Phreesia(US:PHR)2024-05-31 20:03PART I — FINANCIAL INFORMATION Item 1. Financial Statements Phreesia, Inc. reported $101.2 million in revenue and a $19.7 million net loss for Q1 FY2025, significantly improving from the prior year with reduced cash used in operations Consolidated Balance Sheet Highlights (Unaudited) | Account | April 30, 2024 (in thousands) | January 31, 2024 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $79,527 | $87,520 | | Total current assets | $190,901 | $195,684 | | Total Assets | $372,086 | $370,326 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $108,282 | $110,119 | | Total Liabilities | $119,344 | $118,877 | | Total Stockholders' Equity | $252,742 | $251,449 | Consolidated Statement of Operations Highlights (Unaudited) | Metric | Three months ended April 30, 2024 (in thousands) | Three months ended April 30, 2023 (in thousands) | | :--- | :--- | :--- | | Total revenues | $101,217 | $83,845 | | Operating loss | $(19,420) | $(37,901) | | Net loss | $(19,722) | $(37,531) | | Net loss per share, basic and diluted | $(0.35) | $(0.70) | Consolidated Statement of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three months ended April 30, 2024 (in thousands) | Three months ended April 30, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(721) | $(13,659) | | Net cash used in investing activities | $(5,446) | $(6,079) | | Net cash used in financing activities | $(1,825) | $(7,178) | | Net decrease in cash and cash equivalents | $(7,993) | $(26,916) | Notes to Unaudited Consolidated Financial Statements The notes detail accounting policies, revenue sources, and financial statement composition, confirming sufficient liquidity and the establishment of a new Indian subsidiary - Management believes the company's cash and cash equivalents of $79.5 million, along with cash from operations and available borrowing capacity, are sufficient to fund operations for at least the next 12 months38 - The company generates revenue from three primary sources: subscription and related services, payment processing fees, and network solutions for life sciences and payer clients66 Stock-Based Compensation Expense by Type | Award Type | Three months ended April 30, 2024 (in thousands) | Three months ended April 30, 2023 (in thousands) | | :--- | :--- | :--- | | RSUs | $11,323 | $12,899 | | PSUs | $2,804 | $1,644 | | Liability awards | $2,697 | $2,525 | | ESPP | $364 | $370 | | Stock options | $0 | $37 | | Total | $17,188 | $17,475 | - During the quarter, the company established and commenced operations of a subsidiary in India, Phreesia India Private Limited, to support various business functions, replacing services previously provided by a third-party131 Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported a 21% revenue increase to $101.2 million and positive Adjusted EBITDA of $4.1 million, despite impacts from recent cybersecurity incidents and a slight decline in revenue per client Financial Highlights and Recent Developments Q1 FY2025 saw 21% revenue growth to $101.2 million, a narrowed net loss, and positive Adjusted EBITDA, alongside impacts from cybersecurity incidents at Change Healthcare, Ascension Health, and Phreesia's ConnectOnCall service Q1 FY2025 Financial Highlights | Metric | Three months ended April 30, 2024 | Three months ended April 30, 2023 | | :--- | :--- | :--- | | Total revenue | $101.2 million | $83.8 million | | Net loss | $(19.7) million | $(37.5) million | | Adjusted EBITDA | $4.1 million | $(13.8) million | | Net cash used in operating activities | $(0.7) million | $(13.7) million | | Free cash flow | $(6.2) million | $(19.7) million | - The cyberattack on Change Healthcare accelerated the wind-down of a relationship with a clearinghouse client, reducing payment processing revenue by approximately $1.7 million in the first quarter of fiscal 2025146 - On May 12, 2024, the company's ConnectOnCall service experienced a service disruption due to a cybercriminal gaining access; the incident is not expected to have a material impact on overall business operations as it is separate from the main patient intake platform152154155 Key Metrics Key performance indicators show 23% growth in average healthcare services clients to 4,065, but a slight decline in revenue per AHSC, while patient payment volume increased 15% to $1.166 billion Key Performance Metrics | Metric | Three months ended April 30, 2024 | Three months ended April 30, 2023 | | :--- | :--- | :--- | | Average number of healthcare services clients (AHSCs) | 4,065 | 3,309 | | Healthcare services revenue per AHSC | $18,155 | $18,779 | | Total revenue per AHSC | $24,900 | $25,338 | | Patient payment volume (in millions) | $1,166 | $1,016 | - The decline in revenue per AHSC was primarily driven by AHSC growth significantly outpacing the growth in payment processing volume and revenue160 Results of Operations Total revenue increased 21% to $101.2 million, driven by growth across all segments, while improved cost control led to a significant reduction