Phreesia Inc (PHR) 2020 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Phreesia's Fiscal Third Quarter 2021 Earnings Conference Call. (Operator Instructions) I would now like to introduce Balaji Gandhi, Vice President, Investor Relations for Phreesia. Mr. Ghandi, you may begin.

Thank you, operator. Good morning, and welcome to Phreesia's earnings conference call for the third quarter of fiscal year 2021, which ended on October 31, 2020. Participating on today's call from Phreesia are Chief Executive Officer and Co-Founder; Chaim Indig; Chief Financial Officer, Tom Altier; and Senior Vice President, Human Resources, Amy VanDuyn. Following prepared remarks from Chaim, Amy and Tom, we will conduct a Q&A session.

A 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, both of which 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 pursuant to the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, including statements relating to the expected performance of our business; future financial results; our strategy; our partnerships; expected launches of products and services; long-term growth; overall future prospects, including our revenue, cost of revenue and operating expenses; our business outlook for the fiscal years ended January 31, 2021 and 2022; and the impact of the COVID-19 pandemic on our business.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-Q, which will be filed with the SEC later today. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumption and beliefs as of today, and we undertake no obligation to update them as required by applicable 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 supplemental materials, 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're participating on today's call from 4 different locations, so we appreciate your patience with us. I will now turn the call over to our CEO, Chaim Indig.

Thank you, Balaji. Good morning, everyone. We hope you are safely now beginning the pandemic. Our third quarter results reflect solid performance across our organization. For the fiscal third quarter, total revenue was $38.5 million, up 17% year-over-year.

The average number of provider clients was 1,737, up 10% year-over-year. Average revenue per provider client was $17,490, up 5% year-over-year. Life sciences revenue was $8.1 million, up 21% year-over-year.

Adjusted EBITDA was $1.2 million, down approximately $1.8 million year-over-year, reflecting our continued investment in long-term growth. I want to take a moment to recognize our team's continued commitment to our clients and their communities throughout the pandemic. In November, their performance was recognized by KLAS Research.

In a report based on firsthand perspective of Phreesia's clients through the pandemic, KLAS rated our patient intake management solution with the highest overall score and the highest COVID-19 response rating amongst 10 vendors evaluated. Specifically, Phreesia was recognized for having the broadest, deepest adoption of our various functionalities, including preregistration, clinical screenings, payments and eligibility and benefits. I would like to acknowledge our entire team for this latest third-party validation of their important work and the value it brings to health care providers across the country.

Now turning to an important and planned leadership transition at Phreesia. In conjunction with our earnings report yesterday, we issued a press release announcing the planned transition of our CFO role from Tom Altier to Randy Rasmussen in May 2021. Since joining Phreesia in 2012, Tom has had a meaningfully positive impact across the organization.

His impact goes well beyond our strong financial performance and deep into our culture. Tom is retiring from the CFO post after a long and successful career. We are thrilled that he will stay on as a trusted adviser to the executive team.

I speak for the entire Phreesia team in thanking Tom for his contributions and wish him and his family the best as he transitions to semi-retirement next year. In anticipation of Tom's retirement and as part of our succession planning, we've prioritized recruiting a strong finance and accounting leader, with deep public company experience in health care and software.

We found that individual in Randy, who joined us as Chief Accounting Officer in November 2019. Over the past year, Randy has played an important role in our evolution as a public company as he continues to strengthen and expand our financing to position us for long-term growth, Mazel tov, Randy on your new role.

Moving on to a brief update on our company's physical footprint. Back in March, Phreesia prepared our company to operate remotely indefinitely. We continue to operate 100% remotely.

Consistent with those plans, we made the decision to allow our New York City office lease to expire at the end of January. We will continue to have significant employee presence in the New York area, including many members of our leadership team, including Evan and me. However, from a legal and regulatory perspective, our Raleigh, North Carolina office will assume the address of principal executive offices in our SEC filing.

Now we would like to provide an update on our environmental, social and governance reporting initiatives. I have asked our Senior Vice President of Human Resources, Amy VunDuyn, to share the findings of an important report on gender equality that we recently published. For those of you who have not met Amy, she has led our HR organization for over a decade, and has been instrumental in our growth. Amy?

Thank you, Chaim, and good morning, everyone. At Phreesia, we recognize that our ability to execute on our mission of creating a better, more engaging health care experience relies on recruiting and retaining individuals who are committed to and aligned with that mission. We are committed to creating a diverse, equitable and inclusive environment for all Phreesians.

