Q2 2024 Phreesia Inc Earnings Call

[music].

Good evening, ladies and gentlemen, and welcome to the free shall fiscal second quarter 'twenty 'twenty four 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 Bellagio Gandhi Frejus Chief Financial Officer.

Mr. Gandhi you may begin.

Thank you operator.

And welcome to free shows earnings conference call for the fiscal second quarter of 2024, which ended on July 31 of 2023.

Joining me on today's call is <unk> <unk>, our Chief Executive Officer.

A more complete discussion of our results can be found in our earnings press release and in our related form 8-K submission to the SEC, including our quarterly stakeholder letter both issued after the market closed today.

These documents are available on the Investor Relations section of our website at IR Dot Freesia Dot com.

As a reminder, today's call is being recorded and a replay will be available on our Investor Relations website at IR Dot Dot com following the conclusion of the call.

During today's call we may make forward looking statements.

Including statements regarding trends, our anticipated growth our strategies predictions about our industry and the anticipated performance of our business, including our outlook regarding future financial results.

Forward looking statements are subject to various risks uncertainties and other factors that may cause our actual results performance or achievements to differ materially from those described in our forward looking statements.

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

<unk> in our quarterly report on Form 10-Q that will be filed with the SEC tomorrow.

The forward looking statements made on this call will be based on our current views and expectations and speak only as of the date on which the statements are made.

We undertake no obligation to update and expressly disclaim the obligation to update these forward looking statements to reflect events or circumstances. After the date of this call or to reflect new information or the occurrence of unanticipated events.

We may also refer to certain financial measures not in accordance with generally accepted accounting principles in order to provide additional information to investors.

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

A reconciliation of GAAP to non-GAAP results may be found in our earnings release, and stakeholder letter, which were furnished with our form 8-K filed after the market closed today with the SEC in May.

I will now turn the call over to our CEO Hi, Mindy.

Thank you biology, and good evening everyone.

Thank you for participating in our second quarter earnings call.

Our stakeholder letter earnings release came out about an hour ago. So let me start the call by sharing a few highlights of the material we released.

Total revenue in the second quarter was $86 million up 26% year over year.

Subscription and related services revenue grew 26% year over year payment processing revenue grew 21% year over year and network solutions revenue was up 33% year over year.

Adjusted EBITDA was negative.

Well a million dollars.

$14 million improvement year over year.

Our average number of health care services clients in the quarter was 3445.

Up 24% year over year.

We inched up total revenue per client.

<unk> $4914 up 2% year over year.

I want to thank the team for delivering solid revenue growth, while also driving another quarter of nice operating.

I speak for all of our employee owners when I say, we look forward to returning to profitability.

Let me hand, it over to biology to talk about our fiscal 2024.

Thanks, Tom.

Good evening everyone.

Moving onto our outlook for fiscal 2024, which ends on January 31 2024.

We are maintaining our revenue outlook for fiscal 'twenty, four which is in the range of $353 million to $356 million, implying growth of 26% to 27% over our fiscal 2023 revenue.

We are raising our fiscal 'twenty four adjusted EBITDA outlook by $6 million on the top and bottom end of the range.

Our new adjusted EBITDA range is negative $54 million to.

The negative $49 million from our previous range of negative $60 million to negative $55 million.

The increase reflects continued operating leverage across the organization and continued progress on our path to adjusted EBITDA profitability.

We are also maintaining our revenue and profitability targets for fiscal 2025.

Those targets are $125 million of revenue in a quarter during fiscal 'twenty five.

Which implies $500 million of annualized revenue.

And returning to adjusted EBITDA profitability during the fiscal year 2025.

We remain comfortable with our ability to finance, our fiscal year 2000, and twenty-five targets with our current cash position.

We believe our capital allocation strategy sets us up to deliver on our financial targets for fiscal 2025 and beyond.

We continue to focus on driving shareholder value.

Operator, I think we can now open it up for Q&A.

Thank you if you would like to ask a question on the phone lines. Today, you can press star one on your telephone keypad, if you'd like to remove yourself from the queue. It is star one again, we do ask that you. Please limit yourself to one question and one follow up.

We will take our first question from Ryan Daniels with William Blair.

Yeah. Good evening guys. Thanks for taking the question.

<unk> one for you first on the quarters, specifically it looks like the cost of revenues were down year over year. Despite the strong revenue growth and I know in the shareholder letter you talked about some things you're doing to optimize the platform spend. So can you go into a little bit more detail on that is it looks like pretty impressive cost controls there.

