Home Payment processors PHREESIA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

PHREESIA, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

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You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with our unaudited consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our financial statements and related notes thereto
included in our Form 10-K for the fiscal year ended January 31, 2021. In
addition to historical financial information, the following discussion and
analysis and information set forth elsewhere in this Quarterly Report on Form
10-Q contain forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results could differ materially from those anticipated
by these forward-looking statements as a result of many factors. We discuss
factors that we believe could cause or contribute to these differences below and
elsewhere in this Quarterly Report on Form 10-Q, including those set forth under
"Risk Factors" and "Special Note Regarding Forward-Looking Statements."
Financial Highlights
•Total revenue increased 45% to $55.9 million in the three months ended
October 31, 2021, compared with $38.5 million in the three months ended
October 31, 2020.
•Total revenue increased 45% to $155.2 million in the nine months ended
October 31, 2021, compared with $106.9 million in the nine months ended
October 31, 2020.
•Net loss was $36.3 million in the three months ended October 31, 2021, compared
to $6.7 million in the three months ended October 31, 2020.
•Net loss was $71.7 million in the nine months ended October 31, 2021, compared
to $19.2 million in the nine months ended October 31, 2020.
•Adjusted EBITDA was negative $17.6 million in the three months ended
October 31, 2021, compared to positive $1.2 million in the three months ended
October 31, 2020.
•Adjusted EBITDA was negative $28.6 million in the nine months ended October 31,
2021, compared to positive $3.9 million in the nine months ended October 31,
2020.
•Cash used in operating activities was $24.5 million and $36.7 million for the
three and nine months ended October 31, 2021, respectively.
•Cash used in operating activities was $0.7 million and $1.2 million for the
three and nine months ended October 31, 2020, respectively.
•Free cash flow was negative $39.0 million and negative $61.3 million for the
three and nine months ended October 31, 2021, respectively, compared to negative
$4.4 million and negative $12.3 million for the three and nine months ended
October 31, 2020, respectively.
•Cash and cash equivalents as of October 31, 2021 was $400.4 million, an
increase of $181.6 million compared to January 31, 2021, driven primarily by our
follow-on offering of common stock, which generated net proceeds of
$245.8 million, partially offset by cash used for operating activities, capital
expenditures and payments of finance leases and other debt.
For a reconciliation of Adjusted EBITDA to net loss and a reconciliation of free
cash flow to cash used in operating activities, and for more information as to
how we define and calculate such measures, see the section below titled
"Non-GAAP financial measures."
Overview
We are a leading provider of comprehensive software solutions that transform the
healthcare experience by engaging patients in their care and enabling healthcare
provider organizations to optimize operational efficiency, improve profitability
and enhance clinical care and safety. As evidenced in industry survey reports
from KLAS, we have been recognized as a leader based on our integration
capabilities with healthcare provider organizations, the broad adoption of our
patient intake functionalities, our response to the COVID-19 pandemic and by
overall client satisfaction. Through the SaaS-based Phreesia Platform, which we
refer to as the Phreesia Platform or our Platform, we offer provider clients a
robust suite of solutions to manage the patient intake process and an integrated
payments solution for secure processing of patient payments. Our Platform also
provides life sciences companies with an engagement channel for targeted and
direct communication with patients.
We serve an array of healthcare provider organizations of all sizes, ranging
from single-specialty practices, which include internal and family medicine,
urology, dermatology, and orthopedics, to large, multi-specialty groups and


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health systems. Our life sciences revenue is generated from clients in the
pharmaceutical, biotechnology and medical device industries.
We derive revenue from (i) subscription fees from healthcare provider
organizations for access to the Phreesia Platform and related professional
services fees, (ii) payment processing fees based on levels of patient payment
volume processed through the Phreesia Platform and (iii) fees from life sciences
companies to deliver marketing content to patients using the Phreesia Platform.
We have strong visibility into our business as the majority of our revenue is
derived from recurring subscription fees and re-occurring payment processing
fees.
We market and sell our products and services to provider clients throughout the
United States using a direct sales organization. Our demand generation team
develops content and identifies prospects that our sales development team
researches and qualifies to generate high-grade, actionable sales programs. Our
direct sales force executes on these qualified sales programs, partnering with
client services to ensure prospects are educated on the breadth of our
capabilities and demonstrable value proposition, with the goal of attracting and
retaining clients and expanding their use of our Platform over time. Most of our
Platform solutions are contracted pursuant to annual, auto-renewing agreements.
Our sales typically involve competitive processes and sales cycles have, on
average, varied in duration from three months to six months, depending on the
size of the potential client. In addition, through Phreesia University
(Phreesia's in-house training program), events, client conferences and webinars,
we help our provider clients optimize their businesses and, as a result, support
client retention.
We also sell products and services to pharmaceutical brands and advertising
agencies through our direct sales and
marketing teams.

