What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-01 · 214 added, 302 removed, 589 unchanged (47% of the section changed)

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Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 42 )

Financial Statements:

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases and associated amendments (Topic 842) using the modified retrospective method.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for credit losses in 2020 due to the adoption of Accounting Standards Update (ASU) No.

2016-13, Financial Instruments – Credit Losses (Topic 326) using the modified retrospective method.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Receivables and Accrued Claims Payable

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As discussed in Note 2 to the consolidated financial statements, the Company estimates accrued receivables for those fertility benefit services provided but for which a claim has not been received from the provider clinic based on historical claims experience.

The estimated cost of the related services and accrued claims payable are determined based upon the historical costs paid to the provider clinic and the historical gross margin achieved for each related fertility benefit service estimated to have been provided.

The estimated cost of the related services and accrued claims payable are determined based upon the amount to be paid to the provider clinic and expected gross margin on each related fertility benefit service estimated to have been provided.

Auditing the Company’s estimates of accrued receivables and the related accrued claims payable was complex and required significant judgment as the estimates were sensitive to changes in the significant assumptions, including management’s assumptions regarding the lag between authorization date and service date, service changes and cancellations.

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For example, we tested the Company’s assumptions of the lag between the authorization date and service date, service changes and cancellations based on historical claims data, historical gross margin per service and tested the clerical accuracy of management’s analysis.

Additionally, we evaluated the historical accuracy of management’s estimate by testing management’s retrospective review analysis that compared the prior period estimated accrued receivables and accrued claims payable to actual billing and claims data.

Valuation of deferred tax assets

Description of the Matter

As of December 31, 2020, the Company had deferred tax assets related to deductible temporary differences and carryforwards of $40.8 million, net of a valuation allowance of $0.2 million.

As discussed in Note 14 to the consolidated financial statements, the Company recognizes a valuation allowance to reduce the carrying value of its deferred tax assets to the amount that management believes is more likely than not to be realized.

Auditing the Company’s assessment of the realizability of its deferred tax assets involved complex auditor judgment because management’s estimates of future taxable income are highly judgmental and based upon significant assumptions that may be affected by future market conditions and the Company’s performance.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s income tax process, including management’s assessment of the realizability of the deferred tax assets.

For example, we tested controls over management’s review of the significant assumptions and the underlying data used to determine the timing and amount of projected future taxable income.

Among other audit procedures performed, we evaluated the Company’s assessment of the realizability of deferred tax assets and the resultant valuation allowance including management’s estimates of future taxable income.

We compared management’s estimates of future taxable income, with actual results of prior periods, economic trends and other forecasted financial information prepared by the Company.

We involved our tax professionals to evaluate the application of tax law in the Company’s assessment.

We also tested the Company’s scheduling of the timing and amount of reversal of taxable temporary differences.

Additionally, we evaluated the historical accuracy of management’s estimate by testing management’s retrospective review analysis that compared the prior period’s estimated accrued receivables and accrued claims payable to actual billing and claims data.

/s/ Ernst & Young LLP

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Marketable securities

Accounts receivable, net of $16,199 and $6,320 of allowances at December 31, 2020 and December 31, 2019, respectively

Accounts receivable, net of $ 17,379 and $ 9,502 of allowances at December 31, 2021 and 2020, respectively

Prepaid expenses and other current assets

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Accumulated deficit

Accumulated Other Comprehensive Income

Accumulated other comprehensive income (loss)

Total stockholders’ equity

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Total operating expenses

Income (loss) from operations

Income from operations

Other income (expense):

Other income (expense), net

Interest income (expense), net

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Benefit (provision) for income taxes

Net income (loss) from continuing operations

Net income from discontinued operations, net of taxes

Net income (loss)

Net income (loss) attributable to common stockholders

Net income (loss) per share attributable to common stockholders:

Continuing operations

Discontinued operations

Total basic net income (loss) per share attributable to common stockholders

Continuing operations

Discontinued operations

Total diluted net income (loss) per share attributable to common stockholders

Net income (loss) per share:

Weighted-average shares used in computing net income (loss) per share:

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(in thousands)

Year Ended December 31,

Net income (loss)

Other comprehensive income:

Unrealized gains on marketable securities

Total other comprehensive income

Other comprehensive income (loss):

Unrealized gain (loss) on marketable securities

Total other comprehensive income (loss)

Total comprehensive income (loss)

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Balance at December 31, 2018

Repurchase of convertible preferred stock

Repurchase of common stock

Non-cash contribution

Stock option exercise

Stock-based compensation

Impact of adoption of ASU 2016-09

Balance at December 31, 2018

Repurchase of Common Stock

Stock option exercise

Stock-based compensation

Conversion of convertible preferred stock to common stock upon initial public offering

( 65,428,088 )

Conversion of convertible preferred stock warrants to common stock warrants upon initial public offering

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Balance at December 31, 2020

Issuance of employee equity awards, net of shares withheld

Stock-based compensation

Warrant exercise

Other comprehensive loss

Balance at December 31, 2021

The accompany notes are an integral part of these consolidated financial statements.

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Net income (loss)

Income from discontinued operations, net of income tax

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Deferred tax expense (benefit)

Deferred tax (benefit) expense

Non-cash interest expense

Loss on debt extinguishment

Depreciation and amortization

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Loss on disposal of property and equipment

Accretion of debt discount and debt issuance costs

Change in fair value of warrant liabilities

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Accounts receivable

Prepaid expenses and current other assets

Prepaid expenses and other current assets

Accounts payable

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Sale of marketable securities

Net cash (used in) continuing operations

Net cash provided by (used in) continuing operations

Net cash provided by discontinued operations

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Payment of initial public offering costs

Repayment of term loan

Proceeds from revolving line of credit

Repayments made against revolving line of credit

Repurchase of convertible preferred stock

Repurchase of common stock

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Proceeds from contributions to employee stock purchase plan

Exercise of stock warrants

Proceeds from exercise of stock warrants

Net cash provided by (used in) financing activities

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Cash paid for interest

Cash paid for income taxes, net of refunds received

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

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Deferred initial public offering costs in accounts payable and accrued expenses

Non-cash settlement of liability

Non-cash liability forgiveness related to divestiture

Non-cash preferred stock warrant conversion to common stock warrant upon IPO

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Progyny, Inc.

(referred to as “Progyny” or the “Company”) was incorporated in the state of Delaware on April 3, 2008, and maintains its corporate headquarters in New York, NY.

(together with its subsidiaries referred to as “Progyny” or the “Company”) was incorporated in the state of Delaware on April 3, 2008, and maintains its corporate headquarters in New York, NY.

Progyny is a provider of a fertility benefits solution and pharmacy benefits solution and operates and manages in one operating segment.

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Immediately prior to the completion of the IPO, all shares of convertible preferred stock then outstanding were converted into 65,428,088 shares of common stock on a one -to- one basis, $ 106.2 million of convertible preferred stock was reclassified to additional paid-in-capital and $ 7,000 of convertible preferred stock was reclassified to common stock on the Company’s balance sheet.

Emerging Growth Company Status

Prior to December 31, 2020, the Company was an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it was (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opted out of the extended transition period provided in the JOBS Act.

Based on the market value of the Company’s common stock as of June 30, 2020, the Company ceased to qualify as an emerging growth company as of December 31, 2020.

