Phreesia, Inc. (NYSE: NYSE:PHR), a leading healthcare software company, announced profitability in the first quarter of Fiscal 2025 during its earnings conference call. Chief Financial Officer Balaji Gandhi reported a significant 21% increase in revenue, reaching $101.2 million, and a positive adjusted EBITDA of $4.1 million. Despite this achievement, the company faced a setback with the accelerated wind down of a clearinghouse client relationship due to a cyber attack on Change Healthcare (NASDAQ:CHNG), impacting their revenue by approximately $8 million annually.
Consequently, Phreesia has adjusted its financial outlook for the fiscal year 2025, now expecting revenue between $416 million and $426 million and an increased adjusted EBITDA range of $21 million to $26 million. CEO Chaim Indig expressed enthusiasm about the future, emphasizing the potential of network solutions and the MediFind appointment requests product to drive growth.
Key Takeaways
- Phreesia achieved profitability in the first quarter of Fiscal 2025 with a 21% increase in revenue.
- Adjusted EBITDA was reported at $4.1 million.
- A cyber attack on Change Healthcare impacted Phreesia's revenue due to an accelerated wind down of a clearinghouse client relationship.
- Revised financial outlook for fiscal 2025 includes revenue between $416 million and $426 million and adjusted EBITDA of $21 million to $26 million.
- The company anticipates generating free cash flow in the second half of the fiscal year and currently has no borrowings on their revolving credit facility.
- Phreesia is optimistic about growth opportunities, particularly through network solutions and the MediFind product.
Company Outlook
- Phreesia updated its fiscal 2025 revenue forecast to $416 million to $426 million.
- Adjusted EBITDA expectations increased to a range of $21 million to $26 million.
- Free cash flow generation is expected in the second half of the fiscal year.
- The company has no outstanding debt on its revolving credit facility.
Bearish Highlights
- The wind down of a clearinghouse client relationship, which represented $8 million in annual revenue, will negatively affect fiscal 2025 results.
Bullish Highlights
- The provider market is receptive to Phreesia's solutions, despite delayed payments.
- Network (LON:NETW) solutions and the new MediFind appointment requests product are expected to be primary growth drivers.
- The payments business shows strong gross margins and follows seasonal patterns.
- Management is confident in their pricing strategy and is focusing on shorter payback periods for investments.
Misses
- Phreesia's revenue has been negatively impacted by the end of a relationship with a clearinghouse client due to external factors.
Q&A Highlights
- Management is focusing on growing profitable payment dollars and is open to experimenting with pricing.
- The concept of shorter payback investments is being optimized for profitability and to upsell existing clients.
- CEO Chaim Indig expressed gratitude to participants and anticipation for future discussions.
In summary, Phreesia's Fiscal First Quarter 2025 results show a company on the path to growth, navigating through temporary setbacks with optimism and strategic focus on network solutions and innovative products like MediFind. The company's revised financial outlook reflects cautious yet positive expectations for the remainder of the fiscal year.
InvestingPro Insights
Phreesia, Inc.'s recent earnings announcement has demonstrated notable strides in profitability and revenue growth, but it's crucial to consider a comprehensive view of the company's financial health and market performance. Here are some key insights based on real-time data from InvestingPro:
- The company's market capitalization stands at $1.22 billion, reflecting investor valuation of the firm in the current market.
- With a Price/Earnings (P/E) ratio of -8.59, Phreesia is currently not profitable, and this is expected to continue throughout the year, aligning with the InvestingPro Tips indicating that analysts do not anticipate the company will be profitable this year.
- Despite the lack of dividends and profitability over the last twelve months, Phreesia has experienced a large price uptick of 38.29% over the last six months, suggesting investor optimism or speculative interest in the company's growth potential.
For investors seeking a deeper analysis, InvestingPro offers additional InvestingPro Tips that provide a more detailed outlook on Phreesia's financial metrics and market performance. By utilizing the promo code PRONEWS24, users can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a full suite of tools and insights. There are currently 4 additional tips listed on InvestingPro for Phreesia, which may help investors make more informed decisions.
