ACCOLADE, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

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The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q and our audited consolidated financial statements
and the related notes and the discussion under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
the fiscal year ended February 28, 2022 included in the Annual Report on Form
10-K. Our fiscal year ends on the last day of February, and our fiscal quarters
end on May 31, August 31, November 30, and the last day of February.

This discussion, particularly information with respect to our future results of
operations or financial condition, business strategy and plans and objectives of
management for future operations, includes forward-looking statements that
involve risks and uncertainties as described under the heading "Special Note
Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You
should review the disclosure under the heading "Risk Factors" in this Quarterly
Report on Form 10-Q for a discussion of important factors that could cause our
actual results to differ materially from those anticipated in these
forward-looking statements.

Overview


We provide personalized, technology-enabled solutions that help people better
understand, navigate, and utilize the healthcare system and their workplace
benefits. Our customers are primarily employers that deploy Accolade solutions
in order to provide employees and their families (our "members") a single place
to turn for their health, healthcare, and benefits needs. We also offer expert
medical opinion services to employer customers and virtual primary care and
mental health support, both directly to consumers and to employer customers. Our
innovative platform combines open, cloud-based intelligent technology with
multimodal support from a team of empathetic and knowledgeable Accolade Health
Assistants and clinicians, including registered nurses, physician medical
directors, pharmacists, behavioral health specialists, women's health
specialists, case management specialists, expert medical opinion providers, and
virtual primary care physicians. We leverage our integrated capabilities,
connectivity with providers and the broader healthcare ecosystem, and
longitudinal data to engage across the entire member population, rather than
focusing solely on high-cost claimants or those with chronic conditions. Our
goal is to build trusted relationships with our members that ultimately position
us to deliver personalized recommendations and interventions. We believe that
our platform dramatically improves the member experience, encourages better
health outcomes, and lowers costs for both our members and our customers.

Accolade Total Health and Benefits has historically been our most comprehensive
offering and most closely aligns to our "Premier" solution on which the company
was founded and from which the majority of our revenues are derived today. Our
technology platform enabled us to unbundle aspects of this comprehensive
offering to create two additional standalone offerings: Accolade Total Benefits
(focused on member benefits engagement) and Accolade Total Care (focused on
guiding members to high-quality, cost-effective providers). Following our
acquisition of 2nd.MD in March 2021, we began offering customers expert medical
consultation (primarily for high-complexity, high-cost conditions) as a
standalone service as well as a capability that can be incorporated into other
core offerings. Following our acquisition of PlushCare in June 2021, we began
offering virtual primary care and mental health services directly to consumers
and commercial customers. We have further leveraged our technology platform to
develop add-on offerings and to integrate acquired solutions that target
specific challenges faced by our customers.

In September 2021, we announced new solutions and new naming for the solutions
described above. The new solutions - Accolade One and Accolade Care - combine
the capabilities of Accolade's historical navigation and advocacy solutions with
our acquired primary care, mental health, and expert medical opinion services,
augmented by artificial intelligence, machine learning, and data-driven
recommendations. The new solutions are in their early stages of implementation.
Additionally, we announced new solution bundles incorporating all of our
existing solutions to reflect the evolution and maturation of our offering
portfolio. With these changes, our current offerings include:

Accolade Expert MD – Expert medical consultations that connect patients to

 ? highly qualified condition-specific specialists for both adult and pediatric
   care


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? Accolade Care – Integrated primary care and mental health support

Core and Plus – A benefits navigation and care solution designed to work with

our customers’ existing benefits ecosystem, incorporating elements of all

Accolade solutions including Advocacy, Accolade Expert MD, Accolade Care, and

? the Accolade partner ecosystem. Different offering configurations may also

include member services, provider services, and an expanded set of clinical

programs that address case and disease management to maximize member engagement

and return on investment

Accolade One – A value-based option that includes all of the Accolade solutions

? and the Accolade partner ecosystem with a pricing structure that includes a

higher portion of revenues associated with outcomes-based measures

We were founded in 2007 and launched our initial offering in 2009. We have seen
significant growth in recent years since the changes to our executive management
team in 2015 and the subsequent investments we have made in product, technology,
sales, and distribution. As of February 28, 2022, we had over 600 employer
customers comprising more than 10 million members. Our customers represent a
diversified set of industries, including media, technology, financial services,
transportation, energy, and retail. Additionally, as of February 28, 2022, we
had more than 100,000 consumers subscribed to virtual primary care services
through our PlushCare solution.

For the three months ended November 30, 2022, our total revenue was $90.9
million, representing 9% year-over-year growth compared to total revenue of
$83.5 million for the three months ended November 30, 2021. For the nine months
ended November 30, 2022, our total revenue was $264.1 million, representing 22%
year-over-year growth compared to total revenue of $216.3 million for the nine
months ended November 30, 2022. For the three months ended November 30, 2022 and
2021, our net income (loss) was $(39.9) million and $22.5 million, respectively.
For the nine months ended November 30, 2022 and 2021, our net income (loss) was
$(429.2) million and $(88.6) million, respectively. Net loss for the nine months
ended November 30, 2022 included a goodwill impairment charge of $299.7 million.

Our Business Model


We provide our solutions primarily to employers that deploy Accolade offerings
to our members and to consumers who directly purchase our PlushCare virtual
primary care services. We earn revenue from providing personalized health
guidance solutions, expert medical opinion services, virtual primary care
services, and mental health support to the members of our employer customers'
health plans and to members of fully insured plans offered via health insurance
companies. Our advocacy solutions are priced based on a recurring
per-member-per-month (PMPM) fee, typically consisting of both a base fee and a
performance-based fee component. As a result, generally, a portion of our
potential revenue is variable, subject to our achievement of performance metrics
and the realization of savings in healthcare spend by our customers resulting
from the utilization of our solutions. We typically achieve a substantial
portion of the contractual performance metrics and realization in savings of
healthcare spend. We also provide expert medical opinion services, which are
typically charged on a PMPM or case rate basis, and virtual primary care and
mental health support, which are typically priced on a fee per visit basis for
consumers and a visit fee basis or PMPM plus visit fee basis for employer
customers.