Since our inception, we have not marketed or sold our products internationally.
Accordingly, all of our revenue from historical periods has come from the United
States, and our current strategy is to continue to focus our sales efforts
within the United States.
Our revenue growth has been primarily organic and reflects our significant
addition of new provider clients and increased revenue from existing clients.
New provider clients are defined as clients that go live in the applicable
period and existing provider clients are defined as clients that go live in any
period before the applicable period.
Recent developments
COVID-19
In March 2020, the World Health Organization declared the ongoing outbreak of a
novel strain of coronavirus ("COVID-19") a pandemic. There continues to be
uncertainty as to the duration and extent to which the global COVID-19 pandemic,
as well as the emergence of new variants, may adversely impact the Company's
business operations, financial performance, and results of operations, as well
as macroeconomic conditions, at this time.

Key Metrics
We regularly review the following key metrics to measure our performance,
identify trends affecting our business, formulate financial projections, make
strategic business decisions and assess working capital needs.

                                              Three months ended October 31,            Nine months ended October 31,
Unaudited                                       2021                    2020                   2021                  2020
Key Metrics:
Provider clients (average over
period)                                             2,097                1,737                    1,996               1,679
Average revenue per provider
client                                   $         19,299          $    17,490          $        59,196          $   51,604



•Provider clients. We define provider clients as the average number of
healthcare provider organizations that generate revenue each month during the
applicable period. In cases where we act as a subcontractor providing
white-label services to our partner's clients, we treat the contractual
relationship as a single provider client. We believe growth in the number of
provider clients is a key indicator of the performance of our business and
depends, in part, on our ability to successfully develop and market our Platform
to healthcare provider organizations that are not yet clients. While growth in
the number of provider clients is an important indicator of expected revenue
growth, it also informs our management of the areas of our business that will
require further investment to support expected future provider client growth.
For example, as the number of provider clients


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increases, we may need to add to our customer support team and invest to
maintain effectiveness and performance of our Platform and software for our
provider clients and their patients.
•Average revenue per provider client. We define average revenue per provider
client as the total subscription and related services and payment processing
revenue generated from provider clients in a given period divided by the average
number of provider clients that generate revenue each month during that same
period. We are focused on continually delivering value to our provider clients
and believe that our ability to increase average revenue per provider client is
an indicator of the long-term value of the Phreesia platform.

Additional information

                                         Three months ended October 31,          Nine months ended October 31,
Unaudited                                              2021                 2020              2021                  2020
Patient payment volume
(in millions)                            $         682            $       524    $       2,079           $      1,445
Payment facilitator volume
percentage                                          79    %                80  %            78   %                 82  %


•Patient payment volume. We believe that patient payment volume is an indicator
of both the underlying health of our provider clients' businesses and the
continuing shift of healthcare costs to patients. We measure patient payment
volume as the total dollar volume of transactions between our provider clients
and their patients utilizing our payment platform, including via credit and
debit cards that we process as a payment facilitator as well as cash and check
payments and credit and debit transactions for which Phreesia acts as a gateway
to other payment processors.
•Payment facilitator volume percentage. We define payment facilitator volume
percentage as the volume of credit and debit card patient payment volume that we
process as a payment facilitator as a percentage of total patient payment
volume. Payment facilitator volume is a major driver of our payment processing
revenue.
Components of statements of operations
Revenue
We generate revenue primarily from providing an integrated SaaS-based software
and payment platform for the healthcare industry. We derive revenue from
subscription fees and related services generated from our provider clients for
access to the Phreesia Platform, payment processing fees based on the levels of
patient payment volume processed through the Phreesia Platform, and from digital
marketing revenue from life sciences companies to reach, educate and communicate
with patients when they are most receptive and actively seeking care.
Our total revenue consists of the following:
•Subscription and related services. We primarily generate subscription fees from
our provider clients based on the number of providers that subscribe to and
utilize the Phreesia Platform. Our provider clients are typically billed monthly
in arrears, though in some instances, provider clients may opt to be billed
quarterly or annually in advance. Subscription fees are typically auto-debited
from provider clients' accounts every month. As we target and add larger
enterprise provider clients, these clients may choose to contract differently
than our typical per provider subscription model. To the extent we charge in an
alternative manner with larger enterprise provider clients, we expect that such
a pricing model will recur and, combined with our per provider subscription
fees, will increase as a percentage of our total revenue.
•Payment processing fees. We generate revenue from payment processing fees based
on the number of transactions and the levels of patient payment volume processed
on credit and debit cards on the Phreesia Platform through our payment
facilitator model. Payment processing fees are generally calculated as a
percentage of the total transaction dollar value processed and/or a fee per
transaction. Credit and debit patient payment volume processed through our
payment facilitator model represented roughly 79% and 80% of our patient payment
volume in the three months ended October 31, 2021 and 2020, respectively. Credit
and debit patient payment volume processed through our payment facilitator model
represented roughly 78% and 82% of our patient payment volume in the nine months
ended October 31, 2021 and 2020, respectively. The remainder of our patient
payment volume is composed of credit and debit transactions for which Phreesia
acts as a gateway to another payment processor, and cash and check transactions.


