We achieve these engagement levels through our commitment to a set of core tenets:
to engage with our members. A commitment to supporting the "whole person," by taking a broad definition of wellness and devoting attention to a family's full circumstances (including social determinants of health and contextual variables), governs the approach of our Accolade Health Assistants and clinicians. They are measured on whether a member's total
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Our relentless focus on member engagement and the delivery of an outstanding member experience has resulted in our 94% average member satisfaction rating and average Net Promoter Score (NPS) of 60 over the past three years. In comparison, in a 2019 study, the median NPS for health insurance companies was 14. Through trusted, ongoing engagement, we can meaningfully influence member decisions and help increase valuable healthcare utilization (e.g., primary care visits, prescription refills) and reduce wasteful healthcare utilization (e.g., unnecessary emergency room visits, hospital readmissions, excessive inpatient stays). We further enhance the member experience by educating members on relevant, available benefits, such as wellness programs and telemedicine. In raising awareness of these benefits and seamlessly integrating them into our platform, we can significantly increase their utilization rates.
Our approach results in real, measurable, actuarially validated savings for our customers, starting with average savings of approximately 4% of total employer healthcare spend during a customer's first year and often increasing to more than 10% per year for our more tenured customers, amounts significantly higher than the fee we charge our employer customers. In a 2018 study by Aon, Accolade's primary offering was shown to reduce claims costs for an employer with more than 10,000 members by 6.5%, or $782 per employee per year, and for an employer with more than 100,000 members it was able to generate a 4.7% reduction in claims costs, or $527 per employee per year, versus similar employer groups not using Accolade. These reductions were
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generated exclusive of plan design changes, were measured across the entire member population, started in year one, and were sustained over the respective study periods.
Our investments in a scalable technology platform have enabled us to implement a multi-offering strategy that meets the diverse needs of our existing and prospective customers. Buyers of our offerings have varying priorities and appetites for change to their existing health and benefits
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packages, and we have therefore developed a solutions portfolio that is designed to support a range of integrations for employers of all sizes. Our most comprehensive offering, Accolade Total Health and Benefits, is a population health solution that provides fully integrated healthcare navigation and benefits management.management and can be tailored to the unique needs of a given employer's subpopulation. Our technology platform has enabled us to unbundle aspects of this comprehensive offering to create two additional standalone offerings: Accolade Total Benefits and Accolade Total Care. We have further leveraged our technology platform to develop add-on offerings, such as Accolade Boost and our Trusted Supplier Program — as well as, very recently, Accolade COVID Response Care — that target specific challenges faced by our customers.
We currently have 53 customers across many industries, including media, technology, financial services, transportation, energy, and retail, comprising more than 1.5 million members. We principally generate revenue from our customers on a contractually recurring per-member-per-month (PMPM) fee, which provides us with significant revenue visibility. Our typical customer contract length is three years, and we have experienced gross dollar retention for our employer customers of 100% and 95% for the fiscal years ended February 28, 2018 and 2019, respectively. For the fiscal years ended February 28, 2018 and 2019, our total revenue was $76.8 million and $94.8 million, respectively, representing 23% year-over-year growth. For the fiscal years ended February 28, 2018 and 2019, our net losses were $61.3 million and $56.5 million, respectively. For the nine months ended November 30, 2018 and 2019, our total revenue was $59.7 million and $88.1 million, respectively, and we incurred net losses of $49.5 million and $49.2 million, respectively. As of November 30, 2019, our accumulated deficit was $318.7 million.
Industry Challenges
All stakeholders — including consumers, their employers, and providers — face myriad challenges given the increasing complexity, misaligned incentives, and rising costs of the healthcare system.
The consumer's healthcare journey, as depicted below, often starts with frustration during health plan enrollment that extends into provider selection, post-care follow-up, and ongoing care management.
According to an industry survey, approximately 25% of people fully understand their benefits. Consumers are further impacted by a lack of coordinated services from health plans, marked by impersonal, siloed, and automated customer support systems or transaction-oriented customer service representatives who lack data and the incentives to address a consumer's holistic care needs. Indeed, it is not uncommon for a consumer to call into a health plan services line and be served by one division of the health plan while a disease management program of the same health
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plan is trying, unsuccessfully, to engage that consumer in care management. These factors can aggravate the consumer's healthcare knowledge gap and create barriers to the optimal use of their benefits.
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Once a consumer engages with the healthcare system, they face a new set of challenges in navigating the highly fragmented provider and site of care network. On account of this, selecting a primary care provider or specialist can be a daunting task for most consumers who lack access to easy-to-navigate provider directories and reliable provider cost and quality data, despite their desire to leverage such information (half of surveyed Americans indicated they would be highly likely to use websites that offer quality rankings, satisfaction ratings, and patient reviews for specific doctors and hospitals, and a similar portion would be highly likely to use a pricing tool that could help compare prices for services and treatments offered by specific doctors and hospitals). Further, even seemingly simple steps can create additional hurdles, including appointment scheduling and benefit verification. After a care event, a number of issues can prevent effective care coordination: lack of technology interoperability between different providers; lack of systems to monitor patients across the care continuum; lack of follow through with care plans or prescription adherence; and a lack of incentives for any one provider to ensure the consumer does not "fall through the cracks."
Given these challenges, many consumers operate in an information vacuum or turn to unverified and potentially biased sources to learn about their conditions, which can lead them to seek too much, too little, or the wrong care for their needs. The recent proliferation of technology-enabled point solutions has created a variety of new options to help consumers manage many of their specific care needs. While these solutions may enable better treatment, a significant gap has been observed between covered individuals who would benefit from the solution and actual utilization, as individuals may not know which option is best for them or even available through their benefits. For example, industry surveys for employers with more than 500 employees have historically reported that telemedicine utilization (i.e., employees using the service at least once) is approximately 7% to 11%,. While there has been a recent surge in the use of telehealth (close to 46% of consumers) as a result of the COVID-19 pandemic and usageregulatory changes, many other beneficial programs continue to be underutilized. Usage of employee assistance programs (EAP), which typically include alcohol, substance abuse, counseling, and mental health programs, ishas only been 5% to 8% annually.
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have a significant negative impact on the patient's use of the healthcare system. For example, negative patient experiences with a primary care provider have been associated with a higher likelihood of non-urgent use of emergency departments, contributing to inefficient and more expensive care delivery.
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- Employers: Employers strive to build comprehensive, attractive benefits packages in order to recruit and retain a talented workforce, as well as to ensure that their employees' overall well-being is maintained so they remain engaged and productive. However, their human resource departments typically handle a wide range of responsibilities of which benefits are only a portion. As a result, employers are generally not equipped to provide comprehensive advice to help their employees navigate the healthcare system, nor do they employ the resources to provide personalized clinical guidance to help their employees understand treatment and care options. Employers recognize the disconnect between their desire to provide more support for employee wellness and their constrained resources — a 2018 industry study found 82% of employers thought it was important to enhance employees' total well-being over the following three years, while 65% are interested in technology that will improve healthcare navigation or benefit experiences.
Approximately 80% of employers with more than 500 employees are self-insured. In 2019, large employer spending on healthcare was estimated at over $10,000 per employee per year. Annual cost increases of employer-sponsored healthcare are on an unsustainable trend, having consistently exceeded the annual rate of inflation, with approximately 6% per year increases over the past few years. This trend is expected to continue.
Further, the COVID-19 pandemic has dramatically expanded the scope and complexity of healthcare and benefits issues that employers must manage and employees are required to navigate, assess, and incorporate into their daily lives. This means employers must not only provide for the healthcare of their employees, but also must design systems, controls, and procedures to bring employees safely back to work in varied capacities.
As costs continue to rise, employers are increasingly focused on managing their healthcare expense, in many cases shifting more of the cost burden to employees in the form of increased premiums, deductibles, and coinsurance. The average premium for family coverage has increased 54% over the last ten years, while the average deductible has more than doubled (both rates significantly outpacing growth in wages and inflation).
Our Value Proposition
Accolade provides consumers a single place to turn for their health, healthcare, and benefits needs. Our innovative platform combines open, cloud-based intelligent technology with multimodal support from a team of empathetic and knowledgeable Accolade Health Assistants and clinicians. Foundational to our success is our ability to effectively engage with our members, which allows us to form trusted relationships, and influence members' decisions for the better, ultimately leading to better outcomes and ongoing engagement: our "member flywheel."
The aggregate impact of this deep engagement across a customer's employee population is improved healthcare and benefits awareness, knowledge, and decision-making, a healthier and more engaged workforce, and healthcare cost savings. We become a trusted partner to our customers and gain the opportunity to support them on their population health strategies and benefits procurement. This position allows us to identify additional solutions that may meet our customers' needs, which, when implemented, result in additional opportunities for member
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engagement and better health outcomes. Thus, our member flywheel drives our "customer flywheel."
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Accolade's Member and Customer Flywheels
Our members face structural, clinical, financial, and administrative challenges in managing their health and wellness. We help them solve these problems in a host of ways: choosing the most appropriate health plan based on their personal needs; understanding the extent of their benefits; decoding and managing their medical bills; finding high-quality providers; making sense of and staying coordinated through prescribed care plans; and addressing any need that may surface along this continuum. Our engagement model simplifies and streamlines the healthcare and benefits experience for our members by making guidance from our Accolade Health Assistants and clinicians available via phone, mobile application, and web portal whenever it is needed.
Frequently, the holistic approach of our empathetic care team will uncover that a simple transactional concern exposes much greater support and care needs. Examples of the types of questions that might prompt our members to initially turn to us include:
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Once we establish a connection, our Accolade Health Assistants help to resolve the member's often basic transactional issue, and then expand the conversation as appropriate based on our proprietary, technology-enabled engagement framework, LEARN2 (Listen, Engage, Assess, Resolve, INfluence, ENhance), to grow the value proposition for the member. Expansion in action may look like:
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- turning a request for a replacement health plan ID card into a discussion about a member's new diagnosis, including identifying unmet behavioral health and social needs and connecting the member with recommended clinical and non-clinical resources for education and ongoing support;
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- expanding a search for an in-network provider into a dialogue about identifying the right provider for the member based on quality and cost data, as well as coordinating care between providers to avoid unnecessary duplication of services;
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- migrating a discussion about the details of a bill to a review of options for lowering a member's overall out-of-pocket costs, including through the use of generic medications and lower cost sites of care; and
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- evolving a review of benefits into a detailed discussion about different treatment options and their associated cost, and then
a connectionconnecting the member to a nurse so the memberthey can make informed decisions about treatment options based on their preferences.
For a representative interaction between an Accolade Total Health and Benefits member and Accolade, please see the section titled "— Representative Member Story."
We provide dual value for our customers, serving both as a valuable benefit that is well liked by their employees and a tool to help reduce healthcare costs and increase adoption of existing benefits. By engaging repeatedly and meaningfully with members across the spectrum of healthcare spending, our model has demonstrated significant healthcare cost savings for our customers by increasing valuable healthcare utilization and decreasing wasteful utilization. To ensure alignment with our customers' interests, our contracts include variable revenue components earned by satisfying performance metrics and generating healthcare cost savings.
In a recent2018 study by Aon of Accolade's primary offering's impact on two self-insured employer groups of 10,000+ (Employer A) and 100,000+ (Employer B) members, the results were dramatic and demonstrated savings significantly greater than the fee we charge our employer customers. The study analyzed data for these two employers against a control group of typical employer members based on similar demographic, geographic, and comorbidity profiles. Compared to the control groups:
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- total allowed cost for Employer A for a single plan year was $782 lower per employee per year, representing a 6.5% reduction relative to similar employer groups and resulting in more than $4.8 million in total annual savings;
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- total allowed cost for Employer B for three plan years was $527 lower per employee per year, representing a 4.7% reduction relative to similar employer groups and resulting in more than $46.9 million in total annual savings; and
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- cumulative cost growth from 2014 to 2016 was reduced to 2.7% for Employer B compared to 7.8% two-year trend for the control group, and annualized allowed trend for Employer B was 1.3% versus 3.8% for the control group.
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The study showed improvements in total cost and cost trends resulting from multiple factors, including lowered inpatient, outpatient, and professional medical spend, as well as lower brand-name and specialty pharmacy spend. Savings were generated across the subject employee populations, leading to cost savings across age ranges, comorbidity groups (as defined by number of chronic conditions), and cost distributions. These results were independent of any significant changes to the benefits or plan design of the respective subject employer.
In addition to achieving healthcare cost savings, our platform can also be a valuable tool for promoting member engagement with additional benefits. We extend our comprehensive health and benefits knowledge into the vast network of employer-targeted point solutions on behalf of our customers to drive utilization of these solutions when appropriate. Our open technology platform seamlessly integrates these offerings and has demonstrated the ability to significantly increasedincrease utilization. In addition, through our Trusted Supplier Program, we serve as a strategic partner in helping our customers navigate the complexity of the growing ecosystem of potential benefits toso they can identify and procure high-quality solutions that would be valuable to their employees.
Based on feedback from our customers, our platform has been anecdotally shown to support workforce productivity, improve employers' ability to hire and retain talent, and increase the efficiency of human resources and benefits teams as employees turn instead to Accolade Health Assistants, clinicians, and self-serve interventions.
Our Market Opportunity
We believe our market opportunity is substantial and estimate the total addressable market (TAM) for our current solutions to be approximately $24 billion.
According to Centers for Medicare and Medicaid Services (CMS), in 2017, approximately 176 million individuals in the United States, or more than 50% of the insured population, were enrolled in an employer-sponsored health plan, accounting for $1.0 trillion in total healthcare spend. Employer adoption of solutions and services to address cost and quality of care pain points is expected to rapidly increase. According to Willis Towers Watson, the percentage of employers offering tools or services to support employee navigation of healthcare services is expected to increase from 59% in 2018 to 85% in 2020.
Our core market is currently comprised of self-insured employers with operations in the United States, inclusive of state and local governments and unions. This has been our historical focus and will continue to be so in the near-to-medium term. As such, the U.S. self-insured market comprises a material amount of our existing revenue base and expected future revenue. We have identified approximately 300 employers with greater than 35,000 employees (our "strategic" segment);, approximately 2,100 employers with 5,000 to 35,000 employees (our "enterprise" segment);, and approximately 19,100 employers with 500 to 5,000 employees (our "mid-market" segment), for a total of approximately 21,500 employers with 500 employees or more, of which a substantial majority are self-insured.
We deliver our solutions through contracts that run on a multi-year, PMPM basis. Based on the estimated number of addressable employees and the PMPM fee opportunity of our current offerings, we believe the self-insured employer market alone represents at least an $11.7 billion addressable market.
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Fully insured employers are motivated to help their employees choose the most appropriate health plan, understand the extent of their benefits, decode and manage their medical bills, find high-quality providers, and make sense of and stay coordinated through prescribed care plans. They also want to mitigate annual premium increases. We have begun to pursue opportunities with fully insured employers, most of which have fewer than 1,000 employees, and view the recent addition of several Accolade Total Benefits customers with their populations on fully insured plans as indicative of our potential to expand in this market. We estimate that fully insured employers represent an additional $1.7 billion addressable market opportunity.
In addition to employer-sponsored plans, we believe our solutions address critical pain points that also exist in government-sponsored programs, specifically Medicare, Medicaid, TRICARE, and those administered by Veterans Affairs. Per CMS projections, in 2020, there are expected to be approximately 146 million members enrolled in government-sponsored programs, and the average per year spend on a Medicare enrollee was projected to be $13,559 — nearly twice as high as the average per-member-per-year spend in the employer market. We believe our solutions provide government programs and the commercial insurers that partner with them a highly compelling value proposition to support ongoing cost containment and care improvement initiatives. A government agency has recently encouraged this belief by selectingFor example, we believe the Department of Defense's recent selection and launch of Accolade for a pilot program with a term of up to three years to support its beneficiaries.for a high-risk subset of their TRICARE population demonstrates this value proposition. We estimate that the aggregate size of all government-sponsored programs market represents an additional $10.7 billion addressable market opportunity.
We believe that our ability to leverage our platform for additional offerings that can support employer-sponsored and government-sponsored program members along their journey, either directly or indirectly through our partnership programs, will have a multiplier effect on our total addressable market; however, we have had limited penetration of these adjacent markets to date. Moreover, beyond our existing markets, we believe there are multiple other longer-term market expansion opportunities including with risk-bearing provider organizations and health plans, as well as through a direct-to-consumer offering.
Competitive Strengths
Our operational and financial success is based on the following key strengths:
Commitment to a differentiated member engagement model. We fundamentally believe in engaging theentire member population to have a sustainable impact on health outcomes and cost. This stands in contrast to the historic industry norm of engaging only the highest-cost, sickest patients with the most complex needs. To do this, we have built a platform to engage with each customer's eligible member population, build trusted relationships with members, and leverage those relationships to deliver important healthcare interventions when they matter the most. Once engaged, our members frequently have a dedicated Accolade Health Assistant, and, when a member may benefit from clinical support, a dedicated nurse. Our engagement model is self-reinforcing, such that we are continuously learning about our members, and developing an increasingly effective set of strategic interventions to better serve them.
Highly qualified and empathetic team with deep clinical experience. Our engagement model integrates "human touch" with a proprietary technology platform to encourage better outcomes for our members. Our care team is highly qualified: approximately two-thirds of our Accolade Health Assistants are degreed professionals, with approximately 13% holding advanced
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degrees, and our nurses have on average approximately 16 years of clinical experience. While the
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right mix of experience and skills is critical, all care team members must demonstrate empathy to be hired, and maintain it to be retained. This care team, which extends to include physician medical directors, pharmacists, women's health and behavioral health specialists, and complex case managers, supports members through their entire healthcare experience, accounting for our holistic member view and utilizing our data-driven processes to better understand and anticipate a member's healthcare needs in order to proactively intervene to support members.intervene.
Long-term strategic partner to our customers. We are engaged by employers to solve real issues around the design, coordination, and utilization of their employee benefits programs. Because we help their employees live their healthiest lives, our customers view us as a strategic partner that can provide population health insights and help them manage healthcare benefit costs and complexity.complexity, including, crucially, how to ensure the safety of employees returning to the workplace during a pandemic. Our proven member engagement model meaningfully lowers costs, as shown by our own actuarial data and the Aon study. In addition to cost savings, we help reduce absenteeism and increase employee productivity. This position allows us to recommend new, targeted offerings to our customers, which can help further reduce their costs, and, when implemented, result in additional opportunities for member engagement and expand our role as the customer's trusted partner.
Significant investment in our purpose-built, scalable technology platform. Our offerings are built on an open, cloud-based intelligent platform designed to deliver a highly personalized member experience. Our platform is built for scale — architected to deliver repeatable results and high service levels at a sustainable cost to serve — and leverages extensive data ingestion capabilities and artificial intelligence to derive predictive analytics, deliver targeted population health insights, and recommend the right care intervention for our members at the right time. Our technology platform supports seamless integration with the healthcare and benefits ecosystem, which allows us to recommend additional point solutions and programs to our customers that can provide additionalincremental value to their employees.
Attractive operating model supported by a PMPM recurring revenue model, providing a high degree of visibility. We currently have 5394 customers that collectively purchase access to our solutions for more than 1.52.0 million members. We principally generate revenue from our customers on a recurring PMPM fee basis, with contracts averaging three years in length, which together provide us with significant revenue visibility. Our ability to deliver significant and measurable return on investment for our customers in the form of improved clinical and financial outcomes has led to a gross dollar retention of 100%, 95%, and 95%99% for the fiscal years ended February 28,28(9), 2018, 2019, and 2019,2020, respectively.
Deeply experienced management team dedicated to cultivating a mission-driven culture. Our senior leadership team has extensive healthcare, technology, and business-scaling expertise from decades of leadership experience at world-class organizations. Our senior management team has a long track record of working together, both at Accolade and at previous firms, andwith some members of our senior leadership team havehaving worked together for over 20 years. We share our mission with the dedicated and passionate people that we employ, and our culture is a driving factor in our ability to attract and retain top talent. We foster a culture of transparency and alignment whereby we educate our employees on how their contributions each day drive us toward the achievement of our mission. We work together to solve complex problems, and we strive to "do well and do good."
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Our Growth Strategy
Key elements of our growth strategy include:
Grow our customer base. We believe there is a substantial opportunity to further grow our customer base in our large and under-penetrated market of approximately 21,500 self- and fully-insured employers in the United States with 500 employees or more. Our sales and marketing team
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draws on advanced demand-generation strategies to reach and educate the market about our offerings and increase the opportunities to grow our customer base. We maintain a cohort of highly referenceable customers in support of new customer acquisition. We value our total addressable market opportunity to be approximately $24 billion consisting of self-insured employers, fully insured employers, and government-sponsored programs.
Retain and expand relationships with our customers. By delivering measurable outcomes to our customers, we can achieve strong customer retention, which enables us to expand and deepen these relationships. Accolade Boost, and our Trusted Supplier Program, and Accolade COVID Response Care are examples of new add-on offerings that target specific challenges faced by our customers, complement our existing solutions, and provide cross-sell opportunities to drive incremental revenue. As we build upon our trusted partner status with these customers, we have the opportunity to cross-sell our additional capabilities. In addition, we believe we will be able to upsell a portion of those customers purchasing either our Accolade Total Benefits or Accolade Total Care offerings to more comprehensive offerings, namely Accolade Total Health and Benefits, as they see tangible cost and engagement benefits from their initial purchases.
Invest in technology. We have made significant investments in our technology platform to expand our capabilities with respect to how we engage with our members and deliver our solutions and care interventions. By leveraging our technology in areas such as machine learning, predictive analytics, and multimodal communication, we believe we can generate more efficiencies in our operating model while simultaneously improving our ability to deliver better health outcomes and lowerslower costs for both our members and our customers.
Continue to develop new offerings. We are constantly innovating to enhance our model and develop new offerings, including our recently introduced standalone offerings, Accolade Total Benefits and Accolade Total Care. Our ability to act as a trusted advisor to our members and customers positions us to identify new opportunities for additional offerings that can meet their existing and emerging needs. Our open technology platform also allows us to efficiently add new applications on top of our existing technology stack, such as Accolade Boost, and our Trusted Supplier Program.Program, and Accolade COVID Response Care. In addition, in July 2019, we acquired MD Insider in order to enhance our offerings by gaining access to experiential and performance insights on providers across the healthcare system. We believe that, as we expand our customer base and enter into new markets, we will be adept at identifying and deploying innovative new solutions, whether developed internally or through acquisitions.
Expand into adjacent markets. We see furthersignificant additional opportunity to enterin adjacent markets, including expanding with the TRICARE population and working with other government-sponsored health plans, such as Medicare Advantage and Managed Medicaid (as well as traditional Medicare and Medicaid), along with those administered by Veterans Affairs. Our focus and experience in the navigation and coordination of benefits and healthcare, coupled with our technology investments, position us to take advantage of emerging healthcare trends surrounding care coordination and value-based care initiatives. We believe that we can leverage our existing platform and scalable solutions to successfully expand into these markets.
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Opportunistically pursue partnerships. We have historically integrated new and complementary capabilities into our offerings by forming strategic partnerships and other relationships with third parties. We believe our partners choose us because of our entrepreneurial and collaborative culture and dedication to continuous innovation. For example, in March 2019 we partnered with Humana to form a joint go-to-market strategy that integrates our respective capabilities to create a differentiated healthcare and benefits experience for employees and employers. In addition, in February 2020, we entered into a strategic relationship with Change Healthcare Holdings LLC (Change Health) to increase each party's capabilities for serving its customers and members. More recently, we announced a partnership with Ginger, the leader in on-demand mental healthcare, to bring to market Mental Health Integrated Care, an offering that expands our members' access to mental health coaching, virtual therapy, and virtual psychiatry and deeply integrates these services with the physical health support provided by the Accolade care team.
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Our Offerings
We have developed a continuum of offerings to address the market's varied perspectives on how best to improve healthcare and benefits utilization, along with buyers' varying appetites for change. All of our offerings have been built on the same technology stack, meaning each is capable of fully leveraging our integrated platform — combining people and technology to deliver value to our customers. We can unpack and combine our capabilities into differentiated bundles, while maintaining scale and efficiency by operating on a single platform.
Accolade Total Health and Benefits is our most comprehensive offering and most closely aligns to our "Premier" solution on which the company was founded and which the majority of our customers are using today. Within the last year, we have introduced two new offerings, Accolade Total Benefits and Accolade Total Care, which package components of Accolade Total Health and Benefits into more targeted, lower-cost solutions with simpler implementations.
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Accolade Total Benefits is designed for employers with low employee adoption of healthcare and benefits programs that have a preference for keeping their existing carrier arrangement fully intact. Accolade Total Benefits tackles the challenge of low adoption by making information and access to benefits readily available, digestible, and actionable. When an employer implements Accolade Total Benefits, employees gain a single, digital hub with not only information about — and direct entry points into — all their benefits, but also access to the human support that is so often essential for translating benefits details and understanding their optimal use. Accolade Health Assistants and nurses are ready to support members with benefits enrollment, provider search, coverage questions, claims, and other concerns, and, on the whole, to encourage greater benefit program awareness, understanding, and adoption.
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Accolade Total Care is designed for employers that are focused on influencing the actual interactions between employees and their providers and are also interested in care management services, but that do not want to disrupt their existing arrangement with their carrier. Accolade Total Care builds on our Accolade Total Benefits offering by adding more personalized support for employees and their enrolled dependents to guide them to the best care options and providers within the scope of their benefits. Accolade Total Care helps members identify high-quality, cost-effective doctors, accounting for the member's preferences and network, and then schedules appointments on the member's behalf and helps prepare them for their visits. Accolade nurses are assigned to and continue to engage with the member, following up to provide additional personalized support throughout their healthcare journey.
Accolade Total Health and Benefits offers our full suite of solutions: the simplified, synthesized experience of Accolade Total Benefits and the high-touch clinical guidance of Accolade Total Care, along with comprehensive population health management. Accolade Total Health and Benefits is for employers who are willing to adjust their historical arrangements with their carriers in order to authorize Accolade to deliver member and provider services. In Accolade Total Health and Benefits, Accolade is deeply embedded into the flow of members' healthcare consumption and is well-positioned to adapt to members' evolving needs. Accolade Total Health and Benefits includes a host of clinical programs, including treatment decision support, chronic care, maternity management, complex case management, and behavioral health support. In Accolade Total Health and Benefits, not only does Accolade become the single place for members to turn, but we also become the primary resource for the provider: delivering verification of eligibility and benefits along with utilization management services. These routine and transactional activities are converted into strategic insights that promote engagement with the member. The Accolade Total Health and Benefits offering is designed to fully integrate with an employer's healthcare and benefits solutions to derive population health insights, deliver improved care guidance, and ultimately lead to better outcomes for employers and their employees.
In addition to our three core offerings, Accolade has developed two add-on solutions, Accolade Boost and our Trusted Supplier Program, in response tothat directly address the pronounced need among our employer customers for help with overall benefits management. There is evidence that employees are unaware of or underappreciate the benefits available to them. Only about one-third of employees claim they pay attention to all of the materials they receive about their company benefits. On account of this, employees underutilize what is available to them, as indicated by single digit percentage utilization rates of point solutions. Industry surveys for employers of more than 500 employees have reported that historically telemedicine utilization (i.e., employees using the service at least once) is approximately 7% to 11%,.
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While there has been a recent surge in the use of telehealth (close to 46% of consumers) as a result of the COVID-19 pandemic and usageregulatory changes, many other beneficial programs continue to be underutilized. Usage of EAPs, which typically include alcohol and substance abuse support, counseling, and mental health programs, is only 5% to 8% annually. This underutilization frustrates employers given the investments made, while employees are left feeling inadequately supported.
Accolade Boost provides our customers the opportunity to harness the full power of Accolade's engagement platform for specific, custom ends. Accolade's always-on analytics engine identifies population segments appropriate for certain interventions. Customers can then purchase, typically on an incremental PMPM basis, tailored, multimodal, intelligent communications combined with strategies to reach particular segments regarding particular benefits programs. Recent examples of the use of Accolade Boost include communicationsstrategies focused on driving flu shot uptake, enrollment in a maternity
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program, and adoption of a health plan selection decision support tool. Boost allows employers to overcome employee indifference by exchanging the oversaturation of standard mass employee outreach for targeted communications to the right subsets of employees at appropriate times and in appropriate modes.
Through our Trusted Supplier Program, we offer our customers a curated portfolio of point solutions available for seamless purchase and integration. Our customers are overwhelmed by the recent proliferation of healthcare and benefit point solutions. While many of these solutions have strong user experiences and clinical merit, the sheer volume of options can challenge the benefits departments that must manage assessing, contracting, and then onboarding.
Customers can purchase third-party point solutions through Accolade with the assurance that all vendors have been evaluated for clinical quality, operational scalability, information security compliance, and financial viability. Accolade seeks to maintain a Trusted Supplier Program with sufficient category coverage while adhering to rigorous criteria for inclusion. Today, our Trusted Supplier Program includes telehealth, musculoskeletal care, chronic condition management, digestive health, women's health, behavioral health, prescription savings, and centers of excellence solutions. Examples of trusted suppliers include Teladoc and Livongo. Customers pay Accolade on an incremental PMPM basis and we generally receive a revenue share from the trusted supplier.for access to these programs. We see growing demand from our customers for this program and are invested in ongoing additions to category depth and coverage.
On May 27, 2020, we announced Accolade COVID Response Care, a comprehensive clinical solution for employers seeking to reopen their workplaces and rebuild their businesses with care and confidence. Accolade COVID Response Care is based on CDC guidelines and is intended to enable human resource leaders to leverage Accolade's technology and people to support employee education, testing, care for those sick, contact tracing, and return-to-work clearance. We believe the pace at which we developed and deployed this offering demonstrates the strength and extensibility of our platform. Accolade COVID Response Care is available to the market and creates incremental revenue opportunities.
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Our Technology Platform
With great conviction that technology can help scale and optimize the Accolade engagement model, we began making substantial investments to create an industry-leading, open, cloud-based platform approximately four years ago. This technology platform, built utilizing artificial intelligence, microservices, and data analytics, enables us to deliver personalized experiences to our full member population throughout their healthcare journeys. We have established a highly experienced Product & Technology organization comprised of over 200 individuals. Members of the team bring critical, relevant experience — in many cases gathered while at widely regarded technology firms, such as Microsoft, Amazon, and IBM — with some having focused on building large-scale, cloud-based platforms and others on developing consumer-focused applications with seamless user experiences. Our technology team has extensive experience in machine learning, artificial intelligence, data science, engineering, and product management.
In order to fuel our machine learning processes, we have made a concerted effort to source what we view as a massive, powerful, and differentiated data set. We pair Accolade data (encounter and activation history, conditions/medications/procedures, barriers to care, assessment responses, care plans) with the data we ingest from:
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- our employer customers (eligibility and membership data);
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- carriers and pharmacy benefits managers (claims data, plus benefit plan and formulary details);
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- providers (verification of benefits and eligibility checks, pre-authorizations, and utilization management discharge instructions);
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- CMS and commercial insurers (billions of claims, comprehensive provider directories, and price data); and
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- ecosystem partners (registrations, interactions, assessments/care plans).
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With this combination of data, we are able to apply machine learning tactics to generate predictive insights about our members. For example, we calculate various scores for members that quantify their relationship with us, overall health status, and their propensity to take a desired action. These scoring techniques inform recommended actions for our Accolade Health Assistants and clinicians that are surfaced to InView, as well as recommendations delivered directly to our members as part of our activation capabilities and/or self-service.
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We reach our members through various channels. Increasingly, members are leveraging our web portal and highly rated mobile application, available for both Android and iPhone, to engage with us. In 2019, more than half of our engaged families communicated with us by messaging from the web portal and/or mobile application.
Our Clinical Philosophy
We believe health outcomes are improved and overall healthcare spend is lowered when personalized care guidance and coordination are effectively delivered. Our clinical philosophy governs the ways we help members as they contemplate and consume care. Increasing healthcare spend is a lagging indicator of the need for support — our engagement model seeks to engage all members, regardless of healthcare spend or the complexity of medical needs, and support them as early as possible in their care journeys.
Engage everyone, not segments.
While we successfully engage with approximately 90% of the member families for whom their employer spends at least $50,000 in claims spend in a given year, we endeavor to engage across our full member population. We do this because we know there are opportunities to influence decisions for the better, even with individuals with low healthcare utilization, and because we believe preventative care is paramount in preempting poor health outcomes and expensive care.
We believe all our members need high-quality primary care with which they regularly engage. The Association of American Medical Colleges estimates a primary care shortage of 15,000 to 22,500 physicians in the U.S. in 2020, and the shortage is projected to increase significantly. A recent government study estimates that 28% of men and 17% of women lack a primary care provider, with even higher estimates for minority groups. Our model helps us to identify when a member lacks a primary care provider, and our engagement platform helps us reach our members in order to find them the right doctor. In addition, we leverage our engagement model to support medication adherence, regular screenings, and timely immunizations.
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Support people, not conditions.
We believe in treating the whole person. This means understanding comorbidities, especially behavioral health-related issues, social determinants of health, and contextual factors.
Individuals with a treated behavioral condition typically cost two to three times as much on average as those without a behavioral condition. Better coordination of behavioral health and more traditional medical care can help rein in this outsized expense. Indeed, an estimated $26 billion to $48 billion could be saved annually through more effective integration of medical and behavioral sciences.
Unfortunately, many individuals with chronic medical conditions and co-occurring mental health or substance use disorder conditions are never diagnosed and treated for their behavioral conditions. We directly address this problem of under-diagnosis by ensuring all of our clinical processes assess for co-morbidcomorbid mental health or substance use disorder conditions through use of industry standard evidence-based tools and through our proprietary influence model that is built to identify stress, emotion, and anxiety.
In addition to behavioral health, growing evidence points to the impact of social determinants of health and contextual factors, such as financial, logistical, emotional, or concerns related to the member's skills and ability, in limiting the ability of people to receive good care. We seek to identify and then support these issues; our Accolade Health Assistants and clinicians apply our proprietary LEARN2 framework and probe during encounters to surface barriers and then listen to understand
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them. Our platform — both the people and the technology — is able to adjust recommendations and care plans to account for these concerns. A published study in the British Medical Journal showed that Accolade is two to three times more likely than primary care providers to incorporate contextual factors exposed naturally in the course of conversation into care plans. Our model is designed to ensure we do so consistently, thoughtfully, and productively.
Finally, we recognize the impact of families on the health and well-being of the individual and the crucial role of caregivers in managing care. Our technology is designed with these dynamics in mind, and our Accolade Health Assistants and clinicians are trained to consider a member within their family unit and to understand the practical and emotional considerations associated with caregivers.
Impact journeys, not events.
An estimated $27 billion to $78 billion in wasted annual healthcare spend is attributed to failures in care coordination. By building enduring relationships and engaging with members through their journeys, our team is able to repeatedly guide members toward the most appropriate care, directly addressing overuse, underuse, and misuse of the system.
Our multidisciplinary clinical team allows us to draw on specialized expertise whenever it may be beneficial for the member. Our technology allows us to identify areas of risk (e.g., uncoordinated care leading to "medical collisions" and multidrug interaction challenges). We also engage directly with members' physicians, when supporting verification of eligibility and benefits and pre-authorization requests and, simply, as may be valuable in the normal course of supporting our members. Ultimately, we recognize that better health outcomes result when a member is educated prior to receiving care and followed up with to ensure their needs were met. Our dedicated model empowers members by giving them the comfort and confidence of ongoing support on their path to good health, regardless of how long that path may be.
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Access to care is not sufficient. We believe that the quality of care plays a substantial role in health outcomes. Our commitment to this belief is most evident in two aspects of our business:
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- A commitment to helping members find high-quality doctors. In July 2019, we acquired MD Insider, a machine learning platform that produces experiential and performance insights on millions of providers across the healthcare system based on billions of claims (commercial and CMS). We made this acquisition because we fundamentally believe people deserve high-quality care and that we are uniquely positioned on the basis of our platform and engagement model to leverage such quality data. We complement our quality insights with transparent cost data, as well as our members' unique needs and preferences, to guide members to the best doctor for them.
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- Rigorous quality assurance for our clinical programs. The quality of the industry's clinical programs is uneven. We believe comprehensive quality measures and state-of-the-art monitoring capabilities are absolutely necessary and have architected our platform and processes accordingly. We adhere to evidence-based medicine standards in our clinical programs, which include complex case management, behavioral health, and maternity management.
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Our Go-to-Market Strategy
We employ a multipronged go-to-market strategy to drive adoption of our solutions. We have strategically curated our offerings portfolio to ensure we have a compelling value proposition at an appropriate price point that resonates with each specific customer segment.
Sales Organization. We principally sell our solutions through our direct salesforce and have invested meaningfully in creating a scaled and focused team to capture the new customer growth opportunities. Our field sales professionals are organized by account size, region, and existing versus prospective customer. This organizational structure enables us to deliver context-specific, tailored messaging that resonates with each specific customer segment. Our sales team possesses deep domain expertise in health benefits management and boasts long-term relationships with key decision makers within our prospective customer organizations. We believe the effectiveness of our sales organization is evidenced by growing adoption of our platform by large strategic customers, as well as strong recent traction with enterprise and mid-market customers where we see meaningful additional revenue opportunity.
Customer Partnerships Organization. Our customer partnerships team provides strategic insights, point solutions recommendations, and day-to-day account support to our customers. The team is focused on deepening existing customer relationships and cross sellingcross-selling new offerings where appropriate. This organization is comprised of dedicated customer support teams to serve each customer's specific needs. Over the past year, this team has also focused on deepening existing customer relationships through sales of our new offerings.
Strategic Partnerships. We selectively form partnerships to further drive customer acquisition and adoption of our personalized, technology-enabled solutions platform. For example, in March 2019, we partnered with Humana and formed a joint go-to-market strategy, which we launched in two initial geographic markets. In October 2019, concurrent with a $20 million preferred stock investment from Humana, we expanded our partnership to add a broader base of solutions targeting self- and fully-insuredfully insured customer prospects and significantly expand our target geographic markets.
Table In addition, in February 2020, we entered into a strategic relationship with Change Health to increase each party's capabilities for serving its customers and members. The arrangement includes the joint development of Contentsnew and improved capabilities and service agreements to expand datasets available to Accolade for various analytics to better support members. In connection with the Change Health transaction, we issued Change Health 251,211 shares of our common stock as partial consideration for the relationship, subject to vesting requirements.
We believe the breadth of our go-to-market and distribution strategy enables us to reach customers of nearly every size across markets.
Marketing
We generate clientcustomer leads, accelerate sales opportunities, and drive brand awareness through our marketing programs. Our marketing programs target benefits and finance executives, senior business leaders, health professionals, brokers, consultants, third-party administrators, and suppliers.
In addition to our direct sales organization, we maintain relationships with a range of third parties including brokers, benefits consultants, third-party administrators, and trusted suppliers. These partners supplement our direct sales force and help sell our offerings into select end markets by way of warm introductions and advice as we field prospective customers' requests for proposals. We have developed strong relationships with our partners and have a well-established reputation
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within our partner community. We proactively educate our partners on our solutions and value proposition to ensure we are appropriately represented to prospective customers.
Customer Case Studies
The following case studies exemplify some of the motivations that lead our customers to choose Accolade, some of the benefits of the service that their members experience, and the nature of the value ultimately realized by the customer.
Customer A
Customer Need: A nationally-recognizednationally recognized academic health system aims to provide its patients — and its employees (a mix of unionized workers, service professionals, and clinicians) — with access to some of the world's most advanced clinical care. This health system had designed its employee benefitsbenefit plans to incentivize use of its own network's providers, but, in spite of their efforts, observed a meaningful portion of their employees and those employees' family members seeking treatment from outside the system, contributing to rising healthcare costs. As a result, this customer sought solutions that could better educate members about their options and prepare them to more cost-effectively utilize care, ultimately deciding to deploy what is now referred to as Accolade Total Health and Benefits.
Member Outcomes: In the customer's first service year, Accolade demonstrated a clear ability to engage with members — engaging with 49% of families — and achieved 96% member satisfaction based on survey responses.
Employees responded positively to the service, praising the quality of the guidance. Said one employee, "I work with insurance every day. But it was a little different having to understand it for myself. The young ladies that I spoke with were very informative and they helped me make better decisions that would cost me less out of pocket. Even though I thought I knew about my plan, they helped me to understand it better." Said another, "Hopefully, you can keep this type of service available to employees, because it is so much more personable than calling other insurance [companies] that are trying to get off the phone with you as quickly as they can....Ican... I feel that [at] Accolade, the person actually cares about us getting better."
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Customer Outcomes: In the first service year, the customer saw valuable healthcare utilization go up while wasteful healthcare utilization went down. Specifically, after one year with Accolade they observed a:
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- 4% increase in office visits;
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- 3% reduction in hospital admissions; and
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- 5% reduction in average length of hospital stays.
"We signed on to Accolade because we thought it would benefit our employees, and it did," said the health system's CHRO. "In year one, we achieved close to 50 percent employee engagement and saved more than $2,000,000 in healthcare claims costs. The substantial impact on our P&L has continued."
"Navigating the healthcare system is much more complex than people think, even for people who work in it," the CHRO has noted. "Accolade serves as the gateway, helping our employees understand how to use services and getting them more actively involved in their health decisions."
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Given sustained positive results (engagement rates: 50%+, satisfaction: 97%) in calendar year 2019), the customer has recently extended the partnership through June 2023.2023 and purchased a telemedicine solution via our Trusted Supplier Program.
Customer B
Customer Need: A major transportation company wanted to increase its employees' understanding and utilization of their benefits. They have a diverse employee population — employees are distributed across many markets (and often in transit), work in varied professional roles, and part of the population is unionized — and the company was in search of a solution that would meet the diverse needs of these employees' families. Attracted to the promise of a streamlined experience powered by people and intelligent technology, the company turned to Accolade and deployed the Accolade Total Health and Benefits solution.
Member Outcomes: In the customer's first service year, Accolade demonstrated a clear ability to engage with members:
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- 56% of families were engaged (92% of high-cost families);
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- of those engaged, 30% were supported by clinicians; and
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- average member satisfaction was 93%.
The customer's employees have appreciated both the convenient access to Accolade support and the compassion with which they are met. One grateful employee noted, "I am [traveling] Monday-Friday so trying to wait on a phone line for 'the next available representative' is not an option....Accolade,option...Accolade, and [my Health Assistant] in particular, has been amazing! I contact her through the app, whatever time of day, and am able to let her know what my issues are." Says another employee, "[Accolade has] been so caring and loving to me since I've been going through some really tough situations in my life....Especiallylife...Especially [my Health Assistant], she is amazing, very educated and very supportive and actually shows a lot of tenderness and love, too, not just, you know, trying to get the conversation over with. Really engages in my conversation and actually listens to me, too. I just want to tell you thank you so much and make sure [my Health Assistant] knows how much I love her and care about her and I just think this program [from my employer] is fantastic."
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Customer Outcomes: In comparing the first nine months that Accolade was deployed to the same period the year prior, the customer saw:
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- fewer inpatient stays (–4.9%);
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- a drop in 30-day readmissions (–14%);
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- a reduction in potentially avoidable ER visits (5.6% fewer avoidable visits per 1,000 visits);
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- notable improvements in utilization of existing third-party programs:
•o- second opinion use: +26%;
•o- wellness program use: +7%;
•o- specialty Rx savings program: +20%; and
•o- telehealth: +21%.
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The customer's executive leadership is pleased with Accolade's impact, both to employees directly and insofar as the partnership has freed up capacity for the benefits team to pursue additional strategies to further "good utilization" among their members that would leverage the high engagement they are achieving with Accolade Total Health & Benefits.
Customer C
Customer Need: A global technology company has assembled a differentiated benefits package to help attract and retain top talent. Despite its workforce being predominantly young and healthy, it recognizes that its employees still need help with their healthcare and benefits. The company turned to Accolade, deploying Accolade Total Health and Benefits, in hopes the service could provide personalized support that would maximize the value of the extensive benefits available to their employees and those employees' families.
Member Outcomes: In the customer's first service year, Accolade drove meaningful engagement across the employee base:
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- 60% of families were engaged (86% of high-cost families);
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- of those engaged, nearly 20% were supported by clinicians;
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- among those engaged, there was strong adoption of digital messaging with 86% utilizing this feature; and
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- average member satisfaction was 92%.
Feedback from the customer's employees validates the seamlessness of the experience. Said one employee, "You guys have really revamped the face of customer service and how easily one can get in touch with their personal rep, be it through chat support or on the phone....Otherphone...Other insurance leaders and customer service hubs should learn from you!" Another claimed, "This is the easiest, most stress relieving service in my life currently. I'm shocked that people navigate the healthcare industry without it." Adds another, "Accolade has been the most useable healthcare interface I've ever used and the help has been the most immediate and positive."
Customer Outcomes: The customer has observed substantial lifts in benefits utilization since they began partnering with Accolade. In the year prior to the partnership, when the customer was
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collaborating with their traditional carrier, they saw roughly 70 referrals, in total, to the programs in which they had invested (e.g., fertility support, second opinion, behavioral health programming). Through the first three quarters ofIn their first service year with Accolade, that number had skyrocketed to nearly 8,000more than 50,000 referrals.
Accolade is proud of its commitment to providing customers with flexibility when it comes to the strategies they use to meet their employees' needs. This customer's proposal for — and investment in — two on-site Accolade Health Assistants at their headquarters is indicative of their commitment to the Accolade program and eagerness to innovate with Accolade in order to drive meaningful engagement and best serve the interests of their employees. In addition, this customer procured additional telemedicine services through Accolade as the COVID-19 crisis drove a need for testing-related support.