As we organized our efforts to begin to publish ESG data, our leadership team and Board determined that gender equality should be the first area we address. We will continue to prioritize and invest in our inclusive culture, Board representation, pathways to leadership for women, pay equity and strong family-lead policies.

After researching the universe of reported gender equality data, we determined that in order to provide objective, transparent and comparable data, we would follow a widely known and accepted framework for reporting, the Bloomberg Gender-Equality Index. Here are some highlights from the Phreesia 2020 Gender Equality Report covering our fiscal year ending January 31, 2020.

Women make up 50% of our employee base. 44% of employees in our top pay quartile are women. 42% of senior management are women. 56% of middle or other management are women.

49% of revenue-producing roles are held by women. 51% of employees promoted during the fiscal year were women. And 91% of women who returned from parental leave between February '18 and January '19 remain employed 12 months after their return.

Please note that this data covers all of our U.S. employees and excludes about 1/3 of our employee population who are based in Canada. The full 2020 Phreesia Gender Equality Report is available on the About Us section of our Investor Relations website at ir.phreesia.com.

The data and the report covers all of the information required by Bloomberg for inclusion in its Gender Equality Index, which is updated annually. We encourage you to review the report and follow up with Balaji if you have any questions. I'll now turn the call over to Tom.

Thank you, Amy, and good morning, everyone. I'll review the income statement, balance sheet and cash flows for the fiscal third quarter and comment on our outlook for the remainder of fiscal 2021 and fiscal 2022.

First, revenue in the third quarter. Total revenue was $38.5 million, up 17% year-over-year. Subscription and related services revenue was $17.5 million in the quarter, up 20% year-over-year, primarily due to new provider clients and expansion of existing provider clients.

Payment processing fee revenue was $12.9 million in the quarter, up 12% year-over-year as patient visit trends recovered to pre-pandemic levels during the month of September and were sustained through the end of the quarter.

Provider revenue, which combines revenue from subscription and related services and payment processing fees, was $30.4 million, up 16% year-over-year.

The 2 drivers of the 16% provider revenue growth were average provider client growth, up 10% year-over-year, and average revenue per provider client, up 5% year-over-year. Our client growth was stronger than recent quarters, reflecting increased demand for our offerings.

Life science was $8.1 million in the quarter, up 21% year-over-year. Our life science results reflect both strong execution on delivering more messages for existing campaigns and solid demand for new campaigns.

Moving on to expenses. I'll review several expense line items on an adjusted non-GAAP basis, which excludes stock compensation expense from each line item. Please note that for a full reconciliation of GAAP to non-GAAP measures, including adjusted EBITDA, is included in our earnings press release and our Form 10-Q to be filed with the SEC.

Cost of revenue was $6.3 million or 16.3% of total revenue, up 310 basis points year-over-year and reflecting our continued ramp-up in client services organization during the quarter to support our growth. Sales and marketing expense was $9.5 million or 24.6% of total revenue, up 50 basis points year-over-year.

Research and development expense grew 16% year-over-year to $5.3 million and down 10 basis points year-over-year as a percentage of revenue. We expect the pace and level of our investment in R&D to accelerate over the next several quarters and dollars will be allocated across the existing platform as well as into new products and solutions.

General and administrative expense was $8.7 million or 22.7% of total revenue, up 400 basis points year-over-year. That increase is consistent with our commentary for the past year around the continued ramping of public company expenses, particularly in finance and legal. From a modeling perspective, we expect to begin to see operating leverage in the fourth quarter of fiscal 2022.

Payment processing expense was $7.5 million, up 9% year-over-year. Payment processing margin was 41.7%, up 140 basis points year-over-year due to the mix of transaction type and lower cost routing of payments. The benefit from mix was more muted versus the previous quarter as evidenced by the sequential 130 basis point decline in payment processing margin. Going forward, we expect margins to return to the 40% range with quarter-to-quarter variability due to the transaction type mix.

Adjusted EBITDA was $1.2 million, down from an even $3 million in the prior year. The decline is largely due to the acceleration in investment across the company as we capture the growth opportunities we are seeing in the market.

Shares outstanding as of December 4 were 44.2 million. Cash on the balance sheet on October 31 was $254.1 million, up $169.9 million from July 31. Shares outstanding and increase in cash incorporate the 5.7 million shares issued and net proceeds of $174.5 million related to our equity offering, which closed on October 23.

