Progyny, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements ​ ​ ​ Page ​ Report of Independent Registered Public Accounting Firm (PCAOB ID 42 ) 71 Financial Statements: ​ Consolidated Balance Sheets 73 Consolidated Statements of Operations 74 Consolidated Statements Comprehensive Income (Loss) 75 Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit ) 76 Consolidated Statements of Cash Flows 77 Notes to Consolidated Financial Statements 78 ​ ​ 70 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Progyny, Inc. ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Progyny, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. 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. ​ Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ 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. ​ 71 Table of Contents ​ ​ ​ ​ Accrued Receivables and Accrued Claims Payable Description of the Matter ​ ​ ​ As of December 31, 2021, accrued receivables and accrued claims payable were $30.2 million and $20.0 million, respectively. 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 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. ​ How We Addressed the Matter in Our Audit ​ We obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls over the Company’s process to estimate accrued receivables and the associated claims payable. For example, we tested controls over management’s review of the methodology, significant assumptions and the underlying data used to determine these estimates. To test the accrued receivables and the related claims payable, our audit procedures included, among others, assessing the methodology, evaluating the significant assumptions described above and testing the completeness and accuracy of the underlying data used in the Company’s analysis. 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’s estimated accrued receivables and accrued claims payable to actual billing and claims data. ​ ​ ​ ​ ​ ​ ​ /s/ Ernst & Young LLP We have served as the Company’s auditor since 2012. New York, NY March 1, 2022 ​ ​ 72 Table of Contents Progyny, Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ ​ ASSETS ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 91,413 ​ $ 70,305 Marketable securities ​ ​ 28,005 ​ ​ 38,994 Accounts receivable, net of $ 17,379 and $ 9,502 of allowances at December 31, 2021 and 2020, respectively ​ 134,557 ​ 75,664 Prepaid expenses and other current assets ​ 4,564 ​ 5,259 Total current assets ​ 258,539 ​ 190,222 Property and equipment, net ​ 5,027 ​ 3,400 Operating lease right-of-use assets ​ ​ 7,805 ​ ​ 8,668 Goodwill ​ 11,880 ​ 11,880 Intangible assets, net ​ 599 ​ 1,213 Deferred tax assets ​ ​ 71,274 ​ ​ 37,971 Other noncurrent assets ​ 2,941 ​ 573 Total assets ​ $ 358,065 ​ $ 253,927 LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ Current liabilities: ​ ​ Accounts payable ​ $ 61,399 ​ $ 43,514 Accrued expenses and other current liabilities ​ 37,425 ​ 34,272 Total current liabilities ​ 98,824 ​ 77,786 Operating lease noncurrent liabilities ​ ​ 7,419 ​ ​ 8,318 Other noncurrent liabilities ​ ​ — ​ ​ 876 Total liabilities ​ 106,243 ​ 86,980 Commitments and Contingencies (Note 14) ​ ​ STOCKHOLDERS' EQUITY ​ ​ Common stock, $ 0.0001 par value; 1,000,000,000 shares authorized at December 31, 2021 and 2020, respectively; 91,088,781 and 87,054,329 shares issued and outstanding at December 31, 2021 and 2020, respectively ​ 9 ​ 9 Additional paid-in capital ​ 255,339 ​ 236,139 Treasury stock, at cost, $ 0.0001 par value; 615,980 shares outstanding at December 31, 2021 and 2020, respectively ​ ( 1,009 ) ​ ( 1,009 ) Accumulated deficit ​ ( 2,424 ) ​ ( 68,193 ) Accumulated other comprehensive income (loss) ​ ​ ( 93 ) ​ ​ 1 Total stockholders’ equity ​ 251,822 ​ 166,947 Total liabilities and stockholders’ equity ​ $ 358,065 ​ $ 253,927 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 73 Table of Contents Progyny, Inc. Consolidated Statements of Operations (in thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 2019 Revenue ​ $ 500,621 ​ $ 344,858 ​ $ 229,683 Cost of services ​ ​ 388,486 ​ 274,799 ​ ​ 184,178 Gross profit ​ ​ 112,135 ​ 70,059 ​ ​ 45,505 Operating expenses: ​ ​ ​ ​ ​ Sales and marketing ​ ​ 20,179 ​ 15,006 ​ ​ 11,901 General and administrative ​ ​ 59,616 ​ 46,705 ​ ​ 23,927 Total operating expenses ​ ​ 79,795 ​ 61,711 ​ ​ 35,828 Income from operations ​ ​ 32,340 ​ 8,348 ​ ​ 9,677 Other income (expense): ​ ​ ​ ​ ​ Other income (expense), net ​ ​ ( 366 ) ​ ​ 210 ​ ​ — Interest income (expense), net ​ ​ 461 ​ 121 ​ ​ ( 58 ) Convertible preferred stock warrant valuation adjustment ​ ​ — ​ — ​ ​ ( 18,176 ) Total other income (expense), net ​ ​ 95 ​ 331 ​ ​ ( 18,234 ) Income (loss) before income taxes ​ ​ 32,435 ​ 8,679 ​ ​ ( 8,557 ) Benefit (provision) for income taxes ​ ​ 33,334 ​ 37,780 ​ ​ ( 12 ) Net income (loss) ​ $ 65,769 ​ $ 46,459 ​ $ ( 8,569 ) Net income (loss) per share: ​ ​ ​ ​ ​ Basic ​ $ 0.74 ​ $ 0.54 ​ $ ( 0.41 ) Diluted ​ $ 0.66 ​ $ 0.47 ​ $ ( 0.41 ) Weighted-average shares used in computing net income (loss) per share: ​ ​ ​ ​ ​ Basic ​ ​ 89,105,562 ​ 85,722,670 ​ ​ 20,735,202 Diluted ​ ​ 100,358,047 ​ 99,055,526 ​ ​ 20,735,202 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 74 Table of Contents Progyny, Inc. Consolidated Statements of Comprehensive Income (Loss) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 ​ 2019 Net income (loss) ​ $ 65,769 ​ $ 46,459 ​ $ ( 8,569 ) Other comprehensive income (loss): ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on marketable securities ​ ​ ( 94 ) ​ ​ 1 ​ ​ — Total other comprehensive income (loss) ​ ​ ( 94 ) ​ ​ 1 ​ ​ — Total comprehensive income (loss) ​ $ 65,675 ​ $ 46,460 ​ $ ( 8,569 ) ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 75 Table of Contents Progyny, Inc. Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit ) (in thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Convertible ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Preferred Stock ​ ​ Common Stock ​ Treasury ​ Paid in ​ Accumulated ​ ​ Comprehensive ​ ​ ​ ​ Shares Amount Shares Amount Stock Capital Deficit Income Total Balance at December 31, 2018 ​ 65,428,088 ​ $ 106,237 ​ ​ 5,155,407 ​ $ 1 ​ $ ( 884 ) ​ $ 10,622 ​ $ ( 104,854 ) ​ $ — ​ $ ( 95,115 ) Repurchase of common stock ​ — ​ ​ — ​ ​ ( 26,659 ) ​ ​ — ​ ​ ( 125 ) ​ ​ — ​ ​ ( 60 ) ​ ​ — ​ ​ ( 185 ) Stock option exercise — ​ — ​ 6,490,059 ​ — ​ — ​ 6,536 ​ — ​ — ​ 6,536 Stock-based compensation — ​ — ​ — ​ — ​ — ​ 5,061 ​ — ​ — ​ 5,061 Conversion of convertible preferred stock to common stock upon initial public offering ​ ( 65,428,088 ) ​ ​ ( 106,237 ) ​ ​ 65,428,088 ​ ​ 7 ​ ​ — ​ ​ 106,230 ​ ​ — ​ ​ — ​ ​ 106,237 Conversion of convertible preferred stock warrants to common stock warrants upon initial public offering ​ — ​ — ​ ​ — ​ ​ — ​ — ​ ​ 22,765 ​ ​ — ​ ​ — ​ ​ 22,765 Warrant exercise ​ — ​ — ​ ​ 441,307 ​ ​ — ​ — ​ ​ 62 ​ ​ — ​ ​ — ​ ​ 62 Issuance of common stock in connection with initial public offering, net of issuance costs of $ 5.9 million and $ 3.7 million in offering costs ​ — ​ — ​ ​ 6,700,000 ​ ​ — ​ — ​ ​ 77,479 ​ ​ — ​ ​ — ​ ​ 77,479 Net loss — ​ — ​ — ​ — ​ — ​ — ​ ( 8,569 ) ​ — ​ ( 8,569 ) Balance at December 31, 2019 — ​ $ — ​ 84,188,202 ​ $ 8 ​ $ ( 1,009 ) ​ $ 228,755 ​ $ ( 113,483 ) ​ $ — ​ $ 114,271 Issuance of employee equity awards, net of shares withheld ​ — ​ ​ — ​ ​ 2,688,273 ​ ​ 1 ​ ​ — ​ ​ ( 5,451 ) ​ ​ — ​ ​ — ​ ​ ( 5,450 ) Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 12,821 ​ ​ — ​ ​ — ​ ​ 12,821 Warrant exercise ​ — ​ ​ — ​ ​ 177,854 ​ ​ — ​ ​ — ​ ​ ( 0 ) ​ ​ — ​ ​ — ​ ​ ( 0 ) Reduction in initial public offering costs ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 14 ​ ​ — ​ ​ — ​ ​ 14 Impact of adoption of ASU 2016-13 ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,169 ) ​ ​ — ​ ​ ( 1,169 ) Other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1 ​ ​ 1 Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 46,459 ​ ​ — ​ ​ 46,459 Balance at December 31, 2020 — ​ $ — ​ 87,054,329 ​ $ 9 ​ $ ( 1,009 ) ​ $ 236,139 ​ $ ( 68,193 ) ​ $ 1 ​ $ 166,947 Issuance of employee equity awards, net of shares withheld ​ — ​ ​ — ​ ​ 3,209,461 ​ ​ — ​ ​ — ​ ​ ( 14,589 ) ​ ​ — ​ ​ — ​ ​ ( 14,589 ) Stock-based compensation ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 33,789 ​ ​ — ​ ​ — ​ ​ 33,789 Warrant exercise ​ — ​ ​ — ​ ​ 824,991 ​ ​ — ​ ​ — ​ ​ 0 ​ ​ — ​ ​ — ​ ​ 0 Other comprehensive loss ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 94 ) ​ ​ ( 94 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 65,769 ​ ​ — ​ ​ 65,769 Balance at December 31, 2021 — ​ $ — ​ 91,088,781 ​ $ 9 ​ $ ( 1,009 ) ​ $ 255,339 ​ $ ( 2,424 ) ​ $ ( 93 ) ​ $ 251,822 ​ The accompany notes are an integral part of these consolidated financial statements. ​ ​ 76 Table of Contents Progyny, Inc. Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 2019 OPERATING ACTIVITIES ​ ​ ​ ​ ​ Net income (loss) ​ $ 65,769 ​ $ 46,459 ​ $ ( 8,569 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: ​ Deferred tax (benefit) expense ​ ( 33,303 ) ( 37,971 ) 12 Non-cash interest expense ​ ​ 38 ​ ​ 75 ​ ​ — Depreciation and amortization ​ 1,301 1,906 2,133 Stock-based compensation expense ​ 33,706 12,821 5,061 Bad debt expense ​ 9,783 5,562 1,606 Loss on disposal of property and equipment ​ — — 1 Change in fair value of warrant liabilities ​ — — 18,176 Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 68,676 ) ( 35,336 ) ( 25,342 ) Prepaid expenses and other current assets ​ 675 ( 326 ) ( 4,118 ) Accounts payable ​ 17,840 25,008 3,501 Accrued expenses and other current liabilities ​ 2,184 17,400 6,385 Other noncurrent assets and liabilities ​ ( 3,280 ) 605 ​ ( 380 ) Net cash provided by (used in) operating activities ​ 26,037 36,203 ( 1,534 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INVESTING ACTIVITIES ​ Purchase of property and equipment, net ​ ( 2,129 ) ( 1,037 ) ( 2,956 ) Purchase of marketable securities ​ ( 111,477 ) ​ ​ ( 103,964 ) ​ ​ — Sale of marketable securities ​ ​ 122,372 ​ ​ 64,970 ​ ​ — Net cash provided by (used in) continuing operations ​ ​ 8,766 ​ ​ ( 40,031 ) ​ ​ ( 2,956 ) Net cash provided by discontinued operations ​ ​ — ​ ​ — ​ ​ 200 Net cash provided by (used in) investing activities ​ 8,766 ( 40,031 ) ( 2,756 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FINANCING ACTIVITIES ​ Proceeds from issuance of common stock upon initial public offering ​ ​ — ​ ​ — ​ ​ 81,220 Payment of initial public offering costs ​ ​ — ​ ​ ( 892 ) ​ ​ ( 2,835 ) Proceeds from revolving line of credit ​ — — 182,025 Repayments made against revolving line of credit ​ — — ( 182,278 ) Repurchase of common stock ​ ​ — ​ ​ — ​ ​ ( 185 ) Proceeds from exercise of stock options ​ 2,924 2,329 6,536 Payment of employee taxes related to equity awards ​ ​ ( 17,966 ) ​ ​ ( 8,930 ) ​ ​ — Proceeds from contributions to employee stock purchase plan ​ ​ 1,347 ​ ​ 1,244 ​ ​ — Proceeds from exercise of stock warrants ​ ​ — ​ ​ — ​ ​ 62 Net cash provided by (used in) financing activities ​ ( 13,695 ) ( 6,249 ) 84,545 Net increase (decrease) in cash and cash equivalents ​ 21,108 ( 10,077 ) 80,255 Cash and cash equivalents, beginning of year ​ 70,305 80,382 127 Cash and cash equivalents, end of year ​ $ 91,413 ​ $ 70,305 ​ $ 80,382 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION ​ ​ ​ ​ ​ Cash paid for interest ​ $ — ​ $ — ​ $ 176 Cash paid for income taxes, net of refunds received ​ $ 97 ​ $ — ​ $ — SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES ​ ​ ​ ​ Additions of property and equipment, net included in accounts payable and accrued expenses ​ $ 204 ​ $ 24 ​ $ — Deferred initial public offering costs in accounts payable and accrued expenses ​ $ — ​ $ — ​ $ 906 Non-cash preferred stock warrant conversion to common stock warrant upon IPO ​ $ — ​ $ — ​ $ ( 22,765 ) ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 77 Table of Contents PROGYNY, INC. Notes to Consolidated Financial Statements ​ 1. Business and Basis of Presentation Description of Business Progyny, Inc. (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. The fertility benefits solution consists of a significant service that integrates: (1) the treatment services (“Smart Cycles”) that the Company has designed, (2) access to the Progyny network of high-quality fertility specialists that perform the Smart Cycle treatments and (3) active management of the selective network of high-quality provider clinics, real-time member eligibility and treatment authorization, member-facing digital tools and detailed quarterly reporting supported by the Company’s dedicated account management teams, and end to end comprehensive concierge member support provided by Progyny’s in-house staff of Patient Care Advocates (“PCAs”) (collectively, the “care management services”). The Company enhanced its fertility benefits solution with the launch of Progyny Rx, its pharmacy benefits solution, effective January 1, 2018. As part of this solution, the Company provides formulary plan