Phreesia Inc . (NYSE:PHR) reported its latest quarterly earnings, surpassing expectations with an earnings per share (EPS) of -$0.25 against a forecast of -$0.27. Revenue also exceeded projections, coming in at $106.8 million compared to the anticipated $106.25 million. Following the announcement, Phreesia's stock rose by 3.08% in after-hours trading, reflecting positive investor sentiment.
Key Takeaways
- Phreesia reported a smaller-than-expected loss, with EPS beating forecasts.
- Revenue exceeded expectations, contributing to a positive stock movement.
- The company achieved positive free cash flow for the first time.
- Adjusted EBITDA outlook was raised, indicating confidence in future performance.
- Retention rates remain strong, supporting continued growth.
Company Performance
Phreesia demonstrated solid performance in its latest quarter, with revenue increasing by 19% year-over-year to $102.1 million. The company reported an adjusted EBITDA of $6.5 million, a significant improvement from the previous year. Positive operating cash flow and free cash flow milestones underscore Phreesia's financial progress.
Financial Highlights
- Revenue: $106.8 million, up from $106.25 million forecasted
- Earnings per share: -$0.25, beating the -$0.27 forecast
- Adjusted EBITDA: $6.5 million, up $18 million year-over-year
- Positive free cash flow: $3.7 million
Earnings vs. Forecast
Phreesia's EPS of -$0.25 exceeded the forecast of -$0.27, marking a positive surprise of $0.02. This beat, although modest, aligns with the company's trend of improving financial metrics. Revenue also surpassed expectations by $550,000.
Market Reaction
Following the earnings announcement, Phreesia's stock price increased by 3.08% in after-hours trading to $22.40. This rise reflects investor optimism about the company's financial performance and improved guidance. The stock remains closer to its 52-week low, suggesting potential for further recovery.
Company Outlook
Phreesia has raised its adjusted EBITDA outlook to $26-31 million for fiscal year 2025, up from the previous range of $21-26 million. The company projects revenue between $416-426 million and expects its average healthcare services clients (AHSCs) to reach approximately 4,200 by the end of FY 2025.
Executive Commentary
CEO Haim Indig highlighted the company's achievement of positive free cash flow for the first time as a public company. He emphasized Phreesia's strategic focus on communication and ideation within its fully virtual workforce. CFO Balaji Gandhi noted that the pipeline's win rates have been consistent, with transaction values increasing by 20%.
Q&A
During the earnings call, analysts inquired about the company's pipeline size and potential expansion in CMS models with the Patient Activation Measure (PAM). Executives assured that expense levels would be maintained while driving growth.
Risks and Challenges
- Decrease in total revenue per AHSC, posing a challenge to revenue growth.
- High sales and marketing expenses, impacting profitability.
- Competitive pressures in the healthcare technology market.
- Macroeconomic factors that could affect client budgets and spending.
- Maintaining growth momentum amidst evolving market dynamics.
Full transcript - Phreesia Inc (PHR) Q2 2025:
Conference Operator: Good evening, ladies and gentlemen, and welcome to the Phreesia Second Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. We will provide instructions for the question and answer session to follow. First, I would like to introduce Balaz Gandhi, Prija's Chief Financial Officer. Mr.
Gandhi, you may begin.
Balaji Gandhi, Chief Financial Officer, Phreesia: Thank you, operator. Good evening, and welcome to Frisia's earnings conference call for the Q2 of fiscal 2025, which ended on July 31, 2024. Joining me on today's call is Chaim Indig, our Chief Executive Officer. A more complete discussion of our results can be found in our earnings press release and in our related Form 8 ks submission to the SEC, including our quarterly stakeholder letter, both issued after the markets close today. These documents are available on the Investor Relations section of our website at ir.fresia.com.
As a reminder, today's call is being recorded and a replay will be available on our Investor Relations website at ir.fresia.com following the conclusion of the call. During today's call, we may make forward looking statements, including statements regarding trends, our anticipated growth, our strategies, predictions about our industry and the anticipated performance of our business, including our outlook regarding future financial results. Forward looking statements are subject to various risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those described in our forward looking statements. Such risks are described more fully in our earnings press release, our stakeholder letter and our risk factors included in our SEC filings, including in our quarterly report on Form 10 Q that will be filed with the SEC tomorrow. The forward looking statements made on this call will be based on our current views and expectations and speak only as of the date on which the statements are made.
We undertake no obligation to update and expressly disclaim the obligation to update these forward looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events. We may also refer to certain financial measures not in accordance with generally accepted accounting principles such as adjusted EBITDA and free cash flow. 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 press release and stakeholder letter, which were furnished with our Form 8 ks filed after the markets closed today with the SEC and may also be found on our Investor Relations website at ir.friesia.com. I will now turn the call over to our CEO, I Mindy.
Haim Indig, Chief Executive Officer, Phreesia: Thank you, Balaji, and good evening, everyone. Thank you for joining our fiscal Q2 earnings call. We achieved another important milestone in the fiscal second quarter by reaching positive free cash flow for the first time as a public company. We believe this milestone marks the start of a new era for Frisia in which we will be able to utilize internally generated cash to drive stakeholder value. Our fiscal Q2 results were solid across all of our key financial and operating metrics.