Cash flow from operations for the quarter was an outflow of $667,000 versus an outflow of $3 million in the prior quarter. Capital expenditures for the quarter were $3.7 million, up $200,000 year-over-year, and the $3.7 million includes $1.9 million of capitalized software development.

In terms of our outlook for the remainder of fiscal 2021, which ends on December 31, 2021, we expect to report revenue for the full fiscal year of $146 million to $147 million. For the full fiscal year 2022 ending January 31, 2022, we expect revenue to grow between 20% and 25% over fiscal year 2021.

We will invest more cash into the business in fiscal 2022 compared to fiscal 2021 as we continue to ramp up hiring across the organization to support our anticipated growth. I look forward to working closely with Randy and our team over the next several months to ensure a smooth transition of the CFO reins on May 1, 2021. Congratulations to Randy on his promotion. We are ready to take your questions. Operator?

(Operator Instructions)

Your first question comes from the line of Anne Samuel with JPMorgan.

First, I'd like to offer my congratulations to Tom on your upcoming retirement. You've recently quantified the acute market opportunity on some of your presentations. And I was just wondering how we should think about how that's going to contribute to growth going forward. Is it part of why you think you can exceed 20% next year? Or should we just think about this as more providing a longer tail for growth?

Annie, the way we've been thinking about it is, it is one of our growth drivers, and it gives us a little bit more comfort in being able to provide guidance moving forward. But this, to us, is a multiyear driver of growth, not just next year. So I think this helps us continuously hit our growth objectives while providing for a comprehensive solution to a broader set of clients.

That's great. And then maybe one more. The composition of your provider growth was just a little different this quarter. You saw really strong growth in provider clients, but the revenue per provider client was just a little bit lower than historical. So I was just wondering, is that maybe COVID? Or is there any nuance to that?

The way I like to think about it is our sales team and our implementation team just really focused on getting out in front of people that needed our solution. And we're really heads down and focused on getting Phreesia in the hands of providers and patients that need it to be able to do their jobs to treat patients and we had an unexpectedly strong quarter on provider growth.

Your next question comes from the line of Ryan Daniels with William Blair.

I guess the first one is just around the increasing R&D spend. Can you highlight any particular areas in the existing product suite or maybe moving into acute that you're focused on investing in on a go-forward basis?

Ryan, I think the best way for us to think about it is we will continuously communicate to all of our investors in the market where we are actively investing. And as we have visibility, as we have clients in those -- using those products and as we understand how we add value and drive ROI, we are continuously committed to informing our investor base on those new products. And we'll only do it after we have people using the product. It's really across all the areas that we've been actively communicating.

Okay. Fair enough. And then as we look out to the coming fiscal year obviously nice that you guys are willing to provide that 20% to 25% guidance. So a couple of questions on that. Number one is what are the underlying assumptions in the market? Is that just kind of pre-pandemic normalcy in your customer base?

And number two, just what gives you the comfort even before the fiscal year-end to provide that guidance? Is it just the strength in new implementations, et cetera?

Are we -- when you talk about guidance, are you talking about next year? Or just some clarification, Ryan. Are you talking about till the end of the year?

'20.

The 2021? 2022. Okay.

2022, the 20% to 25% guidance.

Look, we think it's really important for us as an organization to be able to set the appropriate expectations and guide rails around growth. We've also very clearly articulated that there are some COVID disclosures. So I can't tell you what will happen with COVID in the future, but we think we've provided ample disclosure, should that provide any massive change. Balaji, did I answer that properly?

Yes. Yes. So our guidance is not sort of some kind of prognostication on the pandemic, it's just based on what we know now.

Okay. And if I can squeeze one more in. Just, Tom, first, congratulations. And then any color (inaudible) more you on the retirement and just how long you're going to stay on as an adviser? Congrats.

Thanks, Ryan. Yes, I'll be CFO until May 1 and planning on staying on as an adviser. I don't want to say indefinitely, but for a certain period of time. We haven't worked it out exactly yet. I'm just real confident that Randy is going to be able to take the reins of the CFO position. He has a lot of experience in public companies, including SAP, Medidata. And he's been -- he'll have 2 10-Ks under his belt, and I'm very confident of his abilities in -- going forward. So we're really looking forward to the transition.

Your next question comes from the line of Sean Wieland with Piper Sandler.

I'll add my semi congrats to Tom for your semi-retirement. Tom, are you going to be signing the K? And...

