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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2021
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)


 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):
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.   ☐
1

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 3, 2021, 51,239,860 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, 2021
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:

We have grown rapidly in recent periods, and as a result, our expenses are continuing to increase. If we fail to manage our growth effectively, our revenue may not increase and we may be unable to implement our business strategy.
We may face intense competition, including with our partners, as we grow, which could limit our ability to maintain or expand market share within our industry and could adversely impact our business.
We have experienced net losses in the past and we may not achieve profitability in the future.
Business or economic disruptions or global health concerns have and may continue to seriously harm our business and increase our costs and expenses.
We have identified a material weakness in our internal controls 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 consolidated financial statements or cause us to fail to meet our period reporting obligations.
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 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 certain key employees, 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. If we are not successful in promoting the benefits of our Platform, our growth may be limited.

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 consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission, (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 and may contain projections of our future results of operations or of our financial information or state other forward-looking information. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. 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 revenue, cash flows, costs of revenue and operating expenses;
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;
our potential competition with our customers or partners;
our existing clients not renewing their existing contracts with us, renewing at lower fee levels or declining to purchase additional applications from us;
our failure to adequately expand our direct sales force impeding our growth;
our ability to recover the significant upfront costs in our customer relationships;
our ability to determine the size of our target market;
liability arising from our collection, use, disclosure, or storage of sensitive data collected from or about patients;
consolidation in the healthcare industry resulting in loss of clients;
the uncertainty of the regulatory and political framework;
the impact of the COVID-19 pandemic on our business and our ability to attract, retain and cross-sell to healthcare provider clients;
our ability to obtain, maintain and enforce intellectual property for our technology and products;
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 sciences clients by delivering targeted messages to patients;
increased expense associated with being a public company;
our ability to realize the intended benefits of our acquisitions; and
5

other risks and uncertainties, including those listed under the caption “Risk Factors.”
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. We have based our forward-looking statements primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including, without limitation, those described in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q.
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on 10-Q. We cannot assure you that the results, events and circumstances reflected in these forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q speak only as of the date on which the statements are made. We undertake no obligation to update, and expressly disclaim the obligation to update, any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.

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 and web channels as a means of disclosing information about the company, our platform, our planned financial and other announcements, 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 Facebook Page (https://www.facebook.com/phreesia/)
PHREESIA LinkedIn Page (https://www.linkedin.com/company/phreesia)
PHREESIA News Page (https://www.phreesia.com/news/)

The information we post through these channels may be deemed material. Accordingly, investors should monitor these accounts and our News page, 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.