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Representative Member Story
The following is a representative interaction between an Accolade Total Health and Benefits Member and Accolade.
Scenario: A member ("Sarah") with Type 2 Diabetes moves to a new geographic area and needs an endocrinologist.
Sarah calls the number on the back of her ID card. When an Accolade Health Assistant (AHA) answers, the name "Accolade" rings a bell — Sarah recently received a mailer explaining she could "Ask Accolade" any healthcare and benefits questions.
The transactional concern: To address Sarah's specific need, the AHA initiates a provider search accounting for Sarah's network and location of her new home.
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- The AHA generates a new care plan to support Sarah's diabetes and notes a financial "barrier" given what she has disclosed about the impact of the move. The care plan automatically generates interventions and goals that reflect the condition and noted barriers. The AHA mentions a generic alternative to Sarah's current prescription which the member may want to discuss with her doctor.
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- The AHA acknowledges logistical challenges related to Sarah's work schedule and guides her to download the Accolade mobile application.
Better Decisions
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- Sarah accepts an Accolade nurse's offer to help prepare her for her upcoming appointment; because she downloaded the Accolade mobile app, she receives a message from the nurse containing some questions to ask her doctor.
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- At the appointment, scheduled on her behalf by Accolade, Sarah asks her provider about the generic alternative.
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- Later, Sarah signs up for the mail-order pharmacy benefit.
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- Following the appointment, Sarah securely messages her nurse saying the appointment went well.
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- In that same messaging encounter, Sarah asks to be connected with the behavioral health (BH) team, as her son's situation at school has not improved. A BH specialist reaches out to Sarah with a digital message and in the encounter that follows supports Sarah in identifying an in-network therapist and then scheduling the appointment.
Sarah is empowered to make positive changes resulting in improved health, lower costs, and increased productivity at work:
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- Sarah's blood glucose levels remain stable, as she is in the care of a good doctor and adherent to her medication.
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- Both Sarah and her employer's healthcare spend is reduced thanks to the avoidance of complications given her glucose level stability and selection of the generic drug alternative.
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- Sarah's son is reacting well to therapy and doing better in school.
Feeling healthier and energized by her son's progress, the member's attendance and work performance have improved markedly.
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Ongoing Engagement
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- A few months later, because Sarah's employer has purchased a new diabetes management program through Accolade's Trusted Supplier Program and is promoting adoption through Boost, the member learns about the solution available to her at no cost.
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- As a result, and because she wants to improve her condition, she reaches out to her AHA who enhances her to a nurse to conduct clinical assessments (including the industry-standard patient health questionnaire that tests for depression).
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- Based on the condition assessment, the Accolade nurse recommends a series of personalized lifestyle changes and assists Sarah in signing up for the diabetes management program.
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- Sarah and the Accolade nurse plan to connect every few weeks to monitor progress.
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- The BH clinician follows up with
the memberSarah to check in on her son's progress.
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Competition
We believe no single competitor offers a similarly comprehensive platform combining personalized, technology-enabled solutions with highly trained professionals. However, we have experienced and expect to continue to experience competition from a number of companies, including those who are well-established and may have greater resources, and those who may become meaningful competitors in the future. Our competitors generally fall into three categories: large health plans that provide member and provider services, such as the Blue Cross Blue Shield health plans (e.g., Anthem), Cigna, UnitedHealth Group, and Aetna; traditional advocacy and navigation companies, such as Quantum Health and Health Advocate; and an emerging cohort of companies that traditionally provided adjacent and/or exclusively digital services and are increasingly adding some version of navigation support to their offering, most notably Grand Rounds, Amino, Alight (Compass), and Castlight. We believe the primary competitive factors for our industry include:
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- level of member engagement;
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- ability to influence members to improve health and financial outcomes;
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- level of customer and member satisfaction;
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- ease of integration with employer benefits programs;
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- price;
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- breadth and depth of platform functionality;
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- modern and open technology supporting integration with third-party applications;
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- ability to recruit and retain skilled employees and clinicians;
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- access to and ability to derive insights from large, disparate data sets;
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- advanced analytics capabilities to create personalized recommendations;
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- brand awareness and reputation;
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- regulatory compliance; and
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- ability to rapidly innovate and respond to changing customer needs and legislative developments.
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While certain of our competitors may have greater resources, recognition, larger customer bases, or longer-standing offerings, we believe that we compete favorably against our competitors based on these criteria. We believe that our platform dramatically improves member experience, encourages better health outcomes, and lower costs for both our members and our customers. As our market grows and continues to evolve through technology or regulatory-driven changes, we expect it will continue to attract interest from existing larger companies who may be able to invest more resources in solutions development and sales and marketing and leveragewhile leveraging their existing relationships, as well as interest from new entrants, who could introduce new solutions.
Intellectual Property
We believe that our intellectual property rights are valuable and important to our business. We rely on trademarks, patents, copyrights, trade secrets, intellectual property assignment agreements, confidentially procedures, nondisclosure agreements, and employee nondisclosure and invention assignment agreements to establish and protect our proprietary rights.
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These intellectual property rights and procedures may not prevent others from creating a competitive technology platform or otherwise competing with us. We may be unable to obtain, maintain, and enforce the intellectual property rights on which our business depends, and assertions by third parties that we violate their intellectual property rights could have a material adverse effect on our business, financial condition, and results of operations.
As of November 30, 2019,August 31, 2020, we had fourthree registered patents in the United States, five pending patent applications in the United States, and seven registered trademarks in the United States. We continually review our product and technology efforts to assess the existence and patentability of new intellectual property.
Government Regulation
Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality, security, availability, integrity, and other processing of PHI and PII. These laws and regulations include the Health Insurance Portability and Accountability Act (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH). HIPAA establishes a set of national privacy and security standards for the protection of PHI by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. We are considered a business associate under HIPAA. As such, we could be subject to periodic audits for compliance with the HIPAA Privacy and Security Standards by HHS and our customers. HIPAA also implemented the use of standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including activities associated with the billing and collection of healthcare claims. HIPAA imposes mandatory penalties for certain violations. Penalties for violations of HIPAA and its implementing regulations start at $100 per violation and are not to exceed $50,000 per violation, subject to a cap of $1.5 million for violations of the same standard in a single calendar year. However, a single breach incident can result in violations of multiple standards. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages, costs, and attorneys' fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.
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In addition, HHS is required under HIPAA to establish a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator, which is yet to be publicly proposed or implemented. HIPAA further requires that patients be notified of any unauthorized acquisition, access, use or disclosure of their unsecured PHI that compromises the privacy or security of such information, with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized individuals. HIPAA specifies that such notifications must be made "without unreasonable delay and in no case later than 60 calendar days after discovery of the breach." If a breach affects 500 patients or more, it must be reported to HHS without unreasonable delay, and HHS will post the name of the breaching entity on its public web site. Breaches affecting 500 patients or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than 500 people, the covered entity must record it in a log and notify HHS at least annually.
Likewise, California enacted legislation in 2018 that has been dubbed the first "GDPR-like" law in the United States. Known as the California Consumer Privacy Act (CCPA), it creates new
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individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or households. In effect since January 1, 2020, the CCPA requires covered companies to provide new disclosures to California consumers, provide such consumers new ways to opt-out of certain sales of personal information, and allow for a new cause of action for data breaches. It remains unclear what, if any, modifications will be made to the draft regulations that have been released or how the CCPA will be interpreted. As currently written, the CCPA could impact our business activities depending on how it is interpreted.
There are numerous other federal, state, and foreign laws and regulations that protect the confidentiality, privacy, availability, integrity, and security of PHI and other types of PII. These laws and regulations in many cases are more restrictive than, and may not be preempted by, HIPAA and its implementing rules. These laws and regulations are often uncertain, contradictory, and subject to changed or differing interpretations, and we expect new laws, rules, and regulations regarding privacy, data protection, and information security to be proposed and enacted in the future. This complex, dynamic legal landscape regarding privacy, data protection, and information security creates significant compliance issues for us and our customers and potentially exposes us to additional expense, adverse publicity and liability. While we have implemented data privacy and security measures in an effort to comply with applicable laws and regulations relating to privacy and data protection, some PHI and other PII or confidential information is transmitted to us by third parties, who may not implement adequate security and privacy measures, and it is possible that laws, rules and regulations relating to privacy, data protection, or information security may be interpreted and applied in a manner that is inconsistent with our practices or those of third parties who transmit PHI and other PII or confidential information to us. If we or these third parties are found to have violated such laws, rules, or regulations, it could result in government-imposed fines, orders requiring that we or these third parties change our or their practices, or criminal charges, which could adversely affect our business.
Our business activities are subject to a complex set of regulations and rigorous enforcement, including by the FDA, U.S. Department of Justice, U.S. Department of Health and Human Services (HHS), Office of the Inspector General and Office of Civil Rights, and numerous other federal and state governmental authorities. In addition, our employees, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory
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standards and requirements. Federal and state healthcare laws and regulations that may affect our ability to conduct business include:
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- HIPAA, as amended by HITECH, and its implementing regulations, which impose certain requirements relating to the privacy, security, and transmission of protected health information on certain healthcare providers, health plans and healthcare clearinghouses, and their business associates that access or otherwise process individually identifiable health information on their behalf; HIPAA also created criminal liability for knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
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- state laws governing the privacy and security of personal information beyond health information, including state breach notification requirements, which differ from each other in significant ways with respect to scope, application, and requirements and which often exceed the standards under HIPAA, thus complicating compliance efforts;
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- state laws governing professional licensure, the corporate practice of medicine and other healthcare professions and related fee-splitting laws;
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- the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the CMS programs, including Medicare and Medicaid;
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- the federal civil false claims
and civil monetary penalties laws, including the federal False Claims Act, and civil monetary penalties laws, which prohibits,prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government;
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- federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
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- the federal Physician Payments Sunshine Act, or Open Payments, created under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or Affordable Care Act, and its implementing regulations, which requires manufacturers of drugs, medical devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid, or the Children's Health Insurance Program to report annually to CMS information related to payments or other transfers of value made to
licensed physicians, as defined by such law, and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
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- Federal Food, Drug, and Cosmetic Act, or FDCA, which requires, among other things, manufacturers of medical devices, including certain software technology companies, to comply with requirements related to pre-market clearances, approved labeling, medical device adverse event reporting, and on-going post-market monitoring and quality assurance; and
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- state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
The Affordable Care Act, among other things, amendsamended the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care
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Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our activities could be subject to challenge under one or more of such laws. Any action brought against us for violations of these laws or regulations, even if successfully defended, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. We may be subject to private "qui tam" actions brought by individual whistleblowers on behalf of the federal or state governments, with potential liability under the federal False Claims Act including mandatory treble damages and significant per-claim penalties.
If our operations are found to be in violation of any of the federal or state laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to penalties, including significant criminal, civil, and administrative penalties, damages and fines, disgorgement, additional reporting requirements, and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of
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noncompliance with these laws, imprisonment and exclusion from participation in government programs, such as Medicare and Medicaid, as well as contractual damages, curtailment of our business activities, and reputational harm.
Additionally, in the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed reforms of the healthcare system in an effort to contain costs, improve quality, and expand access to care, including the proposed modification to some of the aforementioned laws. In the United States, there have been and continue to be a number of healthcare-related legislative initiatives that have significantly affected the healthcare industry. These reform initiatives may, among other things, result in modifications to the aforementioned laws and/or the implementation of new laws affecting the healthcare industry.
Our Facilities
We have co-headquarters in Seattle, Washington at 1201 Third Avenue, Suite 1700, Seattle, WA 98101 and Plymouth Meeting, Pennsylvania at 660 West Germantown Pike, Suite 500, Plymouth Meeting, PA 19462. Our Seattle headquarters is leased pursuant to a lease that expires in 2030. Our Plymouth Meeting headquarters space is leased pursuant to a lease that expires in 2027. We also have offices located in Scottsdale, Arizona and Prague, Czech Republic, pursuant to leases that expire in 2024 and 2021, respectively. We believe that our properties are generally suitable to meet our needs for the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be readily available on commercially reasonable terms.
Employees
Our employees are critical to our success. We had 1,174approximately 1,230 employees as of November 30, 2019.August 31, 2020. None of our employees is represented by a labor union. We have not experienced any work stoppages, and we consider our relations with our employees to be good.
Legal Proceedings
We are from time to time subject to, and are presently involved in, litigation and other legal proceedings. We believe that there are no pending lawsuits or claims that, individually or in the aggregate, may have a material effect on our business, financial condition or operating results.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information for our executive officers and directors as of January 31,September 30, 2020:
| | | | |
Name
| | Age | | Position |
| Executive Officers | | | | |
| Rajeev Singh | | 5152 | | Chief Executive Officer and Director |
| Stephen Barnes | | 4950 | | Chief Financial Officer |
| Robert Cavanaugh | | 5051 | | President |
| Michael Hilton | | 5556 | | Chief Product Officer |
Non-Employee Directors |
|
|
|
|
| J. Michael Cline(2) | | 60 | | Chairman of the Board |
| Senator William H. Frist, M.D. | | 6768 | | Director |
| Jeffrey Jordan(2) | | 61 | | Director |
| Peter Klein(1) | | 5758 | | Director |
| Dawn Lepore(1)(3) | | 6566 | | Director |
| James C. Madden, V(1) | | 5859 | | Director |
| Thomas Neff(2)(3) | | 82 | | Director |
| Patricia Wadors(3) | | 5556 | | Director |
| Michael T. Yang | | 4849 | | Director |
- (1)
- Member of the audit committee.
- (2)
- Member of the compensation committee.
- (3)
- Member of the nominating and corporate governance committee.
Executive Officers
Rajeev Singh has served as our chief executive officer and a member of our board of directors since October 2015. In 1993, Mr. Singh co-founded Concur Technologies, Inc., a business travel and expense management company. Mr. Singh served on Concur's board of directors from April 2008 until January 2015 and was most recently its president and chief operating officer until it was acquired by SAP SE in 2014. Prior to Concur, Mr. Singh held positions at Ford Motor Company and General Motors Corporation. Mr. Singh currently serves on the board of directors of Avalara Inc., a tax compliance software company, and previously served on the board of directors of Apptio, Inc., a technology business management company. Mr. Singh holds a B.S. from Western Michigan University. We believe Mr. Singh is qualified to serve on our board of directors due to his extensive knowledge of our company, as well as his significant operational and strategic expertise.
Stephen Barnes has served as our chief financial officer since February 2015. From February 2014 to January 2015, Mr. Barnes served as a managing director at NRG Energy, Inc., an energy company. Mr. Barnes served as president of Energy Plus Holdings LLC, an energy company, from July 2012 to January 2014 after it was acquired by NRG. He served as chief financial officer of Energy Plus from February 2009 to June 2012. Previously, Mr. Barnes served in various roles at Novitas Capital, Voxware, Inc. and KPMG. Mr. Barnes holds an M.B.A. from The Wharton School of the University of Pennsylvania and a B.S. from Villanova University and is also a CPA (inactive).
Robert Cavanaugh has served in a variety of roles with us since November 2015, and is currently serving as our president. From 1999 to April 2015, Mr. Cavanaugh served in various roles at Concur, including serving as president, worldwide enterprise, SMB and government, executive
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vice president, client development and executive vice president, business development. Mr. Cavanaugh served as an officer in the United States Army Reserve from 1991 to 2000. Mr. Cavanaugh currently serves on the board of directors of Cornerstone OnDemand, Inc., a learning, talent management, and talent experience software provider. Mr. Cavanaugh holds a B.S. from Norwich University.
Michael Hilton has served as our chief product officer since November 2015. Mr. Hilton co-founded Concur and served in various roles from 1993 to January 2015, most recently serving as chief product officer. Prior to Concur, Mr. Hilton served as director of development at Contact Software International, a customer relationship management software company, which was acquired by Symantec Corporation in 1993. Mr. Hilton holds a B.A. from the University of California, Santa Cruz.
Non-Employee Directors
J. Michael Cline is one of our co-founders and has served as a member of our board of directors since January 2007 and as our Chairman of the board of directors since February 2020. Mr. Cline serves as the founding managing partner of Accretive, LLC, a private equity firm, which he founded in December 1999. Mr. Cline was a founder of Accretive Health, Inc. (now known as R1 RCM, Inc.), a healthcare management company, and served as chairman of the board of directors from July 2009 until May 2015. From 1989 to 1999, Mr. Cline served as a general partner of General Atlantic Partners, LLC, a private equity firm. Mr. Cline holds an M.B.A. from Harvard Business School and a B.S. from Cornell University. We believe Mr. Cline is qualified to serve as a member of our board of directors due to his experience in private equity investing.
Senator William H. Frist, M.D. has served as a member of our board of directors since March 2010. Dr. Frist is a heart and lung transplant surgeon, former U.S. Senator from Tennessee and former majority leader of the U.S. Senate. Since 2008, Dr. Frist has been a partner at Cressey & Company, L.P., a private health services investment firm. Dr. Frist currently serves on the boards of directors of AECOM, an engineering firm,GS Acquisition Holdings Corp II, a special purpose acquisition company, Teladoc Health, Inc., a telemedicine company, Select Medical Holdings Corporation, a healthcare company, and SmileDirectClub, Inc., a teledentistry company. Dr. Frist previously served on the board of directors of AECOM, an engineering firm, from October 2014 to March 2020. Dr. Frist holds an M.D. from Harvard Medical School and a B.A. from Princeton University. We believe Dr. Frist is qualified to serve as a member of our board of directors due to his significant public company director experience and his health services experience and expertise.
Jeffrey Jordan has served as a member of our board of directors since July 2016. Mr. Jordan serves as the managing partner of Andreessen Horowitz, a venture capital firm, which he joined as a general partner in 2011. From 2007 to 2011, Mr. Jordan served as the president and chief executive officer of OpenTable Inc., an Internet and mobile services company. From 2004 to 2006, he served as president of PayPal Holdings Inc., an Internet-based payment system then owned by Internet company eBay Inc., and as senior vice president and general manager of eBay from 1999 to 2004. Mr. Jordan currently serves on the board of directors of Pinterest, Inc., a mobile application company. Mr. Jordan holds an M.B.A. from the Stanford University Graduate School of Business and a B.A. from Amherst College. We believe Mr. Jordan is qualified to sit on our board of directors due to his experience as an investor and as an officer of technology companies.
Peter Klein has served as a member of our board of directors since September 2019. From January 2014 to June 2014, Mr. Klein served as chief financial officer of William Morris Endeavor Entertainment, LLC, a global sports and entertainment marketing firm. Mr. Klein spent over 11 years in various finance leadership roles at Microsoft Corporation, including serving as chief financial officer from November 2009 until May 2013. Previously, he held senior finance positions with
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McCaw Cellular Communications, Orca Bay Capital Corporation, Asta Networks Inc. and Homegrocer.com, Inc. Mr. Klein currently serves on the boards of directors of F5 Networks, Inc., a
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software company, and Denali Therapeutics Inc., a biotechnology company. Mr. Klein previously served on the board of directors of Apptio, Inc., a software company. He holds an M.B.A. from the University of Washington and a B.A. from Yale University. We believe Mr. Klein is qualified to serve on our board of directors due to his extensive experience as a senior finance executive, including as the chief financial officer of one of the world's largest software companies.
Dawn Lepore has served as a member of our board of directors since June 2019. Ms. Lepore served as interim chief executive officer of Prosper Marketplace, Inc., an online peer-to-peer lending platform, from March 2012 to January 2013. Ms. Lepore served as chairman and chief executive officer of drugstore.com, inc., an online retailer of health and beauty care products, from October 2004 until its sale to Walgreen Co. in June 2011. Prior to joining drugstore.com, Ms. Lepore held various leadership positions during her 21 years with The Charles Schwab Company. Ms. Lepore currently serves on the boards of directors of RealNetworks, Inc., an Internet streaming media delivery software provider. Ms. Lepore previously served on the boards of directors of AOL Inc. and Quotient Technology Inc., a digital promotion and media platform. Ms. Lepore holds a B.A. from Smith College. We believe Ms. Lepore is qualified to serve on our board of directors due to her extensive operational background experience as an executive and director at diverse online consumer, Internet technology and retail companies.
James C. Madden, V has served as a member of our board of directors since January 2007. In January 2012, Mr. Madden co-founded Carrick Capital Management Company LLC, a private equity firm, and continues to serve as a managing director at the firm. Mr. Madden served as a general partner of Accretive, LLC from January 2007 to February 2011. From January 2005 to January 2007, Mr. Madden was a special advisor to General Atlantic LLC, a private equity firm. Mr. Madden also served as chief executive officer of Exult, Inc., a provider of outsourced human resource services, from November 1998 to October 2004, and as chairman of the board of directors from February 2000 to October 2004. Mr. Madden currently serves on the board of directors of Genpact Limited, a business process and technology management provider. Mr. Madden previously served on the board of directors of ServiceSource International, Inc., a branding company. Mr. Madden holds a B.B.A. and a B.S. from Southern Methodist University. We believe Mr. Madden is qualified to serve on our board of directors due to his valuable operational and director experience leading a publicly traded company.
Thomas J. Neff has served as a member of our board of directors since 2007. Since 1976, Mr. Neff has served in various roles at Spencer Stuart Management Consultants N.A., an executive search consulting firm, currently serving as Spencer Stuart, U.S.'s chairman and previously managing the worldwide firm from 1979 to 1987. Prior to this, Mr. Neff was a consultant with McKinsey & Co Inc., a global consulting firm and was a principal with Booz Allen & Hamilton, a consulting firm. Mr. Neff has served on the boards of directors of ACE Ltd, Hewitt Associates Inc., Exult Inc. and Macmillan Inc., including serving as chairman on certain compensation and corporate governance committees. Mr. Neff holds an M.B.A. from Lehigh University and a B.S. from Lafayette College. We believe Mr. Neff is qualified to sit on our board of directors due to his experience in leadership consulting, as well as extensive board and governance experience.
Patricia Wadors has served as a member of our board of directors since February 2020. Ms. Wadors has served as the Chief Talent Officer of ServiceNow, Inc. since September 2017. From March 2015 to September 2017, Ms. Wadors served as CHRO-SVP, Global Talent Organization at LinkedIn, and from February 2013 to March 2015, as VP, Global Talent Organization at LinkedIn. From April 2010 to February 2013, Ms. Wadors served as Senior Vice President of Human Resources at Plantronics, Inc., a designer, manufacturer and distributor of headsets for business and consumer applications. Prior to Plantronics, she served as Senior Vice President of Human
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Resources at Yahoo! and as Chief Human Resources Officer at Align Technologies, and she has held senior human resource management positions at Applied Materials, Merck Pharmaceutical,
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Viacom International, and Calvin Klein Cosmetics. Ms. Wadors holds a B.S. in business management with a concentration in human resources management and a minor in psychology from Ramapo College of New Jersey. We believe Ms. Wadors is qualified to serve on our board of directors due to her extensive operational background experience as an executive at diverse online consumer and internet technology companies.
Michael T. Yang has served as a member of our board of directors since June 2010. Since January 2019, Mr. Yang has served as a managing partner at OMERS Ventures, a venture capital firm. From 2009 to 2018, Mr. Yang served as a managing director at Comcast Ventures, a venture capital firm. From 2005 to 2008, Mr. Yang served as a vice president and general manager at Yahoo! Mr. Yang holds an M.B.A. from Harvard Business School and a B.S. from the University of Pennsylvania. We believe Mr. Yang is qualified to sit on our board of directors due to his investment experience in e-commerce and emerging technology sectors.
Composition of Our Board of Directors
Our business and affairs are managed under the direction of our board of directors. We currently have ten directors. Our current directors will continue to serve as directors until their resignation, removal or successor is duly elected. Pursuant to our amended and restated certificate of incorporation as in effect prior to the completion of this offering and an investor rights agreement, Messrs. Cline, Jordan, Madden, and Yang and Ms. Wadors were elected to serve as members of our board of directors by the holders of our preferred stock, and Ms. Lepore, Dr. Frist, and Messrs. Klein, Neff, and Singh were elected to serve as members of our board of directors by the holders of a majority of our capital stock, voting together. The investor rights agreement by which the directorsThere are currently elected will terminate in connection with this offering, and there will be no contractual obligations regarding the election of our directors upon completion of this offering.directors.
Our board of directors may establish the authorized number of directors from time to time by resolution. In accordance with our amended and restated certificate of incorporation, that will be in effect upon the completion of this offering, immediately after this offering, our board of directors will beis divided into three classes with staggered three-year terms. At each annual general meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election. Our directors will beare divided among the three classes as follows:
- •
- the Class I directors
will beare Messrs. Jordan, Madden and Yang, and their terms will expire at our first annual meeting of stockholders following this offering;to be held in 2021;
- •
- the Class II directors
will beare Messrs. Cline and Neff and Dr. Frist, and their terms will expire at our second annual meeting of stockholders following this offering;to be held in 2022; and
- •
- the Class III directors
will beare Messrs. Klein and Singh and Mses. Lepore and Wadors, and their terms will expire at our third annual meeting of stockholders following this offering.to be held in 2023.
We expect that any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one third of the directors. The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment and
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affiliations, our board of directors has determined that Messrs. Cline, Jordan, Klein, Madden, Neff and Yang, Dr. Frist and Mses. Lepore and Wadors do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the listing standards of Nasdaq. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and
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circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our shares held by each non-employee director and the transactions described in the section titled "Certain Relationships and Related Party Transactions."
Committees of Our Board of Directors
Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Our audit committee consists of Messrs. Klein and Madden and Ms. Lepore. Our board of directors has determined that each member of the audit committee satisfies the independence requirements under the listing standards of Nasdaq and Rule 10A-3(b)(1) of the Exchange Act. The chair of our audit committee is Mr. Klein. Our board of directors has determined that Mr. Klein is an "audit committee financial expert" within the meaning of SEC regulations. Each member of our audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, our board of directors has examined each audit committee member's scope of experience and the nature of his employment.
The primary purpose of the audit committee is to discharge the responsibilities of our board of directors with respect to our corporate accounting and financial reporting processes, systems of internal control and financial statement audits, and to oversee our independent registered public accounting firm. Specific responsibilities of our audit committee include:
- •
- helping our board of directors oversee our corporate accounting and financial reporting processes;
- •
- managing the selection, engagement, qualifications, independence and performance of a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;
- •
- discussing the scope and results of the audit with the independent registered public accounting firm, and reviewing, with management and the independent accountants, our interim and year-end operating results;
- •
- developing procedures for employees to submit concerns anonymously about questionable accounting or audit matters;
- •
- reviewing related person transactions;
- •
- obtaining and reviewing a report by the independent registered public accounting firm at least annually that describes our internal quality control procedures, any material issues with such procedures and any steps taken to deal with such issues when required by applicable law; and
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- •
- approving or, as permitted, pre-approving, audit and permissible non-audit services to be performed by the independent registered public accounting firm.
Our audit committee will operateoperates under a written charter to be effective prior to the completion of this offering, that satisfies the applicable listing standards of Nasdaq.
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Our compensation committee consists of Messrs. Cline, Neff and Jordan. The chair of our compensation committee is Mr. Neff. Our board of directors has determined that each member of the compensation committee is independent under the listing standards of Nasdaq and a "non-employee director" as defined in Rule 16b-3 promulgated under the Exchange Act.
The primary purpose of our compensation committee is to discharge the responsibilities of our board of directors in overseeing our compensation policies, plans, and programs and to review and determine the compensation to be paid to our executive officers, directors, and other senior management, as appropriate. Specific responsibilities of our compensation committee include:
- •
- reviewing and recommending to our board of directors the compensation of our chief executive officer and other executive officers;
- •
- reviewing and recommending to our board of directors the compensation of our directors;
- •
- administering our equity incentive plans and other benefit programs;
- •
- reviewing, adopting, amending, and terminating incentive compensation and equity plans, severance agreements, profit sharing plans, bonus plans, change-of-control protections, and any other compensatory arrangements for our executive officers and other senior management; and
- •
- reviewing and establishing general policies relating to compensation and benefits of our employees, including our overall compensation philosophy.
Our compensation committee will operateoperates under a written charter to be effective prior to the completion of this offering, that satisfies the applicable listing standards of Nasdaq.
Our nominating and corporate governance committee consists of Mses. Lepore and Wadors and Mr. Neff. The chair of our nominating and corporate governance committee is Ms. Lepore. Our board of directors has determined that each member of the nominating and corporate governance committee is independent under the listing standards of Nasdaq.
Specific responsibilities of our nominating and corporate governance committee include:
- •
- identifying and evaluating candidates, including the nomination of incumbent directors for reelection and nominees recommended by stockholders, to serve on our board of directors;
- •
- considering and making recommendations to our board of directors regarding the composition and chairmanship of the committees of our board of directors;
- •
- developing and making recommendations to our board of directors regarding corporate governance guidelines and related matters; and
- •
- overseeing periodic evaluations of the board of directors' performance, including committees of the board of directors.
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Our nominating and corporate governance committee will operateoperates under a written charter to be effective prior to the completion of this offering, that satisfies the applicable listing standards of Nasdaq.
Code of Business Conduct and Ethics
We will adopthave adopted a code of business conduct and ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Upon the completion of this offering, ourOur code of business
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conduct and ethics will beis available under the Investor section of our website at www.accolade.com. In addition, we intend to post on our website all disclosures that are required by law or the listing standards of Nasdaq concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
Compensation Committee Interlocks and Insider Participation
None of the members of the compensation committee is currently or has been at any time one of our officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
Non-Employee Director Compensation
The following table sets forth information regarding compensation earned by or paid to our non-employee directors during fiscal year ended February 28, 2019.29, 2020.
| Name | | Fees Earned or
Paid in Cash ($) | | Option
Awards ($)(1) | | Total ($) | | | Fees Earned or
Paid in Cash ($) | | Option
Awards ($)(1) | | Total ($) | |
Edgar Bronfman, Jr.(2) | | — | | — | | — | | | — | | — | | — | |
J. Michael Cline | | — | | — | | — | | | — | | — | | — | |
Senator William H. Frist, M.D. | | — | | 77,440 | | 77,440 | | | — | | — | | — | |
Jeffrey Jordan | | — | | — | | — | | | — | | — | | — | |
Peter Klein(3) | | — | | — | | �� | | | — | | 135,000 | | 135,000 | |
Dawn Lepore(4) | | — | | — | | — | | | — | | 96,000 | | 96,000 | |
Marcus Mactas(5) | | — | | 29,040 | | 29,040 | | |
Mark V. Mactas(5) | | | — | | — | | — | |
James C. Madden, V | | — | | — | | — | | | — | | — | | — | |
Thomas Neff | | — | | 77,440 | | 77,440 | | | — | | — | | — | |
Thomas K. Spann(6) | | — | | — | | — | | | — | | — | | — | |
Patricia Wadors(7) | | — | | — | | — | | | — | | — | | — | |
Michael T. Yang | | — | | — | | — | | | — | | 67,500 | | 67,500 | |
- (1)
- Amounts in this column represent the aggregate grant date fair value of options granted during the fiscal year ended February
28, 2019,29, 2020, as computed in accordance with Accounting Standards Codification (ASC) Topic 718, without regard to estimated forfeitures related to service-based vesting conditions. For information regarding assumptions underlying the value of equity awards, see Note 8 to our consolidated financial statements and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Stock-Based Compensation," included elsewhere in this prospectus. These amounts do not reflect dollar amounts actually received by our non-employee directors, who will only realize compensation to the extent the trading price of our common stock is greater than the exercise price of such options. As of February 28, 2019,29, 2020, our non-employee directors held options to purchase the following number of shares of our common stock: Dr. Frist, 798,59423,958 shares; Mr. Mactas, 670,000Klein, 20,000 shares; Ms. Lepore, 20,000 shares; Mr. Neff, 398,59423,291 shares; and Mr. Spann, 3,892,266Yang, 10,000 shares.
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- (2)
- Mr. Bronfman Jr. resigned from our board of directors in February 2020.
- (3)
- Mr. Klein joined our board of directors in September 2019.
- (4)
- Ms. Lepore joined our board of directors in June 2019.
- (5)
- Mr. Mactas resigned from our board of directors in June 2019.
- (6)
- Mr. Spann resigned from our board of directors in September 2019.
- (7)
- Ms. Wadors joined our board of directors in February 2020.
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Rajeev Singh, our Chief Executive Officer, is also a director but does not receive any additional compensation for his service as a director. See the section titled "Executive Compensation" for more information regarding the compensation earned by Mr. Singh.
Non-Employee Director Compensation Policy
We expect to adoptOur board of directors has adopted a non-employee director compensation policy, pursuant to which our non-employee directors will beare eligible to receive compensation for service on our board of directors and committees of our board of directors.
Equity Compensation
Initial Grant
Each new non-employee director who joins our board of directors will automatically receive a restricted stock unit award for common stock having a value of $150,000 based on the fair market value of the underlying common stock on the date of grant under our 2020 Equity Incentive Plan (2020 Plan), with the $150,000 being prorated based on the number of months from the date of appointment until the next annual meeting of our stockholders. Each initial grant will vest on the earlier of (i) the date of the following annual meeting of our stockholders (or the date immediately prior to the next annual meeting of our stockholders if the non-employee director's service as a director ends at such meeting due to the director's failure to be re-elected or the director not standing for re-election) or (ii) the one year anniversary measured from the date of grant, each subject to continued service as a director through each applicable vesting date.
On the date of each annual meeting of our stockholders, each continuing non-employee director will automatically receive a restricted stock unit award for common stock having a value of $150,000 based on the fair market value of the underlying common stock on the date of grant under our 2020 Plan. Each annual grant will vest on the earlier of (i) the date of the following annual meeting of our stockholders (or the date immediately prior to the next annual meeting of our stockholders if the non-employee director's service as a director ends at such meeting due to the director's failure to be re-elected or the director not standing for re-election) or (ii) the one year anniversary measured from the date of grant, each subject to continued service as a director through each applicable vesting date.
In the event of a change in control (as defined in our 2020 Plan), any unvested portion of an equity award granted under the policy will fully vest immediately prior to the closing of such change of control, subject to the non-employee director's continuous service with us on the effective date of the change of control.
The calculation of the number of shares of restricted stock units granted under the non-employee director compensation policy will be the closing price of our common stock as reported by Nasdaq on the date of grant.
Each non-employee director will receive an annual cash retainer of $35,000 for serving on our board of directors, the chairman of our board of directors will receive an additional annual cash retainer of $30,000, and our lead independent director (to the extent applicable) will receive an additional annual cash retainer of $15,000.
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The chairperson and members of the three committees of our board of directors are entitled to the following additional annual cash retainers:
| | | | | | | |
Board Committee
| | Chairperson
Fee | | Member
Fee | |
Audit Committee | | $ | 20,000 | | $ | 10,000 | |
Compensation Committee | | | 10,000 | | | 5,000 | |
Nominating and Corporate Governance Committee | | | 10,000 | | | 5,000 | |
All annual cash compensation amounts will be payable in equal quarterly installments in arrears, on the last day of each fiscal quarter for which the service occurred, pro-rated based on the days served in the applicable fiscal quarter.
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EXECUTIVE COMPENSATION
Our named executive officers for the fiscal year ended February 28, 201929, 2020 were:
- •
- Rajeev Singh, our Chief Executive Officer;
- •
Stephen Barnes,Robert Cavanaugh, our Chief Financial Officer;President; and
- •
Robert Cavanaugh,Michael Hilton, our President.Chief Product Officer.
Summary Compensation Table
The following table presents all of the compensation awarded to, earned by, or paid to our named executive officers during the fiscal yearyears ended February 29, 2020 and February 28, 2019.
| | | | | | | | | | | | | | | | | | | |
Name and Principal Position
| | Fiscal
Year | | Salary
($) | | Option
Awards
($)(1) | | Non-Equity
Incentive Plan
($)(2) | | All Other
Compensation
($)(3) | | Total
($) | |
Rajeev Singh
Chief Executive Officer | | | 2019 | | | 350,000 | | | 72,600 | | | 148,750 | | | 3,000 | | | 574,350 | |
Stephen Barnes
Chief Financial Officer | | |
2019 | | |
350,000 | | |
20,570 | | |
148,750 | | |
3,000 | | |
522,320 | |
Robert Cavanaugh
President | | |
2019 | | |
350,000 | | |
20,570 | | |
148,750 | | |
3,000 | | |
522,320 | |
| | | | | | | | | | | | | | | | | | | |
Name and Principal Position
| | Fiscal
Year | | Salary
($) | | Option
Awards
($)(1) | | Non-Equity
Incentive Plan
($)(1)(2) | | All Other
Compensation
($)(3) | | Total
($) | |
Rajeev Singh | | | 2020 | | | 394,231 | | | 2,553,600 | | | 194,167 | | | 3,000 | | | 3,144,998 | |
Chief Executive Officer | | | 2019 | | | 350,000 | | | 72,600 | | | 148,750 | | | 3,000 | | | 574,350 | |
Robert Cavanaugh | | |
2020 | | |
372,115 | | |
960,000 | | |
152,010 | | |
3,000 | | |
1,487,125 | |
President | | | 2019 | | | 350,000 | | | 20,570 | | | 148,750 | | | 3,000 | | | 522,320 | |
Michael Hilton | | |
2020 | | |
347,115 | | |
696,000 | | |
111,348 | | |
3,000 | | |
1,157,463 | |
Chief Product Officer | | | | | | | | | | | | | | | | | | | |
- (1)
- Amounts reflect the grant date fair value of option awards granted in the fiscal
yearyears ended February 29, 2020 and February 28, 2019, respectively, in accordance with ASC 718. For information regarding assumptions underlying the value of equity awards, see Note 8 to our consolidated financial statements and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates — Stock-Based Compensation," included elsewhere in this prospectus. These amounts do not necessarily correspond to the actual value that the named executive officers will realize upon the exercise of the stock options or any sale of the underlying shares of common stock.
- (2)
- Amounts represent the annual performance-based cash bonuses earned by our named executive officers based on the achievement of certain corporate performance objectives and individual performance during the fiscal
yearyears ended February 29, 2020 and February 28, 2019.2019, respectively. These amounts were paid to the named executive officers in June 2020 and April 2019.2019, respectively. Please see the descriptions of the annual performance bonuses paid to our named executive officers under "Performance Bonuses" below.
- (3)
- Amounts shown in this column represent matching 401(k) contributions provided to the named executive officers on the same terms as provided to all of our regular full-time employees in the United States. For more information regarding these benefits, see below under "Other Compensation and Benefits."
Performance Bonuses
We offer our named executive officers the opportunity to earn annual cash incentives to compensate them for attaining short-term company and individual performance goals. Each of Messrs. Singh, Barnes,Cavanaugh, and CavanaughHilton has an annual target bonus that is expressed as a percentage of his annual base salary. The target bonus percentages for our named executive officers (for calendar year 2018, which were determined prior to the company's transition to the current fiscal year which ends in February)2019) were 50% for each of Messrs. Singh, Barnes,Cavanaugh, and Cavanaugh.Hilton.
Our compensation committee, based upon the recommendation of our Chief Executive Officer, establishes company performance goals each year and, at the completion of the year, determines actual bonus payouts after assessing company performance against these goals and a named executive officer's individual performance and contributions to the company's achievements. The calendar company performance goals for Messrs. Singh, Cavanaugh, and Hilton were based on our
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calendar company performance goals for Messrs. Singh, Barnes, and Cavanaugh were based on our revenue, new business bookings measured by annual recurring revenue, free cash flow, Adjusted Gross Margin, and member net promotor score.
The actual bonuses earned by our named executive officers during fiscal year 2020 are reported under the "Non-Equity Incentive Plan" column of the Summary Compensation Table above and were paid out in the form of option grants in June 2020 at the election of the Board of Directors of the Company. The actual cash bonuses earned by our named executive officers during fiscal year 2019 are reported under the "Non-Equity Incentive Plan" column of the Summary Compensation Table above.
As a public company, if we are required to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws as a result of misconduct, our chief executive officer and chief financial officer may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive in accordance with the provisions of section 304 of the Sarbanes-Oxley Act.
Other Compensation and Benefits
All of our current named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, life, disability, and accidental death and dismemberment insurance plans, in each case on the same basis as all of our other employees. We pay the premiums for the life, disability and accidental death and dismemberment insurance for all of our employees, including our named executive officers. We generally do not provide perquisites or personal benefits to our named executive officers.
We maintain a 401(k) plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to defer eligible compensation up to certain Internal Revenue Code of 1986, as amended (Code), limits, which are updated annually. We have the ability to make matching and discretionary contributions to the 401(k) plan. We make matching contributions of up to 3% of eligible deferred compensation capped at $3,000 annually for each employee. The 401(k) plan is intended to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made and contributions and earnings on those amounts are not generally taxable to the employees until withdrawn or distributed from the 401(k) plan.
The CompanyWe did not sponsor any nonqualified deferred compensation plans during the fiscal yearyears ended February 29, 2020 or February 28, 2019. Our board of directors may elect to provide our officers and other employees with nonqualified defined contribution or other nonqualified deferred compensation benefits in the future, if it determines that doing so is in our best interests.
Our named executive officers did not participate in, or otherwise receive any benefits under, any pension or retirement plan sponsored by us during the fiscal yearyears ended February 29, 2020 or February 28, 2019.
Agreements with Our Named Executive Officers
Rajeev Singh. In October 2015, we entered into an Employment Agreement with Mr. Singh (the "Singh Employment Agreement"). The Singh Employment Agreement has no specific term, provides for at-will employment and reflects Mr. Singh's initial annual base salary of $400,000, an initial discretionary target bonus opportunity per year of up to sixty-percent (60%) of the base salary, the terms of his initial stock option grant, and severance benefits upon an involuntary termination, as described below in "— Potential Payments upon Termination or Change in Control."
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Stephen Barnes.Michael Hilton. On December 1, 2014,October 19, 2015, we entered into a Letter Agreement with Mr. BarnesHilton (the "Barnes"Hilton Employment Agreement"). The BarnesHilton Employment Agreement has no specific term, provides for at-will employment and reflects Mr. Barnes'Hilton's initial annual base salary of $400,000, a one-time bonus payment of $100,000 paid in April 2015,$325,000, a discretionary target bonus opportunity
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per year of up to fifty-percent (50%) of the base salary, and the terms of his initial stock option grant, andgrant. The Hilton Employment Agreement does not contain provisions regarding severance benefits upon an involuntary termination, as described below in "— Potential Payments upon Termination or Change in Control."benefits.
Robert Cavanaugh. On October 26, 2015, we entered into a Letter Agreement with Mr. Cavanaugh (the "Cavanaugh Employment Agreement"). The Cavanaugh Employment Agreement has no specific term, provides for at-will employment and reflects Mr. Cavanaugh's current annual base salary of $350,000, a discretionary target bonus opportunity per year of up to fifty-percent (50%) of the base salary, and the terms of his initial stock option grant. The Cavanaugh Employment Agreement does not contain provisions regarding severance benefits.
Potential Payments upon Termination or Change in Control
Regardless of the manner in which service terminates, each of Mr. Singh and Mr. Barnes areis entitled to receive amounts earned during his term of service, including unpaid salary and unused vacation.
Upon an involuntary termination (including due to death or disability), termination without Cause or resignation for Good Reason (each as defined in the Singh Employment Agreement), Mr. Singh is eligible for severance benefits in the form of a payment equal to 12 months of base salary and the acceleration of all outstanding equity awards to the extent such awards would have otherwise become vested if Mr. Singh's employment had not been terminated for a period of nine months following such termination. Upon termination without Cause or resignation for Good Reason within one-year of a Company Transaction (as defined in the 2007 Plan), Mr. Singh's outstanding equity awards vest according to the vesting acceleration provisions set forth in the respective award agreements.
Upon an involuntary termination, except a Termination for Cause (as defined in the Barnes Employment Agreement), Mr. Barnes is eligible for severance benefits in the form of (i) continued base compensation and (ii) payment of COBRA premiums, for up to one year from the date of termination or, if earlier, the date Mr. Barnes next becomes employed full-time by another employer. In the event that Mr. Barnes is terminated as a result of an acquisition of the company, all of Mr. Barnes' outstanding unvested options shall immediately vest.
Each of our named executive officers' stock options are subject to the terms of the 2007 Plan and form of share option agreement thereunder. If in connection with certain Company Transactions (as defined in the 2007 Plan), a successor entity (or parent thereof) does not assume or substitute outstanding options under our 2007 Plan prior to the effective date of the Company Transaction, each then outstanding option will become fully vested and exercisable. All outstanding repurchase rights under our 2007 Plan (to the extent there are any) shall be assigned to the successor entity (or parent thereof) in the event of any Company Transaction. If the successor entity (or parent thereof) does not accept such assignment, the outstanding repurchase rights shall terminate automatically, and the shares subject to those terminated rights shall immediately vest in full, upon the consummation of the Company Transaction, unless otherwise precluded by limitations imposed at the time of issuance. A more detailed description of the termination and change in control provisions in the 2007 Plan and awards granted thereunder is provided below under "— Equity Plans."
