Phreesia(US:PHR)2021-03-30 16:00Part I Business Phreesia provides a SaaS platform for patient intake, payments, and life sciences communication, processing nearly $2.0 billion in fiscal 2021 Overview Phreesia's SaaS platform streamlines patient intake and payments for healthcare providers, processing nearly $2.0 billion in fiscal 2021 - Phreesia's core business is a SaaS-based platform for healthcare provider organizations, focusing on patient intake management and integrated payment processing26 - In fiscal 2021, the company served over 1,800 healthcare provider clients and processed nearly $2.0 billion in patient payments26 - The platform also serves as an engagement channel for life sciences companies, including 13 of the top 20 global pharmaceutical firms, to communicate directly with patients2629 Our Platform The Phreesia Platform offers comprehensive solutions for patient registration, revenue cycle, and appointments, including COVID-19 specific tools - The platform's solutions include: Registration, Revenue Cycle, Appointments, Patient Activation, Clinical Support, and Life Sciences30 - Phreesia developed specific COVID-19 product offerings to manage vaccine delivery, screen for risk factors, and enable contactless and telehealth intake3031 Industry challenges and our opportunity Phreesia addresses healthcare challenges like administrative inefficiencies, rising patient financial responsibility, and the demand for better patient experiences - Addresses administrative inefficiencies and waste in healthcare by automating the manual and error-prone patient intake process3435 - Capitalizes on the trend of increasing patient financial responsibility by providing a digital payments platform to improve collections3637 - Meets the demands of healthcare consumerism by improving patient experience, satisfaction, and convenience3839 - Supports the shift to value-based care by providing tools to collect patient-reported outcomes (PROs) and streamline workflows4142 Our market opportunity Phreesia estimates its total addressable market at approximately $9.0 billion, encompassing provider subscriptions, patient payments, and life sciences marketing - The company estimates its total addressable market at approximately $9.0 billion45 - The market opportunity is derived from three main sources: (1) subscription fees from approximately 1.3 million U.S. providers, (2) payment processing fees from a $91 billion out-of-pocket patient spend market, and (3) a share of the $6 billion life sciences direct-to-consumer marketing spend45 Our growth strategies Phreesia's growth strategy centers on client expansion, cross-selling, product innovation, strategic acquisitions, and margin enhancement through operating leverage - Expand the client base by targeting the large and underserved U.S. ambulatory and acute care market65 - Deepen relationships with existing provider clients by selling additional applications and adding more providers to the platform66 - Continuously innovate and invest in new offerings, such as appointments and patient activation applications, to drive incremental revenue67 - Pursue strategic investments, partnerships, and acquisitions, such as the recent acquisitions of Vital Score and QueueDr, to accelerate growth68 - Enhance margins by gaining operating leverage as the company adds larger clients and expands existing ones with minimal incremental platform investment69 Healthcare laws and regulations The company operates under complex healthcare laws including HIPAA, TCPA, and fraud and abuse statutes, with evolving regulations like the 21st Century Cures Act - Phreesia is a "business associate" under HIPAA and is directly subject to its privacy, security, and breach notification rules, with potential for significant civil and criminal penalties for violations9293 - The company is subject to numerous state privacy laws, such as the California Consumer Privacy Act (CCPA) and the upcoming California Privacy Rights Act (CPRA), which may be more restrictive than HIPAA96 - Operations are subject to federal and state fraud and abuse laws, including the Anti-Kickback Statute, which prohibits remuneration for referrals, and the Stark Law, which governs physician self-referrals103104 - New HHS rules under the 21st Century Cures Act regarding interoperability and "information blocking" create new requirements and may alter the competitive landscape by mandating easier data access and exchange109110 Human Capital Resources Phreesia had 827 full-time employees as of January 31, 2021, fostering a strong culture, diversity, and a fully remote work environment - As of January 31, 2021, the company had 827 full-time employees, with 320 in services/support, 254 in sales/marketing, 157 in R&D, and 96 in general/administrative roles114 - The company has transitioned to a fully remote workforce in response to the COVID-19 pandemic to provide flexibility and access the best talent118 - Phreesia is committed to diversity and inclusion, supported by Employee Resource Groups (ERGs) and