Yeah, and first of all Ryan just.

To point out specifically on this quarter, there was a little bit of benefit in terms of timing of Baird.

Payments, So I think as we said in the last couple of quarters.

We feel pretty good about the improvement we've made on this line.

And while there is still opportunity I think you know a lot of the improvement the big improvement has been seen over the past four to six quarters and you know to your other question I mean, a lot of this was look we made a lot of big investments across the platform and we just.

I think we've talked about this at length about just growing into it.

So I think what you just saw when gross margins were you know.

500 to 1000 basis points lower was just us making that investment knowing we were going to go from 1500 clients to well over 3000 clients and wanted to make sure. We support all this line as well.

Okay. That's super helpful. And then one bigger picture question and it kind of leads off of that you have done a great job progressing at or ahead of your schedule to get to the run rate in breakeven in 2025 fiscal year and I'm curious if you're willing as we approach that time point to go beyond that and give us a little bit better view about what the financial model.

Might look like and however manner you want to characterize it kind of beyond 2025 calls you've established thank you.

Thanks Ryan.

Well, let me, let me try to be helpful.

On that topic, maybe first just taking a step back and it actually Brian relates to your previous question around gross margin. So we did make some pretty big investments in growing into those investments is a very important theme.

When you just think about our financial profile, but I think specifically, let's let's talk about G&A expense.

And so Ryan specifically you may remember this from from our IPO process, you know four plus years ago.

We were spending annually about $30 million in G&A.

And are about to go public with trailing revenue of just over $100 million and we quickly.

Recognize and we did a lot of research on this.

<unk> to be a high performing public company.

Proper controls processes systems et cetera, it was going to be significantly higher.

Research. We did concluded it was somewhere in the neighborhood of $20 million a quarter for $80 million okay.

It's a pretty big step up from the 30, we were at and some of that is people. Some of it is the systems and processes et cetera, and in our research we realized that a lot of companies delay that investment.

And we chose to delay that and do it upfront and so you saw in our income statement.

A big step up in G&A that started to build in fiscal 'twenty, one and sort of peaked about seven quarters ago.

And I think if you look at seven quarters ago.

Over the past seven quarters, G&A has been flat and I think kudos to our entire team.

Both the people and the G&A CAD.

Category itself, but also just all of the folks you know.

In other parts of the company, we have done a great job of growing into that and so generating operating leverage while we've held that flat. So there just maybe some numbers. It's I'm just looking at 48% growth from seven quarters ago, and revenue with effectively zero percent growth in G&A and I.

That's very important context for your question. So now maybe turning to your your question around beyond 'twenty five.

We think that now that we've sort of.

Gotten towards a path of growing into that G&A base, where G&A is in the teens as a percentage of revenue, which from all of our research, we think thats, where we should be and we feel pretty good about that.

Just to be clear when we're at about $500 million of revenue. Our G&A is around where it is now it's in the teens and so.

Beyond 25, we can sort of see ourselves getting back to the the profile. We had when we went public which is a 20% grower on the top line and growing profit.

And I think.

How this how the sort of step up in profitability manifest.

We will continue to communicate that as we get closer we're still a bit away from that.

But I think that was sort of the story, we went out with we're just going to be a much bigger company with a lot more products a lot of great people and I think we've had a track record of putting out some longer range targets.

To try to be helpful, but hopefully that answers your question.

We'll take our next question from Jessica <unk> with Piper Sandler.

Hi, guys. Thank you so much for further questions.

Congrats on the nice network solutions performance in the quarter.

Obviously seeing this as an area of strength for consistent strength of our freezer, just by kind of noise across the competitive landscape.

So just hoping you guys can offer some perspective on the life Sciences digital media market and on the role of programmatic marketplaces as a play.

Just all inventory.

Yeah. So first of all look I think the reason why we had a strong quarter as the strong team.

All across the board.

Dean just.

Executed really well.

The network solution side and.

That was our product organization, our sales organization, our content team, our analytics team and even though our our network our network team.

There was a lot of there was a lot of coordination here and.

Look I think it's super competitive it's a hard market I think we've been fairly consistent saying, it's not that easy.

Is it going but.

I think when you.

We will keep attempting to.

Do what we do which is winning share and delivering really really valuable.

Messages to patients to drive phenomenal rois continuously and those rois frankly improve outcomes.

I think thats whats been really inspiring us.

As a company.

