0001412408-20-000073.txt : 20201209 0001412408-20-000073.hdr.sgml : 20201209 20201209161138 ACCESSION NUMBER: 0001412408-20-000073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 85 CONFORMED PERIOD OF REPORT: 20201031 FILED AS OF DATE: 20201209 DATE AS OF CHANGE: 20201209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Phreesia, Inc. CENTRAL INDEX KEY: 0001412408 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38977 FILM NUMBER: 201377964 BUSINESS ADDRESS: STREET 1: 434 FAYETTEVILLE ST. STREET 2: SUITE 1400 CITY: RALEIGH STATE: NC ZIP: 27601 BUSINESS PHONE: 646-747-9959 MAIL ADDRESS: STREET 1: 434 FAYETTEVILLE ST. STREET 2: SUITE 1400 CITY: RALEIGH STATE: NC ZIP: 27601 FORMER COMPANY: FORMER CONFORMED NAME: Phreesia Inc DATE OF NAME CHANGE: 20070914 10-Q 1 phr-20201031.htm 10-Q phr-20201031
false00014124082021Q3--01-31Figures as of October 31, 2020 reflect the Company's February 1, 2020 adoption of Accounting Standards Codification No. 842, Leases (ASC 842). For additional details, see Note 3(c), "Summary of significant accounting policies — Impact of recently adopted accounting pronouncements."Includes $2,741 initial right of use asset recorded upon adoption of ASC 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38977
PHREESIA, INC.
(Exact name of registrant as specified in its charter)

Delaware20-2275479
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
434 Fayetteville St, Suite 1400
Raleigh, NC
27601
(Address of principal executive offices)(Zip Code)
(888) 654-7473
(Registrant’s telephone number, including area code)

432 Park Ave. S., New York, NY 10016
{Former address, if changed since last report}

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

Title of each class Trading
Symbol
 Name of each exchange
on which registered
Common Stock, par value $0.01 per share PHR The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

1

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
As of December 4, 2020, 44,162,852 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
2

PHREESIA, INC.
FORM 10-Q
For the Quarter Ended October 31, 2020
TABLE OF CONTENTS
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.



3

Summary of Material Risks Associated with our Business


Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks and uncertainties include, but are not limited to, the following:

Business or economic disruptions or global health concerns, such as the COVID-19 pandemic, have and may continue to seriously harm our business and increase our costs and expenses. Given the unknown timeline and the near-term uncertainty of COVID-19 on our business, there continues to be uncertainty as to the extent to which the global COVID-19 pandemic may adversely impact our business operations, financial performance and results of operations at this time.
We have grown rapidly in recent periods, and if we fail to manage our growth effectively, our expenses could increase more than expected, our revenue may not increase and we may be unable to implement our business strategy.
We have identified a material weakness in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements to our financial statements or cause us to fail to meet our period reporting obligations.
We have experienced net losses in the past and we may not achieve profitability in the future.
Privacy concerns or security breaches relating to our Platform could result in economic loss, damage to our reputation, deterring users from using our products, and our exposure to legal penalties and liability.
We are subject to data privacy and security laws and regulations governing our collection, use, disclosure, or storage of personally identifiable information, including protected health information and payment card data, which may impose restrictions on us and our operations and subject us to penalties if we are unable to fully comply with such laws.
As a result of our variable sales and implementation cycles, we may be unable to recognize revenue to offset expenditures, which could result in fluctuations in our quarterly results of operations or otherwise harm our future operating results.
We typically incur significant upfront costs in our client relationships, and if we are unable to develop or grow these relationships over time, we are unlikely to recover these costs and our operating results may suffer.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to attract and retain highly skilled employees could adversely affect our business.
The healthcare industry is rapidly evolving and the market for technology-enabled services that empower healthcare consumers is relatively immature and unproven.
We may face intense competition, which could limit our ability to maintain or expand market share within our industry, and if we do not maintain or expand our market share our business and operating results will be harmed.


The summary risk factors described above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission, or the SEC. If any such risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.