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•Life sciences. We generate revenue from the sale of digital marketing solutions
to life sciences companies. As we expand our provider client base, we increase
the number of new patients we can reach to deliver targeted marketing content on
behalf of our life sciences clients.
Cost of revenue (excluding depreciation and amortization)
Our cost of revenue primarily consists of personnel costs, including salaries,
benefits, bonuses and stock-based compensation for implementation and technical
support, and costs to verify insurance eligibility and benefits, infrastructure
costs to operate our Platform such as hosting fees and fees paid to various
third-party partners for access to their technology.
Payment processing expense
Payment processing expense consists primarily of interchange fees set by payment
card networks and that are ultimately paid to the card-issuing financial
institution, assessment fees paid to payment card networks, and fees paid to
third-party payment processors and gateways. Payment processing expense may
increase as a percentage of payment processing revenue if card networks raise
pricing for interchange and assessment fees or if we reduce pricing to our
clients.
Sales and marketing
Sales and marketing expense consists primarily of personnel costs, including
salaries, benefits, bonuses, stock-based compensation and commission costs for
our sales and marketing personnel. Sales and marketing expense also includes
costs for advertising, promotional and other marketing activities, as well as
certain fees paid to various third-party partners for sales and lead generation.
Advertising is expensed as incurred.
Research and development
Research and development expense consists of costs to develop our products and
services that do not meet the criteria for capitalization as internal-use
software. These costs consist primarily of personnel costs, including salaries,
benefits, bonuses and stock-based compensation for our development personnel.
Research and development expense also includes product management, life sciences
analytics costs, third-party partner fees and third-party consulting fees,
offset by any internal-use software development cost capitalized during the same
period.
General and administrative
General and administrative expense consists primarily of personnel costs,
including salaries, benefits, bonuses and stock-based compensation for our
executive, finance, legal, security, human resources, information technology and
other administrative personnel. General and administrative expense also includes
consulting, legal, security, accounting services and allocated overhead. We
expect general and administrative expense to continue to increase in absolute
dollars as we grow our operations and continue to operate as a public company,
although we expect such expense to begin to decline as a percentage of total
revenue over time.
Depreciation
Depreciation represents depreciation expense for PhreesiaPads and Arrivals
Kiosks, data center and other computer hardware, purchased computer software,
furniture and fixtures and leasehold improvements.
Amortization
Amortization primarily represents amortization of our capitalized internal-use
software related to the Phreesia Platform as well as amortization of acquired
intangible assets.
Other (expense) income, net
Our other expense and income line items consist of the following:
•Other (expense) income, net. Other (expense) income, net consists of foreign
currency-related gains and losses and other miscellaneous (expense) income.
•Interest income. Interest income consists of interest earned on our cash and
cash equivalent balances. Interest income has not been material to our
operations to date.
•Interest expense. Interest expense consists primarily of the interest incurred
on our financing obligations as well as amortization of discounts and deferred
financing costs.


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Provision for income taxes
Based upon our cumulative pre-tax losses in recent years and available evidence,
we have determined that it is more likely than not that certain deferred tax
assets as of October 31, 2021 will not be realized in the near term.
Consequently, we have established a valuation allowance against our deferred tax
assets that are not more likely than not to be realized. In future periods, if
we conclude we have future taxable income sufficient to recognize the deferred
tax assets, we may reduce or eliminate the valuation allowance.

Comparison of results of operations for the three and nine months ended
October 31, 2021 and 2020

Revenue (in thousands)
                                                    Three months ended October 31,
(in thousands)                                             2021              2020            $ Change          % Change
Subscription and related services                   $         24,365    $    17,468          $  6,897                      39  %
Payment processing fees                                       16,111         12,917             3,194                      25  %
Life sciences                                                 15,439          8,079             7,360                      91  %
Total revenue                                       $         55,915    $    38,464          $ 17,451                      45  %


•Subscription and related services. Our subscription and related services
revenue from healthcare organizations increased $6.9 million to $24.4 million
for the three months ended October 31, 2021, as compared to $17.5 million for
the three months ended October 31, 2020, primarily due to new provider clients
added as well as expansion of and cross-selling to existing provider clients.
•Payment processing fees. Our revenue from patient payments processed through
the Phreesia Platform
increased $3.2 million to $16.1 million for the three months ended October 31,
2021, as compared to $12.9 million for the three months ended October 31, 2020.
The increase was due to the addition of new provider clients, expansion of
existing provider clients, as well as the reduced impact of COVID-19, which had
decreased patient visits in the three months ended October 31, 2020.
•Life sciences. Our revenue from life science clients for digital marketing
increased $7.4 million to $15.4 million for the three months ended October 31,
2021, as compared to $8.1 million for the three months ended October 31, 2020,
due to an increase in new digital marketing solutions programs and deeper
patient outreach among the existing programs.
                                                  Nine months ended October 

