pgny_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________ to ___________________

 

Commission File Number: 001-39100


Progyny, Inc.

(Exact name of registrant as specified in its charter)


 

 

Delaware

27-2220139

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

245 5th Avenue

New York, New York

10016

(Address of principal executive offices)

(Zip Code)

 

(212) 888-3124

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,

$0.0001 par value per share

PGNY

The Nasdaq Global Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of November 29, 2019, the registrant had 84,046,372 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 

Table of Contents

Table of Contents

 

 

 

 

 

 

Page

PART I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

4

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018

5

 

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2019 and 2018

6

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4. 

Controls and Procedures

43

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

44

Item 1A. 

Risk Factors

44

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 3. 

Defaults Upon Senior Securities

73

Item 4. 

Mine Safety Disclosures

73

Item 5. 

Other Information

73

Item 6. 

Exhibits

73

 

Signatures

75

 

 

 

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 

This Quarterly Report contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the “Securities Act”, and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our future results of operations and financial position, our ability to acquire or invest in complementary businesses, products, and technologies, our ability to achieve profitability on an annual basis and sustain such profitability, the sufficiency of our cash and cash equivalents, anticipated sources and uses of cash, our business strategy and our ability to acquire new clients and successfully engage new and existing clients, our ability to effectively manage our growth and compete effectively with existing competitors and new market entrants, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

3

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Progyny, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

2019

 

2018

 

 

 

 

 

 

ASSETS

 

 

  

 

 

  

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,664

 

$

127

Accounts receivable, net of $7,582 and $3,486 of allowances at September 30, 2019 and December 31, 2018, respectively

 

 

44,337

 

 

23,325

Prepaid expenses and other current assets

 

 

1,337

 

 

885

Assets of discontinued operations, current

 

 

 —

 

 

200

Total current assets

 

 

53,338

 

 

24,537

Property and equipment, net

 

 

973

 

 

776

Goodwill

 

 

11,880

 

 

11,880

Intangible assets, net

 

 

2,746

 

 

3,859

Other assets

 

 

3,614

 

 

272

Total assets

 

$

72,551

 

$

41,324

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

23,485

 

$

15,578

Accrued expenses and other current liabilities

 

 

17,071

 

 

9,782

Convertible preferred stock warrant liabilities

 

 

17,008

 

 

4,589

Short term debt

 

 

 —

 

 

253

Total current liabilities

 

 

57,564

 

 

30,202

Total liabilities

 

 

57,564

 

 

30,202

Commitments and Contingencies (Note 8)

 

 

  

 

 

  

Convertible preferred stock, $0.0001 par value; 314,930,070 shares authorized as of September 30, 2019 and December 31, 2018; 65,428,088 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively; aggregate liquidation preference of $106,369 as of September 30, 2019 and December 31, 2018, respectively

 

 

106,237

 

 

106,237

STOCKHOLDERS' DEFICIT

 

 

  

 

 

  

Common stock, $0.0001 par value; 443,500,000 shares authorized at September 30, 2019 and 441,000,000 at December 31, 2018; 10,046,705 and 5,155,407 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

 1

 

 

 1

Additional paid-in capital

 

 

18,838

 

 

10,622

Treasury stock, at cost , $0.0001 par value; 615,980 shares outstanding at September 30, 2019 and 589,320 at December 31, 2018

 

 

(1,008)

 

 

(884)

Accumulated deficit

 

 

(109,081)

 

 

(104,854)

Total stockholders’ deficit

 

 

(91,250)

 

 

(95,115)

Total liabilities, convertible preferred stock, and stockholders’ deficit

 

$

72,551

 

$

41,324

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Table of Contents

Progyny, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30, 

 

September 30, 

 

    

2019

    

2018

    

2019

    

2018

Revenue

 

$

61,196

 

$

27,798

 

$

164,561

 

$

76,213

Cost of services

 

 

48,876

  

 

22,751

  

 

130,825

  

 

62,194

Gross profit

 

 

12,320

  

 

5,047

  

 

33,736

  

 

14,019

Operating expenses:

 

 

 

  

 

 

  

 

 

  

 

 

Sales and marketing

 

 

