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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, 2022
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.)
1521 Concord Pike
Suite 301 PMB 221
Wilmington, DE1
19803
(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.:
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
1

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 5, 2022, 52,747,255 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
1 Phreesia, Inc. is a fully remote company and no longer maintains its principal executive office. The address listed here is the mailing address that we maintain. For purposes of compliance with applicable requirements of the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended, stockholder communications required to be sent to our principal executive offices should be directed to the email address set forth in our proxy materials and/or identified on our investor relations website.
2

PHREESIA, INC.
FORM 10-Q
For the Quarter Ended October 31, 2022
TABLE OF CONTENTS
 
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
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 have continued 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 operate in a highly competitive industry, and if we are not able to compete effectively, including with the electronic health records ("EHR") and practice management ("PM") systems with which we integrate, our business and results of operations will be harmed.
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 harmed and may continue to harm our business and increase our costs and expenses.
Privacy concerns or security breaches relating to our SaaS-based technology platform (the "Phreesia Platform" or 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 previously identified a material weakness in our internal control over financial reporting, and we may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
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.
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 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.
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.

The summary risk factors described above should be read together with the text of the full risk factors below in the section titled "Risk Factors" 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 and ongoing flux of the regulatory and political framework;
the impact of the COVID-19 pandemic, market volatility, including the recent high inflationary environment, economic slowdowns and recessions, and other global financial, economic and political events on our business and our ability to attract, retain and cross-sell to healthcare services 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, including as a result of being a fully remote company;
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 healthcare services clients, payment processing fees and fees charged to our life sciences and payer clients for delivering direct communications to help activate, engage and educate patients about topics critical to their health;
our ability to realize the intended benefits of our acquisitions; and
5

other risks and uncertainties, including those listed under the section titled "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 Form 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/)
PHREESIA Life Sciences Twitter Account (https://twitter.com/PhreesiaLifeSci)
PHREESIA Life Sciences Facebook Page (https://www.facebook.com/PhreesiaLifeSciences/)
PHREESIA Life Sciences LinkedIn Page (https://www.linkedin.com/company/phreesia-life-sciences/)
PHREESIA Life Sciences Page (https://lifesciences.phreesia.com)

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.
6


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Phreesia, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
October 31, 2022January 31, 2022
(Unaudited)
Assets
Current:
Cash and cash equivalents$209,589 $313,812 
Settlement assets20,710 19,590 
Accounts receivable, net of allowance for doubtful accounts of $962 and $863 as of October 31, 2022 and January 31, 2022, respectively
44,356 40,262 
Deferred contract acquisition costs1,218 1,642 
Prepaid expenses and other current assets11,001 11,043 
Total current assets286,874 386,349 
Property and equipment, net of accumulated depreciation and amortization of $66,481 and $53,321 as of October 31, 2022 and January 31, 2022, respectively
26,327 34,645 
Capitalized internal-use software, net of accumulated amortization of $35,283 and $31,139 as of October 31, 2022 and January 31, 2022, respectively
31,804 17,643 
Operating lease right-of-use assets794 2,337 
Deferred contract acquisition costs1,899 2,437 
Intangible assets, net of accumulated amortization of $2,206 and $1,178 as of October 31, 2022 and January 31, 2022, respectively
11,744 12,772 
Deferred tax asset 515 
Goodwill33,836 33,621 
Other assets4,016 4,157 
Total Assets$397,294 $494,476 
Liabilities and Stockholders’ Equity
Current:
Settlement obligations$20,710 $19,590 
Current portion of finance lease liabilities and other debt5,483 5,821 
Current portion of operating lease liabilities1,143 1,281 
Accounts payable11,108 5,119 
Accrued expenses20,344 20,128 
Deferred revenue13,933 16,493 
Total current liabilities72,721 68,432 
Long-term finance lease liabilities and other debt3,766 7,423 
Operating lease liabilities, non-current461 1,276 
Long-term deferred revenue1 65 
Total Liabilities76,949 77,196 
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Common stock, $0.01 par value - 500,000,000 shares authorized as of both October 31, 2022 and January 31, 2022; 53,396,354 and 52,095,964 shares issued as of October 31, 2022 and January 31, 2022, respectively
534 521 
Additional paid-in capital911,526 860,657 
Accumulated deficit(568,063)(429,938)
Treasury stock, at cost, 683,407 and 301,003 shares as of October 31, 2022 and January 31, 2022, respectively
(23,652)(13,960)
Total Stockholders’ Equity320,345 417,280 
Total Liabilities and Stockholders’ Equity$397,294 $494,476 
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,
2022202120222021
Revenue:
Subscription and related services$32,992 $24,365 $93,162 $69,069 
Payment processing fees19,626 16,111 58,588 49,061 
Network solutions20,485 15,439 52,574 37,083 
Total revenues73,103 55,915 204,324 155,213 
Expenses:
Cost of revenue (excluding depreciation and amortization)14,562 11,644 43,821 30,210 
Payment processing expense12,770 9,449 37,482 28,822 
Sales and marketing36,631 32,036 115,003 69,215 
Research and development22,669 15,273 65,846 34,770 
General and administrative19,600 18,021 60,528 46,936 
Depreciation4,865 3,719 13,363 10,717 
Amortization1,817 1,513 5,020 4,744 
Total expenses112,914 91,655 341,063 225,414 
Operating loss(39,811)(35,740)(136,739)(70,201)
Other expense, net(211)(114)(204)(138)
Interest income (expense), net61 (311)(528)(756)
Total other expense, net(150)(425)(732)(894)
Loss before provision for income taxes(39,961)(36,165)(137,471)(71,095)
Provision for income taxes(206)(178)(654)(615)
Net loss$(40,167)$(36,343)$(138,125)(71,710)
Net loss per share attributable to common stockholders, basic and diluted$(0.76)$(0.71)$(2.64)$(1.44)
Weighted-average common shares outstanding, basic and diluted52,606,400 51,020,271 52,294,026 49,943,049 
See notes to unaudited consolidated financial statements



