Phreesia, Inc. (NYSE:PHR) Q1 2024 Earnings Call Transcript

Phreesia, Inc. (NYSE:PHR) Q1 2024 Earnings Call Transcript May 31, 2023

Phreesia, Inc. misses on earnings expectations. Reported EPS is $-0.7 EPS, expectations were $-0.46.

Operator: Good evening, ladies and gentlemen, and welcome to the Phreesia Fiscal First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will provide instructions for the question-and-answer session to follow. First, I would like to introduce Balaji Gandhi, Phreesia’s Chief Financial Officer. Mr. Gandhi, you may begin.

Balaji Gandhi: Thank you, operator. Good evening, and welcome to Phreesia’s earnings conference call for the fiscal first quarter of 2024, which ended on April 30, 2023. Joining me on today’s call is Chaim Indig, our Chief Executive Officer. A complete discussion of our results can be found in our earnings press release and in our related Form 8-K submission to the SEC, including our quarterly stakeholder letter, both issued after the markets closed today. These documents are available on the Investor Relations section website at ir.phreesia.com. As a reminder, today’s call is being recorded, and a replay will be available on our Investor Relations website at ir.phreesia.com following the conclusion of the call. During today’s call, we may make forward-looking statements, including statements regarding trends, our anticipated growth, our strategies, predictions about our industry, and the anticipated performance of our business, including our outlook regarding future financial results.

Forward-looking statements are subject to various risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those described in our forward-looking statements. Such risks are described more fully in our earnings press release, our stakeholder letter and our risk factors included in our SEC filings, including in our quarterly report on Form 10-Q that will be filed with the SEC tomorrow. The forward-looking statements made on this call will be based on the statements are made. We undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events.

We may also refer to certain financial measures not in accordance with generally accepted accounting principles in order to provide additional information to investors. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and stakeholder letter, which were furnished with our Form 8-K filed after the markets closed today with the SEC and may also be found on our Investor Relations website at ir.phreesia.com. I will now turn the call over to our CEO, Chaim Indig.

Chaim Indig: Thank you, Balaji, and good evening, everyone. Thank you for participating in our first quarter earnings call. Our stakeholder letter and earnings release came out about an hour ago. But let me start the call by sharing a few key highlights of the materials we released. Revenue in the first quarter was $84 million, up 32% year-over-year. That’s our ninth consecutive quarter of over 30% year-over-year revenue growth. Another fantastic achievement by the Phreesia team. Congratulations to all of you who are listening. In the quarter, our average number of healthcare services clients was 3,309, up 31% year-over-year. We added 169 average healthcare services clients from the fourth quarter to the first quarter. Total revenue for average healthcare services clients was $25,338, up 1% year-over-year, 4% sequentially.

Subscription and related services revenue grew 30% year-over-year. Payment processing revenue grew 25% year-over-year, and network solutions revenue was up 46% year-over-year. Now, let me hand it over to Balaji to talk about our fiscal ‘24 outlook.

Balaji Gandhi: Thanks Chaim. Moving on to our outlook for fiscal 2024, which ends on January 31, 2024. We are maintaining our revenue outlook for fiscal 2024, which is in the range of $353 million to $356 million, implying growth of 26% to 27% over our fiscal 2023 revenue. We are raising our adjusted EBITDA outlook to a range of negative $60 to negative $55 million from a range of negative $65 to negative $60 million, showing continued improvement on our path to profitability. We are also maintaining our revenue and profitability targets for fiscal 2025. Those targets are $125 million of revenue in a quarter during fiscal 2025, which implies $500 million of annualized revenue and returning to adjusted EBITDA profitability during fiscal year 2025.

We remain comfortable with our ability to finance our fiscal 2025 targets with our cash position. We believe our capital allocation strategy sets us up to deliver on our financial targets for fiscal 2025 and beyond. We continue to focus on driving shareholder value. Operator, I think we can now open it up to Q&A.

Q&A Session

Operator: [Operator Instructions] We’ll take our first question this afternoon from Anne Samuel of JPMorgan.

