthy delay and significant implementation work, including to educate prospective clients about the six months ended July 31, 2019, our four largest clients comprised approximately 19%uses and 16%benefits of our total revenue, respectively. The sudden lossPlatform. Each customer’s situation is different, and unanticipated difficulties and delays may arise as a result of any of our clients,failure by us or the renegotiation of any of our client contracts, could adversely affect our operating results.
Because we rely on a limited number of clients for a significant portion of our revenues, we depend on the creditworthiness of these clients. If the financial condition of our clients declines, our credit risk could increase. Should one or more of our significant clients declare bankruptcy, it could adversely affect the collectability of our accounts receivable and affect our bad debt reserves and net income.
Most of our provider client contracts have an annual term. However, these contracts may be terminated before their term expires for various reasons. For example, after a specified period, certain of these contracts are terminable for convenience by our clients during an initial term and the client has paid a termination fee. The termination fee typically requires the client to paymeet our respective implementation responsibilities. During the implementation cycle, we expend substantial time, effort and financial resources implementing our service, but accounting principles do not allow us to recognize the lesserresulting revenue until the service has been implemented, at which time we begin recognition of six months of fees payable undersubscription and related implementation revenue over the contract or the total fees payable under the contract for the remainderlife of the annual term. Certaincontract. This could harm our future operating results. Despite the fact that we typically require a deposit in advance of implementation for our contracts are terminable immediately upon the occurrence of certain events. For example, certain oflarger clients, some clients have cancelled before our life sciences contracts may be terminated by the client immediately following certain actions by the Food and Drug Administration, or FDA. If any of our contracts with our clients is terminated,service has been started. In addition, we may not recognize revenue due to variable contract start dates, and implementation may be abledelayed or the target dates for completion may be extended into the future for a variety of reasons. If implementation periods are extended, our revenue cycle will be delayed and our financial condition may be adversely affected. In addition, cancellation of any implementation after it has begun may involve loss to recover all fees due underus of time, effort and expenses invested in the terminated contract,cancelled implementation process and lost opportunity for implementing paying clients in that same period of time.
results could fall below the expectations of securities analysts or investors, in which event our stock price would likely decrease.
We may potentially compete with our partners, which may adversely affect our business.
Our partners, including our integration partners for EHR and PM solutions, could become our competitors by offering similar services. Some of our partners offer, or may begin to offer, services, including patient intake and engagement services, payment processing tools and targeted patient communication services, in addition to any EHR and PM systems, in the same or similar manner as we do. Although there are many potential opportunities for, and applications of, these services, our partners may seek opportunities or target new clients in areas that may overlap with those that we have chosen to pursue. In such cases we may potentially compete against our partners. Competition from our partners may adversely affect our business and results from operations.
operations and reputation.
We also believe that maintaining and enhancing our reputation and brand recognition is critical to our relationships with existing clients and the patients that they serve and to our ability to attract new clients. The promotion of our brand may require us to make substantial investments, and we anticipate that, as our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. In addition, the loss or dissatisfaction of any client could substantially harm our brand and reputation, inhibit widespread adoption of our solution and impair our ability to attract new clients.
•the price, performance and functionality of our Platform;
•patient acceptance and adoption of services and utilization of our payment processing tools;
•the availability, price, performance and functionality of competing solutions;
•our ability to develop and sell complimentary applications and services;
•the stability, performance and security of our hosting infrastructure and hosting services;
•changes in healthcare laws, regulations or trends; and
•the business environment of our clients.
Failure to adequately expand our direct sales force will impede our growth.
We believe that our future growth will depend on the continued development of our direct sales force and its ability to obtain new clients and to manage our existing client base. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take six months or longer before a new sales representative is fully trained and productive. Our business may be adversely affected if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire and develop sufficient numbers of productive direct sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, sales of our services will suffer and our growth will be impeded.
We typically incur significant upfront costs in our client relationships, and if we are unable to develop or grow these relationships over time, we are unlikely to recover these costs and our operating results may suffer.
We devote significant resources to establish relationships with new clients and deepen relationships with existing clients. Our sales cycle for our services can be variable, typically ranging from two to eight months from initial contact to contract execution. During this period, our efforts involve educating our clients and patients about the use, technical capabilities and benefits of our products and services. We do not provide access to the Platform and do not charge fees during this initial sales period. For clients that decide to enter into a contract with us, some of these contracts may provide for a preliminary trial period where a subset of providers from the client is granted access to our Platform for our standard fees. Following any such trial period, we aim to increase the number of providers within the client that utilize the Platform. Accordingly, our operating results depend in substantial part on our ability to deliver a successful client and patient experience and persuade our clients and patients to grow their relationship with us over time. As we expect to grow rapidly, our client acquisition costs could outpace ourbuild-up of recurring revenue, and we may be unable to reduce our total operating costs through economies of scale such that we are unable to achieve profitability. Any increased or unexpected costs or unanticipated delays, including delays caused by factors outside our control, could cause our operating results to suffer.
As described below, we are required to comply with numerous
In addition, in the future, industry requirements or guidance, contractual obligations, and/or legislation at both the federal and the state level may limit, forbid or regulate the use or transmission of health information outside of the United States. These developments, if adopted, could render our use of Canadian employees and other non-U.S. resources for work related to such data impracticable or substantially more expensive.
Numerous other
and grow our client base and increase our revenue. New laws, amendments to orre-interpretations of existing laws and regulations, industry standards and contractual obligations could impair our or our customers’ ability to collect, use or disclose information relating to patients or consumers, which could decrease demand for our Platformplatform offerings, increase our costs and impair our ability to maintain and grow our client base and increase our revenue. In view of new or modified federal or state laws and regulations, industry standards, contractual obligations and other legal obligations, or any changes in their interpretation,Accordingly, we may find it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify our software or platform and otherwise adapt to these changes.
data.
Privacy concerns or security breaches relating to our Platform could result in economic loss, damage to our reputation, deterring users from using our products, and expose us to legal penalties and liability.
We collect, process and store significant amounts of data concerning our clients, including data pertaining to personally identifiable information, including health information, of patients received in connection with the utilizationretention of our Platform by patientsexisting clients or adoption of our healthcare provider and life sciencePlatform by new clients. While
Like all internet services, our service is vulnerable to software bugs, computer viruses, internet worms,break-ins, phishing attacks, attempts to overload servers withdenial-of-service, or other attacks or similar disruptions from unauthorized use of our and third-party computer systems, any of which could lead to system interruptions, delays, or shutdowns, causing loss of critical data or the unauthorized access of data. Computer malware, viruses, and computer hacking and phishing attacks have become more prevalent in our industry. Functions that facilitate interactivity with other internet platforms could increase the scope of access of hackers to user accounts. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security and availability of our products to the satisfaction of our clients and their patients may harm our reputation and our ability to retain existing clients. In 2013, we experienced a security breach, when one of our employees had a laptop containing Protected Health Information (as defined under HIPAA) stolen. This breach did not result in any claims against us, and since this incident, we have implemented policies that prohibit the download and storage of Protected Health Information and adopted a policy of encryption for all company laptops. Although we have in place systems and processes that are designed to protect our data, prevent data loss, disable undesirable accounts and activities on our Platform and prevent or detect security breaches, we cannot assure you that such measures will provide absolute security. If an actual or perceived breach of security occurs to our systems or a third party’s systems, we also could be required to expend significant resources to mitigate the breach of security and to address matters related to any such breach, including notifying users or regulators. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur.
If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations will be harmed.
