Phreesia Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 30, 2024

There are 10 speakers on the call.

Operator

Good evening, ladies and gentlemen, and welcome to the Frisia Fiscal First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. We will provide instructions for the question and answer session to follow. First, would like to introduce Balaji Gandhi, Frisia's Chief Financial Officer. Mr.

Operator

Gandhi, you may begin.

Speaker 1

Thank you, operator. Good evening and welcome to Frisia's earnings conference call for the fiscal Q1 of 2025, which ended on April 30, 2024. Joining me on today's call is Chaim Indig, our Chief Executive Officer. A more complete discussion of our results can be found in our earnings press release and in our related Form 8 ks submission to the SEC, including our quarterly stakeholder letter, both issued after the markets close today. These documents are available on the Investor Relations section of our website atir.fresia.com.

Speaker 1

As a reminder, today's call is being recorded and a replay will be available on our Investor Relations website atir.fresia.com following the conclusion of the call. During today's call, we may make forward looking statements, including statements regarding trends, our anticipated growth, our strategies, predictions about our industry and the anticipated performance of our business, including our outlook regarding future financial results. Forward looking statements are subject to various risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those described in our forward looking statements. Such risks are described more fully in our earnings press release, our stakeholder letter and our risk factors included in our SEC filings, including in our quarterly report on Form 10 Q that will be filed with the SEC tomorrow. The forward looking statements made on this call will be based on our current views and expectations and speak only as of the date on which the statements are made.

Speaker 1

We undertake no obligation to update and expressly disclaim the obligation to update these forward looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events. We may also refer to certain financial measures not in accordance with generally accepted accounting principles, such as adjusted EBITDA, in order to provide additional information to investors. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non GAAP results may be found in our earnings release and stakeholder letter, which were furnished with Form 8 ks filed after the markets close today with the SEC and may also be found on our Investor Relations website at ir.fresia.com. I will now turn the call over to our CEO, I MINDIG.

Speaker 2

Thank you, Balaji, and good evening, everyone. Thank you for participating in our Q1 earnings call. Our stakeholder letter and earnings release were published about an hour ago. Let me start the call with a couple of highlights. The Q1 marked a very important milestone in our evolution as we return to profitability.

Speaker 2

This most recent quarter does not represent a finish line. We believe it represents an important milestone in Phreesia's journey and I would like to acknowledge my teammates, our clients and our shareholders for their support throughout through this stage of our journey. I look forward to the next set of milestones. Looking ahead, we have a large, diverse and growing network of patients and providers we believe enjoy increased value from our solutions. I'm most excited about the opportunities that our network and our experience and dedicated team give us to broaden and deepen the value we bring our clients.

Speaker 1

Let me now turn it back over to Balaji. Thanks, Chaim, and good evening, everyone. Let me hit on a couple of the highlights in our letter regarding the Q1 and our updated outlook for fiscal year 2025. Q1 revenue was up 21% at 101,200,000 dollars Adjusted EBITDA returned positive for the first time in 3 years to $4,100,000 Our average healthcare services clients increased by 103 from the prior quarter and total revenue per AHSC was $24,900 1st quarter revenue was negatively impacted by roughly $1,700,000 in our payment processing line due to an accelerated wind down of a relationship we have with a clearinghouse client who contracted with Phreesia to act as their merchant processor for patient payments. The details behind what drove the accelerated wind down of this relationship can be found in our stakeholder letter.

Speaker 1

The upshot is that the cyber attack on Change Healthcare and subsequent outages accelerated the wind down of our relationship because Change Healthcare has not re enabled a solution that was used by our client. The client relationship represents approximately $8,000,000 of annual revenue and will impact our fiscal 2025 results. Moving to our updated financial outlook for fiscal 2025, we are updating our revenue outlook to a range of $416,000,000 to $426,000,000 from a previous range of $424,000,000 to $434,000,000 That's an $8,000,000 reduction from the top and bottom end of the range, which incorporates the accelerated wind down of our clearinghouse client relationship. As a reminder, this revenue is in the payment processing line. We're also updating our adjusted EBITDA outlook for fiscal year 2025 to a range of $21,000,000 to $26,000,000 from a previous range of $12,000,000 to $20,000,000 dollars That's a $6,000,000 increase at the top end of the range and a $9,000,000 increase at the bottom end of the range.