31,

(in thousands)                                           2021                  2020              $ Change              % Change
Subscription and related services                 $        69,069          $   50,196          $  18,873                       38  %
Payment processing fees                                    49,061              36,452             12,609                       35  %
Life sciences                                              37,083              20,221             16,862                       83  %
Total revenue                                     $       155,213          $  106,869          $  48,344                       45  %



•Subscription and related services. Our subscription and related services
revenue from healthcare organizations increased $18.9 million to $69.1 million
for the nine months ended October 31, 2021, as compared to $50.2 million for the
nine months ended October 31, 2020, primarily due to new provider clients added
as well as expansion of and cross-selling to existing provider clients.

•Payment processing fees. Our revenue from patient payments processed through
the Phreesia Platform
increased $12.6 million to $49.1 million for the nine months ended October 31,
2021, as compared to $36.5 million for the nine months ended October 31, 2020.
The increase was due to the addition of new provider clients, expansion of
existing provider clients, as well as the reduced impact of COVID-19, which had
decreased patient visits in the nine months ended October 31, 2020.

•Life sciences. Our revenue from life science clients for digital marketing
increased $16.9 million to $37.1 million for the nine months ended October 31,
2021, as compared to $20.2 million for the nine months ended October 31, 2020,
due to an increase in new digital marketing solutions programs and deeper
patient outreach among the existing programs.


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Cost of revenue (excluding depreciation and amortization)
                                                   Three months ended October 31,
(in thousands)                                            2021                    2020              $ Change             % Change
Cost of revenue (excluding depreciation and
amortization)                                      $         11,644          $     6,472          $   5,172                      80  %


Cost of revenue (excluding depreciation and amortization) increased $5.2 million
to $11.6 million for the three months ended October 31, 2021, as compared to
$6.5 million for the three months ended October 31, 2020. The increase resulted
primarily from higher compensation for existing employees and increased
headcount, as well as increased costs related to the expansion of our data
centers, both driven by customer growth.
Stock compensation expense included in cost of revenue was $0.6 million and $0.2
million for the three months ended October 31, 2021 and 2020, respectively.
                                                   Nine months ended October 31,
(in thousands)                                            2021                   2020             $ Change             % Change
Cost of revenue (excluding depreciation and
amortization)                                      $        30,210          $    16,477          $ 13,733                      83  %


Cost of revenue (excluding depreciation and amortization) increased $13.7
million to $30.2 million in the nine months ended October 31, 2021, as compared
to $16.5 million in the nine months ended October 31, 2020. The increase
resulted primarily from higher compensation for existing employees and increased
headcount, as well as increased costs related to the expansion of our data
centers, both driven by customer growth.
Stock compensation expense included in cost of revenue was $1.5 million and $0.4
million for the nine months ended October 31, 2021 and 2020, respectively.

Payment processing expense
                                                Three months ended October 31,
(in thousands)                                         2021                    2020              $ Change             % Change
Payment processing expense                      $          9,449          $     7,530          $   1,919                      25  %


Payment processing expense increased $1.9 million to $9.4 million for the three
months ended October 31, 2021, as compared to $7.5 million for the three months
ended October 31, 2020. The increase resulted primarily from an increase in
patient payments processed through the Phreesia Platform driven by an increase
in patient visits over the prior year.
                                Nine months ended October 31,
(in thousands)                               2021                    2020        $ Change      % Change
Payment processing expense      $        28,822                   $ 21,125      $  7,697           36  %


Payment processing expense increased $7.7 million to $28.8 million for the nine
months ended October 31, 2021, as compared to $21.1 million for the nine months
ended October 31, 2020. The increase resulted primarily from an increase in
patient payments processed through the Phreesia Platform driven by an increase
in patient visits over the prior year.

Sales and Marketing

                         Three months ended October 31,
(in thousands)                         2021                     2020        $ Change      % Change
Sales and marketing      $         32,036                    $ 10,481      $ 21,555          206  %


Sales and marketing expense increased $21.6 million to $32.0 million for the
three months ended October 31, 2021, as compared to $10.5 million for the three
months ended October 31, 2020. The increase was primarily attributable to an
$18.2 million increase in total compensation and benefits costs driven by higher
compensation for existing employees and increased headcount, as well as higher
third-party marketing and advertising costs.