We believe that maintaining and enhancing our reputation and brand recognition is critical to our relationships with existing clients and the patients that they serve and to our ability to attract new clients. The promotion of our brand may require us to make substantial investments and we anticipate that, as our market becomes increasingly competitive, these marketing initiatives may become increasingly difficult and expensive. Our marketing activities may not be successful or yield increased revenue, and to the extent that these activities yield increased revenue, the increased revenue may not offset the expenses we incur and our results of operations could be harmed. In addition, any factor
that diminishes our reputation or that of our management, including failing to meet the expectations of our clients and patients, could make it substantially more difficult for us to attract new clients. Similarly, because our partners often act as references for us with prospective new provider clients, any existing partner that questions the quality of our work or that of our employees could impair our ability to secure additional new clients. If we do not successfully maintain and enhance our reputation and brand recognition with our clients and their patients, our business may not grow and we could lose our relationships with clients, which would harm our business, results of operations and financial condition.
Consolidation in the healthcare industry could have a material adverse effect on our business, financial condition and results of operations.
Many healthcare industry participants are consolidating to create larger and more integrated healthcare delivery systems with greater market power. We expect regulatory and economic conditions to result in additional consolidation in the healthcare industry in the future. As consolidation accelerates, the economies of scale of our clients’ organizations may grow. If a client experiences sizable growth following consolidation, it may determine that it no longer needs to rely on us and may reduce its demand for our products and services. In addition, as healthcare providers and life science companies consolidate to create larger and more integrated healthcare delivery systems with greater market power, these providers may try to use their market power to negotiate fee reductions for our products and services. Finally, consolidation may also result in the acquisition or future development by our healthcare provider and life science clients of products and services that compete with our products and services. Any of these potential results of consolidation could have a material adverse effect on our business, financial condition and results of operations.
We may face intense competition, which could limit our ability to maintain or expand market share within our industry, and if we do not maintain or expand our market share our business and operating results will be harmed.
The market for our products and services is fragmented, competitive and characterized by rapidly evolving technology standards, client needs and the frequent introduction of new products and services. Our competitors range from smaller niche companies to large, well-financed and technologically-sophisticated entities. As costs fall and technology improves, increased market saturation may change the competitive landscape in favor of competitors with greater scale than we currently possess.
We compete on the basis of several factors, including breadth, depth and quality of product and service offerings, ability to deliver clinical, financial and operational performance improvement through the use of products and services, quality and reliability of services, ease of use and convenience, brand recognition and the ability to integrate our Platform solutions with various PM and EHR systems and other technology. Some of our competitors have greaterbuild name recognition, longer operating histories and significantly greater resources than we do. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or client requirements. In addition, current and potential competitors have established, and may in the future establish, cooperative relationships with vendors of complementary products, technologies or services to increase the availability of their products to the marketplace. Accordingly, new competitors or alliances may emerge that have greater market share, larger client bases, more widely adopted proprietary technologies, greater marketing expertise, greater financial resources and larger sales forces than we have, which could put us at a competitive disadvantage.
Further, in light of these advantages, even if our services are more effective than the product or service offerings of our competitors, current or potential clients might accept competitive products and services in lieu of purchasing our services. In addition to new niche vendors, who offer stand-alone products and services, we also face competition from PM and EHR providers, including those with which we have integration partnerships. PM or EHR providers may have existing systems in place at clients in our target market. These PM and EHR providers may now, or in the future, offer or promise products or services similar to ours, and which offer ease of integration with existing systems and which leverage existing client and vendor relationships.
We also compete on the basis of price. We may be subject to pricing pressures as a result of, among other things, competition within the industry, consolidation of healthcare industry participants, practices of managed care organizations, government action and financial stress experienced by our clients. If our pricing experiences significant downward pressure, our business will be less profitable and our results of operations will be adversely affected.
We cannot be certain that we will be able to retain our current clients or expand our client base in this competitive environment. If we do not retain current clients or expand our client base, or if we have to renegotiate existing contracts, our business, financial condition and results of operations will be harmed. Moreover, we expect that competition will continue to increase as a result of consolidation in both the healthcare information technology and healthcare industries. If one or more of our competitors or potential competitors were to merge or partner with another of our competitors, the change in the competitive landscape could also adversely affect our ability to compete effectively and could harm our business, financial condition and results of operations.
We are bound by exclusivity provisions that restrict our ability to enter into certain sales and marketing relationships in order to market and sell our services.
Some of our client contracts include exclusivity or other restrictive clauses. Any contracts with exclusivity or other restrictive provisions may limit our ability to conduct business with certain potential clients. Client contracts with exclusivity or other restrictive provisions may constrain our ability to partner with or provide services to other prospective clients or purchase services from other vendors within certain time periods. Accordingly, these exclusivity clauses may prevent us from entering into long-term relationships with potential clients and could cause our business, financial condition and results of operations to be harmed.
The healthcare regulatory and political framework is uncertain and evolving.
Healthcare laws and regulations are rapidly evolving and may change significantly in the future, which could adversely affect our financial condition and results of operations. For example, in March 2010, the Patient Protection and Affordable Care Act, or ACA, was adopted, which is a healthcare reform measure that provides healthcare insurance for approximately 30 million additional Americans. The ACA includes a variety of healthcare reform provisions and requirements that became effective at varying times through 2018 and substantially changes the way healthcare is financed by both governmental and private insurers, which may significantly impact our industry and our business. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Cuts and Jobs Act, or Tax Act, the remaining provisions of the ACA are also invalid. While the Trump Administration and the Center for Medicare and Medicaid Services, or CMS, have both stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, if any, and other efforts to repeal and replace the ACA will impact the ACA and our business. A Fifth Circuit US Court of Appeals hearing to determine whether certain states and the House of Representatives have standing to appeal the lower court decision is scheduled for July 9. It is not clear what the impact of the outcome of that hearing will have on the ACA and our business.
Further, on February 11, 2019, The U.S. Department of Health and Human Services, or HHS, Office of the National Coordinator for Health Information Technology, or ONC, and CMS proposed complementary new rules to support seamless and secure access, exchange, and use of electronic health information, or EHI, by increasing innovation and competition by giving patients and their healthcare providers secure access to health information and new tools, allowing for more choice in care and treatment. The proposed rules are intended to clarify provisions of the 21st Century Cures Act regarding interoperability and “information blocking,” which will create significant new requirements for health care industry participants. Information blocking means activities that are likely to interfere with, prevent, or materially discourage access, exchange, or use of EHI. The proposed ONC rule, if adopted, will create significant new requirements for health care industry participants, and would require certain electronic health record technology to incorporate standardized application programming interfaces, or APIs, to allow individuals to securely and easily access structured EHI using smartphone applications. The ONC would also implement provisions of the Cures Act requiring that patients can electronically access all of their EHI (structured and/or unstructured) at no cost. Finally, to further support access and exchange of EHI, the proposed ONC rule implements the information blocking provisions of the Cures Act and proposes seven “reasonable and necessary activities” as exceptions to information blocking activities, as long as specific conditions are met.
The CMS Proposed Rule focuses on health plans, payors, and health care providers, and proposes measures to enable patients to have both their clinical and administrative information travel with them.
It is unclear whether or when these rules, and others released simultaneously, will be adopted, in whole or in part. If adopted, the rules may benefit us in that certain EHR vendors will no longer be permitted to interfere with our attempts at integration, but the rules may also make it easier for other similar companies to enter the market, creating increased competition and reducing our market share. It is unclear at this time what the costs of compliance with the proposed rules, if adopted, would be, and what additional risks there may be to our business.