8

Phreesia, Inc.
Unaudited Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
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 


9

Common Stock
SharesAmountAPICAccumulated DeficitTreasury stockTotal
Balance, February 1, 202252,095,964 $521 $860,657 $(429,938)$(13,960)$417,280 
Net loss— — — (51,242)— (51,242)
Stock-based compensation— — 12,594 — — 12,594 
Exercise of stock options and vesting of restricted stock units326,624 4 544 — — 548 
Issuance of stock for share-settled bonus awards233,135 2 6,772 — — 6,774 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (4,735)(4,735)
Balance, April 30, 202252,655,723 $527 $880,567 $(481,180)$(18,695)$381,219 
Net loss— — — (46,716)— (46,716)
Stock-based compensation— — 13,236 — — 13,236 
Exercise of stock options and vesting of restricted stock units321,148 3 422 — — 425 
Issuance of common stock for employee stock purchase plan95,967 1 2,039 — — 2,040 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (1,740)(1,740)
Balance, July 31, 202253,072,838 $531 $896,264 $(527,896)$(20,435)$348,464 
Net loss— — — (40,167)— (40,167)
Stock-based compensation— — 13,129 — — 13,129 
Exercise of stock options and vesting of restricted stock units253,720 2 96 — — 98 
Issuance of stock for share-settled bonus awards69,796 1 2,037 — — 2,038 
Treasury stock from vesting of restricted stock units - satisfaction of tax withholdings— — — — (3,217)(3,217)
Balance, October 31, 202253,396,354 $534 $911,526 $(568,063)$(23,652)$320,345 

