What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-01 · 92 added, 81 removed, 311 unchanged (36% of the section changed)

5 unchanged sentences

“Risk Factors” of this Annual Report on Form 10-K.

A discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021 (File No.

A discussion of the fiscal year ended December 31, 2021 compared to the year ended December 31, 2020 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022 (File No.

001-39100) under the heading “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Comparison of Years Ended December 31, 2021 and 2020 .”

23 unchanged sentences

Progyny Rx can only be purchased by clients that purchase our fertility benefits solution.

Progyny Rx provides our members with

access to the medications needed during their fertility treatment.

As part of this solution, we provide care management services, which include our formulary plan design, simplified authorization, assistance with prescription fulfillment and timely delivery of the medications by our network of specialty pharmacies, as well as medication administration training, pharmacy support services and continuing PCA support.

We currently have contracts to serve over 265 employers with at least 1,000 covered lives in the United States across more than 30 industries.

Progyny Rx provides our members with access to the medications needed during their fertility treatment.

As part of this solution, we provide care management services, which include our formulary plan design, simplified authorization, assistance with prescription fulfillment and

timely delivery of the medications by our network of specialty pharmacies, as well as medication administration training, pharmacy support services and continuing PCA support.

We currently serve over 370 employers with at least 1,000 covered lives in the United States across more than 40 industries.

Our current clients, who are industry leaders across both high-growth and mature industries and who range in size from approximately 1,000 to 600,000 employees, represent approximately 5.4 million covered lives under contract.

11 unchanged sentences

This allows us to provide access to our PCAs for fertility and family building education and guidance and other digital tools to all of our members, regardless of whether they ultimately pursue fertility treatment.

PEPM fees represented 1% and 2% of our total revenue for the years ended December 31, 2021 and 2020, respectively.

PEPM fees represented 1% of our total revenue for the years ended December 31, 2022 and 2021, respectively.

Our revenue in a given year is determined by the level and mix of the utilization of our fertility benefits and Progyny Rx solutions by our members as well as the number of members enrolled in our clients’ benefits plans.

7 unchanged sentences

Our addressable market is primarily large self-insured employers.

There are approximately 8,000 employers in the United States (excluding quasi-governmental entities, such as universities, school systems, and labor unions) who have a minimum of 1,000 employees, representing approximately 75 million potential covered lives in total.

Our current member base of approximately 4.0 million covered lives under contract represents a low single digit percent of our total market opportunity.

There are approximately 8,000 employers in the United States (excluding but not limited to quasi-governmental entities, such as universities, school systems, and labor unions) who have a minimum of 1,000 employees, representing approximately 75 million potential covered lives in total.

Our current member base of approximately 5.4 million covered lives under contract represents a mid-single digit percent of our initial market opportunity.

If we were to include quasi-governmental entities in our potential addressable market, we believe our market penetration is even lower.

We intend to continue to drive new client acquisition by investing significantly in sales and marketing to engage, educate and drive awareness of the unmet need around fertility solutions among benefits executives.

We also increase brand awareness and adoption with employers by leveraging our strong relationships with benefits consultants.

In particular, we are focused on expanding the number of clients with

more than 2,500 covered lives.

In particular, we are focused on expanding the number of clients with more than 2,500 covered lives.

As of December 31, 2022 and 2021, we served 288 and 191 clients, respectively, representing 4,585,000 and 2,935,000 members, respectively.

Importantly, as we have continued to grow, we have meaningfully diversified our client base across more than 40 different industries currently from just two industries when we launched our fertility benefits solution in 2016.

We are expanding our client base within each industry and have an industry-specific strategy that enables us to most effectively target our addressable market.

expanding our client base within each industry and have an industry-specific strategy that enables us to most effectively target our addressable market.

Because our clients within an industry compete with each other for employees, we believe our solutions are increasingly viewed as an important way for them to differentiate from, or remain competitive with, one another.