4

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “appears,” “shall,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
 
our future financial performance, including our projected revenue, costs of revenue, operating expenses, cash
flows;
the rapidly evolving industry and the market for technology-enabled services in healthcare in the United States being relatively immature and unproven;
our reliance on a limited number of clients for a substantial portion of our revenue;
our anticipated growth and growth strategies and our ability to effectively manage that growth;
our ability to achieve and grow profitability;
the sufficiency of our cash, cash equivalents and investments to meet our liquidity needs;
potentially competing with our customers or partners;
our existing clients not renewing their existing contracts with us, renewing at lower fee levels or declining to purchase additional applications from us;
failure to adequately expand our direct sales force impeding our growth;
our ability to recover the significant upfront costs in our customer relationships;
our ability to determine the size of our target market;
liability arising from our collection, use, disclosure, or storage of sensitive data collected from or about patients;
consolidation in the healthcare industry resulting in loss of clients;
the uncertainty of the regulatory and political framework;
the impact of the COVID-19 pandemic on our business and our ability to attract, retain and cross-sell to
healthcare provider clients;
our ability to obtain, maintain and enforce intellectual property for our technology and products;
our inability to protect the confidentiality of our trade secrets impacting the value of our technology;
our reliance on third-party vendors, manufacturers and partners to execute our business strategy;
our inability to implement our solutions for clients resulting in loss of clients and reputation;
our dependency on our key personnel, and our ability to attract, hire, integrate, and retain key personnel;
the possibility that we may become subject to future litigation;
our future indebtedness and contractual obligations;
our expectations regarding trends in our key metrics and revenue from subscription fees from our provider clients, payment processing fees and fees charged to our life science clients by delivering targeted messages to patients; and
increased expense associated with being a public company.
other risks and uncertainties, including those listed under the caption “Risk Factors.”

5

All forward-looking statements are based on information and estimates available to the Company at the time of this Quarterly Report on Form 10-Q and are not guarantees of future financial performance. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events.

WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our platform, our planned financial and other announcements and attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD:
PHREESIA Twitter Account (https://twitter.com/phreesia)
PHREESIA Company Blog (https://www.phreesia.com/blog/)
PHREESIA Facebook Page (https://www.facebook.com/Phreesia/)
PHREESIA LinkedIn Page (https://www.linkedin.com/company/phreesia/)
PHREESIA Instagram Page (https://www.instagram.com/phreesiacareers)
The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this quarterly report on Form 10-Q. These channels may be updated from time to time on Phreesia’s investor relations website.

6


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Phreesia, Inc.
Balance Sheets
(in thousands, except share and per share data)
October 31, 2020January 31, 2020
(unaudited)
Assets
Current:
Cash and cash equivalents$254,118 $90,315 
Settlement assets12,267 12,368 
Accounts receivable, net of allowances27,594 21,978 
Deferred contract acquisition costs1,708 1,720 
Prepaid expenses and other current assets6,825 5,157 
Total current assets302,512 131,538 
Property and equipment, net of accumulated depreciation and amortization of $42,665 and $35,551
19,160 14,487 
Capitalized internal-use software, net of accumulated amortization of $23,907 and $19,554
9,986 8,735 
Operating lease right-of-use assets (1)3,192  
Deferred contract acquisition costs1,227 1,594 
Intangible assets, net of accumulated amortization of $450 and $271
1,020 1,199 
Deferred tax asset496 775 
Goodwill250 250 
Other assets207 180 
Total assets$338,050 $158,758 
Liabilities and Stockholders’ Equity
Current:
Settlement obligations$12,267 $12,368 
Current portion of debt and finance lease liabilities4,722 2,324 
Current portion of operating lease liabilities (1)1,288  
Accounts payable4,215 6,017 
Accrued expenses12,662 9,243 
Deferred revenue6,623 5,401 
Total current liabilities41,777 35,353 
Long-term debt and finance lease liabilities24,439 21,540 
Operating lease liabilities, noncurrent (1)2,158  
Total liabilities68,374 56,893 
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, $0.01 par value - 500,000,000 shares authorized as of October 31, 2020 and January 31, 2020, respectively; 44,039,563 and 36,610,763 shares issued and outstanding as of October 31, 2020 and January 31, 2020, respectively
440 366 
Additional paid-in capital573,786 386,383 
Accumulated deficit(303,681)(284,485)
Treasury stock(869)(399)
Total Stockholders’ Equity269,676 101,865 
Total Liabilities and Stockholders’ Equity$338,050 $158,758 
(1) Figures as of October 31, 2020 reflect the Company's February 1, 2020 adoption of Accounting Standards Codification No. 842, Leases (ASC 842). For additional details, see Note 3(c), "Summary of significant accounting policies — Impact of recently adopted accounting pronouncements."
See notes to unaudited Financial Statements
7

