Q2 2023 Phreesia Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to the feature fiscal second quarter of 2023 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 <unk> Gandhi Senior Vice President Investor Relations for feature Mr. Gandhi you may begin.
Thank you operator.
And welcome to Frejus earnings Conference call for the fiscal second quarter of 2023, which ended on July 31 2020 to join.
Joining me on today's call are high <unk>, our Chief Executive Officer, and co founder and Randy Rasmussen, Our Chief Financial 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 <unk>.
Including our quarterly stakeholder letter both issued after the market's close today.
These documents are available on the Investor Relations section of our website at IR <unk> com.
As a reminder, today's call is being recorded and a replay will be available on our Investor Relations website at IR <unk> com following the conclusion of the call.
During today's call we may make forward looking statements, including statements regarding trends our.
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.
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 included in our quarterly report on Form 10-Q that will be filed with the SEC tomorrow.
Our 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 these statements are made.
Take no obligation to update and expressly disclaim any 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's close today with the SEC and May also be found on our Investor Relations website at IR <unk> Com I will now turn the call over to our CEO Jaime take.
Thank you biology, and good evening everyone.
Thank you for participating in our second quarter earnings call in case, you didn't spend the last 30 minutes reading all of our earnings material cover to cover let me share some key highlights any additional commentary.
Revenue in the second quarter was $68 million up 33% year over year.
To thank the team for putting up our sixth consecutive quarter of over 30% revenue growth.
In the quarter, our average number of health care services clients was 2700 76.
We added 250 average health care services clients sequentially.
Establishing a new freeze your record for the fourth straight quarter.
This represents 40% year over year growth.
Health care services revenue, which is the combination of subscription and related services and payment processing revenue was up 29% year over year in the second quarter.
On a per average health care services client basis subscription and related services revenue remained in the $11000 range in the second quarter, reflecting both our land and expand go to market motion and the significant growth in average health care services clients.
Payment processing revenue grew 20% year over year in the second quarter after having grown 38% year over year in the last year's second quarter.
In last year's second quarter stakeholder letter, we attributed the 38% growth to catch up utilization from the reopening during the pandemic.
Freesia now impacts more than one out of 10 patient visits in the United States every day, helping.
Helping patients become more activated in their health and achieving better health outcomes.
Size of our network and the strong execution by our team.
To help fuel growth in life Sciences revenue of 46% year over year, which was on top of the 95% year over year growth in the last year's second quarter.
Moving onto our outlook for the rest of the fiscal year.
We now expect revenue for fiscal 2023 to be in the range of $273 million to $275 million tightening our previous range of $271 million to $275 million.
We expect average health care services clients to increase by at least 200 in the fiscal third quarter as our investments in the last couple of years continue to fuel our growth.
The operating leverage we began to see in the first quarter gained momentum in the second quarter.
And we expect to return to adjusted EBITDA profitable in fiscal 2025.
Based on our strong performance, we've taken up the adjusted EBITDA outlook for the fiscal year to a range of negative $109 million to negative $106 million from our previous range of negative $1 26.
To negative $1 $22 million.
We remain comfortable with our ability to finance our fiscal year 2025 growth plan and expect to end fiscal 2023, with a 165 million to $170 million in cash and cash equivalents.
We believe our investments over the last couple of years are helping us keep our product best in class build more amazing new products expand our relationship with existing clients and grow our network with new clients we.
We believe our capital allocation strategy.
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 open it up to Q&A now.
Your first question comes from the line of Anne Samuel with Jpmorgan. Your line is open.
Hey, guys congrats on the strong logo growth.
I was hoping maybe you could provide a little bit of color on the EBITDA guidance range is quite a bit more than the second quarter. Our performance was just wondering are there any incremental efficiencies you're finding in the back half and if so what are those.
Thanks for the question I mean, I think we're really proud of the team for focusing on.
Spending money smartly.
As we had stated.
And in the past when you think about each dollar that we spend very carefully.
The team has done a great job blocking the expenses and I think that just continues in our culture. We think about every person that we hire and every dollar that we spend on.
Software services as important so.
It's just a continued focus on making sure that what we spend money on.
