Good evening, ladies and gentlemen. And welcome to the Phreesia Third Quarter Fiscal 2025 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, Phreesia's Chief Financial Officer. Mr. Gandhi, you may begin.

Thank you, operator. Good evening. And welcome to Phreesia's earnings conference call for the third quarter of fiscal 2025, which ended on October 31, 2024. Joining me on today's call is Chaim Indig, our Chief Executive Officer. A more complete discussion of our results can be found in our earnings press release and in our related Form 8-K submission to the SEC, including our quarterly stakeholder letter, both issued after the markets closed today. 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 on our Investor Relations website at ir.phreesia.com following the conclusion of the call. During today's call, we may make forward-looking statements including statements regarding trends, our anticipated growth, our strategies, predictions about our industry and the anticipated performance of our business, including our outlook regarding future financial results. Forward-looking statements are subject to various risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to differ materially from those described in our forward-looking statements. Such risks are described more fully in our earnings press release, our stakeholder letter and our risk factors included in our SEC filings, including in our quarterly report on Form 10-Q that will be filed by tomorrow morning. The forward-looking statements made on this call will be based on our current views and expectations and 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 these 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. We may also refer to certain financial measures not in accordance with generally accepted accounting principles, such as adjusted EBITDA and free cash flows in order to provide additional information to investors. These 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 release and stakeholder letter, which were furnished with our Form 8-K filed after the market closed today with the SEC and may also be found on our Investor Relations website at ir.phreesia.com. I will now turn the call over to our CEO, Chaim Indig.

Thank you, Balaji. And good evening, everyone. Thank you for joining our fiscal third quarter earnings call. Our team continues to perform well as evidenced by our operating and financial results. We are on track to finish the year strong and we believe that our solid foundation also sets us up for continued growth and profitability in fiscal 2026. Balaji will walk you through our third quarter results, our updated outlook for fiscal 2025 and our initial fiscal 2026 outlook. Before handing it over to Balaji, I want to make two comments. First, I'd like to acknowledge the destructive hurricanes that impacted millions of people in the Southeastern United States, including many Phreesia employees, clients, colleagues and their respective friends and families. I'm proud of our team's preparation and response to the hurricanes and grateful to our team for rallying behind our clients over the past few months. Second, we are excited about the future here at Phreesia. Our network continues to grow, adoption of our current offering is increasing and we are beginning to see promise of new solutions we are investing in. Our product team continues to scale out our existing investments by expanding product functionalities into new integrations, increasing the value of our existing clients and creating a more compelling offering for prospects. I will now hand it over to Balaji to provide some financial highlights.

Thank you, Chaim. Let me start with a couple of the highlights from our stakeholder letter regarding the third quarter and then I will dive into our updated outlook for fiscal year 2025, along with our initial outlook for fiscal year 2026. First, the third quarter. Revenue was $106.8 million, up 17% year-over-year. Adjusted EBITDA was $9.8 million, up $16.4 million year-over-year with an adjusted EBITDA margin of 9%. Average healthcare services clients or AHSCs increased by 68 from the prior quarter. Total revenue per AHSC was $25,207, up 1% year-over-year and up 3% over the previous quarter. Year-over-year comparisons in our third quarter are affected by the wind down of a clearinghouse client relationship in the first quarter of this year that we have previously discussed. That client wind down reduced third quarter total revenue growth by 1% and total revenue per AHSC growth by 2%. All the revenue associated with this clearinghouse client was in the payment processing revenue line. Moving on to cash flow and balance sheet highlights. In the fiscal third quarter, we completed our second consecutive positive operating cash flow and free cash flow quarter. Operating cash flow was positive at $5.8 million, up $12.1 million year-over-year. Free cash flow was positive at $1.6 million, up $13.2 million year-over-year. We expect that the year-over-year improvement in free cash flow will fluctuate on a quarter-to-quarter basis based on the specific timing of invoicing and payments, which you can see reflected in working capital along with CapEx. Our cash was $82 million on October 31st. We have no borrowings on our $50 million credit facility. Now moving on to our financial outlook. Let's start with an update on our fiscal 2025 outlook. We're narrowing our revenue outlook for fiscal 2025 to a range of $418 million to $420 million from a previous range of $416 million to $426 million. We are raising and narrowing our adjusted EBITDA outlook for fiscal year 2025 to a range of $34 million to $36 million from a previous range of $26 million to $31 million. We continue to expect AHSCs to reach approximately 4,200 for the full fiscal year 2025 compared to the 3,601 we reported in fiscal year 2024. We also continue to expect total revenue per AHSC to increase in fiscal 2025 compared to the $98,944 we achieved in fiscal 2024. Moving on to our initial financial outlook for fiscal 2026. We expect revenue to be in the range of $472 million to $482 million, which implies a 13% to 15% increase from our updated revenue outlook for fiscal 2025. We expect adjusted EBITDA to be in the range of $78 million to $88 million, which implies a 129% to 144% increase from our updated adjusted EBITDA outlook for fiscal 2025. The revenue range provided for fiscal 2026 assumes no additional revenue from potential future acquisitions completed between now and January 31, 2026. We are also reiterating our previously shared outlook on AHSCs to reach approximately 4,500 in fiscal 2026 and total revenue per AHSC to increase in fiscal 2026 compared to fiscal 2025. I would like to thank all of my colleagues at Phreesia for their contributions to another successful quarter and their commitment to our mission and values. Operator, I think we can now open up the lines for the Q&A session.