Phreesia, Inc.
Unaudited Statements of Operations
(in thousands, except share and per share data)
 
Three months ended October 31,Nine months ended
October 31,
2020201920202019
Revenue:
Subscription and related services$17,468 $14,606 $50,196 $41,292 
Payment processing fees12,917 11,559 36,452 34,781 
Life sciences8,079 6,678 20,221 15,895 
Total revenues38,464 32,843 106,869 91,968 
Expenses:
Cost of revenue (excluding depreciation and amortization)6,472 4,388 16,477 12,594 
Payment processing expense7,530 6,902 21,125 20,952 
Sales and marketing10,481 8,348 30,013 24,170 
Research and development5,732 4,774 16,267 13,762 
General and administrative10,370 7,184 28,721 20,849 
Depreciation2,447 2,153 7,125 6,444 
Amortization1,546 1,325 4,531 3,823 
Total expenses44,578 35,074 124,259 102,594 
Operating loss(6,114)(2,231)(17,390)(10,626)
Other income (expense)62 77 (229)(740)
Change in fair value of warrant liability   (3,307)
Interest income (expense)(467)(219)(1,206)(1,769)
Total other income (expense)(405)(142)(1,435)(5,816)
Loss before provision for income taxes(6,519)(2,373)(18,825)(16,442)
Provision for income taxes(194)(64)(371)(183)
Net loss$(6,713)$(2,437)$(19,196)$(16,625)
Preferred stock dividend paid   (14,955)
Accretion of redeemable preferred stock   (56,175)
Net loss attributable to common stockholders, basic and diluted$(6,713)$(2,437)$(19,196)$(87,755)
Net loss per share attributable to common stockholders, basic and diluted$(0.17)$(0.07)$(0.51)$(5.85)
Weighted-average common shares outstanding, basic and diluted38,511,370 35,790,951 37,855,503 15,007,247 
See notes to unaudited Financial Statements



8

Phreesia, Inc.
Unaudited statements of redeemable preferred stock and stockholders’ equity (deficit)
(in thousands, except share and per share data)

 Redeemable Preferred StockStockholders' Equity (Deficit)
 Series ASeries BJunior PreferredRedeemable
Preferred
 Common Stock  
 SharesAmountSharesAmountSharesAmountSharesAmountsTotalSharesAmountAPICAccumulated DeficitTreasury stockTotal
Balance, February 1, 201913,674,365 $79,311 9,197,142 $51,872 32,746,041 $32,746 42,560,530 $42,561 $206,490 1,994,721 $20  (210,994)$ $(210,974)
Net loss— — — — — — — — — — — — (6,695)— (6,695)
Stock-based compensation expense— — — — — — — — — — — 599 — — 599 
Exercise of stock options— — — — — — — — — 29,798  37 — — 37 
Issuance of common stock warrants— — — — — — — — — — — 833 — — 833 
Accretion of redeemable preferred stock— 5,196 — 2,667 — — — — 7,863 — — (1,469)(6,394)— (7,863)
Balance, April 30, 201913,674,365 $84,507 9,197,142 $54,539 32,746,041 $32,746 42,560,530 $42,561 $214,353 2,024,519 $20 $ $(224,083)$ $(224,063)
Net loss— — — — — — — — — — — — (7,493)— (7,493)
Stock-based compensation expense— — — — — — — — — — — 1,467 — — 1,467 
Exercise of stock options— — — — — — — — — 22,038  41 — — 41 
Accretion of redeemable preferred stock— 27,510 — 20,802 — — — — 48,312 — — (1,508)(46,804)— (48,312)
Payment of preferred stock dividends— — — — — — — — — — — (14,955)— — (14,955)
Issuance of common stock in initial public offering, net of issuance costs of $6,084
— — — — — — — — — 7,812,500 78 124,619 — — 124,698 
Conversion of preferred stock into common stock and cancellation of redeemable preferred stock(13,674,365)(112,017)(9,197,142)(75,341)(32,746,041)(32,746)(42,560,530)(42,561)(262,665)25,311,535 253 262,412 — — 262,665 
Conversion and exercise of preferred stock warrants into common stock— — — — — — — — — 588,763 6 8,799 — — 8,805 
Balance, July 31, 2019 $  $  $  $ $ 35,759,355 $357 $380,875 $(278,380)$ $102,853 
Net loss— — — — — — — — — — — — (2,437)— (2,437)
Stock-based compensation expense— — — — — — — — — — — 1,766 — — 1,766 
Exercise of stock options— — — — — — — — — 59,679 1 365 — — 366 
Cashless exercise of common stock warrants— — — — — — — — — 53,023 1 1 — — 2 
Deferred offering costs— — — — — — — — — — — (56)— — (56)
Balance, October 31, 2019 $  $  $  $ $ 35,872,057 $359 $382,951 $(280,817)$ $102,494 