In addition, we are subject to various other laws and regulations, including, among others, the Stark Law relating to self-referrals, anti-kickback laws, antitrust laws and the privacy and data protection laws described below.
If we are unable to obtain, maintain and enforce intellectual property protection forprotect our technology and products, or if the scope of our intellectual property protection is not sufficiently broad, others may be able to develop and commercialize technology and products substantially similar to ours, and our ability to successfully commercialize our technology and productsbusiness may be adversely affected.
protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and the costs of defending our rights. These measures, however, may not be sufficient to offer us meaningful protection. If we are unable to protect our intellectual property and other proprietary rights, our brand, competitive position and our business could be harmed, as third parties may be able to dilute our brand or commercialize and use technologies and software products that are substantially the same as ours without incurring the development and licensing costs that we have incurred. Any of our owned or licensed intellectual property rights could be challenged, invalidated,
circumvented, infringed or misappropriated, our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties, or our intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide us with competitive advantages, which could result in costly redesign efforts, discontinuance of certain offerings or other competitive harm.
We believe that the Phreesia brand is critical to the success of our business, and we utilize trademark registration and other means to protect it. Our business would be harmed if we were unable to protect our brand against infringement and its value was to decrease as a result.
The registered or unregistered trademarks or trade names that we own or license may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition with potential partners. In addition, third parties may in the future file for registration of trademarks similar or identical to our trademarks. If they succeed in registering or developing common law rights in such trademarks, and if we are not successful in challenging such third-party rights, we may not be able to use these trademarks to commercialize our technologies or products in certain relevant countries. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
solutions.
or at all, and we may have to pay substantial royalties, upfront fees or grant cross-licenses to intellectual property rights for our products and services. We may also have to redesign our products or services so they do not infringe third-party intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, during which our technology and products may not be available for commercialization or use. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not obtain a third-party license to the infringed technology, license the technology on reasonable terms or obtain similar technology from another source, our revenue and earnings could be adversely impacted.
Our use
In the event that these service providers fail to maintain adequate levels of support, do not provide high quality service, increase the fees they charge us, discontinue their lines of business, terminate our contractual arrangements or cease or reduce operations, we may suffer additional costs and be required to pursue new third-party relationships, which could materially disrupt our operations and our ability to provide our products and services, and could divert management’s time and resources. It would be difficult to replace some of our third-party vendors in a timely manner if they were unwilling or unable to provide us with these services in the future, and our business and operations could be adversely affected. For example, we rely on certain third-party vendors for payment processing services. If these services fail or are of poor quality, our business, reputation and operating results could be harmed.
In addition, we have entered into strategic alliances with providers of EHR and PM solutions, and we intend to pursue such alliances in the future. These strategic alliance agreements are typically structured as commercial and technical partnership agreements, pursuant to which we integrate certain of our Platform solutions into the EHR and PM systems that are utilized by many of our clients, for agreed payments to such integration partners. The success of our business strategy relies, in part, on our ability to form and maintain these alliances with such partners in order to facilitate and permit the integration of our Platform into the EHR and PM systems used by our provider clients and their patients. If providers of EHR or PM solutions amend, terminate or fail to perform their obligations under their strategic alliance agreements with us, our Platform solutions may no longer integrate with the EHR and PM systems of our provider clients, which would materially and adversely affect our business results.
We may also seek new strategic alliances in the future, and we may not be successful in entering into future alliances on terms favorable to us. Any delay in entering into strategic alliances with providers of EHR or PM solutions would likely either delay the development and adoption of our products and services and reduce their competitiveness, or prevent the integration of our product offerings, in each case with respect to healthcare provider organizations that utilize such EHR or PM solutions. Any such delay could adversely affect our business.
We rely on a limited number of third-party suppliers and contract manufacturers to support our products, and a loss or degradation in performance of these suppliers and contract manufacturers could have a negative effect on our business, financial condition and results of operations.
We rely on third-party suppliers and contract manufacturers for the materials and components used to operate our Phreesia Platform and product offerings, and to manufacture and assemble our hardware, including the PhreesiaPad and ouron-site kiosks, which we refer to as Arrivals Stations. We rely on a sole supplier, for example, as the manufacturer of our PhreesiaPads and Arrivals Stations, which help drive our business and support our provider, patient processing and life sciences offerings. In connection with these services, our supplier builds new hardware for us and refurbishes and maintains existing hardware.
Any of our other suppliers or third-party contract manufacturers may be unwilling or unable to supply the necessary materials and components or manufacture and assemble our products reliably and at the levels we anticipate or that are required by the market. Our ability to supply our products commercially and to develop any future products depends, in part, on our ability to obtain these materials, components and products in accordance with regulatory requirements and in sufficient quantities for commercialization.
While our suppliers and contract manufacturers have generally met our demand for products and services on a timely basis in the past, we cannot guarantee that they will in the future be able to meet our demand for products, either because of acts of nature, the nature of our agreements with those manufacturers or our relative importance to them as a customer, and our manufacturers may decide in the future to discontinue or reduce the level of business they conduct with us. If we are required to change contract manufacturers due to any change in or termination of our relationships with these third parties, or if our manufacturers are unable to obtain the materials they need to produce our products at consistent prices or at all, (including, without limitation, because of the effect of tariffs or other trade restrictions), we may lose sales, experience manufacturing or other delays, incur increased costs or otherwise experience impairment to our client relationships. We cannot guarantee that we will be able to establish alternative relationships on similar terms, without delay or at all.
While we believe replacement suppliers and manufacturers exist for all materials, components and services necessary to our systems and the Phreesia Platform, establishing additional or replacement suppliers for any of these materials, components or services, if required, could be time-consuming and expensive, may result in interruptions in our operations and product delivery, may affect the performance of our business or could require that we modify our operations. Even if we are able to find replacement suppliers or third-party contract manufacturers, we will be required to verify that the new supplier or third-party manufacturer maintains facilities, procedures and operations that comply with our quality expectations and applicable regulatory requirements.
If our third-party suppliers fail to deliver the required quantities of materials on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement suppliers capable of production at a substantially equivalent cost in substantially equivalent volumes and quality on a timely basis, the supply of our products to clients and the development of any future products will be delayed, limited or prevented, which could have material adverse effect on our business, financial condition and results of operations.
Any restrictions on our use of, or ability to license, data, or our failure to license data and integrate third-party technologies, could have a material adverse effect on our business, financial condition and results of operations.
We depend upon licenses from third parties for some of the technology and data used in our applications, and for some of the technology platforms upon which these applications are built and operate. We expect that we may need to obtain additional licenses from third parties in the future in connection with the development of our products and services. In addition, we obtain a portion of the data that we use from government entities, public records and from our partners for specific partner engagements. We believe that we have all rights necessary to use the data that is incorporated into our products and services. However, we cannot assure you that our licenses for information will allow us to use that information for all potential or contemplated applications and products. In addition, certain of our products depend on maintaining our data and analytics platform, which is populated with data disclosed to us by healthcare providers, life science companies and their respective patients and other partners with their consent. If these clients, patients or partners revoke their consent for us to maintain, use,de-identify and share this data, consistent with applicable law, our data assets could be degraded.
In the future, data providers could withdraw their data from us or restrict our usage for any reason, including if there is a competitive reason to do so, if legislation is passed restricting the use of the data or if judicial interpretations are issued restricting use of the data that we currently use in our products and services. In addition, data providers could fail to adhere to our quality control standards in the future, causing us to incur additional expense to appropriately utilize the data. If a substantial number of data providers were to withdraw or restrict their data, or if they fail to adhere to our quality control standards, and if we are unable to identify and contract with suitable alternative data suppliers and integrate these data sources into our service offerings, our ability to provide products and services to our partners would be materially adversely impacted, which could have a material adverse effect on our business, financial condition and results of operations.