The insights provided here are in alignment with the broader context of the article, which highlights Phreesia's recent successes and challenges. The InvestingPro data and tips offer a valuable perspective on the company's financial standing and market dynamics, which could be instrumental for investors considering Phreesia as part of their investment portfolio.
Full transcript - Phreesia Inc (PHR) Q1 2025:
Operator: Good evening, ladies and gentlemen, and welcome to the Phreesia's Fiscal First Quarter 2025 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 2025, which ended on April 30, 2024. 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 such as adjusted EBITDA 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 first 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. The first quarter marked a very important milestone in our evolution as we return to profitability. This most recent quarter does not represent a finish line. We believe it represents an important milestone in Phreesia's journey, and I would like to acknowledge my teammates, our clients and our shareholders for their support throughout through this stage of our journey. I look forward to the next set of milestones. Looking ahead, we have a large, diverse and growing network of patients and providers we believe enjoy increased value from our solutions. I'm most excited about the opportunities that our network and our experienced and dedicated team give us to broaden and deepen the value we bring our clients. Let me now turn it back over to Balaji.
Balaji Gandhi: Thanks, Chaim, and good evening everyone. Let me hit on a couple of the highlights in our letter regarding the first quarter and our updated outlook for fiscal year 2025. Q1 revenue was up 21% at $101.2 million. Adjusted EBITDA returned positive for the first time in three years to $4.1 million. Our average Healthcare Services (NASDAQ:HCSG) clients increased by 103 from the prior quarter, and total revenue per AHSC was $24,900. First quarter revenue was negatively impacted by roughly $1.7 million in our payment processing line due to an accelerated wind down of a relationship we have with a clearinghouse client who contracted with Phreesia to act as their merchant processor for patient payments. The details behind what drove the accelerated wind down of this relationship can be found in our stakeholder letter. The upshot is that the cyber attack on Change Healthcare and subsequent outages accelerated the wind down of our relationship because Change Healthcare has not re enabled a solution that was used by our client. The client relationship represents approximately $8 million of annual revenue and will impact our fiscal 2025 results. Moving to our updated financial outlook for fiscal 2025. We are updating our revenue outlook to a range of $416 million to $426 million from a previous range of $424 million to $434 million that's an $8 million reduction from the top and bottom end of the range, which incorporates the accelerated wind down of our clearinghouse client relationship. As a reminder, this revenue is in the payment processing line. We're also updating our adjusted EBITDA outlook for fiscal year 2025 to a range of $21 million to $26 million from a previous range of $12 million to $20 million. That's a $6 million increase at the top end of the range and a $9 million increase at the bottom end of the range. We continue to see solid operating leverage in the business. Cash was at $80 million on April 30th or near the level it was in Q2 of fiscal '21 when we were last profitable. Operating cash flow for Q1 was just under breakeven at negative $721,000. We believe we're well positioned to start generating free cash flow in the second half of this fiscal year. As a reminder, we have no borrowings on our revolving credit facility, which we believe gives us lots of flexibility over the next couple of years. Our internal discounted cash flow analyses reflect more value from investing in shorter payback investments that accelerate profitability. Our views on the best path to driving value for shareholders over the near-term and long-term have been reinforced in conversations with many Phreesia shareholders over the past few quarters. Operator, I think we can now open up the lines for Q&A.
Operator: [Operator Instructions] Your first question comes from the line of Anne Samuel of JPMorgan (NYSE:JPM).
Anne Samuel: I guess, maybe in light of what's happened with change and Ascension recently and you mentioned in your letter that the on call service had been cyber attacked. I was hoping maybe you could just kind of discuss investments in cybersecurity. Is it something that we should be kind of expecting, to come on in the P&L? And maybe, you know, just concerns that things like this might be more prevalent, and then kind of along those lines, just any financial impact from the Ascension attack?
Balaji Gandhi: Sure. Thanks for the question, Anne. So first of all, we actually called this out in the last quarter's letter, Anne, just in terms of our investments in this area. We take this pretty seriously on behalf of our clients and patients, etcetera. But, I also I think it goes without saying, this is pretty unprecedented and some of the stuff that's going on in the industry. In fact, I was just telling Chaim, I was reading an article, before this call about the like sort of the downstream effects of other providers who aren't even, the ones being attacked. But, Chaim, I don't know if you want to add anything specifically about sort of how we've planned around this.