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Outstanding Equity Awards at Fiscal Year-End
The following table presents the outstanding equity incentive plan awards held by each named executive officer as of February 28, 2019.29, 2020.
| | | | Option Awards(1)
| | | | Option Awards(1)
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name
| | Number of
Securities
Underlying
Unexercised
Options
Exercisable | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable(2) | | Option
Exercise
Price
Per
Share(3) | | Option
Expiration
Date | | | Number of
Securities
Underlying
Unexercised
Options
Exercisable | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable(2) | | Option
Exercise
Price
Per
Share(3) | | Option
Expiration
Date | |
Rajeev Singh | | 6,666,666 | | 1,333,334 | (a) | $ | 0.84 | | 10/30/2025 | | | 1,600,000 | | — | (a) | $ | 4.20 | | 10/30/2025 | |
| | 59,375 | | 90,625 | (b) | $ | 0.90 | | 7/26/2027 | | | 19,375 | | 10,625 | (b) | $ | 4.50 | | 7/26/2027 | |
| | — | | 150,000 | (c) | $ | 0.94 | | 5/2/2028 | | | 13,750 | | 16,250 | (c) | $ | 4.70 | | 5/2/2028 | |
Stephen Barnes | | 780,000 | | — | | $ | 0.84 | | 2/1/2025 | | |
| | | — | | 532,000 | (e) | $ | 9.60 | | 6/24/2029 | |
Michael Hilton | | | 502,000 | | — | (a) | $ | 4.20 | | 10/30/2025 | |
| | | 14,166 | | 5,834 | (d) | $ | 4.20 | | 4/26/2027 | |
| | 34,375 | | 40,625 | (d) | $ | 0.84 | | 4/26/2027 | | | 3,895 | | 4,605 | (c) | $ | 4.70 | | 5/2/2028 | |
| | — | | 42,500 | (c) | $ | 0.94 | | 5/2/2028 | | | — | | 145,000 | (e) | $ | 9.60 | | 6/24/2029 | |
Robert Cavanaugh | | 2,353,125 | | 470,625 | (a) | $ | 0.84 | | 10/30/2025 | | | 564,750 | | — | (a) | $ | 4.20 | | 10/30/2025 | |
| | 34,375 | | 40,625 | (d) | $ | 0.84 | | 4/26/2027 | | | 10,625 | | 4,375 | (d) | $ | 4.20 | | 4/26/2027 | |
| | — | | 42,500 | (c) | $ | 0.94 | | 5/2/2028 | | | 3,895 | | 4,605 | (c) | $ | 4.70 | | 5/2/2028 | |
| | | — | | 200,000 | (e) | $ | 9.60 | | 6/24/2029 | |
- (1)
- All of the option awards were granted under the 2007 Plan, the terms of which plan are described below under "— Equity Plans."
- (2)
- The unvested shares are scheduled to vest over a four-year period as follows: 25% of the shares underlying the options vest on the one-year anniversary of the vesting commencement date as detailed below, and thereafter 1/48th of the shares vest each month, subject to continued service with us through each relevant vesting date.
- (a)
- Vesting commencement date of 10/30/2015.
- (b)
- Vesting commencement date of 7/26/2017.
- (c)
- Vesting commencement date of 4/1/2018.
- (d)
- Vesting commencement date of 4/1/2017.
- (e)
- Vesting Commencement Date 6/25/2019.
- (3)
- All of the option awards were granted with a per share exercise price equal to the fair market value of one share of our common stock on the date of grant, as determined in good faith by our board of directors or compensation committee.
Equity Plans
Our board adopted the Amended and Restated 2007 Stock Option Plan (the 2007 Plan) on July 1, 2010, and it was approved by our stockholders on July 1, 2010. The 2007 Plan was most recently amended and restated on April 25, 2014, and was last amended by our board on March 28, 2019June 1, 2020 and by our stockholders on April 18, 2019.June 1, 2020. The 2007 Plan provides for the grant of incentive stock options (ISOs) and nonqualified stock options (NSOs) to our employees, directors and consultants or those of our subsidiaries. ISOs may be granted only to our employees or employees of our subsidiaries.
The 2007 Plan will bewas terminated on the date the 2020 Plan becomesbecame effective. However, any outstanding awards granted under the 2007 Plan will remain outstanding, subject to the terms of our
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2007 Plan and award agreements, until such outstanding options are exercised or until any awards terminate or expire by their terms.
Authorized Shares. Following the consummation of this offering, we willWe no longer grant awards under our 2007 Plan. As of November 30, 2019,August 31, 2020, we had outstanding options under our
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equity compensation plans to purchase an aggregate of 45,347,4229,426,565 shares of our common stock, with a weighted-average exercise price of $1.13$8.82 per share.
Plan Administration. Our board or a duly authorized committee of two or more members of our board administers our 2007 Plan and the awards granted under it. The administrator has the power to modify outstanding awards under our 2007 Plan. The administrator has the authority to cancel any outstanding option and to grant in substitution thereof new options covering the same or different number of shares of common stock but with an exercise price per share based on the fair market value on the new option grant date, with the consent of any adversely affected participant.
Company Transactions. Our 2007 Plan provides that in the event of certain specified Company Transactions, as defined under our 2007 Plan, our board may take the following actions for each outstanding option (i) arrange for the assumption by the successor entity (or parent thereof) or (ii) replace with a comparable option to purchase shares of the successor entity (or parent thereof) or with a cash incentive program of the successor entity which preserves the spread existing on the unvested option shares at the time of the company transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option. If any successor entity (or parent thereof) does not effect such assumption or replacement, immediately prior to the effective date of the company transaction, each outstanding option will become fully exercisable for all shares of common stock at the time subject to such option and may be exercised for any or all of those shares as fully vested.
All outstanding repurchase rights (to the extent there are any) shall also be assigned to the successor entity (or parent thereof) in the event of any Company Transaction. However, to the extent the successor entity (or parent thereof) does not accept such assignment, the outstanding repurchase rights shall terminate automatically, and the shares subject to those terminated rights shall immediately vest in full, upon the consummation of the Company Transaction, except to the extent such accelerated vesting is precluded by other limitations imposed by the administrator at the time the repurchase right is issued.
Unless otherwise provided, immediately following the consummation of the Company Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor entity (or parent thereof).
The administrator is not obligated to treat all awards or portions of awards, even those that are of the same type, in the same manner.
Transferability. Our board may impose limitations on the transferability of options, as the board will determine. Absent such limitations, a participant may not transfer awards under our 2007 Plan other than by will, the laws of descent and distribution.
Plan Amendment or Termination. Our board has the authority to amend or modify our 2007 Plan at any time, provided that such action will not impair a participant's rights under such participant's outstanding award without his or her written consent. As described above, our 2007 Plan will bewas terminated upon the effective date of thisour initial public offering, and no future awards will beare granted thereunder.
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Our board of directors adopted the 2020 Equity Incentive Plan or (the 2020 Plan), in February 2020 and our stockholders approved the 2020 Plan in .March 2020. The 2020 Plan will becomebecame effective upon the execution of the underwriting agreement for thisour initial public offering. The 2020 Plan will beis the successor to
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the 2007 Plan. Once the 2020 Plan becomes effective, no further grants will be made under the 2007 Plan.
Types of Awards. Our 2020 Plan provides for the grant of incentive stock options, or ISOs, nonstatutory stock options, or NSOs, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based awards, and other awards, or collectively, awards. ISOs may be granted only to our employees, including our officers, and the employees of our affiliates. All other awards may be granted to our employees, including our officers, our non-employee directors and consultants, and the employees and consultants of our affiliates.
Authorized Shares. The maximum number of shares of common stock that may be issued under our 2020 Plan will not exceed 4,300,000 shares, which is the sum of (i) new shares, plus (ii) an additional number of shares not to exceed shares consisting of (A) any shares reserved and available for issuance pursuant to the grant of new awards under our 2007 Plan upon the effectiveness of the 2020 Plan, and (B) any shares subject to stock options or other awards granted under our 2007 Plan, that on or after the date the 2020 Plan becomes effective, expire or terminate for any reason prior to exercise in full or are cancelled in accordance with the terms of the 2007 Plan. The number of shares of common stock reserved for issuance under our 2020 Plan will automatically increase on March 1 of each year, beginning on March 1, 2021, and continuing through and including March 1, 2030, by 4% of the total number of shares of common stock outstanding on the last day of February of the immediately preceding calendar year, or a lesser number of shares determined by our board prior to the applicable last day of February. The maximum number of shares that may be issued upon the exercise of ISOs under our 2020 Plan is three times the share reserve, or 12,900,000 shares.
Shares issued under our 2020 Plan will be authorized but unissued or reacquired shares of common stock. Shares subject to awards granted under our 2020 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our 2020 Plan. Additionally, shares issued pursuant to awards under our 2020 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award, will become available for future grant under our 2020 Plan.
Plan Administration. Our board, or a duly authorized committee of our board, may administer our 2020 Plan. Our board has delegated concurrent authority to administer our 2020 Plan to the compensation committee. We sometimes refer to the board, or the applicable committee with the power to administer our equity incentive plans, as the administrator. The administrator may also delegate to one or more of our officers the authority to (i) designate employees (other than officers) to receive specified awards and (ii) determine the number of shares subject to such awards.
The administrator has the authority to determine the terms of awards, including recipients, the exercise, purchase or strike price of awards, if any, the number of shares subject to each award, the fair market value of a share of common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise or settlement of the award and the terms of the award agreements for use under our 2020 Plan.
In addition, subject to the terms of the 2020 Plan, the administrator also has the power to modify outstanding awards under our 2020 Plan, including the authority to reprice any outstanding option or stock appreciation right, cancel and re-grant any outstanding option or stock appreciation right in exchange for new stock awards, cash or other consideration, or take any other action that is
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treated as a repricing under generally accepted accounting principles, with the consent of any materially adversely affected participant.
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Stock Options. ISOs and NSOs are granted pursuant to stock option agreements adopted by the administrator. The administrator determines the exercise price for a stock option, within the terms and conditions of the 2020 Plan, provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of common stock on the date of grant. Options granted under the 2020 Plan vest at the rate specified by the administrator.
The administrator determines the term of stock options granted under the 2020 Plan, up to a maximum of ten years. Unless the terms of an optionholder's stock option agreement provide otherwise, if an optionholder's service relationship with us, or any of our affiliates, ceases for any reason other than disability, death or cause, the optionholder may generally exercise any vested options for a period of three months following the cessation of service. The option term may be extended in the event that either an exercise of the option or an immediate sale of shares acquired upon exercise of the option following such a termination of service is prohibited by applicable securities laws or our insider trading policy. If an optionholder's service relationship with us or any of our affiliates ceases due to disability or death, or an optionholder dies within a certain period following cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, options generally terminate immediately upon the termination of the individual for cause. In no event may an option be exercised beyond the expiration of its term.
Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the administrator and may include (i) cash, check, bank draft or money order, (ii) a broker-assisted cashless exercise, (iii) the tender of shares of common stock previously owned by the optionholder, (iv) a net exercise of the option if it is an NSO, and (v) other legal consideration approved by the administrator.
Options may not be transferred to third-party financial institutions for value. Unless the administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may designate a beneficiary, however, who may exercise the option following the optionholder's death.
Tax Limitations on ISOs. The aggregate fair market value, determined at the time of grant, of common stock with respect to ISOs that are exercisable for the first time by an option holder during any calendar year under all of our stock plans may not exceed $100,000. Options or portions thereof that exceed such limit will be treated as NSOs. No ISOs may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any of our parent or subsidiary corporations, unless (i) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant and (ii) the term of the ISO does not exceed five years from the date of grant.
Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the administrator. Restricted stock awards may be granted in consideration for cash, check, bank draft or money order, services rendered to us or our affiliates, or any other form of legal consideration. Common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the administrator. A restricted stock award may be transferred only upon such terms and conditions as set by the administrator. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested may be
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forfeited or repurchased by us upon the participant's cessation of continuous service for any reason.
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Restricted Stock Unit Awards. Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participant's cessation of continuous service for any reason.
Stock Appreciation Rights. Stock appreciation rights are granted pursuant to stock appreciation right grant agreements adopted by the administrator. The administrator determines the strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value of common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (i) the excess of the per share fair market value of common stock on the date of exercise over the strike price, multiplied by (ii) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2020 Plan vests at the rate specified in the stock appreciation right agreement as determined by the administrator.
The administrator determines the term of stock appreciation rights granted under the 2020 Plan, up to a maximum of ten years. Unless the terms of a participant's stock appreciation right agreement provide otherwise, if a participant's service relationship with us or any of our affiliates ceases for any reason other than cause, disability or death, the participant may generally exercise any vested stock appreciation right for a period of three months following the cessation of service. The stock appreciation right term may be further extended in the event that exercise of the stock appreciation right following such a termination of service is prohibited by applicable securities laws. If a participant's service relationship with us, or any of our affiliates, ceases due to disability or death, or a participant dies within a certain period following cessation of service, the participant or a beneficiary may generally exercise any vested stock appreciation right for a period of 12 months in the event of disability and 18 months in the event of death. In the event of a termination for cause, stock appreciation rights generally terminate immediately upon the occurrence of the event giving rise to the termination of the individual for cause. In no event may a stock appreciation right be exercised beyond the expiration of its term.
Performance Awards. Our 2020 Plan permits the grant of performance-based stock and cash awards. The compensation committee can structure such awards so that the stock or cash will be issued or paid pursuant to such award only following the achievement of certain pre-established performance goals during a designated performance period. Performance awards that are settled in cash or other property are not required to be valued in whole or in part by reference to, or otherwise based on, the common stock.
The performance goals may be based on any measure of performance selected by the board of directors. The compensation committee may establish performance goals on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. Unless specified otherwise (i) in the award agreement at the time the award is granted or (ii) in such other document setting forth the performance goals at the time the goals are established, the compensation committee will appropriately make adjustments in the method of calculating the attainment of the performance goals as follows: (1) to
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exclude restructuring and/or other nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of items that
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are "unusual" in nature or occur "infrequently" as determined under generally accepted accounting principles; (6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by us achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude the effect of any change in the outstanding shares of common stock by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (9) to exclude the effects of stock-based compensation and the award of bonuses under our bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to be expensed under generally accepted accounting principles; and (11) to exclude the goodwill and intangible asset impairment charges that are required to be recorded under generally accepted accounting principles.
Other Awards. The administrator may grant other awards based in whole or in part by reference to common stock. The administrator will set the number of shares under the award and all other terms and conditions of such awards.
Changes to Capital Structure. In the event there is a specified type of change in our capital structure, such as a stock split, reverse stock split, or recapitalization, appropriate adjustments will be made to: (i) the class and maximum number of shares reserved for issuance under the 2020 Plan; (ii) the class and maximum number of shares by which the share reserve may increase automatically each year; (iii) the class and maximum number of shares that may be issued upon the exercise of incentive stock options; and (iv) the class and number of shares and exercise price, strike price, or purchase price, if applicable, of all outstanding awards.
Corporate Transactions. The following applies to stock awards under the 2020 Plan in the event of a corporate transaction (as defined in the 2020 Plan), unless otherwise provided in a participant's stock award agreement or other written agreement with us or one of our affiliates or unless otherwise expressly provided by the plan administrator at the time of grant.
In the event of a corporate transactions, the plan administrator has the discretion to take any of the following actions with respect to stock awards:
- •
- arrange for the assumption, continuation or substitution of a stock award by a surviving or acquiring entity or parent company;
- •
- arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity or parent company;
- •
- accelerate the vesting of the stock award and provide for its termination prior to the effective time of the corporate transaction;
- •
- arrange for the lapse of any reacquisition or repurchase right held by us;
- •
- cancel or arrange for the cancellation of the stock award in exchange for such cash consideration, if any, as our board of directors may deem appropriate; or
- •
- make a payment equal to the excess of (A) the value of the property the participant would have received upon exercise of the stock award over (B) the exercise price otherwise payable in connection with the stock award.
Our plan administrator is not obligated to treat all stock awards, even those that are of the same type, in the same manner.
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Under the 2020 Plan, a corporate transaction is generally the consummation of (i) a sale or other disposition of all or substantially all of our consolidated assets, (ii) a sale or other disposition
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of at least 50% of our outstanding securities, (iii) a merger, consolidation or similar transaction following which we are not the surviving corporation, or (iv) a merger, consolidation or similar transaction following which we are the surviving corporation but the shares of common stock outstanding immediately prior to such transaction are converted or exchanged into other property by virtue of the transaction.
In the event of a change in control, as defined under our 2020 Plan, awards granted under our 2020 Plan will not receive automatic acceleration of vesting and exercisability, although this treatment may be provided for in an award agreement.
Transferability. A participant may not transfer awards under our 2020 Plan other than by will, the laws of descent and distribution or as otherwise provided under our 2020 Plan.
Plan Amendment or Termination. Our board has the authority to amend, suspend or terminate our 2020 Plan, provided that such action does not materially impair the existing rights of any participant without such participant's written consent. Certain material amendments also require the approval of our stockholders. No ISOs may be granted after the tenth anniversary of the date our board adopted our 2020 Plan. No awards may be granted under our 2020 Plan while it is suspended or after it is terminated.
2020 Employee Stock Purchase Plan
Our board of directors adopted our 2020 Employee Stock Purchase Plan, (or the "ESPP")ESPP), in ,February 2020, and our stockholders approved the ESPP in .March 2020. The ESPP will becomebecame effective upon the execution of the underwriting agreement for thisour initial public offering. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees, and to provide incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. The ESPP includes two components. One component is designed to allow eligible U.S. employees to purchase common stock in a manner that may qualify for favorable tax treatment under Section 423 of the Code. In addition, purchase rights may be granted under a component that does not qualify for such favorable tax treatment when necessary or appropriate to permit participation by eligible employees who are foreign nationals or employed outside of the U.S. while complying with applicable foreign laws.
Authorized Shares. The maximum aggregate number of shares of common stock that may be issued under our ESPP is 1,100,000 shares. The number of shares of common stock reserved for issuance under our ESPP will automatically increase on January 1 of each calendar year, beginning on January 1, 2021 and continuing through and including January 1, 2030, by the lesser of (i) %1% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, (ii) 2,750,000 shares, and (iii) a number of shares determined by our board. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under our ESPP.
Plan Administration. Our board, or a duly authorized committee thereof, will administer our ESPP. Our board has delegated concurrent authority to administer our ESPP to the compensation committee under the terms of the compensation committee's charter. The ESPP is implemented through a series of offerings under which eligible employees are granted purchase rights to purchase shares of common stock on specified dates during such offerings. Under the ESPP, we may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares
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of common stock will be purchased for employees participating in the offering. An offering under the ESPP may be terminated under certain circumstances.
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Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the ESPP and may contribute, normally through payroll deductions, up to 15% of their earnings (as defined in the ESPP) for the purchase of common stock under the ESPP. Unless otherwise determined by our board, common stock will be purchased for the accounts of employees participating in the ESPP at a price per share equal to the lower of (a) 85% of the fair market value of a share of common stock on the first date of an offering or (b) 85% of the fair market value of a share of common stock on the date of purchase. For the initial offering, which we expect will commencecommenced upon the execution and delivery of the underwriting agreement relating to thisour initial public offering, the fair market value on the first day of the initial offering will bewas $22.00, the price at which shares arewere first sold to the public.
Limitations. Our employees, including executive officers, or any of our designated affiliates may have to satisfy one or more of the following service requirements before participating in our ESPP, as determined by the administrator: (i) customary employment with us or one of our affiliates for more than 20 hours per week and more than five months per calendar year, or (ii) continuous employment with us or one of our affiliates for a minimum period of time, not to exceed two years, prior to the first date of an offering. An employee may not be granted rights to purchase stock under our ESPP if such employee (i) immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of common stock, or (ii) holds rights to purchase stock under our ESPP that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding.
Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, large nonrecurring cash dividend, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the board of directors will make appropriate adjustments to (i) the number of shares reserved under the ESPP, (ii) the maximum number of shares by which the share reserve may increase automatically each year, (iii) the number of shares and purchase price of all outstanding purchase rights, and (iv) the number of shares that are subject to purchase limits under ongoing offerings.
Corporate Transactions. In the event of certain corporate transactions, as defined in the ESPP, any then-outstanding rights to purchase our stock under the ESPP may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue, or substitute for such purchase rights, then the participants' accumulated payroll contributions will be used to purchase shares of common stock within 10 business days prior to such corporate transaction, and such purchase rights will terminate immediately.
Under the ESPP, a corporate transaction is generally the consummation of: (i) a sale of all or substantially all of our assets, (ii) the sale or disposition of more than 50% of our outstanding securities, (iii) a merger or consolidation where we do not survive the transaction, and (iv) a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction.
ESPP Amendment or Termination. Our board has the authority to amend or terminate our ESPP, provided that except in certain circumstances such amendment or termination may not materially impair any outstanding purchase rights without the holder's consent. We will obtain
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stockholder approval of any amendment to our ESPP as required by applicable law or listing requirements.
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Limitations of Liability and Indemnification Matters
Upon the completion of this offering, ourOur amended and restated certificate of incorporation will containcontains provisions that limit the liability of our current and former directors for monetary damages to the fullest extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for:
- •
- any breach of the director's duty of loyalty to the corporation or its stockholders;
- •
- any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
- •
- unlawful payments of dividends or unlawful stock repurchases or redemptions; or
- •
- any transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
Our amended and restated certificate of incorporation that will be in effect upon the completion of this offering will authorizeauthorizes us to indemnify our directors, officers, employees, and other agents to the fullest extent permitted by Delaware law. Our amended and restated bylaws that will be in effect upon the completion of this offering will provide that we are required to indemnify our directors and officers to the fullest extent permitted by Delaware law and may indemnify our other employees and agents. Our amended and restated bylaws that will be in effect upon the completion of this offering will also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee, or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors and executive officers. With certain exceptions, these agreements provide for indemnification for related expenses including attorneys' fees, judgments, fines, and settlement amounts incurred by any of these individuals in connection with any action, proceeding, or investigation. We believe that these amended and restated certificate of incorporation and amended and restated bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain customary directors' and officers' liability insurance.
The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for directors, executive officers or persons controlling us, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other than compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus, the following describes transactions since March 1, 20162018 and each currently proposed transaction in which:
- •
- we have been or are to be a participant;
- •
- the amounts involved exceeded or will exceed $120,000; and
- •
- any of our directors, executive officers, or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest.
Equity Financing
In July 2016, November 2016 and in multiple closings during March, April, May and July 2018, we sold an aggregate of 22,357,7552,095,365 shares of our Series E preferred stock at a purchase price of $4.77239$23.86195 per share, for an aggregate purchase price of approximately $106.7$50 million, and issued warrants to purchase an aggregate of 5,837,914541,159 shares of our common stock at an exercise price of $0.0001$0.0005 per share. The following table summarizes purchases of our Series E preferred stock and common stock warrants by related persons:
| Stockholder
| | Shares of
Series E
Preferred Stock | | Warrants to
Purchase
Common
Stock | | Total
Purchase
Price | | | Shares of
Series E
Preferred Stock | | Warrants to
Purchase
Common
Stock | | Total
Purchase
Price | |
Entities affiliated with Andreessen Horowitz(1) | | 11,524,624 | | 2,794,029 | | $ | 55,000,000 | | | 209,538 | | 50,799 | | $ | 5,000,000 | |
Avanti Holdings, LLC(2) | | 419,077 | | 156,765 | | 1,999,999 | | | 83,815 | | 24,703 | | $ | 1,999,989 | |
Stephen H. Barnes | | 52,383 | | 12,699 | | 249,992 | | | 6,286 | | 1,523 | | $ | 149,996 | |
Entities affiliated with Carrick Capital(3) | | 2,095,386 | | 508,004 | | 9,999,999 | | | 419,076 | | 101,600 | | $ | 9,999,971 | |
Robert Cavanaugh | | 209,538 | | 50,800 | | 999,997 | | | 41,907 | | 10,160 | | $ | 999,983 | |
Michael Hilton and Hilton Family Trust(4) | | 419,077 | | 112,418 | | 1,999,999 | | | 83,815 | | 21,179 | | $ | 1,999,989 | |
- (1)
- Entities associated with Andreessen Horowitz holding our securities whose shares are aggregated for purposes of reporting share ownership information are Andreessen Horowitz Fund IV, L.P., as nominee and AH Parallel Fund IV, L.P., as nominee. Mr. Jordan, a member of our board of directors, is a general partner at Andreessen Horowitz.
- (2)
- Mr. Singh, our chief executive officer and a member of our board of directors, is a partner of Avanti Holdings, LLC.
- (3)
- Entities associated with Carrick Capital holding our securities whose shares are aggregated for purposes of reporting share ownership information are Carrick Capital Partners II Co-Investment Fund, LP and Carrick Capital Partners II Co-Investment Fund II, LP. Mr. Madden, a member of our board of directors, is affiliated with Carrick Capital.
- (4)
- Mr. Hilton, one of our executive officers, is trustee of the Hilton Family Trust.
Investor Rights Agreement
We arewere previously party to a fifth amended and restated investor rights agreement (IRA) with certain holders of our capital stock, including all of our holders of more than 5% of our capital stock, entities affiliated with certain of our directors, and each of our executive officers and directors that hold shares of our capital stock. The IRA providesprovided certain holders of our preferred stock with information rights and a right of first refusal with regard to certain issuances of our capital stock, which will not apply to the completion of this offering.stock. The parties to the IRA have agreed to vote in a certain way on certain matters, including with respect to the election of directors. This agreement will terminateterminated upon the completion of thisour initial public offering.
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Registration Rights Agreement
We are party to a fifth amended and restated registration rights agreement (RRA) with certain holders of our capital stock, including all of our holders of more than 5% of our capital stock, entities affiliated with certain of our directors, and each of our executive officers and directors that hold shares of our capital stock. The RRA provides our stockholders certain registration rights, including the right to demand that we file a registration statement following the completion of this offering or request that their shares be covered by a registration statement that we are otherwise filing, including the registration statement related to this offering. In connection with this offering, the holders of up to 37,608,433 shares of our common stock including shares issued or issuable on conversion of outstanding preferred stock and shares of common stock issuable upon the net exercise of warrants that will be automatically net exercised in connection with this offering if not previously exercised, will be entitled to rights with respect to the registration of their shares under the Securities Act under this agreement. For a description of these registration rights, see the section titled "Description of Capital Stock — Registration Rights."
Right of First Refusal
Pursuant to our equity compensation plans and certain agreements with our stockholders, including a fifth amended and restated right of first refusal and co-sale agreement with certain holders of our capital stock that we were previously party to, we or our assignees have a right to purchase shares of our capital stock which stockholders propose to sell to other parties. This right will terminateterminated upon the completion of thisour initial public offering. Since March 1, 2016,2018, we have waived our right of first refusal in connection with the sale of certain shares of our capital stock, resulting in the purchase of such shares by certain of our stockholders, including related persons. See the section titled "Principal Stockholders" for additional information regarding beneficial ownership of our capital stock.
Transactions with Comcast Cable
In February 2009, we first entered into a services agreement with Comcast Cable Communications Management, LLC (Comcast Cable). Entities affiliated with Comcast Cable currently hold more than 5% of our outstanding capital stock, and Mr. Yang, a member of our board of directors, served as a managing director at an entity affiliated with Comcast Cable until 2018. Under our services agreement with Comcast Cable, which was most recently amended and renewed in October 2017,June 2020, we have earned $31.6 million in fiscal 2020, $33.4 million in fiscal 2019, $34.6 million in fiscal 2018 and a similar amount in fiscal 2017. Our potential revenue for future periods will depend on the number of members we serve and our achievement of performance metrics under the agreement, but we expect Comcast Cable to remain a significant customer. In March 2020, Comcast Holdings Corporation cash exercised a warrant to purchase 160,000 shares of our common stock for $2.2 million. See Notes 2 and 13 to our consolidated financial statements included elsewhere in this prospectus.
Indemnification Agreements
Our amended and restated certificate of incorporation that will be in effect upon the completion of this offering will containcontains provisions limiting the liability of directors, and our amended and restated bylaws that will be in effect upon the completion of this offering will provide that we will indemnify each of our directors and officers to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect upon the completion of this offering will also provide our board of directors with discretion to indemnify our employees and other agents when determined appropriate by the board. In addition, we have entered into an indemnification agreement with each of our directors and executive officers, which requires us to indemnify them. For more information regarding these agreements, see the section titled "Executive Compensation — Limitations of Liability and Indemnification Matters."
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Policies and Procedures for Related Person Transactions
Prior to the completion of this offering, ourOur board of directors will adoptadopted a related person transaction policy setting forth the policies and procedures for the identification, review and approval or ratification of related person transactions. This policy will cover,covers, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we and a related person were or will be participants and the amount involved exceeds $120,000, including purchases of goods or services by or from the related person or entities in which the related person has a material interest, indebtedness, and guarantees of indebtedness. In reviewing and approving any such transactions, our audit committee will consider all relevant facts and circumstances as appropriate, such as the purpose of the transaction, the availability of other sources of comparable products or services, whether the transaction is on terms comparable to those that could be obtained in an arm's length transaction, management's recommendation with respect to the proposed related person transaction, and the extent of the related person's interest in the transaction.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our capital stock as of December 31, 2019,September 30, 2020, and as adjusted to reflect the sale of our common stock offered by us in this offering assuming no exercise of the underwriters' option to purchase additional shares for:
- •
- each of our named executive officers;
- •
- each of our directors;
- •
- all of our executive officers and directors as a group; and
- •
- each person or group of affiliated persons known by us to beneficially own more than 5% of our common stock.
We have determined beneficial ownership in accordance with the rules and regulations of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership before the offering is based on 49,289,164 shares of common stock outstanding as of December 31, 2019, assuming the automatic conversion of all outstanding shares of preferred stock into shares of common stock upon the completion of this offering, and assuming the issuance of shares of common stock upon the net exercise of warrants outstanding as of December 31, 2019 that will automatically net exercise in connection with this offering if not previously exercised, in each case assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. For additional information on the conversion ratios of the preferred stock, see the section titled "Prospectus Summary — The Offering".September 30, 2020. Applicable percentage ownership after the offering is based on 53,789,164 shares of common stock outstanding immediately after the completion of this offering, and assuming no exercise by the underwriters of their option to purchase additional shares of our common stock. In computing the number of shares beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares subject to options held by the person that are currently exercisable, or exercisable within 60 days of December 31, 2019.September 30, 2020. However, except as described above, we did not deem such shares outstanding for the purpose of computing the percentage ownership of any other person.
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Unless otherwise indicated, the address of each beneficial owner listed below is c/o Accolade, Inc., 1201 Third Avenue, Suite 1700, Seattle, WA 98101.
| | | | | | | | | | |
| | | Number of
shares | | | Percentage of
Shares
Beneficially
Owned
| |
| | | | | | | | | | |
Name of beneficial owner
| | beneficially
owned | | Before
offering | | After
offering | |
5% and Greater Stockholders:
| | | | | | | | | | |
Entities affiliated with Accretive(1)
| | | 43,067,199 | | | | % | | | % |
Entities affiliated with Andreessen Horowitz(2)
| | | | | | | | | | |
Entities affiliated with Carrick Capital(3)
| | | | | | | | | | |
Entities affiliated with Comcast Ventures(4)
| | | 10,665,966 | | | | | | | |
Entities affiliated with Thomas K. Spann(5)
| | | | | | | | | | |
Executive Officers and Directors:
| | | | | | | | | | |
Rajeev Singh(6)
| | | | | | | | | | |
Stephen Barnes(7)
| | | 1,121,948 | | | | | | | |
Robert Cavanaugh(8)
| | | 3,296,583 | | | | | | | |
J. Michael Cline(1)
| | | 43,067,199 | | | | | | | |
Senator William H. Frist, M.D.(9)
| | | 730,993 | | | | | | | |
Michael Hilton(10)
| | | | | | | | | | |
Jeffrey Jordan(2)
| | | — | | | | | | | |
Peter Klein
| | | — | | | | | | | |
Dawn Lepore
| | | — | | | | | | | |
James C. Madden, V(3)(11)
| | | | | | | | | | |
Thomas Neff(12)
| | | 811,687 | | | | | | | |
Patricia Wadors
| | | — | | | | | | | |
Michael T. Yang
| | | — | | | | | | | |
All executive officers and directors as a group (13 persons)(13)
| | | | | | | | | | |
| | | | | | | | | | |
| | | Number of
shares | | | Percentage of
Shares
Beneficially
Owned
| |
| | | | | | | | | | | |
Name of beneficial owner
| | beneficially
owned | | Before
offering | | After
offering | |
5% and Greater Stockholders: | | | | | | % | | | % | |
Entities affiliated with Accretive(1) | | | 10,129,108 | | | 20.6 | % | | 18.8 | % |
Entities affiliated with Andreessen Horowitz(2) | | | 5,398,708 | | | 11.0 | % | | 10.0 | % |
Entities affiliated with Carrick Capital(3) | | | 3,508,278 | | | 7.1 | % | | 6.5 | % |
Entities affiliated with Comcast Ventures(4) | | | 2,596,478 | | | 5.3 | % | | 4.8 | % |
Executive Officers and Directors: | | | | | | | | | | |
Rajeev Singh(5) | | | 2,548,156 | | | 5.0 | % | | 4.6 | % |
Robert Cavanaugh(6) | | | 804,137 | | | 1.6 | % | | 1.5 | % |
Michael Hilton(8) | | | 906,986 | | | 1.8 | % | | 1.7 | % |
J. Michael Cline(1) | | | 10,129,108 | | | 20.6 | % | | 18.8 | % |
Senator William H. Frist, M.D.(7) | | | 157,520 | | | | * | | | * |
Jeffrey Jordan | | | — | | | | * | | | * |
Peter Klein(13) | | | 5,833 | | | | * | | | * |
Dawn Lepore(9) | | | 7,083 | | | | * | | | * |
James C. Madden, V(3)(10) | | | 3,630,996 | | | 7.4 | % | | 6.8 | % |
Thomas Neff(11) | | | 175,354 | | | | * | | | * |
Patricia Wadors | | | — | | | | * | | | * |
Michael T. Yang(12) | | | 4,583 | | | | * | | | * |
All executive officers and directors as a group (13 persons)(14) | | | 18,668,358 | | | 35.5 | % | | 32.7 | % |
- *
- Represents beneficial ownership of less than 1%.
- (1)
- Consists of: (i)
548,393128,961 shares held of record by Accretive Care Holding Partnership ("Accretive(Accretive Care Partners")Partners). Accretive II GP, LLC ("Accretive(Accretive II GP")GP) is the general partner of Accretive Care Partners, and has voting and dispositive power with respect to the shares held by Accretive Care Partners. J. Michael Cline, a member of our board of directors, and Edgar Bronfman, Jr. are the managing members of Accretive II GP, and may be deemed to have shared voting and dispositive power with respect to the shares held by Accretive Care Partners, but disclaim beneficial ownership of such shares; (ii) 4,801,6821,130,221 shares held of record by Accretive Coinvestment Partners, LLC ("Accretive(Accretive Coinvestment Partners")Partners). Accretive Associates I, LLC ("Accretive Associates")(Accretive Associates) is the managing member of Accretive Coinvestment Partners, and has voting and dispositive power with respect to the shares held by Accretive Coinvestment Partners. Messrs. Bronfman and Cline are the managing members of Accretive Associates, and may be deemed to have shared voting and dispositive power with respect to the shares held by Accretive Coinvestment Partners but disclaim beneficial ownership of such shares; (iii) 4,578,8071,076,796 shares held of record by Accretive II Coinvestment, L.P. ("Accretive(Accretive II Coinvestment")Coinvestment). Accretive II GP is the general partner of Accretive II Coinvestment, and has voting and dispositive power with respect to the shares held by Accretive II Coinvestment. Messrs. Bronfman and Cline are the managing members of Accretive II GP, and may be deemed to have shared voting and dispositive power with respect to the shares held by Accretive II Coinvestment but each of Mr. Bronfman and Mr. Cline disclaims beneficial ownership of such shares except to the extent of his individual pecuniary interest therein; (iv) 14,005,5603,293,683 shares held of record by Accretive II, L.P. ("Accretive II")(Accretive II). Accretive II GP is the general partner of the Accretive II, and has voting and dispositive power with respect to the shares held by Accretive II. Messrs. Bronfman and Cline are the managing members of Accretive II GP, and may be deemed to have shared voting and dispositive power with respect to the shares held by the Accretive II, but disclaim beneficial ownership of such shares; and (v) 19,132,7574,499,447 shares held of record by Accretive Investors SBIC, L.P. ("Accretive(Accretive Investors SBIC")SBIC). Accretive Associates SBIC, LLC ("Accretive(Accretive SBIC GP")GP) is the general partner of Accretive Investors SBIC, and has voting and dispositive power with respect to the shares held by Accretive Investors SBIC. Messrs. Bronfman and Cline are the managing members of Accretive SBIC GP, and may be deemed to have shared voting and dispositive power with respect to the shares held by Accretive Investors SBIC, but each of Mr. Bronfman and Mr. Cline disclaims beneficial ownership of such shares except to the extent of his individual pecuniary interest therein. The address for each of these individuals and entities is c/o Accretive, LLC, 660 Madison Avenue, 12th Floor, Suite 1215, New York, NY 10065.
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- (2)
- Consists of: (i)
8,220,8003,779,620 shares held of record by AH Parallel Fund IV, L.P., for itself and as nominee for AH Parallel Fund IV-A, L.P., AH Parallel Fund IV-B, L.P. and AH Parallel Fund IV-Q, L.P. (collectively, the "AHAH Parallel Fund IV Entities") and shares that would be issued upon the net exercise of warrants;Entities); and (ii) 3,478,8241,619,088 shares held of record by Andreessen Horowitz Fund IV, L.P., for itself and as nominee for Andreessen Horowitz Fund IV-A, L.P., Andreessen Horowitz Fund IV-B, L.P. and Andreessen Horowitz Fund IV-Q, L.P. (collectively, the "AHAH Fund IV Entities") and shares that would be issued upon the net exercise of warrants.Entities). AH Equity Partners IV (Parallel), L.L.C. ("AH(AH EP IV Parallel")Parallel) is the general partner of the AH Parallel Fund IV Entities. The managing members of AH EP IV Parallel are Marc Andreessen and Ben Horowitz. AH EP IV Parallel has sole voting and dispositive power with regard to the shares held by the AH Parallel Fund IV Entities. AH Equity Partners IV, L.L.C. ("AH(AH EP IV")IV) is the general partner of the AH Fund IV Entities. The managing members of AH EP IV are Marc Andreessen and Ben Horowitz. AH EP IV has sole voting and dispositive power with regard to the shares held by the AH Fund IV Entities. The address for each of these individuals and entities is 2865 Sand Hill Road, Suite 101, Menlo Park, CA 94025.
- (3)
- Consists of: (i)
959,165341,153 shares held of record by Carrick Capital Associates Fund, L.P.; (ii) 327,715116,560 shares held of record by Carrick Capital Founders Fund, L.P.; (iii) 1,047,693487,608 shares held of record by Carrick Capital Partners II Co-Investment Fund, L.P. and shares that would be issued upon the net exercise of warrants;; (iv) 1,047,693487,608 shares held of record by Carrick Capital Partners II Co-Investment Fund II, L.P., and shares that would be issued upon the net exercise of warrants;; and (v) 5,834,9212,075,349 shares held of record by Carrick Capital Partners, L.P. Each of Carrick Capital Partners, L.P., Carrick Capital Associates Fund, L.P., and Carrick Capital Founders Fund, L.P. is a Delaware limited partnership that is managed by its sole general partner, Carrick Management Partners, LLC, which is a Delaware limited liability company. Each of Carrick Capital Partners II Co-Investment Fund, L.P. and Carrick Capital Partners II Co-Investment Fund II, L.P. is a Delaware limited partnership that is managed by its sole general partner, Carrick Management Partners II, LLC, which is a Delaware limited liability company. The principal office of all of the foregoing entities is 610 Newport Center Drive, Suite 1200, New Port Beach, CA 92660. Both of the general partner entities, Carrick Management Partners, LLC and Carrick Management Partners II, LLC, are managed by their two Managing Members, Marc F. McMorris and James C. Madden, V. The voting of Accolade, Inc. shares owned by the aforementioned Carrick entities is controlled by Marc F. McMorris and James C. Madden, V as the managers of Carrick Management Partners, LLC and Carrick Management Partners II, LLC.
- (4)
- Consists of: (i)
1,599,999479,999 shares held of record by Comcast Holdings Corporation and 800,000 shares issuable upon the exercise of a warrant that is exercisable within 60 days of December 31, 2019;Corporation; and (ii) 8,265,9672,116,479 shares held of record by Comcast Ventures, L.P. Comcast Ventures, L.P. has an economic interest in the entities affiliated with Andreessen Horowitz but does not have voting or investment power over the shares held by such entities and, accordingly, such shares are not included as beneficially owned by Comcast Ventures, L.P. The address for these entities is One Comcast Center, Philadelphia, PA 19103.
- (5)
- Consists of: (i)
2,960,49845,900 shares held directly; (ii) 3,872,6831,850,637 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019;September 30, 2020; and (iii) 2,000,000651,619 shares held by The Thomas K. Spann Family Trusted dated January 18, 2012.Avanti Holdings, LLC. Mr. Singh is a partner of Avanti Holdings, LLC.
- (6)
- Consists of: (i)
229,501135,657 shares held directly; and (ii) 8,165,625668,480 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019; and (iii) 1,487,724 shares held by Avanti Holdings, LLC and shares that would be issued upon the net exercise of warrants. Mr. Singh is a partner of Avanti Holdings, LLC.September 30, 2020.
- (7)
- Consists of: (i)
269,344155,020 shares held directly; and (ii) 852,6042,500 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019.September 30, 2020.
- (8)
- Consists of: (i)
400,229195,042 shares held directlyof record by the Hilton Family Trust; (ii) 124,951 shares held directly; and shares that would be issued upon the net exercise of warrants; and (ii) 2,896,354(iii) 586,993 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019.
(9)Consists of: (i) 714,118 shares held directly; and (ii) 11,250 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019.
(10)Consists of: (i) 419,077 shares held of record by the Hilton Family Trust and shares that would be issued upon the net exercise of warrants; (ii) 386,701 shares held directly and shares that would be issued upon the net exercise of warrants; and (iii) 2,600,312 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019.September 30, 2020. Mr. Hilton is trustee of the Hilton Family Trust.
(11)(9)- Consists of: 7,083 shares issuable pursuant to a stock option exercisable within 60 days of
588,652September 30, 2020.
- (10)
- Consists of: 122,718 shares held of record by the James C. Madden V. Living Trust, Established November 18, 1999. Mr. Madden, a member of our board of directors, is the trustee of James C. Madden V. Living Trust, Established November 18, 1999. Mr. Madden has an economic interest in the entities affiliated with Accretive but does not have voting or investment power over the shares held by such entities and, accordingly, such shares are not included as beneficially owned by Mr. Madden.
(12)(11)- Consists of: (i)
800,437170,771 shares held directly; and (ii) 11,2504,583 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019.September 30, 2020.
(13)(12)- Consists of:
(i) shares held by our directors, executive officers, and affiliated entities; (ii) shares that would be issued upon the net exercise of warrants; (iii) 800,000 shares issuable upon the exercise of a warrant that is exercisable within 60 days of December 31, 2019; and (iv) 14,543,0204,583 shares issuable pursuant to stock options exercisable within 60 days of December 31, 2019.September 30, 2020.
- (13)
- Consists of: 5,833 shares issuable pursuant to stock options exercisable within 60 days of September 30, 2020.
- (14)
- Consists of: (i) 15,304,293 shares held by our directors, executive officers, and affiliated entities; and (ii) 3,364,065 shares issuable pursuant to stock options exercisable within 60 days of September 30, 2020.
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DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of the rights of our common and preferred stock and some of the provisions of our amended and restated certificate of incorporation and amended and restated bylaws, which will each become effective upon the completion of this offering, the fifth amended and restated registration rights agreement, and relevant provisions of Delaware General Corporation Law. The descriptions herein are qualified in their entirety by our amended and restated certificate of incorporation, amended and restated bylaws and fifth amended and restated registration rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part, as well as the relevant provisions of Delaware General Corporation Law.
Upon the completion of this offering, ourOur authorized capital stock will consistconsists of the following shares, all with a par value of $0.0001 per share, of which:
- •
- 500,000,000 shares are designated as common stock; and
- •
- 25,000,000 shares are designated as preferred stock.
Common Stock
As of November 30, 2019,August 31, 2020, there were 49,269,342 shares of our common stock outstanding and held of record by 224343 stockholders. The number of beneficial stockholders assuming (i)is substantially greater than the automatic conversionnumber of all outstanding sharesholders of our preferred stock into shares of common stock, which will automatically occur immediately prior to the closing of this offering, and (ii) the issuance of sharesrecord because a large portion of our common stock issuable upon the net exercise of warrants that will automatically net exercise in connection with this offering if not previously exercised, in each case assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus.held through brokerage firms.
Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and do not have cumulative voting rights. Accordingly, the holders of a majority of the outstanding shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they so choose, other than any directors that holders of any preferred stock we may issue may be entitled to elect. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared by the board of directors out of legally available funds. In the event of our liquidation, dissolution, or winding up, the holders of common stock will be entitled to share ratably in the assets legally available for distribution to stockholders after the payment of or provision for all of our debts and other liabilities, subject to the prior rights of any preferred stock then-outstanding. Holders of common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking funds provisions applicable to the common stock. All outstanding shares of common stock are, and the common stock to be outstanding upon the closing of this offering will be, duly authorized, validly issued, fully paid, and nonassessable. All authorized but unissued shares of our common stock will be available for issuance by our board of directors without any further stockholder action, except as required by the listing standards of Nasdaq. The rights, preferences, and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
As of November 30, 2019,August 31, 2020, there were 97,569,991no shares of preferred stock outstanding. Immediately upon the completion of this offering, each outstanding share of preferred stock will
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convert into the number of shares of common stock as described in the section titled "Prospectus Summary — The Offering."
