Phreesia(PHR) - 2022 Q4 - Annual Report

Part I Item 1. Business Phreesia offers a SaaS platform for healthcare organizations, enhancing patient access, payments, and clinical support, with growth driven by client expansion, innovation, and strategic acquisitions Overview Phreesia's SaaS platform optimizes healthcare operations and patient engagement, serving over 2,000 clients and processing nearly $2.8 billion in payments in fiscal 2022 - Phreesia's SaaS platform offers integrated solutions for patient access, registration, payments, and clinical support to healthcare organizations[28] - In fiscal 2022, the platform facilitated visits for over 2,000 healthcare clients and processed nearly $2.8 billion in patient payments, with 79% of that volume being credit/debit card payments processed as a payment facilitator[28] - The company has been recognized by KLAS as a market leader for its integration capabilities, broad adoption, and client satisfaction, particularly in its response to the COVID-19 pandemic[29] Our Platform and Market Opportunity Phreesia's platform provides comprehensive solutions across patient access, revenue cycle, and life sciences, targeting an estimated $9.0 billion addressable market - The Phreesia Platform is a comprehensive suite of solutions covering patient access, registration, revenue cycle, clinical support, and life sciences marketing[32][38] - The company estimates its total addressable market to be approximately $9.0 billion[36] - The market opportunity is derived from potential subscription revenue from ~1.3 million U.S. healthcare organizations, payment processing fees from ~$93.0 billion in annual out-of-pocket patient spending, and a portion of the $6.0 billion spent by life sciences on direct-to-consumer marketing[36] Our Value Proposition and Growth Strategies Phreesia delivers value to patients, healthcare clients, and life sciences firms, pursuing growth through client expansion, upselling, innovation, and strategic acquisitions - Value Proposition for Healthcare Clients: Aims to improve cash flow, profitability, and clinical outcomes while simplifying operations and enhancing patient experience[40] - Value Proposition for Life Sciences: Provides a targeted digital channel to activate patients, improve brand conversion, and gather patient feedback[41] - Growth is pursued through five key strategies: expanding to new healthcare organizations, deepening existing client relationships, innovating the platform, opportunistic acquisitions, and enhancing margins via strategic growth[46] - Recent acquisitions include Insignia Health (December 2021) for its Patient Activation Measure (PAM®), QueueDr (January 2021) for appointment scheduling, and others to expand clinical and patient activation offerings[50] Our Products, Services, and Technology Phreesia's product suite spans Access, Registration, Revenue Cycle, Clinical Support, and Life Sciences, powered by a scalable, secure SaaS platform integrated with healthcare systems - Product offerings are divided into five main categories: Access, Registration, Revenue Cycle, Clinical Support, and Life Sciences[52][55][57] - The platform supports COVID-19 workflows, including vaccine management, risk screening, and contactless check-in for in-person and telehealth visits[61] - The technology platform is a single, unified, multi-tenant system with robust integration capabilities for PM and EHR systems, operating across four co-located data centers and Microsoft Azure and Amazon Web Service environments[61][64] Sales, Marketing, and Support Phreesia employs a direct sales model with a 3-6 month cycle, supported by dedicated client service teams for onboarding, retention, and technical support - A direct sales organization is used to sell products and services to healthcare services clients and pharmaceutical brands throughout the U.S[66][67] - The average sales cycle varies from three to six months, depending on the potential client's size[66] - Client support is structured around dedicated teams for Client Services (onboarding/implementation), Client Success (retention/expansion), and Client Support (technical issues)[68][74] Regulatory Matters and Human Capital Phreesia operates under strict healthcare regulations like HIPAA and CCPA, employing 1,701 full-time remote staff as of January 2022, with a focus on diversity and inclusion - Phreesia is subject to extensive healthcare regulations, including HIPAA, where it is classified as a 'business associate', making it directly liable for certain compliance requirements and breach notifications[71][72] - The company must also comply with state privacy laws like the California Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA), as well as federal laws like the Telephone Consumer Protection Act (TCPA)[76][84] - As of January 31, 2022, the company had 1,701 full-time employees (1,146 in the U.S. and 555 internationally) and has operated as a fully remote company since 2020[97][101] - The company is committed to diversity and inclusion, supported by employee resource groups (ERGs), and was added to the Bloomberg Gender Equality Index in January 2022[99][100] Item 1A. Risk Factors Phreesia faces significant risks including rapid growth management, intense competition, net losses, data security, IP infringement, evolving regulations, third-party reliance, and financial constraints - Business and Industry Risks: Challenges in managing rapid growth, intense competition from niche and large companies including EHR/PM systems, a history of net losses, and the impact of economic disruptions[107][110][118] - Data, IP, and Regulatory Risks: Vulnerability to security breaches and privacy concerns, potential IP infringement lawsuits, and navigating a complex web of regulations like HIPAA, CCPA, GDPR, and anti-kickback statutes[127][172][191] - Dependence and Financial Risks: Reliance on third-party vendors and payment processors, potential need for additional capital, restrictive debt covenants, and limitations on the use of net operating loss (NOL) carryforwards[224][242][244] - A material weakness in internal control over financial reporting was previously identified related to segregation of duties and review of manual journal entries, which has since been remediated[133] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[256] Item 2. Properties Phreesia leases its corporate headquarters in Raleigh, NC (16,120 sq ft) and an office in Kanata, Ontario (4,322 sq ft), with both leases expiring in 2023 - The company leases its corporate headquarters in Raleigh, NC (16,120 sq ft) and an office in Kanata, Ontario (4,322 sq ft)[257] - Both primary office leases expire in 2023[257] Item 3. Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business or financial condition - Phreesia is not presently a party to any material legal proceedings[258] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[259] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Phreesia's common stock (PHR) trades on the NYSE, with no history or current intent to pay cash dividends, restricted by its credit facility - Common stock (PHR) has been trading on the NYSE since July 18, 2019[261] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[267] - As of March 25, 2022, there were approximately 49 stockholders of record[266] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Phreesia's fiscal 2022 revenue grew 43% to $213.2 million, but net loss widened to $118.2 million due to significant growth investments, despite strong liquidity from a follow-on equity offering Financial Highlights and Recent Developments Fiscal 2022 saw Phreesia's revenue grow 43% to $213.2 million, but net loss increased to $118.2 million, alongside strategic acquisitions and an expanded credit facility Financial Highlights | Metric | Fiscal 2022 | Fiscal 2021 | | :--- | :--- | :--- | | Total Revenue (in millions $) | $213.2 | $148.7 | | Net Loss (in millions $) | ($118.2) | ($27.3) | | Adjusted EBITDA (in millions $) | ($59.0) | $3.8 | | Cash used in operating activities (in millions $) | ($74.7) | $2.9 (provided) | - Acquired Insignia Health, LLC for $37.2 million in cash in December 2021 to gain its exclusive worldwide license to the Patient Activation Measure (PAM®)[286] - Acquired QueueDr Inc in January 2021 to enhance appointment solutions for a total consideration including $5.8 million in cash[287][288] - In March 2022, increased the borrowing capacity of its Silicon Valley Bank credit facility from $50.0 million to $100.0 million[289] Key Metrics Phreesia's fiscal 2022 key metrics show client growth (21% to 2,074), increased average revenue per client (11% to $77,478), and a 39% rise in patient payment volume to $2.8 billion Key Operational Metrics | Key Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Healthcare services clients (average) | 2,074 | 1,711 | 21% | | Average revenue per healthcare services client ($) | $77,478 | $69,499 | 11% | Additional Information | Additional Information | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Patient payment volume (in millions $) | $2,769 | $1,997 | 39% | | Payment facilitator volume percentage | 79% | 81% | (2)% | Results of Operations Fiscal 2022 total revenue grew 43% to $213.2 million, but operating expenses surged 89% to $330.1 million, resulting in a widened operating loss of $116.8 million and a net loss of $118.2 million Revenue Stream | Revenue Stream (in thousands $) | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Subscription and related services | $95,514 | $69,042 | 38% | | Payment processing fees | $65,201 | $49,900 | 31% | | Life sciences | $52,518 | $29,735 | 77% | | Total revenue | $213,233 | $148,677 | 43% | Expense Category | Expense Category (in thousands $) | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Cost of revenue (excl. D&A) | $42,669 | $23,461 | 82% | | Payment processing expense | $38,719 | $28,925 | 34% | | Sales and marketing | $106,421 | $42,972 | 148% | | Research and development | $52,265 | $22,622 | 131% | | General and administrative | $68,674 | $40,460 | 70% | | Operating loss | ($116,817) | ($25,671) | 355% | - The increase in operating expenses was primarily driven by higher employee compensation costs due to increased headcount and higher pay, as well as increased third-party marketing, advertising, and software costs to support growth[307][311][313][315] Non-GAAP Financial Measures Phreesia's fiscal 2022 Adjusted EBITDA was a loss of $59.0 million, and free cash flow was negative $105.5 million, reflecting increased net loss and higher capital expenditures Reconciliation to Adjusted EBITDA | Reconciliation to Adjusted EBITDA (in thousands $) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net loss | ($118,161) | ($27,292) | | Interest expense (income), net | 1,084 | 1,573 | | Provision for income taxes | 182 | 49 | | Depreciation and amortization | 21,302 | 15,908 | | Stock-based compensation expense | 36,234 | 13,489 | | Adjusted EBITDA | ($59,023) | $3,797 | Reconciliation to Free Cash Flow | Reconciliation to Free Cash Flow (in thousands $) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($74,710) | $2,890 | | Less: Capitalized internal-use software | (12,385) | (7,334) | | Less: Purchases of property and equipment | (18,420) | (11,241) | | Free cash flow | ($105,515) | ($15,685) | Liquidity and Capital Resources Phreesia's cash and equivalents rose to $313.8 million by January 2022, primarily from a $245.8 million equity offering, despite $74.7 million cash used in operations, with sufficient liquidity for the next 12 months - Cash and cash equivalents increased to $313.8 million as of Jan 31, 2022, from $218.8 million a year prior[329] - Completed a follow-on offering in April 2021, raising net proceeds of $245.8 million[329][341] - Net