Phreesia, Inc. (NYSE:PHR) Q3 2024 Earnings Call Transcript December 5, 2023
Phreesia, Inc. beats earnings expectations. Reported EPS is $-0.25, expectations were $-0.72.
Operator: Good evening, ladies and gentlemen, and welcome to the Phreesia Fiscal Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. 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 Q3 of 2024, which ended on October 31st of 2023. Joining me on today’s call is Chaim Indig, our Chief Executive Officer. A more 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 of our 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 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 our current views and expectations and speak only as of the date on which 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 market 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 third quarter earnings call. Our stakeholder letter and earnings release were published about an hour ago. Let me start the call with a couple of highlights. For starters, I am pleased with our third quarter performance, both financially and operationally. Total revenue in the third quarter was $91.6 million up 25% year-over-year. Adjusted EBITDA was negative $6.6 million, an $11.7 million improvement year-over-year. During the quarter, we completed a small acquisition of connect on call, which complements our current product suite with an innovative medical answering solution that improves patient experience and makes it easier for on call providers to respond to patient calls.
Before Balaji discusses our fiscal 2024 and 2025 outlook, let me briefly address our decision to delay the achievement of $500 million in run-rate revenue to fiscal 2026. Over the past couple of months, we determined that in order to achieve $500 million in run-rate revenue in fiscal 2025, we would need to increase our spending to a level that we were simply not comfortable with in the current economic and capital markets environment. Therefore, we have made very intentional decisions to delay certain planned investments in the payer space, which will accelerate our adjusted EBITDA growth. We continue to work with CMS and other payers to measure and improve performance and activation. We believe this work will drive revenue. Adjusted EBITDA, and health outcomes improvements over the long-term.
We believe our decision will enhance shareholder value. Let me now hand it over to Balaji.
Balaji Gandhi: Thank you, Chaim. Let me start by addressing our outlook for fiscal 2024. We are maintaining our revenue outlook for fiscal 2024 at $353 million to $356 million, implying year-over-year growth of 26% to 27%. We note that the maintenance of our $3 million revenue range, it’s mostly related to our network solutions revenue line, where we have a wider range of revenue scenarios in the month of January, which represents a new spending year for our life sciences clients. We are raising our fiscal 2024 adjusted EBITDA outlook to approximately negative $39 million from a previous range of negative $54 million to negative $49 million. This represents a $12.5 million increase from the midpoint of our prior outlook, highlighting the strong operating leverage we continue to generate across the business.
We also believe, it is important to provide an early outlook for fiscal 2025 given our evolving capital allocation philosophy that Chaim discussed earlier. We expect fiscal 2025 revenue to be in the range of $424 million to $434 million. Our fiscal 2025 revenue outlook at the midpoint implies growth of over 20% above our fiscal 2024 outlook range. The revenue range provided for fiscal 2025 assumes no additional revenue from potential future acquisitions completed between now and January 31, 2025. We are updating our expectation of $500 million in revenue run rate to now be achieved in fiscal 2026 compared to our previous outlook of fiscal 2025. The later expected achievement is the result of a very intentional decision we have made to delay certain investments in the payer space.
We prefer to target growth in the 20% range, while accelerating our profitability growth. To that end, we now expect adjusted EBITDA to be in the range of positive $10 million to positive $20 million, compared to our previous target of achieving profitability at some point during fiscal 2025. The increase in our fiscal 2025 adjusted EBITDA outlook is mostly tied to the delay in planned investments in the payer space. As we think about revenue growth, it is critical to consider the multitude of factors that can drive our revenue growth, which we believe is a very unique and attractive aspect of Phreesia’s business model. We continue to grow average healthcare services clients by leveraging our proven go-to-market team. It’s also important to appreciate that the growth in our healthcare services client network drives network solutions revenue.
We remain comfortable in our ability to finance our fiscal 2025 outlook, given the significant progress we have made in improving cash flow and with our current cash position. Separately, you will notice that we entered into a new five-year $50,000,000 senior secured revolving credit facility with Capital One. This new facility replaces our former facility with Silicon Valley Bank. We believe the new facility will give us additional financial flexibility through its five-year term. Operator, I think we can now open it up for questions.
