Phreesia, Inc. (NYSE:PHR) Q3 2023 Earnings Call Transcript

Phreesia, Inc. (NYSE:PHR) Q3 2023 Earnings Call Transcript December 8, 2022

Phreesia, Inc. beats earnings expectations. Reported EPS is $-0.48, expectations were $-0.61.

Operator: Good evening, ladies and gentlemen, and welcome to the Phreesia Fiscal Third Quarter 2023 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, I would like to introduce Balaji Gandhi, Senior Vice President, Investor Relations for Phreesia. Mr. Gandhi, you may begin.

Balaji Gandhi: Thank you, operator. Good evening, and welcome to Phreesia’s earnings conference call for the fiscal third quarter of 2023, which ended on October 31, 2022. Joining me on today’s call are Chaim Indig, our Chief Executive Officer and Co-Founder; and Randy Rasmussen, our Chief Financial Officer. A complete discussion of our results can be found in our earnings press release and in our related Form 8-K submission to the SEC, including our quarterly stakeholder letter, both issued after the markets closed today. These documents are available on the Investor Relations section of our website at ir.phreesia.com. As a reminder, today’s call is being recorded, and a replay will be available on our Investor Relations website at ir.phreesia.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, the stakeholder letter and our risk factors included in our SEC filings, included 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.

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 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 our Form 8-K filed after the market closed today with the SEC and may also be found on our Investor Relations website at ir.phreesia.com.

One final note, as discussed in our stake holder letter, we are updating the nomenclature of one of our revenue categories in our consolidated statement of operations, beginning with this reporting period. The revenue line previously named Life Sciences will be named Network Solutions going forward. This change in nomenclature had no effect on prior revenue amounts. We have provided background on why we chose to make this change in our stakeholder letter. I’ll now turn the call over to our CEO, Chaim Indig.

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Chaim Indig: Thank you, Balaji. Good evening, everyone. Thank you for participating in our third quarter earnings call. Our stakeholder letter and earnings release hit the wires just after 4:00 p.m. Eastern. So let me share some key highlights for those of you who haven’t had a chance to go through all the materials yet. Revenue in the third quarter was $73 million, up 31% year-over-year. That’s our seventh consecutive quarter of over 30% revenue growth. I want to congratulate and thank the entire Phreesia team for making this happen. In this quarter, our average number of healthcare services clients was 2,982. We added 206 average healthcare services clients from the second quarter to the third quarter. Healthcare services revenue which is the combination of subscription and related services and payment processing revenue was up 30% year-over-year in the third quarter.

On a per average healthcare services client basis, subscription related services revenue remained in the $11,000 range in the third quarter, reflecting both our land and expand go-to-market motion and another quarter of growth in average healthcare services clients. Payment processing revenue grew 22% year-over-year in the third quarter. Network solutions revenue, the new name for our revenue category previously known as Life Sciences was up 33% year-over-year. Moving on to our outlook for the rest of the fiscal year. We expect revenue for the fiscal year 2023 to be at least $278 million up from a range of $273 million to $275 million. We expect average healthcare services clients to increase by approximately 150 in the fourth quarter. We expect fourth quarter subscription and related services revenue on a per average healthcare services client basis to remain roughly in line with our second and third quarter results.

We continue to see solid operating leverage and we expect to return into adjusted EBITDA profitability in fiscal year 2025. Based on our strong year-to-date performance, we’ve taken up adjusted EBITDA outlook for the fiscal year to approximately negative $95 million from a previous range of negative $109 million to negative $106 million. We remain comfortable with our ability to finance our fiscal year 2025 targets and expect to end fiscal 2023 with approximately $170 million in cash and cash equivalents. We believe our capital allocation strategy sets us up to deliver on our financial targets for fiscal 2025 and beyond. Everyone here at Phreesia is focused on driving value for all of our stakeholders, including our share — driving shareholder value.

Operator, we think we can now open it up for Q&A.

Q&A Session

Operator: Thank you. Your first question comes from the line of Anne Samuel with JPMorgan. Your line is now open.

Anne Samuel: Hey, guys. Congrats on the terrific results.

Chaim Indig: Thank you.

Anne Samuel: In your letter, you talked about an incremental $1 billion opportunity from the payer space as you add to network solutions. I was wondering if maybe you could just discuss a little bit how you get paid in this new area and how we should think about the pace of growth for that segment relative to your traditional Life Sciences business?

Randy Rasmussen: Let me take that one.

Chaim Indig: Sure.

Randy Rasmussen: Yeah. So it’s similar to how we get paid for life sciences based on digital engagement. So based on the volume of digital engagement, we receive and received cash for that. So it’s very similar to the billing for the life science.

Chaim Indig: And Anne, on the second part of your question, I mean, it’s — we’ve been in the life sciences space for our entire history. This is brand new. So growth is sort of a different animal altogether. We’re starting from zero pretty recently.

Anne Samuel: Great. No, it sounds like a very interesting opportunity. You — maybe just my next question is, you’ve seen a couple of quarters here now that because you’re growing your new logos at such a rapid pace that your revenue per client has just lagged a little bit. And it seems like maybe that will improve a little bit in the fourth quarter just from adding larger new clients. I was wondering if you could talk about, is this a newer trend we should expect to continue or maybe just a one quarter dynamic? Thanks.

Chaim Indig: I mean I think quarter-to-quarter, some quarters we have big expands or will land larger clients. So I think, I don’t know if I’d call the trend, but I think it’s going to stay in the range that it has been in the past couple of quarters and we’re excited about some of the new larger wins and expansions that we’ve sold recently.

Randy Rasmussen: Well, and frankly, Anne, we’re just doing really well, like the teams been rocking it out, like, I — like it’s been all across the board, big, small expand. Like, we’re just really — I can’t thank everyone enough at Phreesia for this past quarter, it’s just — and the work they’re doing. It’s very, very pleasant and exciting.

Anne Samuel: Yeah. The 42% new logo growth was impressive and looking forward to seeing those clients expand over time and really waterfall into the growth, so great job. Terrific results this quarter.

Randy Rasmussen: They are. So we — I’m sure you’ll see it soon.

Operator: Your next question comes from the line of Ryan Daniels with William Blair. Your line is now open.

Ryan Daniels: Hey, guys. Congrats on the quarter. Thanks for taking the question. Maybe another one on MemberConnect. I’m curious if you can leverage the client base in Insignia health. I think they had a pretty significant number of installed clients across the MA book of business in particular. So is that something that you’re leveraging to kind of launch this and drive market growth in that area?

Chaim Indig: They — thanks for that question, Ryan. They — Insignia had a — it was a pretty small business, and it was very — I wouldn’t say it was a significant client base. I’d say the most important client that they had that we’ve been able — we’ve definitely been leveraging and working closely with is PMS, right, with — and we were working — we’re going — this KCC program has been rolling out very successfully, and we really appreciate that the impact it’s having on kidney patients and we’re really proud to be part of that work. But what Insignia definitely had in which we are leveraging is the reputation of the patient activation measure. That measure is the gold standard for understanding how patients feel about their own healthcare and are they participating, and are they active and that’s becoming a core tent pole into our payer strategy.