Q4 2023 Phreesia Inc Earnings Call

Speaker 1: And.

Speaker 2: Good evening ladies and gentlemen and welcome to the Freesia fiscal fourth quarter 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 Balaji Gandhi, Senior Vice President Investor Relations for Freesia. Mr. Gandhi, you may begin. Balaji, this is HonFactor Relations.

Speaker 3: Thank you operator. Good evening and welcome to Freesia's earnings conference call for the fiscal fourth quarter of 2020 three which ended on January thirty first of 2020 three.

Speaker 3: Joining me on today's call is Haim Endig, our Chief Executive Officer.

Speaker 3: A complete discussion of our results can be found in our earnings press release and in our related Form 8K submission to the SEC, including our quarterly stakeholder letter both issued after the markets closed today.

Speaker 3: These documents are available on our Investor Relations website at ir.frija.com.

Speaker 3: As a reminder, today's call is being recorded and a replay will be available on our investor relations website at ir.frija.com following the conclusion of the call.

Speaker 3: 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.

Speaker 3: 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.

Speaker 3: Such risks are described more fully in our earnings press release, our stakeholder letter, and our risk factors included in our SEC filings.

Speaker 3: including in our annual report on Form 10-K that will be filed with the SEC tomorrow.

Speaker 3: The forward-looking statements made on this call

Speaker 3: will be based on our current views and expectations.

Speaker 3: 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.

Speaker 3: We may also refer to certain financial measures not in accordance with generally accepted accounting principles.

Speaker 3: in order to provide additional information to investors.

Speaker 3: These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

Speaker 3: A reconciliation of GAAP to non-GAAP results may be found in our earnings release and stakeholder letter which were both furnished with our Form 8K filed after the markets closed today with the SEC and may also be found on our investor relations website at ir.frija.com.

Speaker 3: I will now turn the call over to our CEO , Haim Indic.

Speaker 4: Thank you Balaji and good evening everyone.

Speaker 4: Thank you for participating in our fourth quarter earnings call.

Speaker 4: Before we jump into some highlights of the quarter and Q&A, I'd like to talk about our CFO transition, which we also announced in an 8K filed after the market was closed.

Speaker 4: Balaji Gandhi will take over as our CFO this Friday, March 24th.

Speaker 4: Many of you on the call know Balashi. He's been a part of our executive team over our entire existence as a public company. He's become a trusted peer to our executive team and board of directors in terms of planning and communicating his previous strategy.

Speaker 4: brings over two decades of knowledge and background in the healthcare space as an investment analyst and industry executive including the past four years with Grisha.

Speaker 4: He has been invaluable to us in his previous role and we are excited about the contributions he will make as CFL.

Speaker 4: Let me also thank our outgoing CFO Randy Rasmussen when Randy joined us in 2019.

Speaker 4: we had a small finance organization for our company with about 500 employees and $150 million of revenue.

Speaker 4: Randy helped build a great finance organization and implemented processes, systems, and controls that we believe are important for a public company to be able to deliver durable and profitable growth over time.

Speaker 4: Now moving on to our results.

Speaker 4: Our stakeholder letter and earnings release came out about an hour ago, but let me start with a call by sharing a few key highlights of the material we released.

Speaker 4: Revenue in the third quarter was $77 million, up 32% year over year. That's our eighth consecutive quarter of over 30% year over year revenue growth.

Speaker 4: Thank you and congratulations to the entire FISHA team. A fantastic job.

Speaker 4: In the quarter, our average number of healthcare services clients was 3,140, up 36% year over year.

Speaker 4: We added 158 average healthcare services clients from the third quarter to the fourth quarter.

Speaker 4: Healthcare Services Revenue, which is the combination of subscription and related services, and payment processing revenue was up 31% year over year in the fourth quarter.

Speaker 4: Total revenue per average healthcare services client, a new key metric beginning this quarter, was $24,390, down 3% year-over-year and 1% sequentially. The decline is primarily driven by our average healthcare services client growth.

Speaker 4: outpacing revenue growth in subscription and related services and payment processing.

Speaker 4: Subscription related services revenue grew 35% year over year.

Speaker 4: Payment processing revenue grew 23% year over year.

Speaker 4: network solutions revenue was up 36% year over year.

Speaker 4: Moving on to our outlook for Fiscal 24, which ends January 31, 2024.

Speaker 4: We expect revenue for fiscal 2024 to be in the range of $353 million to $356 million and a confined growth of 26 to 27% over our just reported fiscal 2023 revenue.

Speaker 4: We expect adjusted EBITDA to be in the range of negative $65 to negative $60 million, showing continued improvement on our path to profitability.

Speaker 4: We expect to see a sequential quarter increase in average healthcare services clients in the first quarter of fiscal 2024 that is similar to the 158th sequential increase we saw in the fourth quarter of fiscal 2023.

Speaker 4: We also expect subscription and related services revenue per average health care services client to remain roughly in line with our fiscal fourth quarter results.

Speaker 4: We continue to see solid operating leverage and we expect a return to adjusted even of profitability.

Speaker 4: fiscal year 2025 while reaching $500 million in annualized revenue during fiscal 2025.

Speaker 4: We remain comfortable with our ability to finance our fiscal year 2025 targets with our cash position.

Speaker 4: We believe our capital allocation strategy.