So it helps us grow and where we don't need to spend money we pull back.
That's great to hear maybe.
Maybe just another one your life Sciences business was once again really really strong and that seems to be bucking. The trend that we're hearing from other companies life Sciences customer. So we're just hoping you could provide a little bit of color there on what youre seeing in life Sciences, and if theres been any shift in the marketplace.
Well first how are you doing any.
First.
The network's thrown it Todd so the investments we've been making in growing the network has really really paid off and being able to just expand our footprint deliver more messages more patients that had more value Jackie.
The team is just amazing they've been doing a great job.
I don't think we would be where we are if we hadn't been investing in the products and in the people and I just.
So impressed by execution, all the way through life sciences, or frankly, with everybody, but I am calling it out based on this question.
That's great congrats on a great quarter.
You.
Your next question comes from the line of Glenn Santana with Jefferies. Your line is open.
Yeah. Good evening, thanks for taking the questions I. Just also wanted to follow up on the digital advertising question I mean could you give us a sense for maybe how much of that is already contracted when you look at sort of the balance of the year and maybe how much you have to win on.
Quarter by quarter basis, because I'm, just kind of curious you know what would have the third quarter just about over I'm kind of curious as to what type of visibility you may be having that life sciences growth through the balance of the year.
We have a fair bit of visibility to the fiscal year, but we still have a bullet like you got cut.
A couple of things Glenn around.
Around just the way we've always done our fiscal year January .
<unk> is sort of the real bogey for us.
That we we don't have as much visibility to because often does come in in next year's contracts.
Does that makes sense.
Our clients our fiscal year.
Then it really comes in next fiscal year that one month right.
Alright. So you kind of suggested you have pretty decent visibility up through December right, but the final month of Q4 falls into theoretically a different fiscal year for your for your clients.
Got it.
Yes, I would say we have decent visibility.
Okay, and then I just wanted to follow up with Randy on the balance sheet Randy.
This is the first time I think I've seen any give specific cash flow guidance by by forecasting the cash balance at the end of the year and if I sort of look at that number of $165 million to $170 million and take that sort of in concert with kind of your EBITDA guidance for this year and also the fact that your call.
<unk> out fiscal 'twenty, three as being the low watermark and EBITA is kind of the implication there that you feel very comfortable.
Sort of making it through your fiscal 'twenty five goals of adjusted EBITDA profitability with the cash that you currently have on the balance sheet and I'm. Also curious is there any other sort of capacity that you have access to that we should be thinking about thanks.
So I'm going to go.
I'm going to let Randy answer that question, but I think the reason, we decided to put it out there.
Good.
Just a lot you said theres just no confusion right.
Way, we don't stumble around would be your answer.
That we think is important so a really important question and then I'll let him answer.
Yes, Glenn you're exactly right.
While our cash balances are we don't have any borrowings on our line of credit and we have adequate cash to execute on our 2025 plans. So we're feeling really good about our cash.
And Randy how big is that line of credit just remind us.
At the $100 million.
Okay perfect alright, thanks, guys.
Thanks, Greg.
Your next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Yeah, Hey, guys nice quarter, thanks for taking the questions. Another one on the guidance outlook I don't think in the past you've offered guidance on net new client additions you're expecting another strong quarter. There are at least 200. So what is helping with the visibility there is that related at all to some of the trial packages, you're allowing people and seeing high conversion there.
You have a pretty good feel that those are going to turn into paying clients by the end of the quarter.
Well.
So yes, we do have pretty good visibility to the quarter and velocity and wanted to make it easy for everyone to model to be fair you just sorry.
Took the largest advice I can give you a little bit more visibility.
Easier to model.
Brian I don't think its a change in our visibility.
It looks like.
I appreciate that and then.
Maybe just for you.
After the prepared comments you have a comment in there about the potential to drive revenue per client for the subscription and related services up to 126000 versus where it is today. So a 10 fold increase can you talk a little bit longer term about how that will figure into the growth algorithm, maybe after the bolus of new clients.
Additions starts to slow down how you can push them to get more value from your system by expanding the services that they purchased thanks guys.
Yeah, Hey, Brian .