See notes to unaudited consolidated financial statements



10

Phreesia, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
 Nine months ended
October 31,
 20222021
Operating activities:
Net loss$(138,125)$(71,710)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization18,383 15,461 
Stock-based compensation expense43,491 25,976 
Amortization of deferred financing costs and debt discount227 216 
Cost of Phreesia hardware purchased by customers939 449 
Deferred contract acquisition costs amortization1,318 1,709 
Non-cash operating lease expense1,543 730 
Change in fair value of contingent consideration liabilities 209 
Deferred tax asset515 508 
Changes in operating assets and liabilities:
Accounts receivable(4,094)(6,408)
Prepaid expenses and other assets(802)(5,686)
Deferred contract acquisition costs(356)(2,929)
Accounts payable4,411 9,490 
Accrued expenses and other liabilities1,931 (5,563)
Lease liability(981)(779)
Deferred revenue(2,624)1,596 
Net cash used in operating activities(74,224)(36,731)
Investing activities:
Capitalized internal-use software(15,576)(7,962)
Purchases of property and equipment(4,028)(16,596)
Net cash used in investing activities(19,604)(24,558)
Financing activities:
Proceeds from issuance of common stock in equity offerings, net of underwriters' discounts and commissions 245,813 
Proceeds from issuance of common stock upon exercise of stock options1,225 4,062 
Treasury stock to satisfy tax withholdings on stock compensation awards(9,523)(3,546)
Proceeds from employee stock purchase plan2,832 1,147 
Finance lease payments(4,316)(3,175)
Principal payments on financing agreements(216)(873)
Debt issuance costs and loan facility fee payments(397)(125)
Payment of contingent consideration for acquisitions (400)
Net cash (used in) provided by financing activities(10,395)242,903 
Net (decrease) increase in cash and cash equivalents(104,223)181,614 
Cash and cash equivalents – beginning of period313,812 218,781 
Cash and cash equivalents – end of period$209,589 $400,395 


11

Supplemental information of non-cash investing and financing information:
Right-of-use assets recorded in exchange for operating lease liabilities$ $81 
Property and equipment acquisitions through finance leases$526 $2,645 
Purchase of property and equipment and capitalized software included in current liabilities$3,354 $1,082 
Capitalized stock-based compensation$1,036 $279 
Issuance of stock to settle liabilities for stock-based compensation$10,852 $ 
Cash paid for: 
Interest$647 $578 
See notes to unaudited consolidated financial statements



12

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 improve the operational and financial performance of healthcare organizations by activating patients in their care to optimize patient health outcomes. Through the SaaS-based technology platform (the "Phreesia Platform" or "Platform"), the Company offers healthcare services clients a robust suite of integrated solutions that manage patient access, registration, payments and clinical support. The Company’s Platform also provides life sciences companies, health plans and other payer organizations (payers), patient advocacy, public interest and other not-for-profit organizations with a channel for direct communication with patients. In connection with the patient intake and registration process, Phreesia offers its healthcare services clients the ability to lease tablets ("PhreesiaPads") and on-site kiosks ("Arrivals Kiosks") along with their monthly subscription. The Company was formed in May 2005.
On September 8, 2022, the Company ceased using its Raleigh, North Carolina office as its principal executive offices.
(b) 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, 2022, along with cash generated in the normal course of business, and available borrowing capacity under the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank ("SVB"), as amended by the First Loan Modification Agreement (as amended, the "Third 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 regulations of the Securities and Exchange Commission ("SEC") regarding quarterly financial reporting and include the accounts of Phreesia, Inc., its branch operation in Canada and its consolidated subsidiaries (or collectively, the "Company").

(b) Fiscal year
The Company’s fiscal year ends on January 31. References to fiscal 2023 and 2022 refer to the fiscal years ending on January 31, 2023 and January 31, 2022, 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, 2022 and the results of its operations, changes in its stockholders' equity and its cash flows for the periods ended October 31, 2022 and 2021. 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


13

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, 2022.

(d) Network solutions revenue
During the three months ended October 31, 2022, the Company relabeled its Life sciences category of revenue presented on its Consolidated Statements of Operations to Network solutions revenue. The Company’s Network solutions revenue includes fees from life sciences and payer clients for delivering direct communications to help activate, engage and educate patients about topics critical to their health using the Phreesia Platform. Prior to the three months ended October 31, 2022, the Company's Network solutions revenue was generated by its life sciences clients. There have been no changes to previously reported revenues.
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, 2022. 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 and contingent consideration in business acquisitions, and the realization of deferred tax assets.