See notes to unaudited Financial Statements



9

Stockholders' Equity (Deficit)
Common StockAccumulated
SharesAmountAPICDeficitTreasury stockTotal
Balance, February 1, 202036,610,763 $366 $386,383 $(284,485)$(399)$101,865 
Net loss— — — (6,112)— (6,112)
Stock-based compensation expense— — 2,872 — — 2,872 
Exercise of stock options and vesting of restricted stock units988,678 10 1,727 — — 1,737 
Treasury stock from vesting of restricted stock units— — — — (447)(447)
Balance, April 30, 202037,599,441 $376 $390,982 $(290,597)$(846)$99,915 
Net loss— — — (6,371)— (6,371)
Stock-based compensation expense— — 3,428 — — 3,428 
Exercise of stock options and vesting of restricted stock units283,396 3 735 — — 738 
Treasury stock from vesting of restricted stock units— — — — (23)(23)
Balance, July 31, 202037,882,837 $379 $395,145 $(296,968)$(869)$97,687 
Net loss— — — (6,713)— (6,713)
Stock-based compensation expense— — 3,316 — — 3,316 
Exercise of stock options and vesting of restricted stock units406,726 4 872 — — 876 
Issuance of common stock in secondary public offering, net of issuance costs of $290
5,750,000 57 174,453 — — 174,510 
Balance, October 31, 202044,039,563 $440 $573,786 $(303,681)$(869)$269,676 

See notes to unaudited Financial Statements


10

Phreesia, Inc.
Unaudited statements of cash flows
(in thousands, except share and per share data)
 
 Nine months ended October 31,
 20202019
Cash used in operating activities:
Net loss$(19,196)$(16,625)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization11,656 10,267 
Stock-based compensation expense9,616 3,832 
Change in fair value of warrants liability 3,307 
Amortization of debt discount318 412 
Loss on extinguishment of debt 1,073 
Cost of hardware purchased by customers604 512 
Deferred contract acquisition costs amortization2,280 1,465 
Non-cash operating lease expense1,228  
Deferred tax asset279  
Changes in operating assets and liabilities
Accounts receivable(5,616)(3,899)
Prepaid expenses and other assets(1,940)(2,943)
Deferred contract acquisition costs(1,901)(1,414)
Accounts payable(2,300)1,629 
Accrued expenses and other liabilities3,982 3,098 
Lease liability(1,419) 
Deferred revenue1,222 (1,162)
Net cash used in operating activities(1,187)(448)
Cash used in investing activities:
Capitalized internal-use software(4,663)(4,329)
Purchase of property and equipment(6,440)(4,826)
Net cash used in investing activities(11,103)(9,155)
Cash provided by financing activities:
Proceeds from issuance of common stock in equity offerings, net of underwriters' discounts and commissions174,800 130,781 
Payment of preferred stock dividends (14,955)
Proceeds from issuance of common stock upon exercise of stock options3,351 445 
Treasury stock to recover tax withholdings on stock compensation awards(869) 
Payment of offering costs(226)(5,944)
Proceeds from revolving line of credit 9,876 
Payments of revolving line of credit (17,676)
Proceeds from term loan 20,000 
Repayment of term loan and loan payable (21,042)
Insurance financing arrangement2,009  
Principal portion of finance lease payments(1,797)(1,624)
Principal payments on financing arrangements(881) 
Debt extinguishment costs (300)


