Good morning, ladies and gentlemen. And welcome to Phreesia's fiscal first quarter 2022 earnings report. At this time, all participants are in a listen-only mode. We will provide instructions for the question-and-answer session to follow. First, I would now like to introduce Balaji Gandhi, Senior Vice President, Investor Relations for Phreesia. Mr. Gandhi, you may begin.

Thank you, operator. Good morning. And welcome to Phreesia's earnings conference call for the fiscal first quarter of 2022, which ended on April 30, 2021. Joining me on today's call are Phreesia's Chief Executive Officer and Co-Founder, Chaim Indig, and Chief Financial Officer, Randy Rasmussen. A complete disclosure of our results can be found in our earnings press release issued yesterday evening, as well as in our related Form 8-K submission to the SEC. Our 8-K filing includes the first installment of our quarterly stakeholder letter which we are implementing to provide additional information about Phreesia during the quarter in advance of our earnings call to provide greater efficiency to our earnings reporting process for the benefit of our stakeholders. All these documents are available on the Investor Relations section of our website at ir.phreesia.com. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call. During today's call, we will make forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation, statements about our future financial performance, including our revenue, cash flows, costs of revenue and operating expenses, our anticipated growth, our predictions about our industry, the impact of the COVID-19 pandemic on our business and our ability to attract, retain and cross-sell to healthcare provider clients. These statements are also subject to other risks and uncertainties, including those more fully described in our filings with the SEC, including our quarterly report on Form 10-Q that will be filed with the SEC later today. The forward-looking statements made on this call speak only as of the date on which the statements are made. We undertake no obligation to update and expressly disclaim the obligation to update any forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events, except as required by law. We will also refer to certain financial measures not in accordance with Generally Accepted Accounting Principles in order to provide additional information to investors. Non-GAAP measures should be considered in addition to, and not as a substitute for or in isolation from, our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings press release and supplemental materials, which were furnished with our Form 8-K filed after the market closed on June 3 with the SEC and may also be found on our Investor Relations website at ir.phreesia.com. As a reminder, we are participating on today's call from four different locations, so we appreciate your patience with us. I will now turn the call over to our CEO, Chaim Indig.

Hi. Thank you, Balaji. All of us at Phreesia are looking forward to entering the summer with the hope that the biggest hardships of the pandemic are behind us. We carry the momentum from our strong finish in fiscal 2021 into the first quarter of fiscal year 2022. Hope everyone has had a chance to review our earnings press release and quarterly letter. Operator, can we open the call up for Q&A please?

The first question comes from Anne Samuel from J.P. Morgan.

I was hoping you could maybe talk a little bit about balancing investment and growth because you've been investing a lot in your growth this year. It's really starting to show up nicely in the results. But how should we be thinking about moving forward, leveraging the P&L on a faster growth rate?

I'll take that question. I guess before I start, Chaim, do you want to say anything? Go ahead, Randy. I think as we look long term, it's important that we invest in our business as we bring on new clients. So, we support the current growth we have. And we look forward to the growth that we have in the coming year and the next year that follows. And we really look at these investments from a capital allocation perspective and say, does it make sense for our business and will it grow the top line. I think in the longer term, we still have a goal of 20% EBITDA margins, but we look out farther to reach that goal.

That makes a lot of sense. Maybe just one on the move into the acute market. Just wondering if you could give us a little bit of color on how intake looks different there compared to some of the ambulatory clients you have today and how we should be thinking about how that'll impact your PPTM. I would imagine it's a little bit more complex.