Anne Samuel: Hi guys. Thanks for taking the question. And congrats on the great results. In your letter, you spoke to higher patient volumes in the first quarter. I was just hoping maybe you could talk about what you attribute that to. And then, just how to think about cadence for the remainder of the year? Was this a pull-forward from 2Q, or do you think that that will be spread more evenly throughout the year?

Balaji Gandhi: Yes. Hi Annie, Balaji here. So, the comment around the volumes in the first quarter, I think what’s important to take away is that it was just stronger than we anticipated. So, when we entered the year, it’s obviously, there’s some seasonality and there’s some seasonal strength, but it was stronger than we would have thought. I think — and maybe Chaim can talk about this a little bit. If you think about our business and having been at this a long time, we can be off a little bit on any quarter. We have a lot of visibility, but there’s things around weather. There’s things around different mix on different specialties that can skew that. So, I don’t know, Chaim, if you want to add anything on that, and I can come back to the cadence.

Chaim Indig: No, you did a great job. You did a great job, look, I think it’s still early in the innings. And I think we got a lot of months left to go.

Balaji Gandhi: And Annie, on the cadence, we did mention that the volume strength also helped with some of the pacing of our programs and our campaigns in the first quarter. So, as you know, that that revenue is nonrecurring, and we’re selling campaigns throughout the year as well. So, if you just think about the cadence, some of that will — things will have to happen in 2Q to sort of fill that out. We obviously don’t provide quarterly guidance, but I think you should definitely think about a little bit of that being pulled up.

Anne Samuel: Okay. That’s really helpful. Thank you. And then maybe just one more. You saw really nice gross margins on the software side. And just curious if we should be assuming that you can kind of hold this cost of revenue level or if there was maybe something unique this quarter that helps keep it kind of flat?

Balaji Gandhi: Well, I mean, first of all, I think it’s just important to call out the team, I mean just continued great effort by everyone. We obviously made a lot of investments across all those client services, client support teams, and everyone has done a great job as we’ve continued to add a ton of clients, 169 this quarter. So — and as we’ve said, continue to say that when we think about getting back to adjusted EBITDA profitability, it’s going to be based on more gross margin improvement but I think the big step up has happened, and now you’re talking about more kind of moderate improvement from here. But yes, we do feel pretty good about it.

Chaim Indig: It was pretty nice. Wasn’t it?

Anne Samuel: It was very nice. Thanks for the color, guys. Congrats again.

Chaim Indig: Thank you.

Operator: Thank you. We go next now to Ryan Daniels at William Blair.

Ryan Daniels: Balaji, maybe I’ll start with one for you. The sales and marketing line, see really great leverage there. It was off 10% year-over-year despite the 30% plus growth. How should we think about that line item going forward and maybe the cadence as we roll through the year?

Balaji Gandhi: Yes. I mean, once again, it’s worth calling out just the effort by the team. So, it’s — I mean, I think people use the term productivity a lot, but there’s people behind all that. And so, we’ve also been pretty diligent about how we spend. I mean, there’s non-people expenses, too, and there’s vendors. And so we’ve just tried to be — have an ownership sort of mentality and try to get the most we can out of a lot of the expenses that we’ve had in the P&L. And so I think, again, just like the previous question, that operating leverage on sales and marketing expense will be another source of how we get the EBITDA positive. If you think about the negative 13.8% getting to 0, then we should see some improvement there as a percentage of revenue. Does that answer the question?

Ryan Daniels: Yes. Yes, that’s perfect. And then, interesting case study on network solutions regarding the open enrollment period. I’m curious if that was done on behalf of a plan and thus, kind of signs of a novel revenue stream there with that product offering, or was that something you did as kind of an internal project for MA eligible members in order to market the capability to payers going forward? Thanks.

Chaim Indig: So Ryan, that was a little of both. So I think we did that with a plan — but I don’t think it’s — I think it was really to show up some capabilities. It was not a revenue — a huge revenue driver, but I think you got a lot of folks really excited about our capabilities being able to reach their members specifically and understand what matters to the members because one of the things that we strongly believe that we’ve been able to see for years with our platform is that as much as we might all be Americans, use the healthcare system, we all have very individual and different needs. And those needs often are not seen through the planned coverage. And this gives a lot more visibility to that client base of ours, and they’ve been pretty excited about the feedback we’re doing even now.