The primary cost of delivering our service includes the personnel costs of
Accolade Health Assistants and clinicians, including registered nurses,
physician medical directors, pharmacists, behavioral health specialists, women's
health specialists, case management specialists, expert medical opinion
providers and virtual primary care physicians, as well as software and tools for
telephony, workforce management, business analytics, allocated overhead costs,
and other expenses related to delivery and implementation of our solutions. As
we support more customers with an increasing number of members over time, we
expect that our support costs per member will decline due to economies of scale
and improved operational efficiencies driven by continued enhancements of our
technology platform and capabilities. We have experienced and expect to continue
to achieve operational efficiencies realized from continued enhancements of our
technology platform and capabilities.

We employ a multipronged go-to-market strategy to increase adoption of our
solutions to new and existing customers. We principally sell our solutions
through our direct salesforce which is stratified by account size (i.e.,
strategic


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(more than 35,000 employees), enterprise (5,000 to 35,000 employees), and
mid-market (500 to 5,000 employees)), region, and existing versus prospective
customer. Our sales team possesses deep domain expertise in health benefits
management and brings substantial experience selling to key decision makers
within our current and prospective customer organizations (human resource
officers, CFOs, benefits executives, consultants, and brokers). We believe the
effectiveness of our sales organization is evidenced by growing adoption of our
platform by large strategic customers, recent traction with enterprise and
mid-market customers and demonstrated demand for add-on offerings from existing
customers.

We have chosen to invest significantly in growing our customer base, and plan to
continue both adding new customers and expanding our relationships with existing
customers, which we believe will allow us to increase margins over time. When a
customer renews their contract or purchases additional solutions or
enhancements, the value realized from that customer increases because we
generally do not incur significant incremental acquisition or implementation
costs for the renewal or expansion. We believe that as our customer base grows
and a higher percentage of our revenue is attributable to renewals and upsells
or cross-sells to existing customers, relative to acquisition of new customers,
associated sales and marketing expenses and other upfront costs will decrease as
a percentage of revenue.

In addition, we have strategically curated our offering portfolio to ensure we
have a compelling value proposition at an appropriate price point that resonates
with each identified customer segment. Based on our experience, the opportunity
to cross-sell is meaningfully enhanced once a customer has been on-boarded onto
our platform and has benefited from a measurable and compelling return on their
investment. Our customer success team provides strategic insights, point
solution recommendations, and day-to-day account support to our customers. They
are focused on existing customer retention, cross-sell, and upsell.

We maintain relationships with a range of third parties, including brokers,
agents, benefits consultants, carriers, third-party administrators, trusted
suppliers, and co-marketing and co-selling partners. These third parties provide
an important source of referrals for our sales organization. We also selectively
form strategic alliances to further drive customer acquisition and adoption of
our solutions. We believe the breadth of our go-to-market and distribution
strategy enables us to reach customers of nearly every size and across markets.

We have demonstrated a consistent track record of product and technology
innovation over time as evidenced by continuous improvement of our platform and
new offerings. This innovation is driven by feedback we receive from our
customers, industry experts, and the market generally. Our technology platform
has enabled us to unbundle aspects of our core navigation capability to create
various offerings for our customers, while integrating capabilities from our
recent acquisitions to deliver our Personalized Healthcare solution that
combines our core navigation with expert medical consultations and virtual
primary care and mental health support. Our investments in product and
technology have been focused on increasing the value we provide via our
personalized member health guidance solutions and expanding the market segments
we can serve with a portfolio of offerings and associated price points.

COVID-19 Update


COVID-19 has created uncertainty for Accolade's employees, members, and
customers. We consider the impact of the pandemic on our business by evaluating
the health of our operations, any changes to our revenue outlook, and the degree
to which perceptions of and interest in Accolade solutions have evolved during
this unprecedented time. We measure our performance through several key metrics,
including but not limited to customer satisfaction, member engagement, and
health assistant availability. As gauged by these core performance metrics,
service levels have been high, and member engagement and satisfaction have
remained strong. To ensure we could address our members' many COVID-19-related
concerns, our operations and clinical leaders trained our frontline teams on
evidence-based guidelines and continue to equip them with relevant resources to
help them ably serve under these exceptional circumstances.

While the COVID-19 pandemic has not had a material adverse impact on our
financial condition and results of operations to date, the future impact of the
ongoing COVID-19 pandemic on our operational and financial performance will
depend on certain developments, including the duration and spread of the
outbreak, impact on our customers and our sales cycles, impact on our marketing
efforts, and any decreases of workforce or benefits spending by our customers,
all of which are uncertain and cannot be predicted. We have a diverse set of
customers across a variety of industries. We may experience increased member
attrition to the extent our existing customers reduce their respective
workforces in response

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to changes in economic conditions. Any layoffs or reductions in employee
headcounts by our employer customers would result in a reduction in our base and
variable PMPM fees. When customer headcount reductions occur, we may not
experience the impact of changes to our customers' headcounts immediately
because employees that are on furlough or are receiving continued health
coverage pursuant to COBRA may still have access to our services during such
periods and would be included in our member count.

We believe our value proposition now resonates with an even broader audience of
employers as they turn their focus to safely reopening their workplaces and
managing the ongoing health and well-being of employees and their families. To
directly address the former, we developed Accolade COVID Response Care, a
solution that allows employers of all sizes to leverage Accolade's platform to
support employee education, testing, care plans, contact tracing, and
return-to-work clearance. On the latter, we believe that the current disruptions
to traditional care consumption have reinforced the need for navigation
services, and that projected increases in healthcare costs (due to some
combination of COVID-19-related testing and care, complications stemming from
neglected non-COVID conditions, pent-up demand for elective services, and strain
on individuals' mental health) prompt the need for solutions such as ours that
bend the cost curve, and improve health outcomes, by driving good utilization up
and wasteful utilization down.