As a result, the Company no longer is able to use the extended transition period for complying with new or revised accounting standards available to emerging growth companies and is required to adopt new or revised accounting standards as of the effective dates for public companies.

All new accounting pronouncements recently adopted as discussed in Note 2 – Summary of Significant Accounting Policies below were adopted in the fourth quarter of 2020 with an effective date of January 1, 2020.

Basis of Presentation

The accompanying consolidated financial statements include those of the Company and its wholly owned subsidiary, Fertility Authority LLC.

Effective June 2018, the Company legally dissolved the Fertility Authority LLC legal entity.

The accompanying consolidated financial statements include those of the Company and its wholly owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

The consolidated financial statements and accompanying notes were prepared in accordance with accounting principles generally accepted in United Sates (“U.S.

Additionally, there are many uncertainties regarding the ongoing coronavirus (“COVID-19”) pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it has impacted and may continue to impact its customers and members, its provider network, specialty pharmacy partners, employees, suppliers, vendors, and other business partners.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, future results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional and national markets.

Additionally, there are many uncertainties regarding the ongoing coronavirus (“COVID-19”) pandemic, including variants, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it has impacted and may continue to impact its customers and members, its provider network, specialty pharmacy partners, employees, suppliers, vendors, and other business partners.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, future results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and variants, the actions taken to contain it or treat its impact, vaccine roll-out efforts and impact, including vaccine hesitancy, break-through cases and the economic impact on local, regional and national markets.

The overall disruption of the healthcare and fertility markets and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

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The Company operates and manages in one operating segment, providing fertility and pharmacy benefits solutions.

The Company defines its CODM as its Chief Executive Officer and its President and Chief Operating Officer.

The Company defines its CODM as its Chief Executive Officer and its President.

All long-lived assets are located in the United States and all revenue is attributed to the United States.

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GAAP generally requires management to make estimates and assumptions that affect the reported amount of certain assets, liabilities, revenue, and expenses, and the related disclosure of contingent assets and liabilities.

Such estimates include, but are not limited to, the determination of revenue recognition including accrued receivables and allowance for service changes and cancellations, accrued claims

payable, allowance for doubtful accounts, stock-based compensation, convertible preferred stock warrant liabilities, lease liabilities, and accounting for income taxes.

Such estimates include, but are not limited to, the determination of accrued receivables related to revenue recognition, accrued claims payable, allowance for doubtful accounts, stock-based compensation, convertible preferred stock warrant liabilities, lease liabilities, and accounting for income taxes.

Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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Unrealized gains and losses on marketable securities are excluded from earnings and reported as a component of other comprehensive income (loss).

Gross unrealized gains recorded within other comprehensive income as of December 31, 2020 were not significant.

Revenue Recognition

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Progyny’s contracts typically have a stated term of three years and include contractual termination options after the first year, allowing the client to terminate the contract with 30 to 90 days ’ notice.

Fertility Benefits Revenue

Fertility Benefits Solution Revenue

Progyny primarily generates revenue through its fertility benefits solution, in which Progyny provides self-insured enterprise entities (‘‘clients’’) and their employees and partners (together, ‘‘members’’) with fertility benefits.

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In addition to access to Progyny’s Smart Cycle treatment bundles and access to Progyny’s network of provider clinics, the fertility benefits solution includes other comprehensive services, which Progyny refers to as care management services, such as active management of the provider clinic network, real-time member eligibility and treatment authorization, member-facing digital tools throughout the Smart Cycle and detailed quarterly reporting all supported by client facing account management and end-to-end comprehensive member support provided by Progyny’s in house staff of PCAs.

The promises within Progyny’s fertility benefits contract with a client represent a single performance obligation because Progyny provides a significant service of integrating the Progyny designed Smart Cycles and access to the fertility treatment services provided by provider clinics with the other comprehensive services into the combined fertility

benefits solution that the client contracted to receive.

Progyny’s fertility benefits solution is a stand-ready obligation that is satisfied over the contract term.

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These service level refunds, which are determined based on results of a full plan year, if met, are based on a percentage of the PEPM fee paid by clients.

The Company estimates the variable consideration related to the total PEPM administration fee, less estimated refunds related to service level agreements, and recognizes the amounts allocated to the fertility benefits solution ratably over the contract term.

The Company estimates the variable consideration related to the total PEPM administration fee, less estimated refunds related to service level agreements, and recognizes the amounts allocated to

the fertility benefits solution ratably over the contract term.

Progyny’s estimate of service level agreement refunds, have not historically resulted in significant adjustments to the transaction price.

Clients are invoiced on a monthly basis for the PEPM administration fee.

Clients are typically invoiced on a monthly basis for the PEPM administration fee.

Progyny invoices its clients and members for their respective portions of the fixed rate per Smart Cycle bundle when all treatment services within a Smart Cycle are completed by the provider clinic.

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Pricing of services from provider clinics is independent from the fees charged to clients.

Pharmacy Benefits Revenue

Pharmacy Benefits Solution Revenue

For clients that have the fertility benefits solution, Progyny offers, as an add-on, its pharmacy benefits solution, which is a separate, fully integrated pharmacy benefit.

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As described above, the PEPM administration fee, less estimated refunds related to service level agreements, is allocated to the pharmacy benefits solution and recognized ratably over the contract term.

The Company allocates the variable consideration related to the

fixed fee per fertility drug to the distinct period during which the related services were performed, as those fees relate specifically to the Company’s efforts to provide its pharmacy benefits solution to clients in the period and represents the consideration the Company is entitled to for the pharmacy benefit services provided.

The Company allocates the variable consideration related to the fixed fee per fertility drug to the distinct period during which the related services were performed, as those fees relate specifically to the Company’s efforts to provide its pharmacy benefits solution to clients in the period and represents the consideration the Company is entitled to for the pharmacy benefit services provided.

As a result, the fixed fee per fertility drug is included in the transaction price and recognized in the period in which the Company is entitled to consideration from a client, which is when a prescription is filled and delivered to the members.

As stated above, clients are invoiced on a monthly basis for the PEPM administration fee.

Progyny invoices the client and the member for their respective portions of the fixed fee per fertility drug, when the prescription services are completed by the specialty pharmacy.

Progyny invoices the client and the member for their respective portions of the fixed fee per fertility drug, when the prescription services are completed by the specialty pharmacies.

Once an invoice is issued, payment terms are typically between 30 to 60 days.

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Progyny integrates the prescription fulfillment and clinical services provided by the pharmacies and PCAs into the overall pharmacy benefits solution that the client contracted to receive.

In addition, Progyny defines the scope of the potential services to be performed by the specialty pharmacies and monitors the performance of the specialty pharmacies.

In addition, Progyny defines the scope of the potential services to be performed by the specialty pharmacies and monitors the performance of the specialty

Furthermore, Progyny is primarily responsible for fulfilling the promise to the client and has discretion in setting the pricing, as Progyny separately negotiates agreements with pharmacies, which establish pricing for each drug.

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Accrued Receivable and Accrued Claims Payable

Accrued receivables are estimated 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 authorization date and service date.

At the same time, cost of services and accrued claims payables are estimated based on the amount to be paid to the provider clinic and historical gross margin achieved on fertility benefit services.