5 unchanged sentences

As of December 31,

Client Tier (Members)

Client Tier (Members) Clients Members Clients Members

Up to 2,500 76 145,000 44 79,000

2,501 - 10,000 130 678,000 93 473,000

1 unchanged sentence

Greater than 50,000 18 2,487,000 9 1,426,000

Total 288 4,585,000 191 2,935,000

Benefits Utilization.

3 unchanged sentences

Three Months Ended

December 31, Year Ended

2022 2021 2022 2021

Assisted Reproductive Treatment (ART) Cycles (1)

12,196 7,623 42,598 28,413

Utilization - All Members (2)

0.51% 0.52% 1.23% 1.30%

Utilization - Female Only (2)

0.46% 0.46% 1.03% 1.07%

Average Members 4,559,000 2,899,000 4,349,000 2,812,000

6 unchanged sentences

The COVID-19 pandemic has significantly impacted various markets around the world, including the United States.

As described below, restrictions related to COVID-19, including variants, and our responses to them have significantly impacted and may continue to impact how our members use our services, access our providers, and how our employees work and provide services to our clients and members, resulting in an impact to our revenue.

Employee safety is our first priority, and as a result, we had implemented a remote working policy for all of our employees.

We have recently re-opened our corporate offices to employees on a hybrid basis, while implementing additional safety measures and protocols.

We are also working closely with all of our clients, members, providers and other external business partners.

We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to monitor liquidity, as necessary, and ensure that our business can continue to operate during these uncertain times.

The outbreak and preventative measures taken to contain COVID-19, especially in the first half of 2020, negatively impacted our members’ access to care due to a temporary unavailability of the full range of fertility treatments at our provider clinics.

In March 2020, the American Society for Reproductive Medicine, or ASRM, issued guidelines recommending suspension of fertility services.

Those guidelines were lifted in May 2020, which has enabled our clinics to resume care with enhanced safety protocols for patient safety.

COVID-19, including variants, and related restrictions continued to have a negative impact on our revenue growth for the three months and year ended December 31, 2021.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, future results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including, without limitation, new information that may emerge concerning COVID-19 and variants, the timing, extent, trajectory and duration of the pandemic;

the availability, distribution and effectiveness of vaccines as well as vaccine hesitancy;

the imposition of protective public safety measures;

and the economic impact on local, regional and national markets.

To the extent that the markets we serve experience increased cases of COVID-19, state or local governments may reinstitute measures to control its spread, which could again negatively impact our members’ access to care.

Restrictions related to COVID-19, including variants, and our responses to them have significantly impacted and may continue to impact how our members use our services, access our providers, and how our employees work and provide services to our clients and members, resulting in an impact on our revenue.

We believe we have sufficient liquidity to satisfy our cash needs, however, we continue to monitor liquidity, as necessary, and ensure that our business can continue

to operate during these uncertain times.

COVID-19, including variants, and related restrictions continued to have a negative impact on our revenue growth for the twelve months ended December 31, 2022.

To the extent that the markets we serve experience increased cases of COVID-19, including variants, state or local governments may reinstitute measures to control its spread, which could again negatively impact our members’ access to care, which could in turn impact our business.

We will continue to evaluate the nature and extent of these potential impacts to our business, results of operations and liquidity.

For additional information on the various risks posed by the COVID-19 pandemic, please read Part I, Item 1A.

For additional information on the various risks posed by the COVID-19 pandemic, please refer to Part I, Item 1A.

"Risk Factors" included in this Annual Report on Form 10-K.

15 unchanged sentences

The contractual fees agreed to with our clients are inclusive of the cost of the prescription drug from our specialty providers, less any applicable discounts, as well as the related clinical and care management services.

Revenue from these arrangements is recognized

when the drugs are dispensed.

Revenue from these arrangements is recognized when the drugs are dispensed.

This solution was introduced in the marketplace in the third quarter of 2017 and went live with a select number of clients on January 1, 2018.

11 unchanged sentences

(1) fees paid to provider clinics within our network, labs and anesthesiologists;

(2) costs incurred (including salaries, bonuses, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions:

(2) costs incurred (including salaries, bonuses, benefits, stock-based compensation, other related costs,

and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions:

Provider Account Management, PCA, Provider Relations and Claims Processing teams;

28 unchanged sentences

Other Income, net

Other income (expense) includes investment income as well as interest income and expense.