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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Phreesia, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
October 31, 2021January 31, 2021
(Unaudited)
Assets
Current:
Cash and cash equivalents$400,395 $218,781 
Settlement assets16,323 15,488 
Accounts receivable, net of allowance for doubtful accounts of $705 and $699 as of October 31, 2021 and January 31, 2021, respectively
35,460 29,052 
Deferred contract acquisition costs1,705 1,693 
Prepaid expenses and other current assets10,450 7,254 
Total current assets464,333 272,268 
Property and equipment, net of accumulated depreciation and amortization of $50,838 and $40,148 as of October 31, 2021 and January 31, 2021, respectively
32,755 26,660 
Capitalized internal-use software, net of accumulated amortization of $29,838 and $25,476 as of October 31, 2021 and January 31, 2021, respectively
14,079 10,476 
Operating lease right-of-use assets2,005 2,654 
Deferred contract acquisition costs2,456 1,248 
Intangible assets, net of accumulated amortization of $907 and $525 as of October 31, 2021 and January 31, 2021, respectively
2,343 2,725 
Deferred tax asset150 658 
Goodwill8,211 8,307 
Other assets2,795 1,670 
Total assets$529,127 $326,666 
Liabilities and Stockholders’ Equity
Current:
Settlement obligations$16,323 $15,488 
Current portion of finance lease liabilities and other debt4,597 4,864 
Current portion of operating lease liabilities1,116 1,087 
Accounts payable11,602 4,389 
Accrued expenses18,885 18,324 
Deferred revenue12,434 10,838 
Total current liabilities64,957 54,990 
Long-term finance lease liabilities and other debt5,134 6,471 
Operating lease liabilities, non-current1,117 1,899 
Total liabilities71,208 63,360 
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Common stock, $0.01 par value - 500,000,000 shares authorized as of both October 31, 2021 and January 31, 2021; 51,289,020 and 44,880,883 shares issued as of October 31, 2021 and January 31, 2021, respectively
513 449 
Additional paid-in capital849,450 579,599 
Accumulated deficit(383,487)(311,777)
Treasury stock, at cost, 157,612 and 99,520 shares at October 31, 2021 and January 31, 2021, respectively
(8,557)(4,965)
Total Stockholders’ Equity457,919 263,306 
Total Liabilities and Stockholders’ Equity$529,127 $326,666 
See notes to Unaudited Consolidated Financial Statements
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Phreesia, Inc.
Unaudited Consolidated Statements of Operations
(in thousands, except share and per share data)
Three months ended
October 31,
Nine months ended
October 31,
2021202020212020
Revenue:
Subscription and related services$24,365 $17,468 $69,069 $50,196 
Payment processing fees16,111 12,917 49,061 36,452 
Life sciences15,439 8,079 37,083 20,221 
Total revenues55,915 38,464 155,213 106,869 
Expenses:
Cost of revenue (excluding depreciation and amortization)11,644 6,472 30,210 16,477 
Payment processing expense9,449 7,530 28,822 21,125 
Sales and marketing32,036 10,481 69,215 30,013 
Research and development15,273 5,732 34,770 16,267 
General and administrative18,021 10,370 46,936 28,721 
Depreciation3,719 2,447 10,717 7,125 
Amortization1,513 1,546 4,744 4,531 
Total expenses91,655 44,578 225,414 124,259 
Operating loss(35,740)(6,114)(70,201)(17,390)
Other (expense) income, net(114)62 (138)(229)
Interest (expense) income, net(311)(467)(756)(1,206)
Total other expense, net(425)(405)(894)(1,435)
Loss before provision for income taxes(36,165)(6,519)(71,095)(18,825)
Provision for income taxes(178)(194)(615)(371)
Net loss$(36,343)$(6,713)$(71,710)$(19,196)
Net loss per share attributable to common stockholders, basic and diluted$(0.71)$(0.17)$(1.44)$(0.51)
Weighted-average common shares outstanding, basic and diluted51,020,271 38,511,370 49,943,049 37,855,503 
See notes to Unaudited Consolidated Financial Statements



8

Phreesia, Inc.
Unaudited Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
 Common Stock  
 SharesAmountAPICAccumulated DeficitTreasury stockTotal
Balance, February 1, 202036,610,763 $366 $386,383 $(284,485)$(399)$101,865 
Net loss— — — (6,112)— (6,112)
Stock-based compensation— — 2,872 — — 2,872 
Exercise of stock options and vesting of restricted stock units988,678 10 1,727 — — 1,737 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (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— — 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 - satisfaction of tax withholdings— — — — (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— — 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 Consolidated Financial Statements


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Common Stock
SharesAmountAPICAccumulated DeficitTreasury stockTotal
Balance, February 1, 202144,880,883 $449 $579,599 $(311,777)$(4,965)$263,306 
Net loss— — — (10,974)— (10,974)
Stock-based compensation— — 5,774 — — 5,774 
Exercise of stock options and vesting of restricted stock units214,346 2 498 — — 500 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (1,145)(1,145)
Issuance of common stock in follow-on public offering, net5,175,000 52 245,761 — — 245,813 
Balance, April 30, 202150,270,229 $503 $831,632 $(322,751)$(6,110)$503,274 
Net loss— — — (24,393)— (24,393)
Stock-based compensation— — 7,355 — — 7,355 
Exercise of stock options and vesting of restricted stock units621,897 6 1,300 — — 1,306 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (978)(978)
Balance, July 31, 202150,892,126 $509 $840,287 $(347,144)$(7,088)$486,564 
Net loss— — — (36,343)— (36,343)
Stock-based compensation— — 7,821 — — 7,821 
Exercise of stock options and vesting of restricted stock units396,894 4 1,342 — — 1,346 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (1,469)(1,469)
Balance, October 31, 202151,289,020 $513 $849,450 $(383,487)$(8,557)$457,919 