We believe we are set up well to execute on our full year financial plan and plan for continued revenue and profitable growth this year, next year and beyond. I feel very good about where we are as an organization and appreciate my teammates for their commitment to our mission of making care easier every day and also to our vision to make every person an active participant in their care. I will now hand it over to Balaji to provide some financial highlights.
Balaji Gandhi, Chief Financial Officer, Phreesia: Thank you, Haim, and good evening, everyone. Let me start with a couple of the highlights in our letter regarding the fiscal Q2. Q2 revenue was $102,100,000 up 19 percent $16,000,000 year over year. Adjusted EBITDA was $6,500,000 up $18,000,000 year over year. Our average healthcare services clients or AHSCs increased by 104 from the prior quarter and total revenue per AHSC was $24,494 down 2% year over year.
Q2 fiscal 2025 total revenue per AHSC was flat year over year when compared to q2 fiscal 2024 total revenue per AHSC excluding the revenue from the clearinghouse client relationship that we wound down earlier this year. Turning to our cash flow and balance sheet. We achieved 2 important milestones in the fiscal Q2. 1st, we returned to positive operating cash flow. And second, as Haim mentioned, we achieved positive free cash flow for the first time as a publicly traded company.
Operating cash flow was positive at $11,100,000 up $20,400,000 year over year. Free cash flow was positive at $3,700,000 up $19,000,000 year over year. Cash was at $82,000,000 on July 31, up $2,300,000 from the end of our fiscal Q1 on April 30. We expect to continue to generate positive free cash flow, while investing in long term revenue and profit growth. Now moving on to our financial outlook for fiscal 2025.
We are maintaining our revenue outlook for fiscal year 2025 at a range of $416,000,000 to $426,000,000 We are updating our adjusted EBITDA outlook for fiscal year 2025 to a range of 26,000,000 dollars to $31,000,000 from a previous range of $21,000,000 to $26,000,000 That's a $5,000,000 increase at the top and bottom end of our range. We have also provided an outlook for 2 metrics, AHSCs and total revenue per AHSC. We expect AHSCs to reach approximately 4,200 for the full fiscal 2025 compared to $3,601 we reported in fiscal 2024. We expect total revenue per AHSE to increase in fiscal 2025 compared to the $98,944 we achieved in fiscal 2024. In order to help you model beyond fiscal 2025, we are also sharing our expectations for AhSEs in total revenue per Ahsc in fiscal 2026.
We expect Ahscs to reach approximately 4,500 in fiscal 2026. Additionally, we expect total revenue per AHSC to increase in fiscal 2026 compared to fiscal 2025. Finally, I would like to reiterate Haim's comment that I feel very good about where we are as an organization and would like to thank and congratulate all my Phreesia teammates for their contribution to our results. Operator, I think we can now open the lines up for a Q and A session.
Conference Operator: Thank
Ann Samuel, Analyst, JPMorgan (NYSE:JPM): you.
Conference Operator: Your first question comes from the line of Ann Samuel with JPMorgan. Your line is open.
Ann Samuel, Analyst, JPMorgan: Hi, congrats on the strong results, and thanks so much for providing the really helpful modeling color for 2026. I was hoping maybe you could just spend a little bit of time discussing how to think about the drivers of that ramp of the revenue growth provider client, just kind of keeping in mind your longer term revenue target of 20% growth beyond 2025. And with the new clients growing, call it high single digits next year, it does imply a pretty significant inflection. So I was hoping you could talk about what the key drivers of that inflection are. Thanks.
Balaji Gandhi, Chief Financial Officer, Phreesia: Sure. Thanks Annie for the question, it's Balaji. So a couple of things I think on your question. First, I think you have some good perspective on these growth drivers having followed us for a long time. And if you think about when we went public, that was sort of the ORP algorithm we had in the first year, year and a half of being public.
So, we're certainly capable of driving a lot of revenue both in our base, and driving sort of the total value of a deal size higher. And then maybe just to give you some additional color on that, if you think about our pipeline, it's been as big right now in the for the first half of fiscal twenty twenty five as it was in the first half of twenty twenty four. Our pipeline win rates have been consistent first half over first half and the size, total value of the transactions that we're doing are about 20% bigger in the first half of this year versus last year. So this is probably something you could sort of go back to fiscal 2019, fiscal 2020 and look at that and that's how it will probably play out over the next couple of years.
Ann Samuel, Analyst, JPMorgan: That's great and happening I think sooner maybe than I anticipated. Maybe just a follow-up, I was hoping you could provide some more color on the patient bill pay product and maybe how that differs from how your patients are currently transacting with you? Is there any kind of leveraging of card on file for any of that? Thank you.
Haim Indig, Chief Executive Officer, Phreesia: Andy, this is Simon. Yes, there is. We are leveraging card on file for it. But it's also as I'm sure you'll see at some of your doctors' offices, it's a product where we've invested heavily in and it really provides a significantly better experience for the patient and their ability to pay their bill without actually having to do a lot of work and write a check and get a statement. So it's been a big investment.