And one of the things we've really focused on is not just thinking about it in terms of dollars and cents, but really thinking about in terms of impact to patient patient lives and the outcomes that they have and then we're all pretty proud of here.

So the numbers that I.

We're very much a team effort, but.

Something we're really proud of.

And then.

Yes.

Programmatic.

Alright.

Go ahead.

And just curious to know if you.

You guys have a perspective on programmatic marketplaces, and whether or not you participate there thats even relevant.

The success of that your network solutions sales organization.

Today, we don't participate in programmatic, we've invested heavily in our machine learning and data science team and the products and being able to take content lives thoughtfully the right patients at the right time so.

When we think about being able to deliver the right message to the right patient right time, that's something that frankly, we think we have the skill set in and.

Being programmatic.

Something that is actually new in the AD business I think there's maybe a little.

<unk> talked about but its something thats existed for as long as we've been in the business.

And that's really helpful and my quick follow up is just on your <unk>.

<unk> indicated that healthcare services client add should reaccelerate to about 175 and break you on including the client gain from access to <unk>. So just hoping you can give us a little bit of color around the deceleration in your expectation for kind of the core and health care services clients growth going forward and thanks again guys.

Yeah. Thanks, Thanks Jess.

Yes.

I think you've seen over the past four six quarters.

It can sort of be jump around a little bit I think there was a quarter where it.

Went down from 206 to 158 $1 58 to 169 I think we're trying.

From listening to a lot of folks to try to like <unk>.

Sure, we're giving some visibility into the next quarter, because we have it and thats what were doing with the 175.

I think.

I don't think there is a time to read into 136 versus 175 versus last quarter being 169.

We continue to.

Add a lot of new clients and feel really good about our ability to continue to grow the business team is doing a great job, we're very happy with the.

The performance.

We're reevaluating.

We'll take our next question from Joe <unk> with Baird.

Great.

Hoping to get a bit more detail on access seed forms maybe a two parter one.

Just from a strategic standpoint, what this opens up for freezer relative to what has been the existing kind of roadmap and strategy in the acute market.

And then part B of the question is maybe just a little bit more financial detail last.

Last question asked about.

It does seem to be factored in that client adds maybe kind of annual run rate for that business in terms of revenue contribution and how to think of that going forward.

Yeah.

I'll, let <unk> answer the last part of your question because I didn't really understand what you're asking.

Maybe he can interpret it.

So we were.

We work frankly, we're really excited about.

I personally am excited but I know everyone. That's that's interacted with access team has been just blow away, we're really pumped about its capabilities.

You've got introduced to us and we've been booking.

Spending a lot of time with a lot of our clients.

And we.

And what we realized is that there were certain capabilities, we just in house.

<unk>.

And to have those capabilities you needed some really deep content and when this got introduced to us and we realized we shared a lot of common clients, we realize that.

Founder led organization.

Right for us and so we move fairly quickly.

It was a very small business that came out.

<unk> came out of the printing business, which I find to be very interesting because.

That's not how we evolved which is they came out something that was very physical but.

Where it came from was this idea that forms need to look a certain way.

So as long as I've been in health care.

The increase in for over 18 years of evident I keep waiting for them to disappear in every year, there's more mandatory forms that people have to fill out a certain way in a certain format and a certain look.

And our clients are telling us that.

When we looked at one client data over 5000 <unk>.

While health system.

Alright over 5000 forums, all different formats and sizes and different types of signatures that needed to be done and that was just so much content.

Yes, it was deeply proprietary and this.

This organization headed so we've made a lot of sense for us to.

Major part of freeze that we've been we're really excited with what we've seen so far but it's really early days.

But it was pretty small.

And.

Joe on your second question.

Thank you.

If it wasn't clear from Heinz answer I mean, this is very much product acquisition.

And if you think about we've done six acquisitions in our history. They all have that product.

<unk> sort of flavor and so they bring some of them have brought some clients over.

I think access.

Like some of the other ones have a lot of overlapping clients, so which is great because it's nice to be able to add more value and deepen some of those relationships, we have with existing clients.

It's sort of around the edges in terms of the contribution to those numbers and similar with the financial profile I mean, whether it's Q doctor whether its insignia whether it's modified.

The financial contribution here is is pretty immaterial.

It's really about adding great product as I've said, and then being that contributor.

To the 20% grower company that we think we can be beyond 25% and really being accretive to that growth.

And we're helping our clients.

Yes, yes, okay.

Great.

