What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-03 compared with 2024-02-29 · 74 added, 93 removed, 307 unchanged (35% of the section changed)

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

A discussion of the fiscal year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023 (File No.

A discussion of the fiscal year ended December 31, 2023 compared to the year ended December 31, 2022 has been reported previously in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024 (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, 2023 and 2022.

We believe in a world where everyone can realize dreams of family and ideal health.

Our mission is to empower healthier, supported journeys through transformative fertility, family building and women's health benefits.

Through our differentiated approach to benefits plan design, patient education and support and active network management, our clients’ employees are able to pursue the most effective treatment across life's milestones from the best physicians and achieve optimal outcomes.

Progyny is a leading benefits management company specializing in fertility and family building benefits solutions in the United States.

Our clients include many of the nation’s most prominent employers across a broad array of industries.

We launched our fertility benefits solution in 2016 with our first five employer clients, and we have grown our current base of clients to over 450 with at least 1,000 covered lives.

We currently have contracts to provide coverage to approximately 6.4 million employees and their partners (known in our industry as covered lives), whom we refer to as our members.

We have achieved this growth by demonstrating that our purpose-built, data-driven and disruptive platform consistently delivers superior clinical outcomes in a cost-efficient manner while driving exceptional client and member satisfaction.

We have retained substantially all of our clients since inception, and our member satisfaction over that same time period is evidenced by our industry-leading Net Promoter Score, or NPS, of +80 for our fertility benefits solution and +80 for our integrated pharmacy benefits solution, Progyny Rx as of December 31, 2023.

Our members experience healthier pregnancies and superior rates of pregnancy and live births, as well as reduced rates of miscarriages and multiple births, saving valuable time and money and limiting personal and professional disruption.

Executive Overview

We are a benefits management company specializing in fertility, family building, and women's health benefits solutions in the United States.

For further information on our business and strategy, see Part I, Item 1.

"Business" of this Annual Report on Form 10-K.

Revenue Model

Fertility Benefits Solution.

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Pharmacy Benefits Solution.

We went live with our integrated pharmacy benefits solution in 2018.

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 serve over 450 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 6.4 million covered lives under contract.

Revenue Model

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.

Our clients primarily contract with us to provide our fertility benefits solution and, where added on by our clients, our Progyny Rx solution.

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With respect to Progyny Rx, we bill the client for the fertility medication dispensed to their employees in connection with the authorized fertility treatments.

Medication fees also include our formulary management, drug utilization review and cost containment services and other care management services.

Medication fees also include our

formulary management, drug utilization review and cost containment services and other care management services.

• Population-Based Component.

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PEPM fees represented 1% of our total revenue for the years ended December 31, 2024 and 2023, 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.

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

Each year, we contract with new clients for our fertility benefits solution and, where added by the client, our Progyny Rx solution.

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

As of December 31, 2023 and 2022, we served 392 and 288 clients, respectively, representing 5,418,000 and 4,585,000 members, respectively.

As of December 31, 2024 and 2023, we served 473 and 392 clients, representing 6,472,000 and 5,418,000 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.

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Average Members (3)

6,471,000 5,442,000 6,404,000 5,383,000

(1) Represents the number of ART cycles performed, including IVF with a fresh embryo transfer, IVF freeze all cycles/embryo banking, frozen embryo transfers and egg freezing.

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Individual periods cannot be combined as member treatments may span multiple periods .

Impact of COVID-19 on our Business

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

Restrictions related to COVID-19, including variants, and our responses to them 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.

COVID-19, including variants, and related restrictions had

a negative impact on our revenue growth in the past, including 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 refer to Part I, Item 1A.

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

(3) Includes approximately 300,000 members from a single client who are not reflected in utilization as a result of the client's chosen benefit design.

Components of Results of Operations

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

(2) costs incurred (including salaries, bonuses, benefits, stock-based compensation expense, 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;

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We expect that gross profit and gross margin will continue to be affected by various factors including the geographic location where treatments are performed, as well as pricing with each of our clients, provider clinics, labs, specialty pharmacies and pharmaceutical companies, all of which are negotiated separately, have different contracting start and end dates and durations which are not coterminous with each other.

Additionally, staffing levels and the related personnel costs, including stock-based compensation expense, and other costs necessary to deliver our care management services will continue to grow as we continue to add clients and their associated members.

Additionally, staffing levels and the related

personnel costs, including stock-based compensation expense, and other costs necessary to deliver our care management services will continue to grow as we continue to add clients and their associated members.

Operating Expenses

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We anticipate that we will incur additional general and administrative expenses on an ongoing basis to support the growth of our business.