We're really proud of the team. The initial response from our clients has been well beyond what we even thought it would be. So hats off to the team that's been rolling out. Probably took us a little longer than we expected, but it was a lot harder than we thought. So it's been really nice.
And let me know when you see it at your doctors.
Ann Samuel, Analyst, JPMorgan: Will do. Congrats guys.
Haim Indig, Chief Executive Officer, Phreesia: Your
Conference Operator: next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Ryan Daniels, Analyst, William Blair: Yes, guys. I'll add my congratulations on the move to free cash flow positive. That's a great milestone. Maybe two questions. I'll start with one for you, Balaji.
Really impressive downward trend in your sales and marketing spend. I think you trended down from a peak of $40,000,000 to $30,000,000 now. Is that more of a sustainable level going forward? Or should we start to see that maybe modestly trend up a bit as we continue to drive the growth outlook going forward?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. Thanks, Ryan. I think you should it's been in that level, call it, plus or minus $31,000,000 $32,000,000 for 11 quarters or so now. I think you should expect us to continue to get nice leverage out of that number. One thing I will point out, Ryan, is that just 1Q to 2Q sequentially, recall that we talked about that clearinghouse client unwinding, there were actually some sales and marketing costs that were built into that, which is frankly what made it not very profitable to us.
So that came out from 1Q to 2Q. So I think sort of being in that the range we've been in for a while, we can continue to get nice leverage. We've got a large organization of about 500 people in the sales and marketing organization and we're spending $120,000,000 So we think that can support a much bigger organization revenue wise.
Ryan Daniels, Analyst, William Blair: Okay, very helpful. And then just a question on the Meditech alliance that you announced in the shareholder letter tonight, maybe twofold. 1, will they actually be a reseller of the Phreesia product? And number 2, when will the full product integration be available for the client base? I know that's a pretty sizable client base, especially in the acute care market.
Thanks, guys.
Haim Indig, Chief Executive Officer, Phreesia: Yes. So they are a reseller of 1 of our a small piece of the technology for some of their clients, but a lot of the clients that I'd say the alliance allows us it's really opening the door and making it easier for Meditech clients to buy directly from Frisia from a lot of subset of our other products. But they are reseller of one of our products.
Ryan Daniels, Analyst, William Blair: Great. And then any comments on the full integration that you mentioned when that will occur? Thank you.
Haim Indig, Chief Executive Officer, Phreesia: I'd say I expect that to continuously roll out over the coming years And we do already have integration with it and we'll keep investing in Meditech as a platform. And the customer base has been very, very supportive of what we've been rolling out. So it's been very fruitful. And we agree, it's a huge potential market.
Ryan Daniels, Analyst, William Blair: Yes, big enough. Okay, thanks again guys. Cheers.
: Thanks, Craig.
Conference Operator: Your next question comes from the line of Scott Schoenhaus with KeyBanc. Your line is open.
Scott Schoenhaus, Analyst, KeyBanc: Hey, guys. Thanks for taking my question. Just wanted to poke around the more additional color we got on the fiscal 'twenty six target. My understanding was always that the network solutions would grow maybe mid to high teens as a percentage every year. Is that still the right way to think about it for next year?
And what does that really imply on the subscription business, if you could break out some of that color more? I'd appreciate it. Thanks.
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. Scott, I think what we can do to try to be helpful is we don't want to get into revenue line item forecasting. But I think we talk about total revenue and I think we have said that network solutions will continue to be a bigger part of our revenue. So as a percentage, it will grow over time. And so I think we talked about size of and value of transactions being bigger.
That's inclusive of network solutions. So, I think you should just expect that to grow as a percentage of revenue and it's been growing at or faster than subscription of late, but it will fluctuate quarter to quarter and that's really one of the really nice things about our business that we could we have these sort of 3 different ways to grow.
Scott Schoenhaus, Analyst, KeyBanc: Yes. That's very helpful, Balaji. And just as a follow-up there, I guess you mentioned about the inorganic opportunities provided by the new cash generation. Anything to call out there in terms of which part of the business you think that there is more attractive in currently market opportunities for M and A? Thanks.
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. Maybe, Jaime and I
Scott Schoenhaus, Analyst, KeyBanc: are looking
Haim Indig, Chief Executive Officer, Phreesia: at each other
Balaji Gandhi, Chief Financial Officer, Phreesia: a little confused. I don't think we mentioned anything about specifically about inorganic opportunities.
Scott Schoenhaus, Analyst, KeyBanc: I was just about your free cash generation would help you achieve these targets. So I'm sorry, I read between the lines of saying that. Yes.
Balaji Gandhi, Chief Financial Officer, Phreesia: I think generally you should expect that comment around free cash flow to be generating more cash flow. We think that's good, just makes us a stronger company and creates a ton of value. And it allows us to keep investing in products and doing the things we're doing. I don't think I'd take anything more away from that comment.
Daniel Grosslide, Analyst, Citi: Hamil.
: Okay. My bad. Thanks. Glad we cleared it up, Len. Your
Conference Operator: next question comes from the line of Jessica Tassen with Piper Sandler. Your line is open.