See notes to Unaudited Consolidated Financial Statements



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Phreesia, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
 Nine months ended
October 31,
 20212020
Operating activities:
Net loss$(71,710)$(19,196)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization15,461 11,656 
Stock-based compensation expense25,976 9,616 
Amortization of deferred financing costs and debt discount216 318 
Cost of Phreesia hardware purchased by customers449 604 
Deferred contract acquisition costs amortization1,709 2,280 
Non-cash operating lease expense730 1,228 
Change in fair value of contingent consideration liabilities209  
Deferred tax asset508 279 
Changes in operating assets and liabilities:
Accounts receivable(6,408)(5,616)
Prepaid expenses and other assets(5,686)(1,940)
Deferred contract acquisition costs(2,929)(1,901)
Accounts payable9,490 (2,300)
Accrued expenses and other liabilities(5,563)3,982 
Lease liability(779)(1,419)
Deferred revenue1,596 1,222 
Net cash used in operating activities(36,731)(1,187)
Investing activities:
Capitalized internal-use software(7,962)(4,663)
Purchase of property and equipment(16,596)(6,440)
Net cash used in investing activities(24,558)(11,103)
Financing activities:
Proceeds from issuance of common stock in equity offerings, net of underwriters' discounts and commissions245,813 174,800 
Proceeds from issuance of common stock upon exercise of stock options4,062 3,351 
Treasury stock to satisfy tax withholdings on stock compensation awards(3,546)(869)
Payment of offering costs (226)
Proceeds from employee stock purchase plan1,147  
Insurance financing agreement 2,009 
Finance lease payments(3,175)(1,797)
Principal payments on financing agreements(873)(881)
Debt issuance costs (69)
Loan facility fee payment(125)(225)
Payment of contingent consideration for acquisitions(400) 
Net cash provided by financing activities242,903 176,093 
Net increase in cash and cash equivalents181,614 163,803 
Cash and cash equivalents – beginning of period218,781 90,315 
Cash and cash equivalents – end of period$400,395 $254,118 


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Supplemental information of non-cash investing and financing information:
Right-of-use assets obtained in exchange for operating lease liabilities$81 $4,420 
Property and equipment acquisitions through finance leases$2,645 $6,050 
Capitalized software acquired through vendor financing$ $174 
Cashless transfer of term loan and related accrued fees into increase in debt balance$ $20,257 
Cashless transfer of lender fees through increase in debt balance$ $406 
Deferred offering costs included in accounts payable and accrued liabilities$ $64 
Purchase of property and equipment and capitalized software included in accounts payable$1,082 $1,681 
Capitalized stock-based compensation$279 $ 
Cash payments for: 
Interest$578 $1,047 
See notes to Unaudited Consolidated Financial Statements



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Phreesia, Inc.
Notes to Unaudited Consolidated 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 software 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 and safety. Through the SaaS-based Phreesia Platform (the "Phreesia Platform" or "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 ("Arrivals Kiosks") along with their monthly subscription. The Company was formed in May 2005, and has offices in Raleigh, North Carolina and Ottawa, Canada. The Company completed an initial public offering in July 2019.
(b) Follow-on equity offering

On April 12, 2021, the Company closed a follow-on public offering in which the Company issued and sold 5,175,000 shares of its common stock at a public offering price of $50.00 per share, resulting in net proceeds of $245,813 after deducting underwriting discounts and offering expenses.

(c) 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 common stock, debt and preferred stock 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, 2021, along with cash generated in the normal course of business, and available borrowing capacity under its Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the "Second SVB Facility") (Note 6), are sufficient to fund its operations for at least the next 12 months. The Company will seek to obtain additional financing, if needed, to successfully implement its long-term strategy.
 
2. Basis of presentation
(a) Consolidated financial statements
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and include the accounts of Phreesia, Inc., its branch operation in Canada and its subsidiaries (collectively, the "Company").