11

Debt issuance costs(69)(112)
Loan facility fee payment(225) 
Net cash provided by financing activities176,093 99,449 
Net increase in cash and cash equivalents163,803 89,846 
Cash and cash equivalents – beginning of period90,315 1,543 
Cash and cash equivalents – end of period$254,118 $91,389 
Supplemental information of non-cash investing and financing information:
Right-of-use assets recorded in exchange for operating lease liabilities (1)$4,420 $ 
Property and equipment acquisitions through finance leases$6,050 $1,738 
Capitalized software acquired through vendor financing$174 $ 
Purchase of property and equipment and capitalized software included in accounts payable$1,681 $546 
Issuance of warrants related to debt$ $833 
Cashless transfer of term loan and related accrued fees into increase in debt balance$20,257 $ 
Cashless transfer of lender fees through increase in debt balance$406 $ 
Deferred offering costs included in accounts payable and accrued liabilities$64 $ 
Cashless exercise of common stock warrants$ $2,521 
Cash payments for:
Interest$1,047 $1,834 
(1) Includes $2,741 initial right of use asset recorded upon adoption of ASC 842.
See notes to unaudited Financial Statements



12

Phreesia, Inc.
Notes to Unaudited Financial Statements
(in thousands, except share and per share data)

1. Background and liquidity
(a) Background
Phreesia, Inc. (the Company) is a leading provider of comprehensive solutions that transform the healthcare experience by engaging patients in their care and enabling healthcare provider organizations to optimize operational efficiency, improve profitability and enhance clinical care. Through the SaaS-based Phreesia Platform (the Phreesia Platform), the Company offers healthcare provider organizations a robust suite of solutions to manage the patient intake process and a leading payments solution for secure processing of patient payments. The Company’s Platform also provides life sciences companies with an engagement channel for targeted and direct communication with patients. In connection with the patient intake and registration process, Phreesia offers its provider customers the ability to lease tablets (PhreesiaPads) and on-site kiosks (Arrival Stations) along with their monthly subscription. The Company was formed in May 2005, and has offices in New York, New York, Raleigh, North Carolina and Ottawa, Canada.
On December 9, 2020, the Company changed its headquarters from New York, New York to Raleigh, North Carolina.

(b) Initial public offering
On July 22, 2019, the Company closed its initial public offering (IPO), in which the Company issued and sold 7,812,500 shares of common stock at a public offering price of $18.00 per share, resulting in net proceeds of $130,781, after deducting underwriting discounts and commissions of $9,844 but before deducting deferred offering costs of $6,412. In addition to the shares of common stock sold by the Company upon the IPO, certain selling stockholders sold an aggregate of 2,868,923 shares of common stock as part of the IPO. In addition, all then outstanding shares of Convertible Preferred stock converted into 25,311,525 shares of common stock and the Company issued 757,625 shares of common stock as a result of the cashless exercise of warrants as of January 31, 2020.
(c) Follow-on offerings
On December 17, 2019, the Company closed its follow-on offering of 7,762,500 shares of common stock sold by certain selling stockholders. The Company did not receive any proceeds from the follow-on offering but did incur $1,047 in transaction costs, recorded as general and administrative expense within the statement of operations.

On October 23, 2020, the Company closed an additional public offering in which the Company issued and sold 5,750,000 shares of its common stock at a public offering price of $32.00 per share, resulting in net proceeds of $174,510 after deducting underwriting discounts and offering expenses.

(d) Liquidity
Since the Company commenced operations, it has not generated sufficient revenue to meet its operating expenses and has continued to incur significant net losses. To date, the Company has primarily relied upon the proceeds from issuances of preferred stock and debt, and most recently with proceeds from the follow-on equity offerings, to fund its operations as well as sales of Company products and services in the normal course of business. Management believes that net losses and negative cash flows will continue for at least the next year.
Management believes that the Company’s cash and cash equivalents at October 31, 2020, along with cash generated in the normal course of business, and available borrowing capacity under its May 2020 Credit Facility (See Note 6), are sufficient to fund its operations for at least the next 12 months. The Company will obtain additional financing, if needed, to successfully implement its long-term strategy. There can be no assurance that additional financing, if needed, can be obtained on terms acceptable to the Company. The ability of the Company to achieve successful operations will depend on, among other things, new business, the retention of customers, and the effectiveness of sales and marketing initiatives. The Company is subject to a number of risks similar to other companies in its stage of business life cycle, including dependence on key individuals, competition in the marketplace, and the need to fund future product and services development.
 
2. Basis of presentation


13

(a) Basis of presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and include the accounts of Phreesia, Inc. and its branch operation in Canada.