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

At the same time, cost of services and accrued claims payables are estimated based on the amount to be paid to the provider clinic and expected gross margin on fertility benefit services.

Estimates are adjusted to actual at the time of billing.

Adjustments to original estimates have not been material.

As of December 31, 2020 and 2019, accrued receivables, net of the allowance for service changes and cancellations discussed below, were $28.2 million and $16.0 million, respectively.

As of December 31, 2021 and 2020, accrued receivables were $ 30.2 million and $ 28.2 million, respectively.

Accrued receivables are included within accounts receivable in the consolidated balance sheet.

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The accounts receivable balance primarily includes amounts due from clients and members.

Accounts receivable also includes certain accrued receivables for fertility benefits claims from provider clinics at the end of each period for services provided that have not yet been received.

The Company estimates an allowance for changes and cancellations of services based upon historical experience.

Additionally, as a result of the adoption of ASU 2016-13- Financial Instruments – Credit Losses (Topic 326) , beginning January 1, 2020, the Company estimates the allowance for doubtful accounts based on the lifetime expected credit losses for the client and member receivable pools, respectively.

Under this model, the Company determines the allowance for doubtful accounts based on factors such as the age of the receivable balance, historical experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions.

The new standard requires a change in timing of loss recognition where an allowance for credit losses is now applied at the time the asset is recognized.

As a result of the adoption of ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326) , beginning January 1, 2020, the Company estimates the allowance for doubtful accounts based on the lifetime expected credit losses for the client and member receivable pools, respectively.

Under this current expected credit losses model, the Company determines the allowance for doubtful accounts based on factors such as the age of the receivable balance, historical experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions.

The new standard required a change in timing of loss recognition where an allowance for credit losses is now applied at the time the asset is recognized.

Prior to the adoption of ASU 2016-13, credit losses were determined based upon historical bad debts, current receivables balances, and the age of the receivables balances.

Expected credit losses are recorded as general and administrative expenses on our consolidated statements of operations.

The Company adopted the standard using the modified retrospective transition method, which resulted in a cumulative-effect adjustment to accumulated deficit of $1.2 million.

As a result, p eriods prior to the adoption date continue to be reported under the historical accounting guidance.

Expected credit losses are recorded as general and administrative expenses on the statements of operations.

The Company adopted ASU 2016-13 as of January 1, 2020 , using the modified retrospective transition method, which resulted in a cumulative-effect adjustment to accumulated deficit of $ 1.2 million.

As a result, periods prior to the adoption date continue to be reported under the historical accounting guidance.

The following table provides a summary of the activity in this allowance (in thousands):

Years Ended December 31, 2021, 2020 and 2019

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Allowance for doubtful accounts

Allowance for service changes and cancellations (1)

December 31, 2020

Allowance for doubtful accounts

Allowance for service changes and cancellations (1)

December 31, 2019

Allowance for doubtful accounts

Allowance for service changes and cancellations (1)

(1) Represents the allowance released as a result of the cancellation or adjustment to an authorized fertility benefits service treatment.

Cost of Services

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Fertility benefit services costs include:

(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:

(1) fees paid to provider clinics within the Company’s network, labs and anesthesiologists;

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

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

and (3) related information technology support costs.

Our contracts with provider clinics are typically for a term of one to two years.

Contracts with provider clinics are typically for a term of one to two years .

Pharmacy Benefit Services

Pharmacy benefit services costs include:

(1) the fees for prescription drugs dispensed and clinical services provided during the reporting period by our specialty pharmacy partners;

(1) the fees for prescription drugs dispensed and clinical services provided during the reporting period by specialty pharmacy partners;

PCA, Provider Relations and Claims Processing teams;

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Contracts with the specialty pharmacies are typically for a term of one year.

In the specialty pharmacy contracts, the contractual fees of prescription drugs sold includes the cost of the prescription drugs purchased and shipped to members by the Company’s specialty mail service dispensing pharmacy, net of any volume-related or other discounts.

Vendor rebates

The Company receives a rebate on formulations purchased and dispensed by the Company’s specialty pharmacy.

The Company’s contractual arrangements with pharmaceutical manufacturers provide for the Company to receive a discount (or rebate) from established list prices paid subsequent to dispensing when products are purchased indirectly from a pharmaceutical manufacturer (e.g., through a specialty pharmacy.) These rebates are recognized as a reduction of Cost of services when prescriptions are dispensed and are generally estimated and billed to manufacturers within 15 days of the end of each month.

The Company receives a rebate on formulations purchased and dispensed by the Company’s specialty pharmacies.

The Company’s contractual arrangements with pharmacy program partners provide for the Company to receive a discount (or rebate) from established list prices paid subsequent to dispensing when products are purchased indirectly from a pharmacy program partners (such as through a specialty pharmacy).

These rebates are recognized as a reduction of cost of services when prescriptions are dispensed and are generally estimated and billed to manufacturers within 20 days after the end of each month.

The effect of adjustments resulting from the reconciliation of rebates recognized to the amounts billed and collected has not been material to the Company’s results of operations.

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From time to time, such deposits may exceed federally insured limits.

The Company regularly reviews the outstanding accounts receivable and makes estimates of expected credit and collectability trends for the allowance of credit losses based upon consideration of factors such as the age of the receivable balance, historical experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions.

Two customers accounted for 14% each, or a combined 28% total receivables as of December 31, 2020.

Two customers accounted for 17% and 14% each, or a combined 31% total receivables as of December 31, 2019.

Three customers accounted for 25%, 13% and 10% each, or 48% of total accounts receivables as of December 31, 2018.

To manage credit risk related to accounts receivable, the Company evaluates client’s financial condition and collateral is generally not required.

The Company regularly reviews the outstanding account receivable balances and makes estimates of the lifetime expected credit losses based upon consideration of factors such as the age of the receivable balance, historical experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions.

In addition, the Company periodically evaluates the financial condition of its clients to manage credit risk related to accounts receivable.

As of December 31, 2021, two entities accounted for 24% and 11 % each, or a combined 35 % of total receivables.

Two entities accounted for 14 % each, or a combined 28 % total receivables as of December 31, 2020.

Property and Equipment

Property and equipment consist of computer equipment, machinery and equipment, furniture and fixtures, leasehold improvements, and capitalized software development costs.

The assets are stated at cost less accumulated depreciation and amortization.

The assets are stated at cost less accumulated depreciation.

Depreciation is calculated using the straight-line method based on estimated useful lives and in the case of leasehold improvements, the shorter of the useful life or the remaining term of the lease (see Note 5).

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Goodwill represents the excess of the consideration transferred over the fair value of the assets acquired and liabilities assumed in a business combination.

Other intangible assets consist of trademarks, physician network, and the

websites acquired in the Fertility Authority acquisition.

Other intangible assets consist of trademarks, physician network, and the websites acquired in the Fertility Authority acquisition.

Goodwill, including other definite-lived intangible assets, are carried at their initial acquisition date fair value less any impairment.

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Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or asset groups may not be recoverable.

In such instances, the recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset group to future undiscounted net cash flows expected to be generated by the assets.

In such instances, the recoverability of assets to be held and used is measured first by a comparison of the carrying amount of an asset group to future undiscounted net

cash flows expected to be generated by the assets.

