Phreesia Inc (PHR) 2022 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Phreesia Fiscal Third Quarter 2022 Earnings Conference Call. (Operator Instructions)

First, I would like to introduce Balaji Gandhi, Senior Vice President, Investor Relations for Phreesia. Mr. Gandhi, you may begin.

Thank you, operator. Good morning, and welcome to Phreesia's Earnings Conference Call for the Fiscal Third Quarter of 2022, which ended on October 31, 2021. Joining me on today's call are Phreesia's Chief Executive Officer and Co-Founder, Chaim Indig; and Chief Financial Officer, Randy Rasmussen.

A complete discussion of our results can be found in our earnings press release issued yesterday evening as well as in our related Form 8-K submission to the SEC, including our quarterly stakeholder letter. These documents are available on the Investor Relations section of our website at ir.phreesia.com. As a reminder, today's call is being recorded, and a replay will be available following the conclusion of the call.

During today's call, we will make forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.

Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors that are beyond our control, including without limitation, statements about our future financial performance, including our revenue, cash flows, cost of revenue and operating expenses; our anticipated growth; our predictions about our industry; the impact of the COVID-19 pandemic on our business; our ability to attract, retain and cross-sell to health care provider clients; and our ability to realize the intended benefits of our acquisitions. These statements are also subject to other risks and uncertainties, including those more fully described in our filings with the SEC, including in our quarterly report on Form 10-Q that will be filed with the SEC later today.

Forward-looking statements made on this call speak only as of the date on which these statements are made. We undertake no obligation to update and expressly disclaim the obligation to update any 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, except as required by law.

We will 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 on December 8 with the SEC and may also be found on our Investor Relations website at ir.phreesia.com.

As a reminder, we are participating on today's call from 3 different locations. And based on your feedback, we think the call will be more streamlined and efficient if I moderate the Q&A.

I will now turn the call over to our CEO, Chaim Indig.

Thanks, Balaji. Good morning, everyone, and thank you for joining us.

Phreesia celebrated an important milestone in September as we surpassed over 100 million patient visits enabled by our platform during the previous 12 months. Every member of the Phreesia team has contributed to this achievement, and I would like to congratulate them on reaching this milestone. This is the latest in a long line of accomplishments celebrated over the past 16 years achieved through the hard work and dedication of our current and former team members. We also thank our clients for entrusting us to create a better, more engaging health care experience. I hope everyone has had a chance to review our earnings press release and stakeholder letter.

Operator, we can open up the call for QA.

Hello. Balaji?

I am here. Operator?

Yes, I'm here.

Can we open up the call for Q&A?

Yes, of course. Sorry, there's a technical difficulty here.

(Operator Instructions) And your first question comes from John Ransom from Raymond James.

Obviously, the story has changed from a 20% top line to a higher top line, higher spending story. We figured you didn't raise all that money for nothing. But maybe you could help the market understand how outside looking in to think about the returns and the timing on that stepped-up investment.

John, I think Chaim got cut off with the technical difficulties. Did you hear the question, Chaim?

No. Not at all, sorry.

Okay. John, you have to repeat yourself.

It was really eloquent. I don't think I can talk myself. So I'll try again though. So obviously, the story has changed from kind of a 20% top line story with margins in sight to something double that top line growth, but with stepped-up spending and EBITDA -- negative EBITDA growing. So maybe we could help the market understand kind of your expectation on the timing and returns on that spending and kind of what led to this shift in the narrative.

Thanks, John. Sorry to make you repeat it. So we're -- John, we're fortunate to have a leadership team that worked together for over a decade. Some of us even longer. Evan and I going way back to 2005. Each time, we've made decisions around significantly increasing our investment, it's been a little scary. And this is very similar. Sometimes our investments were for a year or more out than our revenue and, frankly, with a much smaller cash balance at the time. But our decisions have always been based on data. All of you have this data, we've been public for 10 quarters, public -- stretching even further back or reveals about how we invest when we get it back and how we get it back. We're extremely pleased and excited about the returns we're getting in our investments, which is why we're accelerating them. We know it's not an easy discussion for a lot of you on this call, and it hasn't been an easy discussion for us internally either. We made hard decisions over the years and built trust and confidence with each passing inflection point.