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Q&A Session
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Operator: [Operator Instructions]. We’ll take our first question from Ryan Daniels with William Blair. Ryan your line is open. Please go ahead.
Ryan Daniels: Balaji, maybe one for you just on the focus on profits versus investments in some of the novel products. I think it’s a positive here given the current capital market environment and I think investors will applaud that. But I’m curious if it’s is it more the capital markets and just the desire to preserve capital or were you seeing more hesitation among payers about using the platform or just kind of lower return on your marketing dollars there that really caused you to pull back? Thanks.
Balaji Gandhi: Yes. Thanks, Ryan. Thanks for the questions. I think one thing to remember is we’re always evaluating our investment decisions along the way. And so specifically to this, I mean, absolutely, the cost of capital weighed into this, and it’s changed dramatically in the past 18 months. So, we have to calibrate. So, think about it more as time that we would realize revenue versus the investment dollars that we have. More than anything else.
Operator: We’ll take our next question from Vishal Patel with Piper Sandler.
Vishal Patel: Thanks for taking my question. This is Vishal Patel on for Jessica Tassan. And congratulations on the strong quarter. Could you help us with some color on the Connect on Call acquisition? In particular, what capabilities does the product add? What is its pricing model and go-to-market strategy and what investments are still needed to integrate the deal onto the Fraser platform? Thank you.
Chaim Indig: So that’s a couple of questions, and I’ll try to answer some of them. And some of them, it’s still too early for us to share. Look, it’s a greatest level, all of us, the patients, have had to call a doctor after hours. Most doctors are required to provide after hour service and most of those services are people. And they’re the same people that offer answer the phones for funeral parlors or your plumber. And when we talk to providers, and we have so many of them, and we talk to them about their how they interact with patients, this was an area that was just they were never happy with. We never heard of a provider that was very excited about their after-hours service. And when we finally connected with the two doctors that had started Connect on Call, we just saw a beautiful product that’s well integrated.
And what’s nice about is they like, as providers, they were also, their group actually uses Phreesia. And they told us they’re like, look, we just we always assumed that, we would never be able to do what you guys do. And we looked at what they did, and it was just is a beautiful product. And we’ve been, we’re in the early stages of letting our clients know about it. The reaction has been phenomenal. But look, at the end of the day, we’re really viewing this as a replacement of the after-hours agents. And the response from our clients has been just phenomenal. And I expect us to talk more about the go-to-market over coming quarters, coming years, but we think this is a phenomenal capability and we’re going to keep obviously, we have the resources and the ability to just keep investing in it.
It was a really, really, really small company that we bought.
Vishal Patel: And if I could just sneak one in really quickly. About a year ago in your quarterly stakeholder letter, you mentioned that Phreesia was able to win more deals by being more competitive on pricing. How is your perspective on pricing in the payment processing business evolved since then? And how are you balancing pricing in that business versus retention and growth? Thank you, so much.
Balaji Gandhi : Vishal, that comment, I mean, I would think of the topic in general to be something that’s very fluid. We’re constantly revisiting pricing. And I think the comment specifically there was we had lowered price, and it had helped us in terms of market share. I think if you follow our take rate, which we disclose every quarter, it’s sort of bounced around, but it sort of found this home sort of in the 2.8 to 2.9 range, but don’t think of that as any sort of one specific milestone. We’re constantly experimenting with it.
Operator: [Operator Instructions]. We’ll take our next question from Glen Santangelo with Jefferies.
Glen Santangelo: Thanks for taking my question. I want to talk to you about sort of the revenue growth guidance for fiscal ’25. I mean, Balaji, I heard your comments just over 20%, it looks like 21% midpoint over midpoint. And what I guess I’m kind of curious about is if we assume that the payment processing business. Does it really move much in either direction? I’m kind of curious about what you’re sort of implicitly saying about the subscription business next year versus network solutions, I mean clearly another good quarter in network solutions, it’s still growing much faster than that 21% sort of growth rate, but recognizing that it is slowing and you’re calling for some volatility in the fourth quarter. So, I’m just kind of curious about what you’re saying about each of those two businesses as it relates to F25? Thanks.