Operator: We go next now to Jessica Tassan of Piper Sandler.

Jessica Tassan: Thank you guys for taking the question. Nice first quarter with the new CFO. So, I would just kind of echo Ryan’s sentiment, I thought the MemberConnect detail was really helpful. Should we think about this product then as being kind of out of beta and priced and ready for full launch for 2024 AEP, so in your kind of fiscal 3Q, 4Q period?

Chaim Indig: I don’t think the team would tell you that it’s in beta, but I don’t think it’s fully GA. How’s that? It’s — I think we have a bunch of customers on our different product sets. I think we still have a lot of investment in it. And I think — I wouldn’t say we’re — let’s just say, it’s doing very well, and I’m really proud of the team on what we’re doing with it. How’s that? But I’m not commenting on where we’ll be for open enrollment just yet.

Balaji Gandhi: And it’s still early.

Chaim Indig: But the response from the community, the client community has been phenomenal.

Jessica Tassan: Okay. I think that’s very helpful. And then just maybe can you talk about how you’re monetizing PAM today? It seems like it might have been part of that MemberConnect survey, but just interested to know how that asset is being monetized today and whether the impacts predominantly felt in subscriptions or in network solutions? And that’s it.

Balaji Gandhi: Sure. So, there’s sort of like two parts to that. MemberConnect as an offering — and I would refer you to go back to our letter from December on this. It’s the Medicare Advantage lead gen piece that you were talking about earlier. But there’s also like the offering of PAM in and of itself, that’s another sort of piece of MemberConnect. Nothing to really call out there for monetization. When you think about MemberConnect, think about it as the revenue generating, being almost exclusively the Medicare Advantage lead gen. However, there is revenue from PAM that came through the acquisition of Insignia, which is in subscription that’s tied to effectively — overwhelmingly, the contract we have with CMS. And so CMS has a multiyear contract that is public, you can look it up, but it’s subscription revenue through that.

Operator: We’ll take our next question now from Glen Santangelo at Jefferies.

Glen Santangelo: Hey, guys. I wonder — obviously another nice EBITDA beat again this quarter. And I think the obvious question is with revenue sort of humming along in the low-30s here, the EBITDA guidance for the year really doesn’t assume any leverage throughout the balance of the year. And I’m kind of curious, is that some level of conservatism, or there are other sort of planned investments that we should be talking about, or would be helpful to sort of point out? And then, I just had a follow-up question on the balance sheet.

Balaji Gandhi: Sure. So first of all, just to be clear, when you say low-30s, you mean as a percentage growth?

Glen Santangelo: Yes. I’m sorry. Yes, as a percentage growth.

Balaji Gandhi: Okay. I almost skipped the beat there because I thought you meant — okay. So I mean, Glen, first of all, I think this is sort of like the same sort of theme from the question on gross margins and on sales and marketing that goes right to EBITDA, which is the team has done a great job. And I know — and we can’t sort of say enough about that. And so, it’s afforded us the ability to keep investing in the business. And so, the outperformance on EBITDA that you’ve seen in the past few quarters has set us up to do what we’ve said, which is continue to invest. And the area that you should think about is R&D. It’s the one area that we don’t talk about like, oh, we’re going to sort of squeeze and get operating leverage around because we’re thinking about fiscal ‘26, ‘27 and ‘28, et cetera.

So, when you think about the range — the EBITDA guidance range, sure, there’s a situation where we’ll be investing more in R&D. That said, we’ll update you in 90 days. And if the team continues to execute well, maybe there’s room for improvement. Does that help?