Chaim Indig: We've been ramping up our investments for years in the space. And obviously, we continue to expect a ramp up and I think that's built into our forward looking plans. But it's something we take not just internally seriously as a company, we take it because a good portion of Phreesia's are also patients and we provide our data to the system including our families. This means a lot to us personally.
Balaji Gandhi: And I should probably point this out to you. I think for several quarters now we've talked about G&A expense and how we spent a lot of capital to build the infrastructure of being a public company of this size. And I think just having gone through some of the stuff in the past few weeks, we've got some great subject matter experts that weren't here at the company three or four years ago, and outside advisors have really helped us get through this. So that's part of that G&A expense that we have.
Operator: Your next question comes from the line of Ryan Daniels of William Blair.
Jared Haase: Your line is open. Yes. Hey, guys. Thanks for taking the questions. This is Jared Hasse on for Ryan. Maybe I'll just ask one on the clearinghouse client wind down. It sounded like that was a relationship that you had decided to walk away from, and then that wind down was just accelerated due to change. So I guess, number one, just could you run through sort of the thinking for why you were planning on walking away from that relationship? And then number two, could you just discuss how you're thinking about sort of any risk in the model from other client contracts or client relationships that might have a connection to change in some way? Thanks.
Balaji Gandhi: Sure. This was, Jared, a unique situation. And so the client is a clearinghouse. And I think I wouldn't characterize it as we walked away. I think the way to think about it is, they were looking we put this in the letter, they were looking to consolidate to one vendor. The things they wanted in that, which included print statements, were just not something that we were going to do for a lot of reasons, including the economic profile of that. So, it was sort of mutually agreed to wind it down. And I think as we also said in the letter, that was planned to be later and this sort of this crisis sort of accelerated all that. And really nothing again comes to mind. I think about our last conference call, we spent a lot of time talking about change. And I think every day we're still, I mean, we're only three months out from that, we're still seeing impact. So we can't sit here and say there's no impact, but as we sit here today, there's nothing that comes to mind like this.
Operator: Your next question comes from the line of Jailendra Singh of Truist Securities.
Jailendra Singh: First a quick clarification, Balaji and Chaim. Did you guys like was this decision still TBD when you gave fiscal '25 guidance in mid-March about timing on this clearinghouse client? It was still like being determined. Can you clarify on that? And my main question is like help us better understand the drivers behind beat and increase, compared to your prior outlook on EBITDA? And is the strong start you're focused on returning to profitability changes your views, how you think about the margin progression longer term?
Balaji Gandhi: Sure. That is two questions, but we'll try to hit them. I think it was a fluid situation heading into fiscal '25 in terms of that relationship with that client. But I think we want to be clear that that was we're going to work with them in cooperation with them and these wind downs take a lot of work, a lot of people and a lot of time. So that was not really envisioned to be in fiscal '25 at all and certainly not be over a matter of months. So that was something we were planning for. And then second, in terms of margin profile, etcetera, I think you should take away from our comments here that we've been headed in this direction for some time, but we're sort of putting the foot on the gas a little bit more. And to us, we just think that's the right thing to do, cost of capital, interest rates, what have you. We do still prioritize growth, and we think we know that's important because that also helps drive profitability. But I think you should take away that we're probably being a little bit more aggressive on that.
Operator: Your next question comes from the line of Jessica Tassan of Piper Sandler.
Jessica Tassan: I was just hoping you could maybe speak a little bit about the provider end market in light of change disruption, just given the fact that providers obviously have payments delayed, or aren't seeing payments at all? Has their willingness to deploy the Phreesia solution changed, either for better or for worse?
Balaji Gandhi: Thanks for the question, Jess. I think it's mark has been pretty receptive to what we're doing. I don't think I think there was a period of a couple months where the prioritization was making sure that they could have claims filed. But the vast majority of our provider the providers and prospects are filing claims now. So we don't really see this backing up the market. Tremendously, I think that there is a general view that there needs to be continuous investment in technology to drive efficiency and produce better margins for a lot of these providers. So we've seen the end market still pretty good for us. But I wouldn't say it's not without challenges, but I think the team has done a phenomenal job of continuously winning accounts and growing our share of the market.