And your first question comes from the line of Jailendra Singh with Truist Securities.

Congratulations on a strong quarter and color, and a very impressive margin guide for fiscal '26. Obviously, profitability and free cash flow are extremely important; we love that. But I'm just curious, how did you go about balancing between the goal of more than doubling your EBITDA margin in fiscal '26 and reinvesting some of the profitability back into the business to push top line growth higher?

The last part of your question, could you just repeat? How did you arrive at that…

So basically, I mean, your EBITDA margin outlook reflects like almost double the margin you're doing this year, which is pretty impressive. But just trying to understand how did you go about balancing between the goal of doubling your EBITDA margin and reinvesting some of the profitability back into the business to push top line higher? Just trying to understand that your thought process of revenue and profitability balancing for next year?

So I don't think anything around that topic is new. I think it's something we've been exercising for two and a half years now. And I think the one thing I'd point out is expense discipline. I think we have an amazing culture at Phreesia, especially compared to other companies I've followed in my career. I think across the company, there is a pretty special culture about exercising expense discipline and thinking like owners, really being good stewards of capital. So I think if you went back a couple of years and looked at the expense lines back then, it's really more of that. And then when you have expense discipline and you find opportunities for efficiency, a bunch of it drops to the bottom line but some of it can be reinvested in other areas that fuel future growth. So we are absolutely doing both as you pointed out.

And your next question comes from the line of Sean Dodge with RBC Capital Markets.

Balaji, regarding the efforts to increase revenue per AHSC, can you provide an update on sales and marketing expenses? Are you shifting the way those funds are allocated, particularly focusing more on cross-selling and network solutions rather than acquiring new clients? Additionally, could you quantify how much reallocation or shifting has occurred in those areas over the past year and how each category has changed?

Sean, this ties into Jailendra's question about our ongoing efforts. We consistently assess the returns and paybacks from our marketing strategies in both healthcare services and life sciences. I don't believe it's suitable to provide a specific percentage since it fluctuates over time. However, our spending has been steady. This quarter, we allocated the same amount for sales and marketing as we did in the previous quarter, maintaining a consistent range for the past couple of years. Thus, our approach to the market reflects our aim to achieve the returns highlighted in our outlook.

And your next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets.

Balaji, this question is for you. Regarding the acquisitions you made this past year, specifically Access eForms and ConnectOnCall, are you fully monetizing them now? Can you provide an update? Additionally, how do you view subscription revenue per provider client in the upcoming quarters?

None of those acquisitions have had enough time for us to say we're fully monetizing them. We did three last year, so there's a lot of activity happening in various parts of the organization, particularly in product management and market strategies. There's still a significant amount of work to do, but we are pleased with the progress we've made on those acquisitions. Regarding subscription revenue, we won't delve into specifics. Instead, we have focused on total revenue per client. We have multiple revenue streams, and as noted in our letter, we expect that number to increase this year compared to last year and also to rise next year compared to this year. With our revenue and AHSC outlook, we can estimate how much we expect the total revenue per client to increase. This approach may be the most constructive way to view the business.

And your next question comes from the line of Jessica Tassan with Piper Sandler.

Congrats on the quarter and the strong guide. I was hoping you could talk a little bit just about the network solutions selling season in fiscal '25, maybe what drove some of the strength in fiscal 3Q, any specific tailwinds related to Part D? And then I'm hoping you can describe some of the feedback you've heard from your pharma customers regarding the appointment of RFK to lead HHS, how are you and your customers kind of thinking about and delineating between marketing and education, because in our view it's kind of an important distinction?

You raised several questions, Jess. Let's start with the selling season. As we've discussed, there's a lot happening at this time of year. Currently, we find ourselves slightly ahead compared to last year regarding our visibility into the outlook we provided for fiscal '26. So, on that front, we're doing a bit better. As for our outlook for the rest of this year, it aligns pretty much with our expectations. Could you please repeat your second question?

Just how are you thinking about the appointment of RFK to lead HHS? And are you and your pharma customers kind of thinking about delineating between pharma marketing and pharma education?

First of all, I want to clarify that we are discussing a presumptive nominee for the HHS secretary position. There is a perspective that this nominee may provoke questions among reasonable television viewers about whether certain channels rely on advertising and how that might affect their coverage of health issues. Regarding Phreesia, I want to emphasize that our platform for personalized health content is founded on the principles of privacy and consent. It is essential for patients to receive relevant, personalized, and accurate health information during critical moments when they are focused on healthcare, as this can lead to improved outcomes, which we have data to support. That’s how we currently view this topic.