Glen Santangelo: Okay. Perfect. And Balaji — that’s helpful. I just want to follow up on the balance sheet. I mean, the Company has been burning, call it, mid-teens, $15-ish million of cash. I think, again, this quarter, maybe a little bit higher than last year. As we think about the path to profitability in fiscal ‘24 and ‘25, I know you have $150 million in cash on the balance sheet. You said that you’re more than comfortable that you have enough. But I was just — wanted to reconcile that with some of the comments related to SVB in the press release. If you could just sort of quickly rehash for us where you have a lending facility now, where your cash is sitting, and would the plan to be to open up another lending facility outside of SVB?

Balaji Gandhi: Yes. Thanks for bringing up the…

Chaim Indig: Glen, those were like…

Glen Santangelo: I promised some time.

Balaji Gandhi: Thanks for like making we want to have to look at our lengthy disclosure, so all of our attorneys feel comfortable with how we talk about this. But I mean, Glen, there’s a lot of language in the filings from last time, and you’ll see some in the Q this time. But at the end of the day, that facility still is in place, and we’ve received a waiver that allows us to keep more cash outside of SVB. Longer term and for people on the phone who are listening, who are in the lending community, feel free to reach out to us. Longer term, we’ll look at other avenues to finance any kind of growth we want beyond what we’ve said we can finance through cash through ‘25. We continue to feel very good about that. The cash is there to support that growth.

And as you said, it’s about $150 million. And we have no debt drawn on the existing facility. So yes, we’ll look at other things, and we’ll continue to look at other opportunities. But that revolver is in place today. And then, as far as the — in terms of the losses, just note that on cash flow, there is timing. So, the first part of the year, we have some additional treasury stock. If you look at the financing section to cover tax withholdings for employees. So, you don’t see those in the remaining quarters. You’ll actually see that in Q4 and Q1.

Operator: We go next now to Scott Schoenhaus at KeyBanc.

Scott Schoenhaus: Hey, Chaim and Balaji. Congrats on the quarter. I wanted to dig deeper into this update you provided in your letter about your partnership with Unlimited Systems. Was any of that that launched this quarter, was any of that shown up in results on the subscription side?

Chaim Indig: No. Not even slightly.

Scott Schoenhaus: Okay. And so, is this something that you guys are…

Chaim Indig: I would put that in the R&D line. It’s still real early.

Scott Schoenhaus: Okay. So, is this something that you guys are actively pursuing basically trying to partner with all these specialty other healthcare IT service offerings, do you really sell your solution? And what do you view that opportunity as? Is this a way to drive really much more incremental subscription growth for this year and next year? Thanks.

Chaim Indig: Look, well, — so to be clear, we sell our solution, but look, we got a lot of requests from their customer base wanting to have an integrated solution with Phreesia. And so, we’re just really following where the market is and what the market wants. And frankly, we’ve had like that’s — we have a whole team of people and they do market assessments on where we should spend dollars and they’re just really smart, and they work with the — our different partners, and we decide where we make R&D investments for that type of integration and making sure that the product that we have is just great, so. And we are very excited about it. Unlimited is — it seemed like — early days, it seemed like a great partner.

Scott Schoenhaus: I guess lastly, my second question is on the pharma digital advertising space. Just generally, what are you seeing there? Anything different from last quarter? It seems like you continue to outperform peers in this space. Thanks.

Chaim Indig: So I think it’s — I definitely think it’s challenging compared to what it was when this was one of the only ways that people could reach the consumer. Obviously, we are doing — we just put on another really good quarter. And I’d say the number one reason is the return we have for our clients like they’ve just been really, really happy with what we can do and how we do it in a very — in a methodology that is really pro patient, right? And that’s just worked out very well for us and our clients. But the reason that we’ve also had the success is the team, like they’re just — like they’re working really hard, like every so often this is like dashboard that I could see just the amount of interactions that our team is having with clients, and it blows my mind what — just how engaged, how excited and how amazing that team is that works with our life sciences clients.

I went — they had the team off-site and I went to it, and it was just — I just like — I think I had a smile on my face, the entire times being there and being near that team. It was really uplifting. They’re just doing a great job. I’m really proud of that.

Operator: We go next now to Ryan MacDonald at Needham.