was added to the Bloomberg Gender Equality Index in January 2021116117 Risk Factors The company faces multiple risks, including business disruptions, internal control weaknesses, intense competition, payment platform vulnerabilities, and complex data privacy and healthcare regulations Risks relating to our business The company's business faces operational risks from economic disruptions, rapid growth, net losses, material weakness in internal controls, intense competition, and reliance on key personnel - The COVID-19 pandemic has harmed and may continue to harm the business by decreasing healthcare spending, disrupting client operations, and affecting sales and collections125126 - A material weakness in internal control over financial reporting was identified for fiscal years 2020 and 2021, specifically related to user access and program change management for IT systems, which could result in material misstatements of financial statements132135136 - The company has a history of net losses, reporting a net loss of $27.3 million in fiscal 2021 and $20.3 million in fiscal 2020, and may not achieve profitability in the future139 - The business faces intense competition from a fragmented market, including potential competition from its own EHR and PM integration partners147149 - Success depends on retaining the senior management team, including founders Chaim Indig (CEO) and Evan Roberts (COO), and attracting and retaining highly skilled employees in a competitive market161162 Risks relating to our payments business The payments platform, a core revenue driver, faces risks from degradation, technology changes, increased card network fees, non-compliance with network rules, and regulatory shifts - The payments platform is a core element of the business, generating 34% of total revenue in fiscal 2021, and any degradation or failure to grow this platform could materially harm the business175 - Increases in interchange fees from card networks like Visa and MasterCard could reduce earnings if the company cannot pass these costs on to clients due to competitive pressure177 - Failure to comply with card network operating rules could result in fines, suspension, or termination of the company's status as a payment facilitator, which would adversely affect the ability to conduct business178179 Risk related to our data and intellectual property The company faces significant data and intellectual property risks, including security breaches, non-compliance with privacy laws, inadequate IP protection, and open-source software liabilities - The company collects, processes, and stores significant amounts of sensitive data, including personally identifiable information and protected health information, making it vulnerable to security breaches which could result in economic loss and legal penalties182 - As a "Business Associate" under HIPAA, the company is directly liable for compliance and subject to civil and criminal penalties, and is also subject to other stringent laws like the California Consumer Privacy Act (CCPA)186190 - The company's intellectual property may not be adequately protected, and it could face costly litigation from third parties alleging infringement of their IP rights195205 - Use of open-source software could expose the company to claims and potentially require disclosure of proprietary source code199 - Failures or errors in the software could lead to liability claims from clients, providers, or patients if it provides inaccurate or untimely information210211 Risks related to regulation Phreesia operates within an uncertain healthcare regulatory framework, facing risks from evolving laws, fraud and abuse statutes, potential FDA medical device classification, and TCPA claims - The healthcare regulatory and political framework is uncertain, with potential changes to the ACA and new rules under the 21st Century Cures Act regarding interoperability and "information blocking" that could significantly impact the business215216 - Failure to comply with federal and state anti-kickback and false claims laws could subject the company to civil and criminal penalties, exclusion from government healthcare programs, and contract invalidations221222 - The FDA may in the future determine that the company's technology solutions are medical devices subject to regulation, which would impose additional costs and risks229 - Text messaging services are subject to the Telephone Consumer Protection Act (TCPA), and non-compliance could lead to civil penalties and other adverse effects231 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None276 Properties The company leases office space in Raleigh, North Carolina, and Kanata, Ontario - Leases 16,120 sq. ft. of office space in Raleigh, NC, with the lease expiring in 2023277 - Leases 19,074 sq. ft. of office space in Kanata, Ontario, with the lease expiring in 2021277 Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - The company is not presently a party to any legal proceedings that would have a material adverse effect on its