Factors Affecting Our Performance


The following factors have been important to our business and we expect them to
impact our business, results of operations, and financial condition in future
periods:

Growth and Retention of Our Customer Base

We believe there is a substantial opportunity to further grow our customer base
in our large and under-penetrated market through our sales and marketing
strategy. Across our existing customer base and as we acquire new customers, we
intend to expand and deepen these relationships. As we build trust through our
proven model, we seek to cross-sell our Accolade ExpertMD and Accolade Care
solutions as well as Accolade partner ecosystem programs. We plan to continue to
invest in sales and marketing in order to grow our customer base and increase
sales to existing customers. Any investments we make in our sales and marketing
organization will occur in advance of experiencing any benefits from such
investments, so it may be difficult for us to determine if we are efficiently
allocating our resources in these areas.

Adoption of Current and Future Solutions


We are constantly innovating to enhance our model and develop new offerings. Our
ability to act as a trusted advisor to our members and customers positions us to
identify new opportunities for additional offerings that can meet their existing
and emerging needs. Our open technology platform also allows us to efficiently
add and integrate new offerings and applications on top of our existing
technology stack that target specific challenges faced by our customers. Our
open technology platform is instrumental for integration of the capabilities
acquired through our acquisitions of 2nd.MD and PlushCare. We believe that as we
expand our customer base and enter into new markets, we will be adept at
identifying and deploying innovative new solutions whether developed internally
or through acquisitions. In September 2021, we announced two new solutions -
Accolade One and Accolade Care - that combine some or all of the elements of
Accolade's historical solutions and the acquired capabilities from 2nd.MD and
PlushCare. The new solutions are in their early stages of implementation, with
initial customer launches in January 2022.

Achievement of Performance-Based Revenue


In most of our contracts, a portion of our potential fee is variable, subject to
our achievement of performance metrics and the realization of savings in
healthcare spend by our customers resulting from the utilization of our
solutions, and thus we might record higher revenue in some quarters compared to
others. Examples of performance metrics included in our customer contracts are
achievement of specified member engagement levels, member satisfaction levels,
and various operational metrics. Although we have earned over 90% of the
aggregate maximum potential revenue under our contracts (measured on the
corresponding calendar year basis) in fiscal years 2022 and 2021, our revenue
and financial results in the future may vary as a result of our ability to earn
this performance-based revenue. In addition, because our customers

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typically pay both the base PMPM fees and variable PMPM fees in advance on a
periodic basis, any required refund as a result of our failure to earn the
performance-based revenue could have a negative impact on cash flows.

Investments in Technology


Significant investments in our technology platform have enhanced our
capabilities with respect to how we engage with our members and deliver our
solutions and care interventions. By leveraging our technology in areas such as
machine learning, predictive analytics, and multimodal communication, we believe
we can generate more efficiencies in our operating model while simultaneously
improving our ability to deliver better health outcomes and lower costs for both
our members and our customers. We will continue to invest in our technology
platform to empower our Accolade Health Assistants, our clinicians, and our
members to further improve and optimize efficiencies in our operating model.
However, our investments in our technology platform may be more expensive or
take longer to develop than we expect and may not result in operational
efficiencies.

Basis of Presentation and Components of Revenue and Expenses

We operate our business through a single reportable segment. We operate on a
fiscal year ending at the end of February of each year, and our fiscal quarters
end on May 31, August 31, November 30, and the last day of February.

Revenue


We earn revenue from providing personalized health guidance solutions
(advocacy), expert medical opinion services, virtual primary care services, and
mental health support services to the members of our employer customers' health
plans and to members of fully insured plans offered via health insurance
companies. We also earn revenue from providing virtual primary care services and
mental health support services directly to consumers. Our advocacy solutions are
priced based on a recurring PMPM fee and frequently include both a base PMPM fee
based on eligible members and a performance-based component. As a result, a
portion of our potential fee is typically variable, subject to our achievement
of performance metrics, the realization of savings in healthcare spend by our
customers resulting from the utilization of our solutions, and the number of
eligible members during the respective period. Our expert medical opinion
services are typically charged on a PMPM or case rate basis, and our virtual
primary care and mental health support services are typically priced on a fee
per visit basis for consumers and a visit fee basis or PMPM plus visit fee basis
for employer customers.

Cost of Revenue, Excluding Depreciation and Amortization


Our cost of revenue, excluding depreciation and amortization, consists primarily
of personnel costs including salaries, wages, bonuses, stock-based compensation
expense and benefits, as well as software and tools for telephony, workforce
management, business analytics, allocated overhead costs, and other expenses
related to delivery and implementation of our personalized technology-enabled
solutions, expert medical opinion services, virtual primary care services,
and
mental health support.

Operating Expenses

Product and technology. Product and technology expenses include costs to build
new offerings, add new features to our existing solutions, and to manage,
operate, and ensure the reliability and scalability of our existing technology
platform. Product and technology expenses consist of personnel expenses,
including salaries, bonuses, stock-based compensation expense, and benefits for
employees and contractors for our engineering, product, and design teams, and
allocated overhead costs, as well as costs of software and tools for business
analytics, data management, and IT applications that are not directly associated
with delivery of our solutions to customers. We expect product and technology
expenses to increase in absolute dollars but decrease as a percentage of revenue
over time.

Sales and marketing. Sales and marketing expenses consist of personnel expenses,
including sales commissions for our direct sales force and our market and
business development workforce, as well as digital marketing costs, promotional
costs, customer conferences, public relations, other marketing events, and
allocated overhead costs. Personnel

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expenses include salaries, bonuses, stock-based compensation expense, and
benefits for employees and contractors. We expect sales and marketing expense to
increase in absolute dollars but remain stable as a percentage of revenue over
time.

General and administrative. General and administrative expenses consist of
personnel expenses and related expenses for our executive, finance and
accounting, human resources, legal, and corporate organizations. Personnel
expenses include salaries, bonuses, stock-based compensation expense, and
benefits for employees and contractors. In addition, general and administrative
expenses include external legal, accounting, and other professional fees, as
well as tools for financial and human capital management, and allocated overhead
costs. We expect general and administrative expenses to increase in absolute
dollars as we incur costs associated with being a public company, but decrease
as a percentage of revenue over time.

