Phreesia, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter ended July 31, 2021; fiscal year ends January 31. Unaudited results are compared with the corresponding 2020 periods. Phreesia provides healthcare software for patient intake, payments and life-sciences patient engagement.
Financial results
| Metric | Three months ended July 31, 2021 | Three months ended July 31, 2020 | Six months ended July 31, 2021 | Six months ended July 31, 2020 |
|---|---|---|---|---|
| Revenue | $51.0 million | $35.0 million | $99.3 million | $68.4 million |
| Operating loss | $23.8 million | $6.3 million | $34.5 million | $11.3 million |
| Net loss | $24.4 million | $6.4 million | $35.4 million | $12.5 million |
| Adjusted EBITDA (non-GAAP) | $(11.0) million | $1.2 million | $(11.0) million | $2.7 million |
| Cash used in operating activities | $6.7 million | $2.4 million | $12.2 million | $0.5 million |
| Free cash flow (non-GAAP) | $(9.9) million | $(6.7) million | $(22.3) million | $(7.9) million |
Revenue mix, Q2: Subscription and related services were $22.9 million (+34% year over year); payment processing fees were $16.3 million (+38%); and life-sciences revenue was $11.8 million (+95%). Management attributed growth to new and expanding provider clients, increased patient payment activity and growth in life-sciences marketing programs. Average provider clients increased to 1,987 from 1,668, and average revenue per provider client rose to $19,720 from $17,360.
Costs and profitability: Total expenses rose to $74.8 million in Q2 from $41.3 million. Notable increases included sales and marketing (+120% to $22.2 million), research and development (+107% to $11.4 million), and general and administrative (+69% to $16.2 million). Management cited hiring, compensation, outside services, marketing and infrastructure investment. The filing does not present a single gross-margin figure.
Liquidity, debt and capital
- Cash and cash equivalents were $439.9 million at July 31, 2021, versus $218.8 million at January 31, 2021. The increase was driven primarily by an April follow-on offering that generated $245.8 million net proceeds from 5.175 million shares sold at $50 per share.
- Cash used in investing activities was $10.1 million for the first six months, including $5.0 million of property and equipment purchases and $5.0 million of capitalized software costs. Financing activities provided $243.3 million, primarily from the offering.
- Finance lease liabilities and other debt totaled $10.1 million, principally finance leases. No borrowings were outstanding under the SVB revolving facility; $50.0 million was available. The company reported compliance with facility covenants.
- Management said available cash, normal-course cash generation and borrowing capacity should fund operations for at least 12 months, while also expecting net losses and negative cash flows to continue for at least the next year.
Changes, outlook and risks
- Revenue grew 46% in Q2 and 45% in the first half, but losses widened substantially as expenses grew faster than revenue. Adjusted EBITDA shifted from positive to negative in both comparable periods.
- COVID-19 had reduced patient visits in the prior-year comparison; management cited a reduced pandemic impact as one contributor to payment revenue growth. It cautioned that new variants and changing immunization rules could again disrupt healthcare clients and operations.
- No specific revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management expects continued investment and losses; profitability is not assured.
- Control weakness: Disclosure controls were deemed ineffective because of an unremediated material weakness in IT user-access and program-change controls affecting systems supporting financial reporting. Remediation—including additional IT/compliance staff and enhanced controls and documentation—was ongoing. A new ERP system was implemented during the quarter.
- Key stated risks include privacy or cybersecurity incidents involving sensitive health and payment data; customer retention, variable sales and implementation cycles; competition and partner conflicts; reliance on third-party payment processors and hardware suppliers; rapid growth and execution; and continuing COVID-19 uncertainty. The company reported no legal proceeding it believed would materially affect its financial condition, results or cash flows.
Important facts for investors to verify
- Whether revenue growth can continue while operating expenses, net losses and cash burn are rising.
- Progress and independent testing of remediation of the material weakness, and the effectiveness of controls following the ERP implementation.
- Cash runway and cash use excluding the one-time equity offering; confirm the distinction between cash, available credit and ongoing operating cash generation.
- Future payment volumes, payment facilitator mix, provider-client expansion and life-sciences program demand, including the durability of pandemic-related comparisons.
- Potential dilution from equity compensation and future share issuance; shares outstanding were 50.9 million at July 31, 2021.