Phreesia, Inc. (PHR) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the JPMorgan Healthcare Conference. My name is Annie Samuel, and I cover health care technology and distribution here at JPMorgan. We're thrilled to have Phreesia presenting this morning. With us are CEO and Founder, Chaim Indig; and CFO, Balaji Gandhi. They'll do a brief presentation. And then afterwards, we'll open it up for Q&A. So if you have a question, please raise your hand, and we'll make sure to get you a mic. So with that, let me turn it over to Chaim.

Thanks for having us. Good morning, everyone, and Happy New Year. I'm Chaim Indig, I'm the co-founder of Phreesia. I'd like to spend a few minutes providing an overview of the company, our products and how we operate the business. Our CFO, Balaji Gandhi, who's here with me, also talk about our financial profile, results and capital allocation philosophy. We founded Phreesia in 2015. We knew that being able to activate the patient -- the health care consumer at the moment, they're about [indiscernible] provider would be valuable. From the onset, we believe that if we engage the consumer in the health care -- in their health care at the point of care, we would be able to activate them. We have a focus on building products that activate consumers at the point of care. We -- our initial suite of products focused on patient intake. We continue to expand our offerings to engage and activate beyond intake. A patient who plays an active role in their care, drives better clinical and financial outcomes. In every other vertical, the front end is always different than the back end, whether it's financial services, retail or travel. There have always been scaled front-end vendors who are differentiated from back-end vendors. We are the dominant front-end platform in health care. To do what we do repeatedly and reliably, you have to drive high levels of self-service. For our clients, the vast majority of patients are fully self-service. This has allowed us to consistently move more tasks to the patient. That virtuous cycle has continuously deepened our moat of value to our clients. We came up with the name Patient Intake to describe what we were doing years ago. And now we are moving beyond that. We automate registration, patient payments across a broad array of systems as well as different provider types. We are a scaled payment facilitator, offering an array of payment tools, including automation of patient payment plans and charity care. We also offer an attractive platform for personalized communication between providers, their staff and patients. These capabilities include the #1 website to find a specialist, medifind.com. If you or your loved ones are looking for a specialist, MediFind is the most trusted place to find one. Our consumer audience is far more diverse than it was even a few years ago. We are an attractive platform for virtually any type of health care content you could think of. The communications we facilitate are made with security, privacy and consent in mind. Today, we manage 10% of all patient visits in the country. We have invested significantly to reach our current size, and it's enabled us to go well beyond patient intake. Balaji will talk about these investments. One of the capabilities we now have through these investments is booking millions of appointments a year. We're helping providers collect [indiscernible] and require data from patients to comply and compete in fee-for-service and value-based care. This includes data to measure patient activation using PAM, the gold standard of measuring patient activation. PAM measures a patient's knowledge about medication and preventative health, their skills to maintain lifestyle change and participating care decisions and our confidence in communicating with their doctor and following up. The PAM performance measure is a new MIPS quality measure for 2024. And it is available to providers as part of their existing Phreesia offering. Providers can earn 7 to 10 points towards MIPS when PAM is submitted in addition to their 6 quality measures. As another example of our work, extending beyond intake, Phreesia does the heavy lifting to collect the necessary data for PAM throughout the year and gives a provider a file when it's time to report to CMS. We also invest in internal go-to-market. This is an important and unique asset we have developed and nurtured over nearly a decade. We control the go-to-market from prospecting, qualifying leads all the way through to closing opportunities, implementation and expanding existing relationships. We measure our results and make adjustments how we allocate resources continually. There are 1.2 million people work in front end of health care delivery, which consumes roughly $37 billion in annual spend. Though we have grown significantly over the past few years, we still believe we are in the early innings. We have a long way to go, more visits to impact and more ways of impacting them to improve health outcomes and patient experience and more opportunities to grow revenue and grow it profitably. We are fortunate to have multiple ways to have an impact on health care consumers, providers, life sciences companies and payers. It requires a lot of focus and discipline. We are excited about the next 5 years could -- will look like. Let me hand it over to Balaji to discuss our financials.