Other income, net includes investment income and losses as well as interest income and expense.

Benefit for Income Taxes

2 unchanged sentences

Deferred income taxes are recorded for the expected tax consequences of temporary differences between the tax basis of assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of each reporting date, management considers new

evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

As of December 31, 2020, in part because we had achieved three years of cumulative income, along with our projections of profitability , management determined that there was sufficient positive evidence to conclude that it was more likely than not that the net deferred tax assets of $38.0 million were realizable and therefore released substantially all of our valuation allowance.

4 unchanged sentences

Consolidated Statements of Operations Data:

Revenue $ 786,913 $ 500,621

Cost of services (1)

619,588 388,486

Gross profit 167,325 112,135

Operating expenses:

Sales and marketing (1)

45,657 20,179

General and administrative (1)

98,327 59,616

Total operating expenses 143,984 79,795

3 unchanged sentences

Benefit for income taxes 5,917 33,334

Net income $ 30,358 $ 65,769

Adjusted EBITDA (2)

$ 125,690 $ 67,347

(1) Includes stock-based compensation expense as follows:

3 unchanged sentences

Total stock‑based compensation expense $ 100,748 $ 33,706

(2) Adjusted EBITDA is a non-GAAP financial measure defined by us as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other income (expense), net, interest income, net, benefit for income taxes, and settlement cost and legal fees associated with a vendor arbitration.

See “Management’s Discussion and Analysis of Financial Condition and Result of Operations – Non-GAAP Financial Measure – Adjusted EBITDA’ below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable measure calculated in accordance with GAAP.

(2) Adjusted EBITDA is a non-GAAP financial measure that we define as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other income (expense), net, interest income, net, and benefit for income taxes.

See “Management’s Discussion and Analysis of Financial Condition and Result of Operations – Non-GAAP Financial Measure – Adjusted EBITDA" below for a reconciliation of Adjusted EBITDA to net income, the most directly comparable measure calculated in accordance with U.S.

Consolidated Statements of Operations Data, as a percentage of revenue:

Revenue 100.0 % 100.0 %

Cost of services 78.7 % 77.6 %

Gross profit 21.3 % 22.4 %

Operating expenses:

6 unchanged sentences

Benefit for income taxes 0.8 % 6.6 %

Net income 3.9 % 13.1 %

Adjusted EBITDA 16.0 % 13.4 %

10 unchanged sentences

(4) it does not reflect other non-operating income and expenses, including other income (expense), net and interest income (expense), net;

(5) it does not reflect tax payments that may represent a reduction in cash available to us;

and (6) it does not include settlement cost and legal fees associated with a vendor arbitration.

and (5) it does not reflect tax payments that may represent a reduction in cash available to us.

In addition, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner as we calculate the measure, limiting its usefulness as a comparative measure.

1 unchanged sentence

GAAP results.

We calculate Adjusted EBITDA as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other income (expense), net, interest income, net, benefit for income taxes, and settlement cost and legal fees associated with a vendor arbitration.

The following table presents a reconciliation of Adjusted EBITDA to net income for each of the periods indicated:

(in thousands)

Net income $ 30,358 $ 65,769

Depreciation and amortization 1,601 1,301

3 unchanged sentences

Benefit for income taxes (5,917) (33,334)

Settlement cost and legal fees associated with a vendor arbitration

Adjusted EBITDA $ 125,690 $ 67,347

Comparison of Years Ended December 31, 2022 and 2021

2022 2021 % Change

(dollars in thousands)

Revenue $ 786,913 $ 500,621 57 %

Revenue increased by $286.3 million, or 57%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

5 unchanged sentences

Cost of Services

2022 2021 % Change

(dollars in thousands)

Cost of services $ 619,588 $ 388,486 59 %

Cost of services increased by $113.7 million, or 41%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to an increase in medical treatment and pharmacy prescription costs associated with fertility treatments delivered as well as increases in personnel-related costs, including stock-based compensation.