Upon the closing of this offering, ourOur board of directors may, without further action by our stockholders, fix the rights, preferences, privileges, and restrictions of up to an aggregate of 25,000,000 shares of preferred stock in one or more series and authorize their issuance. These rights, preferences, and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms, and the number of shares constituting any series or the designation of such series, any or all of
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which may be greater than the rights of our common stock. The issuance of our preferred stock could adversely affect the voting power of holders of our common stock, and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring, or preventing a change of control or other corporate action.
Options
As of November 30, 2019,August 31, 2020, we had outstanding options under our equity compensation plans to purchase an aggregate of 45,347,4229,426,565 shares of our common stock, with a weighted-average exercise price of $1.13$8.82 per share.
Warrants
As of November 30, 2019, 8,281,694 shares of common stock were issuable upon exercise of outstanding warrants to purchase common stock with a weighted-average exercise price of $0.511 per share. Each of these warrants have a net exercise provision under which their holders may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our common stock at the time of exercise of the warrants after deduction of the aggregate exercise price. The warrants also provide for the adjustment of the number of shares issuable upon the exercise of the warrants in the event of stock splits, recapitalizations, reclassifications and consolidations. Warrants to purchase up to an aggregate of shares will be automatically net exercised in connection with this offering if not previously exercised, resulting in shares of common stock to be issued upon the automatic net exercise of these warrants, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus. Unless exercised earlier, the warrants that are not net exercised in connection with this offering shall terminate on April 1, 2020.
Registration Rights
We are party to an amended and restated registration rights agreement that provides that holders of our capital stock have certain registration rights as set forth below. The registration of shares of our common stock by the exercise of registration rights described below would enable the holders to sell these shares without restriction under the Securities Act when the applicable registration statement is declared effective. We will pay the registration expenses, other than underwriting discounts and commissions, of the shares registered by the demand, piggyback and Form S-3 registrations described below.
Generally, in an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include. The demand, piggyback and Form S-3 registration rights described below will expire five years after the completion of this offering, of which this prospectus is a part,July 1, 2025, or with respect to any particular stockholder, after such time after the completion of this offering that such stockholder can sell all of its
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shares entitled to registration rights under Rule 144 of the Securities Act during any three-month period.
The holders of an aggregate of 37,608,433 shares of our common stock (including shares of common stock issuable upon the net exercise of warrants that will be automatically net exercised in connection with this offering if not previously exercised) will beare entitled to certain demand registration rights. At any time beginning 180 days after the completion of this offering,on December 29, 2020, the holders of at least ten percent of the outstanding shares of our common stock issued upon conversion of our preferred stock may request that we register all or a portion of their shares. We are obligated to effect only two such registrations. Such request for registration must cover shares with an anticipated aggregate gross offering price of at least $10 million.
In connection with this offering, the holders of an aggregate of 37,608,433 shares of our common stock (including shares of common stock issuable upon the net exercise of warrants that will be automatically net exercised in connection with this offering if not previously exercised) were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their shares of registrable securities in this offering. After this offering, in the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, the holders of these shares will be entitled to certain piggyback registration rights allowing the holder to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to a registration statement on Form S-8 or Form S-4 or their successors, the holders of these shares are entitled to notice of the registration and have the right to include their shares in the registration, subject to limitations that the underwriters may impose on the number of shares included in the offering.
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The holders of an aggregate of 37,608,433 shares of common stock (including shares of common stock issuable upon the net exercise of warrants that will be automatically net exercised in connection with this offering if not previously exercised) will beare entitled to certain Form S-3 registration rights. The holders of at least ten percent of the outstanding shares of our common stock issued upon conversion of our preferred stock can make a request that we register their shares on Form S-3 if we are qualified to file a registration statement on Form S-3 and if the reasonably anticipated aggregate gross proceeds of the shares offered would equal or exceed $1 million.
Anti-Takeover Effects of State Law and Our Certificate of Incorporation and Bylaws
Some provisions of Delaware law, our amended and restated certificate of incorporation, and our amended and restated bylaws contain or will contain provisions that could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions which provide for payment of a premium over the market price for our shares.
These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking
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to acquire control of us to first negotiate with our board of directors. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.
The ability of our board of directors, without action by the stockholders, to issue up to 25,000,000 shares of undesignated preferred stock with voting or other rights or preferences as designated by our board of directors could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Our amended and restated bylaws will provide that a special meeting of stockholders may be called only by our chairman of the board, chief executive officer or president, or by a resolution adopted by a majority of our board of directors.
Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors.
Our amended and restated certificate of incorporation and amended and restated bylaws will eliminate the right of stockholders to act by written consent without a meeting.
Our board of directors will beis divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on
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the classified board, see "Management — Composition of Our Board of Directors." This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us because it generally makes it more difficult for stockholders to replace a majority of the directors.
Our amended and restated certificate of incorporation will provideprovides 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 two-thirds of the total voting power of all of our outstanding voting stock then entitled to vote in the election of directors.
Our amended and restated certificate of incorporation willdoes not permit stockholders to cumulate their votes in the election of directors. Accordingly, the holders of a majority of the outstanding shares of our common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they choose, other than any directors that holders of our preferred stock may be entitled to elect.
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We are subject to Section 203 of the Delaware General Corporation Law, which prohibits persons deemed to be "interested stockholders" from engaging in a "business combination" with a publicly held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation's voting stock. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the board of directors.
Our amended and restated certificate of incorporation will provideprovides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation Law or our certificate of incorporation or bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws; (v) any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; or (vi) any action asserting a claim governed by the internal affairs doctrine. The provisions woulddo not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act. Our amended and restated certificate of incorporation will further provideprovides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, subject to and contingent upon a final adjudication in the StateAct.
Table of Delaware of the enforceability of such exclusive forum provision.Contents
The amendment of any of the above provisions would requirerequires approval by holders of at least two-thirds of the total voting power of all of our outstanding voting stock.
The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers, and as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
Upon completion of this offering, theThe transfer agent and registrar for our common stock will beis American Stock Transfer & Trust, LLC. The transfer agent and registrar's address is 6201 15th Avenue, Brooklyn, NY 11219.
Exchange Listing
Our common stock is currently not listed on any securities exchange. We have applied to have our common stock listed on the Nasdaq Global Select Market under the symbol "ACCD."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock. Although we have applied to have our common stock listed on the Nasdaq Global Select Market, we cannot assure you that there will be an active public market for our common stock.
Following the completion of this offering, based on the number of shares of our common stock outstanding as of November 30, 2019,August 31, 2020, and assuming (i) the issuance of 4,500,000 shares of common stock in this offering, (ii) the conversion of all outstanding shares of our preferred stock into shares of common stock, which will automatically occur immediately prior to the completion of the offering, (iii) the issuance of shares of common stock upon the net exercise of warrants that will automatically net exercise in connection with this offering if not previously exercised, but assuming no other exercise or settlement of outstanding options or warrants, and (iv) no exercise of the underwriters' option to purchase additional shares of our common stock, we will have outstanding an aggregate of 53,769,342 shares of common stock.
Of these shares, all shares of common stock sold in our initial public offering and in this offering and any shares previously issued pursuant to our S-8 registration statement will be freely tradable without restriction or further registration under the Securities Act, except for any shares of common stock purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. Shares purchased by our affiliates would be subject to the Rule 144 resale restrictions described below, other than the holding period requirement.
The remaining shares of common stock outstanding after this offering will be "restricted securities," as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, each of which is summarized below. We expect that allAll of these shares will beare subject to a 180-day lock-up period under the lock-up agreements and market stand-off provisions described below.
In addition, shares of common stock that are either subject to outstanding options or warrants or reserved for future issuance under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements described below, and Rules 144 and 701 under the Securities Act.
Lock-Up Agreements and Market Standoff Provisions
We, along with our directors, executive officers, and substantially all of our other stockholders and optionholders, have agreed with the underwriters that for a period of 180 days after the date of this prospectus,until December 28, 2020, subject to specified exceptions as detailed further in "Underwriting" below, we or they will not offer, sell, contract to sell, pledge, grant any option to purchase, lend, or otherwise dispose of any shares of common stock or any securities convertible into, exchangeable for or that represent the right to receive shares of common stock, request or demand that we file a registration statement related to our common stock, or engage in any hedging or other transaction or arrangement that transfers to another, in whole or in part, directly or indirectly, the economic consequence of ownership of the common stock or any securities convertible into, exchangeable for or that represent the right to receive shares of common stock. All of our stockholders are subject to a market standoff agreement with us that imposes similar restrictions. In addition, in connection with this offering, we and our directors and executive officers have agreed to enter into a market standoff agreement for a period of 90 days after the date of this prospectus.
Upon expiration of the applicable lock-up period,periods, certain of our stockholders will have the right to require us to register their shares under the Securities Act. See "— Registration Rights" below and "Description of Capital Stock — Registration Rights."
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Upon the expiration of the applicable lock-up period,periods, substantially all of the shares subject to such lock-up restrictions will become eligible for sale, subject to the limitations discussed below.
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Rule 144
In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours, or who was an affiliate at any time during the 90 days before a sale, and who has beneficially owned shares of our capital stock for at least six months, would be entitled to sell in "broker's transactions" or certain "riskless principal transactions" or to market makers, a number of shares within any three-month period that does not exceed the greater of:
- •
- 1% of the number of shares of our common stock then outstanding; or
- •
- the average weekly trading volume in our common stock on Nasdaq during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Affiliate resales under Rule 144 are also subject to the availability of current public information about us. In addition, if the number of shares being sold under Rule 144 by an affiliate during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, the seller must file a notice on Form 144 concurrently with either the placing of a sale order with the broker or the execution of a sale directly with a market maker.
In general, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is not an affiliate of ours at the time of sale, and has not been an affiliate at any time during the 90 days preceding a sale, and who has beneficially owned shares of our capital stock for at least six months but less than a year, is entitled to sell such shares subject only to the availability of current public information about us. If such person has held our shares for at least one year, such person can resell under Rule 144(b)(1) without regard to any Rule 144 restrictions, including the 90-day public company requirement and the current public information requirement.
Non-affiliate resales are not subject to the manner of sale, volume limitation, or notice filing provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants, or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of a registration statement under the Securities Act are entitled to sell such shares 90 days after such effective date in reliance on Rule 144. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than "affiliates," as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by "affiliates" under Rule 144 without compliance with its one-year minimum holding period requirement. However, substantially all Rule 701 shares are subject to lock-up agreements as described above and will become eligible for sale upon the expiration of the restrictions set forth in those agreements.
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Form S-8 Registration Statement
We intend to file one or morehave filed a registration statementsstatement on Form S-8 under the Securities Act to register all shares of common stock subject to outstanding stock options and common stock issued or issuable under the 2020 Plan, the 2007 Plan, and the ESPP. We expect to file the registration statement covering shares offered pursuant to these stock plans shortly after the date of this prospectus,ESPP, permitting the resale of such shares in the public market without restriction under the Securities Act, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions, and any applicable market stand-off agreements and
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lock-up agreements. See the section titled "Executive Compensation — Equity Plans" for a description of the 2020 Plan, the 2007 Plan, and the ESPP.
Registration Rights
As of November 30, 2019,August 31, 2020, holders of up to 37,608,433 shares of our common stock, (which includes all of the shares of common stock issuable upon the automatic conversion of our preferred stock immediately prior to the completion of this offering and shares of common stock issuable upon the net exercise of warrants that will automatically net exercise in connection with this offering if not previously exercised), or their transferees, will be entitled to various rights with respect to the registration of these shares under the Securities Act upon the completionexpiration of this offering and the expiration ofapplicable lock-up agreements. In connection with this offering, the necessary percentage of holders waived their rights to include their shares of registrable securities in the registration statement of which this prospectus forms a part. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See "Description of Capital Stock — Registration Rights" for additional information. Shares covered by a registration statement will be eligible for sale in the public market upon the expiration or release from the terms of the lock-up agreement.agreements.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK
The following discussion is a summary of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the acquisition, ownership, and disposition of our common stock issued pursuant to this offering. This discussion is not a complete analysis of all potential U.S. federal income tax consequences relating thereto, does not address the potential application of the Medicare contribution tax on net investment income or the alternative minimum tax, and does not address any estate or gift tax consequences or any tax consequences arising under any state, local, or foreign tax laws, or any other U.S. federal tax laws. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service (the IRS), all as in effect as of the date of this prospectus. These authorities are subject to differing interpretations and may change, possibly retroactively, resulting in U.S. federal income tax consequences different from those discussed below. We have not requested a ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.
This discussion is limited to non-U.S. holders who purchase our common stock pursuant to this offering and who hold our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a particular holder in light of such holder's particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the U.S. federal income tax laws, including:
- •
- certain former citizens or long-term residents of the United States;
- •
- partnerships or other pass-through entities (and investors therein);
- •
- "controlled foreign corporations";
- •
- "passive foreign investment companies";
- •
- corporations that accumulate earnings to avoid U.S. federal income tax;
- •
- banks, financial institutions, investment funds, insurance companies, brokers, dealers, or traders in securities;
- •
- tax-exempt organizations and governmental organizations;
- •
- tax-qualified retirement plans;
- •
- persons subject to special tax accounting rules under Section 451(b) of the Code;
- •
- persons who hold or receive our common stock pursuant to the exercise of any employee stock option or otherwise as compensation;
- •
- "qualified foreign pension funds" as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds;
- •
- persons that own, or have owned, actually or constructively, more than 5% of our common stock;
- •
- persons who have elected to mark securities to market; and
- •
- persons holding our common stock as part of a hedging or conversion transaction or straddle, or a constructive sale, or other risk reduction strategy or integrated investment.
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If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships holding our common stock and the partners in such partnerships are urged to consult their tax advisors about the particular U.S. federal income tax consequences to them of holding and disposing of our common stock.
THIS DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF ACQUIRING, OWNING, AND DISPOSING OF OUR COMMON STOCK, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, OR FOREIGN TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS.
Definition of Non-U.S. Holder
For purposes of this discussion, a non-U.S. holder is any beneficial owner of our common stock that is not a "U.S. person" or a partnership (including any entity or arrangement treated as a partnership) for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
- •
- an individual who is a citizen or resident of the United States;
- •
- a corporation (or any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;
- •
- an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
- •
- a trust (i) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (ii) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Distributions on Our Common Stock
As described under the section titled "Dividend Policy," we have not paid and do not anticipate paying any cash dividends in the foreseeable future. However, if we make cash or other property distributions on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts that exceed such current and accumulated earnings and profits and, therefore, are not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and will first be applied against and reduce a holder's tax basis in our common stock, but not below zero. Any excess amount distributed will be treated as gain realized on the sale or other disposition of our common stock and will be treated as described under the section titled "— Gain Onon Disposition of Our Common Stock" below.
Subject to the discussiondiscussions below regarding effectively connected income, backup withholding and FATCA (as defined below), dividends paid to a non-U.S. holder of our common stock generally will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends or such lower rate specified by an applicable income tax treaty. To receive the benefit of a reduced treaty rate, a non-U.S. holder must furnish us or the applicable withholding agent a valid IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form) certifying such holder's qualification for the reduced rate. This certification must be provided to us or the withholding agent
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before the payment of dividends and must be updated periodically. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the non-U.S. holder's behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or the withholding agent, either directly or through other intermediaries.
If a non-U.S. holder holds our common stock in connection with the conduct of a trade or business in the United States, and dividends paid on our common stock are effectively connected with such holder's U.S. trade or business (and are attributable to such holder's permanent establishment or fixed base in the United States if required by an applicable tax treaty), the non-U.S. holder will be exempt from U.S. federal withholding tax. To claim the exemption, the non-U.S. holder must generally furnish a valid IRS Form W-8ECI (or applicable successor form) to the applicable withholding agent.
However, any such effectively connected dividends paid on our common stock generally will be subject to U.S. federal income tax on a net income basis at the regular U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items.
Non-U.S. holders that do not provide the required certification on a timely basis, but that qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
Gain on Disposition of Our Common Stock
Subject to the discussiondiscussions below regarding backup withholding and FATCA, a non-U.S. holder generally will not be subject to U.S. federal income tax on any gain realized on the sale or other disposition of our common stock, unless:
- •
- the gain is effectively connected with the non-U.S. holder's conduct of a trade or business in the United States and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States;
- •
- the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
- •
- our common stock constitutes a "United States real property interest" by reason of our status as a United States real property holding corporation (USRPHC) for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holder's holding period for our common stock, and our common stock is not regularly traded on an established securities market during the calendar year in which the sale or other disposition occurs.
Determining whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests. We believe that we are not currently and do not anticipate becoming a USRPHC for U.S. federal income tax purposes, although there can be no assurance we will not in the future become a USRPHC.
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Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. A non-U.S. holder that is a foreign corporation also may be subject to an additional branch profits tax equal to 30% (or such lower rate specified by an applicable income tax treaty) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. Gain described in the second bullet point above will be subject to U.S. federal income tax at a flat 30% rate (or such lower rate specified by an applicable income tax treaty), but may be offset by certain U.S.-source capital losses (even though the individual is not considered a resident of the United States), provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. Gain described in the third bullet point above will generally be subject to U.S. federal income tax in the same manner as gain that is effectively connected with the conduct of a U.S. trade or business (subject to any provisions under an applicable income tax treaty), except that the branch profits tax generally will not apply. Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Annual reports are required to be filed with the IRS and provided to each non-U.S. holder indicating the amount of dividendsdistributions on our common stock paid to such holder and the amount of any tax withheld with respect to those dividends.distributions. These information reporting requirements apply even if no withholding was required because the dividendsdistributions were effectively connected with the holder's conduct of a U.S. trade or business, or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Backup withholding, currently at a 24% rate, generally will not apply to payments to a non-U.S. holder of dividends on or the gross proceeds of a disposition of our common stock provided the non-U.S. holder furnishes the required certification for its non-U.S. status, such as by providing a valid IRS Form W-8BEN, IRS Form W-8BEN-E or IRS Form W-8ECI (or applicable successor form), or certain other requirements are met. Backup withholding may apply if the payor has actual knowledge, or reason to know, that the holder is a U.S. person who is not an exempt recipient.
Backup withholding is not an additional tax. If any amount is withheld under the backup withholding rules, the non-U.S. holder should consult with a U.S. tax advisor regarding the possibility of and procedure for obtaining a refund or a credit against the non-U.S. holder's U.S. federal income tax liability, if any.
FATCA
Sections 1471 through 1474 of the Code (commonly referred to as FATCA) impose a U.S. federal withholding tax of 30% on certain payments made to a "foreign financial institution" (as specially defined under these rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding certain U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or an exemption applies. FATCA also generally will impose a U.S. federal withholding tax of 30% on certain payments made to a non-financial foreign entity unless such entity either certifies that it does not have any "substantial United States owners" as defined in the Code or provides the withholding agent a certification identifying certain direct and indirect U.S. owners of the entity or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Under certain
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circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Under the
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applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our common stock, and will apply to payments of gross proceeds from the sale or other disposition of such stock, on or after January 1, 2019, although under recently issued proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on such proposed regulations pending finalization), no withholding would apply with respect to payments of gross proceeds.
Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in our common stock.
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UNDERWRITING
We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, and BofA Securities, Inc. are the representatives of the underwriters.
| | | | |
Underwriters | | | Number of Shares
| |
| | | | | |
Goldman Sachs & Co. LLC | | | | |
Morgan Stanley & Co. LLC | | | | |
BofA Securities, Inc. | | | | |
Piper Sandler & Co. | | | | |
Credit Suisse Securities (USA) LLC | | | | |
William Blair & Company, L.L.C. | | | | |
Robert W. Baird & Co. Incorporated | | | | |
SVB Leerink LLC | | |
| | |
TotalCanaccord Genuity LLC | | | | |
Academy Securities, Inc. | | | | |
| | | | | |
Total | | | 4,500,000 | |
| | | | | |
| | | | | |
| | | | | |
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
The underwriters have an option to buy up to an additional 675,000 shares from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discount to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase 675,000 additional shares.
| | | | | | | |
| | | No Exercise | | | Full Exercise
| |
| | | | | | | | |
Per Share | | $ | | | $ | | |
Total | | $ | | | $ | | |
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.
We and our officers, directors, and holders of substantially all of our common stock and securities convertible into or exchangeable for shares of common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 18090 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.
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Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be the our historical performance, estimates of our business potential and earnings prospects, an assessment of our management, and the consideration of the above factors in relation to market valuation of companies in related businesses.
We have applied to list ourOur common stock is listed on the Nasdaq Global Select Market under the symbol "ACCD."
In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions, and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A "covered short position" is a short position that is not greater than the amount of additional shares for which the underwriters' option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. "Naked" short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the common stock, and together with the imposition of the penalty bid, may stabilize, maintain, or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on Nasdaq, in the over-the-counter market, or otherwise.
We estimate that our share of the total expenses of the offering, excluding the underwriting discount, will be approximately $ .$0.9 million. We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $ .$35,000. The underwriters have agreed to reimburse us for certain expenses related to this offering.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage, and other financial and non-financial activities and services. Certain of the
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underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors, and employees may purchase, sell, or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps, and other financial instruments for their own account and for the accounts of their
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customers, and such investment and trading activities may involve or relate to our assets, securities, and/or instruments (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color, or trading ideas and/or publish or express independent research views in respect of such assets, securities, or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities, and instruments.
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
European Economic Area and the United Kingdom
In relation to each Member State of the European Economic Area and the United Kingdom (each a "Relevant State"), no shares have been offered or will be offered pursuant to the offering to the public in that Relevant State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation, except that offers of shares may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
- (a)
- to any legal entity which is a qualified investor as defined under the Prospectus Regulation;
- (b)
- to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
- (c)
- in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of shares shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an "offer to the public" in relation to any shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to
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decide to purchase or subscribe for any shares, and the expression "Prospectus Regulation" means Regulation (EU) 2017/1129.
United Kingdom
Each underwriter has represented and agreed that:
- (a)
- it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000
("FSMA")
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Canada
The shares may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) ("Companies(Companies (Winding Up and Miscellaneous Provisions) Ordinance")Ordinance) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) ("Securities(Securities and Futures Ordinance")Ordinance), or (ii) to "professional investors" as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation, or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to
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"professional "professional investors" in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of
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Singapore (the "SFA")SFA)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation's securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore ("Regulation 32")(Regulation 32).
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The shares may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
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Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX")(SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, us, or the shares have been or will be filed with or approved by any Swiss regulatory authority. In
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particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA")(CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority ("DFSA")(DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Australia
No placement document, prospectus, product disclosure statement, or other disclosure document has been lodged with the Australian Securities and Investments Commission ("ASIC")(ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the "Corporations Act")Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the "Exempt Investors")Exempt Investors) who are "sophisticated investors" (within the meaning of section 708(8) of the Corporations Act), "professional investors" (within the meaning of section 708(11) of the Corporations Act), or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
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This prospectus contains general information only and does not take account of the investment objectives, financial situation, or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives, and circumstances, and, if necessary, seek expert advice on those matters.
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LEGAL MATTERS
The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, Seattle, Washington. As of the date of this prospectus, an entity comprised of partners and associates of Cooley LLP beneficially owns an aggregate of 20,9539,748 shares of our common stock. Paul Hastings LLP, New York, New York, is acting as counsel to the underwriters in connection with this offering.
EXPERTS
The consolidated financial statements of Accolade, Inc. as of February 28, 20182019 and February 28, 2019,29, 2020, and for the years then ended, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1, including exhibits and schedules, under the Securities Act, with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, we refer you to the registration statement and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, over the Internet at the SEC's website at www.sec.gov.
Upon the completion of this offering, we will beWe are subject to the information reporting requirements of the Securities Exchange Act of 1934 and we willare required to file reports, proxy statements and other information with the SEC. These reports, proxy statements, and other information will beare available for inspection and copying at the SEC's website referred to above. We also maintain a website at www.accolade.com, at which following the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.
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ACCOLADE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | |
| | | Page
| |
| | | | | |
Audited financial statements | | | | |
Report of Independent Registered Public Accounting Firm | | | F-2 | |
Consolidated Balance Sheets as of February 28, 20182019 and 2019February 29, 2020 | | | F-3 | |
Consolidated Statements of Operations for the fiscal years ended February 28, 20182019 and 2019February 29, 2020 | | | F-4 | |
Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit for the fiscal years ended February 28, 20182019 and 2019February 29, 2020 | | | F-5 | |
Consolidated Statements of Cash Flows for the fiscal years ended February 28, 20182019 and 2019February 29, 2020 | | | F-6 | |
Notes to Consolidated Financial Statements | | | F-7 | |
Unaudited interim financial statements | | |
| |
Consolidated Balance Sheets as of February 28, 201929, 2020 and November 30, 2019August 31, 2020 | | | F-34F-38 | |
Consolidated Statements of Operations for the ninethree and six months ended November 30, 2018August 31, 2019 and 20192020 | | | F-35F-39 | |
Consolidated Statements of Convertible Preferred Stock and Stockholders' DeficitEquity (Deficit) for the ninesix months ended November 30, 2018August 31, 2019 and 20192020 | | | F-36F-40 | |
Consolidated Statements of Cash Flows for the ninesix months ended November 30, 2018August 31, 2019 and 20192020 | | | F-37F-41 | |
Notes to Consolidated Financial Statements | | | F-38F-42 | |
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Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Accolade, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Accolade, Inc. and subsidiarysubsidiaries (the Company) as of February 28, 20182019 and 2019,February 29, 2020, the related consolidated statements of operations, convertible preferred stock and stockholders' deficit, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 20182019 and 2019,February 29, 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 2008.
Philadelphia, Pennsylvania
December 5, 2019June 16, 2020
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share data)
| | | February 28,
| | |
| | | | | | | | |
| | 2018 | | 2019
| | | February 28,
2019 | | February 29,
2020 | | Pro forma
February 29,
2020
| |
| | | | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Current assets: | |
| |
| | |
| |
| |
| |
Cash and cash equivalents | | $ | 13,534 | | $ | 42,701 | | | $ | 42,701 | | $ | 33,155 | | $ | 84,321 | |
Accounts receivable | | 6,553 | | 371 | | | 371 | | 294 | | 294 | |
Unbilled revenue | | 405 | | 65 | | | 65 | | 895 | | 895 | |
Current portion of deferred contract acquisition costs | | 536 | | 908 | | | 908 | | 1,368 | | 1,368 | |
Current portion of deferred financing fees | | | — | | 279 | | 279 | |
Prepaid and other current assets | | 2,415 | | 2,840 | | | 2,840 | | 12,944 | | 12,944 | |
| | | | | | | | | | | | | | | | | | |
Total current assets | | 23,443 | | 46,885 | | | 46,885 | | 48,935 | | 100,101 | |
Property and equipment, net | |
21,452 | |
15,274 | | |
15,274 | |
13,625 | |
13,625 | |
Goodwill | | | — | | 4,013 | | 4,013 | |
Acquired technology, net | | | — | | 2,054 | | 2,054 | |
Deferred contract acquisition costs | | 1,589 | | 2,922 | | | 2,922 | | 3,876 | | 3,876 | |
Other assets | | 598 | | 681 | | | 681 | | 745 | | 745 | |
| | | | | | | | | | | | | | | | | | |
Total assets | | $ | 47,082 | | $ | 65,762 | | | $ | 65,762 | | $ | 73,248 | | $ | 124,414 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities, convertible preferred stock and stockholders' deficit | | | | | | | | | | | | |
Current liabilities: | |
| |
| | |
| |
| |
| |
Current portion of loans payable, net of unamortized issuance costs | | $ | 4,969 | | $ | — | | |
Accounts payable | | 1,631 | | 2,454 | | | $ | 2,454 | | $ | 5,273 | | $ | 5,273 | |
Accrued expenses | | 2,353 | | 3,140 | | | 3,140 | | 6,580 | | 6,580 | |
Accrued compensation | | 17,231 | | 19,612 | | | 19,612 | | 23,838 | | 23,838 | |
Deferred rent and other current liabilities | | 535 | | 541 | | | 541 | | 674 | | 674 | |
Due to customers | | 5,141 | | 8,511 | | | 8,511 | | 4,674 | | 4,674 | |
Current portion of deferred revenue | | 9,637 | | 22,407 | | | 22,407 | | 28,919 | | 28,919 | |
| | | | | | | | | | | | | | | | | | |
Total current liabilities | | 41,497 | | 56,665 | | | 56,665 | | 69,958 | | 69,958 | |
Loans payable, net of unamortized issuance costs | | 15,910 | | 19,200 | | | 19,200 | | 21,144 | | 72,310 | |
Deferred rent and other noncurrent liabilities | | 5,912 | | 5,353 | | | 5,353 | | 5,523 | | 5,523 | |
Deferred revenue | | 449 | | 501 | | | 501 | | 396 | | 396 | |
| | | | | | | | | | | | | | | | | | |
Total liabilities | | 63,768 | | 81,719 | | | 81,719 | | 97,021 | | 148,187 | |
| | | | | | | | | | | | | | | | | | |
Convertible preferred stock: | | | | | | | | | | | | |
Preferred stock, par value $0.0001; 93,204,800 shares authorized; 82,727,876 and 93,204,800 issued and outstanding at February 28, 2018 and 2019, respectively (liquidation value of $219,244 at February 28, 2019) | | 167,010 | | 214,664 | | |
Commitments (note 12) | |
| |
| | |
Stockholders' deficit: | |
| |
| | |
Common stock, par value $0.0001; 165,000,000 shares authorized; 16,212,171 and 18,083,441 shares issued and outstanding at February 28, 2018 and 2019, respectively | | 1 | | 1 | | |
Preferred stock; 19,513,996 shares authorized; 18,640,901 and 19,513,939 issued and outstanding at February 28, 2019 and February 29, 2020, respectively (liquidation value of $239,244 at February 29, 2020); 25,000,000 shares authorized, no shares issued and outstanding, pro forma | | | 214,664 | | 233,022 | | — | |
Commitments (note 13) | | |
| |
| |
| |
Stockholders' deficit | | |
| |
| |
| |
Common stock par value $0.0001; 65,000,000 shares authorized; 3,616,549 and 6,033,450 shares issued and outstanding at February 28, 2019 and February 29, 2020, respectively; 500,000,000 shares authorized, 36,914,769 shares issued and outstanding, pro forma | | | 1 | | 2 | | 4 | |
Additional paid-in capital | | 29,310 | | 38,881 | | | 38,881 | | 64,071 | | 297,091 | |
Accumulated deficit, | | (213,007 | ) | | (269,503 | ) | |
Accumulated deficit | | | (269,503 | ) | | (320,868 | ) | | (320,868 | ) |
| | | | | | | | | | | | | | | | | | |
Total stockholders' deficit | | (183,696 | ) | | (230,621 | ) | | (230,621 | ) | | (256,795 | ) | | (23,773 | ) |
| | | | | | | | | | | | | | | | | | |
Total liabilities, convertible preferred stock and stockholders' deficit | | $ | 47,082 | | $ | 65,762 | | | $ | 65,762 | | $ | 73,248 | | $ | 124,414 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share data)
| | | Fiscal Year Ended February 28,
| | | Fiscal Year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019
| | | 2019 | | 2020
| |
| | | | | | | | | | | | | | | |
Revenue | | $ | 76,828 | | $ | 94,811 | | | $ | 94,811 | | $ | 132,507 | |
Cost of revenue, excluding depreciation and amortization | | 53,435 | | 60,568 | | | 60,568 | | 73,685 | |
Operating expenses: | | | | | | | | | | |
Product and technology | | 31,487 | | 35,708 | | | 35,708 | | 42,306 | |
Sales and marketing | | 22,263 | | 23,456 | | | 23,456 | | 30,050 | |
General and administrative | | 21,122 | | 19,665 | | | 19,665 | | 26,154 | |
Depreciation and amortization | | 7,982 | | 9,391 | | | 9,391 | | 8,516 | |
| | | | | | | | | | | | | | | |
Total operating expenses | | 82,854 | | 88,220 | | | 88,220 | | 107,026 | |
| | | | | | | | | | | | | | | |
Loss from operations | | (59,461 | ) | | (53,977 | ) | | (53,977 | ) | | (48,204 | ) |
Interest expense, net | | (1,799 | ) | | (2,374 | ) | | (2,374 | ) | | (2,925 | ) |
Other expense | | (26 | ) | | (90 | ) | | (90 | ) | | (107 | ) |
| | | | | | | | | | | | | | | |
Loss before income taxes | | (61,286 | ) | | (56,441 | ) | | (56,441 | ) | | (51,236 | ) |
Income tax expense | | — | | (55 | ) | | (55 | ) | | (129 | ) |
| | | | | | | | | | | | | | | |
Net loss | | $ | (61,286 | ) | $ | (56,496 | ) | | $ | (56,496 | ) | $ | (51,365 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Net loss per common share, basic and diluted | | $ | (3.28 | ) | $ | (2.43 | ) | |
Net loss per share, basic and diluted | | | $ | (12.17 | ) | $ | (9.13 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Weighted-average shares used to compute net loss per common share, basic and diluted | | 18,659,570 | | 23,206,587 | | |
Weighted-average common shares outstanding, basic and diluted | | | 4,641,256 | | 5,626,713 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Pro forma net loss per common share, basic and diluted (unaudited) | | | | $ | | | |
Pro forma net loss per common share, basis and diluted | | | | | $ | (8.39 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Weighted-average shares used to compute pro forma net loss per common share, basic and diluted (unaudited) | | | | | | |
Pro forma weighted-average shares outstanding, basic and diluted | | | | | 34,633,452 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit
Fiscal Years Endedended February 28, 20182019 and 2019February 29, 2020
(In thousands, except shares)
| | | | | | | | | Stockholders' Deficit
| | | | | | | | | Stockholders' Deficit
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible
Preferred Stock | | | | Common stock | | Additional
paid-in | | Accumulated | | | | | Convertible
Preferred Stock | | | | Common stock | | Additional
paid-in | | Accumulated | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Amount | | | | Shares | | Amount | | capital | | deficit | | Total
| | | Shares | | Amount | | | | Shares | | Amount | | capital | | deficit | | Total
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, March 1, 2017 | | 82,727,876 | | $ | 167,010 | | | | 13,882,162 | | $ | 1 | | $ | 19,116 | | $ | (151,721 | ) | $ | (132,604 | ) | |
Issuance of common stock in lieu of bonus payment | | — | | — | | | | 1,208,690 | | — | | 1,015 | | — | | 1,015 | | |
Exercise of stock options and common stock warrants | | — | | — | | | | 1,121,319 | | — | | 773 | | — | | 773 | | |
Stock-based compensation expense | | — | | — | | | | — | | — | | 8,406 | | — | | 8,406 | | |
Net loss | | — | | — | | | | — | | — | | — | | (61,286 | ) | | (61,286 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, February 28, 2018 | | 82,727,876 | | $ | 167,010 | | | | 16,212,171 | | $ | 1 | | 29,310 | | $ | (213,007 | ) | $ | (183,696 | ) | |
Balance, March 1, 2018 | | | 16,545,536 | | $ | 167,010 | | | | 3,242,319 | | $ | 1 | | $ | 29,310 | | $ | (213,007 | ) | $ | (183,696 | ) |
Sale of Series E preferred stock, net | | 10,476,924 | | 47,654 | | | | — | | — | | — | | — | | — | | | 2,095,365 | | 47,654 | | | | — | | — | | — | | — | | — | |
Issuance of common stock warrants in connection with sale of Series E preferred stock | | — | | — | | | | — | | — | | 2,279 | | — | | 2,279 | | | — | | — | | | | — | | — | | 2,279 | | | | 2,279 | |
Issuance of common stock in lieu of bonus payment | | — | | — | | | | 605,737 | | — | | 569 | | — | | 569 | | | — | | — | | | | 121,143 | | — | | 569 | | — | | 569 | |
Exercise of stock options and common stock warrants | | — | | — | | | | 1,265,533 | | — | | 1,002 | | — | | 1,002 | | | — | | — | | | | 253,087 | | — | | 1,002 | | — | | 1,002 | |
Stock-based compensation expense | | — | | — | | | | — | | — | | 5,721 | | — | | 5,721 | | | — | | — | | | | — | | — | | 5,721 | | — | | 5,721 | |
Net loss | | — | | — | | | | — | | — | | — | | (56,496 | ) | | (56,496 | ) | | — | | — | | | | — | | — | | — | | (56,496 | ) | | (56,496 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, February 28, 2019 | | 93,204,800 | | $ | 214,664 | | | | 18,083,441 | | $ | 1 | | $ | 38,881 | | $ | (269,503 | ) | $ | (230,621 | ) | | 18,640,901 | | $ | 214,664 | | | | 3,616,549 | | $ | 1 | | $ | 38,881 | | $ | (269,503 | ) | $ | (230,621 | ) |
Sale of Series F preferred stock, net | | | 873,038 | | 18,358 | | | | — | | — | | — | | — | | — | |
Issuance of common stock warrants in connection with sale of Series F preferred stock | | | — | | — | | | | — | | — | | 1,585 | | — | | 1,585 | |
Issuance of common stock in connection with acquisition | | | — | | — | | | | 289,320 | | — | | 6,164 | | — | | 6,164 | |
Issuance of common stock warrants in connection with July 2019 debt | | | — | | — | | | | — | | — | | 779 | | — | | 779 | |
Issuance of common stock in connection with joint development agreement | | | — | | — | | | | 251,211 | | — | | 3,869 | | | | 3,869 | |
Exercise of stock options and common stock warrants | | | — | | — | | | | 1,876,370 | | 1 | | 6,791 | | — | | 6,792 | |
Stock-based compensation expense | | | — | | — | | | | — | | — | | 6,002 | | — | | 6,002 | |
Net loss | | | — | | — | | | | — | | — | | — | | (51,365 | ) | | (51,365 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, February 29, 2020 | | | 19,513,939 | | $ | 233,022 | | | | 6,033,450 | | $ | 2 | | $ | 64,071 | | $ | (320,868 | ) | $ | (256,795 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
| | | Fiscal Year Ended
February 28,
| | | Fiscal Year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019
| | | 2019 | | 2020
| |
| | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | |
Net loss | | $ | (61,286 | ) | $ | (56,496 | ) | | $ | (56,496 | ) | $ | (51,365 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
Depreciation and amortization expense | | 7,982 | | 9,391 | | | 9,391 | | 8,516 | |
Loss on disposal of leasehold improvement | | 144 | | — | | |
Amortization of deferred contract acquisition costs | | | 794 | | 985 | |
Noncash interest expense | | 518 | | 425 | | | 425 | | 834 | |
Noncash bonus | | 1,015 | | 569 | | | 569 | | 5,884 | |
Loss on disposal of equipment | | | — | | 299 | |
Stock-based compensation expense | | 8,406 | | 5,721 | | | 5,721 | | 6,002 | |
Changes in operating assets and liabilities: | | | | | | | | | | |
Accounts receivable and unbilled revenue | | 3,152 | | 6,522 | | | 6,522 | | (683 | ) |
Accounts payable and accrued expenses | | 293 | | 1,515 | | | 1,515 | | 5,838 | |
Amortization of deferred contract costs, net | | 68 | | (1,705 | ) | |
Deferred revenue and due to customer | | 258 | | 16,192 | | |
Deferred contract acquisition costs | | | (2,499 | ) | | (2,399 | ) |
Deferred revenue and due to customers | | | 16,192 | | 2,286 | |
Accrued compensation | | 721 | | 2,381 | | | 2,381 | | (1,671 | ) |
Deferred rent and other liabilities | | 602 | | (555 | ) | | (555 | ) | | 220 | |
Other assets | | (158 | ) | | (508 | ) | | (508 | ) | | (8,993 | ) |
| | | | | | | | | | | | | | | |
Net cash used in operating activities | | (38,285 | ) | | (16,548 | ) | | (16,548 | ) | | (34,247 | ) |
| | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Capitalized software development costs | | (5,746 | ) | | (1,943 | ) | | (1,943 | ) | | — | |
Purchases of property and equipment | | (1,407 | ) | | (1,175 | ) | | (1,175 | ) | | (3,315 | ) |
Net cash paid in acquisition of MD Insider | | | — | | (206 | ) |
| | | | | | | | | | | | | | | |
Net cash used in investing activities | | (7,153 | ) | | (3,118 | ) | | (3,118 | ) | | (3,521 | ) |
| | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from sale of preferred stock, net | | — | | 49,933 | | | 49,933 | | 19,943 | |
Proceeds from stock option exercises | | 773 | | 1,002 | | |
Proceeds from stock option and warrant exercises | | | 1,002 | | 6,619 | |
Proceeds from borrowings on debt | | 14,500 | | 3,000 | | | 3,000 | | 1,660 | |
Repayment of debt principal | | — | | (5,000 | ) | | (5,000 | ) | | — | |
Principal payments under capital leases | | (234 | ) | | (102 | ) | | (102 | ) | | — | |
| | | | | | | | | | | | | | | |
Net cash provided by financing activities | | 15,039 | | 48,833 | | | 48,833 | | 28,222 | |
| | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | (30,399 | ) | | 29,167 | | | 29,167 | | (9,546 | ) |
Cash and cash equivalents, beginning of year | | 43,933 | | 13,534 | | |
Cash and cash equivalents, beginning of period | | | 13,534 | | 42,701 | |
| | | | | | | | | | | | | | | |
Cash and cash equivalents, end of year | | $ | 13,534 | | $ | 42,701 | | |
| | | | | | | | |
| | | | | | |
Cash and cash equivalents, end of period | | | $ | 42,701 | | $ | 33,155 | |
| | | | | | | | | | | | | | | |
Supplemental cash flow information: | | | | | | | | | | |
Interest paid | | $ | 1,391 | | $ | 2,609 | | | $ | 2,609 | | $ | 2,391 | |
Issuance of common stock in lieu of cash bonus | | $ | 1,015 | | $ | 569 | | | $ | 569 | | $ | — | |
Fixed assets included in accounts payable | | $ | 138 | | $ | 93 | | | $ | 93 | | $ | 45 | |
Other receivable related to stock option exercises | | | $ | — | | $ | 173 | |
Income taxes paid | | | $ | — | | $ | 55 | |
Offering costs included in prepaid assets and accounts payable and accrued expenses | | | $ | — | | $ | 3,042 | |
Common stock issued in connection with joint development agreement | | | $ | — | | $ | 3,869 | |
Common stock issued in connection with acquisition | | | $ | — | | $ | 6,164 | |
Common stock warrants issued in connection with debt | | | $ | — | | $ | 779 | |
See accompanying notes to consolidated financial statements.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(1) Background
(a) Business
Accolade, Inc. was initially organized as a limited liability company under the name Accretive Care LLC in Delaware on January 23, 2007. On June 14, 2010, the company converted from a limited liability company to a Delaware corporation and changed its name to Accolade, Inc. Accolade's offices and operations are in Seattle, Washington; Plymouth Meeting, Pennsylvania; Scottsdale, Arizona; Santa Monica, California; and Prague, Czech Republic.
On February 6, 2016, Accolade established a wholly owned subsidiary in the Czech Republic and on July 31, 2019, Accolade acquired all the equity interests of a Delaware corporation (together with Accolade, the Company), and itstheir results of operations have been included in the consolidated financial statements since that date.those respective dates.
The Company provides personalized, technology-enabled solutions that help people better understand, navigate, and utilize the healthcare system and their workplace benefits. The Company's customers are primarily employers that contract with Accolade to provide their employees and their employees' families (the members) a single place to turn for their health, healthcare, and benefits needs. The service is designed to drive better healthcare outcomes and increased satisfaction for the participants while lowering costs for the payor. The Company provides its services to customers throughout the United States.
(b) Liquidity
The Company has incurred net losses and cumulative negative cash flows from operations since inception. To date, the Company's operations have been funded by capital raised from investors, debt facilities, and revenuerevenues in the normal course of business. Management believes that the Company's cash and cash equivalents at February 28, 2019,29, 2020, plus customer revenuerevenues and advances and available borrowings under its debt facility, as well as additional financing made available subsequent to February 28, 2019 (notes 6 and 14) are sufficient to fund its operations through at least the next 12 months. Additional financing may be required for the Company 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.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation and Principles of Consolidation
The Company'sAccolade's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the Company's accounts and those of the Company's wholly owned subsidiary located in Prague, Czech Republic.subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
During 2019, the Company changed its fiscal year end from December 31 to the last calendar day of February.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
(b) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the fair value of assets acquired and liabilities assumed for business combinations, unbilled revenues and deferred revenues, certain accrued expenses, stock-based
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
compensation, assessment of the useful life and recoverability of long-lived assets, income taxes, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, the Company's financial statements will be affected.
(c) Comprehensive Loss
For the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, there was no difference between comprehensive loss and net loss.
(d) Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash equivalents, accounts receivable, unbilled revenue, other current assets, accounts payable, and accrued expenses approximates fair value due to the short-term nature of those instruments.
The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
- •
- Level 1 — Quoted prices in active markets for identical assets or liabilities.
- •
- Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
- •
- Level 3 — Inputs that are generally unobservable and typically reflect the Company's estimate of assumptions that market participants would use in pricing the asset or liability.
(e) Cash and Cash Equivalents
Cash and cash equivalents is comprised of cash in banks and highly liquid investments, including certificates of deposit with a maturity date of less than 90 days, and money market treasury funds, purchased with an original maturity of three months or less. Cash equivalents consist of investments in money market funds for which the carrying amount approximates fair value, due to the short maturities of these instruments.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
consist of investments in money market funds for which the carrying amount approximates fair value, due to the short maturities of these instruments.
(f) Accounts Receivable and Unbilled Revenue
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company does not have any off-balance-sheet credit exposure related to its customers. The Company records unbilled revenue for services performed on contracts for amounts not yet billed to customers.