Thank you, Chaim. Good morning, everyone. So let me briefly just discuss our revenue model before getting into our results and general financial outlook. So if you think about our business, and I think Chaim pointed this out, we're fortunate to have 3 distinct ways of generating revenue off the network we built over all these years. And the first is subscription. And so we charge providers a subscription fee for all the tools -- the software tools that we provide. This helps them be more efficient, generates a lot of productivity and generally improves the overall patient experience. Those software tools and the subscriptions that we sell are typically sold, not always, but on a per provider per month basis. And they are also typically 1-year contracts. And we think that's a great way to go to market and some of the comments that Chaim made speak to that. Second, payment processing. So that is transactional revenue. It represents us be having embedded payments as part of our platform, and we make a percentage fee on every transaction. And right now, we're running close to $4 billion annually in payment volume on our network. And I think the simple math sort of to do for you there is that $4 billion of volume translates into about $100 million of revenue to Phreesia. Finally, Network Solutions, and it is a really important part of our business. It's -- and we monetize that through delivering personalized messages that are delivered on behalf of various brands that we work with, and we get permission from patients before we show them personalized content. And the messages are typically part of campaigns with upwards of 80 different life sciences brands that we work with. So those are the 3 revenue lines of our business. Typically, and I think this is -- what's very important to recognize is we make money all 3 ways. And it's really an important part of our business model to appreciate that because in health care, there's lots of companies that can monetize in one way from a provider or another way from life sciences, for example. And we have this benefit of being able to do 3 ways. And I think if you think about our business 5 years ago, we were in this -- probably in this room or one of the other rooms here presenting for the first time soon before our IPO. And as a company, we were generating $100 million of revenue. And on average, a client, we were generating revenue of about $67,000 and so you fast forward today, we've made a whole bunch of investments, which I'll speak to as well. And in our third quarter that we just reported last month that average revenue per client was just over $99,000. And our revenue has gone from $100 million to our outlook for this year and the quarter that we're about to wrap up in a few weeks is $353 million to $356 million. Over to the right, you see the EBITDA number. And obviously, we've incurred lots of losses and I'm going to show it on a quarterly basis as well based on our third quarter results. So now let's shift to something that I think Chaim, myself and the rest of the team are very excited about, which is we front-loaded a lot of investment to be able to become a much larger company. I mean you can see all the sort of stats on there. Clients, revenue per client, what have you. And now we're at this unique position as we enter fiscal '25 where we could both still grow at a pretty healthy rate. Our outlook for next year implies 20% to 22% revenue growth, but get back to profitability. I think we're all very excited about that for Phreesia. You may have seen in our third quarter earnings report, we talked about EBITDA -- adjusted EBITDA guidance of $10 million to $20 million of EBITDA, and we were profitable in fiscal '21. So this will be sort of a return to that year. And I think in terms of the investments, I'll just sort of give you 1 example. And there's lots of them because we invested across the company. But life science and networks -- within the network solutions area, I talked about the revenue of the entire company being $100 million 5 years ago. That network solutions revenue line is almost that today. And so that doesn't happen just from network growth. It also happens from investing in the infrastructure and a great example is data and AI. So we can then be able to deliver the right personalized message to our consumer when they're engaging with our platform. And so now we do that millions of times more than we did, and we're able to do it in a more tactical, strategic way than we did before. And so the revenue in that area grew because of all these investments. And then just to sort of wrap up here on the financials. I talked a little bit about our outlook for the year. Very excited to get back to profitability. Another important thing to point out, we have $103 million of cash on our balance sheet as of October 31. No long-term debt. And I think as we sort of assess the environment we're in and a company that's growing 20% and about to get back to profitability, we think that's a pretty healthy balance sheet to have, and we feel pretty good about that as well. So with that, [indiscernible]

Maybe I'll kick off with the first question and then if you do have a question, please raise your hand, and we'll be sure to get you a mic.

But Balaji, you touched a little bit on this in your presentation, but you guys have been a public company for now almost 5 years, which feels like the last 5 years have flown by. A lot has happened since that time. Can you provide some color now on how the opportunity ahead of you looks different than it did 5 years ago when we were sitting here?