Speaker 4: sets us up to deliver on our financial targets for Fiscal 2025 and beyond.

Speaker 4: Operator, we think we can now open it up to Q&A.

Speaker 2: At this time, if you do have a question, please send those by pressing star 1 on your telephone keypad. We do ask that you please initially limit yourself to one question with one follow-up. We'll hear first today from Anne Samuel with J.P. Morgan.

Speaker 5: Hi, congrats on a great quarter and congratulations, Balaji, on the very exciting news. You know, maybe my first question is on network solutions. You know, you saw really, really strong growth in this segment once again, and I was wondering if perhaps you could discuss a little bit about how we should be thinking about underlying market growth in that segment and, you know, how you expect to grow relative to that and then...

Speaker 5: You've seen some relative insulation versus some of your peers in the space that have seen some pressure from pharma advertising budgets. So just wondering if you could speak to why maybe you're more insulated versus others.

Speaker 4: Hey Annie, I'll let Balaji say thank you first.

Speaker 4: I guess. Yeah, thanks, Andy. So, I guess your question, if I heard it correctly, is why are we doing well on network

Speaker 5: You know, why relative versus others? And then also just kind of thinking long-term, how do we think about maybe what the underlying market growth rate is for that segment?

Speaker 4: Look, I think the time has shifted in the market. And so first and foremost, I think from what we see, like our clients are really focused on ROI, tried and tested.

Speaker 4: tactics and platforms that could deliver like clear, like scaled ROI that meaningfully help patients understand their therapies and understand, you know, different.

Speaker 4: treatment pathways and understand different things that are important to their care. And so that's been, you know, first and foremost, that's probably what we've seen in the market and we do those things. The other reason is frankly we got a great team and they're doing really well. And I think the reason we're doing really well

Speaker 4: is because of the team and how they've been out in front working with clients and making sure they understand the value. And frankly, on behalf of everyone, I just want to give them a thank you. Everyone on life sciences and our payer teams have just done a great job. And...

Speaker 4: So, thank you to all of them. I know they're listening.

Speaker 5: That's helpful, Color. And then, you know, in your letter, you spoke about completing your first enrollment period in the payer space, and since you're kind of new to the payer space and we haven't seen as much from there, I was hoping you could maybe talk a little bit about how Member Connect helped with that and what it looked like for you.

Speaker 5: That's helpful, Color. And then in your letter, you spoke about completing your first enrollment period in the payer space. And since you're kind of new to the payer space and we haven't seen as much from there, I was hoping you could maybe talk a little bit about how Member Connect helped with that and what it looked like for you. It looked okay.

Speaker 4: And, you know, it's still early days. I don't think we're prepared to talk much about it. I think we're still learning, but I was really, it did a little bit better than we thought it would. And I was proud of the team. It was hard. We had to do things a little bit.

Speaker 4: I don't think we've automated a lot of our solutions yet. But I think we're working pretty hard on building a lot of products around it. And I think everyone was pretty excited about our 1st, year doing it. And any, I just had 2 things 1, it is still early and we're still learning.

Speaker 3: And to, you know, you'll remember we, we did, you know, we raised the guidance into the 4th quarter. Uh, knowing what what we knew about the enrollment period back then in December . So. Some of that opportunities already in the results.

Speaker 4: But everyone at Freeze is pretty proud of the work that they're doing.

Speaker 1: It's fine.

Speaker 6: It's fun. Great.

Speaker 2: We'll hear next today from Ryan Daniels with William Blair.

Speaker 4: Yeah, good evening. Thanks for taking the questions. This is Jared on for Ryan. I'll first echo the congrats to Balaji on the transition here. And then I did actually want to ask a follow-up on the point around ROI related to the life sciences offering. So in the letter it looks like one of the drivers of upside that you mentioned was

Speaker 4: so that they can kind of be on channel, so to speak, for more time each year.

Speaker 7: No, I would actually say what we were able to so the way our fiscal year runs so it runs the end of January and there was a lot of people that worked into the holiday season to make sure that programs transition seamlessly this year and you know thank you all for making sure that those programs

Speaker 7: We banned seamlessly and our new programs went live as soon as possible. So it was really it was about a strong January and the seamless transition and the team just did. I cannot on behalf of everyone of Frisia, they really crushed it into that year and that's. And we allowed us to just.

Speaker 7: We ran pretty well in January , which helped us significantly. I don't know if that answers your question, Jared.

Speaker 4: Yeah, yeah, that's helpful and nice to certainly nice to hear about the strong execution. You know, I guess just as a follow up. It was pure execution.

Speaker 7: Just amazing. And all for the whole team.

Speaker 4: Got it, got it. Yeah, so just one quick follow-up from us then. I guess thinking about the fiscal 24 guidance here, given the strong client count growth that you saw last fiscal year, is it fair to assume the 2024 outlook is being driven by a greater mix of wind and expand growth versus new in-year sales?

Speaker 4: Really just trying to triangulate any thoughts on if there's anything we should be thinking about relative to the visibility that you have into this guidance at this point in the year, maybe relative to prior years.

Speaker 8: Yeah.

Speaker 3: Jared, we obviously gave a little bit of color into the first quarter, which if you take that for what it is, it's about the same amount of ads that we had in the fourth quarter, you would probably conclude that the growth would look about the same for the mix on growth.