3,183

  

 

1,648

  

 

8,646

  

 

5,142

General and administrative

 

 

6,068

  

 

3,986

  

 

16,557

  

 

11,626

Total operating expenses

 

 

9,251

  

 

5,634

  

 

25,203

  

 

16,768

Income (loss) from continuing operations

 

 

3,069

  

 

(587)

  

 

8,533

  

 

(2,749)

Other expense:

 

 

 

  

 

 

  

 

 

  

 

 

Interest expense, net

 

 

(28)

  

 

(27)

  

 

(194)

  

 

(459)

Convertible preferred stock warrant valuation adjustment

 

 

(11,226)

  

 

(918)

  

 

(12,419)

  

 

(1,561)

Total other expense, net

 

 

(11,254)

  

 

(945)

  

 

(12,613)

  

 

(2,020)

Loss from continuing operations, before tax

 

 

(8,185)

  

 

(1,532)

  

 

(4,080)

  

 

(4,769)

Benefit (provision) for income taxes

 

 

(25)

  

 

395

  

 

(89)

  

 

1,230

Net loss from continuing operations

 

$

(8,210)

 

$

(1,137)

 

$

(4,169)

 

$

(3,539)

Net income from discontinued operations, net of taxes

 

$

 —

 

$

 1

 

$

 —

 

$

5,725

Net loss and comprehensive (loss) income

 

$

(8,210)

 

$

(1,136)

 

$

(4,169)

 

$

2,186

Net loss attributable to common stockholders

 

$

(8,210)

 

$

(1,137)

 

$

(4,169)

 

$

(3,962)

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

 

 

 

  

 

 

  

 

 

  

 

 

Basic and Diluted

 

 

 

  

 

 

  

 

 

  

 

 

Continuing operations

 

$

(1.10)

 

$

(0.20)

 

$

(0.70)

 

$

(0.70)

Discontinued operations

 

 

 —

  

 

 —

  

 

 —

  

 

1.02

Total net (loss) earnings per share attributable to common stockholders basic and diluted

 

$

(1.10)

 

$

(0.20)

 

$

(0.70)

 

$

0.32

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

 

 

 

  

 

 

  

 

 

  

 

 

Basic and Diluted

 

 

7,472,469

  

 

5,627,656

  

 

5,947,821

  

 

5,669,913

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5

Table of Contents

Progyny, Inc.

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit

(Unaudited)

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional 

 

 

 

 

 

 

 

 

 

Convertible Preferred Stock

 

 

Common Stock

 

Treasury

 

Paid in

 

 

Accumulated 

 

 

 

 

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Stock

 

Capital

    

    

Deficit

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

65,428,088

 

$

106,237

 

 

5,187,474

 

$

 1

 

$

(884)

 

$

12,182

 

 

$

(100,813)

 

$

(89,514)

Repurchase of Common Stock

 

 —

 

 

 —

 

 

(26,659)

 

 

 —

 

 

(124)

 

 

 —

 

 

 

(58)

 

 

(182)

Stock option exercise

 

 —

 

 

 —

 

 

4,885,890

 

 

 —

 

 

 —

 

 

4,976

 

 

 

 —

 

 

4,976

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,680

 

 

 

 —

 

 

1,680

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

(8,210)

 

 

(8,210)

Balance at September 30, 2019

 

65,428,088

 

$

106,237

 

 

10,046,705

 

$

 1

 

$

(1,008)

 

$

18,838

 

 

$

(109,081)

 

$

(91,250)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

65,428,088

 

$

106,237

 

 

5,694,895

 

$

 1

 

$

 —

 

$

9,075

 

 

$

(101,872)

 

$

(92,796)

Repurchase of Common Stock

 

 —

 

 

 —

 

 

(589,321)

 

 

 —

 

 

(884)

 

 

 —

 

 

 

(321)

 

 

(1,205)

Stock option exercise

 

 —

 

 

 —

 

 

29,207

 

 

 —

 

 

 —

 

 

39

 

 

 

 —

 

 

39

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

796

 

 

 

 —

 

 

796

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

(1,136)

 

 

(1,136)

Balance at September 30, 2018

 

65,428,088

 