(b) Fiscal year
The Company’s fiscal year ends on January 31. References to fiscal 2022 and 2021 refer to the fiscal years ending on January 31, 2022 and January 31, 2021, respectively.

(c) Unaudited interim financial statements
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with GAAP and applicable rules and regulations of the SEC regarding interim financial reporting. In the opinion of management, the accompanying unaudited interim consolidated 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, 2021 and the results of its operations, changes in its stockholders' equity and its cash flows for the periods ended October 31, 2021 and 2020. 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


13

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, 2021.
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, 2021. 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 the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. 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 could differ from those estimates made under different assumptions or circumstances. The most significant assumptions and estimates relate to the allowance for doubtful accounts, capitalized internal-use software, the determination of the useful lives of property and equipment, the fair value of securities underlying stock-based compensation, the fair value of identifiable assets and liabilities in a business acquisition, and the realization of deferred tax assets.

(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 utilizes 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 both the three and nine months ended October 31, 2021 and 2020. As of October 31, 2021, the Company had receivables from one entity that accounted for at least 10% of total accounts receivable.

(c) Risks and uncertainties

Risks Related to the COVID-19 Pandemic
In March 2020, the World Health Organization declared the ongoing outbreak of a novel strain of coronavirus ("COVID-19") a pandemic. There continues to be uncertainty as to the duration and extent to which the global COVID-19 pandemic, as well as the emergence of new variants, may adversely impact the Company's business operations, financial performance, and results of operations, as well as macroeconomic conditions, at this time.
(d) New accounting pronouncements
Impact of recently adopted accounting pronouncements
During the three and nine months ended October 31, 2021, the Company did not adopt any accounting pronouncements that materially impacted the Company's financial statements.


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Recent accounting pronouncements not yet adopted
In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires the Company to recognize and measure contract assets and contract liabilities in a business combination under ASC 606, Revenue from Contracts with Customers. The new standard will increase the value of deferred revenue the Company acquires in business combinations, and consequently will increase revenue the Company recognizes on acquired customer contracts subsequent to those business combinations. The new standard is effective for acquisitions occurring in fiscal years beginning after December 15, 2022. Early adoption is permitted. The new standard will apply to all business combinations that occur during and after the year of adoption.
There are no other 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, 2021 and January 31, 2021 are as follows:
 October 31, 2021January 31, 2021
Payroll-related expenses and taxes$8,257 $8,946 
Payment processing fees liability3,153 2,853 
Acquisition-related liabilities3,100 3,386 
Other4,375 3,139 
Total$18,885 $18,324 

(b) Property and equipment
Property and equipment as of October 31, 2021 and January 31, 2021 are as follows:
 
Useful Life
 (years)October 31, 2021January 31, 2021
PhreesiaPads and Arrivals Kiosks3$26,140 $25,837 
Computer equipment349,867 33,558 
Computer software
3 to 5
5,275 5,105 
Hardware development31,024 1,024 
Furniture and fixtures7539 539 
Leasehold improvements2748 745 
Total property and equipment$83,593 $66,808 
Less accumulated depreciation(50,838)(40,148)
Property and equipment — net$32,755 $26,660 
Depreciation expense related to property and equipment amounted to $3,719 and $2,447 for the three months ended October 31, 2021 and 2020, respectively. Depreciation expense related to property and equipment amounted to $10,717 and $7,125 for the nine months ended October 31, 2021 and 2020, respectively.
Assets acquired under finance leases included in computer equipment were $22,561 and $19,933 as of October 31, 2021 and January 31, 2021, respectively. Accumulated amortization of assets under finance leases was $13,802 and $10,389 as of October 31, 2021 and January 31, 2021, respectively.

(c) Capitalized internal use software
For the three months ended October 31, 2021 and 2020, the Company capitalized $3,167 and $1,972, respectively, of costs related to the Phreesia Platform. For the nine months ended October 31, 2021 and 2020, the Company capitalized $7,965 and $5,604, respectively, of costs related to the Phreesia Platform.