For a lot of you that were investors with us, in March and April in 2020, you trusted us to make those decisions based on the data we saw in real-time then to. The data has never failed us and the decisions, as Balaji calls, have been directionally correct. And we look at this data on a weekly basis, and we continuously course correct. And we do it with all of the trust and confidence of our team. And the great news for a lot of us now is we're not making a lot of these decisions for just a small set of data. We have a lot more data and a lot more firepower, especially on Randy's team. And Randy, who's been with us for over 2 years now is a big part of that decision-making process. And I thought I'll let Randy speak a little to answer the rest of that.

Yes. Thanks, Chaim. I mean, as Chaim said, we look weekly, monthly, continuously at how our investments are performing and where we're going. I think we really focus on sustainable and profitable revenue growth. And as Chaim said, we view our cash -- our capital as precious and we look for efficiencies in our investments. The SDR program is a good example of this, where we bring in leads at a cost-effective way so that we can pump that engine that grows the top line. So we think very carefully about how we spend this money and make sure that, that results in profitable and sustainable growth in future years.

So just as a follow-up, is a simple way to think about it, let's say, you spend $100 at time 0 a year out. Maybe that $100 generates $100 of incremental revenue at your sort of average gross margin. I know that's oversimplified, but I think the public market needs some kind of quantitative book to think about this.

Yes. I think from the perspective of the spending that you see now is for future growth. The revenue numbers that we are putting up this quarter are based on those investments that we made a year ago. And so the time frames, I think, can range from 1 to 3 years depending on the type of spend. The sales spend comes in a little bit sooner, but some of the R&D spend has a longer-term time frame as we build out our products and provide excellent solutions to our customers.

Your next question comes from Anne Samuel from JPMorgan.

I was hoping maybe you could help us understand some of the inputs that went into the guide, the 20% to 25% for next year, headwinds and tailwinds that you're considering just in light of the performance that you put up this year and the investments that you're making.

Yes. So I think the way that we look at guidance for future years, the 20% to 25% is our long-term outlook. We are playing the long game in this business, and that's what's important for us to focus. I think there will be quarters and periods of time where we will grow faster than that 20% to 25%, but there could also be periods of time where that declines from that higher level. So we're playing the long game here and really are looking for that long-term sustainable and profitable growth.

That's helpful. And then on the -- you had really nice growth in your provider clients this quarter. I was hoping maybe you could talk about some of the factors that are driving that. Are labor shortages playing into that? And are you considering maybe that as a tailwind for next year as well?

So I think, Annie, I think one of the things that we've seen is that our people have gotten in front of a massive labor shortage issue for our clients and prospects, and we've seen a ton of land and expand. I think our increased offerings have also played a part in winning a lot of those clients, and a lot of that's been in the back of increased R&D investment. So we feel pretty good about being able to get out in front of a lot of clients, get them a solution, build their trust, show them a huge ROI and then continuously expand. Randy, would you call -- like Randy's team has a name for it, which I always mess up.

Yes. I think as we sell more solutions into client, we refer to that as density. So we want high levels of density as the client adopts our solution. And then intensity is important. We want our clients to expand across their locations, or even within a location, we want the providers to use more of the products that they have already licensed from us. So that density and intensity are real key drivers to our growth strategy and expanding our footprint in our existing customer base.

Maybe just a follow-up on that. As we think about like the 20% to 25% revenue growth for next year, how much of that is increasing your density versus adding new clients?

It's both. I think that we are focused equally on both. This last year, we've invested a lot in our customer success group, and they're the ones that are primarily focused on the expand. And they've been doing really well. We've seen a lot of success with that. So that's really important, but the new logos are also important because as we add new provider clients, that also increases our network and gives us more opportunity to attach payments and deliver digital engagements from our life science business. So we view them both as equally important.