Ryan MacDonald: Thanks for taking my questions. And congrats on the nice quarter. Chaim, maybe the first one for you. In the quarterly stakeholder letter, I thought it was interesting on the discussion of patient insights and being utilized to sort of gather information around clinical trials from patients. Can you talk about the potential application there for extending sort of network solutions into clinical trial enrollment and how you think about potentially monetizing that over time?

Chaim Indig: Look, I think that clinical trials and making sure that there’s — that patients that want to be in different trials and get access to cutting-edge therapies, giving them access and making it available, I just think it’s just a wonderful thing to do. It’s an area we’ve been making investments in. It’s a natural continuation for what we can do. And I think you should expect to hear more from us in the coming years on how we’re — how excited we are and some of the things we’re going to do in that space. I think it’s still too early, but we are investing in it. And what we want everyone knows like we think that it’s not just a monetary win, we think it’s just a big win for patients and for science.

Ryan MacDonald: And maybe as a follow-up to that, I mean, in being a win for patients over time, as you continue to evolve the offerings there when you have MemberConnect and you have the core life sciences, marketing and potentially now on the clinical trial enrollment, how do you sort of balance out or prioritize what you’re showing to the patient within that intake experience to prevent the experience from becoming too — if you will, over time. Thanks.

Chaim Indig: Look, we made huge investments over the years in data science and in just machine learning to be able to make the right type of decisions, right? And I think that there’s tons of very smart people and a lot of data that gets tied into how and what we do with what patient. But I’d say that, first and foremost is making sure that it’s consent driven and we have permission to do. And when you have permission, which is core to what everything we do, it allows us to really lean into how we engage that patient in different content, which frankly should improve outcomes.

Operator: We go next now to John Ransom at Raymond James.

John Ransom: Just kind of — I’d like to hear your reflection, Chaim, the experiments you ran to crank up investments, sales and marketing and R&D. Just as you reflect on that after the decision, what would you point out as this is a particular highlight? And then what would you kind of point out as this is something that we would not have learned if we hadn’t done this?

Chaim Indig: All right. I don’t think we have enough time on this call, Mr. Ransom for me go through all of those things. I think the one thing that — there is a lot of things, which is, one, I don’t think I would have felt comfortable doing this without the leadership team that I have. And the fact that a lot of us have just worked together for a really long time and understand the business and the clients and understand how to read the information and data that the decisions have been made at all times. And those decisions seem to be made quickly. If not, the dollars are misspent very quickly. And so I think, first and foremost, the comfort of having the decision is the team, all over — spread all over at all different levels, made me really comfortable.

And frankly, I’m reaffirmed based on quarter-after-quarter result, that’s why we’ve been as successful as you have is the team, right? And their ability to continuously iterate on everything that’s happening in the market. I don’t know — as far as for a second, and I’d say this every single time that when you get a client, you’ve got to do the thing you say you’re going to do. You got to do it really, really well, and you got to treat them really well. And as long as we keep doing that and giving them a great product that has — is a fair value, I think we’re going to keep building a business and will not just stand the test of time, we’ll just make a big impact in healthcare. And healthcare just needs to get better, right, just for all of our sake, I’m getting old, right?

I’m going to be using the system even more than I already am.

John Ransom: Yes, I was going to mention that. That’s a bad joke.

Chaim Indig: Did I answer your question?

John Ransom: We’ll talk later.

Chaim Indig: I’m sure…

John Ransom: Kind of follow-up — yes. The second question I have is — so your sales productivity and as you go into the SDR selling — or hiring season, just what’s driving the productivity that you’re seeing in your sales force? And then how are you — if anything, what are you doing differently there as you bring these new people on board? And how much of this technology, how much of it is just talent selection and how much of this is door number 3 that I can’t think of right now?

Chaim Indig: I think we — our ability to attract and retain folks on the team, like our SDR teams, probably one of the best I know of, right? And the ability to attract and retain on that team and the leadership of that team is absolutely part of that. The sales organization, I think average tenure of our sales leadership is — within Phreesia is over a decade, right? And it shouldn’t be lost on how amazing that team has done. And then frankly, our upsell cross-sell, like the way — that the way the team has been performing on it, it’s just been lovely. They’re just doing a lovely job. And I mean awe of how well they’ve been performing, and frankly, that’s a testament to building great product and treating our customers well and doing the things we say we’re going to do, and which I think is just pretty basic.