design, simplified authorization, assistance with prescription fulfillment, and timely delivery of the medications by the Company’s network of specialty pharmacies, as well as medication administration training, pharmacy support services, and continuing PCA support. As a pharmacy benefits solution provider, Progyny manages the dispensing of pharmaceuticals through the Company’s specialty pharmacy contracts. The pharmacy benefits solution is only available as an add-on service to its fertility benefits solution. Reverse Stock Split On October 14, 2019, the shareholders of Progyny approved a one-for-4.5454 reverse stock split of its common and convertible preferred stock. The par value of the common stock and convertible preferred stock was not adjusted as a result of the reverse stock split. Accordingly, the consolidated financial statements and notes retroactively reflect Progyny’s capital structure after giving effect to the reverse stock split. Initial Public Offering On October 29, 2019, the Company completed its initial public offering (“IPO”) in which it issued and sold 6,700,000 shares of its common stock at a public offering price of $ 13.00 per share. As part of the IPO, certain selling stockholders offered and sold an additional 4,800,000 shares (including 1,500,000 shares sold pursuant to the exercise of the underwriters’ over-allotment option), at an equivalent public offering price of $ 13.00 per share. The Company received net proceeds of $ 77.6 million from the IPO, after deducting underwriters’ discounts and commissions of $ 5.9 million and offering costs of $ 3.6 million. Offering costs were initially capitalized and consisted of fees and expenses incurred in connection with the sale of common stock in the IPO, including legal, accounting, printing and other IPO-related costs. Upon completion of the IPO, these offering costs were reclassified to stockholders’ equity and offset against the proceeds from the offering on the balance sheet. 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. 78 Table of Contents Basis of Presentation 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. GAAP”). 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. The Company will continue to assess the evolving impact of the COVID-19 pandemic and will make adjustments to its operations as necessary. Segment Information Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”), or decision-making group, in making decisions on how to allocate resources and assess performance. 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. All long-lived assets are located in the United States and all revenue is attributed to the United States. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. 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 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. Actual results may differ from these estimates under different assumptions or conditions. 2. Summary of Significant Accounting Policies Cash and Cash Equivalents and Marketable Securities Cash and cash equivalents are stated at fair value. The Company considers all highly liquid investments purchased with original maturities of three months or less at the time of purchase to be cash equivalents. Marketable securities, primarily consisting of U.S. Government and agency securities with original maturities greater than three months but less than one year when purchased, are classified as available-for-sale, and are stated at fair value. Unrealized gains and losses on marketable securities are excluded from earnings and reported as a component of other comprehensive income (loss). 79 Table of Contents Revenue Recognition Revenue is recognized when control of the promised goods or services is transferred to clients in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company applies the following five-step model to recognize revenue from contracts with clients: ● Identification of the contract, or contracts, with a client ● Identification of the performance obligations in the contract ● Determination of the transaction price ● Allocation of the transaction price to the performance obligations in the contract ● Recognition of revenue when, or as, a performance obligation is satisfied 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 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. As part of the fertility benefits solution, Progyny provides access to effective and cost-efficient fertility treatments, referred to as Smart Cycles, as well as other related services. Smart Cycles are proprietary treatment bundles that include certain medical services available to members through Progyny’s proprietary, credentialed network of provider clinics. 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. Progyny’s contracts include the following sources of consideration, which are all variable: a per employee per month (‘‘PEPM’’) administration fee (in most, but not all contracts) and a fixed rate per Smart Cycle. The PEPM administration fee is allocated between the fertility benefits solution and the pharmacy benefits solution based on standalone selling price, estimated using an expected cost-plus margin method. The Company allocates the variable consideration related to the fixed rate per Smart Cycle to the distinct period during which the related services were performed as those fees relate specifically to the Company’s efforts to provide its fertility benefits solution to its clients in the period and represents the consideration the Company is entitled to for the fertility benefit services provided. As a result, the fixed rate per Smart Cycle is included in the transaction price and recognized in the period in which the Smart Cycle is provided to the member. Progyny’s contracts also include potential service level agreement refunds related to outcome-based service metrics. 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 80 Table of Contents 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 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. Once an invoice is issued, payment terms are typically between 30 to 60 days. The Company assesses whether it is the principal or the agent for each arrangement with a client, since fertility treatment services are provided by a third party—the provider clinics. The Company is the principal in its arrangements with clients and therefore presents revenue gross of the amounts paid to the provider clinics because Progyny controls the specified service (the fertility benefits solution) before it is transferred to the client. Progyny integrates the fertility treatment services provided by the provider clinics into the overall fertility benefits solution that the client contracted to receive. In addition, Progyny defines the scope of the potential services to be performed by the provider clinics and monitors the performance of the provider clinics. 