in operating loss Revenue by Segment (in thousands) | Revenue Stream | Q1 FY2025 | Q1 FY2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Subscription and related services | $46,742 | $37,887 | $8,855 | 23% | | Payment processing fees | $27,060 | $24,253 | $2,807 | 12% | | Network solutions | $27,415 | $21,705 | $5,710 | 26% | | Total revenue | $101,217 | $83,845 | $17,372 | 21% | - Sales and marketing expense decreased by $5.4 million (14%) year-over-year, primarily due to lower employee salary and benefits costs, travel expenses, and the full run-off of expenses from winding down Medicare Advantage lead generation activities178179 - Research and development expense increased by $2.4 million (9%) due to higher employee salary and benefits costs and increased software costs180 Non-GAAP Financial Measures Adjusted EBITDA significantly improved to $4.1 million from a $13.8 million loss, and free cash flow improved to negative $6.2 million, reflecting higher revenue and lower operating expenses Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Three months ended April 30, 2024 | Three months ended April 30, 2023 | | :--- | :--- | :--- | | Net loss | $(19,722) | $(37,531) | | Interest income, net | $(239) | $(718) | | Provision for income taxes | $510 | $306 | | Depreciation and amortization | $6,673 | $6,990 | | Stock-based compensation expense | $16,840 | $17,138 | | Other expense, net | $31 | $42 | | Adjusted EBITDA | $4,093 | $(13,773) | Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow (in thousands) | Line Item | Three months ended April 30, 2024 | Three months ended April 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(721) | $(13,659) | | Less: Capitalized internal-use software | $(4,570) | $(4,732) | | Less: Purchases of property and equipment | $(876) | $(1,347) | | Free cash flow | $(6,167) | $(19,738) | Liquidity and Capital Resources As of April 30, 2024, Phreesia had $79.5 million in cash and access to a $50 million credit facility, with significantly improved net cash used in operating activities - As of April 30, 2024, the company had cash and cash equivalents of $79.5 million and access to a $50 million senior secured asset-based revolving credit facility with Capital One, which matures in December 2028195198 Summary of Cash Flows (in thousands) | Activity | Three months ended April 30, 2024 | Three months ended April 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(721) | $(13,659) | | Net cash used in investing activities | $(5,446) | $(6,079) | | Net cash used in financing activities | $(1,825) | $(7,178) | | Net decrease in cash and cash equivalents | $(7,993) | $(26,916) | - The significant improvement in net cash used in operating activities was primarily driven by an increase in cash received from customers due to higher revenues207 Quantitative and Qualitative Disclosures About Market Risk The company faces minimal interest rate risk but is exposed to foreign currency exchange risk from operations in Canada and India, though a 1% change is not expected to be material - The company's primary market risks are interest rate risk and foreign currency exchange risk218 - Interest rate risk is low due to the short maturity of cash equivalents and no outstanding debt on the Capital One Credit Facility as of April 30, 2024219220 - The company is subject to foreign currency exchange risk from operations in Canada and India, particularly related to the Canadian Dollar and Indian Rupee, with approximately 89% of expenses denominated in USD for the three months ended April 30, 2024221 Controls and Procedures As of April 30, 2024, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that as of April 30, 2024, the company's disclosure controls and procedures were effective at the reasonable assurance level224 - There were no material changes in the company's internal control over financial reporting during the quarter ended April 30, 2024225 PART II — OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not presently a party to any legal proceedings that would have a material adverse effect on its business228 Risk Factors The company faces diverse risks including managing rapid growth, intense competition, cybersecurity threats, regulatory compliance (HIPAA, data privacy), intellectual property protection, and heavy reliance on third-party vendors and partners Risks relating to our business and industry Business risks include managing rapid growth, intense competition, a history of net losses, cybersecurity threats, and the challenges of a fully remote operational model - The company's rapid growth strains operations and employees, and failure to manage this growth could hinder revenue increases and business strategy implementation230 - The company faces intense competition from a fragmented market, including EHR and PM systems, which could harm business and operating results234 - The company has a history of net losses, including $19.7 million for the three months ended April 30, 2024, and may not achieve profitability