$

106,237

 

 

5,134,781

 

$

 1

 

$

(884)

 

$

9,910

 

 

$

(103,329)

 

$

(94,302)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 —

 

 

(124)

 

 

 —

 

 

 

(58)

 

 

(182)

Stock option exercise

 

 —

 

 

 —

 

 

4,917,957

 

 

 —

 

 

 —

 

 

5,007

 

 

 

 —

 

 

5,007

Stock-based compensation

 

 —

 

 

 —

 

 

  

 

 

 —

 

 

 —

 

 

3,209

 

 

 

 —

 

 

3,209

Net loss

 

 —

 

 

 —

 

 

  

 

 

 —

 

 

 —

 

 

 —

 

 

 

(4,169)

 

 

(4,169)

Balance at September 30, 2019

 

65,428,088

 

$

106,237

 

 

10,046,705

 

$

 1

 

$

(1,008)

 

$

18,838

 

 

$

(109,081)

 

$

(91,250)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

66,630,284

 

$

108,312

 

 

5,690,083

 

$

 1

 

$

 —

 

$

6,933

 

 

$

(104,556)

 

$

(97,622)

Repurchase of Preferred Stock

 

(1,202,196)

 

 

(2,075)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

(425)

 

 

(425)

Repurchase of Common Stock

 

 —

 

 

 —

 

 

(589,320)

 

 

 —

 

 

(884)

 

 

 —

 

 

 

(321)

 

 

(1,205)

Non-cash contribution

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

414

 

 

 

 —

 

 

414

Stock option exercise

 

 —

 

 

 —

 

 

34,018

 

 

 —

 

 

 —

 

 

46

 

 

 

 —

 

 

46

Impact of adoption of 2016‑09

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

213

 

 

 

(213)

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,304

 

 

 

 —

 

 

2,304

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

2,186

 

 

2,186

Balance at September 30, 2018

 

65,428,088

 

$

106,237

 

 

5,134,781

 

$

 1

 

$

(884)

 

$

9,910

 

 

$

(103,329)

 

$

(94,302)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

6

Table of Contents

 

Progyny, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

OPERATING ACTIVITIES

 

 

 

  

 

  

Net (loss) income

 

$

(4,169)

 

$

2,186

Less: Income from discontinued operations, net of income tax

 

 

 —

  

 

(5,725)

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

 

 

 

  

 

  

Deferred tax expense (benefit)

 

 

89

  

 

(1,230)

Loss on debt extinguishment

 

 

 —

  

 

88

Depreciation and amortization

 

 

1,594

  

 

1,395

Stock-based compensation expense

 

 

3,209

  

 

2,304

Bad debt expense

 

 

1,332

  

 

775

Loss on disposal of property and equipment

 

 

1

  

 

 —

Accretion of debt discount and debt issuance costs

 

 

 —

  

 

75

Change in fair value of warrant liabilities

 

 

12,419

  

 

1,561

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(22,344)

  

 

(15,340)

Prepaid expenses and current other assets

 

 

(452)

  

 

(322)

Other assets

 

 

(667)

  

 

89

Accounts payable

 

 

6,824

  

 

7,892

Accrued expenses and other current liabilities

 

 

6,119

  

 

4,428

Net cash provided by (used in) continuing operations

 

 

3,955

  

 

(1,824)

Net cash provided by (used in) discontinued operations

 

 

 —

  

 

 —

Net cash provided by (used in) operating activities

 

 

3,955

  

 

(1,824)

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

  

 

  

Purchase of property and equipment, net

 

 

(678)

  

 

(401)

Net cash provided by (used in) continuing operations

 

 

(678)

  

 

(401)

Net cash provided by (used in) discontinued operations

 

 

200

  

 

2,428

Net cash provided by (used in) investing activities

 

 

(478)

  

 

2,027

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

  

 

  

Payment of deferred initial public offering costs

 

 

(512)

  

 

 —

Repayment of term loan

 

 

 —

  

 

(5,351)

Proceeds from revolving line of credit

 

 

157,850

  

 

35,003

Repayments made against revolving line of credit

 

 

(158,103)

  

 

(30,715)

Repurchase of convertible preferred stock

 