Operator: We go next now to Sean Dodge at RBC Capital Markets.

Tom Kelliher: This is Tom Keller on for Sean. Thanks for taking the questions. One for me. I guess, how big is the hospital business now? And has that been a meaningful contributor to growth? And I guess, maybe you expect it to be in fiscal ‘24 and ‘25?

Balaji Gandhi: I mean, we don’t think about it as a hospital business. And so, you think about healthcare providers and you think about health systems and all hospitals in the country tend to be affiliated with some type of system and tend to have physician practices associated with them. So, that’s typically been our entry point. Historically, we’ve worked with the physician practice side of that organization and then enter the hospital piece. And so, we have lots of hospitals we work with. I think we announced publicly, we entered that market about 3.5 years ago. We’ve been working on the product for several years before that. And so, I think we’re pretty happy about where we are. Would you agree, Chaim?

Chaim Indig: Yes. Yes. I think everyone’s been — frankly, it’s even beat my own expectations.

Balaji Gandhi: So, when you think about just the universe of clients and patients and where patients receive care, it’s in the hospital, but it’s also plenty of other delivery settings.

Operator: We go next now to Stephanie Davis at SVB.

Stephanie Davis: Hey, guys. Congrats on the quarter. I cannot tell you how much I can’t believe for SVB to stop being in press releases. It’s been a long few months.

Balaji Gandhi: Yes. We’re required to disclose some of that stuff, so.

Stephanie Davis: I hear that. I hear that. I was hoping you could help us understand the revenue guidance a little bit because it implies 8 points of deceleration for the rest of the year. Is there any seasonality in the payer business or anything like that, just given we’ve never seen that level of step-down before in your revenue growth?

Balaji Gandhi: I mean, I think one of the things — and we brought this up, I think, earlier and was in the letter, volume strength was better than even we had expected in the first quarter. So, when you said 8 percentage — I think I heard you say 8 percentage points. I think that if you took the low end of 26 and the 32 that we just reported, that’s 6, right? Am I missing something?

Stephanie Davis: Is that you had 32% growth and then it would imply that it goes down to 24% growth at midpoint?

Balaji Gandhi: Oh, I see you’re saying. Got it. Got it. Yes. And so look, I mean, I think there’s definitely things that move around. I think even as we brought up in the letter, there’s some related services that we talked about in the letter. And we just try to — we don’t sort of operate the business in a way that it’s going to be exactly the same growth every quarter, but we try to sort of put the outlook out in the beginning of the year. And — but I think the biggest thing to take away in that delta is the strong — stronger-than-expected volume trends in the first quarter. And as we pointed out, that not only impacted payment processing, it also impacted network solutions because of the pacing of our campaigns.

But Stephanie, also as somebody who I know you follow payments closely, I think it’s noteworthy that we had $1 billion volume quarter in payment volume in the first quarter. And we actually skipped over the 900 decile and — or what whatever you call, I guess, the hundred of million, we went from $800 million to $1 billion in this quarter. And so I think that just sort of speaks to even with some of the seasonality, just the strong volumes in the first quarter.

Stephanie Davis: Okay. So that’s a perfect lead into my next question. You saw that huge volume quarter. How much of that was a function of just utilization improvements versus some of the discounting we called out in the prepared remarks? Is there a way to discount but still healthy beat in that segment in a more sustainable way, just given what we saw this quarter?

Balaji Gandhi: I mean — I think, we’ve been clear in the last couple of quarters that that’s something we have experimented with different pricing over time and with the intention that we’ll continue to do it if we can get good profit and economics out of it. So yes, there is some correlation. I don’t know if we say a specific amount. Chaim, anything you want to add?

Chaim Indig: No, you did great.

Operator: We’ll take our next question now from Jack Wallace at Guggenheim.

