Ladies and gentlemen, and welcome to the Frisia Fiscal Third Quarter 2022 Earnings Conference Call. 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 like to introduce Balaji Gandhi, Senior Vice President, Investor Relations for Frisia. Mr. Gandhi, you may begin.

Thank you, Operator. Good morning and welcome to Frisia. These documents are that may cause our actual results, performance, or achievements to be, and may be affected that are beyond our control. The obligation to update any forward-looking statements, these non-GAAP measures,

and thank you for joining us.

Freesia celebrated an important milestone in September as we surpassed over 100 million patient visits enabled by our platform during the previous 12 months. Every member of the Freesia team has contributed to this achievement, and I would like to congratulate them on reaching this milestone. This is the latest in a long line of accomplishments celebrated over the past 16 years, achieved through the hard work and dedication of our current and former team members.

We also thank our clients for entrusting us

to create a better, more engaging healthcare experience. I hope everyone has had a chance to review our earnings press release and stakeholder letter.

Operator, we can open up the call for QA.

Yes, I'm here.

Yes, of course, sorry. I had a technical difficulty here. Ladies and gentlemen, at this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for a moment to compile the Q&A roster. And your first question comes from John Ransom from Raymond James.

Please go ahead.

Hey, good morning. Obviously, the story has changed from a 20% top line to a higher top line, higher spending story. You know, we figured you didn't raise all that money for nothing. But maybe you could help the market understand how outside looking in to think about the returns and the timing on that stepped-up investment. It was really eloquent. I don't think I can top myself. So I'll try it again, though. So, obviously, the story has changed from kind of a 20% top-line story with margins in sight to something, you know, double that top-line growth, but with stepped-up spending and, you know, negative EBITDA growing. So, maybe we could help the market understand kind of your expectation on the timing and returns on that spending and kind of what led to this shift in the narrative.

Thanks, John. Sorry to make you repeat it. So, John, we're fortunate to have a leadership team that's worked together for over a decade, some of us even longer. Evan and I are going way back to 2005. Each time we've made decisions around significantly increasing our investment, it's been a little scary, and this is very similar. Sometimes our investments were for a year or more out than our revenue, and frankly, with a much smaller cash balance at the time. But our decisions have always been based on data. When all of you have this data, we've been public for 10 quarters. It's public stretching even further back. It reveals about how we invest and when we get it back and how we get it back. We're extremely pleased and excited about the returns we're getting on our investments, which is why we're accelerating them. We know it's not an easy discussion for a lot of you on this call, and it hasn't been an easy discussion for us internally either. We made hard decisions over the years and built trust and confidence with each passing inflection point.

For a lot of you that were investors with us,

in March and April in 2020, you trusted us to make those decisions based on the data we saw in real time then too. The data has never failed us and the decisions, as Balaji calls, have been directionally correct. And we look at this data on a weekly basis, and we continuously course-correct. And we do it with all of the trust and confidence of our team. And the great news for a lot of us now is we're not making a lot of these decisions with just a small set of data. We have a lot more data and a lot more firepower, especially on Randy's team. And Randy, who's been with us for over two years now, is a big part of that decision-making process. And I thought, I'll let Randy speak a little to answer the rest of that.

Thanks, Time. I mean, as Time said, we look weekly, monthly, continuously at how our investments are performing and where we're going. I think we're really focused on sustainable and profitable revenue growth. And as Time said, we view our capital as precious, and we look for efficiencies in our investments. The SDR program is a good example of this, where we bring in leaves at a cost-effective way so that we can pump that engine that grows the top line. So we think very carefully about how we spend this money and make sure that that results in profitable and sustainable growth in future years.

So just as a follow-up, is a simple way to think about it, let's say you spend $100 at time zero a year out. Maybe that $100 generates $100 of incremental revenue at your sort of average gross margin. I know that's oversimplified, but I think the public market needs some kind of quantitative hook to think about this.