If such assets are considered to be impaired, an impairment loss would be recognized if the carrying amount of the asset exceeds the fair value of the asset or asset group.

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There were no impairments recorded for the years ended December 31, 2021, 2020 and 2019.

On January 1, 2020 , the Company adopted ASU 2016-02, Leases (Topic 842) using the modified retrospective transition method , which applies the provisions of the standard at the effective date without adjusting comparative periods presented.

As a result, periods prior to the adoption date continue to be reported under the historical lease accounting guidance.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company not to reassess (i) whether any expired or existing contracts contained leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for existing leases.

The Company also elected not to reassess lease terms for existing leases using hindsight and to account for each separate lease and non-lease component as a single lease component.

As a result of the adoption of the new leasing guidance, the Company recorded right-of-use assets and lease liabilities of $ 9.5 million and $ 9.9 million, respectively.

The adoption of the standard did not materially impact the Company’s statement of operations or statement of cash flows for the year ended December 31, 2020.

The Company determines if an arrangement is a lease at inception.

Operating leases are included in operating lease right-of-use assets, accrued expenses and other current liabilities, and operating lease noncurrent liabilities on our consolidated balance sheets.

As of December 31, 2020, the Company has no financing lease arrangements.

In accordance with ASC 842, which the Company adopted on January 1, 2020, the Company records a right-of-use asset (“ROU”) and lease liability in connection with its operating leases.

Operating leases are included in operating lease right-of-use assets, accrued expenses and other current liabilities, and operating lease noncurrent liabilities on the consolidated balance sheets.

As of December 31, 2021 and 2020, the Company has no financing lease arrangements.

In accordance with ASC 842, the Company records a right-of-use asset (“ROU”) and lease liability in connection with its operating leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

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The rate is then adjusted for the lease term and other specific terms included in the Company’s lease arrangements.

The incremental borrowing rate is subsequently reassessed upon a

modification to the lease arrangement.

The incremental borrowing rate is subsequently reassessed upon a modification to the lease arrangement.

The operating lease ROU asset also includes any lease payments made prior to commencement date and excludes lease incentives and initial direct costs incurred.

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Stock-Based Compensation

The Company accounts for share-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (ASC 718).

ASC 718 requires all share-based payments, including restricted stock units and grants of stock options, to be recognized in the consolidated statements of operations based on their respective fair values.

The Company accounts for stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (ASC 718).

ASC 718 requires all stock-based payments, including restricted stock units and grants of stock options, to be recognized in the consolidated statements of operations based on their respective fair values.

For non-employee awards, a measurement date is normally reached when performance is completed, and the fair value is remeasured as the awards vest.

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The fair value of the Company’s stock options and stock purchased under the employee stock purchase plan has been determined using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free interest rate and (iv) expected dividends.

Due to the lack of historical and implied volatility data of the Company’s common stock, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in Progyny’s industry for a period equal to the expected life of the option.

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

The historical volatility data has been computed using the daily closing prices for the selected companies.

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

We have estimated the expected term of non-employee service-based and performance-based awards based on the remaining contractual term of such awards.

The risk-free interest rate is based on a zero coupon, United States Treasury instrument whose term is consistent with the expected life of the stock option.

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

Progyny selected companies with comparable characteristics to the 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

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

For non-employee service-based and performance-based awards, the expected term is estimated based on the remaining contractual term of such awards.

The risk-free interest rate is based on the yield of zero-coupon, U.S.

Treasury securities for the period that is consistent with the expected term of the stock option.

The Company has not paid, and does not anticipate paying, cash dividends on its shares of common stock;

therefore, the expected dividend yield is zero .

Effective January 1, 2018, the Company adopted ASU 2016-09, Compensation—Stock Compensation which in turn resulted in a change in accounting policy to account for forfeitures as they occur.

Prior to January 1, 2018, forfeitures were estimated at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differed from those estimates.

The adoption resulted in a transition adjustment of $0.2 million, recorded to accumulated deficit.

The Company’s share-based awards are subject to either service-based or performance-based vesting conditions.

The Company’s stock-based awards are subject to either service-based or performance-based vesting conditions.

The Company recognizes compensation expense for service-based awards over the vesting period of the award on a straight-line basis.

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In performing these valuations, the Board of Directors considered a variety of relevant factors and valuation methodologies in accordance with the guidelines.

Following the IPO, the Board of Directors determines the fair market value for all common stock grants based on the closing market price of our common stock, on the date of grant, as reported by Nasdaq.

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”).

Following the IPO, the Board of Directors determines the fair market value for all common stock grants based on the closing market price of the common stock, on the date of grant, as reported by Nasdaq.

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), including updates in ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which the Company adopted as of January 1, 2021 .

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.

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The impact of tax law changes is recognized in periods when the change is enacted.

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

The impact of tax law changes is recognized in periods when the change is enacted.

A two-step approach is applied pursuant to ASC 740 in the recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return.

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The Company’s policy is to recognize interest and penalty expenses associated with uncertain tax positions as a component of income tax expense in the consolidated statements of operations and comprehensive (loss) income.

As of December 31, 2020, 2019 and 2018, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations.

As of December 31, 2021, 2020 and 2019, the Company had no significant accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations.

Fair Value of Financial Instruments and Fair Value Measurements

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Level 1—Quoted prices in active markets for identical assets and liabilities.

observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, marketable securities, accounts receivable, accounts payable and the term loan approximate fair value due to their short maturities.

Net Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

The Company adjusts its net income (loss) attributable to common stockholders to reflect the impact of deemed dividends recorded for convertible preferred stock during the period.

For the years ended December 31, 2019 and 2018, the Company’s convertible preferred stock was entitled to receive noncumulative dividends, prior and in preference to any declaration or payment of any dividend on common stock and thereafter participate pro rata on an as-converted basis with the common stockholders in any distributions to common stockholders and were therefore considered to be participating securities.

As a result, the Company calculated the net income (loss) per share using the two-class method.

Accordingly, the net income (loss) attributable to common stockholders is derived from the net income (loss) for the period and, in periods in which the Company has net income attributable to common stockholders, an adjustment is made for the allocations of undistributed earnings to participating securities based on their outstanding shareholder rights.

Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the convertible preferred stockholders did not have a contractual obligation to share in the Company’s losses.

Diluted net income (loss) attributable to common stockholders is computed by adjusting (loss) income attributable to common stockholders to allocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options, convertible preferred stock, convertible preferred stock warrants, and common stock warrants.

Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including common stock equivalents.

In periods when the Company has incurred a net loss, convertible preferred stock, options to purchase common stock, convertible preferred stock warrants, and common stock warrants are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, marketable securities, accounts receivable and accounts payable approximate fair value due to their short maturities.

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding for the period.

For the year ended December 31, 2019, the Company’s convertible preferred stock was entitled to receive noncumulative dividends, prior and in preference to any declaration or payment of any dividend on common stock and thereafter participate pro rata on an as-converted basis with the common stockholders in any distributions to common stockholders and were therefore considered to be participating securities.

As a result, the Company calculated the net loss per share using the two-class method.

Accordingly, the net loss attributable to common stockholders is derived from the net loss for the period.

Diluted net income (loss) per share is computed by dividing the diluted net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming dilutive effect of outstanding common stock options, restricted stock units, shares issuable under the employee stock purchase program and common stock warrants.