Other Income, net

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

Provision (Benefit) for Income Taxes

We are subject to income taxes in the United States.

Interest and other income, net

Interest and other income, net primarily includes interest income and expense, as well as investment income and losses.

Provision for Income Taxes

We are subject to income taxes in the United States and in certain foreign jurisdictions.

Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules.

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.

We believe there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets are realizable.

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.

We believe there is sufficient positive evidence to conclude that it is more likely than not that substantially all the net deferred tax assets are realizable.

Results of Operations

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Income from operations 67,455 62,184

Other income, net 8,507 1,100

Interest and other income, net 15,747 8,507

Income before income taxes 83,202 70,691

Provision (benefit) for income taxes 8,654 (5,917)

Provision for income taxes 28,866 8,654

Net income $ 54,336 $ 62,037

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Total stock‑based compensation expense $ 128,130 $ 122,611

(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, net, interest income, net, and provision (benefit) for income taxes.

(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, interest and other income, net, and provision 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.

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Income from operations 5.8 % 5.7 %

Other income, net 0.8 % 0.1 %

Interest and other income, net 1.3 % 0.8 %

Income before income taxes 7.1 % 6.5 %

Provision (benefit) for income taxes 0.8 % (0.8) %

Provision for income taxes 2.5 % 0.8 %

Net income 4.6 % 5.7 %

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(3) it does not consider the impact of stock-based compensation expense;

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

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

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.

Because of these limitations, when evaluating our performance, you should consider Adjusted EBITDA alongside other financial performance measures, including our net income from continuing operations and other U.S.

GAAP results.

We calculate Adjusted EBITDA as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, other income, net, interest income, net, and provision (benefit) for income taxes.

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

We calculate Adjusted EBITDA as net income, adjusted to exclude depreciation and amortization, stock-based compensation expense, interest and other income, net, and provision for income taxes.

The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure stated in accordance with U.S.

GAAP, for each of the periods indicated:

(in thousands)

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Stock‑based compensation expense 128,130 122,611

Other income, net (5,203) (286)

Interest income, net (3,304) (814)

Provision (benefit) for income taxes 8,654 (5,917)

Interest and other income, net (15,747) (8,507)

Provision for income taxes 28,866 8,654

Adjusted EBITDA $ 198,760 $ 187,076

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This increase is primarily due to a $53.2 million, or 8% increase, in revenue from our fertility benefits solution and a $25.4 million or 6% increase in revenue from our Progyny Rx solution.

The increase in revenue from our fertility benefits solution was primarily due to the increase in the number of clients and covered lives.

The increase in revenue from our pharmacy benefits solution was also driven by the number of clients and covered lives that added the Progyny Rx benefit.

Progyny Rx went live with only a select number of clients on January 1, 2018 and has continued to add both new and existing fertility benefit solution clients since its initial launch.

Our revenue for the year ended December 31, 2022 was negatively impacted by COVID-19.

The increase in revenue from our fertility benefits solution and Progyny Rx solution were primarily due to the increase in the number of clients and covered lives.

Cost of Services

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Gross profit increased by $14.6 million, or 6%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Gross margin increased 60 basis points for the year ended December 31, 2023 compared to year ended December 31, 2022, primarily due to ongoing efficiencies realized in the delivery of our care management services, partially offset by the impact of planned cost containment efforts that were shared with our clients.

Gross margin decreased 20 basis points for the year ended December 31, 2024 compared to year ended December 31, 2023, primarily due to an increase in personnel-related costs in the delivery of our care management services.

Operating Expenses

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Sales and marketing expense increased by $4.5 million, or 7%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.

This increase was primarily due to an $11.3 million increase in personnel-related costs attributable to an increase in stock-based compensation expense of $5.9 million, incremental headcount and an increase in sales commissions, as well as a $2.5 million increase in other related sales and marketing expenses.

This increase was primarily due to a $3.5 million increase in personnel-related costs attributable to an increase in stock-based compensation expense, as well as a $1.0 million increase in other related sales and marketing expenses.

General and Administrative Expense

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General and administrative expense increased by $4.8 million, or 4%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.

This increase was primarily due to a $9.7 million increase in personnel-related costs including an increase in stock-based compensation expense of $7.4 million, a $6.1 million increase in bad debt expense driven by our revenue growth, as well as a $3.0 million increase in other related general and administrative expenses.

Other Income, Net

This increase was primarily due to a $6.0 million increase in personnel-related costs attributable to incremental head count, and a $2.3 million increase in other related general and administrative expenses, partially offset by a $3.5 million decrease in bad debt expense.

