Earnings Call Transcript - PHR Q4 2025

Operator, Operator

Good evening, everyone, and welcome to Phreesia's Fourth Quarter Fiscal 2025 Earnings Conference Call. I would like to introduce Balaji Gandhi, Phreesia's Chief Financial Officer. Mr. Gandhi, you may proceed.

Balaji Gandhi, CFO

Thank you, operator. Good evening, and welcome to Phreesia's earnings conference call for the fourth quarter of fiscal 2025, which ended on January 31, 2025. 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 this 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 annual report on Form 10-K that will be filed with the SEC tomorrow. 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 flow, in order to provide additional information to investors. Investors 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 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.

Chaim Indig, CEO

Thank you, Balaji, and good evening, everyone. Thank you for joining Phreesia's fourth quarter earnings call. I want to take a moment to acknowledge that 20 years ago, Evan and I founded Phreesia. Our mission is making care easier every day. Our vision is for every person to be an active participant in their health care journey. We've accomplished much over these years and are excited about where we are heading. I want to express my appreciation to our clients, partners, and stakeholders who continue to contribute to our success. I am excited about the new products we've introduced over the past several quarters and improvements made in the overall patient and provider experience. We look forward to making these products more widely available to our existing network and new clients. In fiscal 2025, we achieved another milestone. The Phreesia platform was used in approximately 14% of patient visits across the United States, or approximately 170 million patient visits. I would like to congratulate and thank the Phreesia team for a strong finish to the fiscal year, which is reflected in our earnings press release and stakeholder letter. Let me hand it over to Balaji to review some of the highlights of the fourth quarter results and our outlook for fiscal 2026.

Balaji Gandhi, CFO

Thank you, Chaim. Let me start with a couple of the highlights in our earnings materials regarding the fourth quarter. Q4 revenue was $109.7 million, up 15% year-over-year. Q4 adjusted EBITDA was $16.4 million, up from $19.9 million year-over-year with an adjusted EBITDA margin of 15%. Our Q4 average health care services clients reached 4,341, an increase of 104 from the prior quarter and 379 from the prior year. In Q4, total revenue per average health care services client was $25,266, up 5% year-over-year. Our cash flow and cash position continue to improve. In Q4, we maintained positive operating cash flow and free cash flow for the third consecutive quarter. Q4 operating cash flow was positive $16.3 million, up $19.3 million year-over-year. Q4 free cash flow was positive at $9.2 million, up $20.1 million year-over-year. These results reflect strong revenue performance over the period as well as disciplined expense management and cash collections management. We expect the magnitude of improvement in free cash flow and operating cash flow on a quarter-to-quarter basis to vary based on specific timing of invoicing and payments, which you can see in our working capital, along with capital expenditures. Cash was at $84.2 million on January 31, up $2.5 million from October 31, 2024. Our fourth quarter reflects continued operating leverage across the company. We are well positioned to continue generating positive free cash flow while investing in long-term profitable revenue growth. Transitioning to our financial outlook for fiscal 2026, we are projecting revenue for fiscal year '26 at a range of $400 million to $482 million. The revenue range provided for fiscal 2026 assumes no additional revenue or potential future acquisitions completed between now and January 31, 2026. We are maintaining our EBITDA outlook for fiscal year 2026 at a range of $78 million to $88 million. We are reiterating our outlook on average health care services clients in fiscal '26 and for revenue per average health care services client to increase in fiscal 2026 compared to fiscal 2025.

Operator, Operator

Our first question comes from Anne Samuel with JPMorgan.

Anne McCormick, Analyst

Great. Congratulations on 20 years, what an accomplishment. So your gross margin once again saw some really nice expansion. And I know gross margin was kind of the first leg of the leverage story, but you're already seeing this really nice leverage on your other expense line. As we think about gross margin moving forward, how much more room is there for expansion? And then just how should we be thinking about the contribution it should have to overall leverage?

Chaim Indig, CEO

Yes. Anne, thanks. On gross margin, we've talked about this in the past. At this point, the mix of our offerings is one of the biggest drivers of that. As you know, processing is associated with lower margins, while newer offerings tend to be higher. So I think our growth expectations are higher for those offerings, and the other two revenue lines would contribute to some gross margin growth. I don't think there's anything else to call out in terms of being a driver of operating leverage; it might be better in some quarters than others.

Anne McCormick, Analyst

Great. And then maybe just one more. You once again saw really strong growth in Network Solutions. Just wondering, should we be thinking about the underlying market conditions for 2026 as similar to 2025? Or are there any market factors we should be considering?

Balaji Gandhi, CFO

No. I would say very similar as we head into the year.

Operator, Operator

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

Jessica Tassan, Analyst

I was hoping that maybe you could talk to us a little bit about postscript engagement. How does the product work, what data informs the product, maybe what does the patient experience? And is payment kind of contingency-based, or is it based on whether the patient picks up the prescription or is it impression-based?

Balaji Gandhi, CFO

Yes. Okay. There’s a lot in there. I think to answer the last part of that question, you should think about it as impression-based. It's similar to the other campaigns that we run. If you think about it, we’re leveraging a lot of the data that we have on our platform to be able to remind you about a prescription that was filled. That’s very valuable to our clients, and that’s what really drives the product and the value for the customers, both to the life sciences clients as well as to the providers and the patients.

Operator, Operator

And your next question comes from the line of Jailendra Singh with Triust Securities.

Jailendra Singh, Analyst

This is Jailendra Singh from Triust Securities. So I want to ask about the total revenue per average health care service client metric. Nice growth of 5% year-over-year, 7% if you exclude the clearinghouse impact, but it was flat sequentially. How meaningful was the impact of Q4 from the way the calendar played out in terms of business days? In terms of how holidays played out in terms of year-over-year trends in Q4? And as we think about '26, clearly, we have one less day in fiscal Q1, but are there any other factors we should consider for the quarterly progression of that metric?

Balaji Gandhi, CFO

No. Great questions there, Jailendra. As you pointed out, the way the calendar falls and weather can be pretty significant factors for our business. One thing about the fourth quarter that we point out is Christmas fell earlier in the week right on top of a weekend last year, whereas this year it was in the middle of the week. So that made for a tougher comparison. We also had the L.A. fires, which were unfortunate and affected some clients in that region. Additionally, the weather in the Northeast and Southeast was also challenging in January. We’re accustomed to working with these factors, and we incorporate them into our internal modeling as well as our external communications. So that was largely baked into our expectations for the year. You also mentioned that this is a leap year, so I think you could consider how the calendar falls particularly on Mondays and Fridays. But overall, the fourth quarter presented a tougher comparison for us than last year.

Jailendra Singh, Analyst

Okay. And then my quick follow-up is on just an update on progress regarding leveraging AI and automation. You guys have mentioned using it to replace manual workflows and improve productivity internally, but you’ve also mentioned leveraging AI in your network solutions business in various ways. Just curious if you have any