In periods when the Company has incurred a net loss, diluted net loss per

share is the same as basic net loss per share because dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) .

The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.

Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

The Company adopted this standard on January 1, 2020, using the modified retrospective transition method, which applies the provisions of the standard at the effective date without adjusting the comparative periods presented.

As a result, p eriods prior to the adoption date continue to be reported under the historical lease accounting guidance.

leases, and (iii) initial direct costs for existing leases.

The Company also elected to not reassess lease terms for existing leases using hindsight and to account for each separate lease and non-lease component as a single lease component.

As a result of the adoption of the new leasing guidance, t he Company recorded right-of-use assets and lease liabilities of $9.5 million and $9.9 million, respectively.

The right-of-use assets are classified within Operating lease right-of-use assets on the Company’s consolidated balance sheet.

Lease liabilities are classified within accrued expenses and other current liabilities and operating lease noncurrent liabilities on the Company’s consolidated balance sheet.

The adoption of the standard did not materially impact the Company’s statement of operations or statement of cash flows for the year ended December 31, 2020.

See Note 7 – Leases for further details.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) which replaces the incurred loss impairment methodology in current U.S.

GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The Company adopted this standard as of January 1, 2020 using the modified retrospective transition method, which resulted in a cumulative-effect adjustment to accumulated deficit of $1.2 million.

The adoption of the new standard impacted our methodology for calculating and estimating our allowance for doubtful accounts.

As a result, p eriods prior to the adoption date continue to be reported under the historical accounting guidance.

In August 2018, the FASB issued final guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in Accounting Standards Codification (“ASC”) 350-402 Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40) to determine which implementation costs to capitalize as assets.

The Company adopted this standard on January 1, 2020.

The adoption of the new standard did not have a material effect on the Company’s financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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The standard is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, as well as improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

The new standard will be effective for the Company for the fiscal year beginning January 1, 2021.

The Company is currently evaluating the impact this ASU will have on its financial statements.

The Company adopted this standard as of January 1, 2021 .

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

In May 2021, the FASB issued ASU No.

2021-04 (“ASU 2021-04”) “ Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation- Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815- 40) ” which provides guidance on modifications or exchanges of a freestanding equity-classified written call options that are not within the scope of another Topic, such as warrants.

The new standard will be effective for the Company for the fiscal year beginning January 1, 2022 and should be applied prospectively to modifications or exchanges occurring on or after this date.

The Company currently does not expect the adoption of the new standard to have a material effect on its consolidated financial statements, however, this impact will depend on the terms of written call options, such as warrants, or financings issued or modified in the future.

Disaggregated revenue

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Concentration of Major Clients

For the year ended December 31, 2020, two clients accounted for 18% and 17%, or a combined 35%, of our total revenue.

No other clients accounted for more than 10% for the year ended December 31, 2020.

For the year ended December 31, 2019, three clients accounted for 16%, 15%, and 10%, or a combined 41%, of our total revenue.

year ended December 31, 2018, three clients accounted for 24%, 14%, and 10%, or a combined 48%, of our total revenue.

For the year ended December 31, 2021, two clients accounted for 19 % and 15 %, or a combined 34 %, of total revenue.

For the year ended December 31, 2020, two clients accounted for 18 % and 17 %, or a combined 35 % , of total revenue.

No other clients accounted for more than 10% for the years ended December 31, 2021 and 2020.

For the year ended December 31, 2019, three clients accounted for 16 %, 15 %, and 10 %, or a combined 41 %, of total revenue.

Fair Value of Financial Instruments

As of December 31, 2020, the Company had $66.3 million in financial assets held in money market accounts and $39.0 million held in marketable securities, both of which were classified as Level 1 in the fair value hierarchy.

As of December 31, 2021 and 2020, the Company had $ 93.7 million and $ 66.3 million, respectively, in financial assets held in money market accounts and $ 28.0 million and $ 39.0 million, respectively held in marketable securities, including U.S.

treasury bills.

All were classified as Level 1 in the fair value hierarchy.

The Company measured these assets at fair value.

The Company classified these assets as Level 1 because the values of these assets are determined using unadjusted quoted prices in active markets for identical assets.

During the year ended December 31, 2020, the Company had $15,000 and $29,000 of net realized gains related to its money market accounts and marketable securities, respectively.

As of December 31, 2019, the Company did not have any financial instruments classified as Level 1 in the fair value hierarchy.

During the year ended December 31, 2021, the Company had gross realized losses related to marketable securities and money market accounts of $ 0.4 million included within earnings.

The gross realized gains for the period as well as the gross realized gains and losses for the year ended December 31, 2020 were not significant.

During the year ended December 31, 2021, the Company reclassified $ 0.4 million of net unrealized holding losses out of other comprehensive loss and into earnings.

The amount reclassified out of other comprehensive income for the year ended December 31, 2020 was not significant.

The total gains and losses for marketable securities and money market accounts in other comprehensive income (loss) as of December 31, 2021 and 2020 were not significant.

During the years ended December 31, 2021 and December 31, 2020, the Company did not maintain any assets or liabilities classified as Level 2 or Level 3 in the fair value hierarchy.

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Furniture and fixtures

Capitalized software

Property and equipment, gross

accumulated depreciation

Total property and equipment, net

Depreciation expense was approximately $744,000, $650,000, and $400,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

Depreciation expense was approximately $ 0.7 million for the years ended December 31, 2021, 2020 and 2019.

During the year ended December 31, 2021, the Company capitalized $ 0.1 million in stock-based compensation expense related to the development of internal-use software.

Intangible Assets, Net

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Physician Network

Intangible assets, gross

accumulated amortization

Total intangible assets, net

Amortization expense was $1.2 million for the year ended December 31, 2020 and $1.5 million for the years ended December 31, 2019, and 2018.

Amortization expense was $ 0.6 million, $ 1.2 million, and $ 1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, the future amortization expense of other intangible assets is as follows (in thousands):

Year ending December 31:

In September 2019, the Company’s lease agreement for its corporate headquarters in New York, NY commenced and will expire in May 2029.

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

In September 2019, the Company’s sublease agreement for its corporate headquarters in New York, NY commenced and will expire in May 2029.

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

The Company recognizes lease expense on a straight-line basis over the lease term.

Lease expense for our operating lease for the year ended December 31, 2020 was $1.3 million.

Information related to our leases is as follows (in thousands):

Lease expense for the Company’s operating leases was $ 1.3 million for the years ended December 31, 2021 and 2020.

Cash outflows from operating activities attributable to the operating leases for the years ended December 31, 2021 and 2020 was $ 1.3 million and $ 0.8 million, respectively.

Information related to the Company’s leases is as follows (in thousands):

Balance Sheet Location

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Other information

Cash outflows from operating activities attributable to operating leases

Weighted average remaining lease term, operating lease

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Future minimum facility lease payments as of December 31, 2021, are as follows (in thousands):

Operating Lease Payments as of December 31, 2020

Balance at December 31, 2021

Year Ending December 31:

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Operating lease noncurrent liabilities

Future minimum facility lease payments as of December 31, 2019, are as follows (in thousands):

Operating Lease Payments as of December 31, 2019

Year Ending December 31:

Rent expense under our operating leases was approximately $1.2 million and $0.9 million for the years ended December 31, 2019 and 2018, respectively.