Depreciation and amortization. Depreciation and amortization expenses are
primarily attributable to our capital investments and consist of fixed asset
depreciation, amortization of intangibles considered to have definite lives, and
amortization of capitalized internal-use software costs.

Goodwill impairment. Goodwill impairment expense represents impairment charges
incurred as a result of goodwill impairment testing.

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Results of Operations

The following table presents a summary of our consolidated statements of
operations for the periods indicated:

                                                  For the three months ended        For the nine months ended
                                                        November 30,                      November 30,
                                                     2022             2021             2022             2021

                                                        (in thousands)                   (in thousands)
Revenue                                         $       90,946     $    83,450    $      264,117     $  216,265
Cost of revenue, excluding depreciation and
amortization(1)                                         50,412          45,156           147,857        125,426
Operating expenses:
Product and technology(1)                               24,254          22,846            77,265         61,297
Sales and marketing(1)                                  25,023          24,616            75,573         63,134
General and administrative(1)                           20,037          21,464            61,295         69,636
Depreciation and amortization                           11,602          11,250            34,749         30,967
Goodwill impairment                                          -               -           299,705              -
Change in fair value of contingent
consideration                                                -        (68,428)                 -       (38,282)
Total operating expenses                                80,916          11,748           548,587        186,752
Income (loss) from operations                         (40,382)          26,546         (432,327)       (95,913)
Interest income (expense), net                             386           (743)             (484)        (2,137)
Other income (expense)                                     201              25                21           (19)
Income (loss) before income taxes                     (39,795)          25,828         (432,790)       (98,069)
Income tax benefit (expense)                              (77)         (3,325)             3,573          9,501
Net income (loss)                               $     (39,872)     $    22,503    $    (429,217)     $ (88,568)

(1) The stock-based compensation expense included above was as follows:



                                             For the three months ended          For the nine months ended
                                                   November 30,                        November 30,
                                              2022               2021             2022               2021

                                                   (in thousands)                      (in thousands)
Cost of revenue                           $       1,247      $         949    $       3,645      $       2,331
Product and technology                            5,930              5,303           19,045             13,491
Sales and marketing                               4,513              3,608           12,772              9,035
General and administrative                        6,216              8,517           19,347             20,970
Total stock­based compensation            $      17,906      $      18,377
   $      54,809      $      45,827


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The following table sets forth our consolidated statements of operation data
expressed as a percentage of revenue:

                                               For the three months ended         For the nine months ended
                                                     November 30,                       November 30,
                                                2022               2021             2022              2021
Revenue                                              100 %              100 %            100 %            100 %
Cost of revenue, excluding depreciation
and amortization                                      55 %               54 %             56 %             58 %
Operating expenses:
Product and technology                                27 %               27 %             29 %             28 %
Sales and marketing                                   28 %               29 %             29 %             29 %
General and administrative                            22 %               26 %             23 %             32 %
Depreciation and amortization                         13 %               13 %             13 %             14 %
Goodwill impairment                                    - %                - %            113 %              - %
Change in fair value of contingent
consideration                                          - %             (82) %              - %           (18) %
Total operating expenses                              89 %               14 %            208 %             86 %
Income (loss) from operations                       (44) %               32 %          (164) %           (44) %
Interest income (expense), net                         0 %              (1) %            (0) %            (1) %
Other income (expense)                                 0 %                0 %              0 %            (0) %
Income (loss) before income taxes                   (44) %               31 %          (164) %           (45) %
Income tax benefit (expense)                         (0) %              (4)
%              1 %              4 %
Net income (loss)                                   (44) %               27 %          (163) %           (41) %

Comparison of Three and Nine Months Ended November 30, 2022 and 2021

Revenue

              For the three months ended
                    November 30,                 Changes
               2022               2021         Amount     %

                  (in thousands, except percentages)
Revenue    $      90,946      $      83,450    $ 7,496    9 %


Revenue increased $7.5 million, or 9%, to $90.9 million for the three months
ended November 30, 2022, as compared to $83.5 million for the three months ended
November 30, 2021. The increase was attributable to revenues derived from growth
in the number of customers served during the third quarter of fiscal 2023 as
compared to the prior year's corresponding period. Revenue from access fees
increased $0.9 million, or 1%, to $70.0 million for the three months ended
November 30, 2022 as compared to $69.1 million for the three months ended
November 30, 2021. Revenue from utilization-based fees increased $6.6 million,
or 46%, to $21.0 million for the three months ended November 30, 2022 as
compared to $14.4 million for the three months ended November 30, 2021.

              For the nine months ended
                    November 30,                 Changes
               2022              2021          Amount     %

                  (in thousands, except percentages)
Revenue    $     264,117     $     216,265    $ 47,852    22 %


Revenue increased $47.9 million, or 22%, to $264.1 million for the nine months
ended November 30, 2022, as compared to $216.3 million for the nine months ended
November 30, 2021. The increase was attributable primarily to revenues derived
from the PlushCare acquisition (which occurred in the second quarter of fiscal
2022) and growth in the number of customers served during the nine months ended
November 30, 2022, as compared to the prior year's corresponding period. Revenue
from access fees increased $20.0 million, or 11%, to $206.0 million for the nine
months ended November 30, 2022 as compared to $186.0 million for the nine months
ended November 30, 2021. Revenue from utilization-based fees increased $27.9
million, or 92%, to $58.1 million for the nine months ended November 30, 2022 as
compared to $30.3 million for the nine months ended November 30, 2021.