And then maybe just second question.

Yes.

The July quarter at $86 million in revenue talking about 125 million in revenue.

At some point next year.

Kevin do the simple math on what needs to be added over the next six quarters I guess any <unk>.

Directional way to think about the contribution and getting to the $1 25.

The different revenue segments that you break out when you maybe expect one that need more influential than than the others, just any way of framing that.

Yes, I think the <unk>.

Short answer there is no because and I think we've been very consistent about this there are just multiple paths.

The getting to different places not just 125 getting to 86 for example from 68.

And so Joe that's actually a very very powerful aspect of our business.

That said I think you know like today, the composition and the mix of revenue.

Subscription is held in in that mid <unk> as a percentage of revenue for a long time and you've seen network solutions.

I think multiple times it surpassed as a percentage of revenue payments I think this quarter is an example, and that's <unk>.

Sort of a change that is growing faster.

Because historically is growing faster, but I don't think were going to be too prescriptive.

That and then in terms of just the path from here to that 125.

We'll also point this out I mean, there is seasonality there is different quarters, where we've added a lot more revenue then.

Than others.

And we'll take our next question from Richard close with Canaccord Genuity.

Yes, thanks for the questions congratulations.

Maybe you could talk a little bit about the freesia platform update section you talk about looking at the text messaging part of it maybe go into a little bit more details on what youre thinking about the platform.

Great. So Richard do you want me to ask the product you asked me to ask of the product questions.

I mean, I'll give you there.

Alright.

Okay.

You always give maritime.

I mean.

I think I think our goal in that just in that section is that we are continuing to make investments in the platform not just it's not just about new products. It's also just.

Our ability to communicate with patients faster or better easier.

And so I think.

The comments, we made around texting or just.

And we're continuing to invest in that platform, it's never just like sort of one and done.

And.

Accuracy.

E privacy all of those sort of aspects matter, but I don't think there was anything beyond that that we were trying to communicate.

And we're very proud of the team has spent a lot of time.

On that product, yes, that's fair it is a stakeholder letter Richard it's not just for investors, but it's it's for clients for all of our employees et cetera.

Okay, Alright, and then moving on to <unk>.

Referral management, if we could.

Talk about that a little bit.

Maybe.

Three part question, if I could sneak it in.

Can you talk about med mine being integrated into referral management.

I'm curious on that and then what is the revenue model for both Med mine and referral management, you really don't talk about referral management on slide 13 of the presentation.

So if you could just remind us how youre thinking about that part of the business going forward.

So first Richard.

Ill try to make fun of you, it's called Med <unk> fine not in that mode.

Yes.

And we.

We do.

And so then you were asking about.

Look I think we've been investing in.

Our view, we really if you if you look at slide 10, as you think about we really think about it all around the broad access to <unk> find it really.

It's a space that are providers and are in the patients that use freesia had been telling us for years.

Love help finding the right doctor at the right time.

And so it's a space we've been looking at for a long time, we are investing a lot in with our connect platform.

Growing very very well.

Don I don't want to say over $1 billion.

Appointments.

Through referrals alone, it's it's been growing at a really nice clip.

And frankly, just helping people find the right doctor.

We have an online platform is an area we've been looking at for you.

We're going to building and buying and we got introduced to many signed years ago through our clients.

And.

Opportunity came for us.

To move really quickly to be able to buy it and make it part of the <unk> family and we moved.

Lower warehouse task team as they've moved we moved unbelievably quickly to be able to make apart freezer because.

And as a property, it's the number one or two in most of the searches that you do when you are looking for a specialist and the market's been a lot of market.

And over the next couple of years will be integrating its depreciate.

Really with the view of driving better access for patients to find the right specialist. This is a platform that has.

The massive wealth of data and expertise being built up for.

So I want to say over two decades, and so we were we just think of ourselves lucky that they chose us.

As their partner to move forward with and we will continuously invest in it.

It was very small but.

As tricking also.

So we're really excited about.

And we thank our clients for introducing us to eight years.

Alright, we will take our next question from Glen Santangelo with Jefferies.

Hi, good evening, thanks for taking the question.

Guys I just wanted to try to follow up on some of the previous revenue questions. Because I think this is a big issue for folks if you look at your subscription revenue line.

Clearly, it's been decelerating pretty consistently for the past year and I think a lot of people that focus on provider adds maybe also decelerating and then when you take that into context of your fiscal 'twenty five guidance to get to that 125 mill. It almost looks like unless you have a big push from networks.