The bigger part of the question, but I just want to clarify I think you might be doing some quarterly math on annual math, because I think we would think about the opportunity to be that reacts.
You sort of took the quarterly subscription revenue, we did for client and annualize that it would be about a third of the 2690 6000.
Yes, no I'm, just referring to the comment in the release about the when you created the Tam of $6 3 billion, saying 50000 subs at 126 subscription related services are getting up from current levels to that level.
Got it.
Got it.
And maybe the second part of your question behind financials.
I think I remember right. It's how do you how are we going to get more people to buy more of our products.
Dan.
Alright.
It's a pretty simple philosophy that.
Started years and years ago whenever the company Bruce you do what you say you're going to do you provide as much value as you, possibly can to your clients you treat them really well and then you expand your footprint and then when you say on the footprint and you provide a ton of value and you treat them really really well they buy more products and they're willing to try more.
And then that product is successful and then it provides a phenomenal rois and then they go to the next one and then another one and you are able to do that because you hire amazing people on.
Pay them well to build great products, and then you implemented it really well and it becomes a virtuous cycle.
Alright.
Do you say youre going to do.
When you treat people well.
And we just tried to do that.
Okay Fair enough I appreciate the color. Thank you.
Your next question comes from the line of Richard close with Canaccord Genuity. Your line is open.
Yes, thanks, Congratulations maybe somewhat of a follow up to that last question by Ryan but.
The average revenue per client declined and obviously you've had significant new client adds over the last several quarters.
Also introduced new offerings over the last year referral management.
Yes auto schedule to name a few but how are you thinking about the average revenue per client.
And timing of when maybe growth re accelerates on that that line item.
So I can take that so when we look at the average revenue per client and it also includes our payments business. So when we talk about it going down.
Talking about.
Payments or payments is growing 20%, where our client growth.
Going up.
Up to 40%. So that's the main driver if you look at the average revenue per subscription client, it's actually been very consistent.
Over the last six quarters, but if you look at how many clients we've been adding.
Three quarters for the last three quarters, we've been adding over 203.
Three quarters before that it was around 100, so we're actually very happy that the subscription per client has remained fairly constant even though we had a huge uptick in the number of clients that we're having so.
I think we think from our perspective, that's pretty healthy and it is hard to.
Increase that statistic when you are adding so many clients every quarter.
Okay.
And then maybe just on utilization you made some comments there.
And I was curious if you could provide a little bit more contacts.
Stating revenue outlook incorporates our expectations for utilization in the current environment.
Is there anything else to add in terms of just what youre seeing from utilization are expecting in the back half of this year.
I mean.
Richard are you asking about patient utilization.
I mean, we look at it regularly.
It's sort of embedded in how we think about our outlook for the year or in the acute setting.
We sort of see it all on a daily basis.
Yes Budd.
Yes.
Maybe a little bit more context in terms of what is baked into your guidance.
Are you looking for any improvement or is it just the status quo.
Right.
Say hope is not a strategy Richard.
Hi.
Generally not been are but my philosophy.
I'm a pragmatist on this and I think Randy has two alright.
We don't work for utilization to pop in the second half I think that that's it.
And.
We don't see it so.
And we're not hearing our providers telling us they are getting ready for the big bolus that's about to come.
Alright, great. Thank you.
Yes, that's fine.
Okay.
Your next question comes from Ryan Macdonald with Needham Your line is open.
Hey, guys. This is Matt Shea on for Ryan. Thanks for taking the question and congrats on a solid quarter.
Wanted to touch on payments. So we've been hearing about rising patient self pay balances at some provider practices, which in some cases are turning to bad debt curious if youre seeing this with your clients and if so what impact rising patient balances might have on the payments outlook.
I haven't I haven't.
I see none.
<unk>.
Any of our numbers.
If we did see that would generally bubble up and I havent seen I havent heard of any we also manage hunter.
Hundreds of thousands of active payment plans and we don't see any general trend change in any of those across the country.
Randy.
Yes, I don't think we've seen anything.
Okay.
Indicate what youre talking about in our data yet, but I can I can pretty much.
