Phreesia Inc (PHR) 2022 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Phreesia Fiscal First Quarter 2022 Earnings Report. (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 first quarter of 2022, which ended on April 30, 2021.

Joining me on today's call are Phreesia's Chief Executive Officer and Co-Founder, Chaim Indig; and Chief Financial Officer, Randy Rasmussen. Complete disclosure 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. Our 8-K filing includes the first installment of our quarterly stakeholder letter, which we are implementing to provide additional information about Phreesia during the quarter, in advance of our earnings call, to provide greater efficiency to our earnings reporting process for the benefit of our stakeholders. All 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 will 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 and our ability to attract, retain and cross-sell to health care provider clients.

Statements are also subject to other risks and uncertainties, including those more fully described in our filings with the SEC, including our quarterly report on Form 10-Q that will be filed with the SEC later today. The forward-looking statements made on this call 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 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. 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 press release and supplemental materials, which were furnished with our Form 8-K filed after the market closed on June 3 with the SEC, and may also be found on our Investor Relations website at ir.phressia.com. As a reminder, we are participating on today's call from 3 different locations so we appreciate your patience with us.

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

Thank you, Balaji. All of us at Phreesia are looking forward to entering the summer with the hope that the biggest hardships of the pandemic are behind us. We carried the momentum from our strong finish in fiscal 2021 into the first quarter of fiscal year 2022. I hope everyone has had a chance to review our earnings press release and quarterly letter.

Operator, can we open the call up for Q&A, please?

(Operator Instructions) Your first question comes from Anne Samuel from JPMorgan.

Congrats on a great quarter, and thanks for the new format. It's great. I was hoping you could maybe talk a little bit about balancing investment and growth because you've been investing a lot in your growth this year. It's really starting to show up nicely in the results. But how should we be thinking about, moving forward, leveraging the P&L on a faster growth rate?

Yes. So I'll take that question. I guess, before I start, Chaim, do you want to say anything?

No, no. Go ahead, Randy.

Yes, I think as we look, long term, we really -- it's important that we invest in our business as we bring on new clients. So we support the current growth we have, and we look forward to the growth that we have in the coming year and the next year that follows. And we really look at these investments from a capital allocation perspective and say, "Does it make sense for our business? And will it grow the top line?" I think in the longer term, we still have a goal of 20% EBITDA margins, but we look out further to reach that goal.

That makes a lot of sense. And then maybe just one on the move into the acute market. Just wondering if maybe you could give us a little bit of color on how intake looks different there, maybe relative to some of the ambulatory clients you have today? And how we should be thinking about how that will impact your PPPM? I would imagine it's a little bit more complex.

The workflow and the use cases, Annie, in the acute hospital market are very, very different than the ambulatory workflows. You have a high number of unscheduled patients, which makes a ton of sense. You need to have tools to be able to identify which patients are coming in to which records. You have to be able to triage emergency issues so that you instantly stop any type of intake, if there's any type of critical health condition. And how and when you ask for dollars is very, very different.

And frankly, sort of the flows are different, right? So you've got massive peaks early in the morning as people come in for surgery. So we've really been investing heavily in being able to manage all the variability in these hospital workflows.

One of the one of the other things we've seen in the hospital, too, is people often -- and it's a huge customer experience issue, right, is you might go into a hospital for multiple appointments, right? You might have to go in and get your -- if you broke your leg, you might go into see the doctor and then they'll send you to get an x-ray. And the experience of having to check in each time and fill out the same paperwork every time is also something we've solved for. So it's a -- there's -- it's a multifaceted complex visit or visits that you go to, and we've really been investing heavily in those. And yes, it has changed the profile of our customers.

And your next question will come from Ryan Daniels from William Blair.

Yes, agree with the new format, I really appreciate that. Chaim, one for you. If you think about the market reopening on the ambulatory side, I'm curious what that's due in your pipeline? I think consumers, post-COVID, definitely have different expectations for digital health and convenience and touchless check-ins. So are you starting to see that manifest aggressively in the pipeline?

