Phreesia, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2020, compared with the three months ended April 30, 2019. Phreesia provides healthcare patient-intake and payment software, related services, and digital engagement solutions for life sciences companies.
Financial performance
| Metric | Q ended Apr. 30, 2020 | Q ended Apr. 30, 2019 | Change |
|---|---|---|---|
| Revenue | $33.4 million | $28.3 million | Up 18% |
| Operating loss | $5.0 million | $4.3 million | Loss widened |
| Net loss | $6.1 million | $6.7 million | Loss narrowed |
| Adjusted EBITDA, non-GAAP | $1.5 million | $(0.3) million | Improved |
| Cash from operating activities | $1.9 million | $2.0 million | Lower by $0.1 million |
| Free cash flow, non-GAAP | $(1.2) million | $(0.7) million | More negative |
Revenue by source: subscription and related services rose 23% to $15.6 million; payment processing fees rose 1% to $11.7 million; and life sciences revenue rose 50% to $6.1 million. Subscription growth reflected new clients and expansion within existing clients; life sciences growth reflected more programs and greater scale. Payment revenue was affected by falling patient visits late in the quarter as COVID-19 led to cancellations and rescheduling of non-essential and elective care.
Total expenses were $38.4 million, up from $32.6 million. General and administrative expense increased 40% to $8.7 million, primarily reflecting compensation, software and public-company insurance costs. Stock-based compensation increased to $2.9 million from $0.6 million. The filing does not provide a clear headline gross-margin figure.
Liquidity, cash flow and debt
- Cash and cash equivalents were $90.3 million at April 30, 2020, essentially unchanged from $90.3 million at January 31, 2020.
- Investing activities used $3.1 million, including $1.9 million for property and equipment and $1.2 million for capitalized software. Financing activities provided $1.1 million, mainly from stock-option exercises, net of finance-lease and facility payments.
- Outstanding term-loan principal was $20.0 million; its balance-sheet carrying value was $19.5 million. The company had $25.0 million of availability under its revolving facility and no revolver borrowings at quarter-end. It reported compliance with its loan covenants.
- On May 5, 2020, after quarter-end, Phreesia entered into a new facility providing a revolving line of credit up to $50.0 million, with options to increase to $65.0 million. It used approximately $20.0 million to repay the term loan. The new facility matures May 5, 2025, has no scheduled principal payments before termination, and initially bears interest at the greater of the prime rate or 4.50%.
- Management said cash, expected ordinary-course cash generation and available borrowing capacity were sufficient for at least 12 months. It also expected losses and negative cash flows to continue for at least the next year. Additional financing, if needed, may not be available on acceptable terms.
Material changes, outlook and risks
- COVID-19 created material uncertainty. Management cited risks to sales and implementations, patient-payment volume, life sciences patient engagements, collections and customer renewals. The filing said the duration and magnitude of the impact could not be predicted.
- Key operating metrics showed average provider clients up to 1,632 from 1,549 and average revenue per provider client up to $16,735 from $15,649. Patient payment volume declined to $454 million from $461 million.
- No specific revenue, earnings or cash-flow guidance was provided. The company highlighted seasonality: payment revenue typically rises when patient deductibles reset early in the calendar year, while life sciences spending follows client budget cycles.
- Disclosure controls were deemed ineffective because of a material weakness in financial-reporting controls, including insufficient accounting staff and inadequate segregation of duties in several processes. Hiring and improved review controls were underway but had not fully remediated the weakness. Management nevertheless stated that the statements fairly presented the company’s financial position and results.
- The company reported no litigation it believed would have a material financial effect. It identified ongoing risks including customer concentration, competition, dependence on a single third-party payment processor, privacy and cybersecurity obligations, healthcare regulation, and continued operating losses.
Important facts for investors to verify
- Subsequent results and management commentary on COVID-19 effects, particularly patient visits, payment volume, implementations and customer collections.
- Terms, borrowing availability and covenant compliance under the May 5, 2020 credit agreement, including the impact of repaying the term loan.
- Progress in remediating the material weakness and whether disclosure controls become effective.
- Whether cash generation can support investment needs while losses continue; compare operating cash flow with capitalized software and equipment spending.
- Customer and receivables exposure: two customers represented 15% and 10% of accounts receivable at April 30, 2020, although no customer exceeded 10% of quarterly revenue.
- Growth in stock-based compensation and outstanding equity awards, and their potential effect on future expenses and dilution.