Jessica Tassen, Analyst, Piper Sandler: Hi, guys. Thanks for taking the question. So I wanted to understand kind of what changed in your visibility on the average revenue per AHSC. We appreciate the guidance, but just are you guys seeing kind of the size of the pipeline or the magnitude of the opportunities grow? I think you referenced that.
Is it new products or just what's giving you kind of sufficient confidence to be able to guide to growth in revenue per?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. Thanks, Jess. So, I think what you're seeing today with the new information we shared is more the output of some things we put in place a couple of years ago in terms of how we wanted to think about the business over the next several years. And so we've just got a much broader suite of solutions both for providers, but also for our clients in life sciences, which falls into that network solutions area. So when we're talking about breadth and total value getting bigger, that's a very intentional thing that we started to put in place almost 2 years ago.
And so we've been expecting it and seeing it. And I think we're reacting a little bit to conversations we've had with a lot of analysts and shareholders about, hey, where is this going quantitatively and that's why we shared what we did today. So hopefully that's helpful.
Jessica Tassen, Analyst, Piper Sandler: Yes, that's really helpful. And then congratulations on the PAM renewal. I was hoping that you guys could just maybe remind us, I think we understand why patient activation is so important, but just what is kind of the opportunity to leverage PAM within your existing AHSV installed base, if at all? Thanks. Yes.
Balaji Gandhi, Chief Financial Officer, Phreesia: I mean, look, first of all, and one of the reasons we were very interested in acquiring the patient activation measure was that some of our clients were already utilizing it. I think the easiest application you could think about is in the nephrology space, where as part of the Kidney Care Choices program that the Centers For Medicare and Medicaid Innovation have launched, PAM is required to be measured. So if you think about a nephrology client Afresia that's participating in the KCC program, they have to measure PAM. It makes our products stickier, it allows us to do a lot of things around both all the things that Phreesia does and over time integrate that with PAM. But now I think you think about that renewal and I think it's all public information out there, it gives us an opportunity over a longer period of time to get that included in new models within CMMI.
And those new models could be in various specialties or provider settings that Frisier works with.
Conference Operator: Great. Thank you.
: Yes.
Conference Operator: Your next question comes from the line of Jalendra Singh with Truist Securities. Your line is open.
Jalendra Singh, Analyst, Truist Securities: Thank you and thanks for taking my questions. I actually want to go back to fiscal 'twenty six, metrics, color, guidance you're giving. Quick clarification, I know it looks like that modeling data is helpful. Looks like Street might be slightly higher on this AHSC count. But you're not trying to talk down the top line growth expectation.
You're essentially saying that maybe we are underestimating revenue per AHSC for fiscal 'twenty six might be slightly higher on the total AHSC count. Just want to make sure that the message is clear. It's not a top line, top me down, but just a mix of the 2 metric, something you want to give some guidance on, right?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. I think that's right. I think what we'd say is we haven't formally said anything about fiscal 'twenty six in terms of revenue for the year. But I think that's the right takeaway is that what we're trying to do is say you will see more contribution from total revenue per AHSC in 26 that you have in the last couple of years.
Jalendra Singh, Analyst, Truist Securities: Okay. Then my main question around EBITDA outperformance and guidance raised this fiscal year. Would you attribute this outperformance to you guys able to find incremental like find cost efficiencies and leverage faster than you previously thought? Or are these incremental cost efficiencies which you did not expect at all? Just trying to understand if there is any change to your the long term margin profile in this business you think about?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. And I think on the earlier question about revenue, it applies really throughout the company. I think there is really a lot of effort and focus by a lot of people at the company around what we wanted what kind of company we want to be, what kind of company we want to look like, how are we going to fund our growth. And so first of all, just to acknowledge that a lot of different people at Frisia were part of this. And when you put a lot of things in motion like that, Jolendra, you don't know the timing of precision about where you're going to be in any particular quarter.
I think we've done well, but we're constantly looking for opportunities to be more efficient. We still spend a large amount of capital. So I think it's mentioned in Chaim's section of the letter, this isn't some kind of finish line.
Jalendra Singh, Analyst, Truist Securities: Okay. And the last one, if I can sneak in here. What was the SDR count at the end of the quarter? And any color you can provide as a guidance on that metric by end of the fiscal year?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. And this is something another topic we've talked about a lot internally over the past couple of quarters. I think I talked about on Annie's question about that organization and it's a 500 person organization as we sit here today, inclusive of all the work we do in Network Solutions. We're spending over $120,000,000 I think there is a little bit of confusion from the investment community about SDRs in the context of this. I mean that 500 person organization has lots of people that are driving net new growth across the company.
SDRs have been one tactic. So I think we'd rather just sort of say if you wanted to keep score of how of the inputs on sales and marketing, think about it as $500,000,000 which is about the same as it was last year and think about it as $120,000,000 And I don't think it's probably it's not something
Haim Indig, Chief Executive Officer, Phreesia: we're probably going to share.
: Great. Thanks a lot. Sure.
