Phreesia, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 31, 2020 (fiscal 2021 second quarter); comparisons are to the prior-year periods. Unless stated otherwise, financial figures are in millions of dollars.
Business context
Phreesia provides a healthcare SaaS platform for patient intake and payments, with digital patient-engagement services for life sciences companies. Revenue comes from provider subscriptions and related services, payment processing, and life sciences programs. The filing describes recurring provider revenue as a key source of visibility, while noting that payment and life sciences revenue are affected by patient activity.
Financial performance
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $35.0, up 14% year over year | $68.4, up 16% |
| Subscription and related services | $17.1, up 22% | $32.7, up 23% |
| Payment processing fees | $11.8, up 1% | $23.5, up 1% |
| Life sciences revenue | $6.1, up 18% | $12.1, up 32% |
| Operating loss | $6.3, versus $4.1 loss | $11.3, versus $8.4 loss |
| Net loss | $6.4, versus $7.5 loss | $12.5, versus $14.2 loss |
| Adjusted EBITDA (non-GAAP) | $1.2, versus $0.7 | $2.7, versus $0.5 |
Provider subscriptions grew through new clients and expansion or cross-selling to existing clients. Life sciences growth reflected new programs and increased scale. Payment revenue was nearly flat: higher-yield transaction mix partly offset lower patient payment activity associated with COVID-19. Average provider clients rose to 1,668 for the quarter from 1,558; average revenue per provider client was $17,360 versus $16,472. Patient payment volume was $466 million versus $464 million for the quarter, and $921 million versus $925 million year to date.
Operating expenses rose faster than revenue, including sales and marketing, research and development, and general and administrative costs. Management cited higher staffing and compensation, implementation and support costs, and public-company-related costs. The lower year-over-year net loss partly reflects the absence of the prior-year warrant fair-value expense following the IPO; operating loss increased. Prior-year loss per share is also affected by preferred-stock dividends and accretion, so it is not directly comparable with 2020.
Cash flow, balance sheet and debt
- Cash and cash equivalents were $84.2 at July 31, 2020, down from $90.3 at January 31, 2020. Six-month operating cash flow was negative $0.5, compared with positive $2.6 a year earlier; investing cash flow was negative $7.4, and financing cash flow was positive $1.8.
- Free cash flow, a company-defined non-GAAP measure, was negative $7.9 for the six months, compared with negative $3.0. Capital spending included $4.7 for property and equipment and $2.7 for capitalized software.
- Total assets were $160.3 and total liabilities $62.6. Current assets were $128.0 and current liabilities $38.1.
- Debt and finance lease liabilities, net of discounts and financing costs, totaled $28.1, including $23.1 long term. The $50.0 revolving facility had $20.7 drawn and $29.3 available; it matures May 2025, bears a 4.5% rate as of the quarter, and is secured by substantially all assets other than intellectual property. The company reported covenant compliance.
Management said cash, normal-course cash generation, and available credit were expected to fund operations for at least 12 months. It also expected net losses and negative cash flows to continue for at least the next year, and noted that additional financing, if needed, might not be available on acceptable terms.
Outlook, risks and notable items
- COVID-19: Patient visits across the provider network remained below pre-pandemic levels. Management warned that lower visits could weigh on payments and life sciences revenue, while disruptions to sales and implementations could affect subscriptions and growth. The duration and magnitude of the impact were uncertain; no numerical guidance was provided.
- Financial reporting controls: Disclosure controls were deemed ineffective because of a material weakness involving insufficient accounting personnel and inadequate segregation of duties, including review of manual journal entries. Remediation efforts were ongoing and had not fully addressed the weakness by quarter end.
- Other risks: The filing highlights customer retention and concentration, healthcare-sector spending and consolidation, competition, privacy and cybersecurity obligations, reliance on one payment processor and third-party partners, and regulatory uncertainty. One customer represented 10.8% of accounts receivable; no individual customer exceeded 10% of revenue in the periods shown.
- Contingencies and accounting: The company said ordinary-course legal matters were not expected to have a material financial impact. It adopted lease accounting guidance in February 2020, recognizing operating lease assets and liabilities; the adoption did not materially affect operating results or cash flows.
Key facts for investors to verify
- Whether provider activity and patient visits recover, and how that affects payment volume and the relatively flat payment-processing revenue.
- Whether revenue growth can outpace expense growth and improve GAAP operating results and cash generation; assess Adjusted EBITDA and free cash flow alongside GAAP measures.
- Accounts receivable collectability, including the reported 19% aged more than 90 days and the 10.8% customer concentration.
- Progress in remediating the material weakness in financial reporting controls.
- Credit-facility covenant compliance, borrowing availability, debt and lease commitments, and the cash runway under continued losses and negative cash flow.