Your next question comes from Ryan Daniels from William Blair.

This is Jared Haase in for Ryan. I wanted to ask you a similar question just on the outlook going forward here, but focusing more on the adjusted EBITDA line and understanding that at the end of prepared remarks, you're not giving the formal number yet for 2023. But just curious, if I look at the implied Q4 guidance, that points to around a loss of around $35 million for fiscal '22. Is it fair to think of that as a good exit run rate for next year kind of on an annualized basis? Or would there be any sort of context would be missing with that framework?

And then similarly, is there any color you can share just around sort of the magnitude of the expected cadence in terms of the OpEx trend next year?

Yes. Jared, thanks. This is Balaji. Let me sort of replay that and set it up, and then maybe Randy can pick it up. But Obviously, we want to be careful here. We're not providing guidance for fiscal '23. And one of the reasons -- as we did last year, one of the reasons we're providing some kind of framework and starting point for fiscal '23 in December is because there's probably, what, 3 to 4 months before we talk to you all again in this sort of format, and we don't want to wait that long. So that's sort of the revenue guidance.

And in terms of the EBITDA, we thought it was important, especially based on some of the feedback from last quarter when we did ramp up spending to provide guidance for the fourth quarter. And I think you're just going to have to wait, but I think the comments in the letter certainly suggests that it's not going to be pulling back. And when we say accelerating, maybe just so we're clear, we don't mean accelerating as a percentage. We just mean accelerating as a dollar amount. And so maybe, Randy, if you wanted to add anything to that, go ahead.

Yes. I mean, Balaji, I agree. I think we're not prepared to -- well, I guess it's not -- the timing isn't right for us to talk about adjusted EBITDA guidance for fiscal '23. But as we've talked about before, I mean, we've had a history of profitability and made a conscious decision to increase our investment levels to get that sustainable growth. I think as you -- as we've hired, you also start to see some of the hiring that we did in Q3. It was done near the end of the quarter. So that's where the guidance for Q4 comes in when the numbers increase. So as Balaji said, the plan is to continue with this investment cycle.

Okay. Fair enough, and I appreciate the comments there. And just wanted to -- for a quick follow-up, I wanted to turn to a different thing here. You announced an acquisition of Insignia Health. I would love to just give a little bit of color here on the background. It sounds like from the prepared remarks, this was a company that you had some familiarity with. So just curious if you can talk a little bit just the sort of genesis of that deal? Is this an asset that's embedded in a lot of your clients? And just curious, what exactly are you seeing in the market that made you want to add this capability?

All right. I'll lead off a little bit. I think Balaji add something at the end. So we're really, really excited to bring this to our clients. We have some overlap in our clients, but we believe that people add tremendous value to a lot of our clients and prospects, and we're really excited. We've known about this organization in the PAM score for years. It's mission oriented. It's rooted in decades of academic research. Dr. Hibbard is the lead author of the Patient Activation Measure. She's joined Phreesia as an adviser. It's increasingly relevant to value-based programs.

Insignia works with some of the most incredible organizations, including our own government and the government in the United Kingdom. So we're pretty excited about it, and we think that activation is a core clinical measure that helps change the output and the outcomes for patients. And our practices are continuously looking at tools to be able to improve outcomes. And we think this is the gold standard. And we're really, really excited to have this as part of our arsenal. Balaji, do you want to add to that?

I think Chaim covered a lot of it. I think when you just think about Phreesia's core strengths, we're very good at putting tools in the hands of patients because we believe all patients want the opportunity to participate in their own care. And our commitment is to driving high rates of self-utilization and has made us experts really in doing that and reaching a vast majority of patients. You saw where we hit the $100 million mark. So when you think about those core strengths that Phreesia has and our mission of driving a better patient experience, we think we're a very attractive home for a company like Insignia and the PAM measure. And so we were thrilled that they agreed.

Your next question comes from Richard Close from Canaccord Genuity.