Guarantee there is someone I appreciate you listening this call right now that's going to try to figure out if that is the case.
But if we do hear it I'm sure we'll talk about it but we haven't seen it in our numbers.
Okay, that's good to hear that.
One other one would be so epic held our user group meeting conference in August and announced single sign on to unify their patient portals and also mentioned the desire to develop and deploy some tax based scheduling and intake solutions. So it sounds like patient portals are getting better in EHR vendors may be interested in moving in.
The tech space offerings. So just curious if you could comment on the competition and complement that your EHR vendors partners create and then what impact epic launching a tax based patient intake solution might have on your existing relationship. Thanks.
Okay.
I can't comment on any specific company, but I can say that it's a lot of work to do the things we do at scale.
And.
We've had competition for our products for as long as we've been running for Asia.
I think that Thats, a good amazing thing, but doing what we do at scale with complex data.
Getting it live clients and making sure that all variety of different patients in different settings can use it pretty hard and there's a reason why we have.
The investment we have.
Just our current products, but in our future products that we feel pretty comfortable about our outlook. What we do is hard right.
I also think competition makes everything that Mike frankly, I'd love to see healthcare in America grew faster if it does it because more people are innovating thats great.
Your next question comes from Stephanie Davis with SBB Securities. Your line is open.
Hey, guys. Congrats on Macquarie. Thank you for taking my question.
I was hoping you can give us a refresh on the payment processing firsthand.
How should we think about the lag until you're at full run rate.
Optical drag per just giving your client growth. Thank you Charles.
Right.
When you were a little bit choppy for us.
So I heard payment processing ramp.
I don't think any of US further questions Super clear do you mind repeating it.
Alright, great.
I am at a conference so I apologize for any background noise, but that was as.
If you could walk us through the payment processing ramp or when you first sign up clients and how that could lag until you're at full run rate because I'm trying to look at the optical drag that we're going to have on your bedroom parametric in the near term.
Yes.
I'll answer some of that and then I think.
You may have answered the other bridge, so theres a couple of points about payments one.
When we do a land and expand some of the drags just simply like as we add locations, we're picking up more payments.
Right and then the other thing, which I think is.
And as we add into the organization, we add more peanuts.
Some of it also has to do with as we ramp.
We pick up more cards on file we pick up more payment plans and that just becomes a building building nature and how we ramp up payments, but I do want to stress that there is also seasonality.
The payment numbers.
Payments tends to.
Not grow.
How does this annual seasonality tied to the deductible.
Probably the best way to think about it.
Is there any.
Okay.
We count the customer when the first dollar revenue comes in so as soon as they start using our payment solution, we will count them as a client as Heinz said theres, usually a ramp up period, where theyre transitioning to Opco theres always the incumbent payment provider in place. So it may take three to four months for them.
To fully be onto our.
Our payment solution or more.
Yes.
Complex there.
So another one on the payment processing side.
That's really helpful.
Is it safe to guess that there was a shift away from last quarter discounting given the quarter over quarter increase in transaction yield or is there anything else to call out there.
He said that.
I mean, there's different things that can affect that and that's also the mix of cars like what they are paying with amex or Mastercard.
Our credit card not present, there is a lot of things that go into that that can affect that.
And there were some fee changes from.
From the carriers.
Alright, Thank you guys.
Thank you Sir.
Your next question comes from Daniel <unk> with Citi. Your line is open.
Thanks for taking the question and congrats on the quarter guys.
I'd like to follow up on one of Richards question around utilization.
You mentioned, you're not going on a hope here, but if you listen to what many providers in the public markets have said on <unk> is non covered your utilization remains depressed and then if you look at kind of the flu season that.
It's happening in the southern Hemisphere, right now and.
Speaking of doctors, where they think.
Kind of ambulatory.
Utilization is going to go in the second half can you just put a finer point on on how you are baking utilization into your estimates now are your clients still at <unk>.
Yeah kind of less than pre COVID-19 utilization and how should we think about that going into the second half of the year.
I mean, we look at it every week and to be honest. There are some weeks that are up and then theres. Some weeks that are down.
So I think we generally feel like.
We don't have enough data.
You bet.
