Phreesia, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Three and nine months ended October 31, 2020. Phreesia provides a SaaS-based patient intake and payments platform for healthcare providers, plus patient engagement services for life sciences companies. Financial amounts below are in U.S. dollars; millions are rounded.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Revenue | $38.5M (+17%) | $32.8M | $106.9M (+16%) | $92.0M |
| Operating loss | $6.1M | $2.2M | $17.4M | $10.6M |
| Net loss | $6.7M | $2.4M | $19.2M | $16.6M |
| Adjusted EBITDA (non-GAAP) | $1.2M | $3.0M | $3.9M | $3.5M |
| Cash used in operating activities | $0.7M | $3.0M | $1.2M | $0.4M |
| Free cash flow (non-GAAP) | $(4.4)M | $(6.6)M | $(12.3)M | $(9.6)M |
Q3 operating loss was about 15.9% of revenue, versus 6.8% a year earlier; nine-month operating loss was about 16.3%, versus 11.6%. Net loss per share was $(0.17) for Q3 and $(0.51) for the nine-month period. Adjusted EBITDA is a company-defined non-GAAP measure and should be considered alongside GAAP results.
- Revenue mix: Q3 subscription and related services were $17.5M (+20%), payment processing $12.9M (+12%), and life sciences $8.1M (+21%). For nine months, those categories were $50.2M (+22%), $36.5M (+5%), and $20.2M (+27%), respectively.
- Operating costs: Q3 total expenses rose to $44.6M from $35.1M. General and administrative expense increased 44% to $10.4M, and cost of revenue excluding depreciation and amortization increased 47% to $6.5M. Management cited higher staffing and compensation, partner payments, and information-systems investment.
- Key operating metrics: Average provider clients were 1,737 in Q3 versus 1,573; average revenue per provider client was $17,490 versus $16,637; patient payment volume was $524M versus $463M.
Balance sheet, liquidity and financing
- At October 31, 2020, cash and cash equivalents were $254.1M; current assets were $302.5M and current liabilities $41.8M. Total assets were $338.1M and total liabilities $68.4M.
- Debt and finance lease liabilities totaled $29.2M net of financing costs, including $20.7M drawn on the revolving credit facility and $7.6M of finance leases. The revolver had $29.3M of availability, matures May 2025, and bore interest at 4.5%. The company reported covenant compliance.
- The October 2020 stock offering issued 5.75M shares at $32 per share and generated approximately $174.5M in net proceeds. Financing activities provided $176.1M during the nine months, largely from this offering. Common shares outstanding increased to 44.0M at quarter-end from 36.6M at January 31.
- Management expects continuing net losses and negative operating cash flows for at least the next year, but believes cash, normal-course cash generation, and available credit are sufficient for at least 12 months. It may seek additional financing if needed; availability on acceptable terms is not assured.
Changes, outlook and material risks
- Revenue increased across all three business lines. Management attributed payment-related growth partly to recovering patient visits and a favorable transaction mix. Patient visits returned to pre-pandemic levels beginning in early September, but renewed COVID-19 restrictions could again reduce visits and affect processing, subscriptions, implementations, and life sciences engagement.
- The company reported that its COVID-19 screening module had been used in more than 30 million patient screenings from February 10 through November 30, 2020. No numerical revenue or earnings guidance was provided.
- Despite revenue growth, quarterly net loss widened and Adjusted EBITDA declined year over year. Nine-month operating cash use increased, while free cash flow worsened, reflecting higher capital spending and software investment.
- A material weakness in internal control over financial reporting remained unremediated. Disclosure controls and procedures were deemed ineffective; management said the weakness related to insufficient accounting personnel and inadequate segregation of duties, including journal-entry review. Hiring and control enhancements were underway.
- Other principal risks include COVID-19 uncertainty, continued losses, growth and implementation execution, customer retention and concentration, dependence on a third-party payment processor and hardware supplier, data privacy and cybersecurity exposure, healthcare regulation, competition, and reliance on external financing if cash needs exceed resources. Management reported no litigation expected to have a material financial impact.
Important facts for investors to verify
- Whether provider visits, payment volume, and revenue growth remain resilient if COVID-19 restrictions or healthcare operating conditions worsen.
- Whether expense growth moderates and the company improves GAAP operating performance and free cash flow, rather than relying primarily on non-GAAP Adjusted EBITDA.
- Progress and eventual effectiveness of remediation for the material weakness in financial reporting controls.
- Current cash use, debt and lease obligations, credit-facility availability, and compliance with facility covenants.
- Customer and payment-processor concentration, receivable collectability, and the effect of privacy, security, and healthcare regulatory requirements.