One question here with a follow-up. But first, I want to dive on to life sciences, obviously, outperforming versus expectations. Can you provide some momentum on that division or business? Is that just simply the growth in the client base over the last several years? Or is there something related to the shift in marketing initiatives with pharma that's driving the outsized growth?

Richard, this is -- I appreciate bringing this up. This is a good example of us using information data, trusting ourselves and our team. And we saw our volume, which I think everyone can now see more than double since we IPO-ed, right? And because of the investments we proactively continuously made in data science, we were able to better monetize that investment for all of our stakeholders. And so that we think it's a huge TAM. It's -- I think we've been pretty clear. It's a $900 million TAM. And based on the investments that we started to make, we thought we could gather and capture more of that available market, and that investment has paid off. And we'll continue to make those kind of investments really based on data and the knowledge that we have on how to interpret the information and make the right decisions. And I think the benefit of having a very seasoned team who's seen many cycles.

Okay. That's helpful. And then just to go back to the acquisition, can you go into a little bit more detail where that fits in the workflow? Is that something where the patients are continuously engaging with the offering? Is it like previsit, post visit? Maybe a little bit more details on that front.

Chaim, do you want me to go and start on that?

Yes, sure.

Yes, Richard. So I mean, the company, Insignia, currently, the customer set is in the payer space and the life sciences space and in the care delivery space. So when you think about those 3 delivery settings, you have very different orientations. But ultimately, it's a patient-reported outcome measure. So the questions are asked to a patient. They answer those questions. And today, I mean, we're obviously just completed the transaction last week. But today, Insignia pushes those questions out in different ways to the patient directly, and we'll sort of -- as we get -- work with them more closely, figure out how that might intersect with how Phreesia interacts with patients. But that's sort of the way to think about it.

And there's different care management platforms that they integrate with. Obviously, EHR, PM systems that they integrate with. So there's a lot of commonalities with Phreesia, but that's sort of the way to think about it, it's pushed out to a patient, those questions get answered. And then the information is used to help to drive outcomes.

Your next question comes from Glen Santangelo from Jefferies.

Chaim and Randy, I hate to do it, but I do want to follow up on this investment spending. It seems like a lot of where the incremental spending came in was more on sales and marketing versus R&D. And when we look at the headcount of the company, the number of employees has more than doubled over the past 12 months. And so I guess what investors are really trying to figure out is how much more do you have to invest? And in particular, when you look at the guidance for next year, I think investors are kind of nervous that it feels like the company is spending incremental dollars to chase fewer revenue dollars. And so maybe you could help us think about where the company is today from a headcount perspective, what else you maybe think you need and kind of give people a sense for how much more there is to go. And then I had a follow-up question on the acute care market.

Yes. I think Randy can start with that answer. Glen, I can just tell you 1 answer to the headcount. At the end of October, we had 1,490 people. And obviously, given our comments about the fourth quarter, we continue to hire. So we're north of 1,490 today. But maybe, Randy, can cover some of other -- Glen's questions.

Yes. I think when we think about how do we look at what our headcount needs are and how does that see growth, we look at data on a weekly basis, what kind of lead generation is the SDR team producing, what do our provider sales teams, what are their close rates. We look at this on a weekly basis and make adjustments. I think from the perspective of when is it enough? I think as we continue to grow, as long as that investment continues to provide a sustainable and profitable growth in the future periods, we would continue to invest. I think this last clip was a very large increase in headcount. I don't think that -- we're very thoughtful about capital. Capital is precious to us, and we understand from an investor perspective that they want us to use those dollars to grow the company. And we think about that as we look at those data on a weekly basis and make decisions about what are the next hiring plans in the coming month and the coming quarter and throughout next year.

All right. Maybe if I can just sort of follow up on that. That sort of segues into my acute care question. The lead generations that you're talking about, are they more in the physician side or on the acute care side? Because we've been getting some questions around the transition to the acute care market, how it's going. In the past, you've disclosed relationship with R1. And so maybe if you can just sort of comment how that transition is going and where the lead generations are coming from, that would be helpful.