(b) Concentrations of credit risk
Financial instruments that 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 and other healthcare services organizations located in the United States as well as 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, 2022 and 2021. As of both October 31, 2022 and January 31, 2022, the Company had receivables from at least 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.
Other Risks and Uncertainties


14

The Company is subject to a variety of risk factors, including the economy, data privacy and security laws and government regulations. Additionally, the Company is subject to other risks associated with the markets in which it operates including reliance on third party vendors, partners, and service providers. Certain of the Company's service providers, including certain third-party software developers, are located in international locations subject to warfare and/or political and economic instability, such as Russia, Ukraine and India. As with any business, operation of the Company involves risk, including the risk of service interruption impacting the operations of the Company's business and the Company's customer’s facilities below expected levels of operation, shut downs due to the breakdown or failure of information technology and communications systems, changes in laws or regulations, political and economic instability, or catastrophic events such as fires, earthquakes, floods, explosions, global health concerns such as pandemics or other similar occurrences affecting the delivery of our productions and services. The occurrence of any of these events could significantly reduce or eliminate revenues generated, or significantly increase the expenses of the Company's operations, adversely impacting the Company’s operating results and the Company's ability to meet the Company's obligations and commitments.
(d) New accounting pronouncements
Impact of recently adopted accounting pronouncements
During the three and nine months ended October 31, 2022, the Company did not adopt any accounting pronouncements that materially impacted 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 consolidated financial statements.
4. Composition of certain financial statement captions
(a) Accrued expenses
Accrued expenses as of October 31, 2022 and January 31, 2022 are as follows:
 October 31, 2022January 31, 2022
Payroll-related expenses and taxes$7,861 $10,780 
Payment processing fees liability4,149 3,502 
Tax liabilities1,745 2,093 
Information technology services2,249 1,266 
Other4,340 2,487 
Total$20,344 $20,128 

(b) Property and equipment
Property and equipment as of October 31, 2022 and January 31, 2022 are as follows:
 
Useful Life
 (years)October 31, 2022January 31, 2022
PhreesiaPads and Arrivals Kiosks3$26,818 $26,387 
Computer equipment355,521 53,957 
Computer software
3 to 5
8,124 5,311 
Hardware development31,058 1,024 
Furniture and fixtures7539 539 
Leasehold improvements2748 748 
Total property and equipment$92,808 $87,966 
Less accumulated depreciation(66,481)(53,321)
Property and equipment — net$26,327 $34,645 


15

Depreciation expense related to property and equipment amounted to $4,865 and $3,719 for the three months ended October 31, 2022 and 2021, respectively. Depreciation expense related to property and equipment amounted to $13,363 and $10,717 for the nine months ended October 31, 2022 and 2021, respectively.
Assets acquired under finance leases included in computer equipment were $27,813 and $27,310 as of October 31, 2022 and January 31, 2022, respectively. Accumulated amortization of assets under finance leases was $19,271 and $15,025 as of October 31, 2022 and January 31, 2022, respectively.

(c) Capitalized internal use software
For the three months ended October 31, 2022 and 2021, the Company capitalized $5,758 and $3,167, respectively, of costs related to the Phreesia Platform. For the nine months ended October 31, 2022 and 2021, the Company capitalized $18,153 and $7,965, respectively, of costs related to the Phreesia Platform.
During the three months ended October 31, 2022 and 2021, amortization expense related to capitalized internal-use software was $1,476 and $1,387, respectively. During the nine months ended October 31, 2022 and 2021, amortization expense related to capitalized internal-use software was $3,992 and $4,362, respectively.

(d) Intangible assets and goodwill
The following presents the details of intangible assets as of October 31, 2022 and January 31, 2022:
Useful Life
 (years)October 31, 2022January 31, 2022
Acquired technology5$1,410 $1,410 
Customer relationship
7 to 10
6,340 6,340 
License156,200 6,200 
Total intangible assets, gross carrying value$13,950 $13,950 
Less accumulated amortization(2,206)(1,178)
Net carrying value$11,744 $12,772 
The remaining useful life for acquired technology in years was 2.9 and 3.5 as of October 31, 2022 and January 31, 2022, respectively. The remaining useful life for customer relationships in years was 8.5 and 9.2 as of October 31, 2022 and January 31, 2022, respectively. The remaining useful life for the license to the Patient Activation Measure ("PAM"®) in years was 14.1 and 14.8 as of October 31, 2022 and January 31, 2022, respectively.
Amortization expense associated with intangible assets amounted to $341 and $127 for the three months ended October 31, 2022 and 2021, respectively. Amortization expense associated with intangible assets amounted to $1,028 and $382 for the nine months ended October 31, 2022 and 2021, respectively.
The estimated amortization expense for intangible assets for the next five years and thereafter is as follows as of October 31, 2022:
October 31, 2022
2023 (Remaining three months)$344 
Fiscal Years Ending January 31,
20241,358 
20251,273 
20261,242 
2027 - thereafter7,527 
Total$11,744 


There were no significant changes to the Company's goodwill balance during the nine months ended October 31, 2022. The Company did not record any impairments of goodwill during the three and nine months ended October 31, 2022 or 2021. Goodwill was $33,836 and $33,621 as of October 31, 2022 and January 31, 2022, respectively.