Speaker 3: from client ads versus revenue per client. In terms of the latter three quarters, we're not really talking about it. We have some visibility, but we'll just try to update you as you go. But I don't think I would, where we would agree with any, the way you were going as far as some kind of inversion between the...

Speaker 3: the contribution for now it's probably still going to be more skewed to client growth versus revenue. Okay great thanks for the color. And from Piper Saylor we'll move next to Jessica Toussaint.

Speaker 9: Hi, thank you guys so much.

Speaker 10: Sorry about that. Thank you guys so much for taking the question and congratulations, Balaji. That's awesome. So we wanted to focus a little bit on, we saw you facilitated 120 million plus visits in FY23, up about 20%. Year over year, you grew healthcare services clients a little faster than that. So just...

Speaker 10: Is there anything for us to conclude on the kind of divergence of those two growth rates?

Speaker 3: Yeah, it's actually probably worth an explanation. The actual math you need to do is from, you know, it's not like actually a clean year over year. We had talked about eclipsing 100 million visits as of the end of September of 2021.

Speaker 3: So, you know, I mean you can't actually get to the growth to line it up perfectly, but I would say that I don't think there's anything you should read into the difference between visit growth or client growth. They're probably about the same right now in terms of mixed client size. It's pretty awesome, isn't it?

Speaker 10: Yeah, $120 million is quite a few. I know!

Speaker 7: I'm proud of everyone. It's a lot.

Speaker 6: It's a lot. Yeah.

Speaker 10: Just maybe a quick follow-up. I was hoping you guys could kind of talk to us a little bit about the Social Determinants of Health Screening Tool and whether or not you're getting paid for that currently. And if you are getting paid, are the payers sponsoring that outreach, and does the revenue show up in Network Solution? you

Speaker 7: So, we provide those social determinants of health modules and everything we do around the set of questions right now, we don't, that's just part of what people get as part of the package. We don't charge extra for it.

Speaker 7: I just philosophically, we tended not to believe that there that's something that. We thought about monetizing, we think it's just the right thing to do. We thought we could do something once in a industrial place that's not going to like

Speaker 7: And so we try to do the right thing as an organization to help clients help their patients and no we today don't make any money from pay our clients on social determinants of health. It's really just about making sure that we identify the issues that

Speaker 7: that caregivers and providers can help them. Awesome, thank you guys. We'll hear next from Joe Rui with Baird.

Speaker 11: Great, thanks and congrats, Poulaje. In just reflecting on EBITDA performance over the last 12 months, actual results I think ended up being almost 60 million better than the preliminary guidance.

Speaker 11: And I definitely appreciate it's probably not the pragmatic thing out of the gates to embed the type of productivity per employee that ended up being seen over the last year, but I'm just wondering kind of in that context how you might handicap or kind of scenario plan around the forecast that was provided today.

Speaker 11: puts and takes or thoughts on kind of the upward trajectory and productivity continuing on a quarterly basis.

Speaker 3: Yeah, and thanks Joe. So, you know, I think the biggest difference between a year ago at this time when we, when we laid out the outlook versus today, and I think we talked about this, maybe on the last call. I mean, there were a lot of other unknowns out there. One was we were

Speaker 3: we were coming off of that big step up in inflation, and we talked about that and wages went up, and that was that big step up in terms of expenses, and you saw the drop in EBITDA. So, to be frank, I think, maybe speaking for Heim too, maybe this is not in our exact team.

Speaker 3: I don't think we knew whether we were in the seventh inning of that or the ninth inning of that and So that was baked into our expectations. I think we've also talked about the situation in Ukraine at that time That you know, so it would have been would have been mid late March of 22 So those are two factors that were very different

Speaker 3: Beyond that, I think we've been pretty open about talking about productivity and revenue per employee and metrics like that. So I think everything else is sort of headed in the right direction, but those are two differences between last year and this year.

Speaker 7: Look, and I also think that we have a culture of ownership.

Speaker 7: at the company and all of our people are shareholders. And I think when we try really hard to articulate to them what we have to do, which is be thoughtful about the money we spend. And they took all of them, took it seriously. So a lot of the material improvements are thanks to them and everyone on the team.

Speaker 7: for being just really good stewards of capital. It can't just be on leadership. It went all the way through the organization. And I think that's why we did a lot better too.

Speaker 11: Okay, that's great. And then, you know, anytime a new metric is debuted, you kind of ask why. And so I think the interpretation here is the contribution from the network business family seems like it's going to be a tailwind for a while.

Speaker 11: I guess maybe related to this, do you think you're coming up on a point in time where a freeze-up will be less of a client?

Speaker 11: ad story, I'm not saying that goes away, but maybe more of a net retention story and there's going to be maybe more of a growth contributor to that side of the growth algorithm.

Speaker 3: I don't think we're ready to say that yet. I think we're still pretty we still have a lot of growth left in growing the network. In the near term, but I do think Joe that the takeaway from this, it's it's I think 1 of the things we concluded. And I don't know if you probably weren't following this back then, but.

Speaker 3: when we went public, we had this key metric, which was the healthcare services revenue, which in fact that was called provider revenue for client. And if you really think about it, it's sort of like more of a jigsaw puzzle.

Speaker 3: and that was putting together the subscription related services and the payment processing. And you could calculate. And what happened, we noticed that the investment community started to break that down and look at subscription per client, look at payment per client. And so we just sort of added this third component to it. Now you can look at total and you can look at network solutions.