 

 —

 

 

(2,500)

Repurchase of common stock

 

 

(182)

 

 

(1,205)

Exercise of stock options

 

 

5,007

  

 

46

Net cash provided by (used in) continuing operations

 

 

4,060

  

 

(4,722)

Net cash provided by (used in) discontinued operations

 

 

 —

 

 

 —

Net cash provided by (used in) financing activities

 

 

4,060

  

 

(4,722)

Net increase (decrease) in cash and cash equivalents

 

 

7,537

  

 

(4,519)

Cash and cash equivalents, beginning of year

 

 

127

  

 

4,691

Cash and cash equivalents, end of year

 

$

7,664

 

$

172

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

  

 

 

Cash paid for interest

 

$

176

 

$

450

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

  

 

 

Non-cash settlement of liability

 

$

 —

 

$

414

Non-cash liability forgiveness related to divestiture

 

$

 —

 

$

4,869

Non-cash deferred initial public offering costs in accounts payable and accrued liabilities

 

$

2,308

 

$

 —

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

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Progyny, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.           Business and Basis of Presentation

Description of Business

Progyny, Inc. (referred to as “Progyny” or the “Company”) was incorporated in the state of Delaware on April 3, 2008, and maintains its corporate headquarters in New York, NY. Prior to its 2015 acquisition of Fertility Authority, LLC, the Company was exclusively a medical device company in the field of reproductive medicine, translating scientific discoveries related to early embryo development into clinical tools. The Company’s product, the Early Embryo Viability Assessment Test (“Eeva”), was designed to assist clinicians and patients in assessing the likelihood of certain in vitro fertilization (“IVF”) outcomes.

With the acquisition of Fertility Authority, LLC in March 2015, the Company established and operated as two segments (i) the medical device business and (ii) the fertility benefits solution.   In January 2018, the Company executed an agreement with a related party to sell the Eeva business, representing all of the medical device segment.

Subsequent to the sale of the Eeva business, 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.

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 approximately $77.7 million from the IPO, after deducting underwriters’ discounts and commissions of $5.9 million and offering costs of $3.5 million. Deferred offering costs are capitalized and consist 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 deferred 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.

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As of September 30, 2019, $2.7 million of deferred offering costs were recorded as other assets on the consolidated balance sheet.  There were no deferred offering costs capitalized as of December 31, 2018.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the Company’s consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The Company will remain an emerging growth company until the earliest of (1) December 31, 2024; (2) the last day of the Company’s first fiscal year in which the Company has total annual gross revenue of at least $1.07 billion; (3) the date on which the Company has issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the Company’s first fiscal year in which the market value of the Company’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th

Basis of Presentation 

Certain information and note disclosures included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial reporting. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes included in the final prospectus for our IPO filed with the SEC on October 25, 2019 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (File No. 333-233965).

The condensed consolidated financial statements and accompanying notes include the accounts of Company and its wholly owned subsidiary, Fertility Authority LLC.   Effective June 2018, the Company legally dissolved the Fertility Authority LLC legal entity.  All intercompany balances and transactions have been eliminated.

The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP. The accompanying interim condensed consolidated balance sheets as of September 30, 2019, the interim condensed consolidated statements of operations and comprehensive income (loss) and the interim condensed consolidated statements of convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2019 and 2018, and the interim condensed consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018 are unaudited. These interim condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, include all adjustments necessary to fairly state our financial position as of September 30, 2019, the results of our operations for the three and nine months ended September 30, 2019 and 2018 and the results of our cash flows for the nine months ended September 30, 2019 and 2018. The financial data and other financial information disclosure in the notes to these interim condensed consolidated financial statements related to the three and nine months periods are also unaudited. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the operating results expected for the year ending December 31, 2019 or any other future period.

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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. Specific accounts that require management estimates include accrued receivables, accrued claims payable, allowance for doubtful accounts, accrued rebates, convertible preferred stock warrant liabilities and stock-based compensation. 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.

Reverse Stock Split

On October 14, 2019, Progyny’s stockholders approved and the Company effected 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.  

2.           Significant Accounting Policies

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 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.