I think we have seen the interest in what we've been doing every year for the past 15 years grow, Ryan. And I sort of look at this as something that I believe most consumers have been expecting and now they demand. And so we have seen consumer interest rapidly change. But also, I think there's another dynamic happening in health care right now that I think is really important, which is those conversations that everyone are having -- is having around wages going up $1 or $2. Well, it's happening at the front desk, too. When we talk to our clients, They're having a hard time filling those seats that they need to fill and the salaries are going up. So they're also being forced to look for technology and productivity tools to give them the operating leverage. Because unlike Chipotle, you can't raise your prices, right? It's just not possible. So we're also seeing just a ton of demand for practices and health care organizations, health systems, try to figure out how to get operating leverage. And so it's been very -- we've seen it sort of come from all sides. And that's one of the reasons why we're investing so heavily.

Yes. And I appreciate that. And that leads to my next question. As they do change their focus and really need to drive engagement, drive satisfaction, increase operating margins, clearly, a huge amount of challenges in that end market. Are there any specific products of yours that are resonating more than others outside of the core module? Or any areas that you think you can invest in to further drive those efficiencies for providers?

I got to say, Ryan, I'm a little biased. I think all of the things we do drive massive value to some very -- like some part of the market. And if we didn't think they were valuable, we wouldn't be investing in them. And across the board, we're trying to move work to the patients. And whether that's appointments or whether that's putting someone on a payment plan, or whether that's automating consent forms or taking your picture, like these are all things that just, frankly, it's about time that it happened. And we're pretty excited that we could help make the difference. And to clarify, I don't think they're trying to improve margins, I think they're trying to maintain them, right? I think running a health care organization in America is a tough business, and we're just trying to do whatever we can to help them.

And your next question will come from Ryan MacDonald from Needham.

Congrats on a great quarter. I would be curious to hear how QueueDr is starting to resonate in -- with your customers and in conversations you're having for expansion opportunities?

.

So QueueDr was an acquisition we made this end of last fiscal year. We've since integrated the product offering to a bunch of our different offerings. One of the core off -- one of their core pieces, it's now called, Accelerator, as part of our offering. And it's been very, very well-accepted by our client base and by net new clients, and that team has just been a wonderful addition to Phreesia. I -- like as I see what we're doing, I can't tell where their product is in Phreesia anymore just because a lot of the things that they were doing and are doing are now just becoming part of the core offering. So we're really excited. We couldn't have asked for a better team to join us. And it's -- we're very happy with the early days of this.

Excellent. And as a follow-up, you saw some really great growth in new clients in the quarter. You've obviously made a lot of investments in this area, with addition of SDRs. Can you talk about what's driving that improved productivity? Is it sort of just those SDRs getting up to speed more quickly than you expected? Or perhaps sales tactics that are maybe more effective in the marketplace than say, they were 12 months ago?

I -- we continue to invest in our go-to-market initiatives, whether it's SDRs and sales folks and implementation, our customer success team. And I think it's -- the reason we had the quarter we had is all of those teams across the board really lean into our go-to-market. And they're just incredible individuals that work really, really well together. That -- our SDR team is, we think, one of the best around in health care. And as a SaaS organization, we're going to keep investing in it. We're over 140 SDRs now.

And the only sad thing is I haven't met most of them in person, and I'm -- look forward to meeting them. But they're doing a great job. Our sales org is doing a great job. The implementation team is doing a great job. And our CSM org just keeps growing, too, and we keep investing in making sure that we do right by our clients.

Your next question will come from Scott Schoenhaus from Stephens.

Chaim, Randy and Balaji, congrats on the excellent results. I guess my first question is on the revenue guidance. If you could provide any color on the kind of breakdown in growth between provider clients versus revenue per provider client that's baked into the guide for the year, that would be helpful, particularly given both stats really accelerated this quarter.