Rent expense under the operating leases was approximately $ 1.2 million for the year ended December 31, 2019.

The terms of the facility lease provide for rental payments on a monthly basis and on a graduated scale.

On January 18, 2018, the Company completed the divestiture of its Eeva business, the primary operations of our previous medical device segment, to a related party, Ares Trading S.A.

a subsidiary of Merck Serono, S.A.

(“Merck”), a shareholder in the Company.

The Eeva business was sold to Merck for $7.9 million, consisting of cash of $3.0 million and the forgiveness of the $4.9 million liability remaining from the previous license agreement for the Eeva product between the two parties.

The cash consideration includes $300,000 of deferred consideration, of which the last payment was received by the Company in March 2019.

The Company determined that the Eeva business met the criteria to be classified as held for sale as of December 31, 2016, representing a strategic shift in Progyny’s operations.

With the amendment of the license agreement in May 2016, management committed to a plan to sell the business and move from the medical device business to the fertility benefits business which represented a strategic shift.

The Board of Directors approved the ultimate sale of Eeva in December 2017.

In accordance with the applicable accounting guidance, upon the sale of the Eeva business on January 18, 2018, the Company reflected the Eeva business as discontinued operations in the consolidated financial statements.

Excluding the $200,000 of assets representing the remaining deferred consideration, there was no other assets or liabilities associated with the Eeva business as of December 31, 2018.

This transaction had no impact on the consolidated statement of operations for the fiscal years of 2019 and 2020 and no impact on the statement of cash flows for the fiscal year of 2020.

The following is a summary of the operating results of Eeva which have been reflected within income from discontinued operations , net of tax (in thousands):

Cost of service

Operating expenses:

Research and development

General and administration

Total operating expenses

Income from discontinued operations

Gain on sale of discontinued operations

Income from discontinued operations, before taxes

Provision for income taxes

Net income from discontinued operations, net of taxes

The significant components of the consolidated statement of cash flows for Eeva are as follows (in thousands):

OPERATING ACTIVITIES

Depreciation expense

Deferred license revenue

INVESTING ACTIVITIES

Deferred consideration

Proceeds from sale of business, net of costs

February 2022 Lease Agreement

In February 2022, the Company entered into a lease agreement for additional space in its 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, the Company 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, the Company 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 the current 25,212 square foot office, the Company 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.

Accrued Expenses and Other Current Liabilities

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Accrued commission

Operating lease current liabilities

Professional fees

Total accrued expenses and other current liabilities

The Company’s $8.0 million term loan, entered into in November 2015 (“Term Loan”), carried an interest rate equal to the greater of 7.5% or LIBOR plus 7.3%.

The terms contain a prepayment fee of 3.0% of the outstanding principal if repaid after the effective date but on or prior to the first anniversary, 2.0% if repaid after the first anniversary of the effective date but on or prior to the second anniversary, and 1.0% if repaid after the second anniversary of the effective date but prior to the maturity date.

Additionally, the terms contained an additional significant final payment representing 8.0% of the original principal.

In June 2018, the Company entered into a loan agreement with Silicon Valley Bank for a revolving line of credit up to $ 15.0 million based upon an advance rate of 80 % on “eligible” accounts receivable to fund its working capital and other general corporate needs, which was amended in April 2019, January 2020, June 2020, and February 2021 (“SVB Line of Credit”).

Eligible accounts receivable is defined in the loan agreement as accounts billed with aging 90 days or less and excludes accounts receivable due for member copayments, coinsurance, and deductibles.

Upon execution of the SVB Line of Credit, the Term Loan was paid off in full including the remaining principal balance of $2.9 million, final balloon payment of $640,000 and the 1.0% early payment penalty fee of $15,000.

The repayment of the Term Loan was treated as a debt extinguishment and the Company recognized the remaining unamortized debt discount of $88,000 as a loss on debt extinguishment in Interest expense, net for the year ended December 31, 2018.

The Company is required to pay a revolving line commitment fee of $225,000 in three equal annual installments of $75,000 starting on the one-year anniversary of the revolving line.

The Company made the first installment payment of $75,000 in June 2019 and accrues this cost monthly.

The SVB Line of Credit matures in June 2021.

When the Company holds unrestricted cash balances greater than $5.0 million interest accrues at a floating rate per annum equal to the greater of prime rate or 4.75%.

If the unrestricted cash balance is less than $5.0 million, interest accrues at a floating rate per annum equal to the greater of prime rate plus 0.5% or 4.75%, with inter est payable monthly.

Interest is paid based upon the borrowed funds.

The SVB Line of Credit contains customary affirmative covenants, financial covenants, as well as negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness (including guarantees of certain obligations);

Eligible accounts receivable was defined in the loan agreement as accounts billed with aging 90 days or less and excluded accounts receivable due for member copayments, coinsurance, and deductibles.

The SVB Line of Credit matured in June 2021.

The Company was required to pay a revolving line commitment fee of $ 225,000 in three equal annual installments of $ 75,000 starting on the one-year anniversary of the revolving line.

The Company made the first installment payment of $ 75,000 in June 2019 and accrued this cost monthly.

When the Company held unrestricted cash balances greater than $ 5.0 million, interest accrued at a floating rate per annum equal to the greater of prime rate or 4.75 %.

If the unrestricted cash balance was less than $ 5.0 million, interest accrued at a floating rate per annum equal to the greater of prime rate plus 0.5 % or 4.75 %, with inter est payable monthly.

Interest was paid based upon the borrowed funds.

The SVB Line of Credit contained customary affirmative covenants, financial covenants, as well as negative covenants that, among other things, restricted the Company’s ability to incur additional indebtedness (including guarantees of certain obligations);

create liens;

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The financial covenant requires the Company to achieve a specified minimum quarterly revenue as defined by the SVB Line of Credit.

The Company was in compliance with all requirements and its covenant of the revolving credit facility as of December 31, 2020 and December 31, 2019.

Prior to the repayment of the Term Loan, the Company recorded interest of $163,000 and accretion of the debt discount of $75,000 in Interest expense, net for the year ended December 31, 2018.

The Company had $0 drawn on the SVB Line of Credit as of December 31, 2020 and 2019, and $253,000 drawn as of December 31, 2018.

The Company was in compliance with all requirements and its covenant of the revolving credit facility as of December 31, 2020.

The Company had $ 0 drawn on the SVB Line of Credit as of December 31, 2020 and 2019.

The Company recorded interest expense on the SVB Line of Credit of $ 38,000 , $ 75,000 and $ 213,000 during the years ended December 31, 2021, 2020 and 2019, respectively.

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The repurchased shares were recorded as treasury shares.

The Company had 615,980 shares of treasury stock as of December 31, 2020 and 2019, and 589,320 shares of treasury stock as of December 31, 2018.

The Company had 615,980 shares of treasury stock as of December 31, 2021, 2020 and 2019.

Common Stock Warrants

In February and June of 2016, the Company issued common stock warrants to non-employees to acquire 71,280 and 69,114 shares of the Company’s common stock at an exercise price of $0.86 and $1.41 per share, respectively.

The common stock warrants expire on the fifth anniversary of the grant.

Additionally, in connection with the IPO on October 25, 2019, all outstanding convertible preferred warrants were converted to common stock warrants.

