Q3 2024 Phreesia Inc Earnings Call
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Good evening, ladies and gentlemen, and welcome to U D. Freeze your fiscal third quarter 'twenty 'twenty four earnings conference call. At this time all participants are in a listen only mode. It will provide instructions for the question and answer session to follow first I would like to introduce <unk> Gandhi Frejus Chief Financial Officer. Mr. Galanti, you may begin.
Thank you operator.
Good evening and welcome to Freezers earnings Conference call for the fiscal third quarter of 2024, which ended on October 31 of 2023.
Joining me on today's call is 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.
<unk>, our quarterly stakeholder letter.
<unk> issued after the market closed today.
These documents are available on the Investor Relations section of our website at IR Dot free jet Dot com.
As a reminder, today's call is being recorded.
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 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.
Stakeholder letter.
And our risk factors included in our SEC filings, including in our quarterly report on Form 10-Q that will be filed with the SEC tomorrow.
The forward looking statements made on this call will be based on our current views and expectations.
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.
non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results a.
A reconciliation of GAAP to non-GAAP results may be found in our earnings release, and stakeholder letter, which were furnished with our form 8-K filed after the market's close today with the SEC.
Also be found on our Investor Relations website at IR Dot Dot com.
I'll now turn the call over to our CEO Chaim Index.
Thank you biology, and good evening, everyone. Thank you for participating in our third quarter earnings call.
Our stakeholder letter and earnings release were published about an hour ago, Let me start the call with a couple of highlights.
For starters I am pleased with our third quarter performance, both financially and operationally.
Total revenue in the third quarter was $91 $6 million up 25% year over year.
Adjusted EBITDA was negative $6 $6 million.
The 11 7 million dollar improvement year over year.
During the quarter, we completed a small acquisition of connect on coal, which complements our current product suite with an innovative medical answering solution that improves patient experience and makes it easier for on call providers to respond to patient calls.
The affordable luxury discusses our fiscal 2024 and 2025 outlook. Let me briefly address our decision to delay the achievement of 500 million in run rate revenue to fiscal 2020 six.
Over the past couple of months, we determined that in order to achieve 500 million run rate revenue in fiscal 2025, we would need to increase our spending to a level that we were simply not comfortable with in the current economic and capital markets environment.
Therefore, we have made very intentional decisions to delay certain planned investments in the payer space, which will accelerate our adjusted EBITDA growth.
We continue to work with CMS and other payers to measure and improve performance and activation. We believe this work will drive revenue adjusted EBITDA and health outcomes improvements over the long term.
We believe our decision will enhance shareholder value.
Let me now hand, it over to <unk>.
Thank you hi.
Let me start by addressing our outlook for fiscal 2024.
We are maintaining our revenue outlook for fiscal 2024 at $353 million to $356 million, implying year over year growth of 26% to 27%.
We note that the maintenance of our $3 million revenue range is mostly related to our network solutions revenue.
Where we have a wider range of revenue scenarios in the month of January which represents a new spending year for our life Sciences clients.
We are raising our fiscal 2024, adjusted EBITDA outlook to approximately negative $39 million from a previous range of negative 54 million to negative $49 million.
This represents a $12.5 million increase from the midpoint of our prior outlook highlighting the strong operating leverage we continue to generate across the business.
We also believe it is important to provide an early outlook for fiscal 2025.
Given our evolving capital allocation philosophy that Haim discussed earlier, we expect fiscal 2025 revenue to be in the range of 424 million to $434 million.
Our fiscal 2025 revenue outlook at the midpoint.
Implies growth of over 20% above our fiscal 2024 outlook range.
The revenue range provided for fiscal 2025 assumes no additional revenue from potential future acquisitions completed between now and January 31 2025.
We are updating our expectation of $500 million in revenue run rate.
Now be achieved in fiscal 2026 compared to our previous outlook of fiscal 2025.
The later expected achievement.
Is the result of a very intentional decision, we have made to delay certain investments in the payer space.
Refer to target growth in the 20% range, while accelerating our profitability growth.
To that end, we now expect adjusted EBITDA.
To be in the range of positive $10 million to positive $20 million.
Compared to our previous target of achieving profitability at some point during fiscal 2025.
The increase in our fiscal 2025, adjusted EBITDA outlook is mostly tied to the delay in planned investments in the payer space.
As we think about revenue growth. It is critical to consider the multitude of factors that can drive our revenue growth, which we believe is a very unique and attractive aspect of <unk> business model.
We continue to grow average healthcare services clients by leveraging our proven go to market team.
It's also important to appreciate that the growth in our health care services client network drives network solutions revenue.
We remain comfortable in our ability to finance our fiscal 2025 outlook.
Given the significant progress we have made in improving cash flow and with our current cash position.