Cover the fact that there is not a covered the fact.
I think we model it in that sense.
Mike Heim said, we're not expecting some huge come back I think typically when you look at our revenues throughout the year, there, it's pretty consistent from quarter to quarter. There's there.
There is seasonality, where there's more payments earlier in the year, and then that that kind of trails off towards the end of the year and newer clients come on.
Generally that's flat quarter to quarter.
During the middle of the year, but we do have we have the data in real time right. We used to have a big screens. When we head offices, where you could see utilization of in real time.
And one.
One thing I can say that.
No.
Public now 13 quarters.
Can you try to help people at least do some modeling.
The overall payment volume that we report every quarter.
If you look at that I think many of the analysts do you look at it. This way if you look at that on a per client basis, it's pretty clear the commentary from our letter in his opening comments that <unk>.
Something unusual going on with a lot of sort of catch up utilization last year, and we're still working through that I think thats pretty evident.
Yes.
Okay. Good.
And then some folks selling into the provider market not your direct peers, but other I'd say health Tech.
Provider focused health Tech companies have had.
Some issues, so I get to the provider market, they're seeing elongated sales cycles et cetera, youre, not saying, that's which is great.
I'm just curious what's resonating the most in the market now and are you seeing any degradation in kind of a starting price and module upsells that would suggest that.
Some folks are being a little more conservative given some pressures in the provider market.
So I'm going to take this opportunity to give them.
Huge shout out to our provider sales organization and our go to market team first and foremost.
The reason, we're doing well.
Without a question is.
Alright, our client success team our sales organization, our demand Gen team our marketing team.
It is they are just doing a phenomenal.
Yes.
I'm just so excited every time I get on the weekly calls and I listen in.
Hi.
First first point, and so I am sort of calling them out right now and saying Thank you, although they'll hear it on the all company call later.
It's land and expand.
That's part of our selling motion and <unk>.
Thats wildly important.
You've sort of been pounding on the table for 13 quarters, and we want everyone to understand that as we're selling motion.
We believe that.
Okay, we should build trust.
Build trust as we landed in that account, we provide a phenomenal amount of value and we grow our footprint and then we get the we get the right and a privilege to continue to grow that account and we think that's just the way we work. That's that's how we invest money it's more expensive on the onset.
The.
The payback, we believe is significantly better and it gives us better visibility and a better client experience.
And again.
Our products provide.
Ladies and value.
Yep Yep. So so no degradation in kind of the starting price or no conservative to the scene and folks buying up additional module.
Oh no no no we haven't seen it yet.
Great. Thanks for the color.
There is.
Your next question comes from Jessica <unk> with Piper Sandler Your line is open.
Hi, congrats on the quarter and thank you guys for squeezing me in.
I was hoping you could maybe give us a little bit of detail about them, whether or not your life Sciences revenue growth has anything to do with kind of your mix of specialists.
And then just secondarily with was curious to know.
How is life sciences revenue able to grow without kind of commensurate utilization per provider just because we have historically sort of thought of that.
Life Sciences, offering is being impression driven but I.
Would love to know if that's changed at all thanks.
Yeah, no no problems alright, so I'm going to answer the second question first most features I, probably I've already forgotten the first question.
Re ask it.
So.
I want to be clear like the network has grown tremendously.
And yes. It is we do our most of our revenue monetization or life sciences, not all of it but most of it is on after we deliver the message to the patient in a very targeted content driven model alright. So.
Patient update but as the network has grown the.
Over our overall usage has dropped and so since we've been public.
The network has more than doubled.
Right and so.
If you play it out just 13 quarters, we've just had tremendous amount of volume growth. We're seeing one out of every 10 visits right now.
Our networks.
That's one and two it's not just the number of specialists just sheer volume of patients that we see has helped us and <unk>.
Having that view launching student Lee and being able to provide the right type of content for them to help them drive the right type of care.
It's been very very valuable to patients, which has allowed us to see.
Really expand our life Sciences.
Revenue.
And you're absolutely totally forgot the question.
No I think you answered honestly all of them I guess just.