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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 the fertility benefits solution ratably over the contract term. Progyny’s estimate of service level agreement refunds, have not historically resulted in significant adjustments to the transaction price.

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

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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 pharmacy. 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 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 same time, cost of services and accrued claims payables are estimated based on the amount to be paid to the provider clinic and historical gross margin achieved on fertility benefit services. Estimates are adjusted to actual at the time of billing. Adjustments to original estimates have not been material.

As of September 30, 2019, accrued receivables and accrued claims payables were $17.3 million and $11.6 million, respectively as compared to $9.5 million and $6.7 million, respectively as of December 31, 2018.  Accrued receivables are included within accounts receivable in the consolidated balance sheet.  Accrued claims payable are included within accrued expenses and other current liabilities in the consolidated balance sheet.  Claims payable are paid within 30 days based on contractual terms.

As of September 30, 2019 and December 31, 2018, unbilled receivables, which represent claims received and approved but unbilled at the end of the reporting period, were $9.2 million and $3.6 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.

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Accounts Receivable and Allowance for Doubtful Accounts 

The accounts receivable balance primarily includes amounts due from clients and members.  Accounts receivable also includes certain accrued receivables for fertility benefits claims from provider clinics at the end of each period for services provided that have not yet been received. The Company estimates an allowance for changes  and cancellations of services based upon historical experience and estimates member uncollectible amounts based upon historical bad debts, current member receivable balances and the age of member receivable balances.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019 and Year Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

Balance at
Beginning
of Period

 

Charged
to Revenue

 

Charged
to Costs
and Expenses

 

Write-offs

 

Utilization

 

Balance
at End
of Period

Allowance for doubtful accounts

  

$

1,175

  

$

 -

  

$

1,331

  

$

 -

  

$

 -

  

$

2,506

Allowance for service changes and cancellations

 

 

2,311

 

 

6,536

 

 

 -

 

 

 -

 

 

(3,772)

 

 

5,075

 

 

 

3,486

 

 

6,536

 

 

1,331

 

 

 -

 

 

(3,772)

 

 

7,581

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

590

 

$

 -

 

$

824

 

$

(239)

 

$

 -

 

$

1,175

Allowance for service changes and cancellations

 

 

500

 

 

3,414

 

 

 -

 

 

 -

 

 

(1,603)

 

 

2,311

 

 

 

1,090

 

 

3,414

 

 

824

 

 

(239)

 

 

(1,603)

 

 

3,486

 

Cost of Services

Fertility Benefit Services

Fertility benefit services costs include: (1) fees paid to provider clinics within our network, labs and anesthesiologists; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions: Provider Account Management, PCA and Provider Relations teams; and (3) related information technology support costs.  Our contracts with provider clinics are typically for a term of one to two years.

Pharmacy Benefit Services

Pharmacy benefit services costs include: (1) the fees for prescription drugs dispensed and clinical services provided during the reporting period by our specialty pharmacy partners; (2) costs incurred (including salaries, bonuses, benefits, stock-based compensation, other related costs, and an allocation of our general overhead, depreciation and amortization) for those employees associated with our care management service functions:  PCA and Provider Relations 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 pharmacy, net of any volume-related or other discounts.

Vendor rebates

The Company receives a rebate on formulations purchased and dispensed by the Company’s specialty pharmacy. The Company’s contractual arrangements with pharmaceutical manufacturers provide for the Company to receive a discount (or rebate) from established list prices paid subsequent to dispensing when products are purchased indirectly from a pharmaceutical manufacturer (e.g., through a specialty pharmacy.) These rebates are recognized

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as a reduction of Cost of services when prescriptions are dispensed and are generally estimated and billed to manufacturers within 15 days of the end of each month. The 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 and accounts receivable.

The Company invests its cash and cash equivalents with highly rated financial institutions and management believes that the financial risks associated with its cash equivalents are minimal. 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 accounts receivable, including consideration of factors such as the age of the receivable balance. Two customers accounted for 16% and 15% each, or 31% total receivables, as of September 30, 2019. Three customers accounted for 25%, 13% and 10% each, or 48% of total accounts receivables as of December 31, 2018. To manage credit risk related to accounts receivable, the Company evaluates customers’ financial condition and collateral is generally not required.