Cost of services increased by $231.1 million, or 59%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in medical treatment and pharmacy prescription costs associated with fertility treatments delivered.

This increase in cost of services was also attributable to an increase in personnel-related costs primarily due to incremental headcount as well as a $16.9 million increase in stock-based compensation expense.

Gross Profit and Gross Margin

2022 2021 % Change

(dollars in thousands)

Gross profit $ 167,325 $ 112,135 49 %

Gross margin 21.3 % 22.4 %

Gross profit increased by $55.2 million, or 49%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Gross margin increased 210 basis points for the year ended December 31, 2021 compared to year ended December 31, 2020, primarily due to favorable new terms with our pharmacy program partners, the net impact of regular contract renewals with our providers as well as continued efficiencies gained across our care management services.

Gross margin decreased 110 basis points for the year ended December 31, 2022 compared to year ended December 31, 2021, primarily due to an increase in stock-based compensation expense for employees supporting our care management service functions, partially offset by ongoing efficiencies realized in the delivery of our care management services.

Operating Expenses

Sales and Marketing Expense

2022 2021 % Change

(dollars in thousands)

1 unchanged sentence

Sales and marketing expense increased by $25.5 million, or 126%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

This increase was primarily due to a $4.4 million increase in personnel-related costs (including a $3.4 million increase in stock-based compensation) relating to additional headcount, employee equity grants, and commissions for sales and marketing functions, and a $0.8 million increase in other related sales and marketing expenses.

This increase was primarily due to a $23.4 million increase in personnel-related costs attributable to an increase in stock-based compensation expense of $15.7 million, incremental headcount and an increase in sales commissions, as well as a $2.1 million increase in other related sales and marketing expenses.

General and Administrative Expense

2022 2021 % Change

(dollars in thousands)

1 unchanged sentence

General and administrative expense increased by $38.7 million, or 65%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.

This increase was primarily due to a $16.9 million increase in personnel-related costs (including a $11.6 million increase in stock-based compensation) as a result of additional headcount and employee equity grants, a $4.2 million increase in bad debt expense, and a $1.1 million increase in other related general and administrative expenses, which was partially offset by a $9.3 million decrease in settlement cost and legal fees for a vendor arbitration.

See Note 14 – Commitments and Contingencies – in the notes to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K for further details regarding the vendor arbitration.

This increase was primarily due to a $35.3 million increase in personnel-related costs including an increase in stock-based compensation expense of $34.4 million as well as a $4.0 million increase in bad debt expense, partially offset by $0.6 million decrease in other related general and administrative expenses.

Other Income, Net

2022 2021 % Change

(dollars in thousands)

Other income, net

Other income, net decreased by $0.2 million, or 71%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to decreases in income on investments.

Other income, net $ 1,100 $ 95 NM

Other income, net increased by $1.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to increases in investment and interest income.

Benefit for Income Taxes

2022 2021 % Change

(dollars in thousands)

Benefit for income taxes $ 5,917 $ 33,334 (82) %

For the year ended December 31, 2021, we recorded a benefit for income taxes of $33.3 million, primarily due to equity compensation activity that occurred during the period.

During the year ended December 31, 2020, we recorded a benefit for income taxes of $37.8 million, primarily as a result of the release of substantially all of our valuation allowance on our deferred tax assets as we concluded there was sufficient positive evidence that it is more likely than not that the deferred tax assets are realizable.

For the year ended December 31, 2022, we recorded a benefit for income taxes of $5.9 million, as compared to a benefit for income taxes of $33.3 million for the year ended December 31, 2021, primarily due to a decrease in discrete tax benefits related to equity compensation activity that occurred during the current year period.

Liquidity and Capital Resources

As of December 31, 2022, we had $120.1 million of cash and cash equivalents and $69.2 million of marketable securities.

Since inception, we have financed our operations primarily through sales of our solutions and the net proceeds we have received from sales of equity securities as further detailed below.