(b) Fiscal year
The Company’s fiscal year ends on January 31. References to fiscal 2021 and 2020 refer to the fiscal years ended January 31, 2021 and January 31, 2020, respectively.

(c) Unaudited interim financial statements
The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, which include normal recurring adjustments, necessary for the fair statement of the Company’s interim financial position as of October 31, 2020 and the results of its operations, changes in its stockholders' equity and its cash flows for the periods ended October 31, 2020 and 2019. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The results for the interim periods are not necessarily indicative of results to be expected for the full year, any other interim periods, or any future year or period. The Company’s management believes that the disclosures herein 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 January 31, 2020.

(d) Reclassifications

Certain reclassifications have been made to the prior period presentation to conform to the current period presentation. In the Company's balance sheet as of January 31, 2020, the Company has reclassified $2.3 million from current portion of finance lease liabilities to current portion of debt and finance lease liabilities, and the Company has reclassified $2.1 million from long-term finance leases to long-term debt and finance leases.

3. Summary of significant accounting policies
The Company’s significant accounting policies are disclosed in the audited financial statements for the fiscal year ended January 31, 2020. Since the date of those audited financial statements, there have been no material changes to the Company’s significant accounting policies, including the status of recent accounting pronouncements, other than those detailed below.

(a) Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments. Although management believes its estimates and assumptions are reasonable under the circumstances at the time they are made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Actual results may differ from those estimates made under different assumptions or circumstances. The most significant assumptions and estimates relate to the accounts receivable allowance, capitalized internal-use software, the determination of the useful lives of property and equipment and capitalized software, the fair value of securities underlying stock-based compensation awards issued prior to our initial public offering, the fair value of business acquisitions, and the realization of deferred tax assets.



14

(b) Concentrations of credit risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and settlement assets. The Company’s cash and cash equivalents are held by established financial institutions. The Company does not require collateral from its customers and generally requires payment within 30 to 60 days of billing. Settlement assets are amounts due from well-established payment processing companies and normally take one or two business days to settle which mitigates the associated risk of concentration. The Company has one third-party payment processor.
The Company’s customers are primarily physician’s offices located in the United States and pharmaceutical companies. The Company did not have any individual customers that represented more than 10% of total revenues for the three and nine months ended October 31, 2020 and 2019. As of October 31, 2020, we had receivables from two entities which accounted for 16% and 11%, respectively, of total accounts receivable.

(c) Risks Related to the COVID-19 Pandemic
In December 2019 and early 2020, an outbreak of a novel strain of coronavirus (COVID-19) occurred. COVID-19 spread to a number of countries including the United States and Canada and was declared a pandemic by the World Health Organization. There continues to be uncertainty as to the extent to which the global COVID-19 pandemic may adversely impact our business operations, financial performance, and results of operations at this time.

(c) New accounting pronouncements
Impact of recently adopted accounting pronouncements
On May 1, 2020, the Company adopted ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which is intended to align the requirements for capitalization of implementation costs incurred in a cloud computing arrangement that is a service contract with the existing guidance for internal-use software. The guidance requires capitalized costs to be included within prepaid expenses and the guidance requires amortization of capitalized costs to be included in the same line as the associated cloud subscription costs in the statement of operations. The Company adopted ASU 2018-15 prospectively for implementation costs incurred subsequent to May 1, 2020. See Note 4 - Composition of Certain Financial Statement Captions for additional information.
On February 1, 2020, the Company adopted the Financial Accounting Standards Board's (FASB) Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842) (ASC 842) which requires lessees to record most leases on their balance sheets but to recognize the expenses in their statement of operations in a manner similar to the prior standard. Topic 842 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term.
The Company adopted the new lease guidance using a modified retrospective transition method applied to those leases which were not completed as of February 1, 2020. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for the periods before the date of adoption.
The Company elected the ‘package of practical expedients,’ which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight practical expedient.
The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all of its leases. This means, for those leases that qualify, the Company will not recognize right-of-use assets or lease liabilities, including existing short-term leases as of the transition date. The Company also elected the practical expedient to not separate lease and non-lease components for its office and computer equipment leases.
Upon adoption of Topic 842 the Company recognized operating lease right-of-use assets and operating lease liabilities related to our office leases of $2,741 and $2,928, respectively. The Company’s accounting for lessee finance and all lessor leases remains substantially unchanged from legacy guidance. The standard did not have a significant impact on our statements of operations or statements of cash flows. No adjustment to accumulated deficit was recorded because the adoption did not change the Company's net assets.