Conference Operator: Your next question comes from the line of Glenn Santangelo with Jefferies. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia0: Yes. Thanks for taking my questions. Just two quick ones for me. Back to the fiscal 'twenty six outlook on the provider adds, I'm kind of curious, as we sit here with 5 months left in fiscal 'twenty five, how much visibility how much forward visibility do you have on those provider adds at this point? Like I know you're working now for deals towards next year.
And I'm just kind of curious as to how much visibility you really have in throwing out that forward guidance at this point?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. I'll answer the question this way, Glenn. We have entering a year, when we think about the provider space and we think about subscription revenue and payment processing, we have lots of visibility. I'm going to say 90% visibility. So that's the part of our business we have the most.
And I think in network solutions, we've been pretty consistent. That's where most of the variability is. So even this late in the year, that $10,000,000 revenue range we have, most of the variability there is in network solutions. So we do have a lot, which is why when we're sitting here in September, we've given a target for the full fiscal year for next year. So a lot, Glenn.
But not 90% today, but entering a year is 90%.
Balaji Gandhi, Chief Financial Officer, Phreesia0: Okay, perfect. And maybe Haim, if I could just sort of follow-up on one with you. I'm kind of curious as to where you think industry penetration rates might be for automated solutions, like what you're selling, because I think, obviously, a great quarter, but some of the pushback may be on the slower provider adds next year. And so I guess people are always wondering, I know you always say this is a hard business, and I'm sure it continues to be. But are you seeing any movement in the competitive landscape from the EHR companies?
Or are we starting to push up against higher penetration rates? Like what do you think is going on?
Haim Indig, Chief Executive Officer, Phreesia: Look, I think the team is doing a great job. I think we've invested heavily in a lot of new products, which are bearing fruit. So I think the investments we've been making in our product organization and diversifying away from just being known as intake. So we're really a lot more on that, which has helped us frankly win fairly regularly on a weekly, monthly and yearly basis, continuing to win more deals. And I think we're starting to see more and more of those venture backed businesses that or private equity backed businesses that are starting to struggle having not invested and don't have the ability to invest at the rate they did.
So to be fair, Glenn, I think our view is if you continually invest in product and it's not what you did, it's what you're doing, then you should we believe we should have a continuous right to keep growing the business. And so far, that thesis has played out. And Glenn, what
Balaji Gandhi, Chief Financial Officer, Phreesia: I'd add is we have different ways of growing and that's the point is I think client growth is absolutely an important part of it, but so is the revenue associated with clients.
Haim Indig, Chief Executive Officer, Phreesia: I don't think anyone I don't hear people often saying, well, my experience in healthcare has been amazing, right? It's so seamless.
Balaji Gandhi, Chief Financial Officer, Phreesia0: Okay. Appreciate the comments guys.
Conference Operator: Your next question comes from the line of Stephanie Davis with Barclays (LON:BARC). Your line is open. Hey guys, congrats on the quarter. We
Balaji Gandhi, Chief Financial Officer, Phreesia1: haven't really seen you push on the gas pedal and that rev per metric when at the scale before. So I was hoping you can give us some insight into the balance of how much of it is from new deals of scale that you talked about, which might have a bit longer to flow through. How much of it is that cross sales of the broader solutions fee? And when we think about your client base and the recent off boarding you had in 1Q, is there any further off boarding that might make sense as some
Jessica Tassen, Analyst, Piper Sandler: of the clients aren't at
Balaji Gandhi, Chief Financial Officer, Phreesia1: the sale or specifications exit this next stage of your platform?
Balaji Gandhi, Chief Financial Officer, Phreesia: What was the last part of that? Is there further what?
Balaji Gandhi, Chief Financial Officer, Phreesia1: Any further offerings of client relationships that might not be able to scale in the same way that you folks are looking to do?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. Yes. I got it. So a couple of things I'd say, really two things around your question. First of all, what you're seeing in fiscal 'twenty five, it's just it's and I think we've tried to unpack this in what we've shared is just that when you take $8,000,000 out from that clearinghouse client that was a very unusual client for us, which is 1 AHFC with $8,000,000 it distorts a lot of the trend.
The second thing though is and I think I mentioned this earlier, you think about the pipeline, it's the same as it was a year ago. But the size of these the value of these deals is larger. And I think it's as I said about 20% larger compared to a year ago at this time. That flows through into the future and that's how you get a lift on revenue per client.
Conference Operator: And you guys have seen
Balaji Gandhi, Chief Financial Officer, Phreesia1: a lot of leverage on the sales and marketing front. Should we think about it changing your go to market as maybe a more narrow focus or a bit more up market focus?
Balaji Gandhi, Chief Financial Officer, Phreesia: No. No, I think it's been pretty consistent. I think there's lots of analysis you can do now with over 5 years of data on visits and clients and the revenue associated with them. And it's the size and composition has pretty much been the same. It bounces around quarter to quarter, but it's pretty much been the same over that whole period of time.
Conference Operator: All right. Thank you. Your next question comes from the line of Joe Ruhink with Baird. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia2: Great. Thank you. On the expectation for customer accounts, obviously, those are net numbers. I'm wondering if you could speak the gross experience retention on maybe even a logo basis or dollar basis over that stretch of time. And I guess I'm wondering, you talked about the progress you've had on kind of new deals and new transactions and shorter paybacks and those cohorts.