15

During the three months ended October 31, 2021 and 2020, amortization expense related to capitalized internal-use software was $1,387 and $1,487, respectively. During the nine months ended October 31, 2021 and 2020, amortization expense related to capitalized internal-use software was $4,362 and $4,353, respectively.

(d) Intangible assets and goodwill
The following presents the details of intangible assets as of October 31, 2021 and January 31, 2021:
Useful Life
 (years)October 31, 2021January 31, 2021
Acquired technology5$1,410 $1,410 
Customer relationship101,840 1,840 
Total intangible assets, gross carrying value$3,250 $3,250 
Less accumulated amortization(907)(525)
Net carrying value$2,343 $2,725 
The remaining useful life for acquired technology in years is 3.8 and 4.4 as of October 31, 2021 and January 31, 2021, respectively. The remaining useful life for customer relationships in years is 7.1 and 7.7 as of October 31, 2021 and January 31, 2021, respectively.
Amortization expense associated with intangible assets amounted to $127 and $59 for the three months ended October 31, 2021 and 2020, respectively. Amortization expense associated with intangible assets amounted to $382 and $178 for the nine months ended October 31, 2021 and 2020.
The estimated amortization expense for intangible assets for the next five years and thereafter is as follows as of October 31, 2021:
October 31, 2021
2022 (Remaining three months)$127 
Fiscal Years Ending January 31,
2023508 
2024494 
2025410 
2026 - thereafter804 
Total$2,343 


There were no significant changes to the Company's goodwill balance during the nine months ended October 31, 2021. The Company did not record any impairments of goodwill during the three and nine months ended October 31, 2021 or 2020. Goodwill was $8,211 as of October 31, 2021 and $8,307 as of January 31, 2021.
(e) Accounts receivable
Accounts receivable as of October 31, 2021 and January 31, 2021 are as follows:
 
 October 31, 2021January 31, 2021
Billed$35,106 $28,464 
Unbilled1,059 1,287 
Total accounts receivable, gross$36,165 $29,751 
Less accounts receivable allowances(705)(699)
Total accounts receivable$35,460 $29,052 



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Activity in the Company's allowance for doubtful accounts was as follows for the nine months ended October 31, 2021:
 October 31, 2021
Balance, January 31, 2021
$699 
Bad debt expense45 
Write-offs and adjustments(39)
Balance, October 31, 2021
$705 

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. 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, 2021 and January 31, 2021 are as follows:
 
 October 31, 2021January 31, 2021
Prepaid software and business systems$4,019 $2,322 
Prepaid data center expenses2,776 1,211 
Prepaid insurance2,855 1,311 
Other prepaid expenses and other current assets800 2,410 
Total prepaid and other current assets$10,450 $7,254 
(g) Cloud computing implementation costs
The Company enters into cloud computing service contracts to support its sales and marketing, product development and administrative activities. Subsequent to the adoption of ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, the Company capitalizes certain implementation costs for cloud computing arrangements that meet the definition of a service contract. The Company includes these capitalized implementation costs within prepaid expenses and other current assets and within other assets on its consolidated balance sheets. Once placed in service, the Company amortizes 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 $1,446 as of October 31, 2021. Accumulated amortization of capitalized implementation costs for these arrangements was $130 as of October 31, 2021.

(h) Other (expense) income, net

Other (expense) income, net for the three and nine months ended October 31, 2021 was expense of $114 and $138, respectively. Other (expense) income, net was income of $62 for the three months ended October 31, 2020 and expense of $229 for the nine months ended October 31, 2020. For all periods presented, other (expense) income, net was composed primarily of foreign exchange losses and gains.
5. Revenue and contract costs
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, and digital patient engagement 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 Accounting Standards Codification No. 842, Leases (ASC 842) for the leasing of the Company’s PhreesiaPads and Arrivals Kiosks was $1,607 and $1,593 for the three months ended October 31, 2021 and 2020, respectively. The amount of subscription and related services revenue recorded pursuant to ASC 842 for the leasing of the Company's PhreesiaPads and Arrivals Kiosks was $4,830 and $4,732 for the nine months ended October 31, 2021 and 2020, respectively.