Since inception, we have financed our operations primarily through sales of our solutions and the net proceeds we have received from sales of equity securities, including our IPO.

Our cash and cash equivalents and working capital are affected by the timing of payments to third party providers and collections from clients and have increased as our revenue has increased.

2 unchanged sentences

Accordingly, our working capital, and its impact on cash flow from operations, can fluctuate materially from period to period.

On October 29, 2019, we completed our IPO in which we issued and sold 6,700,000 shares of our common stock at a public offering price of $13.00 per share.

We received net proceeds of approximately $77.6 million from the IPO, after deducting underwriters’ discounts and commissions of $5.9 million and offering costs of $3.6 million.

For additional information, See Note 1 – Business and Basis of Presentation to our financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

We believe that our existing cash and cash equivalents, including the proceeds from our IPO, and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months.

Our future capital requirements will depend on many factors, including sales of our solutions and client renewals, the timing and the amount of cash received from clients, the expansion of our sales and marketing activities and the continuing market adoption of our solutions.

We also expect these sources of existing cash and cash equivalents will be sufficient to fund our long-term contractual obligations and capital needs.

However, this is subject, to a certain extent, to general economic, financial, competitive, regulatory, and other factors that are beyond our control.

Moreover, our future capital requirements will depend on many factors, including sales of our solutions and client renewals, the timing and the amount of cash received from clients, the expansion of our sales and marketing activities and the continuing market adoption of our solutions.

Other than the impact on our revenue growth and the related cash flows resulting from the various restrictions on activities due to the COVID-19 pandemic, our sources and uses of cash were not otherwise materially impacted by the COVID-19 pandemic in the three months and year ended December 31, 2022 and, to date, we have not identified any material liquidity deficiencies as a result of the COVID-19 pandemic.

3 unchanged sentences

If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations.

For additional information on the various risks posed by the COVID-19 pandemic, please read Part I, Item 1A.

For additional information on the various risks posed by the COVID-19 pandemic, please refer to Part I, Item 1A.

"Risk Factors" included in this Annual Report on Form 10-K.

8 unchanged sentences

Cash provided by operating activities $ 80,395 $ 26,037

Cash provided by (used in) investing activities

Cash (used in) provided by investing activities (43,866) 8,766

Cash used in financing activities (7,864) (13,695)

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents $ 28,665 $ 21,108

Operating Activities

Net cash provided by operating activities was $26.0 million for the year ended December 31, 2021, primarily consisting of net income of $65.8 million adjusted for certain non-cash items, which include $33.7 million of stock-based compensation expense, $33.3 million of deferred tax assets, $9.8 million of bad debt expense, and $1.3 million of depreciation and amortization.

Net cash provided by operating activities was $80.4 million for the year ended December 31, 2022, primarily consisting of net income of $30.4 million adjusted for certain non-cash items, which included $100.7 million of stock-based compensation expense, $13.8 million of bad debt expense, $6.6 million of deferred tax benefits, and $1.6 million of depreciation and amortization.

Changes in operating assets and liabilities resulted in cash used in operating activities from an increase in accounts receivable of $119.3 million and other noncurrent assets and liabilities of $1.1 million, partially offset by cash provided by operating activities from increases in accounts payable of $47.7 million and accrued expenses and other current liabilities of $13.1 million and decreases in prepaid expenses and other current assets of $0.1 million.

These changes are a result of the impact of revenue growth and our operating results as well as the timing of cash collection and payments to third parties.

Net cash provided by operating activities was $26.0 million for the year ended December 31, 2021, primarily consisting of net income of $65.8 million adjusted for certain non-cash items, which included $33.7 million of stock-based compensation expense, $33.3 million of deferred tax benefits, $9.8 million of bad debt expense, and $1.3 million of depreciation and amortization.

Changes in operating assets and liabilities resulted in cash used in operating activities from an increase in accounts receivable of $68.7 million and other noncurrent assets and liabilities of $3.3 million, partially offset by cash provided by operating activities from increases in accounts payable of $17.8 million, accrued expenses and other current liabilities of $2.2 million, and prepaid expenses and other current assets of $0.7 million.