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 the provider clinics, which establish pricing for each treatment service. Pricing of services from provider clinics is independent from the fees charged to clients. 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. As part of the pharmacy benefits solution, Progyny provides care management services, which include Progyny’s formulary plan design, prescription fulfillment, simplified authorization and timely delivery of the medications used during treatment through Progyny’s network of specialty pharmacies, and clinical services consisting of member assessments, UnPack It calls, telephone support, online education, medication administration training, pharmacy support services and continuing PCA support. The pharmacy-related promises represent a single performance obligation because Progyny provides a significant service of integrating the formulary plan design, prescription fulfillment, clinical services and PCA support into the combined pharmacy benefits solution that the client contracted to receive. The pharmacy benefits solution is a stand-ready obligation that is satisfied over the contract term. Progyny’s contracts include the following sources of consideration, all of which are variable: a PEPM administration fee (in most, but not all contracts) and a fixed fee per fertility drug. 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. 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 pharmacies. Once an invoice is issued, payment terms are typically between 30 to 60 days. The Company assesses whether it is the principal or the agent for each arrangement with a client, as prescription fulfillment and clinical services are provided by a third party—the specialty pharmacies. The Company is the principal in its arrangements with clients, and therefore presents revenue gross of the amounts paid to the specialty pharmacies. Progyny controls the specified service (the pharmacy benefits solution) before it is transferred to the client. 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 81 Table of Contents pharmacies. 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. Pricing of fertility drugs is independent from the fees charged to clients. The Company does not disclose the transaction price allocated to remaining performance obligations because all of the transaction price is variable and is allocated to the distinct periods to which the services relate, as discussed above. The remaining contract term is typically less than one year, due to the client’s contractual termination options. 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 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, 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. Accrued claims payable of $ 20.0 million and $ 22.8 million as of December 31, 2021 and 2020, respectively, are included within accrued expenses and other current liabilities in the consolidated balance sheet. Claims payable are generally paid within 30 days based on contractual terms. As of December 31, 2021 and December 31, 2020, unbilled receivables, which represent claims received and approved but unbilled at the end of the reporting period, were $ 23.7 million and $ 16.4 million, respectively. Unbilled receivables are typically billed to clients within 30 days of the approved claim based on the contractual billing schedule agreed upon with the client. Unbilled receivables are included in accounts receivable in the consolidated balance sheet. Accounts Receivable and Allowance for Doubtful Accounts The accounts receivable balance primarily includes amounts due from clients and members. 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 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): ​ 82 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, 2021, 2020 and 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Balance at Beginning of Period ​ ASU 2016-13 Adoption Adjustment ​ Charged to Costs and Expenses ​ Write-offs ​ Balance at End of Period Allowance for doubtful accounts $ 9,502 ​ $ — $ 9,783 $ ( 1,906 ) $ 17,379 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for doubtful accounts ​ $ 2,771 ​ $ 1,169 ​ $ 5,562 ​ $ — ​ $ 9,502 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for doubtful accounts ​ $ 1,175 ​ $ — ​ $ 1,606 ​ $ ( 10 ) ​ $ 2,771 ​ Cost of Services Fertility Benefit Services Fertility benefit services costs include: (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. 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 specialty pharmacy partners; (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: PCA, Provider Relations and Claims Processing teams; and (3) related information technology support costs. 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 pharmacies, 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 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. Concentration of Credit Risk and Off-Balance-Sheet Risk Financial instruments that potentially subject the Company to concentrations of credit risk consists primarily of cash and cash equivalents, marketable securities, and accounts receivable. The Company invests its cash and cash equivalents and marketable securities with highly rated financial institutions and management believes that the financial risks associated with its cash equivalents are minimal. 83 Table of Contents Substantially all of the Company’s cash is maintained with one financial institution with a high credit standing. From time to time, such deposits may exceed federally insured limits. 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. 