Yes, Scott. Thanks for the question. I think when you look at our revenue outlook, we're guiding on the top line. We don't provide guidance on the average number per provider client or the average revenue per provider client. I think one thing to keep in mind, we raised the low end of the guidance from $178 million to [$109] million, which is approximately [$30 million] on the low end of the guidance. And on the high end, we raised guidance from $186 million to $194 million, which is approximately $8 million. And if you look at the high end of revenue, we're really talking about 30% year-over-year growth.

And I think that there's a couple of things to keep in mind as we look at the guidance. First, on payment. Payment revenue is subject to seasonality as this revenue is driven by the volume that patients pay. And you also have to keep in mind that there's an annual rollover insurance deductibles. So patient spending was higher earlier in the calendar year.

And when we look at payments, remember, last year was the big COVID impact where, this quarter, it's higher due to increased level of payments compared to that quarter. And as we look at the remainder of this year, there's still -- there's less predictability in patient volumes due to the disruption that we've experienced from COVID over the past 15 months.

That's helpful. My next question is for Chaim. You have $450 million of cash on the balance sheet, Chaim. What are your plans for capital allocation? What are you seeing on the M&A front? Are you targeting more bolt-on software modules similar to your acquisition of QueueDr?

I think what we've done is we have a fairly rigid and thoughtful capital allocation thesis. And we've explained it and taught it all of our operators at a senior level. And we've said, "Here is the things that matter to us and here's how we're thinking about growing, and here is how it matters to all of our stakeholders. And please keep your eye out for things that help us do that organically or inorganically."

And we really continue to leverage the experience and knowledge of all of our leaders at Phreesia. We have a better -- our opportunities for executing are just better and integrating are better and making -- anything we do really have a shot of clear success.

So our view is not, "Do we have a lot of cash on the balance sheet." It's whether it was $200 million, or $300 million, or $450 million, like we still have the same views on how we use that capital. And it's really to be used thoughtfully.

(Operator Instructions) Your next question comes from Donald Hooker from KeyBanc.

Again, congrats on the numbers in the quarter. So you guys have a -- clearly have a land-and-expand strategy. So when I -- can you help us think about your current provider client base, maybe qualitatively or quantitatively? You have a little over 1,900 provider clients now. I think that compares to 1,600 or so last year. Any kind of difference in terms of a white space there now versus before? I know you're adding new types of clients, but just help us think about kind of the white space opportunity and the new wave of provider clients?

I'll try to give some color to that. We've been adding clients, small, medium, large health systems. We've been landing systems and large clients. We've been expanding them aggressively. But we wouldn't have been able to have the quarter we had if it wasn't the entire -- like we -- I'd just say the organization fired on all cylinders this quarter. And being able to take practices of -- and health systems and organizations of all sizes, live and support them, and also to cross-sell and upsell.

So I can't -- Don, I can't express that it's just the platform. We would not have been able to have the quarter we had if we hadn't seen the full gamut. It's mostly been ambulatory, but we've also taken a fair number of hospitals lives. So I don't know how long to describe it, it's just been -- it was just a really, really intense quarter, and I'm really proud of this organization.

Your next question will come from Joe Vruwink from Baird.

Chaim, there was a comment in the shareholder letter about being impressed with new products coming from the R&D or Phreesia. And then separately, David Linetsky, was on a podcast recently, just discussing all the ways Phreesia has been able to engage patients in a more personalized way. I guess my question, do you think the company's platform has achieved a certain scale and network where the feedback loop is now accelerating and this drives faster innovation?

All right. So that was like that you stuck in like 4 questions there. It's pretty -- it's actually very impressive. So I'll try to answer a couple of them, without getting too many Ingram emojis from Balaji to give everyone their turn. So I think that David Linetsky, he is articulating something that we have seen, which is our ability to deliver very targeted health care messages that are relevant to people and be able to understand and communicate with them is starting to really pay off. And those are investments we've been making for years.