Speaker 1

We continue to see solid operating leverage in the business. Cash was at $80,000,000 on April 30, or near the level it was in Q2 of fiscal 'twenty one when we were last profitable. Operating cash flow for Q1 was just under breakeven at negative 721,000. We believe we're well positioned to start generating free cash flow in the second half of this fiscal year. As a reminder, we have no borrowings on our revolving credit facility, which we believe gives us lots of flexibility over the next couple of years.

Speaker 1

Our internal discounted cash flow analyses reflect more value from investing in shorter payback investments that accelerate profitability. Our views on the best path to driving value for shareholders over the near term and the long term have been reinforced in conversations with many Phreesia shareholders over the past few quarters. Operator, I think we can now open up the lines for Q and A.

Operator

Thank you. The floor is now open for questions. Your first question comes from the line of Anne Samuel of JPMorgan. Your line is open.

Speaker 3

Hi, guys. Thanks for taking the question. I guess, maybe in light of what's happened with change and Ascension recently and you mentioned in your letter that the on call service has been cyber attacked. I was hoping maybe you could just kind of discuss investments in cybersecurity. Is it something that we should be kind of expecting to come on in the P and L?

Speaker 3

And maybe just concerns that like this might be more prevalent and then kind of along those lines just any financial impact from the Ascension attack? Thank you.

Speaker 1

Sure. Thanks for the question, Annie. So first of all, we actually called this out in the last quarter's letter, Annie, just in terms of our investments in this area. We take this pretty seriously on behalf of our clients and patients, etcetera. But I also I think it goes without saying this is pretty unprecedented and some of the stuff that's going on in the industry.

Speaker 1

In fact, I was just telling Haim, I was reading an article before this call about the like sort of the downstream effects of other providers who aren't even the ones being attacked. But, Chaim, I don't know if you want to add anything specifically about sort of how we've planned around this.

Speaker 2

We've been ramping up our

Speaker 4

investments for years in the space. And obviously, we continue to expect the ramp up and I think that's built into our forward looking plans. But it's something we take not just internally seriously as a company we take it because a good portion of Phreesia's are also patients and we provide our data to the system, including our families. This means a lot to us personally.

Speaker 1

And I should probably point this out too. I think for several quarters now we've talked about G and A expense and how we spent a lot of capital to build the infrastructure of being a public company of this size. And I think just having gone through some of the stuff in the past few weeks, we've got some great subject matter experts that weren't here at the company 3 or 4 years ago, and outside advisors who really helped us get through this. So that's part of that G and A expense that we have.

Operator

Your next question comes from the line of Ryan Daniels of William Blair. Your line is open.

Speaker 5

Yes. Hey, guys. Thanks for taking the questions. And this is Jared Haas on for Ryan. Maybe I'll just ask one on the clearinghouse client wind down.

Speaker 5

It sounded like that was a relationship that you had decided to walk away from, and then that wind down was just accelerated due to change. So I guess number 1, just could you run through sort of the thinking for why you were planning on walking away from that relationship? And then number 2, could you just discuss how you're thinking about sort of any risk in the model from other client contracts or client relationships that might have a connection to change in some way? Thanks.

Speaker 1

Sure. This was, Jared, a unique situation and so the client is a clearinghouse. And I think I wouldn't characterize it as we walked away. I think the way to think about it is they were looking and we put this in the letter. They were looking to consolidate to one vendor.

Speaker 1

The things they wanted in that, which included print statements, were just not something that we were going to do for a lot of reasons, including the economic profile of that. So, it was sort of mutually agreed to wind it down. And I think as we also said in the letter, that was planned to be later and this sort of this crisis sort of accelerated all that. And really nothing again comes to mind. I think about our last conference call, we spent a lot of time talking about change and I think every day we're still I mean we're only 3 months out from that.

