Phreesia, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2025, the three months ended April 30, 2024; comparisons are with the three months ended April 30, 2023. Phreesia provides healthcare software for patient access, registration, payments and engagement, as well as patient communications for life sciences and payer clients. Financial figures below are in U.S. dollars; unless noted, amounts are in millions.
Financial performance and position
| Metric | Q1 FY2025 | Q1 FY2024 | Change |
|---|---|---|---|
| Total revenue | $101.2 | $83.8 | Up 21% |
| Subscription and related services | $46.7 | $37.9 | Up 23% |
| Payment processing fees | $27.1 | $24.3 | Up 12% |
| Network solutions | $27.4 | $21.7 | Up 26% |
| Operating loss | $(19.4) | $(37.9) | Loss narrowed |
| Net loss | $(19.7) | $(37.5) | Loss narrowed |
| Net loss per share, basic and diluted | $(0.35) | $(0.70) | — |
| Adjusted EBITDA (non-GAAP) | $4.1 | $(13.8) | Improved |
| Cash used in operating activities | $(0.7) | $(13.7) | Cash use decreased |
| Free cash flow (non-GAAP) | $(6.2) | $(19.7) | Cash use decreased |
Revenue growth reflected new healthcare services clients, expansion and cross-selling, and greater engagement and patient outreach in Network solutions. Average healthcare services clients rose to 4,065 from 3,309. However, healthcare services revenue per client declined 3% to $18,155, and total revenue per client declined 2% to $24,900, as client growth outpaced payment-processing revenue growth.
Cash and cash equivalents were $79.5 million at April 30, down $8.0 million from January 31, 2024. Current assets were $190.9 million and current liabilities were $108.3 million; settlement assets and settlement obligations were each $30.1 million. Investing activities used $5.4 million, including $4.6 million of capitalized software costs and $0.9 million of property and equipment purchases. Financing activities used $1.8 million.
Finance lease liabilities and other debt totaled $16.4 million, including $7.7 million current. There were no borrowings under the $50 million Capital One revolving facility at April 30, 2024. The facility’s stated interest rate was 8.3%; Phreesia reported compliance with its covenants. Total stockholders’ equity was $252.7 million. Stock-based compensation expense recognized in the income statement was $16.8 million.
Material changes and unusual items
- Change Healthcare cyberattack: The February 2024 incident disrupted eligibility and benefits checks and a patient payment portal used by a clearinghouse client. Phreesia rerouted eligibility business where possible and reported no evidence that its own systems were compromised. The outage accelerated the planned wind-down of the client relationship and reduced first-quarter payment-processing revenue by approximately $1.7 million.
- Ascension incident after quarter-end: Ascension, a customer, reported a cyberattack on May 8, 2024 and shut down certain systems. Phreesia could not estimate the effect on fiscal 2025 healthcare services revenue.
- ConnectOnCall incident after quarter-end: Phreesia learned on May 12 that a cybercriminal had accessed the acquired ConnectOnCall service. The service remained offline while the company investigated and worked on restoration. Phreesia said the service was separate from its other services, reported no evidence those services were affected, and did not believe the incident was likely to have a material overall impact based on its investigation to date.
- Sales and marketing expense fell 14%, partly reflecting the full run-off of costs from winding down Medicare Advantage lead-generation activities. Research and development expense increased 9%, while amortization increased 27%, in part due to acquired intangibles and capitalized software.
- Phreesia’s India subsidiary began operations during the quarter, taking on functions previously provided by a third-party service provider.
Outlook, risks and contingencies
The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects net losses and negative cash flows to continue for at least the next year, but believes cash, cash generated in the normal course of business and available borrowing capacity are sufficient to fund operations for at least 12 months. Management says additional financing may be sought if needed.
Key risks include cybersecurity and data privacy exposure, outages at vendors or customers, dependence on third-party payment processors and technology partners, competition from EHR and practice-management providers, client retention and implementation execution, and the ability to manage growth and achieve sustained profitability. Phreesia also cites healthcare regulation, macroeconomic and labor conditions, seasonality, foreign-exchange exposure, and integration and execution risks related to acquisitions and its India operations.
The company reported no legal proceedings that it believes would have a material adverse effect and no material changes in contractual cash requirements apart from finance leases recognized during the quarter. Management concluded disclosure controls were effective as of April 30, 2024; it reported no materially affecting change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether Change Healthcare has identified any breach involving data Phreesia sent to it, and how the related client wind-down affects payment volume and revenue.
- The duration and financial/customer impact of the Ascension outage and the restoration, investigation and potential liabilities related to ConnectOnCall.
- Whether client growth can translate into higher revenue per client and sustained positive operating cash flow and free cash flow.
- Cash consumption, remaining acquisition-related payments, finance lease obligations, and continued compliance with Capital One facility covenants.
- The trajectory of stock-based compensation and share dilution; issued common shares increased during the quarter, and 6.48 million potential common shares were excluded from diluted loss per share as anti-dilutive.