(g) Property and Equipment
Property and equipment are recorded at cost. Equipment acquired under capital leases is recorded at the present value of the minimum lease payments. Property and equipment are depreciated on a straight-line basis over their estimated useful lives.
Useful lives for property and equipment are as follows:
| | |
| Property and Equipment | | Estimated Useful Life
|
| | | |
| Office equipment and furniture | | 7 years |
| Computer equipment | | 3 - 5 years |
| Computer software | | 3 - 5 years |
| Leasehold improvements | | Lesser of estimated useful life or remaining lease term |
(h) Capitalized Internal-Use Software Costs
Costs related to software acquired, developed, or modified solely to meet the Company's internal requirements, including for tools that enable the Company's employees to interact with members and their providers, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post-implementation operational stage are expensed as incurred. Costs related to minor upgrades, minor enhancements, and maintenance activities are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. Internal-use software is included in property and equipment and is amortized on a straight-line basis over 3 years.
For the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, the Company capitalized $5,746$1,943 and $1,943,$3,005, respectively, for internal-use software. Amortization expense related to capitalized internal-use software during the fiscal years ended February 28, 20182019 and 2019February 29, 2020 was $4,412$5,836 and $5,836,$4,533, respectively.
(i) Impairment of Long-Lived Assets
The Company reviews long-lived assets, such as property and equipment and acquired technology, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset. There were no impairment charges recorded during the fiscal years ended February 28, 20182019 and 2019.February 29, 2020.
(j) Intangible Assets
As part of the acquisition of MDI (Note 3), the Company acquired an intangible asset in the form of acquired technology in the amount of $2,900. This intangible asset is subject to amortization and is being amortized on the straight-line basis over its estimated useful life of two years. The Company recognized $846 in amortization expense during the fiscal year ended February 29, 2020.
(k) Goodwill
Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. The Company has a single reporting unit and all goodwill relates to that reporting unit.
The Company performs its annual goodwill impairment test on an annual basis on the fourth quarter of each fiscal year or more frequently if changes in circumstances or the occurrence of events suggest that an impairment exists. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit's goodwill is less than the carrying value of the reporting unit's goodwill.
The Company's annual goodwill impairment test resulted in no impairment charges in the fiscal year ended February 29, 2020.
(l) Reverse Stock Split
During March 2020, the Company's board of directors and stockholders adopted and approved the amendment and restatement of the Company's Sixth Amended and Restated Certificate of Incorporation to effect a one-for-five reverse stock split of the Company's outstanding preferred and common stock.
All share and per share information included in these consolidated financial statements and footnotes retroactively reflects the reverse split.
(m) Revenue and Deferred Revenue
During 2018, the Company adopted Accounting Standards Codification (ASC) 606,Revenue from Contracts with Customers, using the full retrospective method. Accordingly, the amounts for all periods presented herein have been adjusted to reflect the impact of ASC 606. The impact to the Company's consolidated financial statements as of and for the fiscal year ended February 28, 2018 was as follows:
| | | | | | | | | | |
| | | Under
ASC 605 | | | ASC 606
Adoption
Adjustment | | | As
Presented
| |
| | | | | | | | | | | |
Statement of Operations | | | | | | | | | | |
Revenue | | $ | 76,406 | | $ | 422 | | $ | 76,828 | |
Sales and marketing expense | | | 23,467 | | | (1,204 | ) | | 22,263 | |
Net loss | | | (62,912 | ) | | 1,626 | | | (61,286 | ) |
Balance Sheet | | |
| | |
| | |
| |
Unbilled revenue | | $ | 1,804 | | $ | (1,400 | ) | $ | 405 | |
Deferred contract acquisition costs | | | 811 | | | 1,313 | | | 2,125 | |
Deferred revenue | | | 13,512 | | | (3,426 | ) | | 10,086 | |
In addition, the cumulative impact to accumulated deficit at March 1, 2017 was $1,748.
The Company earns revenue from its customers by providing personalized health guidance solutions to members. The Company's solutions allow its members to interact with its Accolade Health Assistants and clinicians through various means of communication, including telephony and secure messaging and via its mobile application and member portal. The Company prices its personalized health guidance solutions using a recurring per-member-per-month fee (PMPM), typically with a portion of the fee calculated as the product of a fixed rate times the number of
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
eligible members (fixed PMPM fee), plus a variable PMPM fee calculated as the product of a variable rate times the number of eligible members (variable PMPM fee). The fees associated with the variable PMPM fee can be earned through the achievement of performance metrics and/or the realization of healthcare cost savings resulting from the utilization of the Company's services. Collectively, the fixed PMPM fee and variable PMPM fee are referred to as the total PMPM fee. The Company's PMPM pricing varies by contract. In certain contracts, the maximum total PMPM fee varies during the contract term (total PMPM rate increases or decreases annually), while in other contracts, the total PMPM maximum fee is consistent over the term, yet the fixed and variable portions vary. For example, in certain contracts the fixed PMPM fee increases on an annual basis
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
while the variable PMPM fee decreases on an annual basis, resulting in the same total PMPM fee throughout the term of the contract.
Under ASC In accordance with Accounting Standards Codification (ASC) 606,Revenue from Contracts with Customers, the Company recognizes revenue when control of the promised services is transferred to its customers, in an amount that reflects the consideration to which it expects to be entitled in exchange for those services. Accordingly, the Company determines revenue recognition through the following steps:
- •
- identification of the contract, or contracts, with a customer;
- •
- identification of the performance obligations in the contract;
- •
- determination of the transaction price;
- •
- allocation of the transaction price to the performance obligations in the contract; and
- •
- recognition of revenue when, or as, the Company satisfies a performance
obligation.obligation
At contract inception, the Company assesses the type of services being provided and assesses the performance obligations in the contract. The Company's contracts for personalized health guidance solutions generally include two performance obligations: stand ready services as discussed in the following sentence and reporting. The majority of the Company's contracts include stand ready services to provide eligible participants with access to the Company's services and to perform an unspecified quantity of interactions with members during the contract period. Accordingly, the Company's services are generally viewed as stand ready performance obligations comprised of a series of distinct daily services that are substantially the same and have the same pattern of transfer. For the stand ready services, the Company satisfies these performance obligations over time and recognizes revenue related to its services as the services are provided using a measure of progress based upon the actual number of members eligible for the service during the respective period as a percentage of the estimated members expected to be eligible for the service over the term of the contract. The Company believes a measure of progress based on the number of members is the most appropriate measurement of control of the services being transferred to the customer as the amount of internal resources necessary to stand ready is directly correlated to the number of members who can use the services. In addition, the Company's contracts may include additional add-on services as separate performance obligations that are also considered stand ready services. These add-on services have the same pattern of transfer and revenue recognition as discussed above.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
The Company's personalized health guidance solutions also include a distinct performance obligation related to reporting, which is provided to the customer on a daily, monthly, and/or quarterly basis and provides the customer with insights into various operational data and performance metrics. Although reporting is performed separately over regular intervals during the term of contract period, the Company recognizes revenue in a similar pattern of recognition and using a similar measure of progress as its stand ready services because the reporting services are performed evenly throughout the term of the contract. Revenues related to reporting services were not material for the fiscal years ended February 28, 20182019 and 2019.February 29, 2020.
Some contracts contain an additional performance obligation, pre-launch open enrollment, for which the performance obligation is satisfied before the launch of the Company's primary service.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
For contracts that include pre-launch open enrollment support, the Company recognizes related revenues over the pre-launch open enrollment period based on the number of eligible members.
The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The Company determines the standalone selling prices based on overall pricing objectives, taking into consideration market conditions and other factors, using an expected cost plus margin approach. The Company considered the variable consideration allocation exception in ASC 606 and concluded that such exception for allocating variable consideration to distinct performance obligations or distinct time periods within a series was not met primarily due to variability in its PMPM pricing.
The majority of fees earned by the Company are considered to be variable consideration due to both the uncertainty regarding the total number of members for which the Company will invoice the customer, as well as the variable PMPM fees that are dependent upon the achievement of performance metrics and/or healthcare cost savings. Performance metrics are either measured monthly, quarterly or, annually, and with respect to the achievement of healthcare cost savings targets, annually (typically measured on a calendar year basis). Accordingly, at contract inception and on an ongoing basis, as part of the Company's estimate of the transaction price, the Company determines whether any such fees should be constrained, and the Company includes the estimated consideration for those fees for which a significant reversal of cumulative revenue is not probable (and is therefore considered to be unconstrained). Consideration related to the Company's achievement of healthcare cost savings is typically constrained until the end of the applicable calendar year due to uncertainty related to factors outside of the Company's control. Consideration related to other performance metrics is typically not constrained based on the Company's prior success of achieving such metrics. On an ongoing basis, the Company reassesses its estimates for variable consideration, which can change based upon its assessment of the achievement of performance metrics and healthcare cost savings, as well as the number of members.
The Company typically invoices its customers in advance of the services performed on a monthly or quarterly basis, and the amount invoiced typically represents the maximum total PMPM fee for the estimated number of eligible members over the applicable invoice period. The total PMPM fee covers both the stand ready services and reporting services in the Company's typical contracts (i.e., the performance obligations are not separately priced or invoiced). The maximum total PMPM fee that is invoiced includes both the fixed PMPM fee and the variable PMPM fee
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
related to the performance metrics and/or the realization of healthcare cost savings that can be achieved during the period. These fees are classified as deferred revenue on the Company's consolidated balance sheet until such time that revenue can be recognized. In the event the Company fails to satisfy any of the performance metrics and/or realization of healthcare cost savings that are billed in advance, the Company will refund the applicable portion of the fee or offset the amount against a future invoice. These amounts are included in Due to Customers on the Company's consolidated balance sheet. The Company's accounts receivable represent rights to consideration that are unconditional.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
As of February 28, 2019, $165,85729, 2020, $164,552 of revenue is expected to be recognized from remaining performance obligations and is expected to be recognized as follows:
| Fiscal year ending February 28 (29), | | | | |
2020 | | $ | 101,075 | | |
Fiscal periods ending February 28(29), | | | | |
2021 | | 44,224 | | | $ | 111,741 | |
2022 | | 20,552 | | | 42,461 | |
2023 | | 6 | | | 8,390 | |
2024 | | | 1,960 | |
| | | | | | | | | |
Total | | $ | 165,857 | | | $ | 164,552 | |
| | | | | | | | | |
| | | | | | | | | | |
The expected revenue includes variable fee estimates for the non-cancellable term of the Company's contracts. The expected revenue does not include amounts of variable consideration that are constrained.
Significant changes in the deferred revenue balances during the fiscal years ended February 28, 20182019 and 2019 in the deferred revenue balancesFebruary 29, 2020 were the result of recognized revenue of $9,637 and $22,407, respectively that were included in deferred revenue.
Adjustments in transaction price estimatesRevenue related to performance obligations satisfied in prior periods were $4,410 and $1,665that was recognized during the years ended February 28, 20182019 and 2019,February 29, 2020 was $4,410 and $4,479, respectively. These changes in estimates were primarily due to the inclusion of consideration that was previously constrained related to the Company's achievement of healthcare cost savings.
Cost to obtain and fulfill a contract
The Company capitalizes sales commissions paid to internal sales personnel that are both incremental to the acquisition of customer contracts and recoverable. These costs are recorded as deferred contract acquisition costs in the accompanying consolidated balance sheets. The Company capitalized commission costs of $1,233$1,832 and $1,830$1,495 for the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, respectively. The Company defers costs based on its sales compensation plans only if the commissions are incremental and would not have occurred absent the customer contract. Payments to direct sales personnel are typically made in two increments as follows: 75% upon signature of the contract, with the remaining 25% upon customer launch. The Company does not pay commissions on contract renewals.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
Deferred commissions paid on the initial acquisition of a contract are amortized ratably over an estimated period of benefit of five years, which is the estimated customer life. The Company determined the period of amortization for deferred commissions by taking into consideration current customer contract terms, historical customer retention, and other factors. Amortization is included in sales and marketing expenses in the accompanying consolidated statements of operations and totaled $52$377 and $377$665 for the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, respectively. The Company periodically reviews deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated period of benefit. There were no impairment losses recorded during the periods presented.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
For certain customer contracts, the Company may incur direct and incremental costs related to customer set-up and implementation. The Company recorded deferred implementation costs of $367$667 and $667$904 for the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, respectively. These implementation costs are deferred and amortized over the expected useful life of the Company's customers, which is five years. Amortization is included in cost of revenues in the Company's consolidated statements of operations and totaled $1,616$417 and $417$320 for the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, respectively.
(k)(n) Concentration of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. The Company maintains its cash primarily with domestic financial institutions of high credit quality, which may exceed federal deposit insurance corporation limits. The Company invests its cash equivalents in highly rated money market funds. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents and perform periodic evaluations of the credit standing of such institutions.
Significant customers are those which represent 10% or more of the Company's revenue during the period. For each significant customer, revenue as a percentage of total revenue was as follows:
| | | Fiscal Year Ended
February 28,
| | | Fiscal Year Ended
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Customer 1 | | 45 | % | | 35 | % | | 35 | % | | 24 | % |
Customer 2 | | 16 | % | | 14 | % | | 3 | % | | 13 | % |
Customer 3 | | 0 | % | | 11 | % | | 14 | % | | 12 | % |
Customer 4 | | | 8 | % | | 10 | % |
Customer 5 | | | 11 | % | | 9 | % |
| | | | | | | | | | | | | | | |
Total | | 61 | % | | 60 | % | | 71 | % | | 68 | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
AsTable of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018, there was $6,3372019 and February 29, 2020
(2) Summary of accounts receivable outstanding related to Customer 1, all of which was subsequently collected.Significant Accounting Policies (Continued)
There were no accounts receivable outstanding related to any of these customers at February 28, 2019 related to these customers.and February 29, 2020, respectively.
(l)(o) Stock-Based Compensation
The Company recognizes compensation cost for awards to employees, nonemployee directors, consultants, and advisors based on the grant date fair value of stock-based awards on a straight-line basis over the period during which an award holder is required to provide service in exchange for the award. The Company estimates the fair value of each employee stock option on the date of grant using the Black-Scholes option pricing model.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
(m)(p) Cost of Revenue, excluding depreciationDepreciation and amortizationAmortization
Cost of revenue, excluding depreciation and amortization, consists primarily of personnel costs including salaries, wages, overtime, bonuses, stock-based compensation expense, and benefits, as well as software and tools for telephony, business analytics, allocated overhead costs, and other expenses related to delivery and implementation of the Company's personalized technology-enabled solutions.
(n)(q) Product and Technology
Product and technology expenses consist of personnel expenses, including salaries, bonuses, stock-based compensation expense, and benefits for employees and contractors for engineering, product, and design teams, and allocated overhead costs, as well as costs of software and tools for business analytics, data management, and IT applications that are not directly associated with delivery of the Company's solutions to customers.
(o)(r) Income Taxes
The provision for income taxes was determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the period. Deferred taxes result from differences between the financial and tax basis of the Company's assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date.
In evaluating the ability to realize deferred tax assets, the Company relies on taxable income in prior carryback years, the future reversals of existing taxable temporary differences, future taxable income, and tax planning strategies.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
Consistent with the provisions of FASB ASC Topic 740,Income Taxes, the Company does not recognize a tax benefit for a tax position in its financial statements unless it has concluded that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position; and that the amount of tax benefit recognized is measured at the largest amount of the tax benefit that, in the Company's judgment, is greater than 50% likely to be realized. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing tax returns to determine whether the tax positions will more likely than not be sustained by the Company upon challenge by the applicable tax authority. Tax positions not deemed to meet the "more-likely than-not""more likely than not" threshold and that would result in a tax benefit or expense to the Company would be recorded as a tax benefit or expense in the current period. For the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, the Company did not recognize any
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
amounts for unrecognized tax benefits. A reconciliation is not provided herein, as the beginning and ending amounts of unrecognized benefits are $0, with no additions, reductions, or settlements during the year. Tax years 20092010 through present remain subject to examination by the U.S. and state taxing authorities.
(p)(s) Segments
The Company's chief operating decision maker, its Chief Executive Officer, reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable operating segment.
As of February 28, 20182019 and 2019,February 29, 2020, substantially all of Accolade's long-lived assets were located in the United States, and all revenue was earned in the United States.
(q) Recently Issued Accounting Pronouncements(t) Deferred Offering Costs
Revenue Recognition: In May 2014, the FASB issued ASC 606. See Note 2(j) for discussion regarding the impact The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financing as deferred offering costs until such financings are consummated. After consummation of the Company's adoptionequity financing, these costs will be recorded in stockholders' deficit as a reduction of ASC 606.
Stock-Based Compensation: In May 2017, the FASB issued ASU No. 2017-09,Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity in applying the guidance in Topic 718 around modifications of stock-based payment awards. The Company adopted this ASU on March 1, 2018. In June 2018, the FASB issued ASU No. 2018-07,Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns mostadditional paid-in-capital generated as a result of the guidance on such paymentsoffering. Should the equity financing no longer be considered probable of being consummated, all deferred offering costs would be charged to operating expenses in the nonemployees with the requirements for share-based payments granted to employees. The standard is effective for the Company for the fiscal year endingstatement of operations. Deferred offering costs were $3,042 at February 29, 2020. Early adoption is permitted, but no earlier than a company's adoption date of ASC 606. The Company adopted this ASU on March 1, 2018. There was no material impact2020 and are included within prepaid and other current assets on the Company'saccompanying consolidated financial statements related to the adoption of either standard.balance sheet.
(r)(u) New Accounting Pronouncements Not Yet Adopted
Leases: In February 2016, the FASBFinancial Accounting Standards Board (FASB) issued ASUAccounting Standard Update (ASU) 2016-02,Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10,Codification Improvements to Topic 842, Leases,, and ASU No. 2018-11,Leases (Topic 842),Targeted Improvements,, which affect certain aspects of the previously issued guidance. In December 2018, the FASB issued ASU No. 2018-20,Narrow-Scope Improvements for Lessor,
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
Leases (Topic 842), which provides guidance on sales tax and other taxes collected from lessees. In March 2019, the FASB issued ASU No. 2019-01,Codification Improvements to Topic 842, Leases,, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The guidance (collectively ASC 842) will require lessees to recordput all leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(2) Summary of Significant Accounting Policies (Continued)
similar to current practice. ASC 842 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASC 842 is effective for the Company for the fiscal year endingended February 28, 2022. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Credit Losses: In June 2016, the FASB issued ASU No. 2016-13Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces the current expected credit loss (CECL) model, which will require entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. ASU 2016-13 is effective for the Company for the fiscal year endingended February 28, 2023. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Internal Use Software: In August 2018, the FASB issued ASU No. 2018-15,Intangibles — Goodwill and Other Internal UseOther-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.internal-use-software. This ASU is effective for the fiscal year ending February 28, 2022, and interim periods within the fiscal year ending February 28, 2023. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
(3) Property and Equipment(v) Unaudited Pro Forma Financial Information
Property and equipment consistedImmediately prior to the closing of the following:
| | | | | | | |
| | | February 28,
| |
| | | | | | | | |
| | 2018 | | 2019 | |
Capitalized software development costs | | $ | 30,919 | | $ | 32,862 | |
Computer software | | | 10,214 | | | 10,275 | |
Computer equipment | | | 6,913 | | | 7,828 | |
Office equipment, furniture, and leasehold improvements | | | 7,719 | | | 8,012 | |
Office equipment and furniture under capital leases | | | 1,251 | | | 1,252 | |
| | | | | | | | |
| | | 57,016 | | | 60,229 | |
Less accumulated depreciation | | | (35,564 | ) | | (44,955 | ) |
| | | | | | | | |
Total | | $ | 21,452 | | $ | 15,274 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Depreciationinitial public offering, all of the Company's outstanding convertible preferred stock will automatically convert into common stock on a one-for-one basis. Additionally, the Series A through Series E convertible preferred stockholders will receive for each share of preferred stock held the number of shares of common stock determined by dividing the applicable preference amount by the price per common share in the initial public offering. The unaudited pro forma balance sheet as of February 29, 2020 assumes (1) the automatic conversion of all outstanding shares of convertible preferred stock and amortization expense was $7,982 and $9,391 for the fiscal years ended February 28, 2018 and 2019, respectively. Also, during 2018,additional issuance of common shares discussed above into 29,479,483 shares of common stock, (2) the Company wrote off leasehold improvements, resulting in a loss on disposalissuance of $144.1,401,836
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and February 29, 2020
(2) Summary of Significant Accounting Policies (Continued)
shares of common stock issuable upon the automatic net exercise of outstanding warrants immediately prior to the initial public offering based on the initial public offering price of $22.00 per share, (3) the proceeds received of $48,666 from the drawdown of our revolving credit facility in March 2020, and (4) the receipt of $2,500 of additional proceeds under our term loan in May 2020. See note 12 for unaudited pro forma net loss per common share details.
(3) Acquisition of MD Insider (MDI)
On July 31, 2019, the Company acquired the outstanding equity interests of MDI. Based in California, MDI is a provider of machine learning-enabled physician performance transparency. The following table summarizes the purchase consideration paid to MDI:
| | | | |
Consideration Paid | | | | |
Cash consideration | | $ | 324 | |
Fair value of equity issued | | | 5,114 | |
Fair value of contingent consideration | | | 1,050 | |
| | | | | |
Total consideration paid | | $ | 6,488 | |
| | | | | |
| | | | | |
| | | | | |
The aggregate purchase price consideration of $6,488 was paid primarily through the issuance of up to 462,691 shares of the Company's common stock, of which 289,320 were issued as of February 29, 2020, with the remaining shares issuable subject to certain working capital and indemnity adjustments (if applicable). Shareholders are eligible to receive 100,607 additional shares of the Company's common stock upon the completion of a platform solution, as defined in the purchase agreement (MDI Earnout). The deadline to complete the cost transparency platform solution in order to qualify for the MDI Earnout was initially March 1, 2020, and was subsequently extended to July 1, 2020. The estimated fair value of the Company's common stock and MDI Earnout was $5,114 and $1,050, respectively. The MDI Earnout is accounted for as an equity classified instrument and is not subject to remeasurement in subsequent periods.
The Company incurred a total of $567 in acquisition related costs that were expensed immediately and recorded in the Company's consolidated statement of operations for the fiscal year ended February 29, 2020. The acquisition was not significant to the Company's consolidated financial statements; therefore, pro forma results of the operations related to this business acquisition for the fiscal year ended February 29, 2020, have not been presented. The results of MDI's operations since July 31, 2019 have been included in the Company's consolidated financial
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(3) Acquisition of MD Insider (MDI) (Continued)
statements. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
| | | | |
Assets acquired: | | | | |
Cash and cash equivalents | | $ | 118 | |
Accounts receivable | | | 98 | |
Prepaid expenses | | | 5 | |
Goodwill | | | 4,013 | |
Intangible assets | | | 2,900 | |
Other assets | | | 17 | |
| | | | | |
Total assets acquired | | $ | 7,151 | |
| | | | | |
Liabilities assumed: | | | | |
Accounts payable | | $ | 321 | |
Accrued expenses and other current liabilities | | | 342 | |
| | | | | |
Total liabilities assumed | | $ | 663 | |
| | | | | |
Net assets acquired | | $ | 6,488 | |
| | | | | |
| | | | | |
| | | | | |
The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The identifiable intangible asset principally relates to technology and is subject to amortization on a straight-line basis over two years. During the fiscal year ended February 29, 2020, the Company recorded amortization expense of $846.
The intangible asset was valued using the estimated replacement cost method. This method requires several judgments and assumptions to determine the fair value of the intangible asset, including expected profits and opportunity costs. Goodwill related to the acquisition is attributable to the workforce of MDI as well as the expected future growth into new and existing markets and is not deductible for income tax purposes.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(4) Property and Equipment
Property and equipment consisted of the following:
| | | | | | | |
| | | February 28/29,
| |
| | | | | | | | |
| | 2019 | | 2020 | |
Capitalized software development costs | | $ | 32,862 | | $ | 35,867 | |
Computer software | | | 10,275 | | | 8,829 | |
Computer equipment | | | 7,828 | | | 9,383 | |
Office equipment, furniture, and leasehold improvements | | | 8,012 | | | 8,903 | |
Office equipment and furniture under capital leases | | | 1,252 | | | 1,251 | |
| | | | | | | | |
| | | 60,229 | | | 64,233 | |
Less accumulated depreciation | | | (44,955 | ) | | (50,608 | ) |
| | | | | | | | |
Total | | $ | 15,274 | | $ | 13,625 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Depreciation and amortization expense was $9,391 and $7,670 for the fiscal years ended February 28, 2019 and February 29, 2020, respectively. During the fiscal year ended February 29, 2020, the Company accelerated depreciation in the amount of $1,634 related to the retirement of software. Also, during 2020 the Company wrote off $680 of leasehold improvements and furniture/fixtures related to the termination of the Seattle lease (see note 13), resulting in a loss on disposal of $299.
(5) Accrued Expenses and Accrued Compensation
Accrued expenses consisted of the following:
| | | February 28,
| | | February 28/29,
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Accrued professional and consulting fees | | $ | 528 | | $ | 755 | | | $ | 755 | | $ | 3,375 | |
Accrued software, hardware, and communication costs | | 491 | | 154 | | | 154 | | 228 | |
Accrued litigation matter | | 650 | | 1,100 | | | 1,100 | | 1,100 | |
Accrued taxes | | 122 | | 335 | | | 335 | | 512 | |
Accrued other | | 562 | | 796 | | | 796 | | 1,365 | |
| | | | | | | | | | | | | | | |
Total | | $ | 2,353 | | $ | 3,140 | | | $ | 3,140 | | $ | 6,580 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See Note 12 fornote 13 discussion regarding accrued litigation matter.
Included in accrued compensation is $5,884 of accrued bonus expense related to bonuses earned during the fiscal year ended February 29, 2020. This bonus amount will be settled in June 2020 through the issuance of fully vested stock options exercisable into shares of the Company's common stock. The Company determined the amount of stock options to be issued by taking the cash bonus earned divided by the fair value of the Company's common stock at May 31, 2020, which was $17.50. The Company then used the Black Scholes methodology to determine the fair value of the stock options granted, which resulted in a grant-date fair value of $10.88 per stock
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(5) Accrued Expenses and Accrued Compensation (Continued)
option. The fair value of the stock options issued was determined using an estimated fair value of common stock based upon a third party valuation, expected volatility of 78.4%, expected term of 5.0 years, and risk-free interest rate of 0.3%.
Accrued compensation includes $4,905 of payroll withholding taxes payable related to the exercise of nonqualified stock options during the fiscal year ended February 29, 2020. The Company has a corresponding receivable for the same amount, which is classified in prepaid and other current assets in the Company's consolidated balance sheet at February 29, 2020.
(6) Fair Value Measurements
The following table sets forth the fair value of the Company's financial assets and within the fair value hierarchy:
| | | February 28, 2018
| | | February 28, 2019
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Fair Value | |
Assets | | | | | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 6,516 | | $ | — | | $ | — | | $ | 6,516 | | | $ | 28,661 | | $ | — | | $ | — | | $ | 28,661 | |
| | | February 28, 2019
| | | February 29, 2020
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Fair Value | |
Assets | | | | | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 28,661 | | $ | — | | $ | — | | $ | 28,661 | | | $ | 21,332 | | $ | — | | $ | — | | $ | 21,332 | |
Also, the carrying value of the Company's debt approximates fair value based on interest rates available for debt with similar terms at February 28, 20182019 and 2019.February 29, 2020.
(6)(7) Debt Facility
(a) Term Loan and Revolving Credit Facility
Term Loan
On January 30, 2017, the Company entered into two debt facilities, one of which iswas a $20,000 term loan (the Term Loan) and the other a $20,000 revolving credit facility (the 2017 Revolver).
During March 2018, an amendment to the Term Loan was entered into, as further discussed below. During April 2018, an amendment to the 2017 Revolver was entered into, as further discussed below.
During July 2019, the Company amended the Term Loan, terminated the 2017 Revolver and entered into a new revolving credit facility (the 2019 Revolver). In connection with the July 2019
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(6) Debt (Continued)
transactions, the Company issued warrants to purchase up to 677,977135,594 shares of the Company's common stock.
(a) Term Loan
Under the terms of the Term Loan, the Company was permitted to borrow up to an aggregate principal amount of $20,000, with the total amount of available borrowings subject to certain monthly recurring revenue calculations. As of February 28, 2019, there was $19,200$20,000 outstanding on the Term Loan (netLoan.
Table of unamortized issuance costs), classified as non-currentContents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in the Company's consolidated balance sheet. There was no remaining borrowing capacity on this facility as of thousands except share and per share data)
February 28, 2019.2019 and February 29, 2020
(7) Debt Facility (Continued)
Interest on the outstanding balance was payable monthly at a rate of 11.75%. Principal payments were scheduled to be made monthly beginning January 31, 2019, in equal installments calculated as 1/24th of the outstanding balance on December 31, 2018. However, the Company had the ability to extend the interest only period for an additional twelve months, subject to an additional fee and other conditions, which would extend the maturity date from December 31, 2020 to December 31, 2021. The Company committed to extend this interest only period, and the maturity date was extended to December 31, 2022.2021. As a result, principal payments were scheduled to start January 2020. As of February 28, 2018 andDuring July 2019, therean amendment was no accrued but unpaid interest relatedentered into which eliminated monthly payments, with principal to the Term Loan.be paid in full in December 2022.
The Term Loan also provided for the issuance of a warrant to purchase 217,71243,542 shares of the Company's common stock (the Term Loan Warrant) at an exercise price of $0.001$0.005 per share. The Term Loan Warrant vested 100% upon issuance and has a ten-year term, ending January 30, 2027. The Company calculated the fair value of the Term Loan Warrant using the Black-Scholes option pricing model, and the fair value of the Term Loan Warrant was determined to be $182. This amount was recorded as a debt discount and was being amortized ratably over the Term Loan period. Interest expense was $47 and $36, respectively, in the fiscal years ended February 28, 2018 and 2019, related to the Term Loan Warrant.
Also, the Company incurred issuance and other third-party costs of $429 related to the Term Loan, which were recorded as a debt discount and wereare being amortized ratably over the term of the Term Loan. Interest expense related to the amortization of these costs was $110 and $85, respectively, during the fiscal years ended February 28, 2018 and 2019.
During July 2019, the Company amended the existing Term Loan agreement, which resulted in an additional $2,000 of availability, increasing total availability to $22,000. As of December 5, 2019,February 29, 2020, the Company had borrowed all $22,000 availableoutstanding borrowings under the Term Loan. The classificationLoan were $22,000. Pursuant to the amendment, interest on the outstanding balance is payable monthly at a rate of 10.00% per annum and interest payable-in-kind accrues at a rate of 2.00% per annum, compounded monthly, and is due at maturity. Additionally, the Company is required to pay an exit fee equal to 1% of the 2017aggregate principal borrowings at the time of maturity (end of term charge). As of February 29, 2020, there was $273 of accrued interest payable-in-kind. All outstanding principal, unpaid interest and interest payable-in-kind are due at maturity.
The amendment was accounted for as a debt modification, and all new lender fees were recorded as additional debt discount and third-party costs incurred in connection with the amendment were expensed as incurred. Debt issuance costs of $634, including the fair value of the warrants and end of term charge, were capitalized and are being amortized to interest expense over the remainder of the term using the effective interest method. During the fiscal years ended February 28, 2019 and February 29, 2020, the Company recorded interest expense of $2,844 and $2,858, respectively, related to the Term Loan as of February 28, 2018which $291 and 2019 was determined based upon$280, respectively, related to the termsamortization of the July 2019 amendment.debt discount.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(6)(7) Debt Facility (Continued)
Long-term debt consisted of the following at February 28, 2019 and February 29, 2020:
| | | | | | | |
| | February 28,
2019 | | February 29,
2020 | |
|---|
Principal outstanding | | $ | 20,000 | | $ | 22,000 | |
Interest payable-in-kind | | | — | | | 273 | |
Unamortized issuance costs | | | (800 | ) | | (1,129 | ) |
| | | | | | | | |
| | $ | 19,200 | | $ | 21,144 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
During May 2020, the Company amended the Term Loan agreement, which resulted in additional borrowing availability of $2,500, all of which was drawn down at the time of execution of such amendment.
(b) Revolving Credit Facility
The 2017 Revolver was a 24-month senior secured $20,000 revolving line of credit, with borrowing availability subject to certain monthly recurring revenue calculations. As of February 28,On April 20, 2018, and 2019, outstanding amounts were $5,000 and $0, respectively, and the availability underCompany amended the 2017 Revolver, was $20,000which modified the revenue covenants, required the Company to exercise the extension of the interest only payment period of the Term Loan through December 2019 and in the event the Company raised proceeds in the aggregate of at February 28, 2019. Under Amendment 1,least $45,000 as part of a financing event, extended the term of the 2017 Revolver to January 30, 2020. This financing event occurred, and, accordingly, the term of the 2017 Revolver was extended for an additional twelve months through January 2020.extended. As of February 28, 2019, there was no amount outstanding under the 2017 Revolver.
Interest on the outstanding balance of the 2017 Revolver was due monthly at a rate of the lending institution's prime referenced rate plus 1.00%, with the prime reference rate defined as the greater of (i) the lending institution's prime rate and (ii) the 30-day LIBOR plus 2.50%. Principal and interest were due at maturity (extended in connection with Amendment 1 to January 30, 2020).maturity.
The 2017 Revolver also provided for the Company to issue warrants to purchase up to 111,44222,288 shares of the Company's Common Stock (the 2017 Revolver Warrants), of which a warrant to purchase 55,72111,144 shares was issued on January 30, 2017, and a warrant to purchase 55,72111,144 shares was issued on January 30, 2018.
The Company incurred issuance and other third-party costs of $61 related to the 2017 Revolver, which were recorded as a debt discountdeferred and were being amortized ratably over the term of the 2017 Revolver. Interest expense related to the amortization of these costs was $30 and $16, respectively, during the fiscal years ended February 28, 2018 and 2019.
On April 20, 2018, the Company entered into Amendment 1 with the 2017 Revolver lender, which modified the revenue covenants, required the Company to exercise the extension of the interest only payment period of the Term Loan through December 2019 (from December 2018), and, in the event the Company raised proceeds in aggregate of at least $45,000 as part of a financing event, extended the term of the 2017 Revolver to January 30, 2020. This financing event occurred, and, accordingly, the term of the 2017 Revolver was extended.
Both the Term Loan and 2017 Revolver were collateralized by substantially all of the assets of the Company.
During July 2019, the Company terminated the 2017 Revolver and entered into a new revolving credit facility (the 2019 Revolver) with a syndicate of two banks, of which one was the lender under the 2017 Revolver. Under the 2019 Revolver, the Company has the capacity to borrow up to $50,000 on a revolving facility, and to the extent certain customer bookings thresholds are achieved, the capacity on the 2019 Revolver may increase by an additional amount of up to $30,000 (resulting in total potential availability of $80,000). Availability of borrowings on the 2019 Revolver is calculated as a multiple of the Company's eligible monthly recurring revenues (as defined in the 2019 Revolver). As of December 5,February 29, 2020, the Company had outstanding letters of
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 $50,000 was available for borrowing.and February 29, 2020
(7) Debt Facility (Continued)
credit to serve as office landlord security deposits in the amount of $1,334. These letters of credit are secured through the revolving credit facility, thus reducing the capacity of the revolving credit facility at February 29, 2020 to $48,666. During March 2020, the Company borrowed this remaining capacity in its entirety to increase the Company's cash position given the uncertainty in the overall business environment due to the COVID-19 pandemic.
The 2019 Revolver has a term of 24 months, and there is an automatic extension of an additional 12-month period should the Company achieve certain revenues, as defined. The interest rate on the outstanding borrowings are at LIBOR plus 350 basis points or Base Rate (as defined) plus 250 basis points, and interest payments are to be made quarterly.
The 2019 Revolver was accounted for as a debt modification to which all new lender and third-party fees were deferred. Issuance costs of $543, including the fair value of the warrants, were capitalized and are being amortized to interest expense over the remainder of the 2019 Revolver term. During the fiscal years ended February 28, 2019 and February 29, 2020, the Company recorded interest expense of $72 and $273, respectively, related to the revolving credit facility of which $31 and $195, respectively, related to the amortization of deferred financing fees. As of February 28, 2019 and February 29, 2020, the balance of deferred financing fees was $23 and $372, respectively, and is recorded in other assets in the accompanying consolidated balance sheets.
Both the Term Loan and 2019 Revolver are collateralized by substantially all of the assets of the Company.
(8) Stockholders' Equity
(a) Convertible Preferred Stock
As of February 29, 2020, the authorized, issued and outstanding convertible preferred stock and their principal terms were as follows:
| | | | | | | | | | | | | | | | |
Series
| | Par value | | Shares
authorized | | Issued and
outstanding | | Carrying
amount | | Liquidation
value | |
A-1 | | $ | 0.0001 | | | 3,560,000 | | | 3,559,995 | | $ | 10,000 | | $ | 10,000 | |
A-2 | | | 0.0001 | | | 2,579,999 | | | 2,579,994 | | | 10,000 | | | 10,000 | |
B | | | 0.0001 | | | 4,058,736 | | | 4,058,731 | | | 16,944 | | | 16,944 | |
C | | | 0.0001 | | | 601,160 | | | 601,151 | | | 7,000 | | | 7,000 | |
D | | | 0.0001 | | | 1,751,874 | | | 1,751,871 | | | 30,000 | | | 30,000 | |
E | | | 0.0001 | | | 6,089,189 | | | 6,089,159 | | | 140,720 | | | 145,300 | |
F | | | 0.0001 | | | 873,038 | | | 873,038 | | | 18,358 | | | 20,000 | |
| | | | | | | | | | | | | | | | | |
| | | | | | 19,513,996 | | | 19,513,939 | | $ | 233,022 | | $ | 239,244 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
During March 2018, the Company amended its Certificate of Incorporation to allow for additional Series E shares and issued 2,095,365 shares at $23.86195 per share during the period
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(6) Debt(8) Stockholders' Equity (Continued)
Future principal payments of the outstanding balance under the Term Loan as of February 28, 2019 were as follows:
| | | | |
Fiscal year ending
February 28 (29), | |
| |
|---|
2020 | | $ | — | |
2021 | | | — | |
2022 | | | — | |
2023 | | | 20,000 | |
| | | | | |
Total | | $ | 20,000 | |
| | | | | |
| | | | | |
| | | | | |
These future payments reflect the terms of the July 2019 Term Loan amendment.
Current and noncurrent deferred issuance costs were $31 and $769, respectively, at February 28, 2019, and presented as a debt discount in the Company's consolidated balance sheet as of February 28, 2019.
(7) Convertible Preferred Stock
As of February 28, 2019, the authorized, issued and outstanding convertible preferred stock and their principal terms were as follows:
| | | | | | | | | | | | | | | | |
Series
| | Par Value | | Shares
Authorized | | Shares
Issued and
Outstanding | | Carrying
Amount | | Liquidation
Value | |
A-1 | | $ | 0.0001 | | | 17,800,001 | | | 17,800,001 | | $ | 10,000 | | $ | 10,000 | |
A-2 | | | 0.0001 | | | 12,899,999 | | | 12,899,999 | | | 10,000 | | | 10,000 | |
B | | | 0.0001 | | | 20,293,681 | | | 20,293,681 | | | 16,944 | | | 16,944 | |
C | | | 0.0001 | | | 3,005,801 | | | 3,005,801 | | | 7,000 | | | 7,000 | |
D | | | 0.0001 | | | 8,759,373 | | | 8,759,373 | | | 30,000 | | | 30,000 | |
E | | | 0.0001 | | | 30,445,945 | | | 30,445,945 | | | 140,720 | | | 145,300 | |
| | | | | | | | | | | | | | | | | |
| | | | | | 93,204,800 | | | 93,204,800 | | $ | 214,664 | | $ | 219,244 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
During March 2018, the Company amended its Certificate of Incorporation to allow for additional Series E shares and issued 10,476,924 shares at $4.77239 per share during the period March through July 2018. The sales resulted in aggregate net cash proceeds of $49,933, after deducting $67 of issuance costs. In connection with this issuance, the Company issued warrants to purchase 2,540,003541,159 shares of the Company's common stock. The warrants have an exercise price of $0.0001$0.0005 per share and a term of ten years. The Company calculated the issuance date fair value of the warrants using the Black-Scholes option pricing model,valuation methodology, which resulted in an approximatea fair value of $2,387. Accordingly, the Company allocated the proceeds from the Series E preferred stock, on a relative fair value basis, resulting in $2,279 allocated to the warrants and recorded in additional paid in capital during the fiscal year ended February 28, 2019.
Table During October 2019, the Company amended its Certificate of Contents
Accolade, Inc.
NotesIncorporation to Consolidated Financial Statements (Continued)
(Dollar amountsallow for the issuance of Series F preferred stock and issued 873,038 shares at $22.9085 per share, resulting in thousands exceptnet cash proceeds of $19,943, after deducting $57 of issuance costs. In connection with this issuance, the Company issued a warrant to purchase 85,000 shares of the Company's common stock. The warrant has an exercise price of $0.0005 per share and per share data)
a term of ten years. The Company calculated the issuance date fair value of the warrant using the Black-Scholes valuation methodology, which resulted in an approximate fair value of $1,590. Accordingly, the Company allocated the proceeds and associated issuance costs from the Series F preferred stock, on a relative fair value basis, resulting in $1,585 and $18,358 allocated to the warrant and to the Series F preferred stock, respectively, during year ended February 28, 201829, 2020. Also, concurrently with the Series F preferred stock issuance, the Company entered into a partnership with the Series F holder under which the Company's products will be marketed and 2019
(7) Convertible Preferred Stock (Continued)sold by the Series F holder as part of the Series F holder's broader product offerings.
The preferred stock is convertible, at the option of the holder, at any time, into fully paid and nonassessable shares of common stock. The number of shares of common stock into which each share of preferred stock may be converted is determined by dividing the original issue price by the conversion price in effect on the date that the holder elects to convert the shares of preferred stock. The initial conversion price is equal to the original issue price. InFor the Series A through Series E preferred stock, in connection with an initial public offering of securities, immediately prior to the public offering, the preferred stockholders will receive for each share of preferred stock held a number of shares of common stock as is determined by dividing the preference amount (discussed below) by the price per common share in the public offering. These shares are in addition to shares of common stock otherwise issuable upon conversion of the preferred stock.
Each share willshall automatically convertbe converted into shares of common stock upon the earlier of (i) the consummation of a firm commitment underwritten public offering of common stock (or common stock of successor corporation) at a public offering price of not less than $9.54478$47.7239 (adjusted for any recapitalization) resulting in net proceeds to the Company (or successor corporation) of not less than $75,000, and listed on a national securities exchange or traded on the NASDAQ or (ii) the date specified by the written consent of the requisite preferred stockholders. The preferred stockholders have elected to convert their shares to common stock in connection with this offering.
No dividend shall be declared or paid on any shares of any other series or class of shares of the Company unless and until such distribution is also ratably declared and paid on all of the
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(8) Stockholders' Equity (Continued)
outstanding preferred stock (based on as-if converted amounts) at the same time as such distribution is paid on such other equity interests. No dividends have been declared or paid through February 28, 2019.29, 2020.
In the event of any liquidation, dissolution, or winding up of the Company, either voluntarily or involuntarily and in the event of a sale of the Company, as defined, the holders of the preferred stock willshall be entitled to receive, prior and in preference to any distribution of any of the assets or funds of the Company to holders of the shares of common stock or any other shares by reason of their ownership of such shares, for each share of preferred stock the sum of (i) the original purchase price paid per each share of preferred stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and similar events) plus (ii) the amount of all accrued but unpaid dividends as discussed above (the sum is referred to as the preference amount). In the event the assets of the Company are not sufficient to distribute such amounts, each holder will receive their pro rata share of amounts available to be distributed. After full payment of the preference amount has been made to the holders of the Series A-1, A-2, B, C, D, and E preferred stock as described above, the holders of the common stock and the Series A-1, A-2, B, C, D, and E preferred stock shall be entitled to share ratably in all remaining assets and funds, if any, based upon the number of shares of common stock then held with each share of Series A-1, A-2, B, C, D, and E preferred stock treated as holding the number of shares of common stock into which such shares of Series A-1, A-2, B, C, D, and E preferred stock are then convertible.
The preferred stockholders have the right to one vote for each share of common sharestock into which their preferred stock could then be converted.
The preferred stock is considered contingently redeemable for accounting purposes, given the rights of the preferred stockholderssubject to redemption under certain deemed liquidation events, as defined. Management has determined that none of these events were probabledefined in the Company's charter, and as ofsuch, the balance sheet dates.
Table of Contentspreferred stock is considered contingently redeemable for accounting purposes.
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(8)(9) Stock Options and Warrants
(a) Stock Options
In 2010, the Company adopted the Amended and Restated 2007 Stock Option Plan as amended (the Option Plan), which authorized the Company to grant shares of common stock to eligible employees, directors, and consultants to the Company in the form of restricted stock and stock options. As of February 28, 2019,29, 2020, the Company wasis authorized to issue up to 53,200,25313,116,991 shares of common stock pursuant to the Option Plan. The amount, terms of grants, and exercisability provisions are determined by the board of directors. The term of the options may be up to 10 years and options generally vest over four years, with one quarter of the options vesting one year after grant and the remainder vesting on a monthly basis over three years. As of February 28, 2019,29, 2020, there were 782,244941,887 shares of common stock available for future grants under the Option Plan.