The workflow and the use cases, Anne, in the acute hospital market are very, very different than the ambulatory workflows. You have a high number of unscheduled patients, which makes a ton of sense. You need to have tools to identify which patients are coming in to which records. You have to be able to triage emergency issues, so that you instantly stop any type of intake if there's any critical health condition. And how and when you ask for dollars is very, very different. Thankfully, the flows are different, right? So, you get massive peaks early in the morning as people come in for surgery. So, we've really been investing heavily in being able to manage all the variability in these hospital workloads. One of the other things we've seen in the hospital is a huge customer experience issue. You might go into a hospital for multiple appointments, right? You might have to go in and get your, if you broke your leg, you might go in to see the doctor and then they'll send you to get an X-ray. And the experience of having to check in each time and fill out the same paperwork every time is also something we've solved for. So, it's a multifaceted, complex visit or visits that you go to and we've really been investing heavily in this. Yes, it has changed the profile of our customers.

Very helpful. Congrats on a great quarter, guys.

Your next question will come from Ryan Daniels from William Blair.

Chaim, one for you. If you think about the market reopening on the ambulatory side, I'm curious what that's doing to your pipeline. I think consumers post-COVID definitely have different expectations for digital health and convenience and touchless check-ins. Are you starting to see that manifest aggressively in the pipeline?

I think we have seen the interest in what we've been doing every year for the past 15 years grow, Ryan. I sort of look at this as something that I believe most consumers have been expecting, and now they demand. So, we have seen consumer interest rapidly change. But also, I think there's another dynamic happening in healthcare right now that I think is really important, which is those conversations that everyone is having around wages going up a buck or two. Well, it's happening at the front desk too. When we talk to our clients, they're having a hard time filling those seats that they need to fill, and the salaries are going up. So, they're also being forced to look for technology and productivity tools to give them the operating leverage because unlike Chipotle, you can't raise your prices, right? It's just not possible. So, we're also seeing a ton of demand for practices and healthcare organizations, health systems trying to figure out how to get operating leverage. And so, it's been very – we've seen it sort of come from all sides. And that's one of the reasons why we're investing so heavily.

That leads to my next question. As they do change their focus and really need to drive engagement, drive satisfaction, increase operating margins, clearly, there's a huge amount of challenges in the end market. Are there any specific products of yours that are resonating more than others outside of the core module or any areas that you think you can invest in to further drive those efficiencies for providers?

I've got to say, Ryan, I'm a little biased. I think all of the things we do drive massive value to some part of the market. And if we didn't think they were valuable, we wouldn't be investing in them. And across the board, we're trying to move work to the patient. Whether that's appointments or whether that's putting someone on a payment plan or whether that's automating consent forms or taking your picture, like these are all things that just frankly – it's about time that it happened. And we're pretty excited that we could help make the difference. And to clarify, I don't think they're trying to improve margins. I think they're trying to maintain them. Right? I think running a healthcare organization in America is a tough business. We're just trying to do whatever we can to help them.

Your next question will come from Ryan MacDonald from Needham.

Congrats on a great quarter. Chaim, I would be curious to hear how QueueDr is starting to resonate with your customers and in conversations you're having for expansion opportunities.

QueueDr was an acquisition we made at the end of last fiscal year. We've since integrated the product offering to a number of our different offerings. One of their core pieces, it's now called accelerator as part of our offering, has been very, very well accepted by our client base and by new clients. That team has just been a wonderful addition to Phreesia. As I see what we're doing, I can't tell where their product is in Phreesia anymore just because a lot of the things that they were doing and are doing are now just becoming part of the core offering. So, we're really excited. We couldn't have asked for a better team to join us. And we're very happy with the early days of this.

As a follow-up, you saw some really great growth in new clients in the quarter. You've obviously made a lot of investments in this area with the addition of SDRs. Can you talk about what's driving that improved productivity? Is it sort of just those SDRs getting up to speed more quickly than you expected? Or perhaps sales tactics that are maybe more effective in the marketplace than, say, they were 12 months ago? Thanks.