Yes, I think from the perspective of the spending that you see now is for future growth. The revenue numbers that we are putting up this quarter are based on those investments that we made a year ago. And so the timeframes, I think, can range from one to three years, depending on the type of spend. And the sales spend comes in a little bit sooner, but some of the R&D spend has a longer-term timeframe as we build out our products and provide excellent solutions to our customers.

I'll get back in the queue.

Your next question comes from Anne Samorell from J.P. Morgan. Please go ahead.

Hi, guys. Thanks for taking the question. I was hoping maybe you could help us understand some of the inputs that went into the guide, You know, the 20 to 25 percent for next year, you know, headwinds and tailwinds that you're considering just, you know, in light of the performance that you put up this year and, you know, the investments that you're making?

Yes, I think the way that we look at, you know, guidance for future years, the 20 to 25 percent is our long term outlook. You know, we we are playing the long game in this business. And that's that's what's important for us to focus. I think there will be quarters and periods of time where we will grow faster than that 20% to 25%, but there could also be periods of time where that declines from that higher level. So we're playing the long game here and really are looking for that long-term, sustainable and profitable growth.

That's helpful. And then, you know, you had really nice growth in your provider clients this quarter. I was hoping maybe you could talk about some of the factors that are driving that. You know, are labor shortages playing into that? And are you considering, you know, maybe that as a tailwind for next year as well?

What we've seen is that our people have gotten in front of a massive labor shortage issue

for our clients and prospects. We've seen a ton of land and expand. I think our increased offerings have also played a part in winning a lot of those clients. And a lot of that's been the back of increased R&D investment. So we feel pretty good about, you know, being able to get out in front of a lot of clients, get them a solution, build their trust, show them a huge ROI, and then continuously expand. Randy, what do you call, like Randy's team has a name for it, which I always mess up.

Yes, I think as we sell more solutions into a client, we refer to that as density. So we want high levels of density as the client adopts our solution. And then intensity is important. We want our clients to expand across their locations, or even within a location, we want the providers to use more of the products that they have already licensed from us. So, you know, that density and intensity are real key drivers to our growth strategy and expanding our footprint and our existing customer base.

maybe just a follow-up on that as we think about like the the 20 to 25 percent revenue growth for next year how much of that is increasing your density versus adding new clients it's it's both

you know i i think that we are focused equally on both this last year we've we've invested a lot in our uh customer success group and they're they're the ones that are primarily focused on the expand and they've been doing really well we've we've seen a lot of success with that so um that's really important, but the new logos are also important because as we add new provider clients, that also increases our network and gives us more opportunity to attach payments and deliver digital engagements from our life science business. So we view them both as equally important.

Great. Thanks so much, guys.

Your next question comes from Ryan Daniels from William Blair. Please go ahead.

Hey, good morning, this is Jared Haasen for Ryan, thanks for taking the questions. I wanted to ask a similar question just on the outlook going forward here, but focusing more on the adjusted EBITDA line and understanding that at the end of the red marks, you're not giving a formal number yet for 2023, but just, you know, curious, you know, if I look at the implied Q4 guidance that points to around a loss of, you know, around $35 million for fiscal 22, you know, is it fair to think of that as a good exit run rate for next year, kind of on an annualized basis, or would there be any sort of context we'd be missing with that framework? And then similarly, is there any color you can share just around sort of the magnitude of the expected cadence in terms of the OPEX ramp next year?

...upvenue guidance, and in terms of the EBITDA, we thought it was important.

Yeah, I mean, Balaji, I agree. You know, I think we're not prepared to, well, I guess the timing isn't right for us to talk about adjusted EBITDA guidance for fiscal 23. But, you know, as we've talked about before, I mean, we've had a history of profitability and made a conscious decision to increase our investment levels to get that sustainable growth. I think as we've hired, you also start to see some of the hiring that we did in Q3 was done near the end of the quarter. So that's where the guidance for Q4 comes in, where the numbers increase.

So as Balaji said, the plan is to continue with this investment cycle.

Okay, fair enough, and I appreciate the comments there.