And your next question comes from the line of Ryan MacDonald with Needham.

This is Matt Shea on for Ryan. Congrats on the nice quarter here. I wanted to double-click on MediFind. Good to hear about the traction with the number of manufacturing clients going live with the campaign. Curious just about some of the mechanics around the campaigns. How long are these campaigns typically and any color on the ROI of these campaigns or how that's trended so far versus expectations? And then how is that kind of building a pipeline for incremental partners from here?

Matt, regarding the MediFind campaigns, we don't have that information available at the moment. I'm happy to follow up with you on that topic, but we don't have it right now.

And your next question comes from the line of Jeff Garro with Stephens.

I wanted to ask a little bit more on the FY26 outlook and on the profitability there. It seems to imply very strong incremental EBITDA margins equivalent, if not better, to your gross margin percentage. So I wanted to ask if strong incremental gross margins on roughly flat operating expenses is the right framework to think about the FY26 EBITDA outlook or if you've identified some incremental operating expense efficiencies?

So I think, Jeff, what you're asking is how much of the EBITDA improvement is from gross margin versus below the gross margin line, maybe that…

Yes.

We have discussed the gross margin we have maintained for several quarters. A few years ago, we made significant investments in the cost of revenue, which have provided us with strong operating leverage. While our gross margin has remained steady, the key takeaway is that there is potential for improvement, largely driven by increasing operating leverage in our expense lines. Revenue growth is likely the most significant factor contributing to our EBITDA.

And your next question comes from the line of Daniel Grosslight with Citi.

I wanted to just ask about the pipeline again. I guess more broadly speaking in terms of total customers. I think last quarter, you mentioned that in the first half, total transaction value was about 20% larger than the first half of last fiscal year. I was hoping you can provide an update now that we're a little bit later in the selling season on how things are trending for the second half of the year.

It has been consistent. The total dollar value associated with an average healthcare services client contract, which includes all three revenue lines, is trending around 20% larger than at this time last year.

And your next question comes from the line of Jared Haase with William Blair.

This is Jared on for Ryan Daniels. Balaji, maybe I just wanted to follow up from an earlier question on the network solutions side. And I think you mentioned having a little bit better visibility at this point with pharma customers on that network solutions business. Just wanted to clarify, I'm curious, is there anything in particular that's driving that? I assume that, that would mean sort of budgets are getting finalized a little bit earlier in the cycle. I'm wondering, do you think that's, I guess, a macro trend across the board for pharma or do you think there's something unique to Phreesia where maybe the platform is, I guess, moving up in priority relative to other tactics?

Let me clarify one thing. What we meant was that the visibility we have at this time this year into the revenue outlook we provided for next year is being compared to where we were a year ago. This comment is very specific to Phreesia. I want to acknowledge our team, particularly our product team and the life sciences team, for driving that outcome. There has been significant growth in that area, and we have more products available, which we mentioned in our letter.

And your next question comes from the line of William Jellison with D.A. Davidson.

I wanted to ask specifically about the subscription business and just get an update from you on what we're seeing with respect to important drivers of that line, like gross retention, price cross-sell and volume on a per AHSC basis?

And so first, let me clarify, it's just a revenue stream. So it's not a business for us. And I think a lot of the commentary we make about it is when we think about go-to-market and we think about clients and the right type of clients, it really does relate to all three revenue lines, William. And so everything we do is that sort of framework to it. So obviously, there are subscription metrics around this but that's not really how we're trying to optimize the business and that's not really how our products are designed. So I don't think that would be helpful. But it's one of the revenue lines we have that contributes to that.

And your next question comes from the line of Richard Close with Canaccord Genuity.

Maybe a follow-up on the fiscal '25 guidance. It looks like the midpoint came down a little bit. And I think last quarter, you had mentioned the wider range was based on just work to be done to close the year out on network solutions. So just maybe a little bit of color on why the midpoint is moving down a little bit? I guess it's a little surprising since the EBITDA moved up so much and networks higher margins. So any help there would be great.

And Richard, I think in general, one thing we've tried to do is have a guidance philosophy that throughout the fiscal year when we have more visibility we share it with you. I think we had lots of conversations with folks coming out of the second quarter in September. And I think the expectations that people have are pretty aligned with this revised guidance. And I think we talked a little bit about the selling environment feeling slightly better in terms of the visibility we have on what we shared for next year. But I don't really think there's anything else to read into that and I think the expectations are fairly in line.

And that concludes our question-and-answer session. I will now turn the conference back over to Chaim Indig for closing remarks.

Just want to thank everyone for joining us for our 22nd earnings call. And I wish everyone a happy holidays, Merry Christmas, Happy New Year, and happy Hanukkah. Bye.

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.