We continue to invest in our go-to-market initiatives, whether it's SDRs and sales folks and implementation, our customer success team. I think the reason we had the quarter we had is all of those teams across the board really lean into our go-to-market and they're just incredible individuals that work really, really well together. Our SDR team is, we think, one of the best around, I would say, in healthcare. As a SaaS organization, we're going to keep investing in it. We're over 140 SDRs now. The only sad thing is I haven't met most of them personally. I look forward to meeting them. But they're doing a great job. Our sales organization is doing a great job. The implementation team is doing a great job and our CSM organization just keeps growing too. We keep investing in making sure that we do right by our clients.

Your next question will come from Scott Schoenhaus from Stephens.

Congrats on the excellent results. I guess my first question is on the revenue guidance, if you could provide any color on the kind of breakdown in growth between provider clients versus revenue per provider client that's baked into the guide for the year. That would be helpful, particularly given both stats really accelerated this quarter.

I think when we look at our revenue outlook, we're guiding on the top line. We don't provide guidance on the average number per provider client or the average revenue per provider client. I think one thing to keep in mind, we raised the low end of the guidance from $178 million to $191 million, which is approximately $13 million on the low end of the guidance. And on the high end, we raised the guidance from $186 million to $194 million, which is approximately $8 million. And if you look at the high end of the revenue, we're really talking about 30% year-over-year growth. And I think there's a couple of things to keep in mind as we look at the guidance. First on payments. Payment revenue is subject to seasonality, and this revenue is driven by the volume that patients pay. You also have to keep in mind that there's an annual rollover of insurance deductibles. So patient spending is higher earlier in the calendar year. And when we look at payments, remember last year was the big COVID impact, where this quarter it's higher due to an increased level of payments compared to that quarter. And as we look at the remainder of this year, there's less predictability in patient volumes due to the disruption that we've experienced from COVID over the past 15 months.

My next question is for Chaim. You have $450 million of cash on the balance sheet, Chaim. What are your plans for capital allocation? What are you seeing on the M&A front? Are you targeting more bolt-on software modules similar to your acquisition of QueueDr?

I think what we've done is we have a fairly rigid and thoughtful capital allocation thesis. We've explained it and taught it to all of our operators at the senior level, and we've said, here are the things that matter to us, and here's how we're thinking about growing and how it matters to all of our stakeholders. Please keep your eye out for things that help us do that organically or inorganically. We really continue to leverage the experience and knowledge of all of our leaders at Phreesia. Our opportunities for executing are indeed better. Integrating are better. Making anything we do, really have a shot at clear success. Our view is not, do we have a lot of cash on the balance sheet, it's whether it was $200 million or $300 million or $450 million; we still have the same views on how we use the capital. And it's really to be used thoughtfully.

Your next question comes from Donald Hooker from KeyBanc.

Congrats on the numbers in the quarter. So, you guys clearly have a land-and-expand strategy. Can you help us think about your current provider client base, maybe qualitatively or quantitatively? You have a little over 1,900 provider clients now. I think that compares to 1,600 or so last year. Any kind of difference in terms of the whitespace there now versus before? I know you're adding new types of clients, but just help us think about kind of the whitespace opportunity and the new wave of provider clients?

I'll try to give some color to that. We've been adding clients, small, medium, and large health systems. We've been landing health systems and large clients, and we've been expanding in them aggressively. But we wouldn't have been able to have the quarter we had if it wasn't the entire – I would just say the organization fired on all cylinders this quarter, being able to take practices, health systems, and organizations of all sizes live and support them. Also check for cross-sell and upsell. Sorry, Don, I can't express – like, it's just the plethora. We would not have been able to have the quarter we had if we hadn't seen the full gamut. It's mostly been ambulatory, but we've also got a fair number of hospitals live. I don't know how else to describe that. It was just a really, really intense quarter. And I'm really proud of this organization.

Your next question will come from Joe Vruwink from Baird.

Chaim, there was a comment in the shareholder letter about being impressed with new products coming from the R&D organization at Phreesia. And then separately, David Linetsky was on a podcast recently just discussing all the ways Phreesia has been able to engage patients in a more personalized way. I guess, my question is, do you think that the company's platform has achieved a certain scale and network where the feedback loop is now accelerating and this drives faster innovation?

