Phreesia, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 31, 2021 (fiscal 2022 third quarter). Amounts are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Business context
Phreesia provides healthcare software for patient intake, payments and engagement. Revenue comes from provider subscriptions and related services, payment processing, and digital marketing services for life sciences companies. The company primarily serves U.S. customers.
Financial performance and liquidity
| Metric | Three months ended Oct. 31 | Nine months ended Oct. 31 |
|---|---|---|
| Revenue, 2021 | $55.9 | $155.2 |
| Revenue, 2020 | $38.5 | $106.9 |
| Net loss, 2021 | $(36.3) | $(71.7) |
| Net loss, 2020 | $(6.7) | $(19.2) |
| Adjusted EBITDA, 2021 | $(17.6) | $(28.6) |
| Adjusted EBITDA, 2020 | $1.2 | $3.9 |
| Cash used in operating activities, 2021 | $(24.5) | $(36.7) |
| Free cash flow, 2021 | $(39.0) | $(61.3) |
Quarterly revenue grew 45% year over year. Subscription and related services rose 39% to $24.4 million, payment processing fees rose 25% to $16.1 million, and life sciences revenue rose 91% to $15.4 million. For the nine months, each category grew 38%, 35% and 83%, respectively. Provider clients averaged 2,097 in the quarter versus 1,737 a year earlier; average revenue per provider client increased to $19,299 from $17,490.
Growth came with substantially higher expenses: quarterly sales and marketing rose 206%, research and development 166%, and general and administrative 74%. GAAP operating loss was $35.7 million for the quarter and $70.2 million for the nine months. The filing does not provide a clear gross-margin figure.
At October 31, cash and cash equivalents were $400.4 million, compared with $218.8 million at January 31. Current assets were $464.3 million and current liabilities $65.0 million. Finance lease liabilities and other debt totaled $9.7 million; there were no borrowings under the Silicon Valley Bank facility, which had $50.0 million of availability. The company raised $245.8 million net in an April follow-on offering of 5.175 million shares.
Changes, outlook and risks
- Revenue growth reflected provider additions and expansion, higher patient payment activity as the effects of COVID-19 eased, and expanded life sciences marketing programs.
- Management expects net losses and negative cash flows to continue for at least the next year, but believes available cash, ordinary-course cash generation and credit-facility capacity can fund operations for at least 12 months. The filing gives no specific revenue or earnings guidance.
- COVID-19 and new variants remain uncertain risks. Other key exposures include competition, customer retention and implementation delays, privacy and cybersecurity obligations, reliance on third-party payment processors and suppliers, and regulatory changes in healthcare.
- Disclosure controls were deemed ineffective because of an unremediated material weakness in IT access and program-change controls. Management said it performed additional procedures and believes the financial statements fairly present the results. Remediation efforts were ongoing; a new ERP system was implemented during the second quarter.
- Unusual compensation item: the company recorded $5.3 million of expense for certain employee bonuses elected to be paid in shares; the amount was classified as a liability pending settlement in shares. Subsequent to quarter-end, on December 3, Phreesia agreed to acquire Insignia Health for $35 million in cash, subject to customary adjustments.
- Other items to monitor include the $1.1 million contingent-consideration liability related to an acquisition and continued investment and spending growth. Management cautions that interim results may not indicate full-year performance.
Important facts for investors to verify
- Whether revenue growth and provider-client expansion continue, and whether rising expenses and losses moderate.
- Cash burn, capital spending and the company’s ability to fund its strategy without further financing or material dilution.
- Progress and independent validation of remediation of the material weakness, including controls affected by the ERP implementation.
- Insignia Health acquisition closing, cash purchase price and integration costs or benefits.
- Adjusted EBITDA and free cash flow reconciliations, and the effects of stock-based compensation, including share-settled bonuses.