And just wanted to, for a quick follow-up, wanted to turn to a different theme here. You announced an acquisition of Insignia Health. We'd love to just get a little bit of color here on the background. It sounds like from the prepared remarks, this is a company that you had some familiarity with. So just curious if you could talk a little bit, just the sort of genesis of that deal. Is this an asset that's embedded in a lot of your clients? And just curious what exactly you're seeing in the market that made you want to add this capability.

I'll let Balaji add something at the end.

And so we're really, really excited to bring this to our clients. We have some overlap in our clients, but we believe that it will add tremendous value to a lot of our clients and prospects, and we're really excited. We've known about this organization and the PAM score for years. It's mission-oriented. It's rooted in decades of academic research. Dr. Hibbert is the lead author of the Patient Activation Measure, She's joined Freesia to have her as an advisor, and it's increasingly relevant to value-based programs. Infignia works with some of the most incredible organizations, including our own government and the government of the United Kingdom. So we're pretty excited about it, and we think that activation is a core clinical measure that helps change the output and the outcomes for patients. And our practices are continuously looking at tools to be able to improve outcomes. And we think this is the gold standard. And we're really, really excited to have this as part of our arsenal. Add to that?

I think time covered a lot of it. I think...

Thanks again for the color.

Your next question comes from Richard Close from Canaccord, January Day. Please go ahead.

Yeah, great. Thanks for the question. Congratulations. One question here with a follow-up. But first, I want to dive on the life sciences, obviously outperforming versus expectations. Can you provide some momentum on that division or business? Is that just simply the growth and the client base over the last several years, or is there something related to the shift in marketing initiatives with Farba that's driving the outsized growth?

Richard, I appreciate you bringing this up. This is a good example of us using information, data, trusting ourselves and our team. And we saw our volume, which I think everyone can now see, more than double since we IPO'd, right? And because of the investments we proactively, continuously made in data science, we were able to better monetize that investment for all of our stakeholders.

And so that – we think this is huge TAM.

I think we've been pretty clear. It's a $900 million TAM. And based on the investments that we started to make, we thought we could gather and capture more of that available market, and that investment has paid off. And we'll continue to make those kind of investments, really based on data and the knowledge that we have on how to interpret the information and make the right decisions. And that's, I think, the benefit of having a very seasoned team who's seen many cycles.

okay that's uh helpful and then just to go back to the acquisition can you go into a little bit more details where that sits in the workflow is that something where the patients are continuously engaging um with the offering is it like pre-visit post-visit you know maybe a little bit more

details on that front. Sure. Yeah, Richard. That's helpful. Thank you. Your next question

comes from Glenn Santangelo from Jefferies. Please go ahead. Oh, yeah. Thanks for taking

my questions. Haim and Randy, I hate to do it, but I did want to follow up on this investment spending. It seems like a lot of where the incremental spending came in was more on sales in marketing versus R&D. And when we look at the headcount of the company, the number of employees has more than doubled over the past 12 months. And so I guess what investors are really trying to figure out is, how much more do you have to invest? And in particular, when you look at the guidance for next year, I think investors are kind of nervous that it feels like the company is spending, you know, incremental dollars to chase fewer revenue dollars, and so maybe you could help us think about, you know, where the company is today from the headcount perspective, what else you maybe think you need, and kind of give people a sense for how much more there is to go, and then I had a follow-up question on the acute care market. Yeah, I think Randy can.

Yeah, I think when we think about how do we look at what our headcount needs are, and how does that feed growth, we look at data on a weekly basis. What kind of lead generation is the SDR team producing? What do our provider sales teams, what are their close rates? We look at this on a weekly basis and make adjustments. I think from the perspective of, you know, when is it enough, I think as we continue to grow, as long as that investment continues to provide a sustainable and profitable growth in the future period, we would continue to invest. I think this last clip was a very large increase in headcount. You know, I don't think that, you know, we're very thoughtful about capital. You know, capital is precious to us, and we understand from an investor perspective that they want us to use those dollars to grow the company, and we think about that as we look at this data on a weekly basis and make decisions about, you know, what are the next hiring plans in the coming month, in the coming quarter, and throughout next year.