You stuck in like four questions there. It's actually very impressive. I'll try to answer a couple of them without getting too many angry emojis from Balaji to give everyone their turn. I think that David Linetsky, he is articulating something that we have seen, which is our ability to deliver very targeted healthcare messages that are relevant to people and be able to understand and communicate with them is starting to really pay off. Those are investments we've been making for years. We've been fairly open about them, whether it's to a chat or our investments in data science or investments to be able to engage them in data collection or appointments or enrolling in programs. What we've been saying is it's working, and we're going to keep investing in it. Because both – it makes the product better. It makes the healthcare experience better. It provides a phenomenal ROI to all of our stakeholders. I really think the organization has just embraced the idea that we are moving towards a scale capacity where we can do things that we couldn't do before as a smaller business. In terms of investment in product, the R&D investment that we're making is really because we believe that if you build great products and put them in the hands of people, you drive great return. They become happy clients, and you get to monetize that. The more happy times we do that, the more times that thesis is proved correct. We have to monetize it with our subscription and payments in our life sciences clients. It's been wonderful to see the net effect of just a great product organization tied to our go-to-market team. I'm pretty excited about that.

Your next question will come from John Ransom from Raymond James.

If we think about the guidance raise ex the beat, it's about $5 million at the midpoint. Just talk about, I know you don't break out revenue. But I'm just curious about the seasonality. Is the seasonality all pretty much on the payment side? The amount of spending and the payment revenue was the big upside to our model? So should we infer from that there's some pull through and you're expecting a little bit of moderation because of some of the things that were mentioned?

Yeah, John. The seasonality is primarily in the payment space. As I mentioned, it's really driven by the way that patients pay, which is always higher at the beginning of the year. As I said before, we did increase the low end of the range by $13 million.

Your next question will come from Hannah Baade from D.A. Davidson.

It's great to see such success with both land and expand on the provider client side. What hiring plans do you have inside the sales organization to continue to support both new client wins, as well as cross-sell and upsell?

I think we communicated that we're going to hire more SDRs this year as we transition the sales organization, and expect that to be fairly aggressive. We're going to continue to hire and invest in our implementation and CSM organizations, and we're going to continue to invest aggressively in our life sciences organization too. At the same time, our marketing team has also done a great job of driving demand. So, I'd say, look for investment – we're going to aggressively invest as fast as we can over the next handful of quarters to be able to continue to give ourselves increased market share.

Your next question will come from Richard Close from Canaccord Genuity.

Congratulations on the quarter and the new format as well. I guess my first question here is on the payment facilitator volume percentage. You talk about that moderating. Can you just provide any context in terms of where you see that as maybe a normalized rate over time?

I think when you look at our payment facilitator, we have clients that use us in different ways. Some of the clients use us to process the full payment, which goes through the payment facilitator model, and then others will just use us as a gateway. We're picking up the revenue share based on payments that go through the payment facilitator model. It really depends on the size of the practice and the health system on how they use us. Generally, larger clients are using gateway. So, as we move to larger clients, we will see that percentage drop.

Maybe on the new products that you discussed in the letter, just curious, with respect to vaccine management, I know you've provided some data in there, but I was curious if there was any other qualitative, I guess, information with respect to how that offering drove engagement by clients' customers, those that use that versus those that didn't? Are you able to use that type of information to go back to other clients and really illustrate the impact of something like that?

I think the way we think about it is – yes, we do measure engagement. We measure usage, we measure value – but at the end of the day, if you build really good products and they make a difference to patients and providers, we're doing the right thing, right? It's not always about taking one thing to – most of these providers are looking for us specifically to help them. Doing what they do is pretty hard. I probably referenced in the letter what the team at HealthLinc said. They just wanted to help them – especially around COVID, we just wanted to help people first test, then – they were first screened, then test, then we wanted to make sure that we give them the tools to get people in for vaccination. Now we really care about hesitancy, like we want to make sure most of this population – we want to help them do everything they can to help this population of ours get vaccinated as fast as possible. Because it's just the right thing. I would like to go back to a pre-world where we're not all wearing masks unnecessarily.