We've been fairly open about them, like whether it's through a chat or our investments in data science investments and be able to engage them in data collection or appointments or enrolling in programs. Like it's what we've been saying is it's working, and we're going to keep investing in it because both it makes the product better, it makes the health care experience better, it provides a phenomenal ROI to all of our stakeholders. And I really think the organization has just embraced the idea that we are moving towards a scale capacity where we can do things that we couldn't do before as a smaller business.

And in terms of investing in new product, we're good -- the R&D investment that we're making is really because we believe that if you build great products and put it in the hands of people, you drive great return, they become happy clients and you get to monetize that. And the more times we do that, the more times that thesis has proved correct. And we have to monetize it with our subscription and payments in our life sciences clients and it's been really -- it's been very wonderful to see the net effect of just a great product organization tied to our go-to-market team, and we're pretty excited about that.

And your next question will come from John Ransom from Raymond James.

So if we think about the guidance raise ex B, that's about $5 million at the midpoint. Is that -- just talk about -- I know you don't break out revenue, but I'm just curious, the seasonality of the seasonality all fall pretty much on the payment side? Does that really -- the amount of spending in the payment revenue is the big upside to our model. So should we infer from that, there's some pull-through and you're expecting a little bit of moderation because of some of the things that we mentioned?

Yes, John. I mean the seasonality is primarily in the payments space. And as I mentioned, it's really driven on the way that patients pay, which is always higher at the beginning of the year. And as I said before, we did increase the low end of the range by [$30] million.

And your next question will come from Hannah Baade from D.A. Davidson.

It's great to see such success with both land and expand on the provider client side. What hiring plans do you have inside the sales organization to continue to support those new client wins as well as cross-sell and upsell?

I think we're going to -- we communicated that we're going to hire more SDRs. Those SDRs are going to transition into the sales org and expect that to be fairly aggressive. We're going to continue to hire and invest in our implementation and our CSM organizations. And we're going to continue to invest aggressively in our life sciences organization, too. So at the same time that our marketing team has also done a great job of driving demand. So I'd say that look for investment. We're going to aggressively invest as fast as we can over the next handful of quarters to be able to continue to give ourselves increased market share.

Your next question will come from Richard Close from Canaccord Genuity.

Congratulations on the quarter and the new format as well. So I guess my first question here is on the payment facilitator volume percentage. You talked about that moderating. Can you just provide any context in terms of where you see that as maybe a normalized rate over time?

Yes. Thank you, Richard, for the question. I think when you look at our payment facilitator, we have clients that use us in different ways. Some of us -- some of the clients use us to process the full payment, which goes through the payment facilitator model, and then others will just use this as a gateway. And we're picking up the revenue share based on payments that go see a payment facilitator model. It really depends on the size of the practice and the health system on how they use us. And generally, larger clients are using gateway. So as we move to larger clients, we will see that percentage drop.

Okay. And then maybe on the new products that you discussed in the letter, I'm just curious with respect to vaccine management. I know you provided some data in there. But I was curious if there was any other -- a qualitative, I guess, information with respect to how that offering drove engagement by clients' customers, those that use it versus those that didn't? And are you able to use that type of information to go back to other clients and really illustrate the impact of something like that?

Yes. I think the way we think about it is -- so, yes, we do measure engagement. We measure usage, we measure value -- like at the end of the day, if you build really good products, and they make a difference to patients and providers, we're doing the right thing, right? It's not always about taking one thing to -- like most of these providers are looking for us specifically to help them. Doing what they do is pretty hard.

I'd probably reference in the letters what the human health said, I think we just want to help them, especially around COVID. We just wanted to help people first, test, then -- first, screen, then test, then we wanted to make sure that we gave them the tools to get people in for vaccination. And now we really care about hesitancy, right? We want to make sure most of this population. We want to help them do everything they can to help this population of ours get vaccinated as fast as possible, because it's just the right thing. I would like to go back to a pre-world where we're not all wearing masks unnecessarily.

Your next question will come from Jessica Tassan from Piper Sandler.

Wonder just maybe if you could give an update in terms of where the opportunity lies in the acute care market? So is there an opportunity on the payment processing or life sciences revenue side? Or is the acute care market primarily an opportunity on the subscription-related services revenue side?