We also integrate into our proprietary applications and use third-party software to maintain and enhance, among other things, content generation and delivery, and to support our technology infrastructure. Some of this software is proprietary and some is open source software. Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our solutions, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs. These technologies may not be available to us in the future on commercially reasonable terms or at all and could be difficult to replace once integrated into our own proprietary applications. Most of these licenses can be renewed only by mutual consent and may be terminated if we breach the terms of the license and fail to cure the breach within a specified period of time. Our inability to obtain, maintain or comply with any of these licenses could delay development until equivalent technology can be identified, licensed and integrated, which would harm our business, financial condition and results of operations.
Most of our third-party licenses arenon-exclusive and our competitors may obtain the right to use any of the technology covered by these licenses to compete directly with us. If our data suppliers choose to discontinue support of the licensed technology in the future, we might not be able to modify or adapt our own solutions.
If we cannot implement our solution for clients or resolve any technical issues in a timely manner, we may lose clients and our reputation may be harmed.
Our clients utilize a variety of data formats, applications and infrastructure and our solution must support our clients’ data formats. Furthermore, the healthcare industry has shifted towards digitalized record keeping, and accordingly, many of our provider clients have developed their own software, or utilize third-party software, for practice management and secure storage of electronic medical records. Our ability to develop and maintain logic-based and scalable technology for patient intake management and engagement and payment processing that successfully integrates with our clients’ software systems for practice management and storage of electronic medical records is critical. If our Platform does not currently support a client’s required data format or appropriately integrate with clients’ systems, then we must configure our Platform to do so, which increases our expenses.
Additionally, we do not control our clients’ implementation schedules. As a result, if our clients do not allocate the internal resources necessary to meet their implementation responsibilities or if we face unanticipated implementation difficulties, the implementation may be delayed. If the client implementation process is not executed successfully or if execution is delayed, we could incur significant costs, clients could become dissatisfied and decide not to increase utilization of our solution or not to implement our solution beyond an initial period prior to their term commitment or, in some cases, revenue recognition could be delayed. In addition, competitors with more efficient operating models with lower implementation costs could jeopardize our client relationships.
Our clients and patients depend on our support services to resolve any technical issues relating to our solution and services, and we may be unable to respond quickly enough to accommodate short-term increases in demand for support services, particularly as we increase the size of our client bases (including healthcare provider organizations and the number of patients that they serve). We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. It is difficult to predict client and patient demand for technical support services, and if client or patient demand increases significantly, we may be unable to provide satisfactory support services to our clients. Further, if we are unable to address the needs of our clients and their patients in a timely fashion or further develop and enhance our solution, or if a client or patient is not satisfied with the quality of work performed by us or with the technical support services rendered, then we could incur additional costs to address the situation or be required to issue credits or refunds for amounts related to unused services, and our profitability may be impaired and clients’ or patients’ dissatisfaction with our
solution could damage our ability to expand the number of applications and services purchased by such clients. These clients may not renew their contracts, seek to terminate their relationship with us or renew on less favorable terms. Moreover, negative publicity related to our client and patient relationships, regardless of its accuracy, may further damage our business by affecting our reputation or ability to compete for new business with current and prospective clients. If any of these were to occur, our revenue may decline and our business, financial condition and results of operations could be adversely affected.
We rely on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our clients, and any failure or interruption in the services provided by these third parties or our own systems could expose us to litigation and negatively impact our relationships with clients, adversely affecting our brand and our business.
Our ability to deliver our products and services, particularly our cloud-based solutions, is dependent on the development and maintenance of the infrastructure of the Internet and other telecommunications services by third parties. This includes maintenance of a reliable network connection with the necessary speed, data capacity and security for providing reliable Internet access and services and reliable telephone and facsimile services. Our services are designed to operate without interruption in accordance with our service level commitments.
However, we have experienced limited interruptions in these systems in the past, including server failures that temporarily slow down the performance of our services, and we may experience more significant interruptions in the future. We rely on internal systems as well as third-party suppliers, including bandwidth and telecommunications equipment providers, to provide our services. We do not maintain redundant systems or facilities for some of these services. Interruptions in these systems, whether due to system failures, computer viruses, physical or electronicbreak-ins or other catastrophic events, could affect the security or availability of our services and prevent or inhibit the ability of our partners to access our services. In the event of a catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, which could result in substantial costs to remedy those problems or negatively impact our relationship with our clients, our business, results of operations and financial condition. To operate without interruption, both we and our service providers must guard against:
damage from fire, power loss and other natural disasters;
telecommunications failures;
software and hardware errors, failures and crashes;
security breaches, computer viruses and similar disruptive problems; and
other potential interruptions.
Any disruption in the network access, telecommunications orco-location services provided by third-party providers or any failure of or by third-party providers’ systems or our own systems to handle current or higher volume of use could significantly harm our business. We exercise limited control over our third-party suppliers, which increases our vulnerability to problems with services they provide. We have experienced failures by third-party providers’ systems which resulted in a limited interruption of our system, although this failure did not result in any claims against us. Any errors, failures, interruptions or delays experienced in connection with these third-party technologies and information services or our own systems could negatively impact our relationships with clients and adversely affect our business and could expose us to third-party liabilities.
Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all losses that may occur. In addition, we cannot provide assurance that we will continue to be able to obtain adequate insurance coverage at an acceptable cost.
The reliability and performance of our Internet connection may be harmed by increased usage or bydenial-of-service attacks. The Internet has experienced a variety of outages and other delays as a result of damages to portions of its infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as the availability of the Internet to us for delivery of our Internet-based services.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could adversely affect our business.
Our success depends, in part, on the skills, working relationships and continued services of our founders, Chaim Indig (Chief Executive Officer) and Evan Roberts (Chief Operating Officer), and senior management team and other key personnel. From time to time, there may be changes in our senior management team resulting from the hiring or departure of executives, which could disrupt our business. The replacement of one or more of our executive officers or other key employees would likely involve significant time and costs and may significantly delay or prevent the achievement of our business objectives.
In addition, competition for qualified management in our industry is intense. Many of the companies with which we compete for management personnel have greater financial and other resources than we do. While we have entered into offer letters or employment agreements with certain of our executive officers, all of our employees are“at-will” employees, and their employment can be terminated by us or them at any time, for any reason and without notice, subject, in certain cases, to severance payment rights. In order to retain
valuable employees, in addition to salary and cash incentives, we provide stock options that vest over time or based on performance. The value to employees of stock options that vest over time or based on performance will be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract offers from other organizations. The departure of key personnel could adversely affect the conduct of our business. In such event, we would be required to hire other personnel to manage and operate our business, and there can be no assurance that we would be able to employ a suitable replacement for the departing individual, or that a replacement could be hired on terms that are favorable to us. In addition, volatility or lack of performance in our stock price may affect our ability to attract replacements should key personnel depart. If we are not able to retain any of our key management personnel, our business could be harmed.
We may make future acquisitions and investments which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders.
