Phreesia, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended April 30, 2022; comparisons are with the three months ended April 30, 2021 unless noted. Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
Business context and performance
Phreesia provides a SaaS platform for healthcare organizations covering patient access, registration, payments and clinical support, and sells targeted patient communications to life sciences and other clients. Revenue comes from subscriptions and related services, payment processing and life sciences programs.
- Revenue: $63.4 million, up 31%. Subscription and related services were $29.1 million, up 33%; payment processing fees were $19.4 million, up 16%; life sciences revenue was $14.9 million, up 51%. Management attributed growth to client additions, expansion and cross-selling, higher patient payment activity, and increased life sciences programs and outreach.
- Key operating metrics: Average healthcare services clients increased to 2,526 from 1,902. Average revenue per healthcare services client declined to $19,193 from $20,222. Patient payment volume rose to $837 million from $701 million; payment facilitator volume was 80% of total, versus 78%.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Total revenue | $63.4 million | $48.3 million |
| Operating loss | $50.6 million | $10.7 million |
| Net loss | $51.2 million | $11.0 million |
| Net loss per share, basic and diluted | $0.99 | $0.24 |
| Adjusted EBITDA, non-GAAP | $(30.6) million | $0.1 million |
| Cash used in operating activities | $33.6 million | $5.5 million |
| Free cash flow, non-GAAP | $(40.7) million | $(12.4) million |
The filing does not report a consolidated gross margin. Revenue growth was outpaced by expense growth: total expenses rose to $113.9 million from $58.9 million. Sales and marketing increased 167%, research and development 156%, and general and administrative 65%. Management linked the increases chiefly to compensation and higher headcount, alongside marketing, outside services and other growth-related costs. Stock-based compensation expense included in operating results increased to $14.2 million from $5.8 million.
- Cash and working capital: Cash and cash equivalents were $269.2 million at April 30, down $44.6 million from January 31, 2022. Current assets were $349.2 million and current liabilities $70.8 million.
- Debt and borrowing capacity: Finance lease liabilities and other debt totaled $12.1 million, including $6.1 million current. No amount was drawn under the revolving credit facility; the amended Silicon Valley Bank facility provided $100 million of availability. The company reported covenant compliance.
- Investing and financing: Investing cash outflow was $7.0 million, including $5.2 million of capitalized internal-use software and $1.8 million of property and equipment purchases. Financing cash outflow was $4.0 million, primarily treasury shares withheld for stock compensation taxes and finance lease payments. The prior-year period included $245.8 million of net proceeds from a stock offering.
Material changes, outlook and risks
- Management said hiring and company-wide investment accelerated in fiscal 2022 to support anticipated growth and expects growth in team size and compensation to moderate in fiscal 2023 and thereafter. This is not specific revenue or earnings guidance.
- The company expects net losses and negative cash flows to continue for at least the next year, but believes cash, normal-course cash generation and available borrowing capacity are sufficient for at least 12 months. Additional financing may be sought if needed.
- On March 28, 2022, Phreesia amended its SVB facility, increasing capacity from $50 million to $100 million and revising its interest-rate terms and fees. Borrowings are due May 5, 2025 and are secured by substantially all assets other than intellectual property.
- Management noted that payment-processing activity and life sciences sales can be seasonal, and that payment utilization remained dynamic through the pandemic; it expects the environment to remain dynamic in fiscal 2023. COVID-19 and new variants, macroeconomic conditions and the Russia-Ukraine conflict could affect operations, vendors, staffing and cybersecurity.
- Principal disclosed risks include continued losses and cash burn, competition including EHR and practice-management providers, client retention and implementation execution, data privacy and cybersecurity, reliance on third-party payment processors and technology vendors, regulatory change, and the ability to manage rapid growth. The company disclosed no legal proceedings expected to have a material adverse effect. Management said disclosure controls were effective and reported no material control changes during the quarter; previously identified internal-control material weaknesses were described as remediated.
Most important facts for investors to verify
- Whether client growth and revenue expansion can translate into improved unit economics, particularly given lower average revenue per healthcare services client.
- Whether hiring and compensation growth moderates as management expects, and whether operating losses, Adjusted EBITDA and cash burn improve.
- Cash runway assumptions and the terms, covenants and actual availability of the $100 million SVB facility.
- Trends in payment volume, payment facilitator mix and life sciences program demand, including seasonality and client concentration.
- Any developments in cybersecurity, third-party vendor continuity, regulatory compliance or internal controls that could affect operations or financial reporting.