Yes.

Okay. And with you staying on for a little while, is that going to be a full-time role or part time?

I think it's part time, special projects, that kind of thing.

Got it. All right. And then so my question is in the payments margins. You cited investments as we capture growth opportunities -- I'm sorry. I got 2 calls going on here. Decline in payment margins, investments as we capture growth opportunities. What investments and what growth opportunities are you seeing in the market?

Wait, so was that for our call or for the...

Yes. That was for your call.

Okay. Just checking. So look, we are investing across the board, right? Our general thesis is we want to capture unfair share of market. We see a fair bit of demand. And so we're hiring SDR program. We're hiring -- we're growing our sales organization, our implementation teams, our customer success teams and very specifically, our engineering teams, and all the resources to support those. We expect all of those parts of our organization to materially grow significantly.

Your next question comes from the line of Donald Hooker with KeyBanc.

So I guess I'll push my luck here a little bit and ask a question you may not answer, but I'll take a shot. Last quarter, you provided a little bit of an update and quantification of your exposure to the hospital space. I mean I saw you had a very nice net client add in the quarter. I mean, are we seeing -- can you maybe give us a little bit of quantification in terms of what hospitals are, as a percent of your client base, or revenues or anything there? Because it sounds like an interesting opportunity that you've laid out. I'm sure it's small but just curious.

So what I will say is that our sales organization has been doing a phenomenal job as has our -- all the other parts that are working with and implementing our hospital opportunities. And our crack communications team, who I know is listening right now, will absolutely communicate, where appropriate, any of our hospital wins. They are in charge of it, not Tom or I, in how we communicate any of successes we have in the hospital space.

Okay. Fair enough. And maybe again, you might not want to answer this question because I'm going to push on some details, but that's fine, I understand. But it's been a tumultuous market obviously for your clients, the physician practices out there. It feels like things are getting better. Can you maybe update us directionally or with numbers or whatever you're willing to do in terms of how your clients, in terms of revenue retention, attrition, anything like that? Obviously you had great revenue growth -- net. But just curious if -- just given all the changes in the marketplace that you're selling into, how some of those typical metrics are holding up attrition of revenue retention?

So look, I want to be very thoughtful because our clients, as much as they focus or they have to pay attention to revenue, the thing that they're most focused on right now is treating their patients. And as much as for the last quarter, when we reported, a lot of visits have come back. I think a lot of them are acutely aware of their communities and the rise of COVID-19 in their communities and the impact it's having on their patient populations.

So I think their #1 focus, these organizations, is making sure they think about and treat their patients where appropriate in all environments. And that's -- it's a very tough situation. And I am very lucky that I get to work with organizations like that and being able to care for patients, and I know everyone else that treat, who feels the same, that it is just very much mission-aligned.

Tom, if you want to talk about anything else around that?

Yes. Just specifically to answer the question, we're not seeing any significant difference in the rev retention numbers as a result of COVID.

Your next question comes from the line of Ryan MacDonald with Needham.

Tom, congratulations. I guess just starting out, you talked about patient visit volumes obviously trending back to pre-pandemic levels through the end of the quarter. Would just be curious to understand what you're seeing sort of through the month of November to the extent you can provide some clarity, as we're starting to see shutdowns again with another wave of cases coming.

Why don't I -- Tom, I'll jump in and you could clarify. I don't think we provide any level of near-term updates on visit volume on this -- in this forum. If we do, we have our team that works closely with the Commonwealth, (inaudible) on the Harvard, and Harvard on Publishing, and it's all focused on shaping the public policy debate. So just from our standpoint, I think we haven't, and we will continue to not give color on visit volume in real-time in this forum.

Sounds good. And Chaim, as a follow-up or maybe a different view on sort of as you're looking into calendar '21. We're a couple of months away obviously from -- hopefully, from the mass distribution to the vaccine. Assuming that sort of hospitals and clinics providers are the ones that are managing the distribution, is there an emerging use case or demand for the Phreesia platform in 0 contact intake to help manage, obviously probably we see sort of a strong increase in patients visiting clinics and hospitals, to help manage the flow of patients during that distribution process at all?

So I will say that we have been and will continue to work actively with the breadth of our clients, including some of the major health systems and states that have been mandated with responsibility with some of the vaccine distribution. I know of our teams working with those clients. And anything we can do, we are committed to helping our clients help their patients. And that's always been part of our mandate as an organization. And it's what gets us excited to do the things we do every day.