Yes. So I'll pick this one up. The -- I think we've commented for the past, I don't know how many quarters, that we always sort of lead with the ambulatory side and then we try to pick up their acute hospitals after we've built the reputation that we have on the ambulatory side. And that continues to be the strategy, and it continues to execute very, very well, really part of the land and expand strategy.

We are very, very good at providing a holistic solution across the entire spectrum of the health system. And we don't announce most deals, but we continue to feel really good about the returns we're getting and the long-term outlook of continually investing in the hospital market and all the ancillary services surrounding it as much as we are investing into the ambulatory market. We think they're very complementary. But we tend to always lead with ambulatory first at the client.

Glen, you got question on R1 -- did you -- R1...

Yes. Yes, I did have a question on R1 in particular because -- sorry, Balaji, I did have a question on R1 in particular, right, because you've disclosed that relationship in the past and they've made an acquisition in early 2020 that seems like it's a little bit competitive with sort of what you're doing. And so I was just wondering if you could provide any update as far as that's concerned.

No, I think that they're still a valued client and partner, and we look forward to continuing that relationship. And I think we have lots of partners and clients that also use and have other competitive things. And we're comfortable with that. It's a huge market. And what we tend to do really -- we tend to do really well with our product. We're a product-led. And so when customers and sponsors need our full solution and/or the vision of that, we do really well. And we appreciate the partnership and relationship with R1.

Your next question comes from Joseph Vruwink.

Great. Just going back to the sales and SDR investments, can you maybe discuss the productivity of the new hire cohort and how this compares to the expectation you might have had when embarking on the accelerated investment strategy? Obviously, the team is quite a bit larger, but I imagine also younger and tenure. So is there a better sales efficiency to still come and we can expect as these new hires go through a regular productivity ramp?

From a productivity standpoint, I think we're fairly comfortable with where they are, and we're always looking for more and better productivity. I know I've been on calls continuously where Karen and the team have done phenomenal work at being able to continuously just improve productivity and the success of that team. And we're always -- we always look at that, and that's how we've gotten to where we are and improve the business, but we're really happy with how that SCR organization has grown and, frankly, maintain the success that it's had.

Okay. Great. And then just kind of going back to your growth framework, is it fair to think that -- of course, Phreesia's executing, you're following one with accelerated investment spending should typically track above the company's long-term growth framework?

Can you repeat that one? I'm not sure I followed it.

Yes. The 20% to 25% growth, I appreciate that's kind of a marker and it aligns with your long-term growth framework. But we're also in the midst of seeing accelerated investment this year, and that's going to continue into next year. So I suppose, all else equal, do you think it's a fair expectation to think that following that type of investment environment growth should typically track kind of above long-term targets as opposed to in line with long-term targets?

I mean I think without speaking specifically to next year, I think it's not necessarily this year's investments are impacted next year directly. I think it's probably -- maybe, Randy, it's worth repeating, I think, an earlier question on this topic around how we think about longer-term growth.

Yes, yes. I think, as we said, I think the long-term sustainable, profitable growth of the 20% to 25%, there are -- there will be periods where we will outperform that long-term goal. And I think -- and that's what we want, right? I think we like to grow. I think it's a good growth. It's profitable growth. So yes, from that perspective, I don't think we can really get into what the guidance is for next year, the spend levels, but I think we continue to invest with that strong growth in mind.

Your next question comes from Ryan MacDonald from Needham.

Just an additional question on Insignia, a really interesting acquisition and technology there with the patient activation measure. Just thinking about how -- I would like to know a little more color on how you're thinking about the go-to-market strategy there? There's, I think, interesting use cases on value-based care models for your practices. There is obviously a potential benefit on the life sciences side and sort of the additional information on patients and sort of utilization. Just curious how you're thinking about sort of the prioritizing the go-to-market there as you integrate that acquisition?

We generally don't talk about what we're going to do. That hasn't changed, and it won't change. But as we start moving it into our product offering and making it available, I'm sure it will become noticeable. We are really excited about having this founder-light organization here. And I'm going to sort of refer back to Balaji's thesis. I think there's a lot you can unpack from it, but we think this is a poor measure potentially in the long term.