Yes, we can be tag team on this one. Well, this is something we've talked about internal a lot. So we went public 2019. And just some of the things that have happened that if you said we were at this conference in 2019, you're going to go public. There's going to be this pandemic, then all of your people that are trying to like chase after you and do what they -- do what you're doing and eat your lunch, you're going to be able to get capital for free. We're going to be able to try to hire all your people away from you, pay them more money for a while. And then as you're sort of like -- as that sort of settling out, then inflation kicks in, and then you have to pay all your people a lot more than you thought. And then you have all your cash sitting at a bank that basically disappears. We didn't count on any of those things. Anything else, Chaim?

No, no. And along the way, we're going to keep building and growing our network continuously.

But I guess maybe kind of rather than looking backwards, looking forward, like as you look out over the next 5 years, like how does that look different than when you were thinking about the business, say, kind of 5 years ago, does it look different?

I'm more excited now than I was 5 years ago. I think our capability -- first off, the breadth of our capabilities is significantly more than it was years ago. The scope of what we're able to accomplish, the types of clients we have. The fact that we -- like I remember, on the IPO I get asked what our footprint looks like on with oncologists or in behavioral health, and it was nominal. Now it's significant, right? I think about when we were -- when we went public, being able to handle acute settings that we have hundreds of acute settings, right? The -- our ability to go beyond intake, right? So people used to ask us all the time. Yes, but what else is there beyond intake, and we would always talk about how big intake was. Now we talk about how it's -- like not only how big intake is, but all the things we're doing with that same platform. So I often give examples of this, but the -- if we weren't seeing all these patients, we couldn't get all those activation scores. And those scores are unbelievably valuable at changing outcomes for patients and it's clinically proven and it's amazing. If we didn't have footprint, we have being able to help drive the consent levels that we have been able to, for a lot of our value-based care clients would not be there, right? So it's we just sort of look at the capabilities that we've built out. And then say, least about MediFind. We've been talking for years about being able to help people find the right doctor. We've all had that happen, right? So someone in your family gets ill or needs a specialist, and you want to find the best specialists possible for them. And so you don't want to find someone that's pay-to-play. You want to find the best. And so we've been looking for the ability to do that and building out the underlying platform and we got the -- we were really lucky to have gotten to know the team at MediFind and when it came available, we're able to move on -- have the resources to move quickly. And over the last 6 months since we've acquired the platform, we've fully integrated it. So now you could go from not just finding a doctor, but booking an appointment. So our Phreesia network is being lit up, and we're booking a phenomenal amount of appointments very quickly. That if you go to Google, it's the #1 site to find specialists in the country, which is pretty amazing to have those capabilities. And our providers are just so excited about it. Our patient, the consumer response has been incredible. This is what people are looking for. They're not looking to what is the best -- the doctor that's willing to pay the most to get top rank. It's who is the most appropriate physician to see for a rare cancer, who is -- if I have a problem with my esophagus, like who should I see? And like what's the best doc? And that's what people want. And then like there's the ability -- and we've been looking at the space around -- and to us, it's very tied to the consumer after hours answering services. It is crazy to us. I even look at space for years. It's crazy that almost every single provider in the country pays someone to answer their phone call after hours to write down a message and then send them a page. It is insane. These are the same -- like -- like when I try to describe to people that a part of the health care system is -- so a lot of these answering services, they're the same people that actually answer phones for plumbers and for funeral homes. Like literally, they call up, you leave a message, and then they call the doctor and relay the message. And if you ask most doctors, it's not if they hate their answering service, it's to the degree they hate their answering service. So for us to being able to automate that interaction with the patient is just unbelievably exciting. And then we're talking about beyond the visit, right? So after you get a script, right, we have capabilities now that we're actually helping you and remind you, giving you information to fill the script, which is the outcomes of that are just incredible. So like if I think about today where we are, where we were when we -- I'm more excited today because we have a broad bench of folks that have been with us a long time, companies scaled significantly and our capabilities have. And I just think like that's where you want to be in this environment. You want to be able to do more for your clients and do it faster and better.