The Company recognizes stock-based compensation based on the grant date fair value of the awards and recognizes that cost using the straight-line method over the requisite service period of the award. The fair value of options, which vest in accordance with service schedules, is estimated
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(9) Stock Options and Warrants (Continued)
on the date of grant using the Black-Scholes option pricing model. The absence of an active market for the Company's common stock requires it to estimate the fair value of itsthe Company's common stock for purposes of granting stock options and for determining stock-based compensation expense for the periods presented. The Company obtained contemporaneous third-party valuations to assist in determining the estimated fair value of its common stock. These contemporaneous third-party valuations used the methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Practice Guide,Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Expected volatilities are based on historical volatilities of comparable companies. The expected term of the options is based on the simplified method outlined in the SEC Staff accounting guidance, under which the Company estimates the term as the average of the option's contractual term and the option's weighted-averageweighted average vesting period. The risk-free rate represents the yield on U.S. Treasury bonds with maturity equal to the expected term of the granted option. The Company accounts for forfeitures as they occur. All stock options outstanding at February 28, 201929, 2020 are expected to vest according to their specific schedules.
During the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, the Company recognized $8,406$5,721 and $5,721,$6,002, respectively, of compensation expense related to stock options. Included
The following table summarizes the amount of stock-based compensation included in the $8,406consolidated statements of totaloperations:
| | | | | | | |
| | Fiscal year | |
| | 2019 | | 2020 | |
Cost of revenue | | $ | 255 | | $ | 318 | |
Product and technology | | | 1,108 | | | 1,674 | |
Sales and marketing | | | 1,199 | | | 1,482 | |
General and administrative | | | 3,159 | | | 2,528 | |
| | | | | | | | |
Total stock-based compensation | | $ | 5,721 | | $ | 6,002 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Company did not capitalize any stock-based compensation expense is $4,324 related to stock option modifications made duringdeferred costs for the fiscal yearyears ended February 28, 2018.2019 and February 29, 2020.
The weighted average grant date fair value for stock options granted during the years ended February 28, 2019 and February 29, 2020, was $2.95 and $5.40, respectively. The fair value of the Company's option grants is estimated at the grant date using the Black-Scholes option-pricing model based on the following weighted average assumptions:
| | | | |
| | Fiscal year |
| | 2019 | | 2020 |
Estimated fair value of common stock | | $2.40 - $3.35 | | $4.80 - $9.55 |
Exercise price | | $4.70 - $6.75 | | $9.60 - $18.70 |
Expected volatility | | 46% - 50% | | 50% |
Expected term (in years) | | 6.25 | | 6.25 |
Risk-free interest rate | | 2.65% - 2.94% | | 1.67% - 2.62% |
Dividend yield | | — | | — |
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(8)(9) Stock Options and Warrants (Continued)
The following table summarizesis a summary of stock option activity under the amount of stock-based compensation included in the consolidated statements of operations:Option Plan:
| | | | | | | |
| | Fiscal Year Ended
February 28, | |
| | 2018 | | 2019 | |
Cost of revenue | | $ | 376 | | $ | 255 | |
Product and technology | | | 1,420 | | | 1,108 | |
Sales and marketing | | | 1,750 | | | 1,199 | |
General and administrative | | | 4,860 | | | 3,159 | |
| | | | | | | | |
Total stock-based compensation | | $ | 8,406 | | $ | 5,721 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | |
| | Stock Options | | Weighted-
Average
Exercise Price | | Weighted
Remaining
Contractual
Life In Years | | Aggregate
Intrinsic
Value | |
Balance, February 28, 2018 | | | 6,970,591 | | | | | | | | | | |
Granted | | | 1,635,115 | | | | | | | | | | |
Exercised | | | (249,027 | ) | | | | | | | | | |
Forfeited | | | (209,135 | ) | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, February 28, 2019 | | | 8,147,544 | | | | | | | | | | |
Granted | | |
2,084,046 | |
$ |
10.80 | | | | | | | |
Exercised | | | (1,843,001 | ) | $ | 3.70 | | | | | | | |
Forfeited | | | (392,533 | ) | $ | 5.70 | | | | | | | |
| | | | | | | | | | | | | | |
Balance, February 29, 2020 | | | 7,996,056 | | $ | 6.19 | | | 7.0 years | | $ | 73,631 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Vested and expected to vest as of February 29, 2020 | | | 7,996,056 | | $ | 6.20 | | | 7.0 years | | $ | 73,631 | |
Exercisable as of February 29, 2020 | | | 4,579,458 | | $ | 4.35 | | | 5.6 years | | $ | 50,573 | |
The Company did not capitalize any stock-based compensation expense to deferred costsaggregate intrinsic value of stock options exercised was $305 and $22,033 for the fiscal years ended February 28, 20182019 and 2019.
The weighted-average grant date fair value forFebruary 29, 2020, respectively. As of February 29, 2020, approximately $12,353 of unrecognized compensation expense related to stock options granted during the fiscal years ended February 28, 2018 and 2019 was $0.41 and $0.59, respectively. The fair valueis expected to be recognized over a weighted average period of the Company's option grants is estimated at the grant date using the Black-Scholes option pricing model based on the following weighted-average assumptions:2.1 years.
| | | | |
| | 2018 | | 2019 |
Estimated fair value of common stock | | $0.39 - $0.47 | | $0.48 - $0.67 |
Exercise price | | $0.84 - $0.93 | | $0.94 - $1.35 |
Expected volatility | | 46% - 52% | | 46% - 52% |
Expected term (in years) | | 6.25 | | 6.25 |
Risk-free interest rate | | 1.84% - 2.51% | | 2.65% - 2.94% |
Dividend yield | | — | | — |
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(8)(9) Stock Options and Warrants (Continued)
The following is a summary of stock option activity under the Option Plan:
| | | | | | | | | | | | | |
| | Stock Options | | Weighted-
Average
Exercise Price | | Weighted
Remaining
Contractual
Life In Years | | Aggregate
Intrinsic
Value | |
Balance, March 1, 2017 | | | 32,689,529 | | | | | | | | | | |
Granted | | | 5,149,000 | | | | | | | | | | |
Exercised | | | (1,116,239 | ) | | | | | | | | | |
Forfeited | | | (1,869,308 | ) | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, February 28, 2018 | | | 34,852,982 | | | | | | | | | | |
Granted | | |
8,175,575 | | |
1.19 | | | | | | | |
Exercised | | | (1,245,216 | ) | | 0.80 | | | | | | | |
Forfeited | | | (1,045,804 | ) | | 0.89 | | | | | | | |
| | | | | | | | | | | | | | |
Balance, February 28, 2019 | | | 40,737,537 | | $ | 0.88 | | | 6.5 years | | $ | 19,025 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Vested and expected to vest as of February 28, 2019 | | | 40,737,537 | | $ | 0.88 | | | 6.5 years | | $ | 19,025 | |
Exercisable as of February 28, 2019 | | | 26,416,622 | | $ | 0.80 | | | 5.4 years | | $ | 14,653 | |
The aggregate intrinsic value of stock options exercised was $305 and $206 for the fiscal years ended February 28, 2019 and 2018, respectively. The total grant date fair value of options vested during the fiscal year ended February 28, 2019 was $2,913. As of February 28, 2019, approximately $7,961 of unrecognized compensation expense related to the Company's stock options is expected to be recognized over a weighted-average period of 1.8 years.
(b) Common Stock Warrants
The following tables summarize the activity for the Company's warrants for the periods presented as well as the number of warrants outstanding and related terms at February 28, 20182019 and 2019:February 29, 2020:
| | | Common Stock
Warrants | | Exercisable | | Exercise
Price | | Expiration
Date | | Common Stock
Warrants | | Exercisable | | Exercise
Price | | Expiration
Date |
Balance, March 1, 2017 | | 4,594,119 | | | | | | | |
Issued | | 55,721 | | | | | | | |
Exercised | | (5,080 | ) | | | | | | | |
| | | | | | | | | | |
Balance, February 28, 2018 | | 4,644,760 | | 4,244,760 | | $0.0001 - $3.59 | | April 2020 - Jan 2027 | | 928,945 | | | | | | |
Issued | | 2,705,883 | | | | | | | | 541,159 | | | | | | |
Exercised | | (20,317 | ) | | | | | | | | (4,061 | ) | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Balance, February 28, 2019 | | 7,330,326 | | 7,130,326 | | $0.0001 - $3.59 | | April 2020 - March 2028 | | 1,466,043 | | | | | | |
Issued | | | 220,594 | | | | | | |
Exercised | | | (33,369 | ) | | | | | | |
| | | | | | | | | | | |
Balance, February 29, 2020 | | | 1,653,268 | | 1,653,268 | | $0.0005 - $23.75 | | April 2020 - October 2029 |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(8) Stock Options and Warrants (Continued)
| | | Number of Warrants
Outstanding at
February 28, | | Exercise | | | | Number of Warrants
Outstanding at
February 28/29, | | Exercise | | |
| | 2018 | | 2019 | | Price | | Expiration Date | | 2019 | | 2020 | | Price | | Expiration Date |
Series E holders | | 3,126,951 | | 5,812,517 | | $0.0001 | | July 2026 - March 2028 | | 1,162,483 | | 1,129,114 | | $0.0005 | | July 2026 - March 2028 |
Series F holders | | | — | | 85,000 | | $0.0005 | | October 2029 |
Customer | | 800,000 | | 800,000 | | $2.75 | | April 2020 | | 160,000 | | 160,000 | | $13.75 | | April 2020 |
Lenders | | 717,809 | | 717,809 | | $0.001 - $3.59 | | Nov 2022 - Jan 2027 | | 143,560 | | 279,154 | | $0.005 - $23.75 | | Nov 2022 - July 2029 |
| | | | | | | | | | | | | | | | | | | | | |
Total | | 4,644,760 | | 7,330,326 | | | | | | 1,466,043 | | 1,653,268 | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
On June 29, 2015, the Company issued a warrant to its initial customer to purchase up to 1,000,000 shares of200,000 common stock.shares. Based on the vesting provisions and the remaining period over which the warrant is exercisable, the maximum number of shares that can vest pursuant to the warrant is 800,000160,000 shares of common stock, of which 400,000120,000 and 600,000160,000 were vested and exercisable as of February 28, 20182019 and 2019,February 29, 2020, respectively. During AprilMarch 2020, the customer exercised all vested warrants which resulted in the issuance of 160,000 shares of common stock.
In connection with the Term Loan amendment, the Company issued a warrant to purchase up to 86,600 shares of the Company's common stock (the 2019 the remaining 200,000 warrant shares becameTerm Loan Warrant) at an exercise price of $9.60 per share. The 2019 Term Loan Warrant vested 100% upon issuance and exercisable.has a ten-year term, ending July 19, 2029. The warrant is exercisable through April 2020. TheCompany calculated the fair value of the warrant shares that vested during 20182019 Term Loan Warrant using the Black-Scholes option pricing model, and the fair value of the 2019 Term Loan
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(9) Stock Options and Warrants (Continued)
Warrant was $8 and $11, respectively, which isdetermined to be $528. This amount was recorded as a debt discount and is being amortized ratably over the Term Loan period.
In connection with the 2019 Revolver, the Company issued the lender warrants to purchase up to 36,363 and 12,631 shares of the Company's common stock (the 2019 Revolver Warrants) at an adjustmentexercise price of $13.75 and $23.75 per share, respectively. The 2019 Revolver Warrants vested 100% upon issuance and have a ten-year term, ending July 19, 2029. The Company calculated the fair value of the 2019 Revolver Warrants using the Black-Scholes option pricing model, and the fair value of the 2019 Revolver Warrants was determined to revenue on the consolidated statements of operations for the respective years then ended.be $251.
(9)(10) Defined Contribution Retirement Plan
The Company sponsors a defined contribution retirement plan named the Accolade, Inc. 401(k) Plan (401(k) Plan). Under the 401(k) Plan, eligible employees may contribute up to the maximum allowed by law. Eligible employees are eligible for Company matching contributions on the first quarter following their one-year anniversary date, which are dollar for dollar up to 3% of an employee's eligible compensation, up to $100 in annual compensation. Employer contributions are vested over a period of four years of service. The 401(k) Plan includes an employer discretionary profit-sharing contribution feature to allow the Company to make a contribution to eligible employees' 401(k) Plan accounts. Profit sharing contributions are vested over a period of four years of service. The Company incurred expenses related to matching contributions totaling $1,057 in 2018 and $1,260 in 2019 and $1,356 in 2020, which were funded subsequent to each respective year-end.
(11) Income Taxes
Loss before income taxes consists of the following components:
| | | | | | | |
| | | Fiscal year
| |
| | | | | | | | |
| | 2019 | | 2020 | |
Domestic | | $ | (56,586 | ) | $ | (51,795 | ) |
Foreign | | | 144 | | | 558 | |
| | | | | | | | |
Total | | $ | (56,442 | ) | $ | (51,237 | ) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(10)(11) Income Taxes (Continued)
Income (loss) before income taxes consists of the following components:
| | | | | | | |
| | | Fiscal
Year Ended
February 28,
| |
| | | | | | | | |
| | 2018 | | 2019 | |
Domestic | | $ | (60,631 | ) | $ | (56,640 | ) |
Foreign | | | (655 | ) | | 144 | |
| | | | | | | | |
Total | | $ | (61,286 | ) | $ | (56,496 | ) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Significant components of income taxes are as follows:
| | | Fiscal
Year Ended
February 28,
| | | Fiscal year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Currently payable: | | | | | | | | | | |
Federal | | $ | — | | $ | — | | | $ | — | | $ | — | |
State and Local | | — | | — | | | — | | — | |
Foreign | | — | | 55 | | | 55 | | 129 | |
| | | | | | | | | | | | | | | |
Total currently payable | | — | | 55 | | | 55 | | 129 | |
| | | | | | | | | | | | | | | |
Deferred: | | | | | | | | | | |
Federal | | — | | — | | | — | | — | |
State and Local | | — | | — | | | — | | — | |
Foreign | | — | | — | | | — | | — | |
| | | | | | | | | | | | | | | |
Total deferred | | — | | — | | | — | | — | |
| | | | | | | | | | | | | | | |
Provision for income taxes | | $ | — | | $ | 55 | | |
Provision (benefit) for income taxes | | | $ | 55 | | $ | 129 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(10) Income Taxes (Continued)
A reconciliation of income tax expense at the U.S. Federal statutory income tax rate to actual income tax provision is as follows:
| | | Fiscal
Year Ended
February 28,
| | | Fiscal year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Federal income tax expense at statutory tax rate | | 31.8 | % | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income taxes, net of federal tax benefit | | 5.2 | | 6.0 | | | 6.0 | | 7.5 | |
Stock-based compensation | | (3.9 | ) | | (2.1 | ) | | (2.1 | ) | | 3.9 | |
Foreign rate benefit | | 0.0 | | 0.0 | | |
Deferred tax rate changes | | (31.2 | ) | | 0.0 | | |
Transaction costs | | | 0.0 | | (0.2 | ) |
Changes in valuation allowances | | (1.9 | ) | | (24.8 | ) | | (24.8 | ) | | (31.4 | ) |
Other | | 0.0 | | (0.2 | ) | | (0.2 | ) | | (1.0 | ) |
| | | | | | | | | | | | | | | |
Effective income tax rate | | 0.0 | % | | (0.1 | )% | |
Effective Income Tax Rate | | | (0.1 | )% | | (0.2 | )% |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Income tax expense for the fiscal yearyears ended February 28, 20182019 and the fiscal year ended February 28, 201929, 2020 differ from the U.S. statutory income tax rate due to certain discrete tax items for remeasurement of deferred income taxes related to tax legislation enactments, changes in valuation allowances, state income taxes and other rate modifying items.stock-based compensation.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act)"Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (i) reducing the U.S. federal corporate tax rate to 21 percent; (ii) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (iii) creating a new limitation on deductible interest expense; (iv) changing rules related to uses and limitations of net operating carryforwards
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(11) Income Taxes (Continued)
created in tax years beginning after December 31, 2017; and (v) changing the U.S. federal taxation of earnings of foreign subsidiaries.
U.S. GAAP accounting for income taxes requiresrequired that the Company record the impact of any tax law change on deferred income taxes in the quarter that the tax law change was enacted. Due to the complexities involved in accounting for the enactment of the Tax Act, SEC Staff Accounting Bulletin (SAB) 118 allowsallowed the Company to provide a provisional estimate of the impacts of the Tax Act in its earnings for the fourth quarter and fiscal year endedending February 28, 2018. The $0.0 net expense in the fiscal year ended February 28, 2018 resulted from the remeasurementIn connection with our adoption of the Company's net deferred tax assets in the U.S. based on the new lower U.S. corporate income tax rate and an identical, offsetting decrease to the Company's valuation allowance. The taxation of earnings of foreign subsidiaries provision from the Tax Act did not impact the Company, as the lone foreign subsidiaryand in consideration of the Company is already treated as a branch for U.S. tax purposes.
The measurement period allowed by SAB 118, ended on December 22, 2018. The Company's accounting analysis has been finalized, andthere were no changes made to the provisional estimate were recorded.
Tableamounts recognized in connection with the enactment of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
the Tax Act. The accounting for the income tax effects of the Tax Act was complete as of February 28, 2018 and 2019
(10) Income Taxes (Continued)2019.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses). The carrying value of deferred tax assets is based on the Company's assessment that it is more likely than not that the Company will realize these assets after consideration of all available positive and negative evidence. TheSignificant components of the Company's deferred tax assets and liabilities at February 28, 20182019, and February 28, 2019 were29, 2020 are as follows:
| | | Fiscal Year Ended
February 28,
| | | Fiscal year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Deferred tax assets: | | | | | | | | | | |
Net operating loss carryforwards | | $ | 42,385 | | $ | 55,664 | | |
Net operating loss and tax credit carryforwards | | | $ | 55,664 | | $ | 76,508 | |
Other accruals and reserves | | 3,625 | | 3,529 | | | 3,529 | | 3,413 | |
Stock-based compensation | | 495 | | 491 | | | 491 | | 561 | |
Deferred rent | | 1,170 | | 1,066 | | | 1,066 | | 1,280 | |
Interest expense deduction limitation carryforward | | 84 | | 742 | | | 742 | | 1,549 | |
Intangibles | | 20 | | 19 | | | 19 | | — | |
Property and equipment | | — | | 252 | | |
Property, plant & equipment | | | 252 | | 526 | |
Other | | 248 | | 139 | | | 139 | | 355 | |
Valuation allowance | | (47,908 | ) | | (61,902 | ) | | (61,902 | ) | | (83,640 | ) |
| | | | | | | | | | | | | | | |
Deferred tax assets | | 119 | | — | | | — | | 552 | |
| | | | | | | | | | | | | | | |
Deferred tax liabilities: | | | | | | | | | | |
Property and equipment | | (119 | ) | | — | | |
Intangibles | | | — | | (552 | ) |
| | | | | | | | | | | | | | | |
Deferred tax liabilities | | (119 | ) | | — | | | — | | (552 | ) |
| | | | | | | | | | | | | | | |
Net deferred tax assets (liabilities) | | $ | — | | $ | — | | |
Net deferred taxes | | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
GrossNet operating loss carryforwards amounted to $0.0 for foreign jurisdictions, $198,900$272,804 for U.S. federal and $189,600$258,875 for U.S. states at February 28, 2019.29, 2020. These operating loss carryforwards related to the 2010 through current 20192020 tax periods. At February 28, 2019,29, 2020, none of the operating loss carryforwards were subject to
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(11) Income Taxes (Continued)
expiration until 2030. The operating loss carryforwards expiring in years 2030 through 2037 make up $44,000$53,184 of the recorded deferred tax asset. The remaining deferred tax asset relating to operating loss carryforwards of $11,700$22,923 have an indefinite expiration. In addition to operating loss carryforwards, research and development tax credit carryforwards amounted to $401 for U.S. federal and U.S. states at February 29, 2020. These tax credit carryforwards will expire in 2036. Under Section 382 of the Internal Revenue Code, the yearly utilization of a corporation's net operating loss carryforwards may be limited following a change in ownership of greater than 50% (by value) over a three-year period. The yearly limitation is based on the value of the corporation immediately before the ownership change multiplied by the federal long-term tax-exempt rate. If a loss is not utilized in a year after an ownership change that yearly limit is carried forward to future years for the balance of the net operating loss carryforward period. As of February 28, 2019,29, 2020, the Company's Section 382 analysisCompany did not yieldincorporate a greater than 50% ownership change, and therefore, the yearly limitation was not applicable.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(10) Income Taxes (Continued)under Section 382.
Management assesses the available positive and negative evidence to estimate if a valuation allowance is required to be recorded against existing deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the Company's brief operating history and the net losses incurred since inception, management does not believe that it is more likely than not that the Company will realize the benefits of these deductible differences. As a result, a full valuation allowance has been provided at February 28, 20182019 and 2019.February 29, 2020.
The changes in the valuation allowance were as follows:
| | | Fiscal Year Ended
February 28,
| | | Fiscal year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Balance at the beginning of the period | | $ | 27,631 | | $ | 47,908 | | | $ | 47,908 | | $ | 61,902 | |
Increase due to NOLs and temporary differences | | 20,277 | | 13,994 | | |
(Decrease) increase due to NOLs and temporary differences | | | 13,994 | | 16,100 | |
(Decrease) increase due to acquisitions | | | — | | 5,638 | |
| | | | | | | | | | | | | | | |
Balance at the end of the period | | $ | 47,908 | | $ | 61,902 | | | $ | 61,902 | | $ | 83,640 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The Company has recorded a deferred tax asset of $742$1,549 for interest expense limited under the Tax Act at February 28, 2019.29, 2020. The interest expense limited has an unlimited carryforward period.
U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over tax basis of the investmentinvestments in foreign subsidiarysubsidiaries that is indefinitely reinvested outside the U.S. The foreign subsidiary is identified as a branch for U.S. tax purposes, and therefore, a gross temporary difference for investment basis differences is not applicable.
The Company had no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company's consolidated balance sheets at February 28, 20182019 and 2019February 29, 2020 and has not recognized any material uncertain tax positions or interest and/or penalties related to income taxes in the consolidated statement of operations for the years ended February 28, 20182019 and 2019.February 29, 2020.
(11) Net Loss Per Share
The following table sets forth the computation of basic and diluted net loss per share:
| | | | | | | |
| | | Fiscal Year Ended
February 28,
| |
| | | | | | | | |
| | 2018 | | 2019 | |
Net loss | | $ | (61,286 | ) | $ | (56,496 | ) |
Net loss per common share, basic and diluted | | $ | (3.28 | ) | $ | (2.43 | ) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted-average shares used to compute net loss per common share, basic and diluted | | | 18,659,570 | | | 23,206,587 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 20182019 and 2019February 29, 2020
(11) Income Taxes (Continued)
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also allows for retroactive accelerated income tax depreciation on certain leasehold improvement assets and changes to the limitations on business interest deductions for tax years beginning in 2019 and 2020 which increases the allowable business interest deduction from 30% to 50% of adjusted taxable income. The Company does not expect a material tax expense or tax benefit as a result of the CARES Act in subsequent periods.
(12) Net Loss Per Common Share (Continued)
The following table sets forth the computation of basic and diluted net loss per common share:
| | | | | | | |
| | | Fiscal year
| |
| | | | | | | | |
| | 2019 | | 2020 | |
Net loss | | $ | (56,496 | ) | $ | (51,365 | ) |
Net loss per common share, basic and diluted | | $ | (12.17 | ) | $ | (9.13 | ) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted-average shares used to compute net loss per common share, basic and diluted | | | 4,641,256 | | | 5,626,713 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As the Company has reported a net losslosses for each of the periods presented, all potentially dilutive securities are antidilutive. The following potential outstanding shares of common stock were excluded from the computation of diluted net loss per common share for the periods presented because including them would have been antidilutive:
| | | Fiscal Year Ended | | | | | | | | |
| | February 28,
| | | Fiscal year
| |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | |
Stock options | | 34,852,982 | | 40,737,537 | | | 8,147,544 | | 7,996,056 | |
Common stock warrants | | 911,442 | | 911,442 | | | 182,288 | | 317,861 | |
| | | | | | | | | | | | | | | |
Total | | 35,764,424 | | 41,648,979 | | | 8,329,832 | | 8,313,917 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Unaudited pro forma basic and diluted net loss per common share for the fiscal year ended February 28, 201929, 2020 has been computed to give effect to the conversion of convertible preferred stock into common stock and related deemed dividend in connection with the initial public offeringInitial Public Offering (IPO) as of the beginning of the period presented or the date of issuance as well as the automatic cashless exercises of warrants to purchase 1,401,836 shares of common stock based on an assumption that the fair market value of the Company's common stock will be equal to the assumed IPO price of $$22.00 per share.share
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(12) Net Loss Per Common Share (Continued)
(exclusive of warrants with nominal exercise prices that are already included in basic loss per share).
The following table sets forth the computation of the unaudited pro forma basic and diluted net loss per share:
| | | Fiscal Year Ended | | | Fiscal Year Ended | |
| | February 28, | | | February 29, | |
| | 2019
| | | 2020
| |
| | | | | | | | | |
Numerator: | | | | | | |
Net loss | | $ | (56,496 | ) | | $ | (51,365 | ) |
Deemed dividend attributable to preferred shareholders | | | (239,294 | ) |
| | | | | | |
Net loss attributable to common stockholders | | | $ | (290,609 | ) |
Denominator: | |
| | | | |
Weighted-average shares used to compute net loss per common share, basic and diluted | | 23,206,587 | | | 5,626,713 | |
Pro forma adjustment to reflect conversion of convertible preferred stock | | | | | 28,964,247 | |
Pro forma adjustment to reflect automatic cashless exercise of warrants | | | | | 42,492 | |
| | | | | | | | | |
Weighted-average shares used to compute pro forma net loss per common share, basic and diluted | | | | | 34,633,452 | |
| | | | | | | | | |
| | | | | | | | | | |
Pro forma net loss per common share, basic and diluted (unaudited) | | | | |
Pro forma net loss per common share, basic and diluted | | | $ | (8.39 | ) |
| | | | | | | | | |
| | | | | | | | | | |
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(12)(13) Commitments
(a) Leases
The Company leases its office premises in Pennsylvania, Washington, Arizona, California and the Czech Republic, pursuant to lease agreements that expire on various dates through 2027.2030. The Company recognizes rent expense under such arrangements on a straight line basis. Rent expense was $4,599$4,294 and $4,294$5,143 for the fiscal years ended February 201828, 2019 and 2019,February 29, 2020, respectively.
On June 21, 2017, the Company entered into an agreement to sublease certain leased office space in its Pennsylvania office space to a subtenant. On December 1, 2017, the Company entered an Assignment and Assumption As of Lease agreement for the subleased space, relieving the Company from all future minimum lease payments. Under the sublease and subsequent Assignment and Assumption agreement, the Company agreed to pay the assignee tenant improvement allowances up to an aggregate amount of $1,190 payable ratably over 60 months, commencing on October 1, 2017. Additionally, Accolade agreed to reimburse the assignee for a portion of the annual common area maintenance costs for the period January 1, 2018 through June 30, 2027. The transaction resulted in a loss of $512 in the Company's consolidated statement of operations for the fiscal year ended February 28, 2018.
As of both2019 and February 28, 2018 and 2019,29, 2020, the Company had security deposits of $460.$460 and $477, respectively. The security deposits are included in other assets on the accompanying consolidated balance sheets.
On May 28, 2019, the Company entered into a new lease for its Seattle office space that expires in 2030. The new lease is subject to both certain early termination rights and an option to extend, as defined in the lease. The lease commencement date was October 1, 2019, and total future payments are $26,028.$25,836. On December 30, 2019, the Company entered into a termination agreement for its prior Seattle office space, with a termination date of December 31, 2019. The Company paid $142 and as a result of the termination has no future obligations under the terms of the agreement.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(13) Commitments (Continued)
The future aggregate minimum lease payments as of under all non-cancelable operating leases (including the Seattle lease discussed above) for the years noted wereare as follows:
| Fiscal Year Ending February 28 (29) | | | | |
2020 | | $ | 4,769 | | |
Fiscal years ending February 28(29), | | | | |
2021 | | 6,805 | | | $ | 6,104 | |
2022 | | 6,850 | | | 6,580 | |
2023 | | 6,487 | | | 6,577 | |
2024 | | 6,629 | | | 6,625 | |
2025 | | | 5,664 | |
Thereafter | | 26,969 | | | 21,516 | |
| | | | | | | | | |
| | $ | 58,509 | | | $ | 53,066 | |
| | | | | | | | | |
| | | | | | | | | | |
During 2013, the Company entered into certain leases related to office furniture and telephone equipment, which have been recorded as capital lease obligations. Minimum future lease payments as of February 28, 2018 and 2019 were $102 and $0, respectively.
(b) Legal Proceedings
The Company is involved in various claims, inquiries and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial position or liquidity.
Table of Contents
Accolade, Inc.
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2018 and 2019
(12) Commitments (Continued)
On August 1, 2017, certain former and current employees filed a suit against the Company seeking back wages for unpaid overtime as a result of alleged misclassification by the Company under the Pennsylvania Minimum Wage Act and the Federal Fair Labor Standards Act. As of February 28, 2018, based upon the facts and circumstances of this suit as well as the resolution of other such similar suits, the Company had determined that it was probable that it had a liability. Accordingly, the Company recorded a litigation expense and related accrued litigation expense in the amount of $650. During March 2019, a settlement agreement (the Settlement Agreement) was executed by both parties in the amount of $1,100, (the Settlement). The Settlement was preliminarily approved by the court and is currently awaiting final approval. A hearing for final approval is scheduled for January 2020. Accordingly, during the fiscal year ended February 28, 2019, the Company recorded additional litigation expense and related accrual in the amount of $450 related to the Settlement.settlement of this matter. The Settlement was ultimately approved by the Court and the Company paid $1,100 during April 2020.
(c) Employment Agreements
Certain officers of the Company have employment agreements providing for severance, continuation of benefits, and other specified rights in the event of termination without cause, including in the event of a change of control of the Company, as defined in the agreements.
(13)(14) Change Healthcare Joint Development Agreement
In February 2020, the Company entered into a joint development agreement, or JDA, and a data licensing agreement with Change Healthcare Holdings, or Change Healthcare, whereby Change Healthcare will be a strategic partner in providing various services to support the Company's Total Care and Provider Services product offerings. Pursuant to the terms of JDA, Change Healthcare is providing intellectual property (IP), technical know-how, and advisory services to the Company as it develops price transparency products under the JDA that will be utilized by
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(Dollar amounts in thousands except share and per share data)
February 28, 2019 and February 29, 2020
(14) Change Healthcare Joint Development Agreement (Continued)
the Company in several of its product offerings. Either party is permitted to sell the price transparency product within each party's respective service offerings. Each party is entitled to a royalty from the other party in connection with any net sales associated with the price transparency product that was developed under the JDA, not to exceed $2,500 in cumulative royalty payments.
Concurrent with entering into the JDA, the Company entered into a five-year data licensing agreement with Change Healthcare who is one of the largest commercially available data set providers of de-identified claims in the United States. The licensing agreement includes annual increases in fees and the option to renew and extend beyond the initial five-year period. The annual licensing fees are subject to increases and decreases and contingent upon the achievement of performance objectives as defined in the data licensing agreement. Upfront payments for data licenses are deferred and will be amortized into cost of revenue, as they pertain to the delivery of the Company's product offerings.
Upon entering into the JDA and data licensing agreement, the Company issued 251,211 restricted shares of its common stock to Change Healthcare at an estimated fair value of $15.40 per share, or $3,869 in aggregate value. Pursuant to the terms of the restricted share agreement, 150,727 of the shares vest immediately and the remaining 100,484 restricted shares will vest upon the achievement of certain product development milestones, as defined. The aggregate equity value was allocated to the JDA and data licensing agreement based on the relative fair value of the IP and technical know-how contributed by Change Healthcare within the JDA and the discounted pricing received from Change Healthcare within the data licensing agreement. Equity value allocated to the JDA and data licensing agreement is capitalized and deferred as internally developed software and other assets within the Company's consolidated balance sheet, respectively with an offsetting increase to additional paid-in capital. Costs that are capitalized and classified as internally developed software will be amortized within depreciation and amortization in the Company's consolidated statement of operations.
(15) Related Party Transactions
Entities affiliated with one of the Company's significant customers own more than 5% of the Company's outstanding stock. RevenueRevenues related to this customer were $34,623$33,433 and $33,433$31,556 during the fiscal years ended February 28, 20182019 and 2019,February 29, 2020, respectively. AccountsThere were no accounts receivable related to this customer was $6,337 and noneoutstanding as of February 28, 20182019 and 2019, respectively.February 29, 2020.
(14)(16) Subsequent Events
(a) Acquisition of MD Insider, Inc.
During July 2019, Due to the government-imposed quarantines and other public health safety measures put into place in March 2020, COVID-19 has caused disruption in the markets where we sell our products and related services. Although the Company acquired MD Insider, Inc. (MDI),has not experienced any significant impact as a California-based company that specializes in data insight and analysisresult of healthcare providers. Thethe COVID-19 pandemic, the Company purchased MDIwill continue to closely monitor for total consideration of $8,000 that was paid inany changes to the form of common stock, cash,Company's operations and the assumptionoperations of liabilities in exchange for all of MDI's outstanding equity interests. Additionally, the Company may be required to pay up to $2,000, also in common stock and cash, should certain performance-based provisions be achieved subsequent to the date of acquisition.
(b) Issuance of Series F Preferred Stock
During October 2019, the Company amended its Certificate of Incorporation to authorize Series F preferred stock (Series F) and issued 4,365,191 shares at $4.5817 per share, which resulted in net cash proceeds of $19,900, after deducting $100 of issuance costs. In connection with this issuance, the Company issued a warrant to purchase 425,000 shares of the Company's common stock that has an exercise price of $0.0001 per share and a term of ten years.our customers.
The Company has evaluated subsequent events from the balance sheet date through December 5, 2019,June 16, 2020, the date of which the consolidated financial statements were available to be issued, and determined there are no other items requiring disclosure.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share and per share data)
| | | February 28,
2019 | | November 30,
2019 | | Pro Forma
November 30,
2019 | | | February 29,
2020 | | August 31,
2020
| |
| | | | | | (unaudited) | | |
| | | | | | | | | |
Assets | | | | | | | | | | | | |
Current assets: | |
| |
| |
| | |
| |
| |
Cash and cash equivalents | | $ | 42,701 | | $ | 39,654 | | $ | 39,654 | | | $ | 33,155 | | $ | 222,111 | |
Accounts receivable | | 371 | | 351 | | 351 | | |
Accounts receivable, net | | | 294 | | 10,661 | |
Unbilled revenue | | 65 | | 33 | | 33 | | | 895 | | 109 | |
Current portion of deferred contract acquisition costs | | 908 | | 1,186 | | 1,186 | | | 1,368 | | 1,709 | |
Current portion of deferred financing fees | | — | | 279 | | 279 | | | 279 | | 233 | |
Prepaid and other current assets | | 2,840 | | 4,704 | | 4,704 | | | 12,944 | | 8,014 | |
| | | | | | | | | | | | | | | | | | |
Total current assets | | 46,885 | | 46,207 | | 46,207 | | | 48,935 | | 242,837 | |
Property and equipment, net | | 15,274 | | 11,811 | | 11,811 | | |
13,625 | |
11,728 | |
Goodwill | | — | | 4,013 | | 4,013 | | | 4,013 | | 4,013 | |
Acquired technology, net | | — | | 2,417 | | 2,417 | | | 2,054 | | 1,329 | |
Deferred contract acquisition costs | | 2,922 | | 3,500 | | 3,500 | | | 3,876 | | 5,607 | |
Other assets | | 681 | | 929 | | 929 | | | 745 | | 1,363 | |
| | | | | | | | | | | | | | | | | | |
Total assets | | $ | 65,762 | | $ | 68,877 | | $ | 68,877 | | | $ | 73,248 | | $ | 266,877 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities, convertible preferred stock and stockholders' deficit | | | | | | | | |
Liabilities, convertible preferred stock and stockholders' equity (deficit) | | | | | | |
Current liabilities: | |
| |
| |
| | |
| |
| |
Accounts payable | | $ | 2,454 | | $ | 5,063 | | $ | 5,063 | | | $ | 5,273 | | $ | 3,811 | |
Accrued expenses | | 3,140 | | 5,361 | | 5,361 | | | 6,580 | | 2,631 | |
Accrued compensation | | 19,612 | | 19,811 | | 19,811 | | | 23,838 | | 24,488 | |
Deferred rent and other current liabilities | | 541 | | 650 | | 650 | | | 674 | | 491 | |
Due to customers | | 8,511 | | 3,690 | | 3,690 | | | 4,674 | | 4,741 | |
Current portion of deferred revenue | | 22,407 | | 38,338 | | 38,338 | | | 28,919 | | 32,773 | |
| | | | | | | | | | | | | | | | | | |
Total current liabilities | | 56,665 | | 72,913 | | 72,913 | | | 69,958 | | 68,935 | |
Loans payable, net of unamortized issuance costs | | 19,200 | | 20,954 | | 20,954 | | | 21,144 | | — | |
Deferred rent and other noncurrent liabilities | | 5,353 | | 5,394 | | 5,394 | | | 5,523 | | 5,516 | |
Deferred revenue | | 501 | | 506 | | 506 | | | 396 | | 322 | |
| | | | | | | | | | | | | | | | | | |
Total liabilities | | 81,719 | | 99,767 | | 99,767 | | | 97,021 | | 74,773 | |
| | | | | | | | | | | | | | | | | | |
Convertible preferred stock: | | | | | | | | | | | | |
Preferred stock par value $0.0001; 97,569,991 shares authorized; 93,204,800 and 97,569,991 issued and outstanding at February 28, 2019 and November 30, 2019, respectively (liquidation value of $239,244 at November 30, 2019) | | 214,664 | | 233,022 | | | | |
Commitments (note 10) | |
| |
| |
| | |
Stockholders' deficit | |
| |
| |
| | |
Common stock par value $0.0001; 200,000,000 shares authorized; 18,083,441 and 23,125,744 shares issued and outstanding at February 28, 2019 and November 30, 2019, respectively | | 1 | | 1 | | | | |
Preferred stock par value $0.0001; 25,000,000 shares authorized; 0 and 19,513,939 issued and outstanding at August 31, 2020 and February 29, 2020, respectively | | | 233,022 | | — | |
Commitments (note 11) | | |
| |
| |
Stockholders' equity (deficit) | | |
| |
| |
Common stock par value $0.0001; 500,000,000 shares authorized; 49,269,342 and 6,033,450 shares issued and outstanding at August 31, 2020 and February 29, 2020, respectively | | | 2 | | 5 | |
Additional paid-in capital | | 38,881 | | 54,816 | | | | | 64,071 | | 542,298 | |
Accumulated deficit | | (269,503 | ) | | (318,729 | ) | | | | | (320,868 | ) | | (350,199 | ) |
| | | | | | | | | | | | | | | | | | |
Total stockholders' deficit | | (230,621 | ) | | (263,912 | ) | | | | |
Total stockholders' equity (deficit) | | | (256,795 | ) | | 192,104 | |
| | | | | | | | | | | | | | | | | | |
Total liabilities, convertible preferred stock and stockholders' deficit | | $ | 65,762 | | $ | 68,877 | | | | |
Total liabilities, convertible preferred stock and stockholders' equity (deficit) | | | $ | 73,248 | | $ | 266,877 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except share and per share data)
| | | Nine months ended
November 30,
| | | Three months ended August 31, | | Six months ended August 31,
| |
| | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020 | | 2019 | | 2020
| |
| | | | | | | | | | | | | | | |
Revenue | | $ | 59,721 | | $ | 88,066 | | | $ | 29,651 | | $ | 36,788 | | $ | 58,414 | | $ | 72,682 | |
Cost of revenue, excluding depreciation and amortization | | 42,945 | | 51,737 | | | 16,764 | | 21,071 | | 34,199 | | 43,310 | |
Operating expenses: | | | | | | | | | | | | | | |
Product and technology | | 25,886 | | 33,595 | | | 11,303 | | 12,236 | | 22,549 | | 23,606 | |
Sales and marketing | | 17,244 | | 23,202 | | | 7,616 | | 7,881 | | 15,278 | | 15,196 | |
General and administrative | | 14,600 | | 20,125 | | | 6,011 | | 6,453 | | 11,574 | | 12,120 | |
Depreciation and amortization | | 6,875 | | 6,415 | | | 2,222 | | 2,049 | | 4,382 | | 3,977 | |
| | | | | | | | | | | | | | | | | | | | | |
Total operating expenses | | 64,605 | | 83,337 | | | 27,152 | | 28,619 | | 53,783 | | 54,899 | |
| | | | | | | | | | | | | | | | | | | | | |
Loss from operations | | (47,829 | ) | | (47,008 | ) | | (14,265 | ) | | (12,902 | ) | | (29,568 | ) | | (25,527 | ) |
Interest expense, net | | (1,643 | ) | | (2,071 | ) | | (701 | ) | | (2,347 | ) | | (1,244 | ) | | (3,629 | ) |
Other expense | | (75 | ) | | (98 | ) | | (46 | ) | | (104 | ) | | (80 | ) | | (119 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Loss before income taxes | | (49,547 | ) | | (49,177 | ) | | (15,012 | ) | | (15,353 | ) | | (30,892 | ) | | (29,275 | ) |
Income tax expense | | — | | (49 | ) | | (14 | ) | | (18 | ) | | (37 | ) | | (56 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Net loss | | $ | (49,547 | ) | $ | (49,226 | ) | | $ | (15,026 | ) | $ | (15,371 | ) | $ | (30,929 | ) | $ | (29,331 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Net loss per common share, basic and diluted | | $ | (2.14 | ) | $ | (1.84 | ) | |
Net loss per share, basic and diluted | | | $ | (2.82 | ) | $ | (0.47 | ) | $ | (6.02 | ) | $ | (1.45 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Weighted-average shares used to compute net loss per common share, basic and diluted | | 23,203,395 | | 26,754,461 | | |
Weighted-average common shares outstanding, basic and diluted | | | 5,336,501 | | 33,029,147 | | 5,141,047 | | 20,277,416 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Pro forma net loss per common share, basic and diluted | | | | $ | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
Pro forma weighted average shares used to compute pro forma net loss per common share, basic and diluted | | | | | | |
| | | | | | | |
| | | | | | |
| | | | | | | |
See accompanying notes to consolidated financial statements.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' DeficitEquity (Deficit) (unaudited)
Nine months ended November 30, 2018 and 2019
(In thousands, except shares)
| | | | | | | | | Stockholders' Deficit
| | | | | | | | | Stockholders' Deficit
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Convertible
Preferred stock | | | | Common stock | | Additional
paid-in | | Accumulated | | | | | Convertible
Preferred stock | | | | Common stock | | Additional
paid-in | | Accumulated | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Amount | | | | Shares | | Amount | | capital | | deficit | | Total
| | | Shares | | Amount | | | | Shares | | Amount | | capital | | deficit | | Total
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, February 28, 2018 | | 82,727,876 | | $ | 167,010 | | | | 16,212,171 | | $ | 1 | | $ | 29,310 | | $ | (213,007 | ) | $ | (183,696 | ) | |
Sale of Series E preferred stock, net | | 10,476,924 | | 47,654 | | | | — | | — | | — | | — | | — | | |
Issuance of common stock warrants in connection with sale of Series E Preferred Stock | | — | | — | | | | — | | — | | 2,279 | | | | 2,279 | | |
Issuance of common stock in lieu of bonus payment | | — | | — | | | | 605,737 | | — | | 569 | | — | | 569 | | |
Balance February 28, 2019 | | | 18,640,901 | | $ | 214,664 | | | | 3,616,549 | | $ | 1 | | $ | 38,881 | | $ | (269,503 | ) | $ | (230,621 | ) |
Exercise of stock options and common stock warrants | | — | | — | | | | 926,839 | | — | | 727 | | — | | 727 | | | — | | — | | | | 90,322 | | — | | 356 | | — | | 356 | |
Stock-based compensation expense | | — | | — | | | | — | | — | | 4,282 | | — | | 4,282 | | | — | | — | | | | — | | — | | 1,436 | | — | | 1,436 | |
Net loss | | — | | — | | | | — | | — | | — | | (49,547 | ) | | (49,547 | ) | | — | | — | | | | — | | — | | — | | (15,903 | ) | | (15,903 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, November 30, 2018 | | 93,204,800 | | $ | 214,664 | | | | 17,744,747 | | $ | 1 | | $ | 37,167 | | $ | (262,554 | ) | $ | (225,386 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, February 28, 2019 | |
93,204,800 | |
$ |
214,664 | | | |
18,083,441 | |
$ |
1 | |
$ |
38,881 | |
$ |
(269,503 |
) |
$ |
(230,621 |
) | |
Sale of Series F preferred stock, net | | 4,365,191 | | 18,358 | | | | — | | — | | — | | — | | — | | |
Issuance of common stock warrants in connection with sale of Series F Preferred Stock | | — | | — | | | | — | | — | | 1,585 | | — | | 1,585 | | |
Balance, May 31, 2019 | | | 18,640,901 | | $ | 214,664 | | | | 3,706,871 | | $ | 1 | | $ | 40,673 | | $ | (285,406 | ) | $ | (244,732 | ) |
Issuance of common stock in connection with acquisition | | — | | — | | | | 1,446,626 | | — | | 6,164 | | — | | 6,164 | | | — | | — | | | | 279,436 | | — | | 6,164 | | — | | 6,164 | |
Issuance of common stock warrants in connection with July 2019 debt | | — | | — | | | | — | | — | | 779 | | — | | 779 | | | — | | — | | | | — | | — | | 779 | | — | | 779 | |
Exercise of stock options and common stock warrants | | — | | — | | | | 3,595,677 | | — | | 2,512 | | — | | 2,512 | | | — | | — | | | | 415,420 | | — | | 1,428 | | — | | 1,428 | |
Stock-based compensation expense | | — | | — | | | | — | | — | | 4,895 | | — | | 4,895 | | | — | | — | | | | — | | — | | 1,895 | | — | | 1,895 | |
Net loss | | — | | — | | | | — | | — | | — | | (49,226 | ) | | (49,226 | ) | | — | | — | | | | — | | — | | — | | (15,026 | ) | | (15,026 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, November 30, 2019 | | 97,569,991 | | $ | 233,022 | | | | 23,125,744 | | $ | 1 | | $ | 54,816 | | $ | (318,729 | ) | $ | (263,912 | ) | |
Balance, August 31, 2019 | | | 18,640,901 | | $ | 214,664 | | | | 4,401,727 | | $ | 1 | | $ | 50,939 | | $ | (300,432 | ) | $ | (249,492 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Stockholders' Equity (Deficit)
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Convertible
Preferred Stock | | | | | Common stock | | | Additional
paid-in | | | Accumulated | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | Amount | | | | | Shares | | | Amount | | | capital | | | deficit | | | Total
| |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance February 29, 2020 | | | 19,513,939 | | $ | 233,022 | | | | | 6,033,450 | | $ | 2 | | $ | 64,071 | | $ | (320,868 | ) | $ | (256,795 | ) |
Exercise of stock options and common stock warrants | | | — | | | — | | | | | 347,807 | | | — | | | 2,999 | | | — | | | 2,999 | |
Stock-based compensation expense | | | — | | | — | | | | | — | | | — | | | 1,259 | | | — | | | 1,259 | |
Net loss | | | — | | | — | | | | | — | | | — | | | — | | | (13,960 | ) | | (13,960 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, May 31, 2020 | | | 19,513,939 | | $ | 233,022 | | | | | 6,381,257 | | $ | 2 | | $ | 68,329 | | $ | (334,828 | ) | $ | (266,497 | ) |
Exercise of stock options and common stock warrants | | | — | | | — | | | | | 383,575 | | | — | | | 1,726 | | | — | | | 1,726 | |
Issuance of common stock in initial public offering, net of issuance costs of $4,596 | | | — | | | — | | | | | 11,526,134 | | | 1 | | | 231,227 | | | — | | | 231,228 | |
Conversion of preferred stock into common stock | | | (19,513,939 | ) | | (233,022 | ) | | | | 29,479,521 | | | 2 | | | 233,020 | | | — | | | 233,022 | |
Automatic exercise of warrants into common stock in connection with initial public offering | | | — | | | — | | | | | 1,401,836 | | | — | | | — | | | — | | | — | |
Issuance of stock options to satisfy bonus obligation | | | — | | | — | | | | | — | | | — | | | 5,735 | | | — | | | 5,735 | |
Issuance of common stock in connection with 2019 acquisition | | | — | | | — | | | | | 97,019 | | | — | | | 156 | | | — | | | 156 | |
Stock-based compensation expense | | | — | | | — | | | | | — | | | — | | | 2,105 | | | — | | | 2,105 | |
Net loss | | | — | | | — | | | | | — | | | — | | | — | | | (15,371 | ) | | (15,371 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, August 31, 2020 | | | — | | $ | — | | | | | 49,269,342 | | $ | 5 | | $ | 542,298 | | $ | (350,199 | ) | $ | 192,104 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
Table of Contents
ACCOLADE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
| | | Nine months ended
November 30,
| | | Six months ended
August 31, | |
|---|
| | | | | | | | |
| | 2018 | | 2019
| | | 2019 | | 2020 | |
|---|
| | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | |
Net loss | | $ | (49,547 | ) | $ | (49,226 | ) | | $ | (30,929 | ) | $ | (29,331 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Adjustments to reconcile net loss to net cash used in Operating activities: | | | | | | |
Depreciation and amortization expense | | 6,875 | | 6,415 | | | 4,382 | | 3,977 | |
Amortization of deferred contract acquisition costs | | | 460 | | 740 | |
Noncash interest expense | | 302 | | 533 | | | 265 | | 1,316 | |
Noncash bonus | | 569 | | — | | |
Stock-based compensation expense | | 4,282 | | 4,895 | | | 3,331 | | 3,364 | |
Changes in operating assets and liabilities: | | | | | | | | | | |
Accounts receivable and unbilled revenue | | 6,316 | | 123 | | | 149 | | (9,581 | ) |
Accounts payable and accrued expenses | | 1,534 | | 4,408 | | | 409 | | (806 | ) |
Amortization of deferred contract costs, net | | (1,887 | ) | | (856 | ) | |
Deferred revenue and due to customer | | 15,284 | | 10,832 | | |
Deferred contract acquisition costs | | | (712 | ) | | (2,812 | ) |
Deferred revenue and due to customers | | | 4,824 | | 3,847 | |
Accrued compensation | | (1,578 | ) | | 187 | | | (1,439 | ) | | 6,580 | |
Deferred rent and other liabilities | | (338 | ) | | 106 | | | (157 | ) | | (212 | ) |
Other assets | | 392 | | (1,400 | ) | | (985 | ) | | (437 | ) |
| | | | | | | | | | | | | | | |
Net cash used in operating activities | | (17,796 | ) | | (23,983 | ) | | (20,402 | ) | | (23,355 | ) |
| | | | | | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | |
Capitalized software development costs | | (1,943 | ) | | — | | | — | | (374 | ) |
Purchases of property and equipment | | (922 | ) | | (2,469 | ) | | (1,064 | ) | | (981 | ) |
Net cash acquired in acquistion of MD Insider | | — | | (206 | ) | |
Net cash acquired in acquisition of MD Insider | | | (206 | ) | | — | |
Earnout payments to MD Insider | | | — | | (58 | ) |
| | | | | | | | | | | | | | | |
Net cash used in investing activities | | (2,865 | ) | | (2,675 | ) | | (1,270 | ) | | (1,413 | ) |
| | | | | | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | |
Proceeds from sale of preferred stock, net | | 49,933 | | 19,943 | | |
Proceeds from IPO, net of underwriters' discounts and commissions and offering costs | | | — | | 231,675 | |
Proceeds from stock option and warrant exercises | | 727 | | 2,008 | | | 1,241 | | 4,802 | |
Proceeds from borrowings on debt, net of issuance costs | | 3,000 | | 1,660 | | |
Repayment of debt principal | | (5,000 | ) | | — | | |
Principal payments under capital leases | | (102 | ) | | — | | |
Proceeds from borrowings on debt | | | 1,660 | | 51,166 | |
Repayments of debt principal | | | — | | (73,166 | ) |
Payments related to debt retirement | | | — | | (753 | ) |
| | | | | | | | | | | | | | | |
Net cash provided by financing activities | | 48,558 | | 23,611 | | | 2,901 | | 213,724 | |
| | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | 27,897 | | (3,047 | ) | | (18,771 | ) | | 188,956 | |
Cash and cash equivalents, beginning of period | | 13,534 | | 42,701 | | | 42,701 | | 33,155 | |
| | | | | | | | | | | | | | | |
Cash and cash equivalents, end of period | | $ | 41,431 | | $ | 39,654 | | | $ | 23,930 | | $ | 222,111 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Supplemental cash flow information: | | �� | | | | | | | | |
Interest paid | | $ | 1,813 | | $ | 1,790 | | | $ | 1,201 | | $ | 2,194 | |
Issuance of common stock in lieu of cash bonus | | $ | 569 | | $ | — | | |
Fixed assets included in accounts payable | | $ | 206 | | $ | 126 | | | $ | 248 | | $ | 48 | |
Other receivable related to stock option exercises | | $ | — | | $ | 504 | | | $ | 543 | | $ | 108 | |
Income taxes paid | | $ | — | | $ | 55 | | | $ | 55 | | $ | 105 | |
Common stock issued in connection with acquisition | | $ | — | | $ | 6,164 | | |
Common stock warrants issued in connection with debt | | $ | — | | $ | 779 | | |
Offering costs included in accounts payable and accrued expenses | | | $ | — | | $ | 312 | |
Bonus settled in the form of stock options | | | $ | — | | $ | 5,735 | |
See accompanying notes to consolidated financial statements.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(1) Background
(a) Business
Accolade, Inc.The entity was initially organized as a limited liability company under the name Accretive Care LLC in Delaware on January 23, 2007. On June 14, 2010, the companyentity converted from a limited liability company to a Delaware corporation and changed its name to Accolade, Inc.Inc (Accolade or the Company). Accolade's offices and operations are in Seattle, Washington; Plymouth Meeting, Pennsylvania; Scottsdale, Arizona; Santa Monica, California; and Prague, Czech Republic.