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Cost of revenue, excluding depreciation and amortization

                                                  For the three months ended
                                                        November 30,                  Changes
                                                   2022               2021         Amount      %

                                                     (in thousands, except percentages)
Cost of revenue, excluding depreciation and
amortization                                   $      50,412      $      

45,156 $ 5,256 12 %



Cost of revenue, excluding depreciation and amortization increased $5.3 million,
or 12%, to $50.4 million for the three months ended November 30, 2022, as
compared to $45.2 million for three months ended November 30, 2021. The increase
was primarily driven by $3.3 million in increased personnel and related costs to
serve the customer base and $1.5 million in increased costs associated with
third-party services and solutions from trusted suppliers.

                                                 For the nine months ended
                                                       November 30,                  Changes
                                                  2022              2021          Amount      %

                                                    (in thousands, except percentages)
Cost of revenue, excluding depreciation
and amortization                              $     147,857     $     

125,426 $ 22,431 18 %



Cost of revenue, excluding depreciation and amortization, increased $22.4
million, or 18%, to $147.9 million for the nine months ended November 30, 2022,
as compared to $125.4 million for the nine months ended November 30, 2021. The
increase was primarily driven by $15.5 million in increased personnel and
related costs to serve the customer base and $3.6 million associated with
third-party services and solutions from trusted suppliers.

Operating expenses

                                                For the three months ended
                                                      November 30,                    Changes
                                                 2022              2021           Amount       %

                                                     (in thousands, except percentages)
Operating expenses:
Product and technology                       $     24,254     $        22,846    $   1,408       6 %
Sales and marketing                                25,023              24,616          407       2 %
General and administrative                         20,037              21,464      (1,427)     (7) %
Depreciation and amortization                      11,602              11,250          352       3 %
Change in fair value of contingent
consideration                                           -            (68,428)       68,428     N/A
Total operating expenses                     $     80,916     $        11,748    $  69,168     589 %


Product and technology.    Product and technology expense increased $1.4
million, or 6%, to $24.3 million for the three months ended November 30, 2022,
as compared to $22.8 million for the three months ended November 30, 2021. The
increase was primarily driven by increases in personnel and related costs of
$0.5 million and stock-based compensation of $0.6 million.

Sales and marketing.    Sales and marketing expense increased $0.4 million, or
2%, to $25.0 million for the three months ended November 30, 2022, as compared
to $24.6 million for the three months ended November 30, 2021. The increase was
primarily driven by an increase in stock-based compensation of $0.9 million,
partially offset by timing of marketing event costs which were lower in the
fiscal third quarter of 2023 by $0.3 million.

General and administrative.    General and administrative expense decreased $1.4
million, or 7%, to $20.0 million for the three months ended November 30, 2022,
as compared to $21.5 million for the three months ended November 30, 2021. The
decrease was primarily due to a decrease in stock-based compensation of $2.3
million, partially offset by increases in professional fees of $0.6 million.

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Depreciation and amortization. Depreciation and amortization expense
increased $0.4 million, or 3%, to $11.6 million for the three months ended
November 30, 2022, as compared to $11.3 million for the three months ended
November 30, 2021. The composition of depreciable and amortizable assets has not
changed significantly since the third quarter of fiscal 2022.


Change in fair value of contingent consideration.    This operating expense
represents the change in the fair value of the contingent consideration
liabilities associated with the 2nd.MD and PlushCare acquisitions. The
contingent consideration was reclassified to equity in the fourth quarter of
fiscal 2022.

                                              For the nine months ended
                                                    November 30,                  Changes
                                                2022             2021         Amount       %

                                                  (in thousands, except percentages)
Operating expenses:
Product and technology                      $      77,265     $    61,297    $  15,968      26 %
Sales and marketing                                75,573          63,134       12,439      20 %
General and administrative                         61,295          69,636      (8,341)    (12) %
Depreciation and amortization                      34,749          30,967        3,782      12 %
Goodwill impairment                               299,705               -      299,705     N/A
Change in fair value of contingent
consideration                                           -        (38,282)       38,282     N/A
Total operating expenses                    $     548,587     $   186,752    $ 361,835     194 %


Product and technology.    Product and technology expense increased $16.0
million, or 26%, to $77.3 million for the nine months ended November 30, 2022,
as compared to $61.3 million for the nine months ended November 30, 2021. The
increase was primarily driven by increases in personnel and related costs of
$7.9 million, which included $1.2 million of severance costs associated with
workforce realignment actions taken by management, and stock-based compensation
expense of $5.6 million.

Sales and marketing.    Sales and marketing expense increased $12.4 million, or
20%, to $75.6 million for the nine months ended November 30, 2022, as compared
to $63.1 million for the nine months ended November 30, 2021. The increase was
primarily driven by increases in digital marketing costs of $5.7 million,
stock-based compensation expense of $3.7 million, and $1.0 million of severance
costs associated with workforce realignment actions taken by management.

General and administrative.    General and administrative expense decreased $8.3
million, or 12%, to $61.3 million for the nine months ended November 30, 2022,
as compared to $69.6 million for the nine months ended November 30, 2021. The
decrease was primarily due to decreases in acquisition and integration-related
costs of $12.8 million and a decrease in stock-based compensation expense of
$1.6 million, partially offset by increases in personnel and related costs of
$4.0 million, which included $1.0 million of severance costs associated with
workforce realignment actions taken by management.

Depreciation and amortization. Depreciation and amortization expense
increased $3.8 million, or 12%, to $34.7 million for the nine months ended
November 30, 2022, as compared to $31.0 million for the nine months ended
November 30, 2021. The increase was primarily due to additional fiscal 2023
amortization of PlushCare intangible assets that were acquired during the second
quarter of fiscal 2022.


Goodwill impairment.  This operating expense represents the impairment charge
taken as a result of the goodwill impairment test performed during the first
quarter of fiscal 2023.

Change in fair value of contingent consideration.    This operating expense
represents the change in the fair value of the contingent consideration
liabilities associated with the 2nd.MD and PlushCare acquisitions. The
contingent consideration was reclassified to equity in the fourth quarter of
fiscal 2022.