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Stock compensation expense included in sales and marketing expense was
$5.2 million and $1.0 million for the three months ended October 31, 2021 and
2020, respectively.
                         Nine months ended October 31,
(in thousands)                        2021                    2020        $ Change      % Change
Sales and marketing      $        69,215                   $ 30,013      $ 39,202          131  %


Sales and marketing expense increased $39.2 million to $69.2 million for the
nine months ended October 31, 2021, as compared to $30.0 million for the nine
months ended October 31, 2020. The increase was primarily attributable to a
$34.3 million increase in total compensation and benefits costs driven by higher
compensation for existing employees and increased headcount, as well as higher
third-party marketing and advertising costs.
Stock compensation expense included in sales and marketing expense was $9.0
million and $2.5 million for the nine months ended October 31, 2021 and 2020,
respectively.

Research and development
                                      Three months ended October 31,
(in thousands)                              2021                     2020        $ Change      % Change
Research and development      $         15,273                     $ 5,732  

$ 9,541 166%


Research and development expense increased $9.5 million to $15.3 million for the
three months ended October 31, 2021, as compared to $5.7 million for the three
months ended October 31, 2020. The increase resulted primarily from a $6.2
million increase in total compensation and benefits costs driven by higher
compensation for existing employees and increased headcount, a $1.8 million
increase in outside services costs, as well as higher software costs.
Stock compensation expense included in research and development expense was $2.2
million and $0.5 million for the three months ended October 31, 2021 and 2020,
respectively.
                              Nine months ended October 31,
(in thousands)                             2021                    2020        $ Change      % Change
Research and development      $        34,770                   $ 16,267      $ 18,503          114  %


Research and development expense increased $18.5 million to $34.8 million for
the nine months ended October 31, 2021, as compared to $16.3 million for the
nine months ended October 31, 2020. The increase resulted primarily from an
$11.3 million increase in total compensation costs driven by higher compensation
for existing employees and increased headcount, a $4.6 million increase in
outside services costs, as well as higher software costs.
Stock compensation expense included in research and development expense was $4.2
million and $1.5 million for the nine months ended October 31, 2021 and 2020,
respectively.

General and administrative
                                                         Three months ended October 31,
(in thousands)                                             2021                    2020              $ Change             % Change
General and administrative                          $         18,021          $    10,370          $   7,651                      74  %


General and administrative expense increased $7.7 million to $18.0 million for
the three months ended October 31, 2021, as compared to $10.4 million for the
three months ended October 31, 2020. The increase resulted primarily from a $4.9
million increase in total compensation and benefits costs driven by higher
compensation for existing employees and increased headcount to support our
growth as a public company, a $1.5 million increase in outside services costs,
as well as higher costs for software and equipment.
Stock compensation expense included in general and administrative expense was
$4.9 million and $1.6 million for the three months ended October 31, 2021 and
2020, respectively.



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                                       Nine months ended October 31,
(in thousands)                               2021                    2020        $ Change      % Change
General and administrative      $        46,936                   $ 28,721      $ 18,215           63  %


General and administrative expense increased $18.2 million to $46.9 million for
the nine months ended October 31, 2021, as compared to $28.7 million for the
nine months ended October 31, 2020. The increase resulted primarily from a $12.0
million increase in total compensation costs driven by higher compensation for
existing employees and increased headcount to support our growth as a public
company, a $2.9 million increase in outside services costs, a $1.5 million
increase in software costs, as well as higher recruiting costs.
Stock compensation expense included in general and administrative expense was
$11.2 million and $5.2 million for the nine months ended October 31, 2021 and
2020, respectively.
Depreciation
                    Three months ended October 31,
(in thousands)                     2021                     2020        $ Change      % Change
Depreciation        $          3,719                      $ 2,447      $  1,272           52  %


Depreciation expense increased $1.3 million to $3.7 million for the three months
ended October 31, 2021 as compared to $2.4 million for the three months ended
October 31, 2020. The increase was primarily attributable to higher data center
equipment depreciation.
                    Nine months ended October 31,
(in thousands)                    2021                    2020        $ Change      % Change
Depreciation        $         10,717                    $ 7,125      $  3,592           50  %


Depreciation expense increased $3.6 million to $10.7 million for the nine months
ended October 31, 2021 as compared to $7.1 million for the nine months ended
October 31, 2020. The increase was primarily attributable to higher data center
equipment depreciation.

Amortization

                    Three months ended October 31,
(in thousands)                     2021                     2020        $ Change       % Change
Amortization        $          1,513                      $ 1,546      $     (33)          (2) %

Depreciation expense remained stable at $ 1.5 million for the three months ended
October 31, 2021 compared to $ 1.5 million for the three months ended
October 31, 2020.