On February 6, 2016, Accolade established a wholly owned subsidiary in the Czech Republic and on July 31, 2019, Accolade acquired all the equity interests of a Delaware corporation (together with Accolade, the Company), and their results of operations have been included in the consolidated financial statements since those respective dates.
The Company provides personalized, technology-enabled solutions that help people better understand, navigate, and utilize the healthcare system and their workplace benefits. The Company's customers are primarily employers that contract with Accolade to provide their employees and their employees' families (the members) a single place to turn for their health, healthcare, and benefits needs. The service is designed to drive better healthcare outcomes and increased satisfaction for the participants while lowering costs for the payor. The Company provides its services to customers throughout the United States.
(b) LiquidityCOVID-19
TheDue to the government-imposed quarantines and other public health safety measures put into place in March 2020, COVID-19 has caused disruption in the markets where the Company sells its offerings and related services. Although the Company has incurred net losses and cumulative negative cash flows from operations since inception. To date,not experienced any significant financial impact as a result of the COVID-19 pandemic, the Company will continue to closely monitor for any changes to the Company's operations have been funded by capital raised from investors, debt facilities, and revenues in the normal courseoperations of business. Management believes that the Company's cash and cash equivalents at November 30, 2019, plus customer revenues and advances and available borrowings under its debt facility, are sufficient to fund its operations through at least the next 12 months. Additional financing may be required forour customers.
(c) Initial Public Offering
On July 7, 2020, the Company closed its initial public offering of common stock (IPO) in which the Company issued and sold 11,526,134 shares (inclusive of the underwriters' over-allotment option to successfully implement its long-term strategy. There can be no assurance thatpurchase 1,503,408 shares) of common stock at $22.00 per share. The Company received net proceeds of $231,228 after deducting underwriting discounts and commissions, as well as offering costs of $4,596, of which $4,284 was paid as of August 31, 2020. Upon the closing of the IPO, all shares of outstanding convertible preferred stock converted into 29,479,521 shares of common stock, and an additional financing, if needed, can be obtained on terms acceptable to1,401,836 shares of common stock were issued upon the Company.automatic net exercise of warrants then outstanding.
(2) Basis of Presentation and Summary of Significant Accounting Policies
The Company's significant accounting policies are disclosed in the audited financial statements for the year ended February 29, 2020 appearing in the Company's Final Prospectus for our IPO, dated as of July 1, 2020 and filed with the Securities and Exchange Commission (the SEC) pursuant to Rule 424(b)(4) on July 2, 2020. Since the date of those audited financial statements,
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(in thousands except share and per share data)
(2) Basis of Presentation and Summary of Significant Accounting Policies (Continued)
there have been no changes to the Company's significant accounting policies, other than those detailed below.
(a) Basis of Presentation and Principles of Consolidation
Accolade's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the Company's accounts and those of the Company's wholly owned subsidiaries located in Prague, Czech Republic and California.subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
During 2019 the Company changed its fiscal year end from December 31 to the last calendar day of February.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies (Continued)
(b) Unaudited interim financial statementsInterim Financial Statements
The accompanying consolidated balance sheet as of November 30, 2019,financial statements of operations and statements of cash flows for the nine months ended November 30, 2018 and 2019, the statements of convertible preferred stock and stockholders' deficit for the nine months ended November 30, 2018 and 2019 and the related footnote disclosures are unaudited. The unaudited consolidated interim financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company's interim consolidated financial position as of November 30, 2019August 31, 2020 and the results of its operations and its cash flows for the ninethree and six months ended November 30, 2018August 31, 2020 and 2019. The results for the ninethree and six months ended November 30, 2019August 31, 2020, are not necessarily indicative of results to be expected for the fiscal year ending February 29, 2020,28, 2021, any other interim periods, or any future year or period. The Company's management believes that the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited financial statements and accompanying notes for the fiscal year ended February 28, 2019.29, 2020.
(c) Unaudited pro forma financial informationCapitalized Internal-Use Software Costs
On December 4,Costs related to software acquired, developed, or modified solely to meet the Company's internal requirements, including tools that enable the Company's employees to interact with members and their providers, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during the post-implementation operational stage are expensed as incurred.
Costs related to minor upgrades, minor enhancements, and maintenance activities are expensed as incurred. Costs incurred during the application development stage of the project are capitalized.
Internal-use software is included in property and equipment and is amortized on a straight-line basis over 3 years.
For the three months ended August 31, 2020 and 2019, the board of directors authorized managementCompany capitalized $85 and $0, respectively, for internal-use software. For the six months ended August 31, 2020 and 2019, the Company capitalized $374 and $0, respectively, for internal-use software. Amortization expense related to confidentially submit a registration statement to the Securities and Exchange Commission to potentially sell shares of common stock to the public. The accompanying unaudited pro forma balance sheet as of November 30, 2019 has been prepared to give effect to (i) the conversion of all outstanding shares of Series A through Series F redeemable convertible preferred stock into shares of common stock upon the closing of the Company's initial public offering (IPO) and (ii) the automatic cashless exercise of warrants to purchase common stock. In the statements of operations, unaudited pro forma basic and diluted net loss per common share has been prepared to give effect to (i) the automatic conversion of all outstanding shares of preferred stock upon the closing of the proposed initial public offering, as if the conversion occurred as of the beginning of the reporting period or the date of original issuance, if later and (ii) the automatic cashless exercise of warrants to purchase common stock upon the closing of the proposed initial public offering, as if the exercise occurred as of the beginning of the reporting period or the date of original issuance, if later. See Note 9.
(d) Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including the fair value of assets acquired and liabilities assumed for business combinations, unbilled revenues and deferred revenues, certain accrued expenses, stock-based compensation, assessment of the useful life and recoverability of long-lived assets, income taxes, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expensescapitalized internal-use software during the reporting period. Tothree months ended August 31, 2020 and 2019 was $1,120 and $1,054, respectively. Amortization expense related to capitalized internal-use software during the extentsix months ended August 31, 2020 and 2019 was $2,131 and $2,431, respectively.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018(2) Basis of Presentation and 2019)
(2) Summary of Significant Accounting Policies (Continued)
there are material differences between these estimates, judgments, or assumptions and actual results, the Company's financial statements will be affected.
(e) Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including cash equivalents, accounts receivable, unbilled revenue, other current assets, accounts payable, and accrued expenses approximates fair value due to the short-term nature of those instruments.
The Company measures financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Inputs that are generally unobservable and typically reflect the Company's estimate of assumptions that market participants would use in pricing the asset or liability.
(f) Impairment of Long-Lived Assets
The Company reviews long-lived assets, such as property and equipment and acquired technology, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, then an impairment charge is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset. There were no events or changes in business circumstances during the nine months ended November 30, 2018 and 2019, that indicated the carrying amounts of any long-lived assets were not fully recoverable.
(g)(d) Intangible Assets
As part of the acquisition of MDIMD Insider, Inc. (MDI) in July 2019 (Note 3)4), the Company acquired an intangible asset in the form of acquired technology in the amount of $2,900. This intangible asset is subject to amortization and is being amortized on the straight-line basis over its estimated useful life of two years. Amortization expense related to the intangible asset was $362 and $121 during the three months ended August 31, 2020 and 2019, respectively, and $724 and $121 during the six months ended August 31, 2020 and 2019, respectively.
(e) Concentration of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. The Company recognized $483maintains its cash primarily with domestic financial institutions of high credit quality, which may exceed federal deposit insurance corporation limits. The Company invests its cash equivalents in amortization expensehighly rated money market funds. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents and performs periodic evaluations of the credit standing of such institutions.
Significant customers are those which represent 10% or more of the Company's revenue during the nine months endedperiods. For each significant customer, revenue as a percentage of total revenue was as follows:
| | | | | | | | | | | | | |
| | | For the three months ended August 31, | | | For the six months ended August 31,
| |
| | | | | | | | | | | | | | |
| | | 2019 | | | 2020 | | | 2019 | | | 2020
| |
| | | | | | | | | | | | | | |
Customer 1 | | | 27 | % | | 14 | % | | 27 | % | | 17 | % |
Customer 2 | | | 11 | % | | 12 | % | | 12 | % | | 12 | % |
Customer 3 | | | 11 | % | | 11 | % | | 11 | % | | 11 | % |
| | | | | | | | | | | | | | |
Total | | | 49 | % | | 37 | % | | 50 | % | | 40 | % |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Accounts receivable outstanding related to these customers at August 31, 2020 was as follows:
| | | | |
| | | August 31, 2020
| |
| | | | | |
Customer 1 | | $ | — | |
Customer 2 | | | — | |
Customer 3 | | | 6,670 | |
(f) Deferred Offering Costs
The Company capitalized certain legal, accounting and other third-party fees that were directly associated with the IPO as deferred offering costs until the IPO was completed in July 2020. Upon
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018(2) Basis of Presentation and 2019)
(2) Summary of Significant Accounting Policies (Continued)
November 30, 2019. The carrying valuethe completion of the acquired technology was $2,417IPO, total deferred costs of $4,596 were recorded in stockholders' equity (deficit) as a reduction of additional paid-in-capital. Deferred offering costs were $0 and $3,042 at November 30, 2019.August 31, 2020 and February 29, 2020, respectively, and were included within prepaid and other current assets on the accompanying consolidated balance sheet at February 29, 2020. As of August 31, 2020, $312 of deferred costs were included in accounts payable and accrued expenses.
(h) Goodwill
Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed. Goodwill is not amortized, but is subject to an annual impairment test. The Company has a single reporting unit and all goodwill relates to that reporting unit.
The Company performs its annual goodwill impairment test on an annual basis on the fourth quarter of each fiscal year or more frequently if changes in circumstances or the occurrence of events suggest that an impairment exists. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the reporting unit's goodwill is less than the carrying value of the reporting unit's goodwill. The Company did not recognize any impairment of goodwill during the nine months ended November 30, 2019.
(i) Revenue and Deferred Revenue(g) New Accounting Pronouncements Not Yet Adopted
During Leases: In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). In July 2018, the Company adopted Accounting Standards FASB issued ASU No. 2018-10, Codification (ASC) 606,Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which affect certain aspects of the previously issued guidance. In December 2018, the FASB issued ASU No. 2018-20, Narrow-Scope Improvements for Lessor, Leases (Topic 842), which provides guidance on sales tax and other taxes collected from lessees. In March 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Topic 842, Leases, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities, usingwhich delayed the full retrospective method. Accordingly,adoption period of Topic 842. The guidance (collectively ASC 842) will require lessees to put all leases on their balance sheets, whether operating or financing, while continuing to recognize the amountsexpenses on their income statements in a manner similar to current practice. ASC 842 states that a lessee would recognize a lease liability for all periods presented herein have been adjustedthe obligation to reflectmake lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASC 842 is effective for the Company for fiscal year ending February 28, 2023. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of ASC 606.adoption.
Credit Losses: In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces the current expected credit loss (CECL) model, which will require entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. ASU 2016-13 is effective for the Company for fiscal year ending February 28, 2023. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Internal Use Software: In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. This ASU is effective for the fiscal year ending February 28, 2022, and interim periods within the fiscal year ending February 28, 2023. Early
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Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(in thousands except share and per share data)
(2) Basis of Presentation and Summary of Significant Accounting Policies (Continued)
adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
(3) Revenue
The Company earns revenue from its customers by providing personalized health guidance solutions to members. The Company's solutions allow its members to interact with its Accolade Health Assistants and clinicians through various means of communication, including telephony and secure messaging and via its mobile application and member portal. The Company prices its personalized health guidance solutions using a recurring per-member-per-month fee (PMPM), typically with a portion of the fee calculated as the product of a fixed rate times the number of eligible members (fixed PMPM fee), plus a variable PMPM fee calculated as the product of a variable rate times the number of eligible members (variable PMPM fee). The fees associated with the variable PMPM fee can be earned through the achievement of performance metrics and/or the realization of healthcare cost savings resulting from the utilization of the Company's services. Collectively, the fixed PMPM fee and variable PMPM fee are referred to as the total PMPM fee. The Company's PMPM pricing varies by contract. In certain contracts, the maximum total PMPM fee varies during the contract term (total PMPM rate increases or decreases annually), while in other contracts, the total PMPM maximum fee is consistent over the term, yet the fixed and variable portions vary. For example, in certain contracts the fixed PMPM fee increases on an annual basis while the variable PMPM fee decreases on an annual basis, resulting in the same total PMPM fee throughout the term of the contract.
Under ASC 606, the Company recognizes revenue when control of the promised services is transferred to its customers, in an amount that reflects the consideration to which it expects to be
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies (Continued)
entitled in exchange for those services. Accordingly, the Company determines revenue recognition through the following steps:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, the Company satisfies a performance obligation
At contract inception, the Company assesses the type of services being provided and assesses the performance obligations in the contract. The Company's contracts for personalized health guidance solutions generally include two performance obligations: stand ready services as discussed in the following sentence and reporting. The majority of the Company's contracts include stand ready services to provide eligible participants with access to the Company's services and to perform an unspecified quantity of interactions with members during the contract period. Accordingly, the Company's services are generally viewed as stand ready performance obligations comprised of a series of distinct daily services that are substantially the same and have the same pattern of transfer. For the stand ready services, the Company satisfies these performance obligations over time and recognizes revenue related to its services as the services are provided using a measure of progress based upon the actual number of members eligible for the service during the respective period as a percentage of the estimated members expected to be eligible for the service over the term of the contract. The Company believes a measure of progress based on the number of members is the most appropriate measurement of control of the services being transferred to the customer as the amount of internal resources necessary to stand ready is directly correlated to the number of members who can use the services.
The Company's personalized health guidance solutions also include a distinct performance obligation related to reporting, which is provided to the customer on a daily, monthly, and/or quarterly basis and provides the customer with insights into various operational data and performance metrics. Although reporting is performed separately over regular intervals during the term of contract period, the Company recognizes revenue in a similar pattern of recognition and using a similar measure of progress as its stand ready services because the reporting services are performed evenly throughout the term of the contract. Revenues related to reporting services were not material for the nine months ended November 30, 2019 and 2018.
Some contracts contain an additional performance obligation, pre-launch open enrollment, for which the performance obligation is satisfied before the launch of In addition, the Company's primary service. For contracts thatmay include pre-launch open enrollment support, the Company recognizes related revenues over the pre-launch open enrollment period based on the number of eligible members.
The transaction price is allocated to theadditional add-on services as separate performance obligations on a relative standalone selling price basis. The Company determinesthat are also considered stand ready services. These add-on services have the standalone selling prices based on overall pricing objectives, taking into consideration market conditionssame pattern of transfer and other factors, using anrevenue recognition as discussed above.
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Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies (Continued)
expected cost plus margin approach. The Company considered the variable consideration allocation exception in ASC 606 and concluded that such exception for allocating variable consideration to distinct performance obligations or distinct time periods within a series was not met primarily due to variability in its PMPM pricing.
The majority of fees earned by the Company are considered to be variable consideration due to both the uncertainty regarding the total number of members for which the Company will invoice the customer, as well as the variable PMPM fees that are dependent upon the achievement of performance metrics and/or healthcare cost savings. Performance metrics are either measured monthly, quarterly or, annually, and with respect to the achievement of healthcare cost savings targets, annually (typically measured on a calendar year basis). Accordingly, at contract inception and on an ongoing basis, as part of the Company's estimate of the transaction price, the Company determines whether any such fees should be constrained, and the Company includes the estimated consideration for those fees for which a significant reversal of cumulative revenue is not probable (and is therefore considered to be unconstrained). Consideration related to the Company's achievement of healthcare cost savings is typically constrained until the end of the applicable calendar year due to uncertainty related to factors outside of the Company's control. Consideration related to other performance metrics is typically not constrained based on the Company's prior success of achieving such metrics. On an ongoing basis, the Company reassesses its estimates for variable consideration, which can change based upon its assessment of the achievement of performance metrics and healthcare cost savings, as well as the number of members.
The Company typically invoices its customers in advance of the services performed on a monthly or quarterly basis, and the amount invoiced typically represents the maximum total PMPM fee for the estimated number of eligible members over the applicable invoice period. The total PMPM fee covers both the stand ready services and reporting services in the Company's typical contracts (i.e., the performance obligations are not separately priced or invoiced). The maximum total PMPM fee that is invoiced includes both the fixed PMPM fee and the variable PMPM fee related to the performance metrics and/or the realization of healthcare cost savings that can be achieved during the period. These fees are classified as deferred revenue on the Company's consolidated balance sheet until such time that revenue can be recognized. In the event the Company fails to satisfy any of the performance metrics and/or realization of healthcare cost savings that are billed in advance, the Company will refund the applicable portion of the fee or offset the amount against a future invoice. These amounts are included in Due to Customers on the Company's consolidated balance sheet. The Company's accounts receivable represent rights to consideration that are unconditional.
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies(3) Revenue (Continued)
As of November 30, 2019, $165,925August 31, 2020, $227,365 of revenue is expected to be recognized from remaining performance obligations and is expected to be recognized as follows:
| Fiscal periods ending February 28(29), | | | | |
For the three months ending February 29, 2020 | | $ | 29,987 | | |
2021 | | 88,294 | | |
Fiscal year ending February 28(29), | | | | |
Remainder of 2021 | | | $ | 77,630 | |
2022 | | 33,937 | | | 104,703 | |
2023 | | 11,576 | | | 35,033 | |
2024 | | 2,131 | | | 9,999 | |
| | | | | | | | | |
Total | | $ | 165,925 | | | $ | 227,365 | |
| | | | | | | | | |
| | | | | | | | | | |
The expected revenue includes variable fee estimates for the non-cancellable term of the Company's contracts. The expected revenue does not include amounts of variable consideration that are constrained.
Significant changes in the deferred revenue balances during the ninesix months ended November 30, 2018August 31, 2020 and 2019 were the result of recognized revenue of $8,673$23,725 and $20,166$19,225 respectively, that were previously included in deferred revenue.
Adjustments to transaction price estimatesRevenue related to performance obligations satisfied in prior periods were $1,151 and $2,266that was recognized during the ninethree months ended November 30, 2018August 31, 2020 and 2019 was $1,535 and $689, respectively. Revenue related to performance obligations satisfied in prior periods that was recognized during the six months ended August 31, 2020 and 2019 was $3,014 and $1,084, respectively. These amounts relate to prior changes in estimates that were primarily due to the inclusion of consideration that was previously constrained related to the Company's achievement of healthcare cost savings.
Cost to obtain and fulfill a contract
The Company capitalizes sales commissions paid to internal sales personnel that are both incremental to the acquisition of customer contracts and recoverable. These costs are recorded as deferred contract acquisition costs in the accompanying consolidated balance sheets. The Company capitalized commission costs of $1,806$1,999 and $973$229 for the ninethree months ended November 30, 2018August 31, 2020 and 2019, respectively. The Company capitalized commission costs of $2,502 and $523 for the six months ended August 31, 2020 and 2019, respectively. The Company defers costs based on its sales compensation plans only if the commissions are incremental and would not have occurred absent the customer contract. Payments to direct sales personnel are typically made in two increments as follows: 75% upon signature of the contract, with the remaining 25% upon customer launch. The Company does not pay commissions on contract renewals.
Deferred commissions paid on the initial acquisition of a contract are amortized ratably over an estimated period of benefit of five years, which is the estimated customer life. The Company determined the period of amortization for deferred commissions by taking into consideration current customer contract terms, historical customer retention, and other factors. Amortization is included in sales and marketing expenses in the accompanying consolidated statements of operations and totaled $207$237 and $474$158 for the ninethree months ended November 30, 2018August 31, 2020 and 2019, respectively. The Company periodically reviews deferred contract acquisition costs to determine whether events orAmortization is included in sales and marketing expenses in the accompanying consolidated
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Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies(3) Revenue (Continued)
statements of operations and totaled $470 and $314 for the six months ended August 31, 2020 and 2019, respectively. The Company periodically reviews deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the estimated period of benefit. There were no impairment losses recorded during the periods presented.
For certain customer contracts, the Company may incur direct and incremental costs related to customer set-up and implementation. The Company recorded deferred implementation costs of $502$166 and $578$138 for the ninethree months ended November 30, 2018August 31, 2020 and 2019, respectively. The Company recorded deferred implementation costs of $310 and $189 for the six months ended August 31, 2020 and 2019, respectively These implementation costs are deferred and amortized over the expected useful life of the Company's customers, which is five years. Amortization is included in cost of revenues in the Company's consolidated statements of operations and totaled $215$110 and $228$75 for the ninethree months ended November 30, 2018August 31, 2020 and 2019, respectively, and $270 and $146 for the six months ended August 31, 2020, respectively.
(j) Concentration of Credit Risk
Financial instruments that potentially subject us to credit risk consist principally of cash and cash equivalents. The Company maintains its cash primarily with domestic financial institutions of high credit quality, which may exceed federal deposit insurance corporation limits. The Company invests its cash equivalents in highly rated money market funds. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents and perform periodic evaluations of the credit standing of such institutions.
Significant customers are those which represent 10% or more of the Company's revenue during the period. For each significant customer, revenue as a percentage of total revenue was as follows:
| | | | | | | |
| | | Revenue For
the nine
months ended
November 30,
| |
| | | | | | | | |
| | 2018 | | 2019 | |
Customer 1 | | | 33 | % | | 27 | % |
Customer 2 | | | 16 | % | | 12 | % |
Customer 3 | | | 13 | % | | 9 | % |
Customer 4 | | | 0 | % | | 11 | % |
| | | | | | | | |
Total | | | 62 | % | | 59 | % |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As of November 30, 2018, there was $60 due from Customer 1. As of November 30, 2019, there was $268 due from Customer 1 and $10 due from Customer 4.
(k) Segments
The Company's chief operating decision maker, its Chief Executive Officer, reviews the financial information presented on a consolidated basis for purposes of allocating resources and
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies (Continued)
evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable operating segment.
As of February 28, 2019 and November 30, 2019, substantially all of Accolade's long-lived assets were located in the United States, and all revenue was earned in the United States.
(l) Deferred offering costs
The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financing as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs will be recorded in stockholders' deficit as a reduction of additional paid-in-capital generated as a result of the offering. Should the equity financing no longer be considered probable of being consummated, all deferred offering costs would be charged to operating expenses in the statement of operations. Deferred offering costs were $1,478 at November 30, 2019 and are included within Prepaid and other current assets on the accompanying consolidated balance sheet.
(m) Recently Issued Accounting Pronouncements
Stock-Based Compensation: In May 2017, the FASB issued ASU No. 2017-09,Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting, which provides clarity in applying the guidance in Topic 718 around modifications of stock-based payment awards. The Company adopted this ASU on March 1, 2018. In June 2018, the FASB issued ASU No. 2018-07,Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to the nonemployees with the requirements for share-based payments granted to employees. The standard is effective for the Company for fiscal year ending February 29, 2020. Early adoption is permitted, but no earlier than a company's adoption date of ASC 606. The Company adopted this ASU on March 1, 2018. There was no material impact on the Company's consolidated financial statements related to the adoption of either standard.
(n) New Accounting Pronouncements Not Yet Adopted
Leases: In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, and ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which affect certain aspects of the previously issued guidance. In December 2018, the FASB issued ASU No. 2018-20, Narrow-Scope Improvements for Lessor, Leases (Topic 842), which provides guidance on sales tax and other taxes collected from lessees. In March 2019, the FASB issued ASU No. 2019-01, Codification Improvements to Topic 842, Leases, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The guidance (collectively
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(2) Summary of Significant Accounting Policies (Continued)
ASC 842) will require lessees to put all leases on their balance sheets, whether operating or financing, while continuing to recognize the expenses on their income statements in a manner similar to current practice. ASC 842 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. ASC 842 is effective for the Company for fiscal year ended February 28, 2022. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Credit Losses: In June 2016, the FASB issued ASU No. 2016-13Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces the current expected credit loss (CECL) model, which will require entities to estimate an expected lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings. ASU 2016-13 is effective for the Company for fiscal year ended February 28, 2023. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
Internal Use Software: In August 2018, the FASB issued ASU No. 2018-15,Intangibles — Goodwill and Other-Internal-Use Software (Subtopic 350-40):Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. This ASU is effective for the fiscal year ending February 28, 2022, and interim periods within the fiscal year ending February 28, 2023. Early adoption is permitted. The Company is evaluating the accounting, transition and disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
(3)(4) Acquisition of MD Insider
On July 31, 2019, the Company acquired the outstanding equity interests of MDI. Based in California, MDI is a provider of machine learning-enabled physician performance transparency. The following table summarizes the purchase consideration paid to MDI:
| | | | |
Consideration Paid | | | | |
Cash consideration | | $ | 324 | |
Estimated fair value of equity issued | | | 5,114 | |
Estimated fair value of contingent consideration | | | 1,050 | |
| | | | | |
Total consideration paid | | $ | 6,488 | |
| | | | | |
| | | | | |
| | | | | |
The aggregate purchase price consideration of $6,488 was paid primarily through the issuance of 1,821,451up to 462,691 shares of the Company's common stock, of which 1,446,626386,339 and 289,320 were issued as
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Accolade, Inc.August 31, 2020 and Subsidiaries
NotesFebruary 29, 2020, respectively, with the remaining shares issuable subject to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except sharecertain working capital and per share data)
November 30, 2018 and 2019)
(3) Acquisition of MD Insider (Continued)
of November 30, 2019.indemnity adjustments (if applicable). Shareholders arewere eligible to receive 503,204100,607 additional shares of the Company's common stock upon the completion of the cost transparencya platform solution, as defined in the purchase agreement on or prior(MDI Earnout). The deadline to complete the cost transparency platform solution in order to qualify for the MDI Earnout was initially March 1, 2020, (MDI Earnout). The estimated fair valueand was subsequently extended to July 1, 2020, by which time it had been earned. During August 2020, the Company issued 96,487 shares of the Company's common stock andin connection with the MDI Earnout, was $5,114 and $1,050, respectively.with the remaining 4,120 shares of common stock expected to be issued during the remainder of fiscal 2021. The MDI Earnout iswas accounted for as an equity classified instrument and is not subject to remeasurement in subsequent periods.
The Company incurred $567 in acquisition related costs that were expensed immediately and recorded within general and administrative expenses within the Company's consolidated statement of operations. The acquisition was not significant to the Company's consolidated financial statements; therefore, pro forma results of the operations related to this business acquisition for the year ended December 31, 2019 have not been presented. The results of MDI's operations since July 31, 2019 have been included in the Company's consolidated financial statements. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
| | | | |
Assets acquired: | | | | |
Cash and cash equivalents | | $ | 118 | |
Accounts receivable | | | 98 | |
Prepaid expenses | | | 5 | |
Goodwill | | | 4,013 | |
Intangible assets | | | 2,900 | |
Other assets | | | 17 | |
| | | | | |
Total assets acquired | | $ | 7,151 | |
| | | | | |
Liabilities assumed: | | | | |
Accounts payable | | $ | 321 | |
Accrued expenses and other current liabilities | | | 342 | |
| | | | | |
Total liabilities assumed | | $ | 663 | |
| | | | | |
Net assets acquired | | $ | 6,488 | |
| | | | | |
| | | | | |
| | | | | |
The purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The identifiable intangible asset principally relates to technology and is subject to amortization on a straight-line basis over two years. During the nine months ended November 30, 2019, the Company recorded amortization expense of $483.
The intangible asset was valued using the estimated replacement cost method. This method requires several judgments and assumptions to determine the fair value of the intangible asset, including expected profits and opportunity costs. Goodwill related to the acquisition is attributable to the workforce of MDI as well as the expected future growth into new and existing markets and is not deductible for income tax purposes.
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Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(4)(5) Fair Value Measurements
The following table sets forth the fair value of the Company's financial assets and within the fair value hierarchy:
| | | February 28, 2019
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Fair Value
| |
| | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 28,661 | | $ | — | | $ | — | | $ | 28,661 | | | $ | 21,332 | | $ | — | | $ | — | | $ | 21,332 | |
Certificates of deposit | | | $ | 5,000 | | $ | — | | $ | — | | $ | 5,000 | |
| | | November 30, 2019
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Fair Value | | | Level 1 | | Level 2 | | Level 3 | | Fair Value
| |
| | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | | | |
Cash equivalents: | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 24,332 | | $ | — | | $ | — | | $ | 24,332 | | | $ | 212,221 | | $ | — | | $ | — | | $ | 212,221 | |
Also, the carrying value of the Company's debt approximates fair value based on interest rates available for debt with similar terms at February 28, 2019 and November 30, 2019.29, 2020.
(5)(6) Debt Facility
On January 30, 2017, the Company entered into two debt facilities, one of which was a $20,000 term loan (the Term Loan) and the other a $20,000 revolving credit facility (the Revolver).
During July 2019, the Company amended the Term Loan, terminated the 2017 Revolver and entered into a new revolving credit facility (the 2019 Revolver). In connection with the July 2019 transactions, the Company issued warrants to purchase up to 677,977 shares of the Company's common stock.
On January 30, 2017, the Company entered into a $20,000 term loan facility (the Term Loan). Under the terms of the Term Loan, the Company was permitted to borrow up to an aggregate principal amount of $20,000, with the total amount of available borrowings subject to certain monthly recurring revenue calculations. As of February 28, 2019, there was $20,000 outstanding on the Term Loan.
Interest on the outstanding balance was payable monthly at a rate of 11.75%. Principal payments were scheduled to be made monthly beginning January 31, 2019, in equal installments calculated as 1/24th of the outstanding balance on December 31, 2018. However, the Company had the ability to extend the interest onlyinterest-only period for an additional twelve months, subject to an additional fee and other conditions, which would extend the maturity date from December 31, 2020 to December 31, 2021. The Company committed to extend this interest onlyinterest-only period, and the maturity date was extended to December 31, 2022.2021. As a result, principal payments arewere scheduled to start January 2020.
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(5) Debt Facility (Continued)
The Term Loan also provided for the issuance of a warrant to purchase 217,712 shares of the Company's common stock (the Term Loan Warrant) at an exercise price of $0.001 per share. The Term Loan Warrant vested 100% upon issuance and has a ten-year term, ending January 30, 2027. The Company calculated the fair value of the Term Loan Warrant using the Black-Scholes option pricing model, and the fair value of the Term Loan Warrant was determined to be $182. This amount was recorded as a debt discount and was being amortized ratably over the Term Loan period.
Also, the Company incurred issuance and other third-party costs of $429 related to the Term Loan, which were recorded as a debt discount and were being amortized ratably over the term of the Term Loan.
During July 2019, the Company amended the existing Term Loan agreement,an amendment (Amendment 1) was entered into which eliminated monthly payments, with principal to be paid in full in December 2022.
Amendment 1 resulted in an additional $2,000 of availability, increasing total availability to $22,000. As of November 30, 2019, the outstanding borrowings under the Term Loan were $22,000. Pursuant to the amendment,Amendment 1, interest on the outstanding balance iswas payable monthly at a rate of 10.00% per annum and interest payable-in-kind accruesaccrued at a rate of 2.00% per annum, compounded monthly, and iswas due at maturity. Additionally, the Company iswas required to pay an exit fee equal to 1% of the aggregate principal borrowings at the time of maturity (end of term charge). As
Table of November 30, 2019, thereContents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(in thousands except share and per share data)
(6) Debt Facility (Continued)
During May 2020, the Company entered into an additional amendment (Amendment 2) to the existing Term Loan agreement, which resulted in an additional $2,500 of availability, increasing total availability to $24,500. Pursuant to Amendment 2, interest on the outstanding balance was $160payable monthly at a rate of accrued interest payable-in-kind. All outstanding principal, unpaid interest8.00% per annum and interest payable-in-kind areaccrued at a rate of 4.50% per annum, compounded monthly, and was due at maturity.
The amendment Additionally, the Company was required to pay a prepayment fee equal to 2% of the aggregate principal borrowings if prepayment occurred on or prior to December 31, 2020, and 0.50% if prepayment occurred after December 31, 2020 but on or prior to maturity (prepayment fee), plus the end of term charge. Amendment 2 was accounted for as a debt modification, to whichand all new lender fees were recorded as additional debt discount and third-party costs incurred in connection with the amendment were expensed as incurred. Debt issuance costs
During July 2020 the Company terminated the Term Loan. The Company repaid the outstanding balance of $634, including$24,500 in its entirety, along with accrued interest in kind of $600, the fair value of the warrants and end of term charge were capitalizedof $251, and are being amortized to interest expense over the remainderprepayment fee of the term using the effective interest method.$502.
During the ninethree months ended November 30, 2018August 31, 2020 and 2019, the Company recorded interest expense of $1,988$2,043 and $2,108, respectively,$647, respectively. Included in interest expense for the three months ended August 31, 2020, was $1,045 related to the Term Loanremaining debt discount that was recorded as interest expense as a result of which $223 and $365, respectively,the termination, as well as $502 related to the amortizationprepayment fee and the remaining unamortized amount related to the end of term charge. During the debt discount.
Long-term debt consistedsix months ended August 31, 2020 and 2019, the Company recorded interest expense of the following at February 28, 2019$2,837 and November 30, 2019:$1,316, respectively.
| | | | | | | |
| | February 28,
2019 | | November 30,
2019 | |
Principal outstanding | | $ | 20,000 | | $ | 22,000 | |
Interest payable-in-kind | | | — | | | 160 | |
Unamortized issuance costs | | | (800 | ) | | (1,206 | ) |
| | | | | | | | |
| | $ | 19,200 | | $ | 20,954 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Revolving Credit Facility
The 2017 Revolver was a 24-month senior secured $20,000 revolving line of credit, with borrowing availability subject to certain monthly recurring revenue calculations. On April 20, 2018,
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(5) Debt Facility (Continued)
the Company amended the 2017 Revolver, which modified the revenue covenants, required the Company to exercise the extension of the interest only payment period of the Term Loan through December 2019 and in the event the Company raised proceeds in aggregate of at least $45,000 as part of a financing event, extended the term of the 2017 Revolver to January 30, 2020. This financing event occurred, and, accordingly, the term of the 2017 Revolver was extended. As of February 28, 2019, there was no amount outstanding and the availability under the 2017 Revolver was $20,000.
Interest on the outstanding balance of the 2017 Revolver was due monthly at a rate of the lending institution's prime referenced rate plus 1.00%, with the prime reference rate defined as the greater of (i) the lending institution's prime rate and (ii) the 30-day LIBOR plus 2.50%. Principal and interest were due at maturity.
The 2017 Revolver provided for the Company to issue warrants to purchase up to 111,442 shares of the Company's Common Stock (the 2017 Revolver Warrants), of which a warrant to purchase 55,721 shares was issued on January 30, 2017, and a warrant to purchase 55,721 shares was issued on January 30, 2018.
The Company incurred issuance and other third-party costs of $61 related to the 2017 Revolver, which were deferred and were being amortized ratably over the term of the 2017 Revolver.
During July 2019, the Company terminated the 2017 Revolver and entered into a new revolving credit facility (the 2019 Revolver) with a syndicate of two banks, of which one was the lender under the 2017 Revolver.banks. Under the 2019 Revolver, the Company has the capacity to borrow up to $50,000 on a revolving facility, and to the extent certain customer bookings thresholds are achieved, the capacity on the 2019 Revolver may increase by an additional amount of up to $30,000 (resulting in total potential availability of $80,000). Availability of borrowings on the 2019 Revolver is calculated as a multiple of the Company's eligible monthly recurring revenues (as defined in the 2019 Revolver). As of November 30, 2019, $50,000 was available for borrowing.August 31, 2020 and February 29, 2020, the Company had outstanding letters of credit to serve as office landlord security deposits in the amount of $1,334. These letters of credit are secured through the revolving credit facility, thus reducing the capacity of the revolving credit facility to $48,666 as of August 31, 2020. No amounts are outstanding as of August 31, 2020.
The 2019 Revolver has a term of 24 months, and there is an automatic extension of an additional 12-month period should the Company achieve certain revenues, as defined. The interest rate on the outstanding borrowings are at LIBOR plus 350 basis points or Base Rate (as defined) plus 250 basis points, with the LIBOR rate and interestBase Rate subject to minimum levels. Interest payments are to be made quarterly.in installments of one, two, or three months as chosen by the Company.
The 2019 Revolver was accounted for as a debt modification to which all new lender and third-party fees were deferred. Issuance costs of $543, including the fair value of the warrants issued, were capitalized and are being amortized to interest expense over the remainder of the 2019 Revolver term. During the nine months ended November 30, 2018 and 2019 the Company recorded interest expense of $66 and $171, respectively, related to the revolving credit facility of which $24 and $125, respectively, related to the amortization of deferred financing fees. As of February 28, 2019 and November 30, 2019, the balance of deferred financing fees was $23 and $442, respectively, and is recorded in other assets in the accompanying consolidated balance sheets.