in the future as it continues to invest in growth242 - Cybersecurity incidents, such as the recent one affecting ConnectOnCall and those impacting partners like Change Healthcare, pose significant risks of economic loss, reputational damage, and legal liability247 Risks relating to our payments business Risks to the payments business include platform limitations, failure to integrate new technologies, increased card network fees, and non-compliance with network rules, which could lead to fines or termination of payment facilitator status - The payments platform, generating 27% of total revenue, is a core business component, and any disruption or failure to grow it could materially harm the business291 - Increases in card network fees (interchange fees) could reduce earnings if the company is unable to pass these costs on to clients due to competitive pressure293 - Non-compliance with card network rules could lead to fines, suspension, or termination of the company's payment facilitator status, adversely affecting the business294 Risks relating to our data and intellectual property Risks include inadequate protection of proprietary technology, potential litigation from open-source software use or third-party IP infringement claims, and reliance on licensed third-party data - The business depends on proprietary technology, and inadequate intellectual property protection may prevent the company from safeguarding its technology and brand298 - Use of open-source software could lead to litigation or require the company to disclose proprietary source code, harming its competitive position301 - The company could face legal proceedings from third parties alleging infringement of their intellectual property rights, which could be uncertain, costly, and divert management resources307 Risks relating to laws and regulations applicable to our industry The company faces extensive regulatory risks from complex federal and state laws, including HIPAA, evolving data privacy laws (CCPA, GDPR), TCPA for messaging, and an uncertain healthcare regulatory framework - The company, as a 'Business Associate' under HIPAA, is subject to numerous federal and state laws governing protected health information, with non-compliance potentially leading to significant fines and penalties317319 - Evolving data privacy laws in the U.S. (like CCPA) and internationally (like GDPR) create complex compliance issues, potentially requiring business practice changes and incurring substantial costs324327 - The company's calling and text messaging services are subject to the Telephone Consumer Protection Act (TCPA), posing a risk of significant liability from individual or class-action lawsuits353355 - The healthcare regulatory framework is uncertain and evolving, with potential changes to the ACA and new rules on interoperability and 'information blocking' that could impact the business343344 Risks relating to our dependence on third parties The company heavily relies on third-party contractors, vendors, and partners for critical services, creating risks related to service quality, security, supply chain disruptions, and business continuity, as highlighted by recent cyberattacks on partners - The company relies on third-party contractors for critical services like software development and cloud hosting, including international locations like India and Ukraine, exposing it to geopolitical and operational risks360 - The company relies on a sole supplier for the manufacturing of its PhreesiaPads and Arrivals Kiosks, creating a significant supply chain risk369 - Service delivery is dependent on internet infrastructure and third-party data centers, where any failure, such as the recent cyberattack on partner Change Healthcare, could disrupt services and negatively impact the business372374 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered securities were sold during the quarter ended April 30, 2024, that had not been previously reported on a Form 8-K - No unregistered securities were sold during the quarter that had not been previously reported399 Other Information Three company executives, including the CEO and CFO, adopted Rule 10b5-1 trading plans in April 2024 for the potential sale of common stock shares - On April 18, 2024, Amy Beth VanDuyn, SVP of Human Resources, adopted a Rule 10b5-1 Trading Plan for the potential sale of up to 25,447 shares of common stock, expiring December 31, 2024402 - On April 19, 2024, CEO Chaim Indig adopted a Rule 10b5-1 Trading Plan for the potential exercise of stock options and sale of up to 100,000 shares, expiring April 17, 2026403 - On April 19, 2024, CFO Balaji Gandhi adopted a Rule 10b5-1 Trading Plan for the sale of up to 43,362 shares plus additional shares from his bonus, expiring March 14, 2025404 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, officer certifications, and XBRL data files - The exhibits filed with this report include corporate governance documents, CEO and CFO certifications (Sections 302 and 906), and XBRL data files405