                    Nine months ended October 31,
(in thousands)                    2021                     2020        $ Change       % Change
Amortization        $          4,744                     $ 4,531      $     213            5  %


Amortization expense increased $0.2 million to $4.7 million for the nine months
ended October 31, 2021, as compared to $4.5 million for the nine months ended
October 31, 2020. The increase was primarily driven by increased amortization of
capitalized internal-use software development costs, as well as higher
amortization of acquired intangible assets.

Other (expense) income, net

                                                Three months ended October 

31,

(in thousands)                                          2021                     2020              $ Change             % Change
Other (expense) income, net                     $             (114)         $        62          $    (176)                   (284) %




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Other (expense) income, net was expense of $0.1 million for the three months
ended October 31, 2021 as compared to income of $0.1 million for the three
months ended October 31, 2020. The change in other (expense) income was driven
by an increase in foreign exchange losses.
                        Nine months ended October 31,
(in thousands)                         2021                      2020      $ Change
Other expense, net      $           (138)                      $ (229)     $    91       (40) %


Other expense, net decreased by $0.1 million to $0.1 million for the nine months
ended October 31, 2021 as compared to $0.2 million for the nine months ended
October 31, 2020, driven by a decrease in foreign exchange losses.

Interest (expense) income, net

                                                Three months ended October 

31,

(in thousands)                                         2021                    2020              $ Change             % Change
Interest (expense) income, net                  $           (311)         $      (467)         $     156                     (33) %


Interest expense, net decreased $0.2 million to $0.3 million for the three
months ended October 31, 2021, as compared to $0.5 million for the three months
ended October 31, 2020. The decrease is primarily attributable to lower average
debt balances due to repayment of debt with the proceeds of our equity
offerings, as well as higher average cash balances.
                                                Nine months ended October 

31,

(in thousands)                                        2021                   2020              $ Change             % Change
Interest (expense) income, net                  $         (756)         $    (1,206)         $     450                     (37) %


Interest expense, net decreased $0.5 million to $0.8 million for the nine months
ended October 31, 2021, as compared to $1.2 million for the nine months ended
October 31, 2020. The decrease is primarily attributable to lower average debt
balances due to repayment of debt with the proceeds of our equity offerings, as
well as higher average cash balances.

Provision for income taxes
                                                Three months ended October 31,
(in thousands)                                         2021                    2020              $ Change             % Change
Provision for income taxes                      $           (178)         $      (194)         $      16                      (8) %


Provision for income taxes remained consistent at $0.2 million for the three
months ended October 31, 2021, as compared $0.2 million for the three months
ended October 31, 2020. Provision for income taxes relates primarily to
utilization of Canadian net operating loss carryforwards and state income taxes.
                                                Nine months ended October 31,
(in thousands)                                         2021                    2020              $ Change             % Change
Provision for income taxes                      $           (615)         $      (371)         $    (244)                     66  %


Provision for income taxes increased by $0.2 million to $0.6 million for the
nine months ended October 31, 2021, as compared $0.4 million for the nine months
ended October 31, 2020. Provision for income taxes relates primarily to
utilization of Canadian net operating loss carryforwards and state income taxes.

Non-GAAP financial measures
Adjusted EBITDA is a supplemental measure of our performance that is not
required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a
measurement of our financial performance under GAAP and should not be considered
as an alternative to net income or loss or any other performance measure derived
in accordance with GAAP, or as an alternative to cash flows from operating
activities as a measure of our liquidity. We define Adjusted EBITDA as net
income or loss before interest expense (income), net, provision for income
taxes, depreciation and


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amortization, and before stock-based compensation expense, change in fair value
of contingent consideration liabilities and other expense (income), net.
We have provided below a reconciliation of Adjusted EBITDA to net loss, the most
directly comparable GAAP financial measure. We have presented Adjusted EBITDA in
this Quarterly Report on Form 10-Q because it is a key measure used by our
management and board of directors to understand and evaluate our core operating
performance and trends, to prepare and approve our annual budget, and to develop
short and long-term operational plans. In particular, we believe that the
exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a
useful measure for period-to-period comparisons of our core business.
Accordingly, we believe that Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our operating results in
the same manner as our management and board of directors.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our financial
results as reported under GAAP. Some of these limitations are as follows:

•Although depreciation and amortization expense are non-cash charges, the assets
being depreciated and amortized may have to be replaced in the future, and
Adjusted EBITDA does not reflect cash capital expenditure requirements for such
replacements or for new capital expenditure requirements;
•Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our
working capital needs; (2) the potentially dilutive impact of non-cash
stock-based compensation; (3) tax payments that may represent a reduction in
cash available to us; or (4) interest expense (income), net; and
•Other companies, including companies in our industry, may calculate Adjusted
EBITDA or similarly titled measures differently, which reduces its usefulness as
a comparative measure.
Because of these and other limitations, you should consider Adjusted EBITDA
along with other GAAP-based financial performance measures, including various
cash flow metrics, net loss, and our GAAP financial results. The following table
presents a reconciliation of Adjusted EBITDA to net loss for each of the periods
indicated:

                                             Three months ended October 31,                  Nine months ended October 31,
(in thousands, unaudited)                            2021                    2020                   2021                   2020
Net loss                                     $         (36,343)         $   

(6,713) $ (71,710) $ (19,196)
Net interest expense (income)

                             311                  467                      756                1,206
Provision for income taxes                                 178                  194                      615                  371
Depreciation and amortization                            5,232                3,993                   15,461               11,656
Stock-based compensation expense                        12,929                3,316                   25,976                9,616
Change in fair value of contingent
consideration liabilities                                    -                    -                      209                    -
Other expense (income), net                                114                  (62)                     138                  229
Adjusted EBITDA                              $         (17,579)         $     1,195          $       (28,555)         $     3,882


We calculate free cash flow as net cash used in operating activities less
capitalized internal-use software development costs and purchases of property
and equipment.
Additionally, free cash flow is a supplemental measure of our performance that
is not required by, or presented in accordance with, GAAP. We consider free cash
flow to be a liquidity measure that provides useful information to management
and investors about the amount of cash generated by our business that can be
used for strategic opportunities, including investing in our business, making
strategic investments, partnerships and acquisitions and strengthening our
financial position.
The following table presents a reconciliation of free cash flow from net cash
used in operating activities, the most directly comparable GAAP financial
measure, for each of the periods indicated:


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                                          Three months ended October 31,         Nine months ended October 31,
(in thousands)                                    2021                  2020            2021                  2020
Net cash used in operating activities     $         (24,529)         $   (667)   $       (36,731)         $  (1,187)
Less:
Capitalized internal-use software                    (2,939)           (1,926)            (7,962)            (4,663)
Purchases of property and equipment                 (11,566)           (1,781)           (16,596)            (6,440)
Free cash flow                            $         (39,034)         $ (4,374)   $       (61,289)         $ (12,290)



Liquidity and capital resources
In April 2021, the Company completed a follow-on offering of its Common Stock.
In connection with this offering, the Company issued and sold 5,175,000 shares
of common stock at an issuance price of $50.00 per share resulting in net
proceeds of $245.8 million, after deducting underwriting discounts and
commissions.

As of October 31, 2021 and January 31, 2021, we had cash and cash equivalents of
$400.4 million and $218.8 million, respectively. Cash and cash equivalents
consist of money market accounts and cash on deposit.
We believe that our existing cash and cash equivalents, along with our available
financial resources from our credit facility, will be sufficient to meet our
needs for at least the next 12 months. Our future capital requirements and the
adequacy of available funds will depend on many factors, including those set
forth under "Risk factors."
In the event that additional financing is required from outside sources, we may
be unable to raise the funds on acceptable terms, if at all. If we are unable to
raise additional capital when desired, our business, operating results and
financial condition could be adversely affected.
Silicon Valley Bank facility
In February 2019, we entered into a loan and security agreement with Silicon
Valley Bank ("SVB"), (the "First SVB Facility"), which provided for a secured
term loan facility and a revolving credit facility. We borrowed $20.0 million as
a term loan under the facility during fiscal 2020. On May 5, 2020, the Company
entered into a Second Amended and Restated Loan and Security Agreement with SVB
(the "Second SVB Facility") and transferred the outstanding balance on the First
SVB Facility Term Loan into revolving credit borrowings under the Second SVB
Facility.
The Company repaid the outstanding balance on the Second SVB Facility in January
2021. As of October 31, 2021, the Company has no outstanding balance on the
facility and $50.0 million of available borrowings under the facility.
Borrowings under the Second SVB Facility are payable on May 5, 2025 (the
"Maturity Date"). Borrowings under the Second SVB Facility bear interest, which
is payable monthly, at a floating rate equal to the greater of the bank's prime
rate or 4.5%. The interest rate will be reduced if the Company reaches certain
defined Second SVB Facility Adjusted EBITDA levels. As of October 31, 2021, the
interest rate on the Second SVB Facility was 4.5%. In addition to principal and
interest due under the Second SVB Facility, the Company is required to pay an
annual commitment fee of $0.1 million per year. The first facility fee payment
of $0.1 million was paid during the year ended January 31, 2021.
In the event that the Company terminates the Second SVB Facility prior to the
Maturity Date, the Company will be required to pay a termination fee equal to
$0.2 million plus a percent of total borrowing capacity, both of which are
reduced based on the amount of time elapsed before the termination.
Any Company obligations under the Second SVB Facility are secured by a first
priority security interest in substantially all of the Company's assets, other
than intellectual property. The Second SVB Facility includes a financial
covenant that requires the Company to achieve specified levels of Adjusted
EBITDA, as defined in the Second SVB Facility. This financial covenant will not
be effective if the Company maintains certain levels of liquidity as defined.
The Company was in compliance with all covenants related to the Second SVB
Facility as of October 31, 2021.