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Interest expense, net

                                     For the three months ended
                                            November 30,                  Changes
                                     2022                2021          Amount      %

                                          (in thousands, except percentages)

Interest income (expense), net $ 386 $ (743) $ 1,129 152 %



Interest income (expense), net increased $1.1 million, or 152%, to $0.4 million
for the three months ended November 30, 2022, as compared to $(0.7) million for
the three months ended November 30, 2021.  The increase was primarily due to an
additional $1.2 million of interest income generated from our cash and cash
equivalents during the three months ended November 30, 2022 compared to the
prior year period.

                                     For the nine months ended
                                           November 30,                 Changes
                                     2022               2021         Amount     %

                                         (in thousands, except percentages)

Interest income (expense), net $ (484) $ (2,137) $ 1,653 77 %



Interest income (expense), net increased $1.7 million, or 77%, to $(0.5) million
for the nine months ended November 30, 2022, as compared to $(2.1) million for
the nine months ended November 30, 2021.  The increase was primarily due to an
additional $2.1 million of interest income generated from our cash and cash
equivalents during the nine months ended November 30, 2022 compared to the prior
year period.

Certain Non-GAAP Financial Measures


We use the following non-GAAP financial measures to help us evaluate trends,
establish budgets, measure the effectiveness and efficiency of our operations,
and determine employee incentives.

                                                 For the three months ended                    For the nine months ended
                                                       November 30,                                  November 30,
                                                 2022                   2021                   2022                   2021

                                             (in thousands, except percentages)            (in thousands, except percentages)
Adjusted Gross Profit                     $            41,781      $        39,243      $          120,019       $        93,170
Adjusted Gross Margin                                    45.9 %            
  47.0 %                  45.4 %                43.1 %
Adjusted EBITDA                           $          (10,222)      $      (11,944)      $         (39,337)       $      (44,193)

Adjusted Gross Profit and Adjusted Gross Margin


Adjusted Gross Profit is a non-GAAP financial measure that we define as revenue
less cost of revenue, excluding depreciation and amortization, and excluding
stock-based compensation and severance costs. We define Adjusted Gross Margin as
our Adjusted Gross Profit divided by our revenue. We expect Adjusted Gross
Margin to continue to improve over time to the extent that we are able to gain
efficiencies through technology and successfully cross-sell and upsell our
current and future offerings. However, our ability to improve Adjusted Gross
Margin over time is not guaranteed and will be impacted by the factors affecting
our performance discussed above and the risks outlined in the section titled
"Risk Factors." We believe Adjusted Gross Profit and Adjusted Gross Margin are
useful to investors, as they eliminate the impact of certain non-cash expenses
and allow a direct comparison of these measures between periods without the
impact of non-cash expenses and certain other nonrecurring operating expenses.

Adjusted EBITDA


Adjusted EBITDA is a non-GAAP financial measure that we define as net income
(loss) adjusted to exclude interest expense (income), net, income tax expense
(benefit), depreciation and amortization, stock-based compensation, acquisition
and integration-related costs, goodwill impairment, change in fair value of
contingent consideration, severance costs, and other expense (income). We
consider severance costs to include severance payments related to the
realignment

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of our resources. Other expense (income) includes foreign exchange gain or loss.
We believe Adjusted EBITDA provides investors with useful information on
period-to-period performance as evaluated by management and comparison with our
past financial performance. We believe Adjusted EBITDA is useful in evaluating
our operating performance compared to that of other companies in our industry,
as this measure generally eliminates the effects of certain items that may vary
from company to company for reasons unrelated to overall operating performance.

Adjusted Gross Profit, Adjusted Gross Margin and Adjusted EBITDA have certain
limitations, including that they exclude the impact of certain non-cash charges,
such as depreciation and amortization, whereas underlying assets may need to be
replaced and result in cash capital expenditures, and stock-based compensation
expense, which is a recurring charge. These non-GAAP financial measures may also
not be comparable to similarly titled measures of other companies because they
may not calculate such measures in the same manner, limiting their usefulness as
comparative measures. In evaluating these non-GAAP financial measures, you
should be aware that in the future we expect to incur expenses similar to the
adjustments in this presentation. Our presentation of non-GAAP financial
measures should not be construed as an inference that our future results will be
unaffected by these expenses or any unusual or nonrecurring items. When
evaluating our performance, you should consider these non-GAAP financial
measures alongside other financial performance measures, including the most
directly comparable GAAP measures set forth in the reconciliation tables below
and our other GAAP results. The following table presents, for the periods
indicated, the calculation of our Adjusted Gross Profit and Adjusted Gross
Margin:

                                                   For the three months ended                    For the nine months ended
                                                         November 30,                                  November 30,
                                                   2022                   2021                   2022                   2021

                                               (in thousands, except percentages)            (in thousands, except percentages)
Revenue                                     $            90,946      $        83,450      $           264,117     $        216,265
Less:
Cost of revenue, excluding depreciation
and amortization                                       (50,412)             (45,156)                (147,857)            (125,426)
Gross profit, excluding depreciation and
amortization                                             40,534               38,294                  116,260               90,839

Add:

Stock­based compensation, cost of revenue                 1,247                  949                    3,645                2,331
Severance costs, cost of revenue                              -                    -                      114                    -
Adjusted Gross Profit                       $            41,781      $        39,243      $           120,019     $         93,170
Gross margin, excluding depreciation and
amortization                                               44.6 %               45.9 %                   44.0 %               42.0 %
Adjusted Gross Margin                                      45.9 %               47.0 %                   45.4 %               43.1 %

Gross margin, excluding depreciation and amortization, for the three months
ended November 30, 2022 and 2021, decreased to 44.6% from 45.9%, respectively,
and Adjusted Gross Margin for the three months ended November 30, 2022 and 2021
decreased to 45.9% from 47.0%, respectively. The decreases in gross margin,
excluding depreciation and amortization, and Adjusted Gross Margin are driven
primarily by timing of revenue recognition with higher gross margins. Gross
margin, excluding depreciation and amortization, for the nine months ended
November 30, 2022 and 2021, increased to 44.0% from 42.0%, respectively, and
Adjusted Gross Margin for the nine months ended November 30, 2022 and 2021,
increased to 45.4% from 43.1%, respectively. The increases in gross margin,
excluding depreciation and amortization, and Adjusted Gross Margin are driven
primarily by higher margins in our virtual primary care offerings that were
acquired during the second quarter of fiscal 2022 compared with the Company's
other offerings.