All right. Maybe if I could just sort of follow up on that, that sort of segues into my acute care question. The lead generations that you're talking about, are they more on the physician side or on the acute care side? Because we've been getting some questions around the transition to the acute care market, how it's going. You know, in the past, you've disclosed, you know, a relationship with R1. And so maybe if you can just sort of comment how that transition is going and where the lead generations are coming from, that would be helpful.

We've commented, you know, for the past, I don't know how many quarters, that we always sort of lead with the ambulatory side. And then we try to pick up their acute hospitals after we've built the reputation that we have. on the ambulatory side and that continues to be the strategy and it continues to execute very very well really part of the land and expand strategy we are very very good at providing a holistic solution across the entire spectrum of the health system and we don't announce most deals but we continue to continue to feel really good about the returns we're getting and the long-term outlook of continue to continually investing in the hospital market and all the ancillary services surrounding it as much as we are investing into the ambulatory market we think they're very complementary but we tend to always lead

with ambulatory first at the client okay thank you did you are one yeah yeah I

did have a question on one in particular because yeah sorry below yeah I did have a question on R1 in particular, right? Because you've disclosed that relationship in the past and they've made an acquisition in early 2020 that seems like it's a little bit competitive with sort of what you're doing. And so I was just wondering if you could provide any update as far as that's concerned. No, I think that they're still a valued

client and partner, and we look forward to continuing that relationship. And I think we We have lots of partners and clients that also use and have other competitive things, and we're comfortable with that. It's a huge market, and what we tend to do really well with our product. We're product-led, you know, and so when customers want or need our full solution and or the vision of that, we do really well.

We appreciate the partnership and relationship with ARMA.

Okay, thank you. Hey, your next question comes from Joseph Fruvink.

Please go ahead.

Great. Hi, everyone. Yeah, just going back to the sales and SDR investments, can you maybe discuss the productivity of the new hire cohort and how this compares to the expectation you might have had when embarking on the accelerated investment strategy? Obviously, the team is quite a bit larger, but I imagine also younger in tenure. So is there better sales efficiency to still come and we can expect as these new hires go through a regular productivity ramp?

You know, from a productivity standpoint, I think we're fairly comfortable with where they are and we're always looking for more and better productivity. I know I've been on calls continuously where the team have done phenomenal work at being able to continuously just improve productivity and the success of that team. And, you know, we always look at that, and that's how we've gotten to where we are and improved the business. But we're really happy with how that SDR organization has grown and, frankly, maintained the success that it's had.

Okay, great. Great. And then just kind of going back to your growth framework, is it fair to think that, of course, if Frisia is executing a year following one with accelerated investment spending, should typically track above the company's long-term growth framework?

Can you repeat that one?

Yeah, you know, the 20 to 25% growth, I appreciate that kind of a marker and it aligns with your long term growth framework. But we're also in the midst of seeing accelerated investment this year, and that's going to continue into next year. So I suppose all else equal, do you think it's a fair expectation to think that following that type of investment environment, growth should typically track kind of above long-term targets as opposed to in line with long-term targets?

Speaking specifically.

Yeah, yeah. You know, I think, you know, as we said, I think the long term, you know, sustainable, profitable growth of the 20 to 25 percent, there will be periods where we will outperform that long term goal. And I think, you know, and that's what we want, right? You know, I think we like to grow. You know, I think it's good growth. It's profitable growth. So, yeah, from that perspective, I don't think we can really get into what the guidance is for next year, the spend bubbles.

But, you know, I think we continue to invest with that strong growth in mind.

Great.

Thank you very much.

Your next question comes from Ryan McDonald from Niamh.

Please go ahead.