business278 Mine Safety Disclosures This item is not applicable to the company - Not applicable279 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Phreesia's common stock trades on the NYSE under "PHR" since its 2019 IPO, with the company retaining earnings for growth and no plans for future dividends - Common stock began trading on the NYSE under the symbol "PHR" on July 18, 2019281 - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future, retaining funds for business operations287 - Net proceeds from the July 2019 IPO were approximately $130.8 million, which were used as described in the prospectus294 Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2021, Phreesia's total revenue grew 19% to $148.7 million, with a net loss of $27.3 million due to increased operating expenses, maintaining strong liquidity Financial Highlights Fiscal 2021 highlights include 19% revenue growth to $148.7 million, a net loss of $27.3 million, and positive Adjusted EBITDA of $3.8 million Fiscal 2021 Financial Highlights | Metric | Fiscal 2021 | Fiscal 2020 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $148.7 million | $124.8 million | +19% | | Net Loss | $27.3 million | $20.3 million | +34.5% | | Adjusted EBITDA | $3.8 million | $4.8 million | -20.8% | | Cash provided by operating activities | $2.9 million | $0.8 million | +262.5% | | Free Cash Flow | ($15.7 million) | ($11.5 million) | -36.5% | Key Metrics Fiscal 2021 key metrics show 9% growth in provider clients to 1,711, 6% increase in average revenue per client, and 7% rise in patient payment volume to nearly $2.0 billion Key Operational Metrics (Fiscal Year-End) | Key Metric | FY 2021 | FY 2020 | % Change | | :--- | :--- | :--- | :--- | | Provider clients (average) | 1,711 | 1,571 | 9% | | Average revenue per provider client | $69,499 | $65,486 | 6% | Patient Payment Volume (Fiscal Year-End) | Metric | FY 2021 | FY 2020 | % Change | | :--- | :--- | :--- | :--- | | Patient payment volume | $1.997 billion | $1.865 billion | 7% | | Payment facilitator volume percentage | 81% | 82% | -1% | Results of operations Fiscal 2021 total revenue grew 19% to $148.7 million, driven by subscription and life sciences revenue, though operating and net losses widened due to increased expenses Revenue by Source (Fiscal Year Ended Jan 31) | Revenue Source | 2021 (Thousands) | 2020 (Thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription and related services | $69,042 | $56,357 | $12,685 | 23% | | Payment processing fees | $49,900 | $46,500 | $3,400 | 7% | | Life sciences | $29,735 | $21,927 | $7,808 | 36% | | Total revenue | $148,677 | $124,784 | $23,893 | 19% | Operating Expenses (Fiscal Year Ended Jan 31) | Expense Category | 2021 (Thousands) | 2020 (Thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Cost of revenue (excl. D&A) | $23,461 | $16,831 | $6,630 | 39% | | Payment processing expense | $28,925 | $27,889 | $1,036 | 4% | | Sales and marketing | $42,972 | $32,357 | $10,615 | 33% | | Research and development | $22,622 | $18,623 | $3,999 | 21% | | General and administrative | $40,460 | $30,458 | $10,002 | 33% | | Depreciation & Amortization | $15,908 | $13,924 | $1,984 | 14% | | Total expenses | $174,348 | $140,082 | $34,266 | 24% | - The increase in Sales and Marketing expense was primarily due to a $9.9 million increase in compensation costs from higher headcount333 - The increase in General and Administrative expense was driven by a $9.4 million rise in compensation costs to support growth as a public company337 Liquidity and capital resources As of January 31, 2021, Phreesia's cash and cash equivalents increased to $218.8 million, bolstered by a $174.8 million follow-on equity offering, ensuring sufficient liquidity - Cash and cash equivalents increased to $218.8 million as of Jan 31, 2021, from $90.3 million as of Jan 31, 2020353 - Completed a follow-on offering in October 2020, raising net proceeds of $174.8 million352 - Entered into a new revolving credit facility with Silicon Valley Bank for up to $50.0 million in May 2020357 - As of January 31, 2021, there was no outstanding balance on the facility358 Summary of Cash Flows (in thousands) | Cash Flow Activity | Fiscal Year 2021 | Fiscal Year 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | $2,890 | $826 | | Cash used in investing activities | ($25,085) | ($12,320) | | Cash provided by financing activities | $150,661 | $100,266 | | Net increase in cash | $128,466 | $88,772 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are minimal interest rate exposure and foreign currency risk from Canadian dollar expenses, mitigated by forward contracts - The company is exposed to interest rate risk, but does not believe a 100-basis-point change would have a material effect due to the short-term nature of its cash equivalents399 - Foreign currency risk exists due to expenses denominated in Canadian dollars400 - The company uses foreign currency forward contracts to mitigate this risk, though transaction gains and losses have not been material400 