17




Contract balances
The following table represents a roll-forward of contract assets:
Contract assets (unbilled accounts receivable)
January 31, 2021$1,287 
Amount transferred to receivables from beginning balance of contract assets(1,206)
Contract asset additions, net of reclassification to receivables978 
October 31, 2021$1,059 

The following table represents a roll-forward of deferred revenue:
Deferred revenue
January 31, 2021$10,838 
Revenue recognized that was included in deferred revenue at the beginning of the period(10,495)
Revenue recognized that was not included in deferred revenue at the beginning of the period(16,291)
Increases due to invoicing prior to satisfaction of performance obligations28,382 
October 31, 2021$12,434 

Cost to obtain a contract
The Company capitalizes certain incremental costs to obtain customer contracts and amortizes these costs over a period of benefit that the Company has estimated to be three to five years. The Company determined the period of benefit by taking into consideration its customer contracts, its technology and other factors. Amortization expense is included in sales and marketing expenses in the accompanying statements of operations and totaled $557 and $505 for the three months ended October 31, 2021 and 2020, respectively. Amortization expense totaled $1,709 and $2,280 for the nine months ended October 31, 2021 and 2020, respectively. The Company periodically reviews these deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. There were no impairment losses recorded during the periods presented.
 
The following table represents a roll forward of deferred contract acquisition costs:
Beginning balance, January 31, 2021$2,941 
Additions to deferred contract acquisition costs2,929 
Amortization of deferred contract acquisition costs(1,709)
Ending balance, October 31, 20214,161 
Deferred contract acquisition costs, current (to be amortized in next 12 months)1,705 
Deferred contract acquisition costs, non-current2,456 
Total deferred contract acquisition costs$4,161 



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6. Finance leases and other debt
As of October 31, 2021 and January 31, 2021, the Company had the following outstanding finance lease liabilities and other debt:
 
October 31, 2021January 31, 2021
Finance leases$9,227 $9,702 
Financing arrangements442 1,533 
Accrued interest and payments62 100 
Total finance lease liabilities and other debt9,731 11,335 
Less - current portion of finance lease liabilities and other debt(4,597)(4,864)
Long-term finance lease liabilities and other debt$5,134 $6,471 

(a) Financing agreements

On July 21, 2020, the Company entered into an insurance premium financing agreement in order to finance its premium payments for directors' and officers' insurance. As of October 31, 2021 and January 31, 2021, there was no outstanding principal amount and $673 in outstanding principal under the agreement, respectively. The agreement bore interest at 2.6% per annum. The balance of the financing agreement was paid off during the first quarter of fiscal 2022.

On April 10, 2020, the Company entered into a vendor financing agreement with a principal amount of $174 to finance the acquisition of certain internal use software licenses. As of October 31, 2021 and January 31, 2021, the outstanding principal balance of the financing agreement was $89 and $133, respectively. Interest accrues at an annual rate of 2.94%. The remaining annual payments are $46 in May 2022 and May 2023, which includes principal and interest.

On November 2, 2018, the Company entered into a vendor financing agreement with a principal amount of $1,256 to finance the acquisition of certain internal use software licenses. As of October 31, 2021 and January 31, 2021, the outstanding principal balance of the financing agreement was $352 and $504, respectively. Interest accrues at an annual rate of 9.83%. The remaining annual payments are $183 in November 2021 and June 2022, which includes principal and interest.
(b) Finance leases

See Note 10 - Leases for more information regarding finance leases.
(c) Second Amended and Restated Loan and Security Agreement

On May 5, 2020 (the "Second SVB Effective Date"), the Company entered into the Second SVB Facility with Silicon Valley Bank. The Second SVB Facility modified the First Amended and Restated Loan and Security Agreement, dated February 28, 2019 (the "First SVB Facility"). The Second SVB Facility provides for a revolving credit facility with an initial borrowing capacity of $50,000. The borrowing capacity may be increased to $65,000 at the sole discretion of Silicon Valley Bank. Upon entering into the Second SVB Facility, the Company borrowed $20,663 against the revolving credit facility. The Company used the proceeds from its initial revolving credit borrowing to repay all amounts due under the First SVB Facility term loan.