So maybe kind of following up on that. I mean I think you invested so much in scale. And I think that people understand the investments, but don't appreciate the scale. It's hard for me now to kind of check in with a doctor and not interact with Phreesia. A lot of the physicians that I interact with now use it whereas kind of 5 years ago, everyone was wondering like, is this an iPad? Is this like a check kiosk at the doctor? Nobody really understood it. So maybe competitively, that's something that we always kind of used to talk about. How has the competitive landscape changed? Because it used to be -- you are the leader. There were a lot of kind of really, really small players out there, but you have gotten bigger. And curious, has scale helped you competitively? Are the conversations easier now with prospective clients because they know who you are? What does the landscape look like now?

I think for us, competitively, we break -- we don't think about a competitor or one -- like, look, at the end of the day, we compete for payment processing business. We compete with -- now we're competing with replacing answering services, we're competing with how you find a doctor on the Internet. So we -- like our team, which is -- it's a phenomenal team, they build like all these different matrixes and value propositions. And as we look at opportunities come in, what's really nice now is when we call people know who we are and they don't really question whether we're the market leader. Really, the questions that we often get is, like, "I didn't know you did that. Wow, that's pretty amazing." And so we're able -- there is lower risk to picking Phreesia, but we've also made massive investments in being able to implement properly. Having done this for a long time, with like most of the same -- the average tenure of the senior team is north of a decade, like -- and so one of the things we all saw was the Meaningful Use bump, right, where there was a lot of -- like a lot of people got EHRs because they had to. And then a lot of them didn't get them implemented properly. So one of the big investments we made, which was very controversial, and I remember when we did it, was if we're going to go get lots of clients really quickly, we got to make sure that we implement them really well. We support them really well, and we provide great service all along so that we're in a position to continually have that trust to get them more products. And we did that. And that was a very, very big significant bet, which, frankly, we believe, has paid off even though it was high risk.

Maybe just one for me before I open it up. You recently announced you're kind of shifting your investment strategy a little bit, focusing more on profitability. And so I was just hoping you can talk about what went into that division process, kind of why you think that now is the right time to really focus on profitability?

Well, so I think what's really important is we were profitable. And we liked it, right? And so I think the biggest part of the decision was we all just really as a team and as a Board, like we could stretch this out, but like we keep the questions around can they or do they want to be? And the reality was we all really wanted to be making these investments was highly uncomfortable for us, right? I wouldn't say we love risk, right? And so given the opportunity -- and we went to the team, like all throughout the company, we said, this is important to us. And when we asked our employees, when we asked the [indiscernible] like our leadership team, it was a resounding yes. And so we just made a lot of really -- like we just worked as an organization, and it really is. It's evident in a lot of our numbers, which is we -- it's not that we've cut as much as we really haven't grown expenses in how long?

Almost 2 years.

Two years. So we just grew our revenue and which is -- to me, like that's the best way, right? Like let's just figure out how to drive significant operating leverage with what we got. And culturally, I think because a lot of our team fuse themselves as owners of the company, was actually -- I don't want to say it was easy, but it was a very natural thing to do. Being profitable is something we all really want, and we expect to be there in short order.

And Annie, the 2 years of very little -- if you looked at like GAAP expenses on our P&L. It doesn't look like it changes. But make no mistake, there is a lot of work going on behind the scenes. And I think what have been clear on this last quarter we reported is that externally, people got to finally see that. Although, there are parts of the company that they thought they could generate revenue from further out that they decided to not invest as much in or add as much investment to, but there was a lot of profit actually in the rest of -- so that was probably part of the too.

And as we think about that kind of part that you maybe have been planning to invest in for the longer-term growth, where should we see that show up in the P&L? Because you had kind of said before, like as we think about your profitability trajectory, we would start to see G&A, show the leverage first. But I would imagine now we might see it in other areas of the P&L because you're not going to be kind of investing in that growth.

Yes. I mean, look, it's still G&A. It's still #1, okay. You don't need 2 of everything in G&A. So that holds. I would say sales and marketing and R&D will be, if you just start comping the quarters in fiscal '25 against the quarters in fiscal '24, sales and marketing and R&D will contribute more next year than they this year. But that's reflected in our outlook.