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). Goodwill and Intangible Assets 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. Goodwill, including other definite-lived intangible assets, are carried at their initial acquisition date fair value less any impairment. Other intangible assets are recorded at fair value at the date of acquisition, less accumulated amortization. Amortization is calculated using the straight-line method based on estimated useful lives. Goodwill is reviewed for impairment annually as of October 1st of each year or when an interim triggering event has occurred indicating potential impairment. Events or changes in circumstances which could trigger an impairment review, which are assessed at the reporting unit level, include significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business, significant negative industry or economic trends, significant underperformance relative to historical or projected future results of operations, a significant adverse change in the business climate, an adverse action or assessment by a regulator, unanticipated competition or a loss of key personnel. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform the first of a two-step impairment test. The first step involves comparing the estimated fair value of the reporting unit with its respective book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If the carrying amount of goodwill exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess. The Company tests for goodwill impairment for each reporting unit, which is at the operating segment or one level below the operating segment. This analysis requires us to make a series of assumptions to (1) evaluate whether any impairment exists and (2) measure the amount of impairment. There was no impairment of goodwill or intangible assets for the years ended December 31, 2021, 2020, and 2019. Impairment of Long-Lived Assets 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 84 Table of Contents 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. The fair value is determined based on valuation techniques such as a comparison to fair values of similar assets or using a discounted cash flow analysis. There were no impairments recorded for the years ended December 31, 2021, 2020 and 2019. Leases 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 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. To determine the present value of lease payments, the Company utilizes the rate implicit in the lease, if available. If the rate implicit in the lease is not readily determinable, the Company uses its secured incremental borrowing rate to determine the present value of the lease payments. The determination of the Company’s incremental borrowing rate requires judgment and is primarily based on publicly available information for companies within the same industry and with similar credit profiles. 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 operating lease ROU asset also includes any lease payments made prior to commencement date and excludes lease incentives and initial direct costs incurred. ROU assets are subsequently assessed for impairment in accordance with the Company’s accounting policy for long-lived assets. Stock-Based Compensation 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. The fair value of the Company’s restricted stock units has been determined utilizing the closing market price of the Company’s common stock on the date of the grant. 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 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 85 Table of Contents options. 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 . 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. Compensation expense related to awards with performance-based vesting conditions is recognized when achievement of the performance condition is considered probable over the requisite service period. Common Stock Valuation Prior to the Company’s IPO on October 29, 2019, the Company had historically granted stock options at exercise prices equal to the fair value as determined by the Board of Directors on the date of grant. Prior to the IPO and in the absence of a public trading market, the Board of Directors, with input from management, exercised significant judgement and considered numerous objective and subjective factors to determine the fair value of the Company’s common stock as of the date of each stock option grant, including: ● the Company’s financial performance ● the rights, preferences and privileges of the convertible preferred stock relative to those of the common stock; and ● general economic and financial conditions, and the trends specific to the markets in which the Company operates In addition, the Board of Directors considered the independent valuations completed by a third-party valuation consultant. The valuations of the Company’s common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . 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 the common stock, on the date of grant, as reported by Nasdaq. Income Taxes 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. The Company periodically reviews the recoverability of deferred tax assets recorded on the consolidated balance sheet and provides valuation allowances as deemed necessary to reduce such deferred tax assets to the amount that will, more likely than not, be realized. Income tax expense consists of taxes currently payable and changes in deferred tax assets and liabilities calculated according to local tax rules. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. In the event the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made. 86 Table of Contents 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. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. 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, 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 The Company determines the fair value of financial assets and liabilities using the fair value hierarchy established in the accounting standards. The hierarchy describes three levels of inputs that may be used to measure fair value, as follows: Level 1—Quoted prices in active markets for identical assets and 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. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. 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 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 87 Table of Contents 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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . 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 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. ​ ​ ​ ​ 3. Revenue Disaggregated revenue The following table disaggregates revenue by service (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 2019 Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ Fertility benefit services revenue ​ $ 355,616 ​ $ 253,556 ​ $ 189,618 Pharmacy benefit services revenue ​ 145,005 ​ 91,302 ​ 40,065 Total revenue ​ $ 500,621 ​ $ 344,858 ​ $ 229,683 ​ Concentration of Major Clients 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. ​ 4. Fair Value of Financial Instruments 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. 