Speaker 3: So the intention isn't to introduce something new, it's to just sort of like step back and look at the entire picture and break it up any way you want. But in any given quarter, one of those can contribute more than the other. Does that make sense?

Speaker 2: Yes, it does. I'll leave it there. Thank you. And from Jefferies, we'll move next to Glynn San Angelo.

Speaker 7: Oh, yeah, thanks for taking my questions. I just have two quick ones. You know, I first wanted to just talk to you about the top line here. I mean, essentially, if we use your guidance for revenue this year, it almost seems like you need to grow faster in fiscal 25 to get to your fiscal 25.

Speaker 12: you know, goals of $500 million run rate, which so by default, you're effectively given two years of guidance here. And I want to get a sense for you on where we are with respect to the penetration of automated check-in within the business more broadly. And I guess what sort of gives you that.

Speaker 7: comfort that the growth rate that you're currently enjoying is sustainable for another eight quarters. All right, look, I think it's, we got a lot of work to do to get to where we need to be and I don't think it's gonna be easy I think we're still in the very, very early innings of.

Speaker 7: building on our business and I'm pretty excited about it. But I think, and I'll ask Balaji to answer this, but I think if you look back, we've been public for a bunch of quarters now. And during that time we've had acceleration, decent like gone down a bit and we accelerated up. I'm like, how many times have we done that Balaji? Like if you look back, it's been like three or four times, Glen, anywhere.

Speaker 3: where you've had sequential quarter growth vary on a total revenue basis. I think the reason, even if you take out some of the distortion from COVID with payments, the biggest reason is it relates to the earlier question that Joe asked about the three revenue streams. So,

Speaker 3: Again, there's a little bit of seasonality around network solutions. There's seasonality around payments. So I think when you're sort of thinking about growth rates on an annual basis or CAGRs, you can kind of get, you know, lose sight of how our business operates. So again, there's quarters where we've grown, you know, 36. There's quarter where we've grown 27.

Speaker 12: And, you know, this is this is where we're setting, you know, setting things up for annual guidance for this year. Okay, well, Balaji, maybe if I could just sort of follow up in on the profitability side, right? Because, you know, the annual guidance this year, I mean, on the EBITDA side almost assumes like no leverage.

you know, from from the EBITDA number you reported in this fiscal fourth quarter. I mean a little bit right which again back to that theme of providing two year guidance, right? If you're assuming you're going to be profitable and you know by the end of fiscal 25 that assumes a very healthy ramp in fiscal 25. And so, you know, I just wanted to get a sense. I understand the differences.

that played out in fiscal 23, maybe to, you know, the original expectation, the uncertainty and in the environment. But is there anything as we think about, you know, sort of this two year stack here that would load more expenses in the first year versus the second year or because it seems like the way you have it positioned, it's not, you know, anywhere close to being straight lines. Thanks. Yeah. And I think I've heard him say, you know.

into our fiscal year, and we look at a lot of different investments that we're going to make. Some of them are short term, some of them are long term, and we calibrate as we go. So we've got sort of a view of how we think things will play out. And so where we talk about that in March is going to be different than...

Revenue mix having sort of a different profitability. So it's a seasonally strong payments quarter. For example, we're gonna have you know lower EBITDA.

Okay, thanks. Appreciate the comments. We'll hear next from Shawn Dodge with RBC Capital Markets.

Yep, thanks. Good afternoon. Maybe just going back to the new metric for a moment, the total revenue for AHSC, you're at $24,400 as a Q4. Can you give us some sense of what the fully penetrated opportunity would be right now on a per provider basis? I think before you

31,500 per provider for subscriptions. How do we kind of frame that in our mind if we add in payments and now what the network services opportunity on a per provider basis could be over overtime.

Yeah, and Sean, I don't want to do the math on the top of my head, but it's pretty simple. I mean, all these numbers are like, again, just think about like a jigsaw puzzle. So the total TAM is 10 billion, right? And so the 31 and a half thousand, I think that you mentioned, that's what you said, right? On a quarterly basis? That's right.

Yeah, so that's that's that's that subscription related services. So, I think, you know, on 1 hand, you could say there's a universe of 50,000 clients and there's about 10. Billion of total addressable market again, I don't want to screw up my zeros, but 10B divided by 50,000 and then 126,000 is what we talked about from.

Subscription and then you can you can do the math. It's 2 billion on network services divided by network solutions divided by Divided by 50,000 clients. Does that make sense? Yes, yes, that makes sense. And then

So I guess kind of related to this in Q4, I know you said you added a bigger mix of larger clients. What's the attachment rate been like with parent processing in those larger clients? You know, I guess how does that compare to what it has been historically for you all? I know from the last call, it sounded like you've been having some increased success there.

Yeah, it's actually been it's still lower than our average, but the team's you know plugging away They're doing a good job of winning some deals in it, and I think we've been fairly happy with We're still tracking, but it's a long slog, but no we're winning payment volume Obviously nowhere close to what we do in you know the average, but we're winning payment volume in the enterprise accounts

I think it's evident in the numbers. Okay great thanks again. Thank you. We'll move now to Daniel Grosslight with Citi.

