Phreesia, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2023 third quarter and nine months ended October 31, 2022; filed December 9, 2022. Phreesia provides healthcare software and payment services, plus patient communication solutions for life sciences and payer clients. Amounts below are in U.S. dollars.
Financial performance
| Metric | Three months ended Oct. 31, 2022 | Year-over-year change | Nine months ended Oct. 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $73.1 million | +31% | $204.3 million | +32% |
| Operating loss | $39.8 million | Prior-year loss: $35.7 million | $136.7 million | Prior-year loss: $70.2 million |
| Net loss | $40.2 million | Prior-year loss: $36.3 million | $138.1 million | Prior-year loss: $71.7 million |
| Adjusted EBITDA (non-GAAP) | $(18.3) million | Prior-year: $(17.6) million | $(74.9) million | Prior-year: $(28.6) million |
| Cash used in operating activities | $20.7 million | Prior-year: $24.5 million | $74.2 million | Prior-year: $36.7 million |
| Free cash flow (non-GAAP) | $(27.5) million | Prior-year: $(39.0) million | $(93.8) million | Prior-year: $(61.3) million |
Third-quarter revenue comprised subscription and related services of $33.0 million (+35%), payment processing fees of $19.6 million (+22%), and network solutions of $20.5 million (+33%). For the nine months, those categories were $93.2 million (+35%), $58.6 million (+19%), and $52.6 million (+42%), respectively.
Revenue growth reflected new healthcare services clients, expansion and cross-selling to existing clients, higher patient payment activity, and more patient outreach programs. Average healthcare services clients in the quarter increased to 2,982 from 2,097; average revenue per healthcare services client declined 9% to $17,645, which management attributed mainly to client growth outpacing payment volume and to the solution mix of newer clients. Quarterly operating and net loss margins were approximately 54% and 55% negative, respectively, compared with approximately 64% and 65% negative a year earlier. For the nine months, those margins were approximately 67% and 68% negative, versus 45% and 46% negative.
Financial position and cash flow
- Cash and cash equivalents were $209.6 million at October 31, 2022, down $104.2 million from January 31, 2022.
- Total assets were $397.3 million and total liabilities were $76.9 million. Finance lease liabilities and other debt totaled $9.2 million, including $5.5 million current.
- There were no borrowings under the Silicon Valley Bank revolving facility; $100 million of capacity was available. The facility matures May 5, 2025, and the company reported covenant compliance.
- Nine-month investing cash outflow was $19.6 million, including $15.6 million of capitalized internal-use software and $4.0 million of property and equipment purchases. Financing cash outflow was $10.4 million; the comparable prior-year period included $245.8 million of net proceeds from an equity offering.
Changes, outlook, and risks
Revenue grew substantially, but the nine-month net loss nearly doubled year over year as expenses rose faster than revenue. Nine-month sales and marketing expense increased 66% to $115.0 million, research and development increased 89% to $65.8 million, and general and administrative increased 29% to $60.5 million. Management linked higher costs primarily to compensation, increased headcount, and outside services. Stock-based compensation expense was $43.5 million for the nine months, up from $26.0 million.
Management said hiring and investment growth should moderate in fiscal 2023 and thereafter. It expects continued net losses and negative cash flows for at least the next year, but believes cash, normal-course cash generation, and available credit are sufficient for at least 12 months. The filing gives no specific revenue, earnings, or cash-flow guidance.
Key risks include continued cash burn and the path to profitability; competition, including from EHR and practice-management vendors; client retention, pricing, and implementation risks; privacy, cybersecurity, and regulatory exposure; reliance on third-party payment processors, vendors, and a sole hardware supplier; and disruption affecting international contractors. COVID-19 and macroeconomic uncertainty, including inflation, are also cited. The company reported no legal proceedings it believes would have a material adverse effect. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material quarterly changes in internal control over financial reporting.
Investor verification priorities
- Track whether revenue growth translates into improved operating leverage, given rising expenses and widening nine-month losses.
- Assess cash burn and the expected runway against management’s 12-month liquidity assessment, including software-development spending and working-capital needs.
- Monitor healthcare services client growth alongside average revenue per client, patient payment volume, and payment facilitator mix.
- Review the terms, covenants, and availability of the $100 million credit facility and the company’s ability to maintain covenant compliance.
- Evaluate stock-based compensation and dilution, as well as exposure to data-security incidents, third-party service disruptions, and client concentration in receivables.