Interest and Other Income, Net

2024 2023 % Change

(dollars in thousands)

Other income, net $ 8,507 $ 1,100 673 %

Other income, net increased by $7.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to increases in investment and interest income.

Provision (Benefit) for Income Taxes

Interest and other income, net $ 15,747 $ 8,507 85 %

Interest and other income, net increased by $7.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to increases in investment and interest income.

Provision for Income Taxes

2024 2023 % Change

(dollars in thousands)

Provision (benefit) for income taxes $ 8,654 $ (5,917) (246) %

For the year ended December 31, 2023, we recorded a provision for income taxes of $8.7 million, as compared to a benefit for income taxes of $5.9 million for the year ended December 31, 2022, primarily due to higher operating profit as well as a decrease in tax benefits for equity compensation, including discrete tax benefits, in the current year period.

Provision for income taxes $ 28,866 $ 8,654 234 %

For the year ended December 31, 2024, we recorded a provision for income taxes of $28.9 million, as compared to a provision for income taxes of $8.7 million for the year ended December 31, 2023, primarily due to a higher operating profit as well as a decrease in tax benefits for equity compensation.

Liquidity and Capital Resources

As of December 31, 2024, we had $162.3 million of cash and cash equivalents and $65.6 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, including our initial public offering.

We have financed our operations primarily through sales of our solutions and the net proceeds we have received from sales of equity securities.

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.

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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 prior impact on our revenue growth and the related cash flows resulting from the various restrictions on activities due to the COVID-19 pandemic, as of December 31, 2023, our sources and uses of cash were not otherwise significantly impacted by the COVID-19 pandemic and, to date, based on the information currently available to us, we have not identified and do not expect any material liquidity deficiencies as a result of the COVID-19 pandemic.

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.

We may, in the future, enter into arrangements to acquire or invest in complementary businesses, products, and technologies.

We may be required to seek additional equity or debt financing.

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 amount of capital investment necessary to support our benefits offerings and growth strategy, the expansion of our sales and marketing activities and the continuing market adoption of our solutions.

In addition, we may enter into arrangements to acquire or invest in complementary businesses, products, and technologies.

We may, in the future, be required to seek additional equity or debt financing.

In the event that we require additional financing, we may not be able to raise such financing on terms acceptable to us or at all.

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Cash provided by operating activities $ 179,105 $ 188,814

Cash used in investing activities (200,525) (43,866)

Cash provided by (used in) investing activities 195,792 (200,525)

Cash used in financing activities (309,880) (11,072)

Effect of exchange rate changes on cash and cash equivalents $ 1 $ 1

Net (decrease) increase in cash and cash equivalents $ (22,782) $ 28,665

Net increase (decrease) in cash and cash equivalents $ 65,018 $ (22,782)

Operating Activities

Net cash provided by operating activities was $179.1 million for the year ended December 31, 2024, primarily consisting of net income of $54.3 million adjusted for certain non-cash items, which included $128.1 million of stock-based compensation expense, $16.4 million of bad debt expense, $10.5 million of deferred tax benefit, $3.2 million of depreciation and amortization, $2.1 million of net accretion of discounts on marketable securities, and $1.4 million loss on disposal of property and equipment.

Changes in operating assets and liabilities resulted in cash used in operating activities from a decrease in accounts payable of $30.3 million, and an increase in accounts receivable of $9.9 million, partially offset by cash provided by operating activities from increases in accrued expenses and other current liabilities of $9.9 million and other noncurrent assets and liabilities of $0.4 million, and a decrease in prepaid expenses and other current assets of $18.0 million.

These changes are a result of the impact of revenue growth and our operating results as well as the timing of cash collections and payments to third parties, including $40.4 million of cash paid for income taxes, net of refunds for the year ended December 31, 2024.

Net cash provided by operating activities was $188.8 million for the year ended December 31, 2023, primarily consisting of net income of $62.0 million adjusted for certain non-cash items, which included $122.6 million of stock-based compensation expense, $19.9 million of bad debt expense, $3.7 million of deferred tax expense, and $2.3 million of depreciation and amortization.

Changes in operating assets and liabilities resulted in cash used in operating activities from an increase in prepaid expenses and other current assets of $22.9 million and accounts receivable of $21.7 million, partially offset by cash provided by operating activities from increases in accounts payable of $16.2 million, accrued expenses and other current liabilities of $10.4 million and other noncurrent assets and liabilities of $0.6 million.

offset by cash provided by operating activities from increases in accounts payable of $16.2 million, accrued expenses and other current liabilities of $10.4 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 new agreements with our pharmacy program partners, which include more favorable payment receipt terms and resulted in an additional receipt in the year ended December 31, 2023, and the timing of cash collections and payments to third parties, including a $20.0 million prepayment on the dispensing of certain medications from one of our pharmacy program partners in the year ended December 31, 2023.