16

(e) Accounts receivable
Accounts receivable as of October 31, 2022 and January 31, 2022 are as follows:
 
 October 31, 2022January 31, 2022
Billed$43,425 $40,733 
Unbilled1,893 392 
Total accounts receivable, gross$45,318 $41,125 
Less accounts receivable allowances(962)(863)
Total accounts receivable$44,356 $40,262 

Activity in the Company's allowance for doubtful accounts was as follows for the nine months ended October 31, 2022:
 October 31, 2022
Balance, January 31, 2022
$863 
Bad debt expense454 
Write-offs and adjustments(355)
Balance, October 31, 2022
$962 

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, 2022 and January 31, 2022 are as follows:
 
 October 31, 2022January 31, 2022
Prepaid software and business systems$4,059 $3,738 
Prepaid data center expenses2,432 3,230 
Prepaid insurance2,353 1,924 
Other prepaid expenses and other current assets2,157 2,151 
Total prepaid and other current assets$11,001 $11,043 
(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 in May 2020, 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 caption in the statements of operations as the related cloud subscription. Capitalized implementation costs for cloud computing arrangements accounted for as service contracts were $1,532 and $1,514 as of October 31, 2022 and January 31, 2022, respectively. Accumulated amortization of capitalized implementation costs for these arrangements was $506 and $199 as of October 31, 2022 and January 31, 2022, respectively.

(h) Other expense, net

Other expense, net for the three months ended October 31, 2022 and 2021 was $211 and $114, respectively. Other expense, net for the nine months ended October 31, 2022 and 2021 was $204 and $138, respectively. For all periods presented, other expense, net was composed primarily of foreign exchange losses and gains.
5. Revenue and contract costs


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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 healthcare services clients for access to the Phreesia Platform, payment processing fees based on patient payment volume, and fees from life sciences and payer clients for delivering direct communications to patients using the Phreesia Platform.
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 $2,560 and $1,607 for the three months ended October 31, 2022 and 2021, 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 $7,534 and $4,830 for the nine months ended October 31, 2022 and 2021, respectively.

Contract balances
The following table represents a roll-forward of contract assets:
January 31, 2022$392 
Amount transferred to receivables from beginning balance of contract assets(392)
Contract asset additions, net of reclassification to receivables1,893 
October 31, 2022$1,893 

The following table represents a roll-forward of deferred revenue:
January 31, 2022$16,558 
Revenue recognized that was included in deferred revenue at the beginning of the period(15,102)
Net increase in current period deferred revenue12,478 
October 31, 2022$13,934 

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 $413 and $557 for the three months ended October 31, 2022 and 2021, respectively. Amortization expense totaled $1,318 and $1,709 for the nine months ended October 31, 2022 and 2021, 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, 2022$4,079 
Additions to deferred contract acquisition costs356 
Amortization of deferred contract acquisition costs(1,318)
Ending balance, October 31, 20223,117 
Deferred contract acquisition costs, current (to be amortized in next 12 months)1,218 
Deferred contract acquisition costs, non-current1,899 
Total deferred contract acquisition costs$3,117 


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6. Finance leases and other debt
As of October 31, 2022 and January 31, 2022, the Company had the following outstanding finance lease liabilities and other debt:
 
October 31, 2022January 31, 2022
Finance leases$9,066 $12,884 
Financing arrangements45 266 
Accrued interest and payments138 94 
Total finance lease liabilities and other debt9,249 13,244 
Less - current portion of finance lease liabilities and other debt(5,483)(5,821)
Long-term finance lease liabilities and other debt$3,766 $7,423 

(a) Finance leases

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

On February 28, 2019 (the "Effective Date"), the Company entered into the Amended and Restated Loan and Security Agreement (the "First SVB Facility") that provided for a $20,000 term loan. In connection with the transaction, the Company recorded a $1,073 loss on extinguishment of debt within other (expense) income, net for the settlement of previously outstanding loans payable.