The C subscription accelerate in fiscal 'twenty five versus fiscal 'twenty, four and with <unk>.

Large numbers, becoming a bigger issue.

It seems unlikely that that will happen and so just wanted to get your take on this pathway to $125 million as it relates to subscription revenues and if we're even thinking about that correctly.

As we think about the two year stack.

Yeah, no. Thanks, Glen and I think this is I think this relates to Joe <unk> question earlier and I think this is really important.

Yes.

US being prescriptive about each revenue line item and how that contributes 125.

As really harmful we think to the way we run the business the way the way we think about building building the business up over time and every 90 days you get another data point in terms of progress, we're making and you can sort of run numbers and see how it builds up but I think Glenn. This is just one example, maybe to think about.

How we think about building.

Big business that is long term durable growth is payments.

And so if you look back over time, when we again.

We had 17 quarters ago, we went when we went public we had 1500 58 clients.

And at that time, we were doing about 290000 in payment volume for client.

And now you fast forward, we've more than doubled the number of clients right with a $34 45, we are today.

Year round, a little bit because I think it was 287 was this quarter $287000 in payment volume per client.

And so what that suggests is we sort of have a similar size and profile client across the entire base as we did that.

And does that makes sense glyn.

Yeah, Okay, Okay, and the reason and how this relates to sort of your question is if you look at our take rate over that same period of time, our take rate was three point of four back then it's <unk>.

291 this quarter.

23 basis points, right and I think we've talked about this over the past several quarters, but our philosophy has been like we just want to do right by our clients add more value we have other products to sell them subscription we're obviously thrilled.

Thrilled to be able to also generate revenue.

In network solutions.

Across a lot of the same clients and so that 23 basis points across a $1 billion in payment volume in a quarter is a few million Bucks right and you start to think about well are we are we giving up.

Revenue in the near term knowing that it's the right thing for our clients, but also its there in the long term and so again, there's going to be periods, where we can take revenue theres going to be periods, where.

Revenue might not show up in a quarter, that's sort of how we think about it over time.

Number two the numbers I think our comment is we feel we feel good about that.

The fiscal 'twenty five targets.

Okay. That's fair if I could just ask my follow up on the EBITDA side I think this is a six quarter in a row, you've comfortably be EBITDA and when we look at the full year guidance right. It assumes no leverage.

From the from the 20 something percent revenue growth in the back half of the year.

I understand the wanting to be conservative with respect to the guidance, but I guess, what my question really is is as you think about this path b and a $500 million company. How do you feel like the existing infrastructure of the company Ken is sufficient to be able to handle 500.

Plus in revenues and continuing with these physician adds or do you think there is going to have to be some investment made at some point to better handle the growth.

Well I think we are making a lot of investments continuously.

And I think that.

We.

We will continue to make investments not just in getting to 500, but.

Being here after that right and so there are a lot of the investments we're making now are for beyond that and we think that continuously we're not playing just the gain for next quarter or next year.

Let's make sure that we build a sustainably large competitive.

Moats and at the same time, just provide phenomenal value to our clients and.

While also keeping an eye on the bottom line for our shareholders.

And Glen I, just add to that comment I think we're actually trying to.

Run the business and grow the business in a way that.

We don't lead to the concern you have which as you know.

Are we under investing in the business and we're trying to do both at the same time and I think again credit to the entire frequent team for doing that it's not easy.

We will take our next question from Scott Shanghai <unk> with Keybanc.

Hi, I'm <unk> I just wanted to dig further into your access E. Forum's acquisition I guess this kind of ties into.

Our long term revenue guidance bridge, but you mentioned in your stockholder letter that the access E forms is a vast catalog of content in the acute care space does this enhance your current number of molecules that you're able to cross sell and then should this also translate into higher revenue per eight H C. F C.

As you are able to sell more and more modules into the acute setting.

So I think.

Early on it will alright. Thank you will probably have very minimal impact to our revenue per client I think that there is there is a bunch of work we have to do to make.

It tied into for Asia, which we have already started the investment in but over a long period of time, I think it's going to add significant value to our clients and when you add significant value.

Have a pretty good track record of cash sharing that value upside.

It's not a sexy thing.

If anyone's ever been through a hospital, there's just lots of paperwork that needs to be documented and signed.

Genuinely index and to that point that content is just hard to replicate and people often view content and sort of the watching a video or you are having.

Our book or.

But the reality is content and health carriers site.