Speaker 1

We're still seeing impacts. So we can't sit here and say there's no impact, but as we sit here today, there's nothing that comes to mind like this.

Operator

Your next question comes from the line of Jalendra Singh of Truett Securities. Your line is open.

Speaker 6

Thank you and thanks for taking my question. First a quick clarification, Balaji and Hain. Did you guys like was this decision still TBD when you gave 'twenty five guidance in mid March about timing on this clearinghouse client, it was select being determined? Can you clarify on that? And my main question is like help us better understand the drivers behind beat and increase compared to your prior outlook on EBITDA?

Speaker 6

And the strong start to your focus on returning to profitability changes your views, how you think about the margin progression longer term?

Speaker 1

Sure. That is 2 questions, but we'll try to hit them. I think it was a fluid situation heading into fiscal 'twenty five in terms of that relationship with that client. But I think we want to be clear that that was we're going to work with them in cooperation with them and these wind downs take a lot of work, a lot of people and a lot of time. So that was not really envisioned to be in fiscal 'twenty five at all and certainly not be over a matter of months.

Speaker 1

So that was something we were planning for. And then second, in terms of you know, margin profile, etcetera, I think you should take away from our comments here that we've been headed in this direction for some time, but we're sort of putting the foot on the gas a little bit more. And to us, we just think that's the right thing to do, cost of capital, interest rates, what have you. We do still prioritize growth, and we think we know that's important because that also helps drive profitability, but I think you should take away that we're probably being a little bit more aggressive on that.

Operator

Your next question comes from the line of Jessica Tassane of Piper Sandler. Your line is open.

Speaker 3

Hi. Thanks so much for taking the questions. I was just hoping you could maybe speak a little bit about the provider end market in light of the change disruption, just given the fact that providers obviously have payments delayed or aren't seeing payments at all, has their willingness to deploy the Phreesia solution changed either for better or for worse? Thanks.

Speaker 4

I think thanks for the question, Jess. I think it's the market has been pretty receptive to what we're doing. I don't think I think there was a period of a couple of months where the prioritization was making sure that they could have claims filed. But the vast majority of our providers and prospects are filing claims now. So I don't we don't really see this backing up the market tremendously.

Speaker 4

I think that there is a general view that there needs to be continuous investment in technology to drive efficiency and produce better margins for a lot of these providers. So we've seen the end market still pretty good for us. But I wouldn't say it's not without challenges, but I think the team has done a phenomenal job of continuously winning accounts and growing our share of the market.

Operator

Your next question comes from the line of Stephanie Davis of Barclays. Your line is open.

Speaker 3

Hey, guys. This is Anna Krasinski on for Stephanie. Thank you for taking our questions. I was hoping you could talk a bit about what your strategy is around accelerating growth in revenue per client. And is this going to be more of across sales of existing products for clients or more into the new cohort?

Speaker 1

Sure. Thanks, Anna. So, the way to think about it, and I think we've been talking about this for the past few quarters, there is growing the network and then there is the 3 different revenue lines on how we generate revenue off of it. I think you should take away that network solutions will absolutely be the single biggest driver of how the total revenue per client grows. I think we've talked a lot about payments.

Speaker 1

You don't really create that much more in payments. It comes from new client growth. I think a lot of the products that we have currently, but also the ones we're going to introduce, do have price associated with some of them and there will be revenue, but I think that will be certainly lag behind network solutions. So I think the short answer and takeaway is network solutions should be the driver of that.

Operator

Your next question comes from the line of Scott Schuhaus of KeyBanc. Your line is open.

Speaker 7

Hey, team. I wanted to ask about this product update on MediFine appointment requests. This is live and I'm assuming and what are you seeing in terms of the traction for booking appointments for specialty providers? And how does this fit in with your broader approach on new provider targeting new provider clients? Thanks.