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The following table presents, for the periods indicated, a reconciliation of our
Adjusted EBITDA to our net income (loss):

                                        For the three months ended        For the nine months ended
                                              November 30,                      November 30,
                                           2022             2021             2022             2021

                                              (in thousands)                   (in thousands)
Net income (loss)                     $     (39,872)     $    22,503    $    (429,217)     $ (88,568)
Adjusted for:
Interest expense (income), net                 (386)             743               484          2,137
Income tax (benefit) expense                      77           3,325           (3,573)        (9,501)
Depreciation and amortization                 11,602          11,250            34,749         30,967
Stock­based compensation                      17,906          18,377            54,809         45,827
Acquisition and
integration­related costs(1)                     439             311               439         13,208
Goodwill impairment                                -               -           299,705              -
Change in fair value of contingent
consideration                                      -        (68,428)                 -       (38,282)
Severance costs(2)                               213               -             3,288              -
Other expense (income)                         (201)            (25)              (21)             19
Adjusted EBITDA                       $     (10,222)     $  (11,944)    $     (39,337)     $ (44,193)

(1) For the three and nine months ended November 30, 2022, acquisition and

integration-related costs represent expenses associated with litigation

inherited through the PlushCare acquisition. Refer to Note 12 in our

consolidated financial statements for further details. For the three and nine

months ended November 30, 2021, acquisition and integration-related costs

represent banking, legal, accounting, and consulting fees related to

acquisitions.

(2) Severance costs represent expenses associated with workforce realignment

actions taken by management.

Liquidity and Capital Resources

We had cash and cash equivalents of $325.6 million as of November 30, 2022. Our
cash equivalents are comprised of money market accounts held at banks.

Our Debt Arrangements

As of November 30, 2022, we had $287.5 million in outstanding debt related to
the Convertible Senior Notes issued in March 2021. We currently also have a
revolving credit facility (2019 Revolver), which we entered into in July 2019.


On March 29, 2021, we issued an aggregate of $287.5 million principal amount of
0.50% Convertible Senior Notes due 2026 (the Notes), including the exercise in
full by the initial purchasers of their option to purchase up to an additional
$37.5 million aggregate principal amount of the Notes, pursuant to an Indenture
dated as of March 29, 2021 (the Indenture), between us and U.S. Bank National
Association, as trustee. The Notes will bear interest at a rate of 0.50% per
annum, payable semiannually in arrears on April 1 and October 1 of each year,
beginning on October 1, 2021. The Notes will mature on April 1, 2026, unless
earlier converted, redeemed or repurchased. The Notes are convertible into cash,
shares of our common stock or a combination of cash and shares of our common
stock, at our election.

The 2019 Revolver provides for a senior secured revolving line of credit in the
amount of up to $80.0 million, with borrowing availability subject to certain
monthly recurring revenue calculations. The interest rate on any outstanding
borrowings are at the Bloomberg Short-Term Bank Yield Index rate (BSBY) plus 350
basis points or Base Rate (as defined) plus 250 basis points, with the BSBY rate
and Base Rate subject to minimum levels, subject to certain floors, and interest
payments are to be made in installments of one, two, or three months as chosen
by us. We also have outstanding letters of credit to serve as office landlord
security deposits in the amount of $1.2 million. These letters of credit are
secured through the revolving credit facility, thus reducing the capacity of the
revolving credit facility to $78.8 million. The 2019 Revolver expires in July
2024.

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The 2019 Revolver contains a liquidity covenant calculated based on cash on hand
plus available borrowings under the 2019 Revolver, a revenue covenant and
certain reporting covenants.  On August 21, 2020, we entered into an amendment
to the 2019 Revolver which revised the terms of the revenue covenant and imposed
minimum LIBOR and Base Rate levels. On September 11, 2020, we entered into
another amendment to the 2019 Revolver which modified the allocation
requirements of our cash to be held at each of the two lenders participating in
the 2019 Revolver.  On November 6, 2020, we entered into another amendment to
the 2019 Revolver which increased the capacity from $50.0 million to $80.0
million. On March 2, 2021, we entered into another amendment to the 2019
Revolver in association with the acquisition of 2nd.MD and amended certain
revenue covenants. On March 23, 2021, we entered into another amendment to the
2019 Revolver in association with the convertible senior notes offering. On May
26, 2021, we entered into another amendment to the 2019 Revolver in association
with the acquisition of PlushCare which modified certain reporting covenants. On
July 19, 2022, the Company entered into another amendment to the 2019 Revolver
which extended the term until July 19, 2024, documented the transition from the
LIBOR interest rate index to the BSBY rate, and established new minimum covenant
revenue targets. The term will automatically be extended to July 19, 2025 if the
Company has at least $200,000 in consolidated net cash as of May 31, 2024.

We were in compliance with all such applicable covenants as of November 30,
2022, and believe we are in compliance as of the date of this Quarterly Report
on Form 10-Q. We do not expect to need to draw on the 2019 Revolver, but our
access to draw on the 2019 Revolver could be limited in the future if we do not
have enough monthly recurring revenues to cover the borrowing availability
calculations.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

                                               For the nine months ended
                                                     November 30,
                                                 2022             2021

                                                    (in thousands)

Net cash used in operating activities $ (38,146) $ (60,066)
Net cash used in investing activities

              (4,815)       (263,081)
Net cash provided by financing activities            2,745         255,245


Operating Activities.   Net cash used in operating activities decreased by $21.9
million to $38.1 million during the nine months ended November 30, 2022 from
$60.1 million during the nine months ended November 30, 2021, primarily due to
growth in the business resulting in decreased net loss net of non-cash items
during the nine months ended November 30, 2021 that did not occur in the current
period.