These SaaS.

Whether it's.

But when we bought insignia and it was patient patient.

Activation measure we view that as that's.

It really is content.

Sure.

This which is just this massive library of forums.

That example, 5000 that was just one client.

They've built out 5000 port for us. So we really have to see that lift of making those types of forms are available.

For the vast majority of our network over the next couple of years.

And Scott I don't think you need to get like.

Too deep into the your.

Question around revenue I mean think about the <unk>.

So right of things that we can do and we have a big Tam number and subscription and I think our philosophy has always been billed rent or buy and this falls into that arena and this just happened to be something that we would.

Goodbye, but it's not going to be for every client. So when you spread the opportunity across a base of 3500 clients. In however, many were at.

Two years three years five years from now.

I don't think that's that's going to be.

Materials.

But it's great. Thanks for all that color.

Great I appreciate that my follow up is around the Nissan payer referral obviously open enrollment season is occurring quickly coming up here quickly can you just remind us the profitability metrics on this business I think you've mentioned before that doesn't require a huge sales uplifts and these are pretty high incremental margins. So I just wanted to get.

Some more additional color on that thanks.

Yes, I mean I don't.

I think what we've said is it's early.

Every every season.

We learn a little bit more about this I don't think theres anything Scott that we could sort of takeaway around like any kind of unit economics, but I will say that.

We learn more from it every year and it's and it's still early in <unk>.

Open enrollment around the corner.

We'll take our next question from Daniel gross late with Citi.

Hey, guys. Thanks for taking the question.

You previously mentioned that the sales cycle has become a bit more challenged broadly as everyone has taken a pretty hard look at tech spend and deciding what to cut.

Can you just comment on how the selling season has changed this year or is changing.

Ed to provide more discounts et cetera.

And how we should really think about that average revenue per user for on the subscription side for the remainder of the year.

Look I think I wish there was a selling season I feel like.

Selling season for Us is Monday to Friday in it.

Starts at nine a M and go so.

East Coast West Coast and everything in between.

Every week, we're out there call it our practices and health systems.

The group's in small groups.

Single hospitals, and multi hospital groups and the team's doing.

Really just good work getting in front of the right clients and that as we win the clients we have.

Pretty good track record of keeping them and sell them more stuff.

And the way, we sell them ourselves because we introduce product that adds a lot of value to them and sometimes we give it to them, sometimes we sell to them and sometimes.

It's part of their transactions so it really we get it from transactions.

Good really happy I still think its hard but I think the team's done a great job.

They're a tough environment.

And I think a lot of that is not just the sales marketing organization, but it's also the product organization.

We have good products.

And it really starts with good product and we do a good job of selling to our clients and do the things, we say, we're going to do implement them really well and prior best to treat them.

Boston as we can.

And I'd also add that if when you think about just the client.

We do have these three different revenue lines and obviously, it's I'm sure. It's helpful for people to look at subscription with the payments network solutions independently.

And Thats fine, but at the end of the day, when we think about our go to market we think about.

Cost of acquiring customer and all of that type of stuff, it's really the totality of it and as I said I think earlier in the remarks.

That inched up a couple of points year over year to just around 25000.

Yes, yes, Okay, and then largely on on the funding need I know you mentioned that you can get to your fiscal 'twenty five targets.

Profitability within fiscal 'twenty, five without raising additional capital, but I'm wondering if you can put perhaps a finer point on that you do spend call it $20 million or so on.

On capitalized software et cetera. So I'm just curious if you think you can get to free cash flow profitability with your current cash position or beyond that 25 do you think you have to perhaps raise additional capital to to get you there.

I think I think the earlier comment to Ryan's question, we talked about growing profitably beyond that so I think let's start Daniel with.

Mike.

Get to adjusted EBITDA profitability, I think Theres milestones along the way you look at the operating cash flow. This quarter I think we're all very proud that that's a single digit number.

That's sort of returned to a single digit loss number.

For the first time really since this big investment cycle happened.

So that's a data point.

And then adjust.

Adjusted EBITDA operating cash flow.

And then free cash flow so.

I think we should let's be clear that comment earlier around growing profitably beyond fiscal 'twenty five was.

It was intended to say we can we can grow the business.

At that rate and we can invest in it as we continue to grow but it's not like that.

We envision ourselves needing to come to the market to raise money.

To grow the business with them.

So just wanted to be clear.

We will take our next question from Ryan Macdonald with Needham.