Borrowings under the Second SVB Facility are payable five years from the Effective Date on May 5, 2025 (the "Maturity Date"). Borrowings under the Second SVB Facility bear interest, which is payable monthly, at a floating rate equal to the greater of the Wall Street Journal Prime Rate or 4.5%. The interest rate will decrease by 0.5% upon reaching a defined level of Adjusted EBITDA as defined in the Second SVB Facility. For the three months ended October 31, 2021, the interest rate on the Second SVB Facility was 4.5%. In addition to principal and interest due under the revolving credit facility, the Company is required to pay an annual commitment fee of $125 per year. The Second SVB Facility was paid off in late December 2020. The Company has $50,000 of availability as of October 31, 2021.

In the event that the Company terminates the Second SVB Facility prior to the Maturity Date, the Company will be required to pay a termination fee based on the length of time between termination and maturity. The Company will not be required to pay a termination fee if terminated after the fourth anniversary of the Second SVB Effective Date.


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Any Company obligations under the Second SVB Facility are secured by a first priority security interest in substantially all of its assets, other than intellectual property. The Second SVB Facility includes a financial covenant that requires the Company to achieve certain profitability and liquidity thresholds. The financial covenant will not be effective if the Company maintains certain levels of liquidity as defined. The Company was in compliance with all covenants related to the Second SVB Facility as of October 31, 2021.

The Second SVB Facility contains events of default, including, without limitation, events of default upon: (i) failure to make payment pursuant to the terms of the agreement; (ii) violation of covenants; (iii) material adverse changes to the Company’s business; (iv) attachment or levy on the Company’s assets or judicial restraint on its business; (v) insolvency; (vi) significant judgments, orders or decrees for payments by the Company not covered by insurance; (vii) incorrectness of representations and warranties; (viii) incurrence of subordinated debt; (ix) revocation of governmental approvals necessary for the Company to conduct its business; and (x) failure by the Company to maintain a valid and perfected lien on the collateral securing the borrowing.

As of October 31, 2021, there is no debt outstanding related to the Second SVB Facility. As a result, the Company presented all unamortized deferred costs within other assets as of October 31, 2021. The Company is amortizing the remaining unamortized costs over the remaining term of the Second SVB Facility.
Maturities of finance leases and other debt, in each of the next five years and thereafter are as follows:
 TotalFinance LeasesOther Debt
2022 (Remaining three months)$1,334 $1,091 $243 
Fiscal year ending January 31:
20234,283 4,067 216 
20243,185 3,140 45 
2025773 773  
2026156 156  
Total long-term debt and finance lease maturities$9,731 $9,227 $504 
The components of interest (expense) income, net are as follows:
Three months ended
October 31,
Nine months ended
October 31,
 2021202020212020
Interest expense (1)
$(331)$(471)$(815)$(1,305)
Interest income20 4 59 99 
Interest (expense) income, net$(311)$(467)$(756)$(1,206)
(1) Includes amortization of deferred financing costs and original issue discount.
7. Stockholders' equity
(a) Common stock
The Company closed an IPO on July 22, 2019 and filed an Amended and Restated Certificate of Incorporation authorizing the issuance of up to 500,000,000 shares of common stock, par value $0.01 per share.
On April 12, 2021, the Company completed a follow-on offering of its Common Stock. In connection with this offering, the Company issued and sold 5,175,000 shares of common stock at an issuance price of $50.00 per share resulting in net proceeds of $245,813, after deducting underwriting discounts and commissions.
(b) Treasury stock
The Company's equity based compensation plan allows for the grant of non-vested stock options, restricted stock units ("RSUs") and total shareholder return ("TSR") performance-based stock units ("PSUs") to its employees pursuant to the terms of its stock option and incentive plans (See Note 8). Under the provision of the plans, for RSU and PSU awards, unless otherwise elected, participants fulfill their related income tax withholding obligation by having shares withheld at the time of vesting. On the date of vesting of the RSU or PSU, the Company divides the participant's income tax obligation in dollars by the closing price of its common stock and withholds the resulting number of vested shares. The shares withheld are then transferred to the Company's treasury stock at cost.