We have in the past acquired, and we may in the future acquire or invest in, businesses, products or technologies that we believe could complement or expand our products and services, enhance our technical capabilities or otherwise offer growth opportunities. We cannot assure you that we will realize the anticipated benefits of these or any future acquisitions. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses related to identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
There are inherent risks in integrating and managing acquisitions. If we acquire additional businesses, we may not be able to assimilate or integrate the acquired personnel, operations and technologies successfully or effectively manage the combined business following the acquisition, and our management may be distracted from operating our business. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, without limitation:
difficulty integrating the purchased operations, products or technologies and maintaining the quality and security standards consistent with our brand;
the need to integrate or implement additional controls, procedures and policies;
unanticipated costs or liabilities associated with the acquisition;
our inability to comply with the regulatory requirements applicable to the acquired business;
substantial unanticipated integration costs;
assimilation of the acquired businesses, which may divert significant management attention and financial resources from our other operations and could disrupt our ongoing business;
use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition;
the loss of key employees, particularly those of the acquired operations;
difficulty retaining or developing the acquired business’ customers;
adverse effects on our existing business relationships;
failure to realize the potential cost savings or other financial benefits or the strategic benefits of the acquisitions, including failure to consummate any proposed or contemplated transaction; and
liabilities from the acquired businesses for infringement of intellectual property rights or other claims and failure to obtain indemnification for such liabilities or claims.
Acquisitions also increase the risk of unforeseen legal liability, including for potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses which are not discovered by due diligence during the acquisition process. Generally, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our business, results of operations or financial condition. Even if we are successful in completing and integrating an acquired business, the acquired businesses may not perform as we expect or enhance the value of our business as a whole.
We may become subject to litigation, which could have a material adverse effect on our business, financial condition and results of operations.
We may become subject to litigation in the future. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which we are not, or cannot be, insured against. We generally intend to defend ourselves vigorously; however, we cannot be certain of the ultimate outcomes of any claims that may arise in the future. Resolution of these types of matters against us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having a material adverse effect on our business, financial condition, results of operations, cash flow and per share trading price of our common stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flows, expose us to increased risks that would be uninsured and adversely impact our ability to attract directors and officers.
Our operating results have in the past and may continue to fluctuate significantly and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.
Our operating results are likely to fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline. Moreover, our stock price may be based on expectations of our future performance that may be unrealistic or that may not be met. Some of the important factors that could cause our revenues and operating results to fluctuate from quarter to quarter include:
the extent to which our services achieve or maintain market acceptance;
our ability to introduce new services and enhancements to our existing services on a timely basis;
new competitors and the introduction of enhanced products and services from new or existing competitors;
the length of our contracting and implementation cycles;
the financial condition of our current and potential clients;
the ability of our Platform to integrate with the systems, including EHR and PM systems, utilized by our provider clients;
changes in client budgets and procurement policies;
amount and timing of our investment in research and development activities;
technical difficulties or interruptions in our services;
our ability to hire and retain qualified personnel, including the rate of expansion of our sales force;
changes in the regulatory environment related to healthcare;
regulatory compliance costs;
the timing, size and integration success of potential future acquisitions; and
unforeseen legal expenses, including litigation and settlement costs.
Many of these factors are not within our control, and the occurrence of one or more of them might cause our operating results to vary widely. As such, we believe thatquarter-to-quarter comparisons of our revenues and operating results may not be meaningful and should not be relied upon as an indication of future performance.
A significant portion of our operating expense is relatively fixed in nature and planned expenditures are based in part on expectations regarding future revenue. Accordingly, unexpected revenue shortfalls may decrease our margins and could cause significant changes in our operating results from quarter to quarter.
As a result of our variable sales and implementation cycles, we may be unable to recognize revenue to offset expenditures, which could result in fluctuations in our quarterly results of operations or otherwise harm our future operating results.
The sales cycle for our services can be variable, typically ranging from two to eight months from initial contact to contract execution. During the sales cycle, we expend time and resources, and we do not recognize any revenue to offset such expenditures. Our implementation cycle is also variable, typically ranging from one to 24 months from contract execution to completion of implementation. The variability of our sales and implementation cycles are dependent on numerous factors, including the size and complexity of the applicable customer. Some of ournew-clientset-up projects are complex and require a lengthy delay and significant implementation work, including to educate prospective clients about the uses and benefits of our Platform. Each customer’s situation is different, and unanticipated difficulties and delays may arise as a result of failure by us or by the client to meet our respective implementation responsibilities. During the implementation cycle, we expend substantial time, effort and financial resources implementing our service, but accounting principles do not allow us to recognize the resulting revenue until the service has been implemented, at which time we begin recognition of implementation revenue over the life of the contract. This could harm our future operating results.
After a client contract is signed, we provide an implementation process for the client during which appropriate connections and registrations are established and checked, data is loaded into our Platform system, data tables are set up and practice personnel are given initial training. The length and details of this implementation process vary widely from client to client. Typically, implementation of larger clients takes longer than implementation for smaller clients. Implementation for a given client may be cancelled. Despite the fact that we typically require a deposit in advance of implementation, some clients have cancelled before our service has been started. In addition, implementation may be delayed or the target dates for completion may be extended into the future for a variety of reasons, including to meet the needs and requirements of the customer, because of delays with payer processing and because of the volume and complexity of the implementations awaiting our work. If implementation periods are extended, our revenue cycle will be delayed and our financial condition may be adversely affected. In addition, cancellation of any implementation after it has begun may involve loss to us of time, effort and expenses invested in the cancelled implementation process and lost opportunity for implementing paying clients in that same period of time.
These factors may contribute to substantial fluctuations in our quarterly operating results, particularly in the near term and during any period in which our sales volume is relatively low. As a result, in future quarters our operating results could fall below the expectations of securities analysts or investors, in which event our stock price would likely decrease.
Certain of our operating results and financial metrics, including the key metrics included in this report, may be difficult to predict as a result of seasonality.
We believe there are significant seasonal factors that may cause us to record higher revenue in some quarters compared with others. We believe this variability is largely due to our focus on the healthcare industry. For example, with respect to our provider clients, we receive a disproportionate increase in revenue from such clients during the first two to three months of the calendar year relative to the other months of the year, which is driven, in part, by the resetting of patient deductibles at the beginning of each calendar year. Sales for our life sciences solutions are also seasonal, primarily due to the annual spending patterns of our clients. This portion of our sales is usually the highest in the fourth quarter of each calendar year. While we believe we have visibility into the seasonality of our business, our rapid growth rate over the last several years may have made seasonal fluctuations more difficult to detect. If our rate of growth slows over time, seasonal or cyclical variations in our operations may become more pronounced, and our business, results of operations and financial position may be adversely affected.
We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the year ending January 31, 2021, provide a management report on the internal control over financial reporting. Our independent registered public accounting firm is not required to audit the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act.
Prior to our IPO in July 2019, we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and procedures. In connection with the audit of our financial statements for fiscal 2019, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We determined that we had a material weakness because we did not maintain a sufficient complement of personnel with an appropriate degree of knowledge, experience, and training, commensurate with our accounting and reporting requirements. As a result of the lack of personnel, we had inappropriate segregation of duties throughout several control processes, including the review and approval of manual journal entries. Accordingly, internal controls over our financial statement close process were not designed appropriately to detect a material error in the financial statements in a timely manner. As a result, there were a number of post-close adjustments that were material to the financial statements. This material weakness could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.
To address this material weakness, we are hiring additional accounting personnel and implement process level and management review controls. While we intend to implement a plan to remediate this material weakness, we cannot predict the success of such plan or the outcome of our assessment of these plans at this time. If our steps are insufficient to successfully remediate the material weakness and otherwise establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected. We can give no assurance that this implementation will remediate this deficiency in internal control or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements, cause us to fail to meet our reporting obligations.
Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. For as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
We may be subject to additional tax liabilities in connection with our operations or due to future legislation, each of which could materially impact our financial position and results of operation.