15

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). ASU 2018-13 updates the disclosure requirements for fair value measurements and is effective for financial statements issued for fiscal years beginning after December 15, 2019. The Company adopted the new guidance effective February 1, 2020, and it did not have a material effect on its financial statements.
On February 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses. The update requires the recognition of all losses expected over the life of a financial instrument upon origination or purchase of the instrument. The Company adopted this update using a modified retrospective method. No adjustment to accumulated deficit was recorded as a result of the adoption of this standard, which did not have a material impact on the Company's financial statements.
Recent accounting pronouncements not yet adopted
There are no recently issued accounting pronouncements the Company has not yet adopted that will materially impact the Company's financial statements.

4. Composition of certain financial statement captions
(a) Accrued expenses
Accrued expenses as of October 31, 2020 and January 31, 2020 are as follows:
 October 31, 2020January 31, 2020
Payroll-related expenses and taxes$7,846 $5,032 
Payment processing fees liability2,634 2,738 
Other2,182 1,473 
Total$12,662 $9,243 

(b) Property and equipment
Property and equipment as of October 31, 2020 and January 31, 2020 are as follows:
 
Useful Life
 (years)October 31, 2020January 31, 2020
PhreesiaPads and Arrivals Stations3$29,857 $26,389 
Computer equipment325,990 18,394 
Computer software33,010 2,297 
Hardware development31,024 1,024 
Furniture and fixtures7743 743 
Leasehold improvements21,201 1,191 
Total property and equipment$61,825 $50,038 
Less accumulated depreciation and amortization(42,665)(35,551)
Property and equipment — net$19,160 $14,487 
Depreciation expense related to property and equipment amounted to $2,447 and $2,153 for the three months ended October 31, 2020 and 2019, respectively. Depreciation expense related to property and equipment amounted to $7,125 and $6,444 for the nine months ended October 31, 2020 and 2019, respectively. Finance lease depreciation, included in depreciation expense, was $2,278 for the nine months ended October 31, 2020.
Assets under finance leases included in computer equipment were $17,078 and $12,283 as of October 31, 2020 and January 31, 2020. Accumulated amortization of assets under finance leases was $9,555 and $7,724 as of October 31, 2020 and January 31, 2020, respectively.

(c) Capitalized internal use software


16

For the three months ended October 31, 2020 and 2019, the Company capitalized $1,972 and $1,452, respectively, of costs related to the Phreesia Platform. For the nine months ended October 31, 2020 and 2019, the Company capitalized $5,604 and $4,329, respectively, of costs related to the Phreesia Platform.
During the three months ended October 31, 2020 and 2019, amortization expense related to capitalized internal-use software was $1,487 and $1,266, respectively. During the nine months ended October 31, 2020 and 2019, amortization expense related to capitalized internal-use software was $4,353 and $3,645, respectively. As of October 31, 2020 and January 31, 2020, the net book value of the Phreesia Platform was $9,986 and $8,735, respectively.

(d) Intangible assets and goodwill
The following presents the details of intangible assets as of October 31, 2020 and January 31, 2020:

Useful Life
 (years)October 31, 2020January 31, 2020
Acquired technology5$490 $490 
Customer relationship7980 980 
Total intangible assets, gross carrying value$1,470 $1,470 
Less accumulated amortization(450)(271)
Net carrying value$1,020 $1,199 
The remaining useful life for acquired technology in years is 3.1 and 3.9 as of October 31, 2020 and January 31, 2020, respectively. The remaining useful life for customer relationships in years is 5.1 and 5.9 as of October 31, 2020 and January 31, 2020, respectively.
Amortization expense associated with intangible assets amounted to $59 and $59 for the three months ended October 31, 2020 and 2019, respectively. Amortization expense associated with intangible assets amounted to $178 and $178 for the nine months ended October 31, 2020 and 2019, respectively.
The estimated amortization expense for intangible assets for the next five years and thereafter is as follows as of October 31, 2020:

October 31, 2020
2021 (Remaining three months)$60 
Fiscal Years Ending January 31,
2022238 
2023238 
2024224 
2025 - thereafter260 
Total$1,020 

There were no changes to the Company's goodwill balance during the nine months ended October 31, 2020. The Company did not record any impairments of goodwill during the three and nine months ended October 31, 2020 or 2019, respectively. Goodwill was $250 as of October 31, 2020 and January 31, 2020.