Operator: Your next question comes from the line of Stephanie Davis of Barclays (LON:BARC).
Anna Kruszenski: This is Anna Kruszenski on for Stephanie. Thank you for taking our questions. I was hoping you would talk a bit about what your strategy is around accelerating growth in revenue per client. And is this going to be more of a cross sales of existing products for clients or more into the new cohort?
Balaji Gandhi: Sure. Thanks, Anna. So, the way to think about it, and I think we've been talking about this for the past few quarters. There is growing the network and then there is the three different revenue lines on how we generate revenue off of it. I think you should take away that network solutions will absolutely be the single biggest driver of how the total revenue per client grows. I think we've talked a lot about payments. You don't really create that much more in payments that comes from new client growth. I think a lot of the products that we have currently, but also the ones we're going to introduce, we do have price associated with some of them and there will be revenue, but I think that will be certainly lag behind network solutions. So I think the short answer and takeaway is network solutions should be the driver of that.
Operator: Your next question comes from the line of Scott Schoenhaus of KeyBanc.
Scott Schoenhaus: Wanted to ask about this product update of MediFind appointment requests. This is live, and I'm assuming and what are you seeing in terms of the traction for booking appointments for specialty providers? And how does this fit in with your broader approach on new provider, targeting new provider clients?
Chaim Indig: Look, so far the adoption has been very, very well received. It's still early days and we'll give more updates in the coming quarters. But we expect, when we talk to a lot of specialists, their biggest the biggest thing we've been hearing for years is they want the right specialists want the right types of patients to be able to make appointments with them because they want to deliver the right type of care to them. And so we do see this as being a just a massive value driver across the spectrum of specialists that we both support today and we think it's going to be a very large driver in helping us win clients in the future. But early traction has been really good, but we've I've been more than pleasantly surprised with a lot of the data I've been seeing from the MediFind team. And we've been investing, we've been increasing our investment in that.
Operator: Your next question comes from the line of Richard Close of Canaccord Security.
Richard Close: Network, which you just mentioned, Balaji, continues to outperform our expectations and the commentary from some other companies has been pretty favorable in terms of the demand environment. So I'm curious your guys' thoughts looking forward on network solutions, just commentary on the market? And then as a follow-up with respect to the MediFind campaign caught my eye. And curious if this is the channel and opportunity for network revenue growth and if so, does it expand the budget you're going after with the pharma companies?
Chaim Indig: Hey, Richard. I'll answer some of it and if I miss anything, Balaji will jump in as he usually does. I would answer your second question first and yes, we think MediFind will has the potential to be very, very positive offering to our network solutions clients. And so we are, we do expect and plan on monetizing the product over a long period of time, also with Network Solutions. And I think you should expect to see us continue investing in that space. And look that Network Solutions team has been getting great feedback from our clients because we've been delivering very strong ROIs at significant scale with both broad disease states, but also very specific patient populations where they delivering the right message at the right time to them drives a phenomenal outcome. And so we expect network solutions to be a big driver for the organization, but also a huge driver of returns for our clients.
Balaji Gandhi: And Richard, I think the only comment I'd add is on network solutions as it relates to the year. Just remember that it's not linear and there's business that gets sold through the year as well. We're very bullish about that space. I think that should be clear from all of our comments, but you do have to be a little bit careful how you model it in terms of how it flows through the year.
Operator: Your next question comes from the line of Ryan MacDonald of Needham.
Ryan MacDonald: Maybe just first on the payments business, can you just talk about the health of that business ex the client wind down and what sort of you're seeing in terms of growth there, what expectations for growth? And then quick for Balaji on gross margins. First quarter, I think over a year with gross margins over 80%. Just curious how you're thinking about that gross margin line and how sustainable maybe these 80% plus levels are as we go through the rest of the year? Thanks.
