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Phreesia(PHR) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Phreesia, Inc.'s unaudited consolidated financial statements for the quarter ended July 31, 2021, showing revenue growth, widening net losses, and a substantial cash increase from an April 2021 equity offering Consolidated Financial Statements The financial statements show total assets growing to $551.2 million, driven by a $221.1 million increase in cash, with total revenue up 45% to $99.3 million, but net loss widened to $35.4 million due to higher operating expenses, offset by $243.3 million in financing cash flow Balance Sheet Highlights (in thousands) | Financial Metric | July 31, 2021 (in thousands) | January 31, 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $439,854 | $218,781 | | Total assets | $551,226 | $326,666 | | Total liabilities | $64,662 | $63,360 | | Total Stockholders' Equity | $486,564 | $263,306 | Consolidated Statements of Operations (in thousands) | Income Statement (in thousands) | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $51,007 | $35,009 | $99,298 | $68,405 | | Operating loss | $(23,808) | $(6,310) | $(34,461) | $(11,276) | | Net loss | $(24,393) | $(6,371) | $(35,367) | $(12,483) | | Net loss per share, diluted | $(0.48) | $(0.17) | $(0.73) | $(0.33) | Consolidated Statements of Cash Flows (in thousands) | Cash Flow (in thousands) | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,202) | $(520) | | Net cash used in investing activities | $(10,053) | $(7,396) | | Net cash provided by financing activities | $243,328 | $1,800 | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies and financial items, including a $245.8 million net proceeds from an April 2021 equity offering, revenue breakdown by stream, a doubling of stock-based compensation to $13.1 million, and details on debt and lease obligations - On April 12, 2021, the company completed a follow-on public offering, issuing 5,175,000 shares of common stock and generating net proceeds of $245.8 million after deducting underwriting discounts and expenses34 - Revenue is derived from three primary sources: subscription fees from provider customers, payment processing fees based on patient payment volume, and fees from life sciences companies for digital patient engagement60 Stock-Based Compensation Expense (in thousands) | Stock-Based Compensation (in thousands) | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :--- | :--- | :--- | | RSUs | $10,842 | $4,842 | | Stock options | $1,150 | $1,458 | | PSUs | $1,037 | $0 | | ESPP | $100 | $0 | | Total | $13,129 | $6,300 | Item 2. Management's Discussion and Analysis (MD&A) Management discusses the company's financial performance, noting a 45% revenue increase, significant operating expense growth leading to wider net losses and negative Adjusted EBITDA, and a strengthened liquidity position from an equity offering Overview and Key Metrics Phreesia provides a SaaS platform for patient intake, payments, and life sciences marketing, tracking performance through key metrics like average provider clients and revenue per client, with patient payment volume significantly increasing to $1.4 billion Key Operating Metrics | Key Metric | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :--- | :--- | :--- | | Provider clients (average) | 1,945 | 1,650 | | Average revenue per provider client | $39,932 | $34,099 | | Patient payment volume (in millions) | $1,397 | $921 | Results of Operations This section details financial results, showing total revenue growth of 46% for the quarter and 45% for six months, with Life Sciences revenue up 95%, but operating expenses, particularly Sales & Marketing (120%) and R&D (107%), significantly increased, leading to wider operating losses Revenue Growth by Segment (in thousands) | Revenue Growth (Three Months Ended July 31) | 2021 (in thousands) | 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscription and related services | $22,885 | $17,129 | 34% | | Payment processing fees | $16,306 | $11,828 | 38% | | Life sciences | $11,816 | $6,052 | 95% | | Total revenue | $51,007 | $35,009 | 46% | - Sales and marketing expenses increased by 120% to $22.2 million for the three months ended July 31, 2021, primarily due to a $10.8 million increase in compensation and benefits from higher headcount156 - Research and development expenses grew 107% to $11.4 million for the quarter, driven by a $2.4 million increase in compensation costs and a $2.8 million increase in outside services costs to support product development160 Non-GAAP Financial Measures The company uses Adjusted EBITDA and Free Cash Flow as non-GAAP measures, with Adjusted EBITDA declining to negative $11.0 million and Free Cash Flow to negative $22.3 million for the six-month period, reflecting increased operating losses and capital expenditures Adjusted EBITDA Reconciliation (in thousands) | (in thousands) | Three Months Ended July 31, 2021 | Three Months Ended July 31, 2020 | | :--- | :--- | :--- | | Net loss | $(24,393) | $(6,371) | | Adjusted EBITDA | $(11,045) | $1,160 | Free Cash Flow Reconciliation (in thousands) | (in thousands) | Six Months Ended July 31, 2021 | Six Months Ended July 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,202) | $(520) | | Free cash flow | $(22,255) | $(7,916) | Liquidity and Capital Resources The company's liquidity significantly improved with $245.8 million net proceeds from an April 2021 equity offering, resulting in $439.9 million cash and equivalents, deemed sufficient to fund operations for at least 12 months - In April 2021, a follow-on offering of common stock resulted in net proceeds of $245.8 million, significantly boosting liquidity184 - As of July 31, 2021, the company had cash and cash equivalents of $439.9 million and no outstanding balance on its $50.0 million revolving credit facility185188 Item 3. 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, with no outstanding hedging contracts as of July 31, 2021 - The company is exposed to interest rate risk, but does not believe a 100 basis point change would have a material effect on operating results208 - Foreign currency risk is related to expenses denominated in Canadian dollars. No foreign currency forward contracts were outstanding as of July 31, 2021209 Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in IT general controls over financial reporting, with remediation efforts ongoing but not yet complete - Management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting210 - The material weakness is due to ineffective user access and program change management controls over certain IT systems that support financial reporting processes213 - A remediation plan is in progress, which includes hiring more IT personnel and enhancing controls, but the material weakness was not fully remediated as of the end of the quarter214 PART II — OTHER INFORMATION Item 1A. Risk Factors This section details numerous risks, including the impact of COVID-19, growth management challenges, internal control weaknesses, historical net losses, intense competition, data privacy concerns, and an evolving regulatory landscape - A material weakness in internal control over financial reporting has been identified, which could lead to material misstatements in financial statements or a failure to meet reporting obligations227228 - The company has a history of net losses, including a $35.4 million loss for the six months ended July 31, 2021, and may not achieve profitability as it continues to invest heavily in growth235 - The company faces intense competition from a fragmented market and could also compete with its own partners, such as EHR and PM solution providers244245 - The business is subject to numerous data privacy and security laws, including HIPAA. A security breach could result in significant economic loss, reputational damage, and legal penalties279282 - The healthcare regulatory framework is uncertain and evolving, with potential impacts from changes to the ACA and new rules from ONC and CMS regarding data interoperability and information blocking310311 Other Part II Items This section covers other disclosures, including no material legal proceedings, no unregistered equity sales, no material change in IPO proceeds use, and no defaults on senior securities - The company is not currently subject to any legal proceedings that would have a material impact on its financial condition or results of operations112219 - There has been no material change in the planned use of proceeds from the company's initial public offering as described in the final prospectus369