Separately, you will notice that we entered into a new five year $50 million senior secured revolving credit facility with capital one.
This new facility replaces our former facility with Silicon Valley Bank.
We believe the new facility will give us additional financial flexibility through its five year term.
Operator, I think we can now open it up for questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad to remove yourself from the queue. It is star one again, we do ask that you. Please limit yourself to one question to allow everyone a chance to Sigma.
We'll take our first question from Ryan Daniels with William Blair.
Brian Your line is open. Please go ahead.
Yes, sorry about that guys. Thanks for the question and congrats on the strong quarter, but Rajiv maybe one for you just on the focus on profits.
Versus investments in some of the novel products.
It's a positive here given the current capital market environment, and I think investors will applaud that but I'm curious if it's is it more of the capital markets and just the desire to preserve capital or what are you seeing more hesitation among payers.
About using the platform or just kind of a lower return on your marketing dollars here that really caused you to pull back.
Yes, thanks, Brian Thanks for the questions.
I think one thing to remember is we're always evaluating.
Our investment decisions, along the way and so specifically to this I mean, absolutely the cost of capital Wade.
Wade into this and it's changed dramatically in the past 18 months. So we have to calibrate so think about it more as time that we would realize revenue.
Versus the investment dollars that we have.
More than anything else.
Alright, we will take our next question from Vishal Patel with Piper Sandler.
Hi, Thanks for taking my question. This is Vishal Patel on for Jeff <unk> and congratulations on the strong quarter.
Could you help us with some color on the connect on call acquisition in particular, what capabilities of the product add what is this pricing model and go to market strategy and what investments are still needed to integrate the deal onto the freeze your platform.
Thanks.
So that's a couple of questions and I'll try to answer some of them and some of them.
It's still too early for us to to share.
Look at the greatest level all of US are patients had to call a doctor after hours and doctors. Most doctors are required to provide off driver service and most of those services are people right and they're the same people that offer answer the phones for funeral parlors or your plumber and when we talk to providers and we have.
So many of them and we talk to them about their how they interact with patients. This was an area.
That was just they were never happy with the herd.
A provider that was very excited about thereafter, our service and when we when we finally connected with the two doctors that had started connect on call.
We just saw a beautiful product that is well integrated and what's nice about it.
Like as providers. They were also their group actually uses for Asia.
And.
They told US they are like look we just we always assumed that.
We would never be able to do what you guys do in and we looked at what they did and it was just is a beautiful product and we've been.
We're in the early stages of letting our clients know about it at the reaction has been phenomenal, but look at the end of the day, we're really viewing this as a replacement of the after hours agents and the response from our clients has been just phenomenal.
And I expect us to talk more about the go to market over the coming quarters coming years, but we think this is a.
Phenomenal capability and we're going to keep obviously, we have the resources and the ability to just keep investing in it.
A really really really small company that we buy.
Awesome. That's helpful. And then if I could just sneak one in really quickly on about a year ago quarterly stakeholder letter you mentioned that freezer was able to win more deals by being more competitive on pricing how are you.
Your perspective on pricing in the payment processing business evolved since then and how are you balancing pricing in that business versus retention on Chris. Thank you so much.
Yes, vishal that that comment I mean, I would think of that the topic in general to be something that's very very fluid.
We're constantly revisiting pricing and I think the comment specifically there was we had lowered price.
It helped us in terms of market share, but I think if you follow our take rate, which we disclose every quarter.
It sort of bounced around but it's sort of found this home sort of in that two eight to $2 nine range.
But don't think of that as any sort of one specific milestone where cost experimenting with it.
Got it thank you.
As a reminder, we do ask that you. Please limit yourself to one question. We will take our next question from Glen Santangelo with Jefferies.
Oh, Yeah, Hey, Thanks, Good evening, guys and thanks for taking my question.
Hey, guys I wanted to talk to you about sort of the revenue growth guidance for fiscal 'twenty five I mean, <unk> I heard your comments just over 20% it looks like 21% midpoint over mid point and what I guess I'm kind of curious about is if we assume that the payment processing business doesn't really move much in either direction.
Kind of curious about what your sort of implicitly saying about the subscription business next year.
<unk> network solutions, I mean, clearly another good quarter in network solutions.
It's still growing much faster than that that 21% sort of growth rate, but recognizing that it is slowing and you're calling for some volatility in the fourth quarter. So I'm just kind of curious about what youre, saying is saying about each of those two businesses as it relates to F. 'twenty five thanks.
Yeah. Thanks, Glenn So first of all I mean, let's recognize that its December 5th.
There's not even ovaries.
But that's.
I think the way you should read that.
That outlook, we provided is no different than in the past, which is payments does grow slower than the other two revenue lines.
To your point, you don't really create more payments most of that growth is coming from the fact that we're growing our network.
