Business context and reporting period
Phreesia, Inc. filed this Form 10-K for fiscal 2020, the year ended January 31, 2020. The company provides a SaaS patient-intake and payments platform for healthcare providers and digital patient-engagement services for life-sciences companies. It reported activity across more than 1,600 provider organizations and nearly $1.9 billion in patient payment volume. The filing also includes unaudited quarterly results for the quarter ended January 31, 2020.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $124.8 million | $99.9 million |
| Operating loss | $15.3 million | $9.5 million |
| Net loss | $20.3 million | $15.1 million |
| Adjusted EBITDA | $4.8 million | $3.5 million |
| Cash from operating activities | $0.8 million | $(2.1) million |
| Free cash flow | $(11.5) million | $(12.0) million |
Revenue grew 25%. Subscription and related-services revenue increased 28% to $56.4 million; payment-processing fees rose 26% to $46.5 million; and life-sciences revenue increased 15% to $21.9 million. Operating margin was approximately negative 12.3%, net margin negative 16.3%, and Adjusted EBITDA margin 3.8%.
Cash and cash equivalents were $90.3 million at year-end, up from $1.5 million, largely following the July 2019 IPO, which generated $130.8 million net of underwriting discounts and commissions, before offering costs. Outstanding term-loan borrowings were $20.0 million; the revolving facility had no balance and $25.0 million of stated availability. Long-term debt and capital leases, net of discount and including current portions, totaled $23.9 million. Current assets were $131.5 million and current liabilities $35.4 million; settlement assets and obligations of $12.4 million each largely offset one another.
Investing activities used $12.3 million, including $7.0 million for property and equipment and $5.3 million for capitalized software. Financing activities provided $100.3 million. The company reported a $14.955 million preferred-stock dividend payment in connection with the IPO. GAAP net loss attributable to common stockholders was $91.4 million, reflecting that dividend and $56.2 million of preferred-stock accretion, in addition to the $20.3 million net loss.
Changes versus prior periods
- Revenue growth remained 25%, matching FY2019 growth, while average revenue per provider client rose 21% to $65,486. Average provider clients increased 5% to 1,571, and patient payment volume grew 29% to $1.865 billion.
- Despite higher revenue and Adjusted EBITDA, net loss widened by $5.2 million and operating loss by $5.8 million. Total expenses increased about 28%; general and administrative expense rose 52% to $30.5 million, partly reflecting public-company, accounting, legal, compliance, insurance and stock-compensation costs.
- Operating cash flow improved by $3.0 million to positive $0.8 million, but free cash flow remained negative. The filing attributes the operating-cash-flow result to a $20.3 million net loss, $26.9 million of positive non-cash and other adjustments, and $5.8 million of negative working-capital changes.
- FY2020 fourth-quarter revenue was $32.8 million versus $26.5 million in the prior-year quarter; operating loss was $4.7 million versus $3.3 million, while net loss narrowed to $3.7 million from $5.1 million.
Outlook, risks and unusual items
- Management provided no quantified revenue, profit or cash-flow guidance. It said cash, cash equivalents and available credit were expected to meet needs for at least the next 12 months; the liquidity note separately states resources were sufficient through at least April 2020. Investors should clarify this difference in stated time horizons.
- COVID-19-related cancellations and rescheduling of non-essential and elective visits had reduced patient visits. Management expected resulting impacts to payment-processing and life-sciences revenue, and disruption to sales and implementations could affect subscription revenue. The filing, dated April 23, 2020, says the effect was uncertain and not quantifiable; the pandemic’s impact on the quarter ended April 30, 2020 was disclosed as a subsequent event.
- The company reported a material weakness in internal control over financial reporting due to insufficient accounting and reporting personnel and inadequate segregation of duties, including journal-entry review. Disclosure controls were deemed ineffective. Remediation was ongoing and had not fully resolved the weakness; management nevertheless stated the financial statements fairly presented results in all material respects. The auditor issued an unqualified opinion on the financial statements.
- Key risks include continuing losses, uncertain path to GAAP profitability, reliance on a limited number of clients, annual contract renewals, variable payment and life-sciences revenue, competition (including from integration partners), dependence on a single third-party payment processor, privacy and cybersecurity obligations, healthcare regulation, and implementation and sales-cycle delays.
- Other notable items: the company completed its IPO and converted or cancelled its preferred stock; the December 2019 follow-on offering was by selling stockholders and provided no proceeds to Phreesia. FY2020 included a $1.073 million loss on debt extinguishment and a $3.307 million warrant fair-value loss. No material legal proceedings were reported. The company reported no GAAP gross-profit line; gross margin is therefore not presented as a filed metric.
Important facts for investors to verify
- Whether COVID-19 materially affected patient volumes, client implementations, renewals and revenue after year-end, and how long the effects persisted.
- Progress in remediating the material weakness and whether subsequent filings report effective controls or identify additional deficiencies.
- Cash burn and investment needs: reconcile positive operating cash flow with negative $11.5 million free cash flow and assess the use of IPO proceeds.
- Debt-facility covenants, borrowing availability, repayment schedule and liquidity headroom, including the filing’s differing statements about how long resources were expected to last.
- Revenue concentration and durability: payment processing accounted for 37% of FY2020 revenue, while one customer represented 15% of year-end accounts receivable.
- Underlying profitability and dilution: review the reconciliation of Adjusted EBITDA to GAAP net loss, stock-based compensation, and the effect of preferred dividends and accretion on common-stockholder loss per share.