88 Table of Contents 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. ​ 5. Property and Equipment, Net Property and equipment consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ ​ ​ ​ Useful Life ​ December 31, ​ (in years) 2021 2020 Machinery and equipment ​ 3 - 5 ​ $ 95 ​ $ 95 Computers and hardware ​ 3 ​ ​ 1,023 ​ ​ 660 Leasehold improvements ​ lease term ​ ​ 3,110 ​ ​ 3,074 Furniture and fixtures ​ 7 ​ ​ 453 ​ ​ 452 Capitalized software ​ 3 ​ ​ 2,909 ​ ​ 995 Property and equipment, gross ​ ​ ​ ​ 7,590 ​ ​ 5,276 Less: accumulated depreciation ​ ​ ​ ​ ( 2,563 ) ​ ​ ( 1,876 ) Total property and equipment, net ​ ​ ​ $ 5,027 ​ $ 3,400 ​ 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. ​ ​ 6. Intangible Assets, Net Intangible assets consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ ​ ​ ​ Useful Life ​ December 31, ​ (in years) 2021 2020 Trademarks ​ 8 ​ $ 4,000 ​ $ 4,000 Physician Network ​ 6 ​ ​ 3,500 ​ ​ 3,500 Website ​ 5 ​ ​ 2,000 ​ ​ 2,000 Intangible assets, gross ​ ​ ​ ​ 9,500 ​ ​ 9,500 Less: accumulated amortization ​ ​ ​ ​ ( 8,901 ) ​ ​ ( 8,287 ) Total intangible assets, net ​ ​ ​ $ 599 ​ $ 1,213 ​ Amortization expense was $ 0.6 million, $ 1.2 million, and $ 1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. 89 Table of Contents As of December 31, 2021, the future amortization expense of other intangible assets is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Year ending December 31: ​ ​ ​ ​ 2022 ​ ​ ​ $ 500 2023 ​ ​ ​ ​ 99 Thereafter ​ ​ ​ ​ — Total ​ ​ ​ $ 599 ​ ​ ​ ​ 7. Leases 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 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 ​ December 31, 2021 Operating Leases ​ ​ ​ ​ ​ Right-of-use asset ​ Operating lease right-of-use assets ​ $ 7,805 Short-term lease liabilities ​ Accrued expenses and other current liabilities ​ $ 1,231 Long-term lease liabilities ​ Operating lease noncurrent liabilities ​ $ 7,419 ​ ​ ​ ​ ​ ​ Other information ​ ​ ​ ​ ​ Weighted average remaining lease term, operating lease ​ ​ 7.4 years Weighted average discount rate, operating lease ​ ​ 4.29 % ​ Future minimum facility lease payments as of December 31, 2021, are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ Balance at December 31, 2021 Year Ending December 31: ​ ​ 2022 ​ $ 1,286 2023 ​ 1,286 2024 ​ 1,326 2025 ​ ​ 1,407 2026 ​ ​ 1,407 Thereafter ​ 3,400 Total undiscounted lease payments ​ $ 10,112 Less: imputed interest ​ ​ 1,462 Present value of lease liabilities ​ $ 8,650 Less: current portion of operating lease liabilities ​ ​ 1,231 Operating lease noncurrent liabilities ​ $ 7,419 ​ ​ 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. 90 Table of Contents 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. ​ ​ 8. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2021 ​ 2020 Accrued claims payable ​ $ 19,998 ​ $ 22,799 Accrued compensation ​ ​ 10,089 ​ 5,087 Accrued commission ​ ​ 3,092 ​ 1,334 Operating lease current liabilities ​ ​ 1,231 ​ ​ 1,231 Professional fees ​ ​ 843 ​ 1,216 Other ​ ​ 2,172 ​ ​ 2,605 Total accrued expenses and other current liabilities ​ $ 37,425 ​ $ 34,272 ​ ​ 9. Debt 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 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; engage in mergers, consolidations, liquidations and dissolutions; sell assets; maintain collateral; pay dividends or make other payments in respect of capital stock; make acquisitions; make investments, loans and advances; enter into transactions with affiliates; make payments with respect to or modify subordinated debt instruments; and enter into agreements with negative pledge clauses or clauses restricting subsidiary distributions. 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. 91 Table of Contents 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. ​ 10. Stockholders’ Equity Common Stock The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. The common stock confers upon its holders the right to receive dividends out of any assets legally available, when and as declared by the Board of Directors. In August 2019, the Company repurchased 26,659 shares of common stock at an average price per share of $ 6.91 pursuant to its contractual right of first refusal for offers made by third parties to acquire outstanding shares from existing stockholders. The repurchased shares were recorded as treasury shares. The Company had 615,980 shares of treasury stock as of December 31, 2021, 2020 and 2019. 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 . 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. Stock Incentive Plan In October 2019, the Company’s Board of Directors and stockholders adopted and approved the 2019 Equity Incentive Plan, as amended (the “2019 Plan”), as the successor to continuation of the Company’s 2017 Equity Incentive Plan, as amended (the “2017 Plan”). 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 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. 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. The exercise price of options granted to stockholders who hold 10% or more of the Company’s common stock on the option grant date shall not be less than 110 % of the fair value of the Company’s common stock on the date of grant for both incentive and non-qualified stock option grants. These options generally vest over four years and expire ten years from the date of grant. Stock option grants may be exercisable upon grant, and any unvested shares purchased are subject to repurchase. There were no unvested shares subject to repurchase as of December 31, 2021 and 2020. 92 Table of Contents As of December 31, 2021 and 2020, 4,160,618 and 5,287,341 shares of common stock, respectively, remained available for future grants under the 2019 Plan. Under the 2019 Plan, subject to any adjustments necessary to implement any capitalization adjustments, an annual increase to the number of shares issuable is automatically added on January 1 of each year for a period of ten years commencing on January 1, 2020 and ending on (and including) January 1, 2029, in an amount equal to 4 % of the total number of shares of common stock outstanding on December 31 of the preceding year. Stock Options Stock options are exercisable based on the terms and conditions outlined in the applicable award agreement. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ Number of ​ Grant Date ​ Contractual ​ Intrinsic ​ ​ Shares ​ Fair Value ​ Life (Years) ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) Outstanding at December 31, 2020 13,384,301 ​ $ 5.03 7.7 ​ $ 500,053 Granted 5,290,216 ​ 30.60 ​ ​ Exercised ( 3,440,937 ) ​ 2.93 ​ ​ Forfeited ( 303,639 ) ​ 13.56 ​ ​ Cancelled ​ ( 5,928 ) ​ ​ 9.15 ​ ​ ​ ​ ​ Outstanding at December 31, 2021 ​ 14,924,013 ​ $ 25.11 7.9 ​ $ 439,557 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at December 31, 2020 ​ 7,343,948 ​ $ 2.02 ​ 7.1 ​ $ 396,496 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at December 31, 2021 ​ 6,694,592 ​ $ 4.21 6.6 ​ $ 308,893 ​ The total intrinsic value of options exercised was $ 175.0 million, $ 79.6 million, and $ 50.8 million for the years ended December 31, 2021, 2020, and 2019, respectively. The weighted average grant date fair value of options granted was $ 30.60 , $ 26.56 , and $ 2.68 in the years ended December 31, 2021, 2020, and 2019, respectively. The total grant date fair value of options vested was $ 16.0 million, $ 9.3 million, and $ 2.8 million in the years ended December 31, 2021, 2020, and 2019, respectively. The total unrecognized compensation cost related to unvested options was approximately $ 164.2 million at December 31, 2021. The weighted-average remaining recognition period is approximately 3.6 years. Certain assumptions used in the option-pricing model for options granted to employees, directors, and non-employees are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31 ​ 2021 2020 2019 Expected term (in years) ​ 3.00 - 6.11 ​ 5.50 - 6.11 ​ 5.63 - 6.28 Risk-free interest rate 0.6 % - 1.4 % 0.3 % - 1.7 % 1.5 % - 2.5 % Expected volatility 52.4 % - 59.5 % 49.2 % - 54.7 % 48.6 % - 49.0 % Expected dividend rate — — — ​ 93 Table of Contents Restricted Stock Units During the year ended December 31, 2020, the Company began granting restricted stock units under the 2019 Equity Incentive Plan. Restricted stock units vest based on the terms outlined in the applicable award agreement, which is generally over a period of 4 years. A summary of the Company’s restricted stock unit activity is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Number ​ ​ Average ​ ​ of ​ ​ Grant Date ​ ​ Shares ​ ​ Fair Value ​ ​ ​ ​ ​ ​ Outstanding at December 31, 2020 489,067 $ 25.47 Granted ​ 1,517,075 ​ $ 58.13 Vested ( 201,916 ) ​ $ 26.48 Forfeited ( 38,708 ) $ 32.75 Outstanding at December 31, 2021 ​ 1,765,518 $ 53.25 ​ 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. 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. As of 94 Table of Contents 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 ​ $ 1,146 ​ 103,677 August 1, 2020 to January 31, 2021 ​ ​ 481 ​ 21,125 February 1, 2021 to July 31, 2021 ​ ​ 595 ​ 14,505 ​ 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31 ​ 2021 2020 2019 Cost of services ​ $ 8,969 ​ $ 3,056 ​ $ 537 Sales and marketing ​ 5,462 ​ 2,066 ​ 900 General and administrative ​ 19,275 ​ 7,699 ​ 3,624 Total stock-based compensation expense ​ $ 33,706 ​ $ 12,821 ​ $ 5,061 ​ ​ ​ ​ ​ 11. Net Income (Loss) Per Share 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 ​ 2020 ​ 2019 Basic net income (loss) per common share: ​ ​ ​ Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 65,769 ​ $ 46,459 ​ $ ( 8,569 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average shares used in computing basic net income (loss) per share ​ ​ 89,105,562 ​ ​ 85,722,670 ​ ​ 20,735,202 Basic net income (loss) per share ​ $ 0.74 ​ $ 0.54 ​ $ ( 0.41 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted net income (loss) per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (loss) ​ $ 65,769 ​ $ 46,459 ​ $ ( 8,569 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted-average shares used in computing basic net income (loss) per share ​ ​ 89,105,562 ​ ​ 85,722,670 ​ ​ 20,735,202 Effect of dilutive securities ​ ​ 11,252,485 ​ ​ 13,332,856 ​ ​ — Weighted-average shares used in computing diluted net income (loss) per share ​ ​ 100,358,047 ​ ​ 99,055,526 ​ ​ 20,735,202 Diluted net income (loss) per share ​ $ 0.66 ​ $ 0.47 ​ $ ( 0.41 ) ​ 95 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2021 2020 2019 Options to purchase common stock ​ 1,562,029 699,233 ​ 13,610,441 Shares issuable under ESPP ​ — ​ 70,184 ​ — Warrants to purchase common stock ​ — — ​ 122,882 Restricted stock units ​ 186,547 — ​ — Total potential dilutive shares ​ 1,748,576 769,417 ​ 13,733,323 ​ ​ 12. 401(k) Plan 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. ​ 13. Income Taxes 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. The provision/(benefit) from income taxes is composed of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 ​ 2020 2019 Current ​ ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — State ​ ( 31 ) ​ 191 ​ 12 Total Current ​ ( 31 ) ​ 191 ​ 12 Deferred: ​ ​ ​ Federal ​ ( 25,154 ) ​ ( 28,852 ) ​ — State ​ ( 8,149 ) ​ ( 9,119 ) ​ — Total Deferred ​ ( 33,303 ) ​ ( 37,971 ) ​ — Total provision/(benefit) from income taxes ​ $ ( 33,334 ) ​ $ ( 37,780 ) ​ $ 12 ​ A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 ​ ​ 2020 ​ ​ 2019 Income tax provision at statutory rate 21 % ​ 21 % ​ 21 % State income taxes, net of federal benefit ( 25 ) ​ ( 38 ) ​ 6 ​ Stock-based compensation ( 99 ) ​ ( 100 ) ​ 56 ​ Warrant valuation — ​ — ​ ( 45 ) ​ Change in valuation allowance — ​ ( 317 ) ​ ( 35 ) ​ Other — ​ ( 2 ) ​ ( 3 ) ​ Effective tax rate ( 103 ) % ​ ( 436 ) % ​ — % ​ The Company’s effective tax rate for the years ended December 31, 2021, 2020, and 2019 was ( 103 %), ( 436 %), and 0 %, respectively. For the year ended December 31, 2021, the effective tax rate differs from the U.S. federal statutory 96 Table of Contents 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. Deferred Tax Balances The components of the Company’s net deferred tax assets and liabilities are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Deferred tax assets: ​ ​ ​ ​ ​ ​ Net operating loss carryforwards ​ $ 55,180 ​ $ 29,291 Capitalized start‑up costs ​ 8 ​ 11 Research and development credits ​ 1,039 ​ 1,039 Stock-based compensation ​ ​ 9,133 ​ ​ 3,241 Accruals and reserves ​ 5,916 ​ 4,116 Operating lease liabilities ​ ​ 2,297 ​ ​ 2,475 Property and equipment ​ 164 ​ 154 Intangibles ​ 414 ​ 195 Indirect tax ​ ​ — ​ ​ 313 Total deferred tax assets ​ 74,151 ​ 40,835 Valuation allowance ​ ( 224 ) ​ ( 225 ) Deferred tax assets after valuation allowance ​ $ 73,927 ​ $ 40,610 Deferred tax liabilities: ​ ​ Goodwill ​ ( 581 ) ​ ( 392 ) Operating lease right-of-use assets ​ ( 2,072 ) ​ ( 2,247 ) Total deferred tax liabilities ​ ( 2,653 ) ​ ( 2,639 ) Net deferred tax assets ​ $ 71,274 ​ $ 37,971 ​ Assessing the realizability of deferred tax assets requires the determination of whether it is more-likely-than-not that some portion or all the deferred tax assets will not be realized. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. 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. 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 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. In addition to the above federal net operating losses, the Company has net operating losses of $ 112.7 million with an indefinite carryforward period. There are certain state net operating losses that follow the federal carryforward period and are indefinite in nature. The federal and California research and development tax credits are approximately $ 0.7 million and $ 0.8 million, respectively. The federal research credits will begin to expire in 2030 and the California research and development credits have no expiration date. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to ownership changes that may occur, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Such annual limitation could result in the expiration of net operating losses and credits before their utilization. 97 Table of Contents Unrecognized Tax Benefits A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 ​ 2020 2019 Balance at the beginning of the year ​ $ 390 ​ $ 390 ​ $ 397 Reductions based upon tax positions related to the current year ​ — ​ — ​ ( 7 ) Balance at the end of the year ​ $ 390 ​ $ 390 ​ $ 390 ​ In order for these unrecognized tax benefits to be realized, the net operating loss carryforwards must be utilized first. The Company does not anticipate any material change in its unrecognized tax benefits over the next twelve months. The Company files U.S. federal and state income tax returns with varying statutes of limitations. All tax years since inception remain open to examination due to the carryover of unused net operating losses and tax credits. ​ 14. Commitments and Contingencies Arbitration/Litigation On January 14, 2019, a vendor filed a Demand for Arbitration and Statement of Claim against the Company (“Demand”) for alleged breach of the November 10, 2017 Preferred Specialty Pharmacy Agreement (“Agreement”) between the Company and the vendor. On March 13, 2019, the Company terminated the Agreement for material breach with the vendor. On April 3, 2019, the vendor filed a Second Amended Demand for Arbitration (“SAD”) for breach of the Agreement. The vendor was seeking $ 25.0 million in damages, fees, interest and cost. Pursuant to a schedule set forth by the Arbitration Panel, on May 3, 2019, the Company filed a Motion to Dismiss the SAD. That Motion was fully briefed on June 14, 2019 and was decided on July 31, 2019. The Arbitration Panel dismissed two of the vendor’s four claims. The Arbitration Panel held additional hearings for the two remaining claims between August 17, 2020 and August 26, 2020. Final arguments were held on October 20, 2020. Based on a willingness to expeditiously resolve the matter, the parties proposed settlement to the panel on November 16, 2020. In December 2020, the Company finalized and settled the arbitration for $ 5.75 million without admission of liability to avoid further legal costs. The Company believes there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on the Company’s financial position, results of operations, or cash flows. Indemnifications The Company indemnifies each of its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or a director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance allows the transfer of risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, it has not recognized any liabilities relating to these obligations for any period presented. ​ 15. Unaudited Quarterly Results of Operations Data 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. This 98 Table of Contents 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 ​ ​ Mar. 31, ​ Jun. 30, ​ Sep. 30, ​ Dec. 31, ​ Mar. 31, ​ Jun. 30, ​ Sep. 30, ​ Dec. 31, ​ 2020 (1) 2020 (1) 2020 (1) 2020 2021 2021 2021 2021 ​ (in thousands) Revenue ​ $ 81,024 ​ $ 64,605 ​ $ 98,928 ​ $ 100,301 ​ $ 122,133 ​ $ 128,651 $ 122,284 $ 127,553 Cost of services ​ 64,422 ​ 52,650 ​ 78,092 ​ 79,635 ​ 93,226 ​ 99,030 ​ 93,792 ​ 102,438 Gross profit ​ 16,602 ​ 11,955 ​ 20,836 ​ 20,666 ​ 28,907 ​ 29,621 ​ 28,492 ​ 25,115 Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ Sales and marketing ​ 3,267 ​ 3,608 ​ 3,355 ​ 4,776 ​ 4,014 ​ 4,028 ​ 4,441 ​ 7,696 General and administrative ​ 9,904 ​ 9,419 ​ 12,653 ​ 14,729 ​ 13,086 ​ 13,937 ​ 14,986 ​ 17,607 Total operating expenses ​ 13,171 ​ 13,027 ​ 16,008 ​ 19,505 ​ 17,100 ​ 17,965 ​ 19,427 ​ 25,303 Income (loss) from operations ​ 3,431 ​ ( 1,072 ) ​ 4,828 ​ 1,161 ​ 11,807 ​ 11,656 ​ 9,065 ​ ( 188 ) Other income (expense), net ​ ​ 164 ​ ​ 3 ​ ​ 11 ​ ​ 32 ​ ​ 7 ​ ​ 12 ​ ​ ( 92 ) ​ ​ ( 293 ) Interest income (expense), net ​ 150 ​ 5 ​ ( 17 ) ​ ( 17 ) ​ ( 18 ) ​ 252 ​ 144 ​ 83 Total other income (expense), net ​ 314 ​ 8 ​ ( 6 ) ​ 15 ​ ( 11 ) ​ 264 ​ 52 ​ ( 210 ) Income (loss) before income taxes ​ 3,745 ​ ( 1,064 ) ​ 4,822 ​ 1,176 ​ 11,796 ​ 11,920 ​ 9,117 ​ ( 398 ) Benefit (provision) for income taxes ​ ( 116 ) ​ — ​ — ​ 37,896 ​ 3,370 ​ 6,807 ​ 7,679 ​ 15,478 Net income (loss) ​ $ 3,629 ​ $ ( 1,064 ) ​ $ 4,822 ​ $ 39,072 ​ $ 15,166 ​ $ 18,727 $ 16,796 $ 15,080 Net income (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.04 ​ $ ( 0.01 ) ​ $ 0.06 ​ $ 0.45 ​ $ 0.17 ​ $ 0.21 ​ $ 0.19 ​ $ 0.17 Diluted ​ $ 0.04 ​ $ ( 0.01 ) ​ $ 0.05 ​ $ 0.39 ​ $ 0.15 ​ $ 0.19 ​ $ 0.17 ​ $ 0.15 Weighted-average shares used in computing net income (loss) per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ ​ 84,537,538 ​ ​ 85,281,151 ​ ​ 86,265,297 ​ ​ 86,514,619 ​ ​ 87,404,287 ​ ​ 88,165,158 ​ ​ 89,571,226 ​ ​ 90,537,077 Diluted ​ ​ 99,665,158 ​ ​ 85,281,151 ​ ​ 98,969,588 ​ ​ 99,021,233 ​ ​ 100,106,497 ​ ​ 99,808,085 ​ ​ 100,370,331 ​ ​ 100,321,297 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1) In the fourth quarter of 2020, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)” with an adoption date of January 1, 2020. 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. ​ ​ ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 99 Table of Contents