Hi guys, thanks for taking the question and I'll add my congrats to Balaji here. You mentioned in the shareholder letter that patient processing volume tends to grow in line with network growth, but if we look at payment fees per provider this quarter, it fell about 10% year over year. Can you help?

kind of square those those two comments and as we look at 24 should we expect payment fees per provider client to return to a more normalized growth or do you think there's still going to be some

Just so we're clear, you're looking at payment fee revenue divided by client, correct? I'm looking at the volume per client. It's directly correlated with processing fees. My numbers were $100,000, $300,000, $400,000, $300,000.

On a, on a volume per client basis. Yeah, so you're just so again, so we're clear you're comparing. About a 262,000. Uh, compared to 298,000 is that right? Yeah, that's right.

Yeah, yeah, that might be something we have to follow up with you on. I do see your point. I mean, it's obviously the same. Same same quarter in terms of seasonality. I don't know how I'm thinking off top of your head. No, I just think it's what you might see is a mix of client types. At all I win.

I don't think we see any maps of variability in it. But, you know, as I look at the last couple of quarters, it was, and this actually would make sense, it was down 16 year over year last quarter and 17 year over year the one before that. And I think one thing we have talked about in our letters, Daniel, is we had that unusual sort of volumes were down.

You know, from cobit and then spiked up. And so we were working off some of those tougher cops on a per client. But anyway, maybe we can follow up with you on that. But nothing comes to mind. Yeah. Yeah. That sounds good. And for 24, I assume that it's more normalized across the board. So that's really a 2 minute dynamic.

Okay, and on R&D this quarter, a bit of a pickup. Can you just talk a little bit about product development and how we should think about R&D and capitalized software for 24? Look, I'll talk about the first part and then Bill I should talk about capitalized software.

I don't really know that much about it. So I look we invest in product products make

Huge gains for our clients, they drive significant value for all of our shareholders and we see a lot of efficiency gains when we invest in product and also it's new products to build and new markets to go after. And we're pretty excited about some of the things that

The team is doing and we've always led as a product. Product 1st, product driven organization and I expect that to continue. Obviously, the growth in R and D will start to mitigate over. And we see that mitigating in the near term. And as we start getting a lot of operating leverage.

some of the newer investments and the people you know that we brought on board who are just so impressive on that R&D team.

Yeah, and so, and Daniel, are you trying to just look for like the trend on spend?

Yeah, and so, and Daniel, are you trying to just look for like the trend on spend? Yeah, exactly.

Yeah, I mean, you know, you can see it's sort of been growing proportionally with R&D expense on the P&L. So I think you've sort of found this more this range that we've been at on a quarterly basis. And I don't think it'll, you know, it will increase to Himes point, but it'll increase probably at a similar rate to R&D expense.

And that's all in the context of still getting operating leverage You know on EBIT dots that or ever you could probably you know ratchet it up a little bit Based on what your R&D expenses

in the context of still getting operating leverage on EBIT.org, you could probably ratchet it up a little bit based on what your R&D expense is. Yep, makes sense. Thanks, guys.

We'll hear now from Stephanie Davis with SBB. Hey guys, thanks for taking my question. Balaji, congratulations on the new seat. First one's for you. BRILLIA is a very different organization from when we first joined.

So when you look at your new title and this kind of next leg of growth, how would you think of your top priorities for this new role?

Well, you know, I think, you know, I've had almost four years here, and I think part of it is, you know, we've done a lot of things, obviously in the last four years, we've raised, you know, we raised a lot of capital and we're trying to be opportunistic about that. I had to make a lot of decisions about, you know.

How we, you know, how we put that money to work, what kind of returns we get. And I think, you know, that's been a lot of different people at Prezia have been involved in these things. So I think continuing to just make sure we're focused on. Cost of capital returns on on capital, because, you know, that's and I think we've talked about this on some of these calls. What we did was. Pretty controversial.

But the reason we felt comfortable doing it was because we had a lot of rigor behind it. So I think, again, we've got a really good finance team that helps us make some of these decisions. And so continuing. So it's actually in some ways more of the same. Don't mess with a good thing on that front.

I understand. This is probably a little bit ironic given the current from an SBB securities analyst, but with the world blowing up, you are seeing private market valuations rationalizing pretty quickly.

With that in mind, how committed are you to organically developing some of these new platform solutions like RevCycle versus maybe looking at a buy in order to accelerate the expansion?

Look we we've looked look obviously we've acquired some things that where we thought the capabilities were

More thought by made more sense for us to acquire than to build. We've done that in the past. We believe that.

You know, we want to be both good stewards of capital, but also we want to buy really great things not just good deals

Right and I don't necessarily think I know some people who leave valuations on the private side.

I think that there's still a lot of expectation setting, resetting that needs to happen there probably more than has happened to date Stephanie. But we're, we looked at things, we will continue to look at things. Um, but I, you know, frankly, as an organization, we also. We're pretty good that we could, we're good at building things and we're good at.

you know, getting clients to get our software and to use our network and we deliver phenomenal values. So the things that we care about are things that drive phenomenal value to our clients. And we'll just keep doing that. And if there's things that add value to the clients and add great returns to our shareholders, then we'll look at them. Right.

I don't know, we'll be thoughtful. And it gets back to my earlier point, around just capital allocation returns, because I think we've done some acquisitions and it's just sort of lined up the right way for us. But we'll have to see. I mean, you'll have to let us know what.

how quickly things change. There's a lot of crap out there. Yeah, hopefully soon. Hopefully there's a lot of changes there. Alright, thank you guys. And from Canaccord Genuity, we'll hear next from Richard Close.