So I wouldn't pencil in any type of revenue opportunity on that. I would pencil in that this company continues to do the things they say they're going to do, which is drive towards its mission.

Your next question comes from the line of Stephanie Davis with SVB Leerink.

Tom, congrats on a well-deserved retirement. Randy, congrats on your (inaudible), and Chaim, biggest congratulations for getting out of a New York City lease. Not an easy feat so good work there.

Now you've been playing out consistent outperformance in the life sciences business for a few quarters now. I was hoping we could take a step back and see if there's any thematic changes that's accelerated your traction there, either in the market or in your offering?

So why don't I first clarify, we did not get out of our New York City lease, we just let it expire. And we hadn't signed a new lease because we hadn't found space that was cost-effective for us before the pandemic hit. But just want to clarify, we're not -- we didn't get out of it, and our landlords have been wonderful for the decade that we were there.

So when it comes to life sciences, I think -- and we've communicated this on previous calls. We have continuously increased our investment with the life sciences team. And that team has done just a wonderful job being very collaborative with our life sciences clients, being able to provide a phenomenal amount of value throughout not just this pandemic but prepandemic, and building trust relationships with new and existing clients.

We've also significantly invested in it, and we expect that to be an area of continued investment in the future across the spectrum of that organization, from sales to content creation to data science and product. So we are very pleased with the results that, that team has continuously put out and the impact it has on our mission and the company culture.

And is it safe to read through, given its outperformance during lower visit volumes during the pandemic, that as things start to go back to normal next year, you could see even further of an uptick there?

I don't think in this world anything is safe. So what I can say is I feel very comfortable that we have a phenomenal group of people that will continue to do their best to deliver great product and a great value and drive great results for our clients. And if we continue to do -- if we, as an organization, continue to do the right thing and drive towards our mission, I think we're in the best shape that any company could be.

Your next question comes from the line of John Ransom with Raymond James.

So life sciences, we heard some feedback that maybe that business won't be flat for the next 50 years. So you're a little more optimistic there. So what's changed?

Well, I can't commit on the next 50 years, because I think Tom will be 131 at that point. How old do we be at that point, Tom?

I'll be 110. So I'm not (inaudible).

.

All right. Tom will be 121. All right. So look, what I can say is that we had a thesis that if we made the right investments with the right team and leadership, we would be able to produce results. When we got comfortable that we were producing some of those results with David at the helm, and a lot of the investments we made, we felt more comfortable being able to talk about it a little bit more to the public markets. And what I will say is we're going to keep making those investments because we think that it returns very well to us and our investors and to our clients. So I just communicate that we will continue to make investments when we think that, that capital will return to us and the investor base.

Your next question comes from the line of Hannah Baade with D.A. Davidson.

I add my congrats to Tom and his retirement as well. As you enter the acute care market, could you compare and contrast the length of the sales cycles between ambulatory and acute? And have you devoted SDRs solely to the acute (inaudible) mission?

So what we have done is we -- and I have communicated this in the past, is we've mostly focused on health systems that have both hospitals and acute facilities and ambulatory, and we have SDRs that are focused on calling on those health systems.

We believe in the early stages of the hospital market, we are mostly going to be focused on hospitals where we have or could have ambulatory footprint also, creating a common front door for that patient experience.

Great. And obviously you have an incredibly strong cash balance sheet post the follow-on. Could you provide some clarity on your plans to use this and if your overall capital allocation strategy has shifted in any regard since the IPO?

Well, I'm still cheap, and I'll probably always stay cheap. So from a capital allocation, we still think about it very -- like each dollar being very precious to us, and we want to allocate it appropriately. And so the general view we have as an organization is, is it going to materially return value to us and our clients and our investor base and our employee population? And if it does those things and it helps with the mission, then we feel comfortable utilizing it. In the near term, I think Tom has communicated that we will increase our investments across the board. And then I think that's all I can say about that.

Tom, is that right?

Yes. I mean that's the appropriate answer.

Your next question comes from the line of Sean Dodge with RBC Capital.

Maybe on the provider ad, Chaim, you highlighted the strength. Can you give us a sense of those new ones you added in the quarter, what proportion came from existing clients that you're expanding in? And how many were net new? Or I guess, I don't know I'll call it like new logos for you.

Well, so why don't I provide some clarification. Those would be all new logos. So if you add to that number, it is a new client. So it wouldn't be an expand client. Is that -- am I providing enough color?