Balaji Gandhi: Yes, sure. Thanks, Ryan. So I think on the first part of it, the payments, it's probably the part of our business that has been the easiest to probably follow outside of probably the COVID period there where we saw utilization go down for eight weeks or so pretty sharply, and then we had sort of the rebound the following fiscal year. But if you just follow it, I mean, the volume tends to track with seasonality in the first part of the year being stronger. It lags subscription because of we have an attachment rate of around 80%. And that's sort of just been the cadence of it. I think in the first quarter, we obviously highlighted the $1.7 million impact. If you actually add that back to payments, it would be pretty consistent with every other first quarter we've had, as a public company. And then on the second question, yours was growing on gross margins, is that right? So on gross margins, look, we're doing well. I think this was a topic on the last call and I think to be over that percentage that you cited, at 80% is pretty good. It's the highest around the highest we've been. We're always looking for opportunities to be as efficient as we can, and drive that margin. But I think if you sort of modeled it there, you should be able to comfortably get to the revenue and EBITDA outlook that we have.
Operator: Your next question comes from the line of Jeff Garro of Stephens.
Jeff Garro: I was hoping you could give some further comments on the mix and quality of healthcare services clients that you're adding with that leveling out around 100 net adds per quarter?
Balaji Gandhi: I mean, Jeff, I think it's nothing different than what we've seen in the past, at least, I'd say, the past four to six quarters. We have large enterprise clients. We have midsize, we have small. I think the biggest sort of filter to put on these numbers like the 103 is the payback period. And so, we're running these through today is just a shorter payback. And what does that mean? It means, well, if they're in a promo period, we expect them to convert. We would like them to attach with payments, and we would like to, be able to show content for our pharma clients.
Operator: Your next question comes from the line of Aaron Kimson of Citizens JMP.
Aaron Kimson: Can you get an update on where you're at with Phreesia since it launched in January? And if investors should think about the margin effect of that organization as being a component of the increased FY ‘25 EBITDA guide or something that will provide more of a margin benefit in FY ‘26 and beyond?
Balaji Gandhi: That was really just a more of a legal sort of transaction that took place and we wanted to get in front of that and share that with everyone. Financially, the expenses were already running through our P&L. So there's really no change to the profile of the business. And that's frankly one of the reasons we've been able to get a lot of operating leverage, or all the folks and resources over there. But, nothing really to call out in terms of post close.
Operator: Your next question comes from the line of Daniel Grosslight of Citi.
Daniel Grosslight: You saw a bit of take rate degradation this quarter in payments. How are you thinking about pricing? And should we expect more degradation this year? Or are you comfortable now with how pricing has shaped up?
Balaji Gandhi: We're always visiting this and I think Daniel, we've talked about this too is, we think about it as the profit dollar, the gross profit dollar from a dollar of payment volume that crosses. So, as long as we can continue to grow profitable payment dollars, we will experiment with different offerings on price. I think we've touched the 2.8% range before if you went back a couple of years. If you modeled around 2.8%, you'd probably be safe. But it might be higher in some quarters, might be the 2.8% in other quarters.
Operator: And your next question comes from the line of Jack Wallace of Guggenheim.
Unidentified Analyst: This is Mitchell on for Jack. Thanks for taking my question. Could you please elaborate on the shorter payback investments you referenced and just how that differs from maybe what your focus was 12 months ago or so?
Balaji Gandhi: Yes. I'm probably going back more than 12 months. So there's really two ways to think about it. One is just like the profitability that we can generate, on a specific opportunity. All the opportunities have profit associated with them, but we're definitely optimizing for more of that today. But I think another sort of way to think about it is, if there's other products that we could upsell to that same client, we sort of are looking at underwriting it as trying to do that sooner. And does that client is that a better fit for the products we have, and not really willing to maybe wait a longer period of time.
Operator: As there are no further questions, this concludes our Q&A session. I will now turn the conference back over to Chaim Indig for some closing remarks.
Chaim Indig: Thanks, everyone, for joining the call. And I want to thank again my teammates, and I look forward to seeing everyone over the summer and talking again in about 90 days. Have a great summer, everyone. Thank you.
Operator: This concludes today's call. You may now disconnect.
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