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8. Equity-based compensation
(a) Equity award plans
In January 2018, the Board of Directors adopted the Company’s 2018 Stock Option Plan (as amended), which provided for the issuance of options to purchase up to 3,048,490 shares of the Company’s common stock to officers, directors, employees, and consultants. The option exercise price per share is determined by the Board of Directors based on the estimated fair value of the Company’s common stock.
In June 2019, the Board of Directors adopted the Company’s 2019 Stock Option and Incentive Plan (the "2019 Plan"), which replaced the 2018 Stock Option Plan upon the completion of the IPO. The 2019 Plan allows the Compensation Committee of the Board of Directors (the "Compensation Committee") to make equity-based incentive awards including stock options, RSUs and PSUs to the Company’s officers, employees, directors, and consultants. The initial reserve for the issuance of awards under this plan was 2,139,683 shares of common stock. The initial number of shares reserved and available for issuance automatically increased on February 1, 2020 and automatically increases each February 1 thereafter by 5% of the number of shares of common stock outstanding on the immediately preceding January 31 (or such lesser number of shares determined by the Compensation Committee). As the 2018 Stock Option Plan was replaced by the 2019 Plan, all grants of stock options, RSUs and PSUs during the nine months ended October 31, 2021 and 2020 were made pursuant to the 2019 Plan.
In June 2019, the Board of Directors also adopted the Company’s 2019 Employee Stock Purchase Plan (the "ESPP"), which became effective immediately prior to the effectiveness of the registration statement for the Company’s initial public offering. The total shares of common stock initially reserved under the ESPP is limited to 855,873 shares.

As of October 31, 2021, there are 3,881,865 shares available for future grant pursuant to the 2019 Plan after factoring in the automatic increase which occurs on February 1 of each fiscal year, as well as an additional 820,964 shares available for future grant pursuant to the ESPP. During the second quarter of Fiscal 2022, the Company activated its ESPP. The first offering period for the ESPP is from July 1, 2021 through December 31, 2021. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a 15% discount through payroll deductions.

(b) Summary of stock-based compensation

The following table sets forth stock-based compensation by type of award:

Three months ended
October 31,
Nine months ended
October 31,
 2021202020212020
RSUs$6,432 $2,684 $17,273 $7,505 
Stock options541 632 1,691 2,111 
PSUs551  1,588  
ESPP297  398  
Liability awards5,305    5,305  
Total stock based compensation$13,126 $3,316 $26,255 $9,616 



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The following table sets forth the presentation of stock-based compensation in the Company's financial statements:


Three months ended
October 31,
Nine months ended
October 31,
 2021202020212020
Stock-based compensation expense recorded to additional paid-in capital(1)
$7,821 $3,316 $20,950 $9,616 
Stock-based compensation expense recorded to accrued expenses5,305  5,305  
Total stock-based compensation13,126 3,316 26,255 9,616 
Less stock-based compensation expense capitalized as internal-use software(197) (279) 
Stock-based compensation expense per consolidated statements of operations(2)
$12,929 $3,316 $25,976 $9,616 
(1)Stock-based compensation included in the Company's consolidated statements of stockholders' equity is consistent with these amounts.
(2)For the nine months ended October 31, 2021 and 2020, stock-based compensation expense included in the Company's consolidated statements of cash flows is consistent with these amounts.

(c) Stock options
Options granted under the equity award plans have a maximum term of ten years and vest over a period determined by the Board of Directors (generally four years from the date of grant or the commencement of the grantee’s employment with the Company). Options generally vest 25% at the one-year anniversary of the grant date, after which point they generally vest pro rata on a monthly basis.

Stock option activity for the nine months ended October 31, 2021 is as follows:
Number of
options
Weighted-
average
exercise price
Weighted-
average
remaining
contractual life
(in years)
Aggregate 
Intrinsic
value
Outstanding — January 31, 20213,211,354 $4.67 
Granted in nine months ended October 31, 2021
 $ 
Exercised(