Got it. Got it. Okay. And then just a follow-up in terms of the life sciences opportunity, continuing to see great growth rates there. Just curious, obviously, we're seeing a shift materially to digital spend from life sciences companies. Can you talk about sort of the magnitude of the impact that, that's obviously having on the growth in the business? And as you look at sort of your customers right now, can you talk generally about sort of percent of spend that is starting to shift over to digital and how you might be able to capture more share of that over time?

Well, the way we've been able to capture and grow extensively is we knew based on our information and our data and having a very senior and tenured team on running that. We knew where we needed to make those investments, and we started ramping up those investments a couple of years ago. And so to us, the shift -- you can usually see the shift happening way before it's happening based on the information that is available. And as an organization, we pride ourselves on making decisions around spending, around product investment, around resourcing all around data and the experience we have in understanding that data. And we think there's a -- there's continued opportunity for us to grow in life sciences. And I think we've been articulating that we will continue to invest in that area. And we're fortunate to have a team. And they've just executed brilliantly, understanding that we have a competitive advantage in being able to see what's happening in the market.

And your next question comes from Donald Hooker from KeyBanc.

Great. And this maybe dovetails and fills out some prior questions as well. Obviously, a great number of provider clients added in the quarter. You guys -- I always think of you adding clients and then revenues follow from that, not just out of the gate, but from that. I'm just wondering if that dynamic of land and expand has anyway changed. Are clients adopting more solutions out of the gate? Or is it sort of a similar pattern that we should expect from the past in terms of adding clients in landing and expanding.

Randy, you want to...

Yes. So I think to answer your question, no, our thesis hasn't changed. We still are very successful with the land and expand strategy. It's important for us to grow across the customer base. I think also we think about networks. And the more provider clients that we have, it gives us more opportunity to deliver digital engagements. And there are certain things that you can get adopted right away. So for a customer that takes payments that typically is sometimes the first dollar of revenue that comes in, but it may take a while for a provider to switch over to our payment solution with their volumes and basically burn down their previous payment provider. But we do see lots of interest in our new products. I think the texting solution is interesting that we highlighted in the quarterly stakeholder letter. So we do see high levels of adoption of additional products.

Great. And then a quick follow-up. Again, a strong provider client add count in the quarter. Can you update us in terms of your -- I mean, sort of your capacity in terms of adding clients successfully and update us in terms of like how many clients are being implemented remotely versus on site. Is there any kind of changes there? How do you feel about that?

Chaim, do you want to talk about that?

Yes. I think one of the reasons why we feel pretty comfortable about these client adds is, well, first off, they're clients, like they're already live using us, paying us more often than not running transactions through us. And a lot of our ability to be able to take them live mostly remotely has been because of the investments that we've made based on the information that we've seen. So we've tried to get ahead as far as possible on being able to staff and support. So we continue to have just phenomenal levels of support and have speed of implementation, and a lot of that is based on the information that we see. So we've really ramped up the teams continuously in sales, implementation, customer success. And those teams have just done a phenomenal job of being able to support those new and expanding clients.

Your next question comes from Scott Schoenhaus from Stephens.

I just wanted to follow up on the land and expand strategy and the density and really just getting to some statistics here that you guys had offered in the past. I think you -- at one point, you mentioned you had 27 modules. I'm sure it's increased since then and that the average client has about half that or 13 modules. Is there any update to that stat? I think that could provide more color on the opportunity there to expand on the revenue per provider client.

Scott, one of the things you can refer to in our slide presentation and the letter, just we tend to update every quarter the platform slide. So you can see how that's changed over time and what's been added and things are evolving, obviously, as we do new releases, et cetera. So we can follow up with you on that. But I would point you there. Chaim, I don't know if there's anything you want to talk about in terms of what's been going on in our product organization.