Unidentified Analyst: Hi, team. Thanks for taking my question. I’m on for Jack. I was wondering if we could quickly touch on the SDR count?

Balaji Gandhi: You mean in the quarter?

Unidentified Analyst: Yes.

Balaji Gandhi: Yes. Give me one second.

Chaim Indig: These are laminated pages.

Balaji Gandhi: If you have another question, go ahead, and I’ll get the number for you.

Unidentified Analyst: Yes. How have changes in the labor market impacted end market demand?

Chaim Indig: I think by having done this for a pretty long time, I’d say labor is still pretty — compared to the way it was pre-COVID, it’s still pretty tight, and wages are still at an accelerated level. I would say that it’s very — it’s dependent on the organization, region. But look, a lot of these practices and health systems and everyone’s having to watch all their costs. And labor is the most expensive — the biggest part of healthcare. And I don’t see wages coming down anytime soon.

Balaji Gandhi: And John, that number is 169. That’s inclusive of our ISRs or inside sales representatives, too. So pretty much about the same number as last quarter.

Unidentified Analyst: Got it. Okay. And if I can just squeeze one in. Apple announced Apple Pay Later in March, and I understand this application process to actually use the functionality. Do you envision that having any sort of impact on the payment side of business?

Chaim Indig: No, I don’t. I don’t know if they’ve enabled it in healthcare. But we do — Phreesia accepts Apple Pay on our platform.

Operator: We go next now to Richard Close at Canaccord Genuity.

Richard Close: Yes. Thanks. Congratulations. Sorry, I dropped off a couple of times. So if I repeat, just let me know. Did you talk at all about the Unlimited Systems relationship and maybe the market presence there?

Chaim Indig: Yes, we did. We spent like 20 minutes of the call on it. It was getting…

Balaji Gandhi: You should read the transcript.

Richard Close: Okay. So we’ll move to the next one then. Just maybe following up on Ryan’s comments on sales and marketing or a question on sales and marketing. I know you called out for cost of services and sales and marketing, some lower headcount there and some growth in R&D, and maybe just fine-tuning a little bit in those areas. Maybe if you could just go into a little bit more detail on the headcount changes.

Balaji Gandhi: I mean, I think you sort of hit it, Richard. I mean it’s — we continue to invest in R&D, and then in the other areas, I mean, you have the numbers that was minus 30 sequentially. So, I mean, you could sort of on a net basis, just allocate those to — those other areas, but R&D continues to be up.

Richard Close: Okay. Any thoughts with respect to the referral management offering that you rolled out a couple of years ago? How that’s trending?

Chaim Indig: It’s still growing pretty nicely. I’d tell you that offering — it’s continuously getting more and more traction. And that’s really — it’s been really beneficial to a lot of our practices as we’ve been rolling it out. I have been very pleased with its success, and I know that they keep lighting up more and more practices with it. But maybe in the next couple of quarters, we’ll give a little update on how that value is looking.

Operator: We will take our next question now from Daniel Grosslight at Citi.

Daniel Grosslight: I want to go back to the MemberConnect product here and just get your views on, in general, the Medicare Advantage market. There are some headwinds for the next calendar year, given the advanced rate notice, given some of the star scores changes. So, how are you thinking about growth in the Medicare market in general? And how does that translate to how you’re thinking about the MemberConnect product for calendar year ‘24?

Chaim Indig: Well, I think it’s still pretty early, but what I can tell you is that the feedback we’re hearing from carriers, the plans is that at the end of the day, they want to make sure that they are engaging with their members, making sure that their members are unbelievably satisfied with the plans and when possible, align the available plans with providers in their network. And that is one of the most important decisions people make when picking a plan is, is my doc recovered? And so, look, it’s a huge market. I think it’s — as long as it’s been around, it’s had changes. And I think we’re pretty excited about being able to serve more Americans more in different ways.

Daniel Grosslight: Yes. That makes sense. And I guess, as I think about the product, too, it has applicability beyond just the carriers, right? You could potentially sell this to the broker channel, the e-brokers in particular. How are you thinking about them, the e-brokers, the brokers in general as clients here? And I assume right now carriers — yes, go ahead.