My follow up would be is there sort of a life sciences ROI that you would be pointing us to and then just curious to know if patient insight I think you guys mentioned this in the letter is that a new billable product.
And does it change your view of the Tam for life Sciences segment.
Thanks.
So we do have a website for life Sciences, It's life Sciences.
Dot Com you can totally go there and there's a bunch of ROI.
It's a great website.
Every day I do.
That's wonderful.
And then what.
What was the other.
Is there a chance.
Okay.
Do we sell it we've mostly been bundling it in because it's so valuable.
Okay, we have gotten great.
Great feedback from clients on it and we are using it right now.
We're getting people used to using it as.
And offering so I would say right now, it's mostly being bundled in and if it does change the jam I promise you velocity, who may just put out another tab.
Talk about it.
He.
That is not coming now.
Awesome. Thank you.
Thank you.
Your next question comes from Jack Wallace with Guggenheim. Your line is open.
Hey, guys. Thanks for taking the questions and congrats on another really solid quarter and a really solid first half of the year.
Just wanted to hit the software sales for software revenue per provider client question from a different angle maybe.
Help us get a little bit better context for the relatively flat right.
Over the last six quarters.
You had some accelerating client wins, just thinking about the cohorts from the first half of this year and how they've matched up relative to cohorts from the prior two years are these new customers coming on buying more or less software.
In the prior call cohorts and then.
To use the prior cohorts as a as.
As a potential guide what kind of lift in up selling them.
Those prior cohorts scene, if not maybe on an annual basis, but some some trajectory.
Can you just give us.
Something to think about as you're building.
Your client base. Thank you.
Yes sure.
I think.
We are generating.
Most of the new revenue from new client add as you've seen in the numbers. So.
Inc.
From that perspective, as they are buying multiple products.
I think it kind.
It kind of varies by customer size, So I don't know if theres any.
<unk> pattern I think where we've seen it is just the sheer volume of new customers just has depressed that.
<unk> are flat.
Flat as I mentioned before we're adding a lot of clients.
Bikes at the rate than we have.
If you look over the last six months or six quarter period.
And we continue to also expand in those.
Alright, so I don't think there is that.
Particular pattern or cohort or is it.
That's an indication I think we've just been we're just doing really well.
It's been in lots of different areas.
Across the board.
Yes.
Jack the other thing as you know.
We did.
Sure four years worth of water.
Gross revenue retention.
That retention and then you obviously saw the subscription revenue per client holding in spite of.
Adding almost one seven earnings clients year over year. So I think that just sort of suggest that people are still starting to work with us in the same way.
Yeah. That's helpful. And then just a housekeeping item for me.
How many SDR should we end up with at the end of the quarter.
189.
Gotcha. Thank.
Thank you.
I'm sorry 187.
Your next question comes from Joe <unk> with Baird. Your line is open.
Great Hi, everyone.
I think in the past you've discussed.
The 18 month timeframe.
Our really knowing the productivity of our new higher and I guess, we're kind of in that timeframe for last year's class and we're also now starting to see that.
Revenue per employee metrics trending.
Here on a year over year basis.
Is productivity all going according to plan or does the improved EBITDA outlook for the year essentially say if this is now tracking better than your expectations.
It's I would say I do know I'm, just trying to think how much.
I would say the team is doing unbelievably, well and we're tracking them.
Better than our expectations. So all the metrics that you're tracking or moving the direction that we want them to the very strongly we expect productivity to go back to where it was a cost to acquire is looking really good our revenue per employee is looking good.
I think we're pleased.
Okay, Great and then I know this fiscal year is meant to be the low watermark for EBITDA.
I'm curious if you look at specifically the trend.
Subscription gross margin increased sequentially, and obviously you onboard a lot of new clients, So I would imagine.
You, you're probably at a stable customer success and implementation team behind that.
Do you think that's too early to maybe call the trough and subscription gross margins and we should kind of expect a further improvement from from these levels are.
Might there still be some incremental investments needed there.
I mean in Q1, we had actually talked about that.
We had an expectation that.
Gross margins less payment or the subscription margin as you're referring to.
Would would go up in the low.
Low seventy's and I think.
This quarter, you see it improve and.