On May 5, 2020, the Company entered into the Second SVB Facility. The Second SVB Facility modified the First SVB Facility. The Second SVB Facility provided for a revolving credit facility with an initial borrowing capacity of $50,000. The borrowing capacity could 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 and used the proceeds to repay all amounts due under the First SVB Facility term loan.

On March 28, 2022 (the "Third SVB Effective Date"), the Company entered into a First Loan Modification Agreement to the Second SVB Facility (as amended, the "Third SVB Facility") to increase the borrowing capacity from $50,000 to $100,000 and to reduce the interest rate on the facility. Borrowings under the Third SVB Facility are payable on May 5, 2025. Borrowings under the Third SVB Facility bear interest, which is payable monthly, at a floating rate equal to the greater of 3.25% or the Wall Street Journal Prime Rate minus 0.5%. As of October 31, 2022, the interest rate on the Second SVB Facility was 5.75%. In addition to principal and interest due under the revolving credit facility, the Company is required to pay an annual commitment fee of approximately $250 per year and a quarterly fee of 0.15% per annum of the average unused revolving line under the facility. The Company had $100,000 of availability under the facility as of October 31, 2022.

In the event that the Company terminates the Third SVB Facility prior to May 5, 2024, the Company will be required to pay a termination fee of up to 1.5% of borrowing capacity based on the length of time between termination and maturity. Any Company obligations under the Third SVB Facility are secured by a first priority security interest in substantially all of its assets, other than intellectual property. The Third SVB Facility includes a financial covenant that requires the Company to maintain a minimum Adjusted Quick Ratio as defined in the Third SVB Facility. The Third SVB Facility also 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. Additionally, the Third SVB Facility contains customary events of default. The Company was in compliance with all covenants related to the Third SVB Facility as of October 31, 2022.

The Company presents unamortized deferred costs within other assets. The Company is amortizing the remaining unamortized costs over the remaining term of the Third SVB Facility.


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Maturities of finance leases and other debt, in each of the next five years and thereafter are as follows:
 TotalFinance LeasesOther Debt
2023 (Remaining three months)$1,579 $1,441 $138 
Fiscal year ending January 31:
20244,984 4,939 45 
20252,484 2,484  
2026202 202  
2027   
Total maturities of finance leases and other debt$9,249 $9,066 $183 
The components of interest income (expense), net are as follows:
Three months ended
October 31,
Nine months ended
October 31,
 2022202120222021
Interest expense (1)
$(456)$(331)$(1,150)$(815)
Interest income517 20 622 59 
Interest income (expense), net$61 $(311)$(528)$(756)
(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 estimated 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.

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, the "2018 Stock Option Plan") 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


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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, 2022 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.
In August 2021, the Company amended its fiscal 2022 incentive bonus to allow eligible employees to elect to receive all or a portion of their fiscal 2022 year end incentive compensation in the form of immediately vested restricted stock units instead of cash. The Company's fiscal 2023 incentive bonus allows eligible employees to elect to receive all or a portion of their fiscal 2023 incentive compensation in the form of immediately vested restricted stock units instead of cash.

As of October 31, 2022, there are 3,730,752 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 643,875 shares available for future grant pursuant to the ESPP. During the second quarter of fiscal 2022, the Company activated its ESPP. The ESPP has two six-month offering periods each calendar year beginning in January and July. 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,
 2022202120222021
RSUs$10,632 $6,432 $31,333 $17,273 
Liability awards1,994 5,305 5,568 5,305 
PSUs1,807 551 5,253 1,588 
Stock options333 541 1,207 1,691 
ESPP357 297 1,166 398 
Total stock based compensation$15,123 $13,126 $44,527 $26,255 

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,
 2022202120222021
Stock-based compensation expense recorded to additional paid-in capital(1)
$13,129 $7,821 $38,959 $20,950 
Stock-based compensation expense recorded to accrued expenses1,994 5,305 5,568