Investing Activities.    Net cash used in investing activities decreased by
$258.3 million to $4.8 million during the nine months ended November 30, 2022,
from $263.1 million during the nine months ended November 30, 2021, primarily
due to cash paid for the acquisitions of 2nd.MD and PlushCare, totaling $260.2
million, during the nine months ended November 30, 2021.

Financing Activities.   Net cash provided by financing activities decreased by
$252.5 million to $2.7 million during the nine months ended November 30, 2022
from $255.2 million during the nine months ended November 30, 2021 primarily due
to the proceeds from the issuance of the Convertible Senior Notes of $287.5
million and payment for purchase of capped calls associated with the Convertible
Senior Notes of $(34.4) million during the nine months ended November 30, 2021.

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Material Cash Requirements

As of November 30, 2022, our material cash requirements from known contractual
and other obligations, which we expect to fund through available cash, future
cash generated from operations, and our existing financing arrangements, are as
follows:

Principal and interest obligations on convertible debt – As discussed in detail

? above, the $287.5 million principal amount of the Notes matures on April 1,

2026. See Our Debt Arrangements above and Note 8 to our consolidated financial

statements for more details.

Operating leases – We have entered into operating leases, primarily for office

? space. Liabilities associated with these leases totaled $36.2 million as of

November 30, 2022.

Other purchase obligations – We have entered into certain arrangements that

? include obligations to make significant future purchases. The majority of these

purchases are not expected to be made over the next 12 months. See Note 12 to

our consolidated financial statements for more details.

Off-Balance Sheet Arrangements

We did not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or
special purpose entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other purposes. We did not have
any other off-balance sheet arrangements, except to the extent reflected under
"- Material Cash Requirements" above and in our consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with
U.S. GAAP. The preparation of these condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue, and expenses, as well as related disclosures.
We evaluate our estimates and assumptions on an ongoing basis. Our estimates are
based on historical experience and various other assumptions that we believe to
be reasonable under the circumstances. Our actual results could differ from
these estimates.

There have been no significant changes in our critical accounting policies and
estimates during the nine months ended November 30, 2022, as compared to the
critical accounting policies and estimates described in our Annual Report on
Form 10-K for the year ended February 28, 2022 filed with the SEC. We incurred a
goodwill impairment charge during the nine months ended November 30, 2022, which
is detailed below.

Accounting for Goodwill and Other Intangible Assets


Goodwill. Goodwill represents the excess of the cost of an acquired business
over the fair value of the identifiable tangible and intangible assets acquired
and liabilities assumed in a business combination. For the purposes of
impairment testing, we have determined that we have one reporting unit. We
perform a qualitative assessment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. If
that is the case, we perform a quantitative impairment test. We test our
goodwill for impairment on an annual basis in the fourth quarter of each fiscal
year, or more frequently whenever an event or change in circumstances indicates
that the asset may be impaired. In performing our evaluation, we assess
qualitative factors such as overall financial performance of our reporting unit,
anticipated changes in industry and market structure, and the competitive and
regulatory environment.

As a result of sustained decreases in our stock price and market capitalization,
we conducted an impairment test of our goodwill as of May 31, 2022 in connection
with the preparation of the condensed consolidated financial statements included
in the first quarter Quarterly Report on Form 10-Q. As a result of this testing,
we recorded a $299.7

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million non-cash goodwill impairment charge (equivalent to $4.24 per basic and
diluted share for the nine months ended November 30, 2022) during the first
quarter of fiscal 2023. Our May 31, 2022 goodwill impairment test reflected an
allocation of 70% and 30% between the income and market-based approaches,
respectively. We believe the 70% weighting to the income-based approach is
appropriate as it more directly reflects our future growth and profitability
expectations. Significant inputs into the valuation models included the discount
rate, revenue market multiples, and estimated future cash flows. We used a
discount rate of 11% and guideline peer group and public transaction revenue
multiples between 1.1x and 1.8x current and forward-looking revenues in the
goodwill impairment test. Subsequent to the impairment, there was no excess of
reporting unit fair value over carrying value.

While we cannot predict if or when additional future goodwill impairments may
occur, additional goodwill impairments could have material adverse effects on
our operating income, net assets, and/or our cost of, or access to, capital.

Realizability of Long-Lived Assets. We assess the realizability of our
long-lived assets and related intangible assets, other than goodwill, upon the
occurrence of events or changes in circumstances indicating that the carrying
values of such assets may not be recoverable. We consider the following factors
important in determining when to perform an impairment review: significant
under-performance of a business or product line relative to budget; shifts in
business strategies which affect the continued uses of the assets; significant
negative industry or economic trends; and the results of past impairment
reviews. When such events or changes in circumstances occur, we assess
recoverability of these assets.

We assess recoverability of these assets by comparing the carrying amounts to
the future undiscounted cash flows the assets are expected to generate. If
impairment indicators were present based on our undiscounted cash flow models,
which include assumptions regarding projected cash flows, we would perform a
discounted cash flow analysis to assess impairments on long-lived assets.
Variances in these assumptions could have a significant impact on our
conclusions as to whether an asset is impaired or the amount of any impairment
charge. Impairment charges, if any, result in situations where any fair values
of these assets are less than their carrying values. As a result of sustained
decreases in our stock price and market capitalization, we conducted an
impairment test of our intangible assets as of May 31, 2022. No impairments were
recorded to intangible assets as a result of this testing.

In addition to our recoverability assessments, we routinely review the remaining
estimated useful lives of our long-lived assets. Any reduction in the useful
life assumption will result in increased depreciation and amortization expense
in the quarter when such determinations are made, as well as in subsequent
quarters.

We will continue to evaluate the values of our long-lived assets in accordance
with applicable accounting rules. As changes in business conditions and our
assumptions occur, we may be required to record impairment charges.

Recently Issued and Adopted Accounting Pronouncements

For more information on recently issued accounting pronouncements, see Note 2 in
the accompanying Notes to our condensed consolidated financial statements
included elsewhere in this Quarterly Report on Form 10-Q.

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