And then and then there's some seasonality to it so I Wouldnt say theres no growth plus or minus it's just that the growth itself largely comes from growth in our network and it will be slower than.
And then the other two revenue lines, that's probably always we'd say now or probably ever.
Well take our next question from Richard close with Canaccord Genuity.
Yes, thanks for the question and congratulations on the acquisition in the corridor.
Just maybe digging in a little bit more.
Ryan's question so.
So on the payer update I'm just curious.
Has the opportunity change there at all.
Is it just not materializing as fast just any.
Anything that maybe caught you off guard on that part of the business.
No I don't think we are.
We've been growing the payer opportunity Richard for many years and I think our view was just the rate and pace of that investment.
And where we allocate dollars okay.
Payers are going away anytime soon and I don't think they move very fast. So I think our general view was they don't move fast, let's try to make a move to fast by throwing dollars at it.
And frankly, I think all companies make decisions around capital allocation.
Our view is we want to we want to get back to that profitability is pretty much as soon as we can.
While still driving significant growth in business.
Okay. Thank you.
We'll take our next question from Daniel <unk> with Citi.
Hey, guys. Thanks for taking the question here.
Sure.
<unk> on.
The push out.
That $500 million.
Based on the run rate.
2000 shakes into lively squaring that with your comment that you guys remaining committed to achieving 20 ish percent plus growth I don't know if that was that comment specific to kind of medium term guidance or what.
I'm curious in your guidance.
At 28% run rate fiscal 2016.
At $515 million.
I'm curious kind of what's driving that step down in growth in fiscal 2000 stations.
Just out of that $500 million target.
Hey, Daniel you cut out there a little bit at the end you mind repeating the maybe the second half of your Youre really just repeat your question I guess.
Oh, sorry.
Volume now.
Better yes, it's much better.
Okay.
It really is if you look at fiscal 'twenty six in that $500 million based on an annual run rate run rate target in fiscal 2000, and it does imply revenues lower than 20% in.
In fiscal 2000 and.
<unk> you mentioned that.
Your community kind of growing revenue, 20% I'm curious kind of what's the delta there that's driving that.
And year over year growth from fiscal 'twenty five for fiscal 2006.
Yes, I mean, Daniel I think we Havent made any comments about 26 other than talking about pushing $500 million run rate out I don't think it's appropriate to start like really digging in and unpacking 26, but I think both have an eye on this call but also in prior calls said we.
We've made a lot of investments to position ourselves for 20% growth.
Beyond 25, but I think that's really all we can say at this point.
Got it thank you.
We will take our next question from Scott, Scott, Shanghai, <unk> with Keybanc.
Hey, Hi, <unk>, Thanks for taking my question.
So it looks like from the initial research connect on call. It has a diverse client base you said in your press release, it was or your Investor letter about 67, new provider clients and then you have the additional access <unk> formed clients is the goal here to really create kind of a new install base we can.
Cross sell your legacy solutions, obviously, you can add on these bolt on solutions, but you inherently have this new.
Customer base that you can cross sell your legacy solutions to I'm, just trying to bridge and think about 25 guidance and what that means for average revenue per <unk>.
Provider client growth. Thanks.
Yes, I'll try to answer the question as best I can so I guess whenever we have done an acquisition.
We've obviously always introduce them to freesia and.
To see if they would be interested in buying our current like our existing products subset on top of whatever they have from.
The small product company that we bought but when we think about acquisitions.
Go through analysis, our product organization does or a buy build or renting capabilities right and so if you think about health care, it's still in the early phases of digitizing right away.
We think about accessing forums, we're talking about.
Like it was technology, it's technology that.
We acquired so that you can move away from having people buy physical paper that had to look a certain way for government forums or payer for them. So I get it.
We're talking about replacing paper right and for connect on call. That's a capability, we're replacing a coal center operator.
At cost just a phenomenal amount of money to a practice to have so in answering your phone.
Takedown and message.
It's still blows my mind that that even exists.
And when we talk to doctors there.
Mostly just using very very all like that is that is what they're using they're using call centers that they pay per minute with minimums every single month, and we just think about that as a capability that.
Drives a phenomenal like by adding this technology and these capabilities, we had just a phenomenal amount of.
Our value to our client base.
It's been a strategy that's worked unbelievably well for us for almost 20 years.
We will take our next question from Ryan Macdonald with Needham <unk> Company.
Hi, Thanks for taking my questions behind those great to see that.
Pam was included in the Mips calculation for 2024.
As we think about the rollout of that and sort of how you monetize moving forward as one is this going to be included in all calculations just right off the bat and 24 are you sort of rolling out gradually in specific patient populations and then two as you think about how the fact, they're impacted monetization is going to.
A potential usage based monetization license fee in and what does this mean avion potentially for adoption amongst <unk>.