We are subject to federal and state income, sales, use, value added and other taxes in the United States and other countries in which we conduct business, and such laws and rates vary by jurisdiction. We are now registered in all states that assess sales taxes. Certain jurisdictions in which we do not collect sales, use, value added or other taxes on our sales may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future.
Although we believe our tax practices and provisions are reasonable, the final determination of tax audits and any related litigation could be materially different from our historical tax practices, provisions and accruals. If we receive an adverse ruling as a result of an audit, or we unilaterally determine that we have misinterpreted provisions of the tax regulations to which we are subject, there could be a material effect on our tax provision, net income or cash flows in the period or periods for which that determination is made, which could materially impact our financial results. Further, any changes in the taxation of our activities, including certain proposed changes in U.S. tax laws, may increase our effective tax rate and adversely affect our financial position and results of operations. In addition, liabilities associated with taxes are often subject to an extended or indefinite statute of limitations period. Therefore, we may be subject to additional tax liability (including penalties and interest) for a particular year for extended periods of time.
Interruption or failure of our information technology and communications systems could impair our ability to effectively deliver our products and services, which could cause us to lose clients and harm our operating results.
Natural orman-made disasters and other similar events may significantly disrupt our business and negatively impact our business, financial condition and results of operations.
Our offices may be harmed or rendered inoperable by natural orman-made disasters, including earthquakes, power outages, fires, floods, nuclear disasters and acts of terrorism or other criminal activities, which may render it difficult or impossible for us to operate our business for some period of time. For example, our headquarters is located in the greater New York City area, a region with a history of terrorist attacks and hurricanes. Any disruptions in our operations related to the repair or replacement of our offices, could negatively impact our business and results of operations and harm our reputation. Insurance may not be sufficient to compensate for losses that may occur. Any such losses or damages could have a material adverse effect on our business, financial condition and results of operations. In addition, our clients’ facilities may be harmed or rendered inoperable by such natural orman-made disasters, which may cause disruptions, difficulties or material adverse effects on our business.
The assertion of such claims and ensuing litigation, regardless of its outcome could result in substantial cost to us, divert management’s attention from operations, damage our reputation and decrease market acceptance of our services. We attempt to limit by contract our liability for damages and to require that our clients assume responsibility for medical care and approve key system rules, protocols and data. Despite these precautions, the allocations of responsibility and limitations of liability set forth in our contracts may not be enforceable, may not be binding upon patients or may not otherwise protect us from liability for damages.
We maintain general liability and insurance coverage, but this coverage may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims against us. In addition, the insurer might disclaim coverage as to any future claim. One or more large claims could exceed our available insurance coverage.
Our marketing efforts depend significantly on our ability to receive positive references from our existing clients.
Our marketing efforts depend significantly on our ability to call upon our current clients to provide positive references to new potential clients. Given our limited number of long-term clients, the loss or dissatisfaction of any client could substantially harm our brand and reputation, inhibit widespread adoption of our solution and impair our ability to attract new clients and maintain existing clients. Any of these consequences could lower our revenues and have a material adverse effect on our business, financial condition and results of operations.
Our payments platform is a core element of our business. If our payments platform is limited, restricted, curtailed or degraded in any way, or if we fail to continue to grow and develop our payments platform, our business may be materially and adversely affected.
Our payments platform is a core element of our business. For fiscal 2019, our payments platform generated 37% of our total revenue. Our future success depends in large part on the continued growth and development of our payment processing platform. If such activities are limited, restricted, curtailed or degraded in any way, or if we fail to continue to grow and develop or payments platform, our business may be materially and adversely affected. The utilization of our payment processing tools may be impacted by factors outside of our control, such as disruptions in the payment processing industry generally. If the number of patients utilizing our payments platform, or the aggregate amounts paid by such patients directly to their healthcare providers through our payments platform, were to be reduced as a result of disruptions in the payment processing industry, it could result in a decrease to our revenue, which could harm our business, financial condition and results of operations.
The continued growth and development of our payment processing activities will also depend on our ability to anticipate and adapt to changes in client behavior. For example, client behavior may change regarding the use of credit card transactions, including the relative increased use of cash, crypto-currencies, other emerging or alternative payment methods and credit card systems that we or our processing
partners do not adequately support or that do not provide adequate commissions to independent sales organizations such as us. Any failure to timely integrate emerging payment methods (e.g. ApplePay or Bitcoin) into our software, anticipate client behavior changes, or contract with processing partners that support such emerging payment technologies could cause us to lose traction among our subscribers, resulting in a corresponding loss of revenue, in the event such methods become popular among their consumers.
Increases in card network fees and other changes to fee arrangements may result in the loss of clients who use our payment processing services or a reduction in our earnings.
From time to time, card networks, including Visa, Mastercard, American Express and Discover, increase the fees that they charge acquirers, which would be passed down to processors, payment facilitators and merchants. We could attempt to pass these increases along to our clients, but this strategy might result in the loss of clients to competitors who do not pass along the increases. If competitive practices prevent us from passing along the higher fees to our clients in the future, we may have to absorb all or a portion of such increases, which may increase our operating costs and reduce our earnings.
If we fail to comply with the applicable requirements of card networks, they could seek to fine us, suspend us or terminate our payment facilitator status. If our merchants or sales partners incur fines or penalties that we cannot collect from them, we may have to bear the cost of such fines or penalties.
We provide a payments solution for the secure processing of patient payments. Our payment processing tools can connect to multiple clearinghouses and can also connect directly with patients. We have developed partnerships with primary credit card processors in the United States to facilitate payment processing. For example, we are registered with Visa, Mastercard, American Express, Discover and other card networks as service providers for acquiring member institutions. These card networks set the operating rules and standards with which we must comply. The termination of our status as a certified service provider, a decision by the card networks to exclude payment facilitators or bar us from serving as such, or any changes in network rules or standards, including interpretation and implementation of the operating rules or standards, that increase the cost of doing business or limit our ability to provide transaction processing services to our merchants or partners, could adversely affect our business, financial condition or results of operations.
As such, we and our merchants are subject to card network rules that could subject us or our merchants to a variety of fines or penalties that may be levied by card networks for certain acts or omissions by us. The rules of card networks are set by their boards, which may be influenced by card issuers. Many banks directly or indirectly sell processing services to merchants in direct competition with us. These banks could attempt, by virtue of their influence on the networks, to alter the networks’ rules or policies to the detriment ofnon-members including our businesses. If a merchant or sales partner fails to comply with the applicable requirements of card networks, it could be subject to a variety of fines or penalties that may be levied by card networks. If we cannot collect processing fees from the applicable merchant, we may have to bear the cost of such fines or penalties, resulting in lower earnings for us. The termination of our registration, including a card network barring us from acting as a payment facilitator, or any changes in card network rules that would impair our registration, could require us to stop providing payment processing services relating to the affected card network, which would adversely affect our ability to conduct our business.
Our business and growth strategy depend on our ability to maintain and expand a network of provider clients. If we are unable to do so, our future growth would be limited and our business, financial condition and results of operations would be harmed.
Our success is dependent upon our continued ability to maintain a network of qualified provider clients. If we are unable to recruit and retain healthcare groups and other healthcare professionals, it would have a material adverse effect on our business and ability to grow and would adversely affect our results of operations. In any particular market, healthcare groups and professionals could demand higher payments or take other actions that could result in higher medical costs, less attractive service for our clients and the patients that they serve or difficulty meeting regulatory or accreditation requirements. Our ability to develop and maintain satisfactory relationships with qualified healthcare groups and professionals also may be negatively impacted by other factors not associated with us, such as changes in Medicare and/or Medicaid reimbursement levels and other pressures on healthcare providers and consolidation activity among hospitals, physician groups and healthcare providers. The failure to maintain or to secure new cost-effective client contracts may result in a loss of or inability to grow our client base, higher costs, healthcare provider network disruptions, less attractive service for our clients and/or difficulty in meeting regulatory or accreditation requirements, any of which could have a material adverse effect on our business, financial condition and results of operations.