Hey, this is Matt Shea on for Ian Thanks for taking the question and congrats on the strong quarter wanted to start with network solutions. There was a comment in the stakeholder letter that discuss you guys delivering more messages in the first half of 2024 than anticipated, but some of those messages originally been expected for the second half so.

If we should interpret this as a pull forward of spending.

Or could the strong first half performance lead to incremental programs or up sells for additional messages in the second half would just like to kind of unpack that and.

Understand what your expectations are for the back half of the year.

Sure.

Thanks, Matt.

Look it's the former of your two scenarios it is pulling it forward.

And I think.

Team has done an outstanding job.

Of performing in the first half of the year and we were able to deliver those messages for our clients which is great.

But at the same time look be the lack of us rolling that into the guidance for the remainder of the year is because there is some in your activity that we want to wait and see and that's not really any different than every other year for freesia.

And so that's just sort of where we are at this point in year end. So I would absolutely think of it as fiscal fourth.

Okay got it that's helpful and then maybe sticking with network solutions.

Turning to member connect.

Obviously annual enrollment period different every year, but curious kind of how the Medicare advantage lead generation business has gone this year to date kind of relative to your expectations and then again not knowing what AEP is going to look like yet just curious if theres anything that gets you guys are excited about this year's AEP in particular, whether it be any conversation.

You guys have had with payers or any plans to maybe weaponized. Some of those communication preferences insights you generated from your recent survey of Medicare advantage beneficiaries.

Well I think the first part of your.

A question and you sort of answered it probably yourself, which is.

The most of most of this year is not really relevant to show really starts.

With the open enrollment the annual open enrollment period.

And I will just say it again like it's still very early I think.

We like having.

Exposure in the payer space, we regained that through the acquisition of insignia and then launching into this product with member connect.

But no real.

No nothing really new to update there from the last time, we talked.

And we're still et cetera.

We will take our next question from Sean Dodge with RBC capital markets.

Yes. Thanks.

Good afternoon.

Just on the health care services revenue for EHS symmetric, it's continuing in that $18300 range.

I'm just curious the underlying dynamics there.

You are cross selling and expanding into more locations and that should help grow that metric, but that's being offset by newer clients that are starting with fewer solutions and there is also is there a client size mix impact at play too.

What I'm trying to get at is just understanding how much progress, you're making with the cross sell and land and expand absent. These other offsetting factors is there any way you can kind of quantify.

Kind of a lift youre getting from cross selling Atlanta spanning.

Yes, we are.

We are growing.

Growing within within our base, but I think Sean the comment earlier around just using that payments is an interesting way to think about it.

Upwards of 80% of our clients.

R R a payment facilitator.

What are the payment facilitator for.

So if we were running about 290000 in.

In payment volume in a quarter when we were <unk> hundred 58 clients and it's about the same number now.

There's a number of doctors and or.

Providers.

Associated with client, there's a number of patients. They see there is a certain amount of payment volume that crosses I think thats, probably as powerful a way to think about is the sizing or the shape of our footprint changed over four years.

Really hasnt.

And I think our go to market of letting people try the product in and.

And then they convert over and then they try a new product.

That is that does distort that number over time, but I think we brought this up.

Added <unk>.

So many clients over time.

That can sort of take longer and we're okay with that.

We feel really good about that.

Okay, and then you mentioned during one of the earlier questions. There were some benefits from payment timing you realized during the quarter.

Can you quantify for us how much that was.

We received payment timing I missed that.

I don't.

You said I think in response to like Brian question. You said, there was a benefit in the quarter from payment timing although.

That wasn't payment.

That was in cost of sales, yes, there was just like a vendor where we had like an expense that will reverse.

The reverse so my point is our gross margin.

In this quarter is probably running 50 to 100 points basis points.

<unk>.

Just like a onetime event, if you think about it that way, but we're still doing the same sort of range.

Okay, Alright, great. Thank you Dan.

Yes.

Our next question comes from Jeff Garro with Stephens.

Yes. Good afternoon, I have a question on the sales and marketing spend it looks like sales and marketing spend down both year over year and quarter over quarter, while you all keep adding healthcare services clients at a healthy clip and have a multitude of growth drivers on the network solutions side.

To ask if theres color that you could add on mix and trends in sales and marketing spend.

New healthcare services client focused resources.

You have that good balance of growth versus resources versus network solutions, which I think clearly in an earlier growth stage.

Well its network solutions is actually.

<unk>.

18 years.