Yes. From a product standpoint, the investments we've been making in product have been paying off. People -- they add a phenomenal amount of value, and we try to get it in the hands of the right clients at the right times. And the more products we get our clients, the more value we provide them and the happier they are. And I think some of you continues to do channel checks. And as we've grown tremendously, our clients have remained not only happy, but continuously pleased that we're able to add more and more value to them on their journey to support their patients. So we feel very good about our continued investment in product to get them in the hands of our patients -- in the hands of their patients and our providers that we support.

Great. And just as a follow-up, I wanted to kind of drive in deeper on the new employees and the hiring in the sales and marketing team. Are you seeing anything -- I hate to use the word transitory, but are you seeing anything that's happening given the tight labor market now that would lead you to believe that these elevated expenses could -- part of it could be more transitory and be less challenged in 12 months from now when the labor market changes? Just any additional color there would be helpful.

What -- I think what we've found -- and Amy, who's led our HR organization for 10 years and has seen multiple cycles, has talked a lot about internally is we've really seen a competitive environment where we have to get out in front to make sure that we are continuously examining our entire package to make sure that we are the employer of choice for both our current and future team members. And it's been -- it's -- frankly, the compensation aspect of that has been growing at a faster rate than I probably would have predicted 2 years ago, but we've really maintained sort of in front of that so that we can continuously attract and retain phenomenal individuals to our organization. And great people generally are worth their weight in gold. And we've continuously found that, and we think we have just a phenomenal group of people here at Phreesia.

And your next question comes from Daniel Grosslight from Citi.

Most of my questions have already been answered. But maybe if we can dig a little deeper into the 4Q EBITDA guide, which implies around a $17 million increase in operating expenses sequentially. If I look at 3Q and the sequential increase in spend, it looks like most of it is coming from that sales and marketing line followed by R&D. As we think about 4Q and beyond, should we think about the investments you're making as the kind of same in terms of proportional to S&M and R&D? Or do you think we'll see some catch-up in R&D and a little less acceleration in the sales and marketing line?

Yes. I mean, I think, directionally, all the lines will grow. R&D is one of the areas where there is a focus on investments. So I think you will see increased investment there. It's really those two areas that we continue to focus on because those are really the things that contribute to that sustainable growth on the top line. I think it's similar to when I talk about revenue from quarter-to-quarter, I think hiring can also have patterns too as we look for the best talent to add to our company. Sometimes it takes a little bit longer to find some of the right talent in the engineering area. So you will see some variability quarter-to-quarter as we are building those teams.

Okay. But would it be right to say that on a dollar basis, the increase in R&D spend in 4Q is going to be greater than the increase in sales and marketing spend in -- from 3Q to 4Q?

Yes. I mean, I think on the perspective, we don't really provide detail of that guidance on the line item level. They both directionally are being invested in. So they both will go up.

Yes. Got you. And then as a follow-up on the Insignia transaction. Balaji made an interesting comment that it's used not just by kind of providers in life sciences but also payers, which would be a new market for you guys. So I'm curious -- and obviously, they have a very strong relationship with GMS and NHS. So I'm curious on how this may open up new markets for you, i.e., the payer market? And if there's a kind of a concerted strategy there to have this be a beachhead and expand your TAM even further?

I think we've been thinking about this market for years, and it's -- we believe sort of the relationship between payers, providers and life sciences continues to be blurred, and we are very excited to have capabilities that -- and the team that we bring with us to help complement a lot of the investments we've been making. And we think Insignia were going to -- that team is something we've been thinking about for years, and we're really excited.

Thanks, Daniel. And operator, I think we're just a couple of minutes beyond 9.30 here, so we should probably wrap up the call. And Chaim, do you have any closing remarks you want to make?

No, I just want to thank everyone, our clients, our investors, our employees for trusting us to continue to improve the health care system. And we think we are heads down as we do that, and we're really excited what lays ahead. I haven't been more excited about what we're doing. And this is -- it's amazing. But we're very pumped over here at Phreesia.

And this concludes today's conference call. You may now disconnect. Thank you.