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The following table summarizes our sources and uses of cash for the nine months
ended October 31, 2021 and 2020:
                                                      Nine months ended October 31,
(in thousands)                                             2021             

2020

Cash used in operating activities              $       (36,731)                $  (1,187)
Cash used in investing activities                      (24,558)             

(11,103)

Cash provided by financing activities                  242,903              

176,093

Net increase in cash and cash equivalents      $       181,614              

$ 163,803


Operating activities
The primary source of cash from operating activities is cash received from our
customers. The primary uses of cash
for operating activities are for payroll, payments to suppliers and employees,
payments for operating leases, as well as cash paid for interest on our
borrowings and finance leases and cash paid for various sales, property and
income
taxes.
During the nine months ended October 31, 2021, cash used in operating activities
was $36.7 million, as our cash paid to employees and suppliers exceeded our cash
received from customers in connection with our normal operations.
During the nine months ended October 31, 2020 cash used in operating activities
was $1.2 million, as our cash
paid to employees and suppliers exceeded our cash received from customers in
connection with our normal operations.
Investing activities
During the nine months ended October 31, 2021, cash used in investing activities
was $24.6 million, principally resulting from capital expenditures, the majority
of which consisted of $16.6 million of purchases of property and equipment,
principally the purchase of data center equipment, as well as capitalized
internal-use software costs of $8.0 million.
During the nine months ended October 31, 2020, cash used in investing activities
was $11.1 million, principally resulting from capital expenditures for purchases
of property and equipment of $6.4 million and capitalized internal-use software
of $4.7 million.
Financing activities
During the nine months ended October 31, 2021, net cash provided by financing
activities was $242.9 million, primarily consisting of $245.8 million in
proceeds from the April 2021 offering of our common stock, net of underwriters'
discounts and commissions, and $5.2 million in proceeds from our equity
compensation plans, partially offset by $3.5 million used for treasury stock to
satisfy tax withholdings on stock compensation awards, $3.2 million used for
principal payments on finance leases, $0.9 million used for principal payments
on other debt and $0.4 million used for payments of contingent consideration for
acquisitions.
During the nine months ended October 31, 2020, net cash provided by financing
activities was $176.1 million, consisting of $174.8 million in proceeds from the
October 2020 offering of our common stock, net of underwriters' discounts and
commissions, $3.4 million in proceeds from the issuance of common stock upon the
exercise of stock options as well as $2.0 million in proceeds from an insurance
financing arrangement, partially offset by $2.0 million in finance lease and
loan facility fee payments, $0.9 million used to purchase treasury stock,
$0.3 million used for payments of net offering costs related to our offering of
common stock and $0.1 million used for third-party debt issuance costs.



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Contractual obligations and commitments

Our principal commitments consist of finance lease and operating lease
obligations, as well as debt obligations, interest on debt and purchase
obligations. During the nine months ended October 31, 2021, our finance lease
obligations decreased by $0.5 million due to $3.2 million of principal payments
offset by $2.6 million of new finance leases. Our debt obligations decreased due
to $0.9 million of principal payments.
                                                          Payments due by period
                                                Less than                                       More than
(in thousands)                     Total          1 year        1-3 years       4-5 years        5 years
Finance lease obligations        $  9,631      $    1,172      $    7,510      $      949      $       -
Operating lease obligations         2,320             289           1,979              52              -
Long-term debt obligations            504             243             261               -              -
Interest on long-term debt             16               2              14               -              -
Purchase obligations                  461             461               -               -              -
Total                            $ 12,932      $    2,167      $    9,764      $    1,001      $       -



Critical accounting policies and estimates
Our unaudited consolidated financial statements are prepared in accordance with
GAAP and applicable rules and regulations of the SEC regarding interim financial
reporting. The preparation of our unaudited consolidated financial statements
and related disclosures requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, costs and expenses, and the
disclosure of contingent assets and liabilities in our financial statements. We
base our estimates on historical experience, known trends and events, and
various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. We evaluate our estimates and assumptions on an ongoing basis. Our
actual results may differ from these estimates under different assumptions or
conditions.
There have been no significant changes in our critical accounting policies and
estimates during the nine months ended October 31, 2021 as compared to the
critical accounting policies and estimates described in our Annual Report on
Form 10-K for the fiscal year ended January 31, 2021.
Recent accounting pronouncements
See Note 3 to our unaudited financial statements included in Part I, Item 1 of
this Quarterly Report on Form 10-Q for a discussion of recent accounting
pronouncements.
Off-balance sheet arrangements
As of October 31, 2021 and January 31, 2021, we did not have any relationships
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or variable interest entities, which would
have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.


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