I'm wondering if the economics have changed for the better within the established installed base and that's driving some of the good updates we're now seeing?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. I'd say yes is the short answer on the second question. And on the first part, we've been in a very tight range of 94% to 96% on gross revenue retention since we went public. So and we continue to be in that range.
Balaji Gandhi, Chief Financial Officer, Phreesia2: Okay. Thank you. And then second question, the way you framed in the prepared remarks, incremental EBITDA and incremental free cash flow both year over year. I'm wondering if you just have an expectation for that conversion rate and where the relationship might settle over a rolling, let's say, 12 month basis?
Balaji Gandhi, Chief Financial Officer, Phreesia: Not at this time, Joe. I mean, I think it will continue to be nice pull through. I think we feel comfortable now saying I wouldn't be modeling 100% pull through, but we still think it will be very strong into next year. We'll give you we'll tell you
Haim Indig, Chief Executive Officer, Phreesia: more in December. That's it for me. Thank you.
Conference Operator: Your next question comes from the line of John Ransom with Raymond (NS:RYMD) James. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia3: Hey, good evening. A couple for me. If we think about your overall expenses outside of payment, which is variable, what kind of revenue do you think you could support with that level of expense compared to what you have today?
Balaji Gandhi, Chief Financial Officer, Phreesia: Is this your way of trying to get to a revenue number for next year, John?
Balaji Gandhi, Chief Financial Officer, Phreesia3: No, it's a way to try to understand how much expenses will grow, yes, independent of revenue.
Balaji Gandhi, Chief Financial Officer, Phreesia: I think we have said you shouldn't expect that expense number that you talked about, which is around $79,000,000 in a quarter going up much over the next couple of years as we continue to grow at a pretty healthy clip.
Balaji Gandhi, Chief Financial Officer, Phreesia3: Okay. And then secondly, just kind of trying to read between the lines a little bit and this is state school reading between the lines, which is always in question. So for you to drive a higher revenue per client, not only do you have to tackle bigger clients, but I'm assuming that you're also targeting clients that have a bigger willingness to write prescriptions so that the data flow through the pharma would be more valuable. So are you looking at groups that might be more high prescribers than maybe what you were in the past?
Haim Indig, Chief Executive Officer, Phreesia: Hey, John. No, I think the way we think about it is making sure that we drive more of our holistic solutions across the board to the provider on initial sale. So as opposed to and I think we've mentioned this on a couple of calls, where it's as opposed to going in with a lower entry product or a gorgeous one of our offerings going in with a fuller suite initially to drive more value early on. But the reality is I think the other thing that we're seeing is the investment that we've been making in R and D and product is starting to pull through as we have a broader offering to take to those clients, both initially and ongoing throughout the patient journey. I think this is we really do appreciate our investors giving us the role to invest in product to be able to do this.
Balaji Gandhi, Chief Financial Officer, Phreesia3: Right. So just thinking about your sales and marketing, what has been done to I mean the productivity has gone up. Obviously, I mean you did that experiment where you hired a bunch of people and you've been on this you did this growth experiment, now you're on this productivity experiment. What have you done to improve the productivity of your sales and marketing team? Because I mean it's pretty evident in the numbers, but I'm just curious about the specifics.
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. And I mean, John, I wouldn't think of them as 2 experiments, though I understand why you asked it that way. It was really we took capital in that we thought was very appropriate, put it to work with the idea that if we got faster growth, we would be able to drive a lot of operating leverage. Now the way you do that is you just focus on a lot of operating metrics and getting good results and returns. I think we've been pretty clear, you don't get everything right.
So when you don't, you got to look at it, measure it and sort of take care of that. So I think that's what you're probably seeing a lot in the numbers. Haim, anything?
Haim Indig, Chief Executive Officer, Phreesia: No. You do a great job.
Balaji Gandhi, Chief Financial Officer, Phreesia3: Yes. And Haim, I think last one, you're the only company I follow that's completely virtual, but you've had this good return on R and D. How do you keep people in some locations going with developing product at such a pace?
: Thanks. Okay.
Haim Indig, Chief Executive Officer, Phreesia: I think we are very purposeful, John, in how we think about communication, documentation and ideating. But the team does pull together on a fairly regular basis. But it also allows us to attract and retain top talent from all over. And I think we recognize that it is not the same as in person, but we try to play to our strengths being fully virtual. But also recognizing that we have to get together and we have to have a really focused time on that collaboration as we do on a regular basis.
: Thank you.
Conference Operator: Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia4: Great. Thank you for all the information in the letter. On product updates, Ryan took the Meditech, so I guess I'll hit medication adherence. Can you remind us what the revenue model is associated with that offering? Is that being paid for by pharma, thus part of network solutions?
And if that is the process, is it like a drug by drug that the clients sign up for? Or do you go to each pharma company and say, hey, we'll show you all the prescriptions? Just curious how that all works.
Haim Indig, Chief Executive Officer, Phreesia: Yes. So I'll give some detail, probably not as much as you'd like. So just to be clear, we don't actually disclose any information back to the pharmaceutical company on who or why. So no patient identifiable information is delivered back to them. And the vast majority of that revenue is would probably be realized on our network solutions line and it would more often than not be part of an offering, a suite of offerings around the patient's journey that we would work with our network solution clients to provide them access to that network.