Chaim Indig: I think it’s mostly plans, but I know that the team is engaged with some brokers, too.

Daniel Grosslight: Okay. But going forward, we should expect this mostly to be a carrier product?

Chaim Indig: I think that’s the plan. Yes.

Operator: We’ll go next now to Jeff Garro at Stephens.

Jeff Garro: Looked like another good quarter of healthcare service clients adds. Want to see if there’s anything you could tell us about what worked in the quarter to drive those adds? And anything you’d call out in terms of the mix of the adds by practice size or specialty or geography?

Chaim Indig: No. They were all over the board. Unbelievably large, all across the country, unbelievably small, all across the country, a whole bunch in the middle, all across the country, specialty, single-specialty, multi-specialty, health system. You name it, it was the [indiscernible]. And so — and we did well because the team did well selling, did a phenomenal job implementing and treating customers really and our clients really, really well. And having just a great product.

Jeff Garro: That works. That’s a good way to do it. And follow up a little bit on the subject of client adds. The stakeholder letter set the expectation for the fiscal second quarter to have similar adds as last fourth quarter or this most recent quarter. So call it, a range of 160 to 170. Curious to get your comments on the Company’s ability to potentially match the roughly 800 incremental adds you achieved in FY23 in the current fiscal year as we think about the next nine months?

Balaji Gandhi: Yes. I mean, Jeff, what we’re trying to do is we’re not going to speak to the whole year, but we understand like having some inputs in your models are helpful. So, even the comment about the next quarter, it was 158 in the fourth quarter, it was 169 in this quarter. And we’re just saying it’s going to sort of be in that general range. And then there’s obviously like some sort of counterbalance to that with revenue per client. But we’ll just — we’ll come back to you next quarter and give you an update, but we’re not going to speak to the year.

Chaim Indig: And it’s — we can give that visibility because we can see it. So, it’s not like hide the ball. We generally know where it’s going to be at this point.

Balaji Gandhi: Yes. So, if you have — if you want to follow up, please do. But I think that’s what we’re trying to do is just at least put some kind of anchor in there.

Jeff Garro: No, that helps. Thanks again.

Operator: And we’ll go next now to Robert Simmons at D.A. Davidson.

Robert Simmons: Hey. Thanks for taking the question. [Technical Difficulty]

Chaim Indig: Is that us, or is it? Hello?

Balaji Gandhi: Couldn’t hear you.

Operator: Mr. Simmons, we’re having a hard time hearing you, sir.

Chaim Indig: All right. Just checking. Everyone always complains that I have crappy phone service. So I just assumed it was us.

Robert Simmons: Do you hear me now? That was me and my headset switched off and then back on for some reason. So, sorry, I was saying — so you touched on this earlier, but what are you hearing from the pharmas in terms of their spend intentions? Has the tone of the competition improved, gotten worse, stayed about the same over the last, call it, 3 to 6 months?

Chaim Indig: I think life sciences organizations everywhere are just very cognizant of scale and return on investment and being aligned with the right types of products, and I think they’ve been pretty happy. I could speak about working with us. I can’t necessarily speak about the whole market. It’s obviously been still a softer market than in previous years. And I know the teams — we still have a lot of selling left to do in here and the team is doing pretty good work, making sure that we continue to execute. But we still think the market is still pretty — still early in the year.

Operator: Thank you. And gentlemen, it appears we have no further questions this afternoon. Mr. Indig, I’d like to turn the conference back to you for any closing remarks.

Chaim Indig: Yes. I just want to thank everyone for joining the call. And I want to thank everyone at Phreesia for another great quarter. And we’ll talk to everyone in about 90ish days. And hopefully, everyone has a nice summer.

Operator: Thank you, Mr. Indig. Ladies and gentlemen, that will conclude the Phreesia fiscal first quarter 2024 earnings conference. I’d like to thank you all so much for joining us and wish you all a great remainder of your day. Goodbye.