cash used in operating activities was $74.7 million in fiscal 2022, compared to $2.9 million provided by operating activities in fiscal 2021, driven by higher employee compensation and other operating costs[335][337][338] - As of Jan 31, 2022, there were no outstanding borrowings under the revolving line of credit with SVB. In March 2022, the borrowing capacity was increased from $50.0 million to $100.0 million[331][332] Critical Accounting Policies and Estimates Phreesia's critical accounting policies involve significant estimates in revenue recognition, business combinations, capitalized software, income taxes, and stock-based compensation, particularly regarding performance obligations and asset valuations - Revenue Recognition: Critical judgments include identifying performance obligations, determining standalone selling prices (SSP), estimating variable consideration, and assessing principal versus agent status for payment processing fees, which are recognized on a gross basis[348][359] - Business Combinations: Fair value of acquired assets and liabilities is determined using estimates and third-party appraisers, with methods like relief-from-royalty for licenses and multi-period excess earnings for customer relationships[361] - Capitalized Internal-Use Software: Costs for developing the Phreesia Platform are capitalized during the development phase and amortized over an estimated useful life of three to five years[363] - Income Taxes: The company has significant net operating loss (NOL) carryforwards of $332.5 million as of Jan 31, 2022. A valuation allowance of $97.3 million is recorded against deferred tax assets due to uncertainty of their realization[366][368] Item 7A. Quantitative and Qualitative Disclosures about Market Risk Phreesia's market risks are primarily interest rate (minimal) and foreign currency (Canadian dollar expenses), with no material impact on financial statements to date - Primary market risks are interest rate and foreign currency exchange risk[375] - Interest rate risk is low due to cash and cash equivalents being held in short-maturity accounts[376] - Foreign currency risk relates to expenses in Canadian dollars. The company has used forward contracts to mitigate this risk, but none were outstanding at year-end[377] Item 8. Financial Statements and Supplementary Data This section presents Phreesia's audited consolidated financial statements for fiscal 2022, with KPMG's unqualified opinion and critical audit matters regarding performance obligations and intangible asset valuation Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on Phreesia's financial statements and internal controls, highlighting critical audit matters concerning performance obligations and Insignia acquisition intangible asset valuation - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[383][400] - A critical audit matter was the identification of performance obligations for larger enterprise healthcare services contracts due to the varying nature of promises and contract terms[389][391] - A second critical audit matter was the evaluation of the acquisition-date fair value of intangible assets from the Insignia acquisition, specifically the PAM License and customer relationships, due to the high degree of subjectivity in assumptions like forecasted revenue, EBITDA margins, and discount rates[394][395] Consolidated Financial Statements Phreesia's fiscal 2022 consolidated financial statements show total assets of $494.5 million, a net loss of $118.2 million, and a $95.0 million net increase in cash Consolidated Balance Sheet | Balance Sheet (in thousands $) | Jan 31, 2022 | Jan 31, 2021 | | :--- | :--- | :--- | | Total Assets | $494,476 | $326,666 | | Total Liabilities | $77,196 | $63,360 | | Total Stockholders' Equity | $417,280 | $263,306 | Consolidated Statement of Operations | Statement of Operations (in thousands $) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Total Revenue | $213,233 | $148,677 | | Operating Loss | ($116,817) | ($25,671) | | Net Loss | ($118,161) | ($27,292) | | Net Loss Per Share | ($2.37) | ($0.69) | Consolidated Statement of Cash Flows | Statement of Cash Flows (in thousands $) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Cash (used in) provided by Operating Activities | ($74,710) | $2,890 | | Cash used in Investing Activities | ($65,228) | ($25,085) | | Cash provided by Financing Activities | $234,969 | $150,661 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles or financial disclosure - None[596] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of January 31, 2022, following remediation of a prior material weakness - Management concluded that disclosure controls and procedures were effective as of January 31, 2022[596] - A material weakness in internal control over financial reporting identified as of January 31, 2021, related to user access and program change controls, was remediated during fiscal year 2022[602][603] - Management concluded that the company maintained effective internal control over financial reporting as of January 31, 2022[600][604] Part III Items 10, 11, 12, 13, and 14 Information for Items 10-14, covering governance, compensation, and related party disclosures, is incorporated by reference from the forthcoming 2022 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2022 proxy statement[609][610][611] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including financial statements, corporate governance documents, material contracts, and required certifications - This section lists all exhibits filed with the Annual Report on Form 10-K[616] - Filed exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, employment agreements with key executives, the credit agreement with Silicon Valley Bank, and various required certifications[617][618] Item 16. Form 10-K Summary This item is not applicable to the company's filing - Not applicable[620]