Great, thanks for the questions. Congratulations to both of you. So maybe diving in on life sciences a little bit more into Annie's question. Maybe if you could provide some details on the growth there in terms of maybe getting greater wallet share from existing customers versus

work with, so expanding our footprint. And then it's winning new clients that we haven't worked with before that or we've worked with and they've been at a previous company or they you know the agency that we work with has had great success with us for some clients and now they recommend us for other clients. So I think a lot of our growth has been driven by just

You know the team has been great at it, but that's it's been all of the above you know I you know, but I was gonna pull up a stat. He's got a good stat here Yeah, Richard, you know from time to time we do update some of this stuff in our deck So I would I would look at I'm looking at slide nine of our investor deck and that's we work with more than 80 brands And if you you know

Look back at that number was about in the 40s when we went public in 2019 and The last time we updated in this deck. It was over 70 brand. So, you know So the answer is more more Okay, and I maybe Just you know as you're out talking to potential clients even existing clients and getting feedback from your You know your sales team, you know, I guess

Any perspectives you can share with us in terms of like what's the mindset of healthcare providers right now? Has anything meaningfully changed maybe over the last year? What are the pain points? Is it the same? Any update there would be helpful.

Look, I think they're just I think they're tired. They're working hard. It's hard to pay people what they need to they're still having staff turnover. I think they feel like their organizations are fairly understaffed often. And they don't have it.

Ton of money. So look, our view is they're looking for solutions that drive a phenomenal amount of value pretty quickly. And they just don't want to take a lot of risk. And so I think that's where we've been having a lot of success. Is they could look to their right and they could look to their left and they could find other people that use Freezia that get a phenomenal amount of value for it. And frankly, a lot of them have used it at their doctor.

and you know we give them the ability to get great value with with no risk and that's really really important in this market but I you know I feel for our health care providers right now the last four years has been a rough go

It's been a really rough go and I'm just really honored that we get to work with so many great ones. They're in it to treat patients. That's why you go to medical school.

It's been a really rough go and I'm just really honored that we get to work with so many great ones. They're in it to treat patients. That's why you go to medical school. You want to make a difference.

All right, thanks.

All right, thanks. We'll hear now from John Ransom with Raymond James.

Hey there, I guess I have to congratulate Balaji or you guys will be mad. Congratulations Balaji. I hope dinner was good. That's Shay Heim. Just thinking about your upcoming hiring cycle for your SDRs. Last year obviously was the big experiment of...

Stepping on the gas. What are we thinking about this year in terms of addition? Thanks It's uh, I feel like.

You know becoming an SDR freeze is like a job that they probably wouldn't hire me if I was Graduating college that team is amazing With more experience than they've ever had And they're doing really well. We're really investing in them and I think they're staying their seats longer and that's by by design because we actually want to get them

deeper into freezia and it's been very successful the team behind our and and we've created new roles around it are you know, we now talk about just the STR team, but also the where they graduate to an ISR team and the ISRs are just

rocking it out right now. And they're the future of the organization, so we're pretty excited about it.

Would you agree with that? Yeah, and I'm surprised we got this long in the call without somebody asking the number, but it's a. Is 177 for the quarter so. So, John , it's, you know, it's been tracking sort of in that. Range for 3, you know, 3 quarters now and. Um, you know, I think, you know, what we're talking about doing in terms of expense.

Friends and operating leverage so and I would also point out and I have in a lot of meetings Just as a side note we use SDRs in all parts of our go-to-market organization not just our provider market so and we've SDRs in our life sciences organization pay organization all of them have been doing just

operating leverage. So and I would also point out and I have in a lot of meetings just as a side note we use SDRs in all parts of our go-to-market organization, not just our provider market. So with SDRs and our life sciences organization, payer organization, all of them have been doing just phenomenal work.

And I would also point out, and I have in a lot of meetings, just as a side note, we use SDRs in all parts of our go-to-market organization, not just our provider market. So, we have SDRs in our life sciences organization, in our payer organization, and all of them have been doing just phenomenal work.

My other question is, I mean, if we go back to the roots of the company, starting with your smaller doctor offices, let's say somebody's been with you for four or five, six years. What is the, I mean, do you hit a plateau with that client? I would assume, I mean, they can only see so many patients, you can only do so many things for them. How do you think about the long-term growth with some of your more mature kind of legacy clients or is that just kind of the foundation that you build new customers off of? Well, look, some of our oldest clients are using our newest products too.

I was in a meeting where I was like, why have I heard about that client, John ? And it turned out it was one of the first clients we ever had, and they're still using us and they just changed their name. And now they're using some of our new beta products, which are pretty exciting.

Which hopefully we'll talk about in the coming years, but you know our best clients are the ones that often They've been with us long as me They've seen what happens when Pre-Esha comes out with new products and the wins they get with it So I don't know we're pretty I wouldn't say our old clients are

It's not there like we expect our organization, our CSM organization, it's just been phenomenal getting those clients to try and use our newer products, which is the whole thesis. And wouldn't you also say that – Well, that was my sneaky way. My sneaky way was hoping you'd split up and tell us what some of those were, but you didn't take the bait. Oh, no. The laundry's been treated.