Provider customers overtime. Thanks.
Yes, so so from our midst measure it is up to the practice.
Absolutely we are experts at for Asia.
To a much better job of answering these questions.
So.
Take it takes might really high level answer is the but this is first off this is just a massive and material and getting broad scale awareness and adoption of the Tam.
Measure or.
As the measure gets adopted we believe very strongly will materially change outcomes, both health outcomes and clinical outcomes for these patients and practices. We believe will over time very much adopt this measure is what it is seen in policy and clinical worlds as the best of breed.
So.
From a mix standpoint, it's up to the practice as to what they submit as part of their Mips metric measures. So I want to say, it's a 500 pages.
On your specialty theres different categories of what you could pick now you pick it in year one.
This this measure the Pam.
Pro PM is included as a bonus measure so it's between seven and 10 bonus points to the practice, which can contribute up to 1% and additional.
Revenue to them on there.
<unk>.
Medicare revenue.
It's significant.
In terms of its impact, but its part of what you get when you get for Asia.
And we're pretty excited about making this part of freesia.
And so we are running hundreds of thousands of <unk> right now.
And we will take our next question from Jeff Garro with Stephens.
Yes, good afternoon, and thanks for taking the question wanted to ask for some more color on what Youre seeing in the life Sciences end market curious, how you would describe customer behavior coming into year end around remaining budgets and those customers than their planning cycles for next year. Thanks.
Look I think it's still early in the cycle, but what we have seen is that clients.
Life Sciences clients are really very much focused on scale and ROI and tried and true.
Platforms that could deliver both of them.
And I think it's been it's been very nice to see that we're continuously at the top of their BIOLASE.
So, but it's still early and I think the team is out there working their butts off for all of us and we're pretty.
We have a lot of hope that.
Next year will be another really strong year.
We will take our next question from Jack Wallace with Guggenheim Partners.
Hi, This is Mitchell on for Jack Thanks for taking the question.
So just considering the trial promotion period, then the recent acquisitions, how much of the near to medium term growth algorithm and software subscription segment is based on revenue per client expansion.
Thanks.
But can you can you repeat that again I'm sorry.
Yes, just considering the recent the trial promotion periods and the recent acquisitions were just wondering how how much of the near to medium term growth algorithm within.
Within software subscriptions is kind of based on revenue per client expansion.
Got it got it so I think we mentioned this in the letter I mean, I think just the the fact that connect on call.
In particular brought a number of clients.
In the hundreds with very little revenue I mean, tiny I mean, Joe in fact on a quarterly basis looks like in the hundreds of dollars revenue per client. So that that has an impact of just dragging that number down I think outside of that I think it's more of what we've talked about which is you have to think about the totality.
<unk> of our revenue and the fact that we have.
Different ways of generating revenue across the client base inclusive of network solutions, but I don't think outside of that one comment and how that impacts <unk> it impact the <unk> little bit, Italy impact for to you a little bit more.
That's really that's really it.
Okay.
Once again to ask a question. It is star one on your telephone keypad and to remove yourself from the queue. It is star one again, we will take our next question from Sean Dodge with RBC capital markets.
Hey, good afternoon. This is tom's color on for Sean Thanks for taking the question.
I wanted to move.
Maybe following up on the earlier question on pricing I think that it was mostly targeted towards payment processing wanted to refocus on the subscription platform.
More specifically when prospective customers are evaluating different in tech solutions, what are the key factors that they're using to make decision like were just priced fit into there are you able to rank those factors.
Have evolved at all over the last couple of years. Thanks.
When we work with any of our provider clients. They want to know capability I think capabilities and value are the number one things that they talked about first and foremost.
And then in <unk>.
Frankly, we tend to win on both of those like hands down against lots of little point solutions and solutions that are often tied to specific mark <unk>.
TMR markets or specialties and in our ability to provide just the <unk>.
<unk> solutions at the same time that we drive a phenomenal ROI and are willing to put her to show that we can frankly really quickly. While also at the same time, just being able to and take the vast majority of their patients, but more and more we're not just selling on intake.
We're selling on the breadth of being able to drive more patient visits drive more appointments.
I have a lower cost of running the practice.
And Jake is becoming less and less of the reason why people are buying us even though it is still our number one.
Our number one driver.
Alright, perfect. Thank you.
Just a reminder that is star one to ask a question on the phone lines and we will pause for a moment.
Alright, and at this time there are no further questions I'd like to turn the call back over to Dave for any additional or closing remarks.
I'd just like to thank everyone.
For.
Joining us on the call I'd like to thank team for another good quarter and I wish everyone a happy holiday.
And we look forward to.
Continuously.
Turning to all of you happy.
The holidays and happy new year.
And that does conclude todays presentation. Thank you for your participation today you may now disconnect.
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