We may be liable for use of incorrect or incomplete data we provide which could harm our business, financial condition and results of operations.
Our services present
Among other things, our services involve handling payments from patients for many of our clients, and this frequently includes original checks and/or credit card information. Even in those cases infuture, which we do not handle payments, our services also involve the use and disclosure of personal and business information that could be used to impersonate third parties or otherwise gain access to their data or funds. If any of our employees or subcontractors takes, converts or misuses such funds, documents or data, we could be liable for damages, and our business reputation could be damaged or destroyed.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success, and our business may be harmed.
We believe that a critical component to our success has been our corporate culture. We have invested substantial time and resources in building our team. As we continue to grow, we may find it difficult to maintain these important aspects of our corporate culture. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives.
Any failure to offer high-quality client support services could adversely affect our relationships with our clients and strategic partners and our operating results.
Our clients and patients depend on our support and client education organizations to educate them about, and resolve technical issues relating to, our products and services. We may be unable to respond quickly enough to accommodate short-term increases in client demand for education and support services. Increased client demand for these services, without a corresponding increase in revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on the reputation of our products and services and business and on positive recommendations from our existing clients. Any failure to maintain high-quality education and technical support, or a market perception that we do not maintain high-quality education support, could adversely affect our reputation, our ability to sell our products and services to existing and prospective clients and our business and operating results.
Our ability to limit our liabilities by contract or through insurance may be ineffective or insufficient to cover our future liabilities.
We attempt to limit, by contract, our liability for damages arising from our negligence, errors, mistakes or security breaches. Contractual limitations on liability, however, may not be enforceable or may otherwise not provide sufficient protection to us from liability for damages and we are not always able to negotiate meaningful limitations. We maintain liability insurance coverage, including coverage for cyber security and errors and omissions. It is possible, however, that claims could exceed the amount of our applicable insurance coverage, if any, or that this coverage may not continue to be available on acceptable terms or in sufficient amounts. Even if these claims do not result in liability to us, investigating and defending against them could be expensive and time-consuming and could divert management’s attention away from our operations. In addition, negative publicity caused by these events may delay market acceptance of our products and services, any of which could materially and adversely affect our reputation and our business.
Changes in laws and regulations relating to interchange fees on payment card transactions would adversely affect our revenue and results of operations.
A provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, known as the Durbin Amendment empowered the Federal Reserve Board, or FRB, to establish and regulate a cap on the interchange fees that merchants pay banks for electronic clearing of debit card transactions. The FRB issued a rule, effective October 1, 2011, implementing the Durbin Amendment. The final rule established standards for assessing whether debit card interchange fees received by debit card issuers were reasonable and proportional to the costs incurred by issuers for electronic debit transactions, and it established a maximum permissible interchange fee that an issuer may receive for an electronic debit transaction, limiting the fee revenue to debit card issuers and payment processors.HSA-linked payment cards are currently exempt from the rule, assuming the card is the only means of access to the underlying funds (except when all remaining funds are provided to the cardholder in a single transaction). The FRB is empowered to issue amendments to the rule, or a state or federal legislative body could enact new legislation, which could change the scope of the current rule and the basis upon which interchange rate caps are calculated. To the extent thatHSA-linked payment cards and other exempt payment cards used on our Platform (or their issuing banks) lose their exempt status under the current rules or if the current interchange rate caps applicable to other payment cards used on our Platform are reduced, any such amendment, rulemaking, or legislation could impact interchange rates applicable to payment card transactions processed through our Platform. As a result, this could decrease our revenue and profit and could have a material adverse effect on our financial condition and results of operations.
Our ability For example, in March 2010, the Patient Protection and Affordable Care Act ("ACA") was adopted, which is a healthcare reform measure that provides healthcare insurance for approximately 30 million additional Americans. The ACA includes a variety of healthcare reform provisions and requirements that became effective at varying times through 2018 and substantially changes the way healthcare is financed by both governmental and private insurers, which may significantly impact our industry and our business. Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the Biden administration or other efforts, if any, to challenge, repeal or replace the ACA will impact our business.
As of January 31, 2019, we had U.S. federalvarious other laws and state net operating loss carryforwards, or NOLs, of approximately $100 million dueregulations, including, among others, the Stark Law relating to prior period losses, which, subject toself-referrals, anti-kickback laws, antitrust laws and the following discussion, are generally available to be carried forward to offset a portion of our future taxable income, if any, until such NOLs are used or expire. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize itspre-ownership change NOLs to offset future taxable income. Similar rules may apply under state tax laws. Our existing NOLs may be subject to limitations arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. In addition, under the Tax Act, the amount of post 2017 NOLs that we are permitted to deduct in any taxable year is limited to 80% of our taxable income in such year, where taxable income is determined without regard to the NOL deduction itself. The Tax Act generally eliminates the ability to carry back any NOL to prior taxable years, while allowing post 2017 unused NOLs to be carried forward indefinitely without expiration. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs.
We recently changed from a December 31 fiscalyear-end to a January 31 fiscalyear-end. This change will make period-over-period comparisons more difficult in the short-term.
We recently changed our fiscalyear-end from December 31 to January 31. Prior to 2019, we reported on a calendar-year basis with ayear-end of December 31. We changed our fiscalyear-end, effective January 31, 2019, to better align our fiscal calendar with the seasonal nature of our business. There are significant seasonal factors that may cause us to record higher revenue in some quarters compared with others. This change to our fiscalyear-end may render period-over-period comparisons of our financial results less meaningful during this initial transition period.
The process of implementing a fiscal calendar transition has requiredprivacy and will continue to require us to adjust the processes, data and systems that our management and personnel rely upon to conduct our business operations and provide products and services to our clients. This change to our fiscalyear-end, and any errors in our implementation of this change, could adversely impact our business and results of operations.
Economic uncertainties or downturns in the general economy or the industries in which our clients operate could disproportionately affect the demand for our solution and negatively impact our results of operations.
Market volatility and economic uncertainty remain widespread, making it potentially very difficult for our clients and us to accurately forecast and plan future business activities. During challenging economic times, our clients and patients may have difficulty gaining timely access to sufficient credit or obtaining credit on reasonable terms, which could impair their ability to make timely payments to us and adversely affect our revenue. If that were to occur, our financial results could be harmed. Further, challenging economic conditions may impair the ability of our clients to pay for the applications and services they already have purchased from us and, as a result, our write-offs of accounts receivable could increase. Patients utilizing our payment processing tools may also fail to make such payments on a timely basis or at all. We cannot predict the timing, strength or duration of any economic slowdown or recovery. If the condition of the general economy or markets in which we operate worsens, our business could be harmed.
protection laws described below.
harbor to protectpoint-of-sale discountsfinal rule that drug manufacturers provide directly to patients, and adds anotherprovides a safe harbor for value-based compensation agreements under the Stark Law. Both rules are currently in effect.
Anti-Kickback Statute, HIPAA, as amended by the HITECH Act, and their respective implementing regulations, also impose criminal and civil liability for knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program (including private payors)payers) or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., publicpayer (public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services. ManySimilar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it.
There
Non-compliance with applicable FDA requirements can result in, among other things, public warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the FDA to grant marketing approvals, withdrawal of marketing approvals, a recommendation by the FDA to disallow us from entering into government contracts and criminal prosecutions. The FDA also has the authority to request repair, replace or refund of the cost of any device.