Your next question will come from Jessica Tassan from Piper Sandler.

We're interested maybe if you could give an update in terms of where the opportunity lies in the acute care market? So, is there an opportunity on the payment processing or life sciences revenue side? Or is the acute care market primarily an opportunity on the subscription and related services revenue?

We mostly view the acute care opportunity as a subscription opportunity at around $2 billion in available TAM, just from our own calculation. Does that mean we haven't or won't win some payments and won't do some work on life sciences? No, but the vast majority is subscription for us today. If that changes, we will communicate to our stakeholders why and how that's changed.

If I could just sneak in maybe. If you could provide any color on the acute care market assumptions, underlying revised guidance or their contribution to revised guidance?

Jessica, this is Balaji. Are you talking about the TAM that Chaim referenced?

No, just the run rate in the acute care market, the assumptions underlying that changed the dynamics?

Yeah, that's not something we've talked about. I think Chaim probably on an earlier question just talked about the breadth that we sell on the quarter across all different areas, and certainly have made some progress in the acute care space as well. But I think that's really all we'll be ready to share at this point.

And your next question will come from Sean Dodge from RBC Capital Markets.

It's Thomas Kelliher on for Sean. Just following up on the life sciences business, can you give us a sense of the mix driving the strength now and how you expect to see it trending going forward? Does it lean more toward effective targeting new clients or new campaigns from existing clients? Any more clarity there would be helpful.

First and foremost, I think the strength continues to be delivered by just a phenomenal team. Right? It's the life sciences organization, whether it's our sales, our client team, our data scientists, that's just been wonderful. It's wonderful how they work together and how they work for their clients. Our clients have been amazing. As we think about product investments, that's had just a meaningful payoff. We expect that to continue as we invest more in those products. And when we say investment, I sort of think about it as years; it's not so much months, but we do expect there to be continued growth in our life sciences organization.

Next question comes from Daniel Grosslight from Citi.

I'd like to go back to the acceleration in payment volume you saw this quarter, particularly the warehousing effect we might have seen as patients that delayed care last year seem to be coming back stronger than expected. In your guidance, are you assuming this is a one-time blip of a warehousing effect? Or do you expect to see these sustained levels of high volume throughout the year? I guess, tangentially, are you seeing any benefit from vaccinations? I know you're giving away the modules – vaccination modules for free and patients don't bear responsibility for their vaccination, but are there any secondary impacts you might be seeing from vaccinations?

I'll start with the last, and then I'll let Randy answer all the other stuff. I will keep stressing that the single biggest benefit we get is by doing the right thing. We had to deviate resources from other projects to help the vaccination effort. But I'd say the biggest benefit has been that we've helped our practices help their patients. When you do the right thing, and I think it's very important. When you do the right thing, I believe more often than not, you get outsized benefits both from your team and from your clients. We'll continue to try to do that. We've been able to do that. I feel pretty lucky that we're in a position with stakeholders that have empowered us to be able to help everyone in a general sense. Yes, we do believe long-term, we will get benefits because this is the type of partnership that our clients want to work with. People enter healthcare because they want to make a difference.

Dan, I think your question was about seasonality and the year-over-year impact of payments. When we look at it, I don't think we really know why the patient is coming back this particular quarter, if it's regular seasonality patterns that we see, which is a major part of it, whether it's higher payments of the patient responsibility in the earlier part of the year. There could be a delayed visit to the doctor, but we really don't know. So, I think when we look forward to the rest of the year, there's some unpredictability based on the pandemic, but we've seen it's really disrupted patient visits over the past 15 months.

So, on that unknown piece for the rest of the year, the assumption in your guidance is that we're not going to see the same amount of volume that you saw in Q1 in terms of growth acceleration.