Both the Term Loan and 2019 Revolver are collateralized by substantially all of the assets of the Company.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018(6) Debt Facility (Continued)
Revolver term. During the three months ended August 31, 2020 and 2019)
(6) Stockholders' Equity
(a) Convertible Preferred Stock
2019, the Company recorded interest expense of $323 and $65, respectively, related to the revolving credit facility. During the six months ended August 31, 2020 and 2019, the Company recorded interest expense of $880 and $71, respectively. As of November 30,August 31, 2020 and 2019, the authorized, issuedbalance of deferred financing fees was $233 and outstanding convertible preferred stock$512, respectively, and their principalis recorded in other assets in the accompanying consolidated balance sheets.
On August 21, 2020, the Company entered into an amendment to the 2019 Revolver which revised the terms were as follows:of the revenue covenant and imposed minimum LIBOR and Base Rate levels. On September 11, 2020, the Company entered into another amendment to the 2019 Revolver which modified the amount of cash required to be held at each of the two lenders participating in the 2019 Revolver.
The 2019 Revolver is collateralized by substantially all of the assets of the Company.
Current and long-term debt consisted of the following at February 29, 2020:
| | | | | | | | | | | | | | | | |
Series
| | Par value | | Shares
authorized | | issued and
outstanding | | Carrying
amount | | Liquidation
value | |
A-1 | | $ | 0.0001 | | | 17,800,001 | | | 17,800,001 | | $ | 10,000 | | $ | 10,000 | |
A-2 | | | 0.0001 | | | 12,899,999 | | | 12,899,999 | | | 10,000 | | | 10,000 | |
B | | | 0.0001 | | | 20,293,681 | | | 20,293,681 | | | 16,944 | | | 16,944 | |
C | | | 0.0001 | | | 3,005,801 | | | 3,005,801 | | | 7,000 | | | 7,000 | |
D | | | 0.0001 | | | 8,759,373 | | | 8,759,373 | | | 30,000 | | | 30,000 | |
E | | | 0.0001 | | | 30,445,945 | | | 30,445,945 | | | 140,720 | | | 145,300 | |
F | | | 0.0001 | | | 4,365,191 | | | 4,365,191 | | | 18,358 | | | 20,000 | |
| | | | | | | | | | | | | | | | | |
| | | | | | 97,569,991 | | | 97,569,991 | | $ | 233,022 | | $ | 239,244 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | |
| | | February 29,
2020
| |
| | | | | |
Current — Interest payable — 2019 Revolver | | $ | — | |
Long-term | | | | |
2019 Revolver | | $ | — | |
Term loan — principal outstanding | | $ | 22,000 | |
Interest payable-in-kind | | | 273 | |
Unamortized issuance costs | | | (1,129 | ) |
| | | | | |
Total long-term | | $ | 21,144 | |
| | | | | |
| | | | | |
| | | | | |
During March 2018,(7) Stockholders' Equity
The Company closed its IPO on July 7, 2020 and filed an amended and restated certificate of incorporation authorizing the Company amended its Certificateissuance of Incorporationup to allow for additional Series E500,000,000 shares and issued 10,476,924 shares at $4.77239of common stock, par value $0.0001 per share duringshare.
Upon completion of the period March through July 2018. The sales resulted in aggregate net cash proceeds of $49,933, after deducting $67 of issuance costs. In connection with this issuance,IPO, the Company issued warrants to purchase 2,540,003and sold 11,526,134 shares of the Company's common stock. The warrants havestock at an exerciseissuance price of $0.0001 per share and a term of ten years. The Company calculated the issuance date fair value of the warrants using the Black-Scholes valuation methodology, which resulted in a fair value of $2,387. Accordingly, the Company allocated the proceeds from the Series E preferred stock, on a relative fair value basis, resulting in $2,279 allocated to the warrants during the fiscal year ended February 28, 2019.
During October 2019, the Company amended its Certificate of Incorporation to allow for the issuance of Series F preferred stock and issued 4,365,191 shares at $4.5817$22.00 per share resulting in net cash proceeds of $19,943,$231,229, after deducting $57 of issuanceunderwriting discounts, commissions and offering costs. In connection with this issuance, the Company issued a warrant to purchase 425,000addition, all outstanding shares of the Company's common stock. The warrant has an exercise price of $0.0001 per share and a term of ten years. The Company calculated the issuance date fair value of the warrant using the Black-Scholes valuation methodology, which resulted in an approximate fair value of $1,590. Accordingly, the Company allocated the proceeds and associated issuance costs from the Series F preferredConvertible Preferred stock on a relative fair value basis, resulting in $1,585 and $18,358 allocated to the warrant and to the Series F preferred stock, respectively, during the nine months ended November 30, 2019. Also, concurrently with the Series F preferred stock issuance, the Company enteredconverted into a partnership with the Series F holder under which the Company's products will be marketed and sold by the Series F holder as part of the Series F holder's broader product offerings.
The preferred stock is convertible, at the option of the holder, at any time, into fully paid and nonassessable shares of common stock. The number of29,479,521 shares of common stock into which eachand the Company issued 1,401,836 shares of common stock as a result of the automatic net exercise of warrants (See Note 8).
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(6)(7) Stockholders' Equity (Continued)
- (b)
- Convertible Preferred Stock
share On July 7, 2020, upon the closing of our IPO, all shares of our outstanding convertible preferred stock may be converted is determined by dividing the original issue price by the conversion price in effect on the date that the holder elects to convert the shares of preferred stock. The initial conversion price is equal to the original issue price. For the Series A through Series E preferred stock, in connection with initial public offering of securities, immediately prior to the public offering, the preferred stockholders will receive for each share of preferred stock held a number ofinto 29,479,521 shares of common stock as is determined by dividing the preference amount (discussed below) by the price per common share in the public offering. These shares are in addition tostock. As of August 31, 2020, there were no shares of common stock otherwise issuable upon conversion of the preferred stock.
Each share shall automatically be converted into shares of common stock upon the earlier of (i) the consummation of a firm commitment underwritten public offering of common stock (or common stock of successor corporation) at a public offering price of not less than $9.54478 (adjusted for any recapitalization) resulting in net proceeds to the Company (or successor corporation) of not less than $75,000, and listed on a national securities exchange or traded on the NASDAQ or (ii) the date specified by the written consent of the requisite preferred stockholders.
No dividend shall be declared or paid on any shares of any other series or class of shares of the Company unless and until such distribution is also ratably declared and paid on all of the outstandingconvertible preferred stock (based on as-if converted amounts) at the same time as such distribution is paid on such other equity interests. No dividends have been declared or paid through November 30, 2019.
In the event of any liquidation, dissolution, or winding up of the Company, either voluntarily or involuntarilyissued and in the event of a sale of the Company, as defined, the holders of the preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or funds of the Company to holders of the shares of common stock or any other shares by reason of their ownership of such shares, for each share of preferred stock the sum of (i) the original purchase price paid per each share of preferred stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and similar events) plus (ii) the amount of all accrued but unpaid dividends as discussed above (the sum is referred to as the preference amount). In the event the assets of the Company are not sufficient to distribute such amounts, each holder will receive their pro rata share of amounts available to be distributed. After full payment has been made to the holders of the preferred stock as described above, the holders of the common stock and the preferred stock shall be entitled to share ratably in all remaining assets and funds, if any, based upon the number of shares of common stock then held with each share of preferred stock treated as holding the number of shares of common stock into which such shares of preferred stock are then convertible.
The preferred stockholders have the right to one vote for each share of common stock into which their preferred stock could then be converted.
The preferred stock is subject to redemption under certain deemed liquidation events, as defined in the Company's charter, and as such, the preferred stock is considered contingently redeemable for accounting purposes.
Table of Contentsoutstanding.
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(7) Stock Options(8) Equity-based Compensation and Warrants
In 2010,July 2020, the Company adopted the Amended and Restated 2007 Stock Option2020 Equity Incentive Plan as amended (the OptionIncentive Plan), which authorized the Company to grant up to 4,300,000 shares of common stock to eligible employees, directors, and consultants to the Company in the form of stock options, restricted stock units, and other various equity awards, including any shares subject to stock options. Asoptions or other awards granted under the Company's prior stock option plan that expire or terminate for any reason (other than being exercised in full) or are cancelled in accordance with the terms of November 30, 2019, the Company is authorized to issue up to 65,584,959 shares of commonprior stock pursuant tooption plan. The Incentive Plan also includes an annual evergreen increase, and the Option Plan. The amount, terms of grants, and exercisability provisions are determined by the board of directors. The term of the optionsan award may be up to 10 years and options generally vest over four years, with one quarter of the optionsan award vesting one year after grant and the remainder vesting on a monthly basis over three years. As of November 30, 2019,August 31, 2020, there were 5,112,1543,981,071 shares of common stock available for future grants under the OptionIncentive Plan.
The Company recognizes stock-based compensation based on In July 2020, the grant date fair valueBoard of Directors adopted the Company's 2020 Employee Stock Purchase Plan (the ESPP), which became effective immediately prior to the effectiveness of the awards and recognizes that cost using the straight-line method over the requisite service period of the award. The fair value of options, which vest in accordance with service schedules, is estimated on the date of grant using the Black-Scholes option pricing model. The absence of an active marketregistration statement for the Company's IPO. The total shares of common stock requires itinitially reserved under the ESPP is limited to estimate1,100,000 shares. There was no activity during the fair value of the Company's common stock for purposes of granting stock options and for determining stock-based compensation expense for the periods presented. The Company obtained contemporaneous third-party valuations to assist in determining the estimated fair value of its common stock. These contemporaneous third-party valuations used the methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Practice Guide,Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Expected volatilities are based on historical volatilities of comparable companies. The expected term of the options is based on the simplified method outlined in the SEC Staff accounting guidance, under which the Company estimates the term as the average of the option's contractual term and the option's weighted average vesting period. The risk-free rate represents the yield on U.S. Treasury bonds with maturity equal to the expected term of the granted option. The Company accounts for forfeitures as they occur. All stock options outstanding at November 30, 2019 are expected to vest according to their specific schedules.
During the nine monthssecond fiscal quarter ended November 30, 2018 and 2019, the Company recognized $4,282 and $4,895, respectively, of compensation expense related to stock options.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(7) Stock Options and Warrants (Continued)August 31, 2020.
The following table summarizes the amount of stock-based compensation included in the consolidated statements of operations:
| | | | | | | |
| | Nine months
ended
November 30, | |
| | 2018 | | 2019 | |
Cost of revenue | | $ | 183 | | $ | 250 | |
Product and technology | | | 774 | | | 1,312 | |
Sales and marketing | | | 870 | | | 1,162 | |
General and administrative | | | 2,455 | | | 2,171 | |
| | | | | | | | |
Total stock-based compensation | | $ | 4,282 | | $ | 4,895 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The Company did not capitalize any stock-based compensation expense to deferred costs for the nine months ended November 30, 2018 and 2019.
The weighted average grant date fair value for stock options granted during the nine months ended November 30, 2018 and 2019 was $0.49 and $1.02, respectively. The fair value of the Company's option grants is estimated at the grant date using the Black-Scholes option-pricing model based on the following weighted average assumptions:
| | | | |
| | Nine months ended
November 30, |
| | 2018 | | 2019 |
Estimated fair value of common stock | | $0.48 - $0.55 | | $0.96 - $1.35 |
Exercise price | | $0.94 - $1.13 | | $1.92 - $2.73 |
Expected volatility | | 46% - 50% | | 50% |
Expected term (in years) | | 6.25 | | 6.25 |
Risk-free interest rate | | 2.80% - 2.94% | | 1.67% - 1.88% |
Dividend yield | | — | | — |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | 2019 | | | 2020 | | | 2019 | | | 2020
| |
| | | | | | | | | | | | | | |
Cost of revenue | | $ | 103 | | $ | 218 | | $ | 175 | | $ | 327 | |
Product and technology | | | 491 | | | 718 | | | 852 | | | 1,152 | |
Sales and marketing | | | 475 | | | 490 | | | 822 | | | 792 | |
General and administrative | | | 826 | | | 679 | | | 1,482 | | | 1,093 | |
| | | | | | | | | | | | | | |
Total stock-based compensation | | $ | 1,895 | | $ | 2,105 | | $ | 3,331 | | $ | 3,364 | |
| | | | | | | | | | | | | | |
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Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(7) Stock Options(8) Equity-based Compensation and Warrants (Continued)
The following is a summary of stock option activity under the OptionIncentive Plan:
| | | Stock Options | | Weighted
average
exercise
price | | Weighted
Remaining
Contractual
Life In Years | | Aggregate
intrinsic
value | | | Stock Options | | Weighted
average
exercise
price | | Weighted
remaining
contractual
life in years | | Aggregate
intrinsic
value
| |
Balance, February 28, 2019 | | 40,737,537 | | | | | | | | |
| | | | | | | | | | | | | | |
Balance, February 29, 2020 | | | 7,996,056 | | $ | 6.19 | | | |
Granted | | 9,612,008 | | 2.04 | | | | | | | 2,149,575 | | 17.25 | | | |
Exercised | | (3,444,068 | ) | | 0.73 | | | | | | | (571,382 | ) | | 4.42 | | | |
Forfeited | | (1,558,055 | ) | | 1.16 | | | | | | | (147,684 | ) | | 6.12 | | | |
| | | | | | | | | | | | | | | | | | | |
Balance, November 30, 2019 | | 45,347,422 | | $ | 1.13 | | 7.6 years | | $ | 169,599 | | |
Balance, August 31, 2020 | | | 9,426,565 | | $ | 8.82 | | 7.4 years | | $ | 223,660 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Vested and expected to vest as of November 30, 2019 | | 45,347,422 | | $ | 1.13 | | 7.6 years | | $ | 169,599 | | |
Exercisable as of November 30, 2019 | | 27,950,894 | | $ | 0.82 | | 5.2 years | | $ | 81,581 | | |
Vested and expected to vest as of August 31, 2020 | | | 9,426,565 | | $ | 8.82 | | 7.4 years | | $ | 223,660 | |
Exercisable as of August 31, 2020 | | | 5,499,412 | | $ | 6.19 | | 6.3 years | | $ | 150,792 | |
The aggregate intrinsic value of stock options exercised was $128$5,676 and $4,751$7,806 for the ninethree and six months ended November 30, 2018 and 2019,August 31, 2020, respectively. As of November 30, 2019,August 31, 2020, approximately $13,317$27,203 of unrecognized compensation expense related to our stock options is expected to be recognized over a weighted average period of 2.2 years.
During June 2020, the Company issued 525,907 fully-vested stock options in lieu of cash payments related to the Company's fiscal 2020 bonus with a value of $5,735. These options are included in the table above.
The following tables summarize the activity for the Company's warrants for the periods presented as well as the number of warrants outstanding and related terms at November 30, 2018 and 2019:six months ended August 31, 2020:
| | | | | | | | | | |
| | Common Stock
Warrants | | Exercisable | | Exercise Price | | Expiration Date |
Balance, February 28, 2019 | | | 7,330,326 | | | | | | | |
Issued | | | 1,102,977 | | | | | | | |
Exercised | | | (151,609 | ) | | | | | | |
| | | | | | | | | | | |
Balance, November 30, 2019 | | | 8,281,694 | | | 8,281,694 | | $0.0001 - $4.75 | | April 2020 - October 2029 |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | |
| | | Common Stock
Warrants
| |
| | | | | |
Balance, February 29, 2020 | | | 1,653,268 | |
Issued | | | — | |
Exercised | | | (160,000 | ) |
Automatic exercise of warrants in connection with IPO | | | (1,493,268 | ) |
| | | | | |
Balance, August 31, 2020 | | | — | |
| | | | | |
| | | | | |
| | | | | |
On June 29, 2015, the Company issued a warrant to its initial customer to purchase up to 200,000 common shares. Based on the vesting provisions and the remaining period over which the warrant was exercisable, the maximum number of shares that could vest pursuant to the warrant was 160,000 shares of common stock, all of which were exercised in March 2020.
Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(in thousands except share and per share data)
(8) Equity-based Compensation and Warrants (Continued)
On July 7, 2020, upon the closing of our IPO, 1,401,836 shares of common stock were issued upon the automatic net exercise of all warrants that were outstanding as of the IPO date. There were no warrants outstanding as of August 31, 2020.
(9) Income Taxes
The provision for income taxes consists of provisions for federal, state and foreign income taxes. The effective tax rates for the periods ended August 31, 2020 and August 31, 2019, reflect the Company's expected tax rate on reported income from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in the U.S. and operations in the Czech Republic. Accordingly, the consolidated income tax rate is a composite rate reflecting the Company's earnings and the applicable tax rates in the various jurisdictions where the Company operates.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act also allows for retroactive accelerated income tax depreciation on certain leasehold improvement assets and changes to the limitations on business interest deductions for tax years beginning in 2019 and 2020 which increases the allowable business interest deduction from 30% to 50% of adjusted taxable income. The Company does not expect a material tax expense or tax benefit as a result of the CARES Act in the current period or subsequent periods.
For the three months ended August 31, 2020 and 2019, the Company recorded income tax expense of $18 and $14, respectively, which resulted in effective tax rates of (0.1%) for both periods. For the six months ended August 31, 2020 and 2019, the Company recorded income tax expense of $56 and $37, respectively, which resulted in effective tax rates of (0.2%) and (0.1%), respectively. The tax expense relates to the local tax expense recorded for the Czech Republic. The Company's U.S. losses did not result in a benefit due to the U.S. full valuation allowance.
(10) Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to Accolade's common stockholders:
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | 2019 | | | 2020 | | | 2019 | | | 2020
| |
| | | | | | | | | | | | | | |
Net loss | | $ | (15,026 | ) | $ | (15,371 | ) | $ | (30,929 | ) | $ | (29,331 | ) |
Weighted-average shares used in computing net loss per share | | | 5,336,501 | | | 33,029,147 | | | 5,141,047 | | | 20,277,416 | |
| | | | | | | | | | | | | | |
Net loss per share attributable to common stockholders, basic and diluted | | $ | (2.82 | ) | $ | (0.47 | ) | $ | (6.02 | ) | $ | (1.45 | ) |
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Table of Contents
Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(7) Stock Options and Warrants (Continued)
| | | | | | | |
| | Number of Warrants
Outstanding at
November 30, 2019 | | Exercise Price | | Expiration Date |
Series E holders | | | 5,660,908 | | $0.0001 | | July 2026 - March 2028 |
Series F holders | | | 425,000 | | $0.0001 | | October 2029 |
Customer | | | 800,000 | | $2.75 | | April 2020 |
Lender | | | 1,395,786 | | $0.0001 - $4.75 | | Nov 2022 - July 2029 |
| | | | | | | | |
Total | | | 8,281,694 | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
On June 29, 2015, the Company issued a warrant to its initial customer to purchase up to 1,000,000 common shares. Based on the vesting provisions and the remaining period over which the warrant is exercisable, the maximum number of shares that can vest pursuant to the warrant is 800,000 shares of common stock, of which 600,000 and 800,000 were vested and exercisable as of November 30, 2018 and 2019, respectively. The warrant is exercisable through April 2020.
In connection with the Term Loan amendment, the Company issued a warrant to purchase up to 433,002 shares of the Company's common stock (the 2019 Term Loan Warrant) at an exercise price of $1.92 per share. The 2019 Term Loan Warrant vested 100% upon issuance and has a ten-year term, ending July 19, 2029. The Company calculated the fair value of the 2019 Term Loan Warrant using the Black-Scholes option pricing model, and the fair value of the 2019 Term Loan Warrant was determined to be $528. This amount was recorded as a debt discount and is being amortized ratably over the Term Loan period.
In connection with the 2019 Revolver, the Company issued the lender warrants to purchase up to 181,818 and 63,157 shares of the Company's common stock (the 2019 Revolver Warrants) at an exercise price of $2.75 and $4.75 per share, respectively. The 2019 Revolver Warrants vested 100% upon issuance and have a ten-year term, ending July 19, 2029. The Company calculated the fair value of the 2019 Revolver Warrants using the Black-Scholes option pricing model, and the fair value of the 2019 Revolver Warrants was determined to be $251.
(8) Income Taxes
For the nine months ended November 30, 2018, the Company did not record any income tax.
For the nine months ended November 30, 2019, the Company recorded an income tax expense of $49, which resulted in an effective tax rate of (0.10%). The tax expense relates to the local tax expense recorded for the Czech Republic. The Company's U.S. losses were not benefited due to the U.S. full valuation allowance.
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(9)(10) Net Loss Per Share Attributable to Common ShareStockholders (Continued)
The following table sets forth the computation of basic and diluted net loss per common share:
| | | | | | | |
| | | Nine months ended
November 30,
| |
| | | | | | | | |
| | 2018 | | 2019 | |
Net loss | | $ | (49,547 | ) | $ | (49,226 | ) |
Net loss per common share, basic and diluted | |
$ |
(2.14 |
) |
$ |
(1.84 |
) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted-average shares used to compute net loss per common share, basic and diluted | | | 23,203,395 | | | 26,754,461 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As the Company has reported net lossesloss for each of the periods presented, all potentially dilutive securities are antidilutive. The following potential outstanding shares of common stock were excluded from the computation of diluted net loss per share attributable to common sharestockholders for the periods presented because including them would have been antidilutive:
| | | Nine months ended
November 30,
| | | | | | | | |
| | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | | 2019 | | 2020
| |
| | | | | | | | | |
Stock options | | 35,902,977 | | 45,347,422 | | | 9,092,367 | | 9,426,565 | |
Common stock warrants | | 911,442 | | 1,589,419 | | | 317,882 | | — | |
| | | | | | | | | | | | | | | |
Total | | 36,814,419 | | 46,936,841 | | | 9,410,249 | | 9,426,565 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Unaudited Pro Forma Net Loss Per Common Share
Unaudited pro forma basic and diluted net loss per common share for the nine months ended November 30, 2019 has been computed to give effect to the conversion of convertible preferred stock into common stock in connection with the IPO as of the beginning of the period presented or the date of issuance as well as the automatic cashless exercises of warrants to purchase shares of common stock based on an assumption that the fair market value of the Company's common stock will be equal to the assumed IPO price of $ per share.
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(9) Net Loss Per Common Share (Continued)
The following table sets forth the computation of the unaudited pro forma basic and diluted net loss per share:
| | | | |
| | | Nine Months Ended
November 30,
2019
| |
| | | | | |
Numerator: | | | | |
Net loss | | $ | (49,226 | ) |
Denominator: | | |
| |
Weighted-average shares used to compute net loss per common share, basic and diluted | | | | |
Pro forma adjustment to reflect conversion of convertible preferred stock | | | | |
Pro forma adjustment to reflect automatic cashless exercise of warrants | | | | |
| | | | | |
Weighted-average shares used to compute pro forma net loss per common share, basic and diluted | | | | |
| | | | | |
| | | | | |
| | | | | |
Pro forma net loss per common share, basic and diluted | | | | |
| | | | | |
| | | | | |
| | | | | |
(10)(11) Commitments
- (a)
Leases The Company leases its office premises in Pennsylvania, Washington, Arizona, California and the Czech Republic, pursuant to lease agreements that expire on various dates through 2027. The Company recognizes rent expense under such arrangements on a straight line basis. Rent expense was $3,227 and $3,693 for the nine months ended November 30 2018 and 2019, respectively.
On May 28, 2019, the Company entered into a new lease for its Seattle office space that expires in 2030. The new lease is subject to both certain early termination rights and an option to extend, as defined in the lease. The lease commencement date was October 1, 2019, and total future payments are $26,028.
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Accolade, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (unaudited) (Continued)
(Dollar amounts in thousands except share and per share data)
November 30, 2018 and 2019)
(10) Commitments (Continued)
The future aggregate minimum lease payments as of under all non-cancelable operating leases (including the Seattle lease discussed above) for the years noted are as follows:
| | | | |
Fiscal periods ending February 28(29), | | | | |
Three months ending February 29, 2020 | | $ | 1,091 | |
2021 | | | 6,171 | |
2022 | | | 6,463 | |
2023 | | | 6,487 | |
2024 | | | 6,629 | |
Thereafter | | | 26,969 | |
| | | | | |
| | $ | 53,810 | |
| | | | | |
| | | | | |
| | | | | |
(b) Legal Proceedings
The Company is involved in various claims, inquiries and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial position or liquidity.
On August 1, 2017, certain former and current employees filed a suit against the Company seeking back wages for unpaid overtime as a result of alleged misclassification by the Company under the Pennsylvania Minimum Wage Act and the Federal Fair Labor Standards Act. As of February 28, 2018, based upon the facts and circumstances of this suit as well as the resolution of other such similar suits, the Company had determined that it was probable that it had a liability. Accordingly, the Company recorded a litigation expense and related accrued litigation expense in the amount of $650. During March 2019, a settlement agreement (the Settlement Agreement) was executed by both parties in the amount of $1,100 (the Settlement). The Settlement Agreement was preliminarilyultimately approved by the Court and is currently awaiting final approval. A hearing for final approval is scheduled for March 2020. Accordingly, during the fiscal year ended February 28, 2019, the Company recorded additional litigation expense and related accrual inpaid the amount of $450 related to the settlement of this matter.Settlement during April 2020.
(c) (b)- Employment Agreements
Certain officers of the Company have employment agreements providing for severance, continuation of benefits, and other specified rights in the event of termination without cause, including in the event of a change of control of the Company, as defined in the agreements.
(11) Subsequent Events(12) Change Healthcare Joint Development Agreement
On December 30, 2019,In February 2020, the Company entered into a terminationjoint development agreement, for its prior Seattle office space at 701 Pike Street, Seattleor JDA, and a data licensing agreement with an effective termination date December 31, 2019 upon payment of $142, with no future obligations underChange Healthcare Holdings, or Change Healthcare, whereby Change Healthcare will be a strategic partner in providing various services to support the Company's Total Care and Provider Services product offerings. Pursuant to the terms of the JDA, Change Healthcare is providing intellectual property (IP), technical know-how, and advisory services to the Company as it develops price transparency products under the JDA that will be utilized by the Company in several of its product offerings. Either party is permitted to sell the price transparency product within each party's respective service offerings. Each party is entitled to a royalty from the other party in connection with any net sales associated with the price transparency product that was developed under the JDA, not to exceed $2,500 in cumulative royalty payments.
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Accolade, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (Continued)
(in thousands except share and per share data)
(12) Change Healthcare Joint Development Agreement (Continued)
Concurrent with entering into the JDA, the Company entered into a five-year data licensing agreement with Change Healthcare who is one of the largest commercially available data set providers of de-identified claims in the United States. The licensing agreement includes annual increases in fees and the option to renew and extend beyond the initial five-year period. The annual licensing fees are subject to increases and decreases and contingent upon the achievement of performance objectives as defined in the data licensing agreement. Upfront payments for data licenses are deferred and will be amortized into cost of revenue, as they pertain to the delivery of the Company's product offerings.
Upon entering into the JDA and data licensing agreement, the Company issued 251,211 restricted shares of its common stock to Change Healthcare at an estimated fair value of $15.40 per share, or $3,869 in aggregate value. Pursuant to the terms of the restricted share agreement, 150,727 of the shares vested immediately and the remaining 100,484 restricted shares will vest upon the achievement of certain product development milestones, as defined. During July 2020, 75,363 of these shares vested upon the achievement of certain milestones. The aggregate equity value was allocated to the JDA and data licensing agreement based on the relative fair value of the IP and technical know-how contributed by Change Healthcare within the JDA and the discounted pricing received from Change Healthcare within the data licensing agreement. The equity value allocated to the JDA and data licensing agreement was capitalized and deferred as internally developed software and other assets within the Company's consolidated balance sheet, respectively, with an offsetting increase to additional paid-in capital. Costs that are capitalized and classified as internally developed software will be amortized within depreciation and amortization in the Company's consolidated statement of operations.
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Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the expenses to be incurred in connection with the offering described in this registration statement, other than underwriting discount, all of which will be paid by us. All amounts are estimated except the SEC registration fee, the Financial Industry Regulatory Authority, Inc. (FINRA) filing fee, and the exchange listing fee.
| | | Amount
| | | Amount
| |
| | | | | | | | | |
SEC registration fee | | $ | 12,980 | | | $ | 22,911 | |
FINRA filing fee | | 15,500 | | | 32,000 | |
Exchange listing fee | | 290,000 | | |
Accountants' fees and expenses | | 1,600,000 | | | 250,000 | |
Legal fees and expenses | | 1,700,000 | | | 350,000 | |
Transfer Agent's fees and expenses | | 4,000 | | |
Transfer agent's fees and expenses | | | 5,000 | |
Printing and engraving expenses | | 245,000 | | | 95,000 | |
Miscellaneous | | 623,520 | | | 95,089 | |
| | | | | | | | | |
Total expenses | | $ | 4,500,000 | | | $ | 850,000 | |
| | | | | | | | | |
| | | | | | | | | | |
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act. Our amended and restated certificate of incorporation that will be in effect upon the completion of this offering permits indemnification of our directors, officers, employees, and other agents to the maximum extent permitted by the Delaware General Corporation Law, and our amended and restated bylaws that will be in effect upon the completion of this offering provide that we will indemnify our directors and officers and permit us to indemnify our employees and other agents, in each case to the maximum extent permitted by the Delaware General Corporation Law.
We have entered into indemnification agreements with our directors and officers, whereby we have agreed to indemnify our directors and officers to the fullest extent permitted by law, including indemnification against expenses and liabilities incurred in legal proceedings to which the director or officer was, or is threatened to be made, a party by reason of the fact that such director or officer is or was a director, officer, employee, or agent of Accolade, Inc., provided that such director or officer acted in good faith and in a manner that the director or officer reasonably believed to be in, or not opposed to, the best interest of Accolade, Inc. At present, there is no pending litigation or proceeding involving a director or officer of Accolade, Inc. regarding which indemnification is sought, nor is the registrant aware of any threatened litigation that may result in claims for indemnification.
We maintain insurance policies that indemnify our directors and officers against various liabilities arising under the Securities Act and the Exchange Act that might be incurred by any director or officer in his or her capacity as such.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our Board of Directors.
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The underwriting agreement to be filed as Exhibit 1.1 to this registration statement will provide for indemnification by the underwriters of us and our officers and directors for certain liabilities arising under the Securities Act or otherwise.
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Item 15. Recent Sales of Unregistered Securities.
Since NovemberOctober 1, 2016,2017, we have issued the following unregistered securities:
- (1)
- In October 2019, we sold an aggregate of
4,365,191873,038 shares of Series F preferred stock and a warrant to purchase 425,00085,000 shares of common stock to one accredited investor at a purchase price of $4.5817$22.9085 per share of Series F preferred stock for an aggregate purchase price of $20.0 million.
- (2)
- In July 2019, August 2019,
and October 2019, July 2020 and August 2020, we issued an aggregate of 1,446,626386,339 shares of common stock to two accredited investors as consideration pursuant to an acquisition.
- (3)
- From December 2017 through
December 2019,July 6, 2020, we issued and sold an aggregate of 192,246198,446 shares of our common stock to a total of 12 accredited investors upon the exercise of warrants at an exercise price of $0.0001prices ranging from $0.0005 to $13.75 per share, for an aggregate exercise price of $19.00.$2.2 million.
- (4)
- From October 2017 through June 2018, we issued
1,814,427362,877 shares of our common stock to employees in lieu of cash bonuses at prices per share ranging from $0.84$4.20 to $0.94$4.70 for an aggregate value of $1,584,694.$1,584,655.
- (5)
- From
November 2016March 1, 2018 through July 2018, we sold an aggregate of 10,833,1312,095,365 shares of our Series E preferred stock and issued warrants to purchase an aggregate of 2,792,243541,159 of common stock to a total of 4839 accredited investors at a purchase price of $4.77239$23.86195 per share of Series E preferred stock for an aggregate purchase price of $51.7$50.0 million.
- (6)
- From
November 2016October 1, 2017 through February 3,July 6, 2020 (the date of the filing of our registration statement on Form S-8, File No. 333-239704), we granted to certain employees, consultants, and directors options to purchase an aggregate of 49,892,0186,008,943 shares of our common stock under our 2007 Plan at exercise prices ranging from $0.30$1.50 to $20.51$102.55 per share.
- (7)
- From
November 2016October 1, 2017 through February 27,July 6, 2020 (the date of the filing of our registration statement on Form S-8, File No. 333-239704), we issued and sold an aggregate of 11,629,7092,731,769 shares of our common stock upon the exercise of options under our 2007 Plan, at exercise prices ranging from $0.30$1.50 to $20.51$102.55 per share, for an aggregate exercise price of $8,623,507.$10,423,900.
- (8)
- From
November 2016October 1, 2017 through July 2019, excluding the warrants issued in connection with our Series E and Series F financings, we issued to threetwo accredited investors warrants to purchase an aggregate of 1,007,131135,594 shares of our common stock at exercise prices ranging from $0.001$9.60 to $4.75$23.75 per share.
- (9)
- On July 7, 2020, we issued 1,401,836 shares of our common stock to 41 accredited investors upon the cashless exercise of outstanding warrants with exercise prices ranging from $0.0005 to $17.95 per share, which the total value of such shares that were tendered as consideration for
an aggregate exercise pricesuch cashless exercises was $1.7 million.
- (10)
- On July 7, 2020, upon the closing of
$2.0 million.our initial public offering, all outstanding shares of our preferred stock automatically converted into 29,479,521 shares of our common stock.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act (and Regulation D or Regulation S promulgated thereunder) or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under
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Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed on the share certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to
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information about us. The sales of these securities were made without any general solicitation or advertising.
Item 16. Exhibits and Financial Statement Schedules.
| | | |
Exhibit
Number | | Description of Exhibit |
|---|
| 1.1 | * | Form of Underwriting Agreement. |
| | | |
| 3.1 | | Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect. |
| | | |
| 3.2 | | Amended and Restated Bylaws of the Registrant, as amended July 2016, as currently in effect. |
| | | |
| 3.3 | | Form of Amended and Restated Certificate of Incorporation of the Registrant, to be effective upon the completion of this offering. |
| | | |
| 3.4 | | Form of Amended and Restated Bylaws of the Registrant, to be effective immediately prior to the completion of this offering. |
| | | |
| 4.1 | | Form of common stock certificate of the Registrant. |
| | | |
| 4.2 | | Fifth Amended and Restated Registration Rights Agreement by and among the Registrant and certain of its stockholders, dated October 2, 2019. |
| | | |
| 5.1 | * | Opinion of Cooley LLP. |
| | | |
| 10.1 | + | Accolade, Inc. Amended and Restated 2007 Stock Option Plan, and forms of agreements thereunder. |
| | | |
| 10.2 | + | Accolade, Inc. 2020 Equity Incentive Plan and forms of agreements thereunder. |
| | | |
| 10.3 | + | Accolade, Inc. 2020 Employee Stock Purchase Plan. |
| | | |
| 10.4 | + | Form of Indemnification Agreement entered into by and between the Registrant and each director and executive officer. |
| | | |
| 10.5 | + | Employment Agreement by and between the Registrant and Rajeev Singh dated October 2015. |
| | | |
| 10.6 | + | Offer Letter by and between the Registrant and Stephen Barnes dated December 1, 2014. |
| | | |
| 10.7 | + | Offer Letter by and between the Registrant and Robert Cavanaugh dated October 26, 2015. |
| | | |
| 10.8 | | Loan and Security Agreement by and between the Registrant and Escalate Capital Partners SBIC III, LP dated January 30, 2017. |
| | | |
| 10.9 | | First Amendment to Loan and Security Agreement by and between the Registrant and Escalate Capital Partners SBIC III, LP dated March 22, 2018. |
| | | |
| 10.10 | | Second Amendment to Loan and Security Agreement by and between the Registrant and Escalate Capital Partners SBIC III, LP dated July 19, 2019. |
| | | |
| 10.11 | | Credit Agreement by and among the Registrant, Comerica Bank and Western Alliance Bank dated July 19, 2019. |
|
| | |
| | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Description of Exhibit | | Form | | File No. | | Exhibit | | Filing Date | | Filed
Herewith | |
|---|
| | 1.1 | | Form of Underwriting Agreement. | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 3.1 | | Amended and Restated Certificate of Incorporation of the Registrant. | | 8-K | | | 001-39348 | | | 3.1 | | | July 10, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 3.2 | | Amended and Restated Bylaws of the Registrant. | | S-1 | | | 333-236786 | | | 3.4 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 4.1 | | Form of common stock certificate of the Registrant. | | S-1 | | | 333-236786 | | | 4.1 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 4.2 | | Fifth Amended and Restated Registration Rights Agreement by and among the Registrant and certain of its stockholders, dated October 2, 2019. | | S-1 | | | 333-236786 | | | 4.2 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 5.1 | | Opinion of Cooley LLP. | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 10.1 | + | Accolade, Inc. Amended and Restated 2007 Stock Option Plan, and forms of agreements thereunder. | | S-1 | | | 333-236786 | | | 10.1 | | | June 16, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.2 | + | Accolade, Inc. 2020 Equity Incentive Plan and forms of agreements thereunder. | | S-1 | | | 333-236786 | | | 10.2 | | | June 16, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.3 | + | Accolade, Inc. 2020 Employee Stock Purchase Plan. | | S-1 | | | 333-236786 | | | 10.3 | | | June 16, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.4 | + | Form of Indemnification Agreement entered into by and between the Registrant and each director and executive officer. | | S-1 | | | 333-236786 | | | 10.4 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.5 | + | Employment Agreement by and between the Registrant and Rajeev Singh dated October 2015. | | S-1 | | | 333-236786 | | | 10.5 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.6 | + | Offer Letter by and between the Registrant and Michael Hilton dated October 19, 2015. | | S-1 | | | 333-236786 | | | 10.6 | | | June 16, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.7 | + | Offer Letter by and between the Registrant and Robert Cavanaugh dated October 26, 2015. | | S-1 | | | 333-236786 | | | 10.7 | | | February 28, 2020 | | | | |
| |
| | | | | | | | | | | | | | | | | |
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| | | |
Exhibit
Number | | Description of Exhibit |
|---|
| 10.12 | | Warrant to Purchase Common Stock of the Registrant issued to Comcast Alpha Holdings, Inc. dated July 6, 2015. |
| | | |
| 10.13 | | Amendment No. 1 to Warrant to Purchase Common Stock of the Registrant issued to Comcast Alpha Holdings Inc. dated October 20, 2017. |
| | | |
| 10.14 | | Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated February 22, 2007. |
| | | |
| 10.15 | | First Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated July 24, 2008. |
| | | |
| 10.16 | | Second Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated March 3, 2009. |
| | | |
| 10.17 | | Third Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated August 5, 2010. |
| | | |
| 10.18 | | Fourth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated August 10, 2011. |
| | | |
| 10.19 | | Fifth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated January 31, 2012. |
| | | |
| 10.20 | | Sixth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated March 7, 2012. |
| | | |
| 10.21 | | Seventh Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated October 23, 2012. |
| | | |
| 10.22 | | Eighth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated December 1, 2017. |
| | | |
| 10.23 | † | Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated June 29, 2015. |
| | | |
| 10.24 | † | Amendment to Exhibits F and G to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated August 25, 2016. |
| | | |
| 10.25 | † | Amendment to Exhibit C to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated October 27, 2016. |
| | | |
| 10.26 | † | Amendment and Restatement of Exhibits F and G to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated September 18, 2017. |
| | | |
| 10.27 | † | Renewal and Amendment to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated October 20, 2017. |
| | | |
| 10.28 | † | Amendment to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated June 29, 2018. |
| | | |
| 10.29 | † | Amendment 2 to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated July 1, 2019. |
|
| | |
| | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Description of Exhibit | | Form | | File No. | | Exhibit | | Filing Date | | Filed
Herewith | |
|---|
| | 10.8 | | Credit Agreement by and among the Registrant, Comerica Bank and Western Alliance Bank dated July 19, 2019. | | S-1 | | | 333-236786 | | | 10.11 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.9 | † | First Amendment to Credit Agreement dated August 21, 2020 by and among the Registrant, Comerica Bank and Western Alliance Bank. | | 8-K | | | 001-39348 | | | 10.1 | | | August 25, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.10 | | Second Amendment to Credit Agreement dated September 11, 2020 by and among the Registrant, Comerica Bank and Western Alliance Bank. | | 10-Q | | | 001-39348 | | | 10.8 | | | October 14, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.11 | | Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated February 22, 2007. | | S-1 | | | 333-236786 | | | 10.14 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.12 | | First Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated July 24, 2008. | | S-1 | | | 333-236786 | | | 10.15 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.13 | | Second Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated March 3, 2009. | | S-1 | | | 333-236786 | | | 10.16 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.14 | | Third Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated August 5, 2010. | | S-1 | | | 333-236786 | | | 10.17 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.15 | | Fourth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated August 10, 2011. | | S-1 | | | 333-236786 | | | 10.18 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.16 | | Fifth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated January 31, 2012. | | S-1 | | | 333-236786 | | | 10.19 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.17 | | Sixth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated March 7, 2012. | | S-1 | | | 333-236786 | | | 10.20 | | | February 28, 2020 | | | | |
| |
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| | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Description of Exhibit | | Form | | File No. | | Exhibit | | Filing Date | | Filed
Herewith | |
|---|
| | 10.18 | | Seventh Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated October 23, 2012. | | S-1 | | | 333-236786 | | | 10.21 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.19 | | Eighth Amendment to Lease by and between the Registrant and Brandywine Operating Partnership, L.P. dated December 1, 2017. | | S-1 | | | 333-236786 | | | 10.22 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.20 | † | Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated June 29, 2015. | | S-1 | | | 333-236786 | | | 10.23 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.21 | † | Amendment to Exhibits F and G to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated August 25, 2016. | | S-1 | | | 333-236786 | | | 10.24 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.22 | † | Amendment to Exhibit C to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated October 27, 2016. | | S-1 | | | 333-236786 | | | 10.25 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.23 | † | Amendment and Restatement of Exhibits F and G to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated September 18, 2017. | | S-1 | | | 333-236786 | | | 10.26 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.24 | † | Renewal and Amendment to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated October 20, 2017. | | S-1 | | | 333-236786 | | | 10.27 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.25 | † | Amendment to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated June 29, 2018. | | S-1 | | | 333-236786 | | | 10.28 | | | February 28, 2020 | | | | |
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Table of Contents
| | | | | | | | | | | | | | | | | | |
Exhibit
Number | | Description of Exhibit | | Form | | File No. | | Exhibit | | Filing Date | | Filed
Herewith | |
|---|
| | 10.26 | † | Amendment 2 to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated July 1, 2019. | | S-1 | | | 333-236786 | | | 10.29 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.27 | † | Amendment to the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated August 12, 2019. | | S-1 | | | 333-236786 | | | 10.30 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.28 | † | Second Renewal and Amendment of the Amended and Restated Services Agreement by and between the Registrant and Comcast Cable Communications Management, LLC dated June 19, 2020. | | S-1 | | | 333-236786 | | | 10.32 | | | June 24, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.29 | | Office Lease by and between the Registrant and 1201 Tab Owner, LLC dated May 28, 2019. | | S-1 | | | 333-236786 | | | 10.31 | | | February 28, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 10.30 | + | Non-Employee Director Compensation Policy. | | S-1 | | | 333-236786 | | | 10.33 | | | June 16, 2020 | | | | |
| | | | | | | | | | | | | | | | | | | |
| | 23.1 | | Consent of KPMG LLP, independent registered public accounting firm. | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 23.2 | | Consent of Cooley LLP (included in Exhibit 5.1). | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 24.1 | | Power of Attorney (included on signature page). | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 101.INS | | XBRL Instance Document | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 101.SCH | | XBRL Taxonomy Extension Schema Document | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 101.DEF | | XBRL Extension Definition Linkbase Document | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 101.LAB | | XBRL Taxonomy Label Linkbase Document | | | | | | | | | | | | | | X | |
| | | | | | | | | | | | | | | | | | | |
| | 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | | | | | X | |
*To be filed by amendment.
- +
- Indicates management contract or compensatory plan.
- †
- Portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K.
#Previously filed.
- (b)
- Financial Statement Schedules.
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All financial statement schedules are omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or the notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant under the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on February 28,October 19, 2020.
| | | | |
| | | ACCOLADE, INC. |
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|
By: |
|
/s/ RAJEEV SINGH
Rajeev Singh
Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rajeev Singh and Stephen Barnes, and each one of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in their name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
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Signature | | Title | | Date |
|---|
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|
/s/ RAJEEV SINGH
Rajeev Singh | | Chief Executive Officer and Director
(Principal Executive Officer) | | February 28,October 19, 2020 |
/s/ STEPHEN BARNES
Stephen Barnes |
|
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
February 28,October 19, 2020 |
/s/ J. MICHAEL CLINE
J. Michael Cline |
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Director |
|
February 28,October 19, 2020 |
/s/ WILLIAM H. FRIST, SR.
William H. Frist, Sr. |
|
Director |
|
February 28,October 19, 2020 |
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Signature | | Title | | Date |
|---|
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/s/ JEFFREY JORDAN
Jeffrey Jordan | | Director | | February 28,October 19, 2020 |
/s/ PETER KLEIN
Peter Klein |
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Director |
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February 28,October 19, 2020 |
/s/ DAWN LEPORE
Dawn Lepore |
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Director |
|
February 28,October 19, 2020 |
/s/ JAMES C. MADDEN, V
James C. Madden, V |
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Director |
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February 28,October 19, 2020 |
/s/ THOMAS NEFF
Thomas Neff |
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Director |
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February 28,October 19, 2020 |
/s/ PATRICIA WADORS
Patricia Wadors |
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Director |
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February 28,October 19, 2020 |
/s/ MICHAEL T. YANG
Michael T. Yang |
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Director |
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February 28,October 19, 2020 |
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