Net Income (Loss) per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The Company adjusts its net income (loss) attributable to common stockholders to reflect the impact of deemed dividends recorded for convertible preferred stock during the period.

The Company’s convertible preferred stock was entitled to receive noncumulative dividends, prior and in preference to any declaration or payment of any dividend on common stock and thereafter participate pro rata on an as-converted basis with the common stockholders in any distributions to common stockholders and were therefore considered to be participating securities. As a result, the Company calculated the net income (loss) per share using the two-class method. Accordingly, the net income (loss) attributable to common stockholders is derived from the net income (loss) for the period and, in periods in which the Company has net income attributable to common stockholders, an adjustment is made for the allocations of undistributed earnings to participating securities based on their outstanding stockholder rights. Under the two-class method, the net loss attributable to common stockholders is not allocated to the convertible preferred stock as the convertible preferred stockholders did not have a contractual obligation to share in the Company’s losses.

Diluted net income (loss) attributable to common stockholders is computed by adjusting income (loss) attributable to common stockholders to allocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options, convertible preferred stock, convertible preferred stock warrants, and common stock warrants. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including common stock equivalents. In periods when the Company has incurred a net loss, convertible preferred stock, options to purchase common stock, convertible preferred stock warrants, and common stock warrants are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect is antidilutive.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies

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under U.S. GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance required that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this standard on January 1, 2019 using the full retrospective approach. The adoption of the new standard had an immaterial impact on the consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, requiring companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. The Company prospectively adopted this guidance effective January 1, 2018, which did not have a significant effect on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (‘‘ASC 718’’):  Improvements to Employee Share-Based Payment Accounting, which changes the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The Company adopted this standard on a prospective basis as of January 1, 2018, which resulted in a transition adjustment of $213,000, recorded through Accumulated deficit. The adoption had no other effect on the net deferred tax balances, the consolidated statement of cash flows or otherwise on its consolidated financial statements.

In September 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (‘‘ASC 230’’): Classification of Certain Cash Receipts and Cash Payments (a consensus  of  the  Emerging  Issues  Task Force), which changes how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company adopted this guidance effective January 1, 2018, which did not have a significant effect on the Company’s consolidated financial statements.

In January 2017, the FASB  issued ASU No. 2017-04, Intangibles—Goodwill and Other: Simplifying  the Test for Goodwill Impairment, to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The new standard requires goodwill impairment to be based upon the results of Step 1 of the goodwill impairment test, which evaluates the extent, if any, by which the carrying value of a reporting unit exceeds its fair value, with any resulting impairment not exceeding the carrying amount of goodwill. The Company early adopted ASU 2017-04 on a prospective basis effective January 1, 2018. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the definition of a business. The new standard clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The Company adopted this guidance effective January 1, 2019, which did not have a significant effect on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under ASC 718. An entity should account for the effects of a modification unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The Company adopted the

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guidance effective January 1, 2018. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (ASC 740), to conform to SEC  Staff Accounting Bulletin No. 118 (“SAB 118”). The standard was issued to allow registrants to record provisional amounts during a measurement period not to extend beyond one year from the enactment date in instances when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (the ‘‘Tax Reform Act’’). The standard was effective upon issuance. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting, which changes the accounting for share-based payment transactions with nonemployees. For private companies the new standard is effective for fiscal years beginning after December 15, 2019, and for interim periods therein. The Company adopted this guidance effective January 1, 2019. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016‑02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. On July 17, 2019, the FASB voted to propose a deferral of the effective date of the standard to fiscal years beginning after December 15, 2020. The Company plans to adopt this standard as of the effective date for private companies using the modified retrospective approach of all leases entered into before the effective date. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

In August 2018, the FASB issued final guidance requiring a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance in (ASC 350-402) Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40) to determine which implementation costs to capitalize as assets. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019. Early adoption of the amendments is permitted, including adoption in any interim period, for all entities and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently reviewing its cloud computing arrangements to evaluate the impact of adoption of the final guidance but does not expect that the pending adoption of this ASU will have a material effect on its consolidated financial statements.

 

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