In connection with the IPO on October 25, 2019, all outstanding convertible preferred warrants were converted to common stock warrants.

As of December 31, 2021 and 2020, the Company had 565,351 and 1,419,415 common stock warrants outstanding, respectively.

For the year ended December 31, 2021, 854,065 common stock warrants were exercised for 824,991 shares at a weighted average exercise price of $ 1.73 .

For the year ended December 31, 2020, 188,449 common stock warrants were exercised for 177,854 shares of common stock at a weighted average exercise price of $ 1.73 .

For the year ended December 31, 2019, 482,661 warrants were exercised for 441,307 shares of common stock at a weighted average exercise price of $1.59.

In addition, 69,114 warrants were cancelled in 2019.

The Company did not recognize compensation expense relating to the common stock warrants for the years ended December 31, 2021, 2020 and 2019 as they were all fully vested.

For the years ended December 31, 2018, the Company recognized total compensation expense of $0.3 million relating to the common stock warrants.

Stock Incentive Plan

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No further grants were made under the 2017 Plan from the date that the 2019 Plan became effective.

Initially, the maximum number of shares issuable under the 2019 Plan will not exceed 19,198,875 shares of common stock, which is the sum of 1) 2,640,031 new shares and 2) an additional number of shares not to exceed 16,558,844 consisting of (a) shares that remained available for the issuance of awards under the 2017 Plan immediately prior to the effective date of the 2019 Plan and (b) shares of our common stock subject to outstanding stock options or other stock awards granted under our 2017 Plan that, on or after the date the 2019 Plan became effective, terminate, expire or are cancelled prior to exercise or settlement;

Initially, the maximum number of shares issuable under the 2019 Plan will not exceed 19,198,875 shares of common stock, which is the sum of 1) 2,640,031 new shares and 2) an additional number of shares not to exceed 16,558,844 consisting of (a) shares that remained available for the issuance of awards under the 2017 Plan immediately prior to the effective date of the 2019 Plan and (b) shares of common stock subject to outstanding stock options or other stock awards granted under the 2017 Plan that, on or after the date the 2019 Plan became effective, terminate, expire or are cancelled prior to exercise or settlement;

are forfeited or repurchased because of the failure to vest;

or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, as such shares become available from time to time.

As of December 31, 2018, the Company maintained two equity incentive plans:

(i) the 2008 Stock Plan (the “2008 Plan”) and (ii) the 2017 Plan.

All awards issued in 2018 were issued pursuant to the 2017 Plan.

Under the Company’s 2017 Plan and consistent with the 2008 Plan, options and other stock awards to purchase shares of common stock may be granted to employees, directors, and consultants.

Under the Company’s 2017 Plan and consistent with the Company’s prior 2008 Equity Incentive Plan, options and other stock awards to purchase shares of common stock may be granted to employees, directors, and consultants.

Incentive stock options are granted to employees and non-statutory stock options are granted to consultants and directors at an exercise price not less than 100 % of the fair value (as determined by the Board of Directors) of the Company’s common stock on the date of grant.

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Stock options are exercisable based on the terms and conditions outlined in the applicable award agreement.

Stock options generally vest over four years and expire ten years from the date of grant.

Stock options generally vest over four years and typically expire ten years from the date of grant.

A summary of the Company’s stock option activity for the year ended December 31, 2021 is as follows:

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Outstanding at December 31, 2020

( 3,440,937 )

Outstanding at December 31, 2021

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The weighted-average remaining recognition period is approximately 3.6 years.

Certain weighted-average information and assumptions used in the option-pricing model for options granted to employees, directors, and non-employees are as follows:

Certain assumptions used in the option-pricing model for options granted to employees, directors, and non-employees are as follows:

Year Ended December 31

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Risk-free interest rate

0.6 % - 1.4 %

0.3 % - 1.7 %

1.5 % - 2.5 %

Expected volatility

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Outstanding at December 31, 2021

The total intrinsic value of restricted stock units vested was $1.4 million for the year ended December 31, 2020.

The weighted-average grant date fair value of restricted stock units granted was $25.46 for the year ended December 31, 2020.

The total intrinsic value of restricted stock units vested was $ 11.1 million and $ 1.4 million for the years ended December 31, 2021 and 2020, respectively.

The weighted-average grant date fair value of restricted stock units granted was $ 58.13 and $ 25.46 for the years ended December 31, 2021 and 2020, respectively.

The total fair value of restricted stock units vested was $ 0.2 million for the year ended December 31, 2021.

For the year ended December 31, 2020, the total fair value of restricted stock units vested was not significant.

The total unrecognized compensation cost related to unvested restricted stock units was approximately $ 86.5 million at December 31, 2021.

The weighted-average remaining recognition period is approximately 3.6 years.

Share-Based Compensation Expense

January 2022 Executive Equity Grants

On November 4, 2021, the Company announced that David Schlanger will transition to the role of Executive Chairman, effective as of January 1, 2022, and will continue to serve as a director.

In connection with this transition, the Company entered into an amended and restated employment agreement with Mr.

Schlanger, effective as of January 1, 2022.

Pursuant to this agreement, Mr.

Schlanger received an equity award for fiscal year 2022 comprised of 333,000 non-qualified stock options and 84,000 restricted stock units, in each case vesting as to 25 % on the first anniversary of the vesting commencement date with the remaining 75 % of such award vesting in equal quarterly installments thereafter over the next three years , as well as a performance stock unit award with respect to a maximum number of 83,000 shares that are eligible to be earned based on the achievement of specified revenue targets.

Peter Anevski, who served as President and Chief Operating Officer, succeeded Mr.

Schlanger as Chief Executive Officer, effective as of January 1, 2022.

In connection with this transition, the Company entered into an amended and restated employment agreement with Mr.

Anevski, effective as of January 1, 2022.

Pursuant to this agreement, Mr.

Anevski received an equity award for fiscal year 2022 comprised of 1,000,000 non-qualified stock options and 250,000 restricted stock units, in each case vesting as to 25 % on the first anniversary of the vesting commencement date with the remaining 75 % of such award vesting in equal quarterly installments thereafter over the next three years , as well as a performance stock unit award with respect to a maximum number of 250,000 shares that are eligible to be earned based on the achievement of specified revenue targets.

Employee Stock Purchase Plan

I n October 2019, the Board of Directors and stockholders also adopted and approved the 2019 Employee Stock Purchase Plan (the “ESPP”).

Following the IPO, the ESPP authorized the issuance of 1,700,000 shares of common stock to purchase rights granted to the Company’s employees or to employees of the Company’s designated affiliates.

December 31, 2021, 1,560,693 shares of common stock remained available to be issued under the ESPP.

The following table summarizes the purchases that were made for each purchase period of the ESPP through December 31, 2021 (in thousands, except for share amounts):

Purchase Period

Proceeds used for purchase

Shares purchased

October 25, 2019 to July 31, 2020

August 1, 2020 to January 31, 2021

February 1, 2021 to July 31, 2021

The next purchase period commenced on August 1, 2021 and ended on January 31, 2022.

