Phreesia, Inc. — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended July 31, 2023; comparisons are with the corresponding 2022 periods. Financial amounts below are in millions of dollars unless stated otherwise.
Business context
Phreesia provides healthcare software for patient access, registration and payments, and a platform for patient communications by life sciences companies and payers. Revenue comes from subscriptions and related services, payment processing, and network solutions. The company says most revenue is recurring or re-occurring.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $85.8 | $67.9 | $169.7 | $131.2 |
| Operating loss | $(37.0) | $(46.3) | $(74.9) | $(96.9) |
| Net loss | $(36.8) | $(46.7) | $(74.3) | $(98.0) |
| Adjusted EBITDA (non-GAAP) | $(11.5) | $(26.0) | $(25.3) | $(56.5) |
| Cash used in operating activities | $(9.3) | $(19.8) | $(23.0) | $(53.5) |
| Free cash flow (non-GAAP) | $(15.2) | $(25.7) | $(34.9) | $(66.4) |
Q2 revenue grew 26%; six-month revenue grew 29%. Q2 net loss margin was approximately 42.8% negative, compared with 68.8% negative a year earlier. Adjusted EBITDA and free cash flow are non-GAAP measures; the filing provides reconciliations and cautions they are not substitutes for GAAP results or cash flows.
| Revenue category | Q2 FY2024 | Change year over year | Six months FY2024 | Change year over year |
|---|---|---|---|---|
| Subscription and related services | $39.3 | 26% | $77.2 | 28% |
| Payment processing fees | $23.6 | 21% | $47.9 | 23% |
| Network solutions | $22.9 | 33% | $44.6 | 39% |
Management attributed subscription growth to new clients and expansion or cross-selling to existing clients; payment growth to more clients, visits and payments; and network solutions growth to more programs and deeper outreach. Average healthcare services clients rose to 3,445 in Q2 from 2,776. Healthcare services revenue per client was nearly flat at $18,268; total revenue per client increased 2% to $24,914. Patient payment volume increased 22% to $989 million in Q2.
Cash, debt and liquidity
- Cash and cash equivalents were $127.7 million at July 31, 2023, down $49.0 million from January 31, 2023. Total current assets were $219.2 million and current liabilities were $84.9 million.
- Finance lease liabilities and other debt totaled $15.2 million, including $3.8 million under a software financing agreement. No borrowings were outstanding under the $100 million SVB revolving facility.
- The company reported compliance with facility covenants at quarter-end. A covenant restricts cash held outside SVB; SVB consent allowed up to $165 million outside SVB through November 15, 2023, subject to maintaining at least $17 million at SVB. The company said it could borrow once cash placement complied with the covenant and other requirements were met.
- Management believes cash, together with cash generated in the ordinary course, will fund needs for at least 12 months. The filing also says losses and negative cash flows are expected to continue for at least the next year.
Material changes and notable items
- Net loss narrowed and operating cash use improved year over year, while revenue grew across all three categories. R&D expense increased 22% in Q2 and 25% for six months; sales and marketing expense declined, largely reflecting lower average headcount. Stock-based compensation expense was $18.6 million in Q2 and $35.8 million for six months.
- On June 30, 2023, Phreesia acquired MediFind for $8.9 million in cash, stock and liabilities. The acquisition added $6.9 million of goodwill; $0.7 million of acquisition-related costs were incurred during the six months.
- After quarter-end, on August 11, 2023, the company acquired Access eForms for $38.4 million in total consideration, including $6.5 million cash and 1,096,436 shares. This is a subsequent event, not included in July 31 balances.
- The company reported no legal proceedings it believes would have a material adverse effect, and management concluded disclosure controls were effective as of July 31, 2023.
Outlook, risks and contingencies
No numerical revenue or earnings guidance is provided in the filing text. Management cited a dynamic payment-processing environment and expects it to remain dynamic through fiscal 2024. It noted that macroeconomic conditions, including inflation, higher interest rates and economic uncertainty, could affect clients and operations, though none had individually had a material impact to date.
Key risks include continued losses and cash consumption; competition, including from EHR and practice-management providers; dependence on client retention, implementation and patient payment activity; privacy, cybersecurity and healthcare-regulatory obligations; reliance on third-party payment processors, vendors and contractors; and risks integrating acquisitions. The SVB cash-location covenant and access to the revolving facility are liquidity considerations. The company maintains a valuation allowance against U.S. deferred tax assets because realization is not considered more likely than not.
Investor verification points
- Track whether revenue growth, client additions and patient payment volume translate into improving GAAP operating results and cash generation.
- Assess cash burn and liquidity after the Access acquisition, including the impact of its stock issuance and cash payment.
- Verify continued compliance with SVB facility covenants and any extensions or changes to the cash-placement consent after November 15, 2023.
- Review acquisition integration, realized benefits and any further acquisition-related costs or dilution.
- Monitor stock-based compensation, which is substantial, and distinguish non-GAAP Adjusted EBITDA and free cash flow from GAAP performance.