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements, including an unqualified auditor's opinion on financials but an adverse opinion on internal controls due to a material weakness Report of Independent Registered Public Accounting Firm KPMG issued an unqualified opinion on the financial statements but an adverse opinion on internal controls due to a material weakness in IT controls, highlighting two critical audit matters - The auditor issued an unqualified opinion on the consolidated financial statements406 - An adverse opinion was issued on the effectiveness of internal control over financial reporting due to a material weakness421 - The material weakness related to ineffective IT controls over user access and program change management, creating a reasonable possibility of a material misstatement not being prevented or detected423 - Critical Audit Matters included: 1) Judging the identification of distinct performance obligations in complex, large enterprise contracts, and 2) Evaluating the subjective assumptions (e.g., revenue growth, discount rates) used to determine the fair value of intangible assets from the QueueDr acquisition414417 Consolidated Financial Statements The consolidated financial statements show total assets of $326.7 million, total revenue of $148.7 million, a net loss of $27.3 million, and a year-end cash balance of $218.8 million Consolidated Balance Sheet Highlights (as of Jan 31, 2021, in thousands) | Account | Amount | | :--- | :--- | | Cash and cash equivalents | $218,781 | | Total Assets | $326,666 | | Total Liabilities | $63,360 | | Total Stockholders' Equity | $263,306 | Consolidated Statement of Operations Highlights (for year ended Jan 31, 2021, in thousands) | Account | Amount | | :--- | :--- | | Total revenue | $148,677 | | Operating loss | ($25,671) | | Net loss | ($27,292) | | Net loss per share | ($0.69) | Notes to Consolidated Financial Statements The notes detail accounting policies, revenue recognition, acquisitions, debt, leases, equity compensation, and net loss per share, providing comprehensive financial context - On January 8, 2021, the company acquired QueueDr for total consideration of $10.1 million, including $5.8 million in cash and $2.2 million in contingent consideration604605606 - The acquisition added $8.1 million to goodwill606 - The company's equity compensation plans include stock options, RSUs, and market-based PSUs562 - As of Jan 31, 2021, there was $48.6 million of unrecognized compensation cost for RSUs and $5.9 million for PSUs567 - As of Jan 31, 2021, the company had federal net operating loss (NOL) carryforwards of approximately $199.1 million, which are subject to a valuation allowance of $54.6 million389392 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 - None617 Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in IT controls, with remediation underway and partial remediation of a prior accounting personnel weakness - Management concluded that disclosure controls and procedures were not effective as of January 31, 2021617 - A material weakness was identified in internal control over financial reporting related to ineffective controls over user access and program change management for certain IT systems623 - Remediation actions are underway, including hiring more IT staff, enhancing risk assessment and controls for user access and change management, and improving documentation626 - A portion of the material weakness identified in fiscal 2020 related to insufficient accounting personnel was concluded to be remediated as of January 31, 2021627628 Other Information On March 26, 2021, the Board adopted amended by-laws to make the content gender-neutral and change the title of Chairman to Chair - On March 26, 2021, the company's Board of Directors adopted amended and restated by-laws to make the content gender neutral and change the title of Chairman to Chair630 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the proxy statement for the 2021 Annual Meeting of Stockholders633 Executive Compensation Information on executive compensation is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the proxy statement for the 2021 Annual Meeting of Stockholders634 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the proxy statement for the 2021 Annual Meeting of Stockholders635 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the proxy statement for the 2021 Annual Meeting of Stockholders636 Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2021 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the proxy statement for the 2021 Annual Meeting of Stockholders637 Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including consolidated financial statements, omitted schedules, and an index of various agreements and certifications - This section lists all exhibits filed with the Annual Report on Form 10-K, including governance documents, material contracts, and SEC-required certifications640641 Form 10-K Summary This item is not applicable to the company's filing - Not applicable645