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense for employees, which was included in the statements of operations and comprehensive loss as follows (in thousands):

Cost of services

Selling and marketing

Sales and marketing

General and administrative

1 unchanged sentence

Net Income (Loss) Per Share

A reconciliation of net income (loss) available to common stockholders and the number of shares in the calculation of basic and diluted net income (loss) per share follows (in thousands, except share and per share amounts):

A reconciliation of net income (loss) and the number of shares in the calculation of basic and diluted net income (loss) per share is as follows (in thousands, except share and per share amounts):

Basic net income (loss) per common share:

Net income (loss)

Net income (loss) from discontinued operations, net of tax

Deemed dividends on convertible preferred stock

Net income (loss) attributable to common stockholders

Weighted-average shares used in computing basic net income (loss) per share attributable to common stockholders

Basic net income (loss) per share attributable to common stockholders

Weighted-average shares used in computing basic net income (loss) per share

Basic net income (loss) per share

Diluted net income (loss) per common share:

Net income (loss) attributable to common stockholders

Diluted net income (loss) attributable to common stockholders

Weighted-average shares used in computing basic net income (loss) per share attributable to common stockholder

Net income (loss)

Weighted-average shares used in computing basic net income (loss) per share

Effect of dilutive securities

Weighted-average shares used in computing diluted net income (loss) per share attributable to common stockholders

Diluted net income (loss) per share attributable to common stockholders

The following weighted-average outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:

Redeemable convertible preferred stock

Weighted-average shares used in computing diluted net income (loss) per share

Diluted net income (loss) per share

The following weighted-average outstanding shares of potentially dilutive securities were excluded from the computation of diluted net income (loss) per share for the periods presented because including them would have been antidilutive:

Options to purchase common stock

1 unchanged sentence

Warrants to purchase common stock

Warrants to purchase convertible preferred stock

Restricted stock units

Total potential dilutive shares

401(k) Plan and ESPP

The Company sponsors a 401(k) defined contribution plan covering all employees and began employer contributions in 2018.

The Company incurred expenses of $ 0.9 million, $ 0.5 million, and $ 0.4 million for the years ended December 31, 2021, 2020, and 2019 respectively.

In October 2019, the Board of Directors and stockholders also adopted and approved the 2019 Employee Stock Purchase Plan (the “ESPP”).

Following the IPO, the ESPP authorized the issuance of 1,700,000 shares of common stock to purchase rights granted to our employees or to employees of our designated affiliates.

As of December 31, 2020, 1,596,323 shares of common stock remained available to be issued under the ESPP.

The first purchase period commenced on October 25, 2019 and ended on July 31, 2020 with proceeds of $1.1 million used for the purchase of shares of common stock.

The second purchase period commenced on August 1, 2020 and ended on January 31, 2021.

A tax benefit of $37.8 million and $1.8 million was recorded for the years ended December 31, 2020 and 2018, as part of continuing operations.

A tax benefit of $ 33.3 million and $ 37.8 million was recorded for the years ended December 31, 2021 and 2020.

A tax provision of $ 12,000 was recorded for the year ended December 31, 2019.

7 unchanged sentences

State income taxes, net of federal benefit

Share-based compensation

Stock-based compensation

Warrant valuation

Change in valuation allowance

State rate change

Effective tax rate

1 unchanged sentence

For the year ended December 31, 2021, the effective tax rate differs from the U.S.

federal statutory rate primarily due to the release of the valuation allowance in this period, in addition to permanent tax adjustments, including windfalls upon the vesting of RSUs and exercise of stock options.

federal statutory

rate primarily due to permanent tax adjustments, including windfalls upon the exercise of stock options and vesting of RSUs.

For the year ended December 31, 2020, the effective tax rate differs from the U.S.

federal statutory rate primarily due to the release of the valuation allowance in this period, in addition to permanent tax adjustments, including windfalls upon the exercise of options and vesting of RSUs.

For the year ended December 31, 2019, the effective tax rate differs from the U.S.

federal statutory rate due to the increase in valuation allowance.

ended December 31, 2018, the effective tax rate differs from the U.S.

federal statutory rate due to the decrease in valuation allowance offset by permanent tax adjustments.

Deferred Tax Balances

18 unchanged sentences

Generally, more weight is given to objectively verifiable evidence, such as the cumulative loss in recent years, as a significant piece of negative evidence to overcome.

The valuation allowance decreased by approximately $1.1 million during the year ended December 31, 2018 and increased by $2.9 million during the year ended December 31, 2019.

As of December 31, 2020, the Company achieved three years of cumulative income, along with projections of profitability, for which management determined that there is 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, $28.5 million of the valuation allowance has been released.

As such, $ 28.5 million of the valuation allowance had been released.

Management continues to maintain this position as of December 31, 2021.

During the year ended December 31, 2021, the net change in the valuation allowance was not significant.

As of December 31, 2021, the Company has net operating loss carryforwards for federal and state income tax purposes of approximately $ 86.2 million and $ 167.8 million, respectively, which expire beginning in the year 2027.

5 unchanged sentences

Such annual limitation could result in the expiration of net operating losses and credits before their utilization.

The Company has most recently performed an analysis that confirmed an ownership change has not occurred as of December 31, 2020.

Unrecognized Tax Benefits

30 unchanged sentences

Accordingly, it has not recognized any liabilities relating to these obligations for any period presented.

Related Party Transactions

In January 2018, the Company executed an agreement with a related party to sell the Eeva business, representing all of the medical device segment.

Refer to Note 6 - Divestitures.

In June 2018, the Company redeemed and retired 1,202,196 Series B convertible preferred stock from a former employee pursuant to their contractual right of first refusal at a purchase price of $2.5 million The excess of the purchase price over the carrying value $(1.73) of $425,000 has been recorded as a dividend in accumulated deficit as of December 31, 2018.

Unaudited Quarterly Results of Operations Data

The following table sets forth our unaudited quarterly consolidated results of operations for each of the eight quarterly periods in the period ended December 31, 2020.

Our unaudited quarterly results of operations have been prepared on the same basis as our audited consolidated financial statements, and we believe they reflect all normal recurring adjustments necessary for the fair statement of our results of operations for these periods.

This information

should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report.

Our historical operating data may not be indicative of our future performance.

The following table sets forth the unaudited quarterly consolidated results of operations for each of the eight quarterly periods in the period ended December 31, 2021.

The unaudited quarterly results of operations have been prepared on the same basis as the audited consolidated financial statements, and we believe they reflect all normal recurring adjustments necessary for the fair statement of the Company’s results of operations for these periods.

information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report.

The Company’s historical operating data may not be indicative of the Company’s future performance.

Three Months Ended

6 unchanged sentences

Income (loss) from operations

Other income (expense), net

Interest income (expense), net

Convertible preferred stock warrant valuation adjustment

Total other income (expense), net

2 unchanged sentences

Net income (loss)

Net income (loss) attributable to common stockholders

Net income (loss) per share attributable to common stockholders:

Net income (loss) per share:

Weighted-average shares used in computing net income (loss) per share:

1 unchanged sentence

As such, quarterly financial information for the interim periods of 2020 has been recast with resulting impacts to the previously disclosed general and administrative expense of $ 0.4 million, $( 0.7 ) million, and $ 0.5 million for the three-month periods ended March 31, 2020, June 30, 2020, and September 30, 2020, respectively.

Refer to Note 2 for further discussion of the new accounting pronouncements recently adopted.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data