Hi, thanks for taking my questions. Haim, just an additional question on Insignia. Really interesting acquisition and technology there with the patient activation measure. Just thinking about how, I would like to know a little more color on how you're thinking about the go-to-market strategy there. There's, I think, interesting use cases on value-based care models for your practices. There's obviously potential benefit on the life sciences side and sort of that additional information on patient and sort of utilization. Just curious how you're thinking about sort of the prioritizing the go-to-market there as you integrate that acquisition.

We generally don't talk about what we're going to do.

That hasn't changed and it won't change. But as we start moving it into our product offering and making it available, I'm sure it will become noticeable. We are really excited about having this founder-led organization here. I'm going to sort of refer back to Balaji's thesis. I think there's a lot you can unpack from it, but we think this is a potentially in

the long term.

Got it, got it. Okay, and then just to follow up, in terms of the life sciences opportunity, continuing to see great growth rates there. Just curious, obviously, we're seeing a shift materially to digital spend from life sciences companies. Can you talk about sort of the magnitude of the impact that that's obviously having on the growth in the business? And, you know, as you look at sort of your customers right now, you know, can you talk generally about sort of percent of spend that is starting to shift over to digital and how you might be able to capture more share of that over time?

Well, the way we've been able to capture and grow extensively is, you know, we knew based on our information and our data and having a very senior and tenured team on running that, we knew where we needed to make those investments. And we started ramping up those investments a couple of years ago. And so to us, the shift, you can usually see the shift happening way before it's happening based on the information that is available. And as an organization, we pride ourselves on making decisions around spending, around product investment, around resourcing, all around data and the experience we have in understanding that data. And we think there's a, there's continued opportunity for us to grow in life sciences. And I think we've been articulating that we will continue to invest in that area. And we're fortunate to have a team and they've just executed brilliantly.

Understanding that, you know, we have a competitive advantage in being able to see what's happening in the market.

And your next question comes from Donald Hooker from KeyBank.

please go ahead. Great. Thank you. And this maybe dovetails and fills out some prior questions as well. Obviously, a great number of provider clients added in the quarter. You guys, I always think of you adding clients and then revenues follow from that, not just out of the gate, but from that. I'm just wondering if that dynamic of land and expand has any way changed? are clients adopting more solutions out of the gate or is it sort of a similar pattern that we should expect from the past in terms of adding clients and landing and expanding yeah so i think

to answer your question no our thesis hasn't changed we still are very successful with the land and expand strategy it's important for us to grow across the customer base i think also So, you know, we think about networks and the more provider clients that we have, it gives us more opportunity to deliver digital engagements, you know, and there are certain things that can get adopted right away. So, you know, for a customer that takes payments, that typically is sometimes the first dollar of revenue that comes in, but it may take a while for a provider to switch over to our payment solution with their volumes and basically burn down their previous payment provider. But we do see lots of interest in our new products. I think the texting solution is interesting that we highlighted in the quarterly stakeholder letter. So we do see high levels of adoption of additional products.

And then a quick follow-up. Again, a strong provider client ad count in the quarter. Can you update us on in terms of your capacity in terms of adding clients successfully and update us on in terms of how many clients are being implemented remotely versus on site? Is there any kind of changes there? How do you feel about that?

I think one of the reasons why we feel pretty comfortable about these client ads is, well, first off, they're clients. like they're already live, using us, paying us, more often than not running transactions through us. And a lot of our ability to be able to take them live, mostly remotely, has been because of the investments that we've made based on the information that we've seen. So we've tried to get ahead as far as possible on being able to staff and support. So we continue to have just phenomenal levels of support. and have speed of implementation, and a lot of that is based on the information that we see. So we've really ramped up the teams continuously in sales, implementation, customer success, and those teams have just done a phenomenal job at being able to support those new and expanding clients.

Your next question comes from Scott Schunow from Stevens.

Please go ahead.