Speaker 4

Look, we've so far the adoption has been very well received. It's still early days and we'll give more updates in the coming quarters. But we expect when we talk to a lot of specialists, their biggest the biggest thing we've been hearing for years is they want the right specialists want the right types of patients to be able to make appointments with them because they want to deliver the right type of care to them. And so we do see this as being just a massive value driver across the spectrum of specialists that we both support today, and we think it's going to be a very large driver in helping us win clients in the future. But early traction has been really good.

Speaker 4

I've been more than pleasantly surprised with a lot of the data I've been seeing from the Medifine team.

Speaker 5

And we've been

Speaker 4

investing we've been increasing our investment in that.

Operator

Your next question comes from the line of Richard Close of Canaccord Security. Your line is open.

Speaker 8

Great. Thanks for the question. Congratulations. Network, which you just mentioned, Balaji, continues to outperform our expectations and the commentary from some other companies has been pretty favorable in terms of the demand environment. So I'm curious your guys' thoughts looking forward on network solutions, just commentary on the market.

Speaker 8

And then as a follow-up with respect to the Medifin campaign caught my eye. And curious if this is the channel and opportunity for network revenue growth? And if so, does it expand the budget you're going after with the pharma companies?

Speaker 4

Richard, I'll answer some of it and if I miss anything Balaji will jump in as he usually does. I would I'll answer your second question first. And yes, we think Medifine will is has the potential to be very, very positive offering to our network solutions clients. And so we are we do expect to plan on monetizing the product over a long period of time, also with network solutions. And I think you should expect to see us continue investing in that space.

Speaker 4

And look, Network Solutions team has been getting great feedback from our clients because we've been delivering very strong ROIs at significant scale with both broad disease states, but also very specific patient populations where they delivering the right message at the right time to them drives a phenomenal outcome. And so we expect network solutions to be a big driver for the organization, but also a huge driver of returns for our clients.

Speaker 1

And Richard, I think the only comment I'd add is on network solutions as it relates to the year. Just remember that it's not linear and there's business that gets sold through the year as well. We're very bullish about that space. I think that should be clear from all of our comments, but you do have to be a little bit careful how you model it in terms of how it flows through the year.

Operator

Your next question comes from the line of Ryan MacDonald of Needham. Your line is open.

Speaker 5

Thanks for taking my questions. Maybe just first on the payments business, can you just talk about the health of that business ex the client wind down and what sort of you're seeing in terms of growth there, what expectations for growth? And then quick for Balaji on gross margins. 1st quarter, I think, over a year with gross margins over 80%. Just curious how you're thinking about that gross margin line and how sustainable maybe these 80% plus levels are as we go through the rest of the year?

Speaker 5

Thanks.

Speaker 1

Yes, sure. Thanks, Ryan. So, I think on the first part of it, the payments, it's probably the part of our business that has been the easiest to probably follow outside of probably the COVID period there where we saw utilization go down for 8 weeks or so pretty sharply and then we had sort of the rebound the following fiscal year. But if you just follow it, I mean the volume tends to track with seasonality in the 1st part of the year being stronger. It lags subscription because of we have an attachment rate of around 80%.

Speaker 1

And that's sort of just been the cadence of it. I think in the Q1 we obviously highlighted the $1,700,000 impact. If you actually add that back to payments, it would be pretty consistent with every other Q1 we've had as a public company. And then on the second question, yours was growing on gross margins, is that right? So on gross margins, look, doing well.

Speaker 1

I think this was a topic on the last call. And I think to be over that percentage that you cited at 80% is pretty good. It's the highest around the highest we've been. We're always looking for opportunities to be as efficient as we can and drive that margin. But I think if you sort of modeled it there, you should be able to comfortably get to the revenue and EBITDA outlook that we have.

Operator

Your next question comes from the line of Jeff Garro of Stephens. Your line is open.

Speaker 9

Yes, good afternoon. Thanks for taking the questions. I was hoping you could give some further comments on the mix and quality of healthcare services clients that you are adding with that leveling out around 100 net adds per quarter? Thanks.