No. Okay, so that's a good clarification. So if you've got a, I don't know, a multisite, multi-specialty practice, if you add one site, that's one. If you add all eight sites, that's still one, but that's just accretive to the average revenue for that client. Is that my interpretation?

Okay. Yes. Yes. That's not just interpreted, so I think we actually sell it out in a bunch of our documents, too. Tom is that right?

Got it.

Yes. Yes, that's correct.

You could actually in the S-1, I think there's a whole section on explaining exactly what that metric is.

All right. Then the lease expiration, can you give us a sense of the savings you've realized there? And then it looks like the lease for the Ontario offices also expires in 2021. Is this virtualization yours, something we should expect to maybe happen more company-wide? Or is this just specific to New York?

Yes. So I would not pencil in any savings because based on the research that Amy, myself, a bunch of other executives have done, going virtual shouldn't be viewed as a cost savings metric. It should be viewed as a way to operationalize and run your business. We do expect to spend some of that money on bringing our people together and collaborating. I don't think the goal is -- this is in no way, shape or form a cost-saving move. It is a move on how we operate the company during this period. And you should expect a change in our lease footprint in Ottawa moving forward. But we will probably still have a physical presence there for a bunch of legal reasons. And I think our people that do need to actually go inn first, some people need to go into a footprint. Amy, do I get that right?

Yes. That was a great response.

Your next question comes from the line of Scott Schoenhaus with Stephens.

Chaim and team, my first question is on your current sales pipeline. If you could provide us any proverbial color there. If your sales team also had to realign strategies to go up to a certain mix of clients as a result of COVID and the -- now the pending vaccine.

So what I can say about our sales pipeline is I'm ever really ever going to give information about it. But I can say our sales team is doing a phenomenal job at working with prospects and existing clients on making sure that they are talking about and articulating and helping them in any way, shape or form through the sales process. And it is a phenomenal sales organization that when I was starting my career, I would have begged to join. And if any of you know folks that would love to join a phenomenal sales organization, please send them to Balaji because we are actively recruiting and it is a great place for people to grow their career.

Great. Just a follow-up, and it's kind of a follow-up question on the guidance for your out-year fiscal '22 revenue growth. Could you provide any color, Chaim, more broadly maybe on the mix between provider client versus revenue per provider growth in that growth rate that you guided to? Congrats, Tom, on retirement as well.

Thank you.

No problem. I'm going to actually let Tom answer that question because I think it's his turn.

Yes. So we did have outsized provider client growth in the third quarter. I think for -- I think your question was around fiscal '22. And I would expect the growth percentages to moderate back toward what we were doing pre-pandemic, maybe not all the way there, but head in that direction. So if that answers your question.

And Tom, just to maybe clarify a little bit more on that question. Could we see some fluctuation in terms of quarter-to-quarter on that?

Yes. You're going to see some fluctuation quarter-to-quarter, as Balaji mentioned.

Your next question comes from the line of David Larsen with BTIG.

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Sorry about that. Congratulations on a pretty good quarter, guys. Can you maybe talk about your sales force. How many sales guys do you have now? I know some of them were kind of focusing on other areas of the business during the pandemic. Are they all now sort of fully ramped back up?

No problem. So first, I want to clarify, we have both sales guys and sales women in our organization. Amy could happily give information on our view on gender diversity, if you ask her about it. And the sales organization has -- we did actually move a bunch of the folks that were doing cross-sell into the new sales team, just because of prioritization and focus of our clients. So, Tom, how many salespeople do we got?

Yes. Excluding the SDRs, we're about 40 right now.

Yes. And I think we're at 100-ish SDRs. So we don't really hire those roles in December for obvious holiday reasons.

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Okay. And then can you maybe just talk a little bit about pricing. Obviously not getting too specific but I mean, it looks like your payment processing fees, pretty good sequential increase despite the concerns around COVID subscription-related services. There was talk about a potential air pocket earlier in the year. It looks like there's no air pocket. So are you getting any pushback on pricing at all, or not really, and folks just sort of want to implement this and deploy it and be as productive as possible.