But it would be one of multiple things that they'd often pick on as opposed to just like we're going and selling that thing.
Balaji Gandhi, Chief Financial Officer, Phreesia4: Okay. That's helpful. And then maybe Balaji, on the pipeline being the same year over year, You obviously focused or stated last quarter you're focusing in on the shorter payback. So I assume some stuff probably fell out of the pipeline just because they were maybe not as broad from a product offering or interested in the broader product offering. Is that fair to say?
Balaji Gandhi, Chief Financial Officer, Phreesia: No, I don't think that'd be fair to say. I think what you're I talked about size earlier. And if you just think about the value, that's what we've been driving and a lot of this Richard is the output of things we put in place a couple of years ago. So I think our comment really is just that pipeline is still good, it's about the same size and the deals are bigger. That's what will us to the place we're trying to get next year and beyond.
Balaji Gandhi, Chief Financial Officer, Phreesia4: Okay. That's helpful. And then final question here is, I appreciate the retention comments, a couple of questions earlier. Can you just talk to us a little bit about, let's say, a client decides to switch from 1 vendor to, let's say, Epic. What's your history in terms of keeping that client on the patient access side and just curious there?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. I mean, I don't think we talk about any specific EMR vendor, Richard. But I think we talked about our retention rates. We talked about the breadth we have and we're focusing on starting with these clients in a bigger way. But I don't think there's anything specifically to call out.
There's we don't win every deal. But when those situations happen, it's not there's not one specific theme to bring out. And obviously, we've we're pretty big player in this space.
Balaji Gandhi, Chief Financial Officer, Phreesia4: Okay. Thank you. Congratulations.
: Yes. Thanks.
Conference Operator: Your next question comes from the line of Daniel Grosslide with Citi. Your line is open.
Daniel Grosslide, Analyst, Citi: Hey guys, thanks for taking the question. Wanted to go back to the components of rev for HSE growth in 2026 and beyond. First, just wanted to confirm that you are still committed to that 20% top line growth for your medium term targets. And then if I look at your growth algorithm back in the 2018, 2019 timeframe, Obviously, much of that growth was driven by subscription revenue per provider, given the Life Sciences segment at that time was relatively nascent. Fast forward to today, the Networks business is your fastest growing segment.
So as we think about rev per HSC growth in the future, is Networks really going to drive the majority of that now? And how does that impact the visibility that you have in achieving those longer term targets?
Balaji Gandhi, Chief Financial Officer, Phreesia: Sure. So first point, Daniel, the network solutions revenue is actually the first revenue line in the history of the company going back to 2,005. So I just want to make sure when you said nascent, it's the earliest revenue we had and
Haim Indig, Chief Executive Officer, Phreesia: the first product we had.
Balaji Gandhi, Chief Financial Officer, Phreesia: I think what you have to appreciate is how much smaller the network was then. And we had done 54,000,000 visits the year we went public. And so one of the reasons that network solutions has grown so much, we're now working with over 100 brands. And I think that's because the size of the network has grown so much that it gives us a nice tailwind to be able to have a lot of these conversations with a lot more people frankly that we couldn't a few years ago. So I think that is a very different sort of thing.
And I think as you talked about next year, I want to also clarify, we've never talked about 20% growth as any kind of target. I think we'll talk to you we'll keep giving you updates about things. We'll talk about 26% in December. But that's really I mean, that's I think you'll get updates from us. But this year, you obviously have the growth and the revenue that we're targeting.
: Got it. Thank you. Yes.
Conference Operator: Your next question comes from the line of Sean Dodge with RBC Capital Markets. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia5: Yes. Thanks. Good afternoon. You mentioned with respect to the guidance, the variability in that range being associated with network solutions selling activity, I guess, is there a big seasonal component or cadence in that business? Are Q3s and Q4 still the heaviest for that segment?
And then just anything you can share on visibility you have at this point into that revenue heading into the back half of this year? Thanks.
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. So you're right, Sean. Absolutely, that's been the case every year. We were pretty intentional about having a wider revenue guidance range for this year because of that. And so there will be a lot of balls up in the air in the fall and we'll keep you apprised to that as we get through it.
But that is the time of year where we're doing a lot of sales. Okay. Thanks again.
Conference Operator: Your next question comes from the line of Jeff Garro with Stephens. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia6: Yes. Good afternoon. Thanks for taking the questions. Maybe follow-up a little bit on that last one. If you could just give any comments specifically about any impact you've anticipated from it being an election year.
I would imagine maybe you guys are an attractive non media channel for Life Sciences given the increased spend this fall, but curious to get your comments there.
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. No, I'm looking at Heim too and I don't think there's anything we'd call out about election season and we went through this in 2020 2022 as well and frankly well before we were public.