In terms of being part of our business I think that sales and marketing expense line is for all areas of the company.

I think we're constantly sort of <unk>.

Calibrating that and I don't think Theres anything.

It's changed a whole lot over the past few quarters, but just know that and I think this comes up a lot too that that is absolutely supports.

Clients added in health care services, but also.

Brands that we add.

And even things we do.

In the revenue cycle area. So.

So I think I don't think anything particular to call out there you can see that we're again continue to get nice operating leverage on that sales and marketing.

Great that helps and one more question on the spend side, maybe a follow up to glenn's earlier question.

The guidance does seem to imply some ramp in opex spending in the second half versus the first half. So we wanted to see if there's any areas of investments you would call out or maybe part of the ramp is.

Some type of expense from the integration of modifying an excess built in.

There you go that's the answer you answered it yourself.

Don.

Thanks again guys.

Thanks.

We will take our next question from Jack Wallace with Guggenheim.

Hey, guys. Thanks for taking my questions.

Just wanted to go back and see if there is a connection between the axis <unk> farms acquisition, which it sounds like it's primarily in the.

Hospital space as well as the payments commentary you've had <unk> in and if we should expect that it would be a higher level of.

Impatient.

Mix that will help you boost the payment volumes.

And potentially even a higher take rate.

And then I got a follow up.

I don't think I'd draw any connection to that time.

I will say we've been.

We're very happy with the.

Progress, we were making the hospital space and it's an area. We continue to invest in and this is an area of great need.

<unk>.

And I think we still are very excited about it.

Got it thanks, and then just thinking about the mix of growth into the 125 number and maybe to ask the question.

Questions slightly differently should we expect any composition mix within the.

The client base into larger customers that have more wallet share Mark you tamper client opportunity as being a driver.

To get to that figure. Thank you.

I mean.

I think one thing Jack that over time.

We do we are moving to more of an enterprise model and so if you think about some independent groups that have become affiliated with some of these large physician aggregators.

Out there, we're able to sort of do more enterprise deals at that level, but again, that's just an aggregation of what would have been an individual smaller freezer client. That's now just a large enterprise and part of that but.

Health care is still pretty big I think the data from the American Medical Association is 51% of groups are still and providers or smaller.

Obviously, there are some very large ones too but.

No not really.

We will take our next question is from Robert Simmons with da Davidson.

Hey, Thanks for taking the question I was wondering if you could talk about.

Patient volumes over the course of the quarter or what did you see month to month and also what did you see so far this quarter.

Yes.

When you say this quarter you mean, the second quarter.

Alright.

You see it second quarter or month to month, and what have you seen so far in <unk>.

Yes.

And I think we brought this up maybe last on the last call and a lot of the meetings, we've had with investors over the past few months I mean.

A lot of the things that sort of swing payments for us we have seasonality, but start with that rate deductibles reset at the beginning of the calendar year. So we have the natural seasonality, which you see that bump in our fiscal first quarter.

And then there is there is how many mondays.

Or in a given month and more people tend to go to the Doctor on Monday in on Friday sort of the opposite of what you see in retail.

Robert just one. Good example is this year July 3rd fell on a Monday.

And so I'll be able to get there.

Right into the holiday and so that you had some of the the smoke buyer stuff in the month of June you had some flooding stuff in July .

I guess, we hear about some hurricane category five rolling up the northeast now these are sort of the things that swing back and forth, we're pretty distributed across different specialties across different geographies.

I mean again, if the points I brought up are probably what drives 1 billion being $9 90.

Sequentially.

Got it Okay and then.

Your head count has been coming down pretty steadily since it peaked about.

What was it about year and a half ago maybe.

Space has declined a bit I mean, do you expect that to sort it all out here pretty soon when does it start to grow again, what are your expectations there.

Well I think this goes to the earlier comment around just sort of like investments we made I think.

And sort of our path to profitability I think we've been pretty consistent that number will sort of be in this sort of range plus or minus.

Plus or minus 10%.

You should expect it to sort of be in that range, and we feel pretty good about that but but to be clear I mean.

This was maybe glenn's question.

We're still investing in the business for long term growth.

Got it thank you very much.

Yes.

And that concludes our question and answer session I would like to turn the call back over to <unk> for any additional or closing remarks.

Thanks to everyone for joining us for this call I look forward to talking to all of you in 90 days.

And maybe in between if we're lucky.

And that does conclude todays presentation. Thank you for your participation you may now disconnect.

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