I don't know. This is a revenue line. But there is a seasonality factor where the payment revenues are higher in the first quarter.

Your next question will come from Stephanie Davis from SVB Leerink.

Congrats on the quarter. Since merchant acquiring tends to be viewed as more of a commodity with a relatively low level of stickiness, are you looking at any strategy to capture the merchant acquiring and processing relationship with your clients, especially maybe taking advantage of the vendor consolidation trends that are going on in the hospital? And beyond that, could you tell us through any of the expansions you're looking at for your solution suite to capture a larger share of the acute wallet?

I'll answer them sort of combined, which is, I don't think we make a point of articulating what our go-to-market strategies are, either during, before or after, other than to say that we feel pretty comfortable that we've articulated pretty clearly that we think in the acute market, we won't be aggressively going after payments. Not in the near term. If anything changes, I promise we will communicate it. Look, I think that those relationships, right or wrong, are often tied up with very different folks in treasury, and are often tied to lending arrangements with banks. This is very different than what you often see in sort of the other verticalization of payments, right, where banks are still using their treasury relationships to capture the vast majority of payment revenue. One of the things we think is very important is to also acknowledge where we want to spend resources to win share. We think this is a huge market. Where we allocate resources and spend capital is an area where we think we could win market share aggressively and with great returns.

And a quick follow-up on that, there has been a lot of M&A in the payment side of the space, especially touching on the acute and ambulatory system. Is there any impact to your strategy, possibly further market demand that's belying all these deals?

I don't think our strategy has changed whatsoever. But we've known most of these companies for decades. So, no, I don't think our strategy has changed with M&A or to talk of M&A. We just keep doing our thing. I think it's working. I'm going to have us keep doing our thing.

Your next question will come from David Larsen from BTIG.

Hey, congratulations on a good quarter. Can you maybe just give a little more color around COVID-related impact to volumes? Are your physician office client volumes back up where they were pre-pandemic or are they even slightly higher? With the sales force, I know there was some hesitancy during the pandemic to call on the physician practices because they were busy dealing with COVID. Are all of your salespeople now still selling? Are they visiting practices or is it still sort of remote? Thanks very much.

Let me clarify. Our salespeople have been out selling aggressively for quarters and they have not been on planes at all. They’re out on the phones, doing webcast and really reaching out to practices and health systems. I don't think we would have had the quarters we had if our salespeople, our SDRs, and our implementation team hadn't been aggressively working with practices to get them on Phreesia. I don't know, like, congrats to our HR team and all the managers that help onboard all these folks as we've ramped up, but I don't think we've communicated that our sales team hasn't been selling. Balaji, have we?

No, we have not.

Okay. Just checking. That was a misconception. Are volumes back up where they were pre-pandemic? I don't think we communicate volumes, other than I think we put out a report with The Commonwealth Fund that said it was within 5%. That was sometime in January. Is that fair, Balaji?

Yeah. I think it went through early February; obviously, David, you have our results to look at as well, and there is some correlation with payment volumes.

Just one last quick one. The costs came in a little bit higher than I was expecting, quite frankly, like sales and marketing, R&D, and then also G&A. Just any thoughts around what your expected trend is for those line items going forward through the rest of the year? Thanks.

I think as we articulated before, we continue to invest in the growth. We invest robustly in product and sales and marketing. It's also important as we bring on new clients to make sure that we have implementation and support resources. So, we expect to continue to make those investments.

This brings us to the end of today's Q&A session. I will now turn the call back over to the presenters for closing remarks.

I just want to take this opportunity to thank everyone at Phreesia, thank all of our clients, and thank all of our shareholders for everyone's support. We're really proud of what we just did this past quarter, and we look forward to working with everyone through the next couple of months of the year. I hope everyone gets vaccinated if you haven't already. I look forward to seeing everyone soon enough. Cheers.

Thank you, everyone. This will conclude today's conference call. You may now disconnect.