Balaji Gandhi, Chief Financial Officer, Phreesia6: Fair enough. One more for me. Just want to see if we could get an update on Medifide. Curious what's working there in terms of customer adoption within the Phreesia Basin? Any early insights on the value realized by clients that are using that service?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. No, look, it's just crossed the 1 year anniversary in July. I think talking to our life sciences team, it's helped spark a lot of good conversations around how we can bring value just beyond what we've done historically with this asset. And I think it's going to be a driver of our growth in the future. So when you think about the conversations like total revenue per client and network solutions growth, absolutely, Medifide is going to be part of that.
: Great. Thanks for taking the questions. Sure.
Conference Operator: Your next question comes from the line of Ryan McDonald with Needham. Your line is open.
Balaji Gandhi, Chief Financial Officer, Phreesia7: Yes, thanks. This is Matt Hsieh on for Ryan. Thanks for taking the questions and congrats on the quarter here guys. Wanted to follow-up on the new provider adds for the back half of 25 kind of below that 100 plus per quarter rate. Should we view this as maybe new selling seasonality going forward that new deals might be more first half of the year or first half of the fiscal year weighted going forward?
Or is this more of a signal of a shift towards fewer but bigger new clients? I guess just trying to understand if we should expect new provider adds to be linear in FY 'twenty six or more front half beta?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. Matt, actually what you should take away and this is some feedback and conversations we've had with a lot of folks. This is a very intentional effort on our part to get out of the quarterly cadence of AHSCs and giving you a bigger runway. And so what we're saying is, we're giving you a sense for where we think we'll be for the full year on average and where we'll be next year. But I do think I'll confirm that this is not anything about seasonality or anything like that.
It's just a point in time where we're choosing to set expectations longer term.
Balaji Gandhi, Chief Financial Officer, Phreesia7: Okay. Fair enough. Yes, that makes sense. And then just to follow-up on the PAM renewal, just curious, were you guys pitted against any other vendors in that process? And then as we think about the expansionary opportunity, those 4 potential additional models, does that create a revenue uplift as CMS adds
Haim Indig, Chief Executive Officer, Phreesia: you to additional models?
Balaji Gandhi, Chief Financial Officer, Phreesia7: Or is that just included in your renewal contract kind of capacity as no revenue uplift?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. So first of all, one of the reasons we're very excited about that measure is it is very unique. I think there's public information out there, Matt, on why M was selected and what makes it unique that you could probably chase down. And then in terms of the programs, yes, there's opportunity there. I think that's also out there publicly that we can if we can get into some more models that creates revenue opportunities, which we're excited about.
: Okay, great. Thank you. Yes.
Conference Operator: Your next question comes from the line of Jack Wallace with Guggenheim. Your line is open.
Daniel Grosslide, Analyst, Citi: Hey, thanks for taking my questions and congrats on getting the cash flow positives. Wanted to send another question your way about the growth algorithm for next year. Wanted to maybe ask about the same store sales growth. It sounds like you're adding some bigger deals, you may be moving up market a little bit. But thinking about the clients you do have, how much additional upselling is contemplated within the algo for next year.
Is there any price that we should be considering? And then just kind of the general impact or lack thereof maybe at the sunsetting of the initial, the demo periods? Thank you.
Balaji Gandhi, Chief Financial Officer, Phreesia: No, nothing you should take away from that in terms of change to any of our go to market. And I think when you I wouldn't characterize it as up market or down market, we're just talking about value. And like I said, there's the total value that we can drive in the business and that's gotten bigger this half versus last half. And that's why we feel sort of we feel comfortable sharing our outlook for next year.
Daniel Grosslide, Analyst, Citi: Appreciate that. So maybe another way to ask it is the at least on the subscription line, you've been hovering around a little higher than a third penetrated against your per provider TAM. Should we expect that penetration to go up next year? Or was it really just a function of the larger deals, higher value deals coming in?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes. And again, I think what we're going to emphasize when we say value is total revenue. Some of them will be larger on subscriptions, some of them could be larger on payments and some could be larger on network solutions. But really when we say total value, we mean all three.
: Got it. Thank you. Sure.
Conference Operator: Your next question comes from the line of Aaron Kimson with Citizens JMP. Your line is open.
Scott Schoenhaus, Analyst, KeyBanc: Thank you. You announced the availability of Phreesia on the Oracle (NYSE:ORCL) Healthcare Marketplace at the end of July and then an integration with Oracle EHR. Can you talk about what you've seen from the partnership and integration on the 1st month and the potential you see for it to help Phreesia land customers going forward?
Balaji Gandhi, Chief Financial Officer, Phreesia: Yes, Aaron, it's early. I mean, and we just announced that. So I don't think there's anything particular to call out. We're happy to formalize that. But I don't think there's anything specific to call out.
Balaji Gandhi, Chief Financial Officer, Phreesia3: Okay. Thank you.
Conference Operator: Yes. This concludes the question and answer session. I will turn the call to Haim for closing remarks.
Haim Indig, Chief Executive Officer, Phreesia: Thanks a lot, everyone, for joining us. I hope everyone's gotten back into the full swing and everyone's happy that their kids are back at school. And I look forward to seeing everyone over the next 90 days and we'll talk to you all in December. Very well.
Conference Operator: This concludes today's conference call. We thank you for joining. You may now disconnect your lines.
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