(e) Accounts receivable
Accounts receivable as of October 31, 2020 and January 31, 2020 are as follows:
 
 October 31, 2020January 31, 2020
Billed$26,000 $22,245 
Unbilled2,344 676 
Total accounts receivable, gross$28,344 $22,921 
Less accounts receivable allowances(750)(943)
Total accounts receivable$27,594 $21,978 


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Activity in our allowance for doubtful accounts was as follows for the nine months ended October 31, 2020:

 October 31, 2020
Balance, January 31, 2020$943 
Bad debt expense396
Write-offs and adjustments(589)
Balance, October 31, 2020
$750 

The Company’s allowance for doubtful accounts represents the current estimate of expected future losses based on prior bad debt experience as well as considerations for specific customers as applicable. The Company's accounts receivable are considered past due when they are outstanding past the due date listed on the invoice to the customer. As of October 31, 2020, 58% of the Company's accounts receivable was aged less than 30 days from the invoice date and 15% of the Company's accounts receivable was aged over 90 days from the invoice date. The Company writes off accounts receivable and removes the associated allowance for doubtful accounts when the Company deems the receivables to be uncollectible.

(f) Prepaid and other current assets
Prepaid and other current assets as of October 31, 2020 and January 31, 2020 are as follows:
 
 October 31, 2020January 31, 2020
Prepaid software and business systems1,994 $1,611 
Prepaid PhreesiaPads394 645 
Prepaid data center expenses350 751 
Prepaid insurance1,969 1,259 
Other prepaid expenses and other current assets2,118 891 
Total prepaid and other current assets$6,825 $5,157 
The Company enters into cloud computing service contracts to support our sales and marketing, product development and administrative activities. Subsequent to the adoption of ASU 2018-15 in May 2020, we capitalize certain implementation costs for cloud computing arrangements that meet the definition of a service contract. We include these capitalized implementation costs within Prepaid software and business systems in the table above. Once placed in service, we amortize these costs over the remaining subscription term to the same expense line as the related cloud subscription. Capitalized implementation costs for cloud computing arrangements accounted for as service contracts were $283 and $434 for the three and nine months ended October 31, 2020. Accumulated amortization of capitalized implementation costs for these arrangements was $13 as of October 31, 2020.

(g) Other income (expense)

Other income for the three months ended October 31, 2020 and 2019 was $62 and $77, and was composed primarily of foreign exchange gains. Other expense for the nine months ended October 31, 2020 was $229 and was composed primarily of foreign exchange losses. Other expense for the nine months ended October 31, 2019 was $740 and was composed primarily of loss on extinguishment of debt of $1,073, partially offset by foreign exchange gains.

5. Revenue
The Company generates revenue primarily from providing an integrated SaaS-based software and payment platform for the healthcare industry. The Company derives revenue from subscription fees and related services generated from the Company’s provider customers for access to the Phreesia Platform, payment processing fees based on patient payment volume processed through the Phreesia Platform, and from digital patient engagement


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revenue from life sciences companies to reach, educate and communicate with patients when they are most receptive and actively seeking care.
The amount of subscription and related services revenue recorded pursuant to ASC 842 for the leasing of the Company’s PhreesiaPads and Arrival Stations was $1,593 and $1,496 for the three months ended October 31, 2020 and 2019, respectively. The amount of subscription and related services revenue recorded pursuant to ASC 842 for the leasing of the Company’s PhreesiaPads and Arrival Stations was $4,732 and $4,462 for the nine months ended October 31, 2020 and 2019, respectively.

Contract balances
The following table represents a roll-forward of contract assets:
Contract assets (unbilled accounts receivable)
January 31, 2020$676 
Amount transferred to receivables from beginning balance of contract assets(676)
Contract asset additions, net of reclassification to receivables2,344 
October 31, 2020$2,344 

The following table represents a roll-forward of contract liabilities:
Contract liabilities (deferred revenue)
January 31, 2020$5,401 
Revenue recognized that was included in deferred revenue at the beginning of the period(5,004)
Revenue recognized that was not included in deferred revenue at the beginning of the period(1,168)
Increases due to invoicing prior to satisfaction of performance obligations7,394 
October 31, 2020$