These changes are a result of the impact of revenue growth and our operating results as well as the timing of payments to third party providers and collections from customers.

Net cash provided by operating activities was $36.2 million for the year ended December 31, 2020, primarily consisting of net income of $46.5 million adjusted for certain non-cash items, which include $38.0 million of deferred tax assets, $12.8 million of stock-based compensation expense, $5.6 million of bad debt expense, and $1.9 million of depreciation and amortization.

Changes in operating assets and liabilities resulted in cash used in operating activities from an increase in accounts receivable of $35.3 million and prepaid expenses and other current assets of $0.3 million, more than offset by cash provided by operating activities from increases in accounts payable of $25.0 million, accrued expenses and other current liabilities of $17.4 million, and other noncurrent assets and liabilities of $0.6 million.

These changes are a result of the impact of revenue growth and our operating results as well as the timing of payments to third party providers and collections from customers.

Net cash provided by operating activities for the year ended December 31, 2020 included the impact of the settlement cost and legal fees associated with a vendor arbitration of $8.9 million.

Investing Activities

Net cash provided by investing activities was $8.8 million for the year ended December 31, 2021, which primarily consisted of net proceeds of $10.9 million from marketable securities.

For the year ended December 31, 2020, net cash used in investing activities was $40.0 million, primarily consisting of net investments of $39.0 million in marketable securities.

The remainder of the activity for the years ended December 31, 2021 and 2020 consisted of purchases of computers, software, including capitalized software development costs, and leasehold improvements, including leasehold improvements associated with the buildout of our new corporate office which was occupied in February 2020.

Net cash used by investing activities was $43.9 million for the year ended December 31, 2022, which primarily consisted of net cash used of $40.6 million for investments in marketable securities.

For the year ended December 31, 2021, net cash provided by investing activities was $8.8 million, primarily consisting of net proceeds of $10.9 million from marketable securities.

The remainder of the activity for the years ended December 31, 2022 and 2021 consisted of purchases of computers, software, including capitalized software development costs, and leasehold improvements, including leasehold improvements.

Financing Activities

Net cash used in financing activities was $7.9 million for the year ended December 31, 2022, consisting of payments of $12.1 million for employee taxes related to equity awards, partially offset by $3.1 million in proceeds from stock option exercises and $1.2 million in proceeds from contributions to our employee stock purchase plan.

Net cash used in financing activities was $6.2 million for the year ended December 31, 2020, consisting of payments of $8.9 million for employee taxes related to equity awards and $0.9 million for IPO costs, partially offset by $2.3 million in proceeds from stock option exercises and $1.2 million in proceeds from contributions to our employee stock purchase plan.

Net cash used in financing activities was $13.7 million for the year ended December 31, 2021, consisting of payments of $18.0 million for employee taxes related to equity awards, partially offset by $2.9 million in proceeds from stock option exercises and $1.3 million in proceeds from contributions to our employee stock purchase plan.

Operating Lease Commitments

3 unchanged sentences

In February 2022, we entered into a lease agreement for additional space in our corporate offices in New York, New York, consisting of a 24,099 square foot office and a 21,262 square foot office, and also for continued occupancy of the 25,212 square foot office after the expiration of the current sublease.

For the 24,099 square foot office, we will pay the base rent of approximately $1.4 million per year starting in the fourth quarter of 2023 for five years and approximately $1.5 million per year thereafter through the first quarter of 2035, the expiration date.

For the 21,262 square foot office, we will pay the base rent of approximately $1.3 million starting in the first quarter of 2025 for five years and approximately $1.4 million per year thereafter through the first quarter of 2035, the expiration date.

For our current 25,212 square foot office, we will pay the base rent of approximately $1.6 million per year beginning in June 2029 through the first quarter of 2035, the expiration date.

For the 24,099 square foot office, we will pay the base rent of approximately $1.4 million per year starting in March 2024 for five years and approximately $1.5 million per year thereafter through the first quarter of 2035, the expected expiration date.