That improvement like everything else, we've done a little bit better than we thought I think the organization is really thoughtful about spend and how are you adding resources.
We expect that margin to continue to improve in the second half.
Great. Thank you very much.
Your next question comes from Joe Goodwin with JMP Securities. Your line is open.
Yeah.
Great. Thank you so much for taking my questions.
Your employees have sequentially come down the past two quarters and I'm. Just curious is that is that natural attrition or is it force attrition that any any.
Any commentary would be great.
Yes.
We've not had.
I Dunno, how would you answer that question right.
I think its natural attrition.
We.
The team has done a very good job of making sure that folks would want to keep.
Well rewarded and the team has done a phenomenal job, but yes, we do see ebbs and flows but I think more important is that.
Our team is up to X from 12 months ago, Yes, so triple over groups and almost triple over three years and we tend to work at it not on a quarterly basis.
But trending over time.
Understood. Okay. Thank you.
And then you commented on the retention briefly earlier in the call, but there's been no movement on your on your client returns health care services client retention at all even seen anything from the macro or anything like that.
No it's consistent with that.
We look at it on a monthly basis, and it's consistent where it's been in the past year or so.
Got it okay. Thank you.
Your next question comes from John Ransom with Raymond James Your line is open.
Hey, there.
If we were to look at the customers you're adding today.
You talked about 200, and then the ones you added this quarter. So, let's just call it 450 round number.
Is this customer class on average a bigger.
Data providers as an bigger hospital systems or pick a doctor groups or is the average sort of Tam.
On a per provider basis today kind of the same as you've added all up.
John .
All different sizes their enterprise clients.
They are small or medium the one thing that all our though it's they're all land.
Then we look to expand and we are we're absolutely.
More.
Large clients, but were also seeing tons in the mid size we're seeing.
Those that are part of networks I would say the team has just done a phenomenal job of selling across the spectrum.
Helping to provide.
So all of those that need it.
We think of it in time.
More enterprise versus health system.
Okay, and then secondly, I mean I think.
We understand the core freesia and you guys are adding.
New.
Its capabilities, if you were to kind of isolate on one or two capabilities that you've added is there anything that you know.
Oh gosh this is going better than we thought and this could be the next big revenue or is it is it more that this is we should think about it as the company is what it is and these are just enhancements that kind of.
Situated around the core if you will.
Alright, well no I don't think the company is what it is like we've been making significant investments.
The investments we've been making around products in life Sciences has been great hopefully over the next few quarters, we'll be making some other announcements on some new products that are getting a lot of traction we're excited about it.
Yes.
But our access products have been unbelievably successful and that's around appointments and how people.
How people get into buyers we've had.
Insights has just been just it's one of the most.
Rocking products, we've had in years, so I'd say, John we have we've made.
<unk> and R&D and people when those investments, we're starting to see payoff or building great products and a.
A ton of value.
And I.
You went you went virtual a couple of years ago.
Timing off but so it doesn't sound like that's really been an impediment to productivity or creativity.
We just have to.
We're already hybrid pre COVID-19 right. So in a lot of ways I think this made it easier for everyone to work on an equal playing field has it been harder for some yes, right now <unk> and Randy are sitting around my kitchen table.
Oh hi.
What's for dinner, what's for dinner Boise is it good or I don't know.
We have taken.
[laughter].
Next time, you will have to Cook is a healthy meal.
Yeah.
Yeah.
But you know what.
I think as an organization our view is how do we make sure that we just.
Do what's right for our clients and build great products in our product organization.
Phenomenal job.
Understanding what the client needs are and just iterating in building testing and making sure that the products, we build get used and provide a phenomenal amount of value and we just care about making sure that we make health care outcomes.
Right.
I'm, sorry, I broke up yeah. That's it that's it for me thanks, guys I appreciate it.
There are no further questions at this time I will turn the call back to <unk> for some closing remarks.
I want to thank everyone for joining us for the call I want to thank everyone on the Ranger team and all of our shareholders and I hope everyone has a great.
Start to the.
The months of September and hopefully can see everyone in the salt.
Alright.
Bye bye.
This concludes today's conference call you may now disconnect.
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