I'm not allowed to say anything. Good luck. I think there's another angle there. Some of those older clients have actually become consolidators in the market, right? I mean, the private equity rollup of some specialists that started with smaller, Frisia? We have, and we also have some of those smaller clients.

have been bought by health systems and turns out that those health systems use Friesia now because of those smaller clients. But I think that was a long time ago that that was our core focus.

Well, I understand. My last question is, it's been a couple of years, I'm probably losing track of time, since you announced you were going into the hospital market. And I know your thesis at the time was, we can save on data entry. But what have been the learnings as you've expanded your reach into the hospital market? And how do you think about that opportunity now versus when you

hospitals, tertiary hospitals, acute hospitals, like they're all like, it's sort of funny John , you see one hospital, you see one hospital and you go do another one, they all have different systems and they're all, and we've been able to add just a ton of value to them and we're building out new very specific workflows that if you ask me,

three years ago that we'd be building. I didn't even know some of those workflows existed, but they're very laborious and hard for these hospitals to do and you know that that's really it's coming from the team and both our implementation organization, our CSM organizations, but also our product organizations just working in tandem.

I think we still have years of work to just continuously automate and move work to the patient and just create a better healthcare experience with better outcomes. We're starting to talk a lot more about outcomes than we ever have.

Great. Thanks so much. We'll hear now from Scott Schoenhaus with KeyBank.

Ehaim and Balaji. Congrats Balaji on the new role. Well deserved. So, I wanted to touch upon the strong – another 150 ads in new clients this upcoming quarter. I think it speaks volumes of the quick ROI offered to your provider clients, but was wondering if you could give us the average conversion timeframe from a promotional client to paying client for your subscription services. I think it speaks volumes of the quick ROI offered to your provider clients, but was wondering if you could give us the average conversion timeframe from a promotional client to paying client for your subscription services. Well deserved. Congratulations Balaji. Congratulations. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

And just as a reminder, you're including client count for providers that are using payment processing but are still on the pre-trial promotional software service, correct? Correct. That is correct. You have to pay us to be counted in that healthcare services client count..

Yeah, Scott, we're not sharing the conversion rate there, but we've shared retention rates on client retention on an aggregate basis for four years from 2019 to 20...

through 22 and we can tell you it hasn't really changed much from the 90% ish client retention rate. And we've, you know, a big chunk of our go to market over that last few years has been the promo. So yeah, yeah.

And I just wanted to follow up on that last call with the sales and SCR investments commentary. I think last quarter you mentioned you're going to keep sales and marketing expenses relatively flattish, which we actually saw this quarter. Should we continue to expect that this will continue to drive most of the operating leverage in fiscal 24?

Well, I think, and I don't think this has changed, the sort of stack rank G&A is still at the top of the list. But sales and marketing being second, getting some gross margin improvement third, and R&D, you know.

going up as an investment area and maybe holding about flat on a percentage of revenue. That's what I should think.

Perfect. Thank you. And from J&P Securities, we'll hear next from Joe Goodwin.

Great, thank you so much for taking my questions and congrats for logging on the CFO role. I guess you have a number of new factors of growth coming into the model like payer and the referral management which is continued to mature. I guess can you talk about how these newer

items or influencing your guidance methodology or maybe lodging out guidance methodology may change now that you're in the CFO seat? I don't think anything will change. I think what we're trying to, you know, be intentional about is, you know, you see the total opportunity in terms of

encryption dollars. You can see the sort of areas we focus on, patient access being some of the new stuff I think that you mentioned, but also some newer things in registration and revenue cycle. Different quarters are going to have different monetization of that. We have a lot of the promos that we've talked about. So I don't think you're going to see anything different.

And, you know, our intent isn't to really like. You know, mask anything, it's just, you know, it's just it's a business that has different ways of. Driving growth over time and trying to keep it simple for everyone.

Got it. Okay. Thank you. And I know you don't disclose the net retention rate. But I guess maybe qualitatively, if we think about what that was in FY23, is it improving from when we still had visibility into those metrics? Any commentary there? Well, again, this is one of those things where point in time matters.

and we look at those metrics and they move around quarter to quarter. And I think two examples I can give you of that are if we've got a quarter where we've got year over year we've got expansion in a client, then it's going to speak favorably to that. If we had a quarter where we added a lot of net new and smaller clients, it's not going to look as good.

We'll move now to Ryan McDonald with Needham.

Thanks for taking my questions and congrats Balaji. Maybe first starting on Member Connect, I understand it's early in the process and sort of the monetization and maturation of the offering, but as you got through the first enrollment period, can you talk about how you're measuring, whether it's ROI or conversion rates?

on the leads and referrals that you're generating and how you might be able to use that for the upcoming enrollment period as we get into 2023 here to sort of expand and grow that offering. Thanks. I think it's probably still too early for us to do.

Color on that, but I'm sure the team will start. Putting out promotional material and when they do, we'll let them lead with it as opposed to anything else. And and you could probably, you know, there's a payer website and there's information there. So just, you know, if you look at that, you'll probably have a. You'll get a sense of how we're going to market there.

Okay. And then maybe as a follow-up for you, Balaji, I just wanted to make sure I got this down in sort of a clarification on the state of the cash balance. In the press release, I think you said on the recent events that at the end of it, you believe the cash is going to be, enough cash generated will be sufficient for at least the next 12 months.