We mostly view the acute care opportunity as a -- today, as a subscription opportunity at around $2 billion in available TAM, just from our own calculation. Then we haven't or won't win some payments and won't give some work on life sciences now, but the vast majority is subscription for us today. And if that changes, we will communicate to our stakeholders why and how that's changed.

Awesome. If I could just sneak in, maybe if you could provide any color on the acute care market assumptions, underlying revised guidance or their contribution to revised guidance?

Jess, this is Balaji. Are you talking about the TAM that Chaim referenced?

No, just the win rate in the acute care market, the assumptions underlying that changed to [dynamics].

Yes. That's not something we've talked about. I think we've just said -- I think Chaim, in an earlier question, just talked about the breadth that we saw in the quarter across all different areas and certainly had some progress in the acute care space as well, but I think that's really all we're ready to share at this point.

And your next question will come from Sean Dodge from RBC Capital Markets.

It's [Thomas Keller] on for Sean. Just following up on the life sciences business. Can you give us a sense of the mix creating the strength now? And how you expect to see it turning going forward? They're leaning more toward effective targeting, new clients or new campaigns from existing clients. Any more clarity there would be helpful.

So I think -- first and foremost, I think the strength is -- continues to be delivered by just a phenomenal team, right? So it's all through it, the Life Sciences work, whether it's our sales, our client team, our data scientists. We've really -- that's just been wonderful, they're wonderful to -- how they work together and how they work for their clients and our clients has been amazing.

And then as we think about product investments, that's had just a meaningful payoff. And we expect that to continue as we invest more in those products. And when we say investment, we think -- I sort of think about it out in years, not so much months, but we do expect there to be continued growth in our Life Sciences [door].

Your next question comes from Daniel Grosslight from Citi.

Congrats on a strong start to the year. I'd like to go back to the acceleration in payment volume you saw this quarter, particularly the warehousing effect we might have seen as patients that delayed care last year seemed to be coming back stronger than expected. In your guidance, are you assuming this is kind of a onetime blip of a warehousing effect? Or do you expect to see these sustained levels of high volume throughout the year? And I guess to to that, are you seeing any benefit from vaccinations? I know you're giving away the modules -- vaccination modules for free and patients don't bear responsibility for their vaccination. But is there any secondary impact you might be seeing from vaccination?

So I'll start with the last bit, and then I'll let Randy answer all the other stuff.

So I will keep stressing that the single biggest benefit we get is by doing the right thing. And look, we had the (inaudible) resources from other projects to help the vaccination effort. But I'd say the biggest benefit has been that we've helped our practices, help their patients. And when you do the right thing, and I think it's very important when you do the right thing, I believe, more often not, you've got outsized benefits, both from your team and from your clients, and we'll continue to try to do that.

And we've been able to do that. And I feel pretty lucky that we are in a position with stakeholders that have empowered us to be able to help everyone in general sense. And yes, we do believe long term. We will get benefits because this is a type of partnership that our clients want to work with, right? And people enter health care because they want to make a difference. Randy, what do you think?

Yes, Dan, I think your question was about seasonality, the year-over-year impact of payments. And I think when we look at it, I don't think we really know why the patient is coming back this particular quarter, if it's regular seasonality patterns that we see, which is a major part of it, right, where there's higher payments of the patient responsibility in the earlier part of the year. There could be a delayed visit to the doctor, but we really don't know. So I think when we look forward to the rest of the year, there's some unpredictability based on the pandemic that we've seen that's really disrupted patient visits over the past 15 months.

Got it. Okay. So on that unknown piece for the rest of the year, the assumption in your guidance is that we're not going to see the same amount of volume that you saw in 1Q in terms of growth acceleration ?

On the specific revenue line, but there is a seasonality factor where the payment revenue is higher in the first quarter.

Your next question will come from Stephanie Davis from SVB Leerink.