Hey, team. Thanks for taking my question. I just wanted to follow up on the land and expand strategy and the density and really just get into some statistics here that you guys had offered in the past. I think you at one point mentioned you had 27 modules. I'm sure it's increased since then and that the average client has about half that or 13 modules. Is there any update to that stat? I think that could provide more color on the opportunity there to expand on the revenue

provide our clients. Hey, Scott, the investments we've been making in product have been paying

off. People, they add a phenomenal amount of value, and we try to get it in the hands of the right clients at the right times. And the more products we get our clients, the more value we provide them, and the happier they are. And I think some of you continue to do channel checks. And as we've grown tremendously, our clients have remained not only happy, but continuously pleased that we're able to add more and more value to them on their journey to support their patients. So we feel very good about our continued investment in product to get them in the hands of our patients, in the hands of their patients and our providers that we support. Great, thanks. And

just as a follow-up, I wanted to kind of drive in deeper on the new employees and the hiring and sales and marketing team. Are you seeing anything, I hate to use the word transitory, but are you seeing anything that's happening given the tight labor market now that would lead you to believe that, you know, these elevated expenses could, part of it could be more transitory and, you know, be less challenged in 12 months from now when the labor market changes? Just any additional color there would be helpful. Thanks. Well, I think what we've found

And Amy, who's led our HR organization for 10 years and has seen multiple cycles, has talked a lot about internally, is we've really seen a competitive environment where we have to get out in front to make sure that we are continuously examining our entire package to make sure that we are the employer of choice for both our current and future team members. And it's been, frankly, the compensation aspect of that has been growing at a faster rate than I probably would have predicted two years ago. But we've really maintained sort of in front of that so that we can continuously attract and retain phenomenal individuals to our organization.

And great people generally are worth their weight in gold.

And we've continuously found that.

And we think we have just a phenomenal group of people here at Freesia.

And your next question comes from Daniel Grossleit from Citi.

Please go ahead.

Hi, guys. Thanks for taking the question. Most of my questions have already been answered. But maybe if we can dig a little deeper into the 4Q EBITDA guide, which implies around a $17 million increase in operating expenses sequentially. If I look at 3Q and the sequential increase in spend, it looks like most of it is coming from that sales and marketing line followed by R&D. As we think about 4Q and beyond, should we think about the investments you're making as the kind of same in terms of proportional to S&M and R&D, or do you think we'll see some catch up in R&D and a little less acceleration in the sales and marketing line? Thanks. Yeah, I mean, I think directionally,

you know, all the lines will grow. You know, R&D is one of the areas where there is focus on investment. So I think you will see increased investment there. It's really those two areas that we continue to focus on because those are really the things that contribute to that, you know, sustainable growth on the top line. You know, I think it's similar to when I talk about, you know, revenue from quarter to quarter. I think hiring can also have patterns too as we look for the best talent to add to our company. Sometimes it takes a little bit longer to find some of the right talent in the engineering area. So you will see some variability quarter to quarter as we are building those teams.

Okay. But would it be right to say that on a dollar basis, the increase in R&D spend in 4Q is going to be greater than the increase in sales and marketing spend from 3Q to 4Q?

Yeah, I mean, I think from the perspective, we don't really, you know, provide detail of that guidance on the line item level. they both you know directionally are um you know being invested in so they both will go up

yeah gotcha and then as a follow-up on the insignia transaction you know belagi made an interesting comment that it um you know it's used not just by by kind of providers and life sciences but also payers which would be a new market for you guys so i'm curious and obviously they have a very strong relationship with cms and nhs so i'm curious on how this may open up new markets for you, i.e. the payer market, and if there's a kind of concerted strategy there, to have this be a beachhead and expand your TAM even further.

I think we've been thinking about this market for years, and we believe sort of the relationship between payers, providers, and life sciences continues to be blurred, and we are very excited to have capabilities and the team that we bring with us to help complement a lot of the investments we've been making. And we think that team is something we've been thinking about for years.

And we're really excited.

Got it. Thanks, guys.

Thanks, Daniel.

No, I just want to trust in us to continue to improve the healthcare system. And we think we are heads down as we do that. We're really excited about what lays ahead. I haven't been more excited about what we're doing.

And this is, it's amazing.

And this concludes today's conference call. You may now disconnect.