And then in the fiscal 25 targets, you say it'll be enough to support you along your path to hitting your targets. Do you still feel confident in your ability to sort of reach your breakeven targets in 2025 with the cash on the balance sheet? Just want to make sure I have that clarification right and some of the wording on the press release. Thanks. Yes, I'm glad you asked.

And yeah, yes, we feel comfortable with our cash balance to take us to our targets in 25. And I think that was worded from, I'll just say sort of from a SEC regulatory and accounting and audit perspective, it was worded that way, but we still feel very comfortable with the comments we've made.

Excellent. Thanks again. And from Guggenheim, we'll move to Jack Wallace. Thanks for taking my questions. And Blodgy, congratulations on the new role. And to you both, thanks for the kind words on the last public call.

First off, I just want to ask about the commercial team. Looking back over the last year plus, you added a lot of bodies, you've added quite a bit of clients. And thinking about just how the team is settling in and their comfort levels and cross training now to be able to sell more of the full stack versus where we were.

a year, even a few quarters ago. Thank you.

a few quarters ago. Thank you.

I don't know if I understand. What was the question? Yeah, sorry Jack. It's like a really good statement. I'm like, I'm, I still lost. What's the question? I don't know.

I was just asking about the state of the commercial team now in terms of their comfort level and cross selling and up selling versus being more focused on the land expansion, just given the average tenure of the team at A versus A a couple quarters ago or even a year ago.

Yeah, so I think first off, obviously, there's been more people in the seats. Longer and that's frankly just good for us. We obviously ramped up a ton of people over the last couple of years and. Now, those a lot of those folks are in their seats a lot longer and obviously they're doing a lot better.

But I, you know, to clarify the people that upsell and expand are a very different team and frankly my heart goes out to that team because they're amazing and they keep getting.

just crushing it and On the provider side and then our net new team is different and they're also obvious based on the number doing phenomenal So those are two separate teams and they frankly doing really well and like all of us

have high expectations for that team to keep doing well. That's helpful. And then moving the expense side.

I was wondering if there were any investments or projects to call out that you could be either lumpy in nature or hitting certain parts of the year. And then on a related note, if there's any opportunistic hiring going on, given the state of the technology market, to thinking specifically within R&D. Thank you.

Look, I think we're always thoughtful about how we hire. But I think we communicated that we expect headcount to remain.

Look, I think we're always thoughtful about how we hire. But I think we've communicated that we expect headcounts to remain up or down around these levels by 10%. So I don't think we're going.

You know, Michonne crazy on this on hiring We're being thoughtful about it. But look, I think there there's always been a lot of talent But it doesn't matter the economic cycle having done this for 18 years Like good people are just hard to find and good times are bad Like you hold on to your great talent, you know with like every bit you can even when times are tough Right. So I think I don't know that it's any easier hiring people now than it used to be

I think what we see is it's probably easier, we're not getting poached as much as we used to, you know, with promises of grandeur. So how's that?

You know, I think people feel pretty good about the place they are at Freesia. Yeah, that's really helpful. I was going to ask about the retention comments. Appreciate it. Thanks again and congrats on a great quarter and a great outlook.

people feel pretty good about the place they are at Freesia. Yeah, that's really helpful. I was going to ask about the retention comments. So, appreciate it. Thanks again, and congrats on a great quarter and a great outlook. Thank you.

And our next question will be from Robert Simmons with DA Davidson. Hey, thanks for taking our questions, and let me add my congratulations to Balaji. Good to see you APCO folk doing well. So on the payments business, the gross margin there has been pressured for... certain

About a year, year plus. What are your expectations there? Do you expect it to stabilize around current levels? Or do you think it will start getting back to the previous gross marginal levels we used to see?

Yeah, I mean, it's headed back there. I think we've been talking about this sort of on this journey. I think I just want to be a little bit careful because there's different ways of calculating that number, but I think if you just step back, no matter how you calculate it in terms of looking at interchange, looking at subscription and network solutions versus payments, et cetera.

that break even on an adjusted EBITDA basis. I think, as we talked about earlier, mix sort of matters in terms of how it improves between now and then. But I think that just to remember one thing is that when the company, before the company went through this investment cycle, so think like fiscal 20, I don't think you should expect the gross margin levels there.

So what would be an example of rewarding a provider in that context? Sure, yeah sure. I mean I think the most straightforward one is the one in the letter, the KCC program, the Kidney Care Choices program. And so it is a performance measure if you want to participate in that value-based care program.

with CMS, you have to measure PAM twice, and you are measured on that, and your payments are based on how you perform against a bunch of quality measures of which PAM is one. If you care to, you can read some of the rulemaking around how we are

the payments work from between CMS and the KCC program. Got it. Thank you very much.

the payments work from between CMS and the KCC program. Got it. Thank you very much. Great.

And at this time I'd like to turn things back to Mr. Hyman-Digg for any closing remarks. I just want to thank everyone for joining the call and really excited about the New Year and I just want to thank our team for another great year and we look forward to the one ahead. Talk to you all in a couple months, right?

like to turn things back to Mr. Hyman <expletive> for any closing remarks. I just want to thank everyone for joining the call and really excited about the new year and I just want to thank our team for another great year and we look forward to the one ahead. Talk to you all in a couple months, right? All right. Bye bye.

And that does conclude today's conference. Again, thank you all for joining us. You may now disconnect.