Speaker 1

I mean, Jeff, I think, you know, it's nothing different than what we've seen in the past, at least I'd say the past 4 to 6 quarters. We have large enterprise clients. We have midsize, we have small. I think the biggest sort of filter to put on these numbers like the 103 is the payback period. And so what we're running these through today is just a shorter payback.

Speaker 1

And what does that mean? It means, well, if they're in a promo period, we expect them to convert. We would like them to attach with payments and we would like to be able to show content for our pharma clients.

Operator

Your next question comes from the line of Aaron Kimson of Citizens JMP. Your line is open.

Speaker 1

Great. Thanks for the question. Can you get an update on where you're at with Phreesia India since its launch in January? And that investors should think about the margin effect of that organization as being a component of the increased FY 'twenty five EBITDA guide or something that will provide more of a margin benefit in FY 'twenty six and beyond? That was really just a more of a legal sort of transaction that took place and we wanted to get in front of that and share that with everyone.

Speaker 1

Financially, the expenses were already running through our P and L. So there's really no change to the profile of the business and that's frankly one of the reasons we've been able to get a lot of operating leverage are all the folks and resources over there, but nothing really to call out in terms of post close.

Operator

Your next question comes from the line of Daniel Grosslait of Citi. Your line is open.

Speaker 7

Hey, guys. Thanks for taking the question. You saw a bit of take rate degradation this quarter in payments. How are you thinking about pricing? And should we expect more degradation this year or are you comfortable now with how pricing has shaped up?

Speaker 1

We're always visiting this and I think Daniel we've talked about this too is we think about it as the profit dollar, the gross profit dollar from a dollar of payment volume that crosses. So as long as we can continue to grow profitable payment dollars, we will experiment with different offerings on price. I think we've touched the 2.8% range before if you went back a couple of years. If you modeled around 2.8%, you'd probably be safe. But it might be higher in some quarters, might be the 2.8% in other quarters.

Operator

And your next question comes from the line of Jack Wallace of Guggenheim. Your line is open.

Speaker 7

Hi, this is Mitchell on for Jack. Thanks for taking my question. Could you please elaborate on the shorter payback investments you referenced and just how that differs from maybe what your focus was 12 months ago or so? Thanks.

Speaker 1

Yes. I'm probably going back more than 12 months. So there's really 2 ways to think about it. 1 is just like the profitability that we can generate on a specific opportunity. All the opportunities have profit associated with them, but we're definitely optimizing for more of that today.

Speaker 1

But I think another sort of way to think about it is, if there's other products that we could upsell to that same client, we sort of are looking at underwriting it as trying to do that sooner. And does that client is that a better fit for the products we have, and not really willing to maybe wait a longer period of time.

Operator

As there are no further questions, this concludes our Q and A session. I will now turn the conference back over to Chaim Indig for some closing remarks.

Speaker 2

Thanks everyone for joining the call. And I want

Speaker 4

to thank again my teammates

Speaker 2

and I look forward to seeing everyone over the

Speaker 4

summer and talking again in about 90 days. Have a great summer everyone. Thank you.

Operator

This concludes today's call. You may now disconnect.

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Key Takeaways

  • Return to profitability: Q1 adjusted EBITDA was $4.1 million, marking Phreesia’s first profitable quarter in three years.
  • Updated FY 2025 guidance lowered revenue to $416–426 million (from $424–434 million) due to an accelerated wind‐down, while raising adjusted EBITDA guidance to $21–26 million (from $12–20 million) on strong operating leverage.
  • Q1 revenue was hit by $1.7 million and full‐year results will lose ~$8 million of annual revenue after the accelerated wind‐down of a clearinghouse client relationship following the Change Healthcare cyber attack.
  • Cash stood at $80 million as of April 30, near levels from Q2 FY 2021, with Q1 operating cash flow just under breakeven and free cash flow expected in H2 2025.
  • Network solutions and the newly launched Medifine appointment‐booking product have shown strong early traction and are expected to be key drivers of revenue per client and future client wins.
AI Generated. May Contain Errors.
Earnings Conference Call
Phreesia Q1 2025
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