Potential additional regulation of the disclosure of health information outside the United States may adversely affect our operations and may increase our costs.
Federal or state governmental authorities may impose additional data security standards or additional privacy or other restrictions on the collection, use, transmission and other disclosures of health information. In the future, industry requirements or guidance (e.g., payor requirements), contractual obligations, and/or legislation at both the federal and the state level may limit, forbid or regulate the use or transmission of health information outside of the United States. These developments, if adopted, may render our use of our office in Ottawa, Ontario, Canada, for work related to such data impracticable or substantially more expensive. Alternative means of supporting our clients with the use of such information within the United States may involve substantial delay in implementation and increased cost.
We operate in a rapidly changing industry. Accordingly, our risk management policies and procedures may not be fully effective to identify, monitor and manage all risks our business encounters. If our policies and proceduresCanada are not fully effective or we are not successful in identifying and mitigating all risks to which we are or may be exposed, we may suffer uninsured liability, harm to our reputation or be subject to litigation or regulatory actions that could adversely affect our business, financial condition or results of operations.
Our office in Ottawa, Canada is subject to the laws and regulations of the government of Canada and its subdivisions.
Our office
Changes
Accounting rulesour business and interpretations for certain aspectscould expose us to third-party liabilities.
operating activities was $0.6$36.7 million. As of JulyOctober 31, 2019,2021, we had $100.1$400.4 million of cash and cash equivalents, which are held for working capital purposes. As of JulyOctober 31, 2019,2021, we had $20.0 million ofno outstanding borrowings under our credit facility and $0 outstanding under our revolving line of credit, with the ability to borrow up to an additional $25.0$50.0 million in term loan borrowings and $25.0 million in ourunder the revolving line of credit.credit included in the Second SVB Facility. Borrowings under our credit facility are secured by substantially all of our properties, rights and assets, excluding intellectual property.
•finance unanticipated working capital requirements;
•develop or enhance our technological infrastructure and our existing products and services;
•fund strategic relationships, including joint ventures andco-investments;
•fund additional implementation engagements;
•acquire complementary businesses, technologies, products or services.
Despite our outstanding indebtedness, we may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
We may incur substantial additional indebtedness in the future. Although the agreement governing our credit facility contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and the indebtedness we can incur in compliance with these restrictions could be substantial. If we incur additional debt, the risks associated with our substantial leverage would increase.
•market conditions in the broader stock market in general, or in our industry in particular;
•the impact of COVID-19 on the economy, our company, our customers, suppliers or employees;
•our ability to satisfy our ongoing capital needs and unanticipated cash requirements;
•indebtedness incurred in the future;
•introduction of new products and services by us or our competitors;
•issuance of new or changed securities analysts’ reports or recommendations;
•sales of large blocks of our common stock;
•additions or departures of key personnel;
•regulatory developments;
•litigation and governmental investigations;
•economic and political conditions or events; and
•our sale of common stock or other securities in the future, as well as the anticipation oflock-up releases.
If
Ifby our existing stockholders sellin the public market could cause our stock price to fall.
In addition, following the expiration of thelock-up agreements referred to above, certain stockholders will be entitled, under our investors’ rights agreement, to require us to register shares owned by them for public sale in the United States. We also filed a registration statement to register shares reserved for future issuance under our equity compensation plans. As a result, subject to the satisfaction of applicable exercise periods and the expiration or waiver oflock-up agreements referred to above, the shares issued upon exercise of outstanding stock options or upon settlement of outstanding RSU awards will be available for immediate resale in the United States in the open market.
Sales of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales could also cause the trading price of our common stock to fall and make it more difficult for you to sell shares of our common stock.
Anti-takeover provisions under our incorporation documents and Delaware law could delay or prevent a change of control which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:
a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;
a requirement that special meetings of stockholders be called only by the board of directors acting pursuant to a resolution approved by the affirmative voteoutside of a majorityRule 10b5-1 trading plan when they are not in possession of the directors then in office;
advance notice requirements for stockholder proposals and nominations for election to our board of directors;
a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than 75% of all outstanding shares of our voting stock then entitled to vote in the election of directors;
a requirement of approval of not less than 75% of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of our amended and restated certificate of incorporation; and
the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
Our amended and restated bylaws designate the Court of Chancery of the State of Delaware, or the Chancery Court, as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Chancery Court is the sole and exclusive forum for state law claims for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim pursuant to any provision of the General Corporation Law of the State of Delaware, our amended and restated certificate of incorporation or our amended and restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum provision does not apply to any causes of action arising under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits. Alternatively, if a court were to find the choice of forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We are an emerging growth company, as defined in the JOBS Act, enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being requiredunable to comply with these requirements.
Underothers lose confidence in the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. This may make comparisonreliability of our financial statements, withwe could be subject to sanctions or investigations by the financial statements of another public company that is not an emerging growth company,SEC or an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
other applicable regulatory authorities and our business could be harmed.
We are subject
As a public company,resolution approved by the affirmative vote of a majority of the directors then in office;
We expect the rules and regulations applicablethereunder.
An active public trading market may not develop or be sustained.
The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
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From April 30, 2019 to July 31, 2019 we issued to our directors, officers and employees (i) restricted stock units for an aggregate 58,589 shares of common stock under our 2018 Stock Option and Grant Plan, as amended, or the 2018 Plan, (ii) options to purchase an aggregate of 189,398 shares of common stock under our 2018 Plan, (iii) an aggregate of 20,049 shares of common stock pursuant to the exercise of stock options under our Amended and Restated 2006 Stock Option and Grant Plan, for cash consideration with aggregate exercise proceeds of $32,357.42, and (iv) an aggregate of 1,762 shares of our common stock pursuant to the exercise of stock options under our 2018 Plan for cash consideration with aggregate exercise proceeds of $8,299.02.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We deemed the grants and exercises of stock options and restricted stock units above as exempt pursuant to Section 4(a)(2) of the Securities Act or to be exempt from registration under the Securities Act in reliance on Rule 701 of the Securities Act as offers and sales of securities under compensatory benefit plans and contracts relating to compensation in compliance with Rule 701. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us. Furthermore, we affixed appropriate legends to the share certificate and instruments issued in each foregoing transaction setting forth that the securities had not been registered and the applicable restrictions on transfer.
We completed
We received offering proceeds of $130.8 million from the IPO, net of underwriters’ discounts and commissions, and before deducting offering costs of approximately $6.1 million. No payments were made by us to directors, officers, or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than the IPO dividend (as described in the prospectus) and payments in the ordinary course of business to officers for salaries and tonon-employee directors pursuant to our director compensation policy.
Information related to use of proceeds from registered securities is incorporated herein by reference to the “Use of Proceeds” section of the prospectus. There has been no material change in the planned use of proceeds from our IPOthe initial public offering as described in the final prospectus.
prospectus, dated July 17, 2019 and filed with the SEC on July 19, 2019 pursuant to Rule 424(b) of the Securities Act.
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# Indicates a management contract or any compensatory plan, contract or arrangement. + This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.
PHREESIA, INC. | |||||||||||||||||||||
Date: | By: | /s/ Chaim Indig | |||||||||||||||||||
Chaim Indig | |||||||||||||||||||||
President, Chief Executive Officer and Director | |||||||||||||||||||||
(Principal Executive Officer) | |||||||||||||||||||||
Date: | By: | /s/ | |||||||||||||||||||
Chief Financial Officer | |||||||||||||||||||||
(Principal Financial |
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