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.

Investing Activities

Net cash used in investing activities was $200.5 million and $43.9 million for the years ended December 31, 2023 and 2022, respectively, which primarily consisted of net investments in marketable securities of $196.9 million and $40.6 million, respectively.

The remainder of the activity for the years ended December 31, 2023 and 2022 consisted of purchases of computers, software, including capitalized software development costs, and leasehold improvements.

Net cash provided by investing activities was $195.8 million for the year ended December 31, 2024, which primarily consisted of net sales in marketable securities of $206.5 million, partially offset by $5.3 million used in a business acquisition, net of cash acquired.

For the year ended December 31, 2023, net cash used in investing activities was $200.5 million, which primarily consisted of net investments in marketable securities of $196.9 million.

The remainder of the activity for the year ended December 31, 2024 consisted of purchases of computers, software, including capitalized software development costs, and furniture and fixtures.

Our capital investments, including investments in technology and the development of software, are expected to increase over the next 12 months as we continue to invest in our benefits offerings and growth strategy.

Financing Activities

Net cash used in financing activities was $11.1 million for the year ended December 31, 2023, consisting of payments of $17.2 million for employee taxes related to equity awards, partially offset by $4.9 million in proceeds from stock option exercises and $1.3 million in proceeds from contributions to our employee stock purchase plan.

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.

Share Repurchase Program

Net cash used in financing activities was $309.9 million for the year ended December 31, 2024, consisting of $300.3 million of repurchases of common stock under the 2024 Share Repurchase Programs, inclusive of $0.4 million in trading fees and payments of $12.0 million for employee taxes related to the net settlement of equity awards, partially offset by $1.1 million in proceeds from stock option exercises and $1.3 million in proceeds from contributions to our employee stock purchase plan.

Net cash used in financing activities was $11.1 million for the year ended December 31, 2023, consisting of payments of $17.2 million for employee taxes related to the net settlement of equity awards, partially offset by $4.9 million in proceeds from stock option exercises and $1.3 million in proceeds from contributions to our employee stock purchase plan.

Share Repurchase Programs

In February 2024, our Board of Directors authorized a share repurchase program of up to $100 million in shares of common stock.

Repurchases may be made in the form of open market repurchases, including through plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, depending on stock price, market conditions and

other factors, as determined by management.

There can be no assurance as to the number of shares to be repurchased by us, if any.

In May 2024, our Board of Directors authorized an additional share repurchase program of up to $100 million in shares of common stock.

In August 2024, our Board of Directors authorized an additional share repurchase program of up to $100 million in shares of common stock.

During the year ended December 31, 2024, we repurchased a total of 12,382,193 shares of common stock under the 2024 Share Repurchase Programs at an average price per share of $24.22 and a total cost of $300.3 million, inclusive of $0.4 million in trading fees.

In addition, the Company recognized $2.6 million of excise taxes related to the share repurchases.

As of the year ended December 31, 2024, the share repurchase programs were completed, and no amounts remained available for repurchase under the programs.

Operating Lease Commitments

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Pursuant to the sublease, we will pay the base rent of approximately $1.3 million per year through the end of the fifth lease year and approximately $1.4 million per year thereafter through the expiration date.

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 April 2024 for five years and approximately $1.5 million per year thereafter through the fourth quarter of 2035, the expected expiration date.

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

In February 2022, we entered into a lease agreement commencing in February 2023 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 pay base rent of approximately $1.4 million per year through the end of the fifth year and approximately $1.5 million per year thereafter through the second quarter of 2036, the expected expiration date.

For the 21,262 square foot office, we will pay the base rent of approximately $1.3 million starting in the second quarter of 2026 for five years and approximately $1.4 million per year thereafter through the second quarter of 2036, 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, which is the lease commencement date, through the second quarter of 2036, the expected expiration date.

Critical Accounting Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported amounts of assets, liabilities, revenue and expenses, and related disclosures.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances.

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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, including those with performance-based vesting criteria.

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, including those with performance-based vesting criteria.

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.

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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.

We believe there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets were realizable as of December 31, 2023.

We believe there is sufficient positive evidence to conclude that it is more likely than not that substantially all the net deferred tax assets were realizable as of December 31, 2024.

The amount of deferred tax provided is calculated using tax rates enacted at the balance sheet date.

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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