So the way I like to think about it is I used to pre-pandemic flight, at least, once a week, every week for years. I like to think about it as when the pilot gets on and says we might be hitting an air pocket, a really good pilot likes to try to fly around those air pockets to create as little amount of turbulence as possible. And what we have done is tried to steer around as much as possible while being able to deliver as much value to our client base as possible. And so what we are continuously doing is moving around where the team is focused on. We have very tight operational meetings and a phenomenal group of operators in the organization that continuously, on a weekly basis, watching how we're doing and continuously figuring out and titrating where to put the appropriate resources. And I think that's the benefit of having a tenured management organization that understands the team. And I don't think we would be where we are without such an amazing group of senior leadership.

Okay. And then just with respect to pricing, like are you seeing any other solutions built within other ambulatory EMR products that are now competing with yours that are putting downward pressure on price? Or is that -- or have you not really seen that?

I think we have and always will see competing solutions, especially when you have most of the market just being paper. But we haven't seen that caused massive downward price pressure. The thing that's probably affecting price pressure -- pricing more than anything else is just the realities of what's happening in the world. And I don't think -- and I don't even see that as being the biggest something that we've encountered heavily.

Your next question comes from the line of Daniel Grosslight with Citi.

Obviously a pretty phenomenal result in terms of the number of providers added this quarter. I was wondering if you can provide a little more detail on -- on those providers. Are these folks that you had, had initial conversations with kind of earlier in the year, and just held off on really pulling the trigger because of COVID and now they're doing it? Or are these conversations that more recently started? And going forward into 2022, do you expect most of the adds for providers still to be folks that you had started conversations with during the pandemic, and just held off on buying a new solution?

So I like to think of the world is, we're always talking to as many practices and health systems and groups as possible. And we've been talking to them for 16 years, and we're communicating with them through all different channels. And sometimes it's with SDRs, sometimes it's with our marketing tools. And it's not if it's just when they become Phreesia clients. And so some of these folks, we've been talking to for a decade. Some of them we've been talking to for 3 months and expands the gamut of size, complexity. But we're -- our goal is to actively be in front of as many groups as possible, in many different ways as possible as cost effectively. And you have our commitment that we're going to keep doing that. That allows us to continuously titrate and make sure that we're able to do as much as we can for those practices.

Got it. Okay. And on the increased investments that you're going to make going forward, how much of that do you expect will flow through the income statement? And how much will be capitalized?

Tom?

Yes. You've got both components. I can't give you an exact breakdown. The capitalized costs will be mostly data center but -- and capitalized software costs. So those are the 2 big cap expenditures going forward. But the rest will flow through the income statement.

Okay. But we should see a step-up in CapEx going forward?

Yes. You're going to see it in data centers and in cap software, both of them.

Yes. Got you. Okay. And I'll add my congrats to Tom on your retirement and Randy, on your expanded role.

Thanks a lot. Appreciate it.

And we have time for one more question. We do have a follow-up from John Ransom with Raymond James.

Just to go back one more time and about the hospital ground. Maybe put your finger on what changed because the hiring, (inaudible) about the opportunity has moved really quickly. And I know you guys are in pretty (inaudible) . So can you kind of put your finger on what's changed?

And secondly, are these customers coming from locations where you're already in only into their fully position? So sort (inaudible)? Or is it present?

So if I -- you trailed off, John, a little bit at the end. So I think what I heard was that are we mostly selling hospitals that are already ambulatory clients? Is that right? And is the...

Yes. Is this better? I'll take off my little headset. I can give you...

I can hear you now. Yes, that's great.

Yes. So the 2 things. What do you think changed? I mean, something kind of changed over the summer where the opportunity accelerated.

And then secondly, are these new friends in new places? Or are these mostly warm leads from places where you're already handling the physician side of [insight]?

These are -- so what I will say is they're mostly places where we have had success on the physician side, and that's where we're tending to focus.

And I don't know if I want to say that it's accelerated or not accelerated in the hospital environment. I think we're just now ready to talk about it. We have been investing in it for years. And we expect to continue to invest at great amounts for years to come in the future. And I think the hospital space is a really tough space, but one that the patient experience and intake and everything around that has a ton of areas of improvement. And we are really excited to be able to be working with clients in that space.

This concludes our question-and-answer session. I will now turn the call back over to Chaim Indig for closing remarks.

I just want to say congratulations to Tom and Randy, and wish everyone on this call that's listening a happy holidays and a happy new year, and to please stay safe. And I can't wait to see all of you, hopefully, in the new year well-vaccinated. All right, everyone, have a great one.

Ladies and gentlemen, this concludes today's conference call. On behalf of Phreesia, thank you for participating. You may now disconnect.