Congrats on the quarter. So merchant acquiring tends to be viewed as more of a commodity with a relatively low level of stickiness, are you looking at any strategies that capture the merchant acquiring and processing relationship with your acute clients, especially maybe taking advantage of the vendor consolidation trends are going on a hospital? And beyond that, could you look at -- could you tell us through any of the expansions you're looking at for your solution suite to capture a larger share of the acute wallet? I snuck in 2, so sorry, Balaji.

So I'll answer them sort of combined, which is I don't think we make a point of articulating what our go-to-market strategies are either during, before or after, other than to say that I think we feel pretty comfortable that we've articulated. I think pretty clearly that we think in the [acute] market, we won't be aggressively going after payments, not in the near term. And if anything changes, I promise, we will communicate it. But look, I think that those relationships, right or wrong, are often tied up with very different folks in treasury and often tied to lending arrangements with banks.

And I think that's very different than what you often see in sort of the other verticalization of payments, right, where banks are still using their -- these large banks are still using their treasury relationships to try to capture the vast majority of the payment revenue. So I think one of the things we think is very important is to also acknowledge where we want to spend resources to win share, right? And we think this is a huge market. And where we allocate resources and spend capital is an area where we think we could win -- sharing market share aggressively with the great returns.

And a quick follow-up on that. There has been a lot of M&A in the payment side of the state, especially touching on the acute ambulatory system. Is there any impact to your strategy or possibly further market demand that's the line all of these deals?

I don't think our strategy has changed whatsoever. But we've known most of these companies for decades. So no, I don't think our strategy has changed with M&A or the talk about M&A or the ]. We just keep doing our thing. And it looks like I think it keeps working, so I'm going to have us keep doing our thing.

And your next question will come from David Larsen from BTIG.

Congratulations on a good quarter. Can you maybe just give a little more color around COVID-related impact to volumes? Like are you physician office, client volumes, back up where they were pre-pandemic? Or are they even slightly higher? And then with the sales force, I know that there was like some hesitancy during the pandemic to call on the physician practices because they were busy dealing with COVID. Are all of your salespeople now still selling? And are they visiting the practices? Or is it still sort of remote?

I think -- let me clarify. Our salespeople have been out selling aggressively for quarters, and they have not been on planes at all. So they're out on the phones, doing webcasts and really reaching out to practices, health system. And I don't think we would have had the quarters we had, if our salespeople and our SDRs and our implementation team hasn't been aggressively working with practices to get them on on Phreesia. And so look, I just -- I don't know, like congrats our HR team and all the managers that help onboard all these folks as we've ramped up. But yes, I don't I think -- I don't think we've communicated that our sales team hasn't been selling. Balaji, shall we?

No, we have not.

Okay. Just checking. I just want to -- but thank you for clarifying. That was misconception.

Okay. And then are volumes back up where they were pre-pandemic?

I don't think we communicate to volumes other than, I think we put out a report with the Commonwealth on that said it was within 5%. And it was like, I want to say it was sometime in January. Is that fair, Balaji?

Yes. I think it ran through early February. And then obviously, David, you have our results to look at as well. There's some correlation with payment volumes.

Okay. And then just one last quick one. The cost came in a little bit higher than -- I was expecting, quite frankly, like sales and marketing, R&D and then also, G&A. Just any thoughts around what your expected trend is for those line items going forward through the rest of the year?

Yes. I mean I think as we articulated before, we continue to invest in the growth. We invest robustly in product and sales and marketing. And it's also important as we bring on new clients to make sure that we have implementation and support resources. So we expect to continue to make those investments.

This brings us to the end of today's Q&A session. I will now turn the call back over to the presenters for closing remarks.

I just want to take this opportunity to thank everyone at Phreesia. I thank all of our clients and thank all of our shareholders for everyone's support. We're really proud of what we just did this past quarter, and we look forward to working with everyone given next couple months of the year.

And I hope everyone gets vaccinated, if you haven't already. And I look forward to seeing everyone soon enough. Cheers.

Thank you, everyone. This will conclude today's conference call. You may now disconnect.