For our current 25,212 square foot office, we will pay the base rent of approximately $1.6 million per year beginning in June 2029 through the first quarter of 2035, the expected expiration date.

Critical Accounting Estimates

10 unchanged sentences

Fertility benefits solution revenue is recognized based on the negotiated price with our clients and includes the portion to be paid directly by the member.

Revenue is recognized when Smart Cycle services are completed for a member.

Revenue is also accrued, which we refer to as accrued receivables, for authorized Smart Cycle services rendered based on member appointments scheduled with a fertility specialist in our network but for which no claim has yet been reported.

Revenue is recognized when Smart Cycle services are completed for a member, which includes estimates of accrued receivables.

We estimate accrued receivables based on historical experience for those fertility benefit services provided but for which a claim has not been received from the provider clinic, which includes assumptions regarding the lag between the authorization date and service date as well as estimates for changes and cancellations of services.

6 unchanged sentences

We recognize stock-based compensation expense based on the fair value of stock-based awards granted to employees and directors on the date of grant.

We estimate the fair value of each stock-based award on the measurement date using either the Black-Scholes option-pricing model for stock options and stock purchased under the employee stock purchase plan or the closing market price of our common stock for restricted stock units.

The Black-Scholes option-pricing model requires the input of subjective assumptions, including (1) the expected stock price volatility, (2) the expected term of the award, (3) the risk-free interest rate and (4) expected dividends.

Due to the lack of historical and implied volatility data of our common stock, the expected stock price volatility is estimated based on the historical volatilities of the daily closing prices of a specified group of companies in our industry for a period equal to the expected term of the option.

We selected companies with comparable characteristics to our Company, including enterprise value, risk profiles and position within the industry, that have historical share price information sufficient to meet the expected term of the stock option.

meet the expected term of the stock option.

The expected term of the award represents the period of time that options granted are expected to be outstanding and is calculated utilizing the simplified method, which is the mid-point between the vesting date and end of the contractual term for each option.

6 unchanged sentences

Expected volatility 49.3% - 53.3% 52.4% - 59.5%

52.4% - 59.5%

49.2% - 54.7%

Expected term (years) 4.61 - 6.11 3.00 - 6.11

1 unchanged sentence

Expected dividend yield — —

Our outstanding stock-based awards as of December 31, 2021 are subject to service-based vesting and we recognize compensation expense over the vesting period of the award on a straight-line basis.

Our outstanding stock-based awards as of December 31, 2022 are subject to service-based or performance-based vesting.

We recognize compensation expense for service-based awards over the vesting period of the award on a straight-line basis.

Compensation expense related to awards with performance-based vesting conditions is recognized over the requisite service period when achievement of the performance condition is considered probable.

Forfeitures and cancellations of awards are recognized as they occur.

For the years ended December 31, 2022 and 2021, stock-based compensation expense was $100.7 million and $33.7 million, respectively.

As of December 31, 2021, we had $164.2 million and $86.5 million of unrecognized compensation costs related to unvested options and restricted stock units, respectively.

Both are expected to be expensed and vest over a weighted-average remaining period of approximately 3.6 years.

We account for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”).

As of December 31, 2022, we had $228.4 million and $100.3 million of unrecognized compensation costs related to unvested options and restricted stock units, respectively, which are expected to be expensed and vest over a weighted-average remaining period of approximately 3.2 years and 2.8 years, respectively.

We account for income taxes in accordance with FASB ASC Topic 740, Income Taxes, or “ASC 740”.

4 unchanged sentences

In the event we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.

As of December 31, 2020, the Company achieved three years of cumulative income, along with projections of profitability, for which management determined that there was sufficient positive evidence to conclude that it is more likely than not that

substantially all of the deferred tax assets will be realized.

As such, we released almost all of the valuation allowance on our realizable deferred tax assets.

4 unchanged sentences

There was a valuation allowance of $0.2 million as of December 31, 2022 and 2021.

Recently Adopted Accounting Pronouncements

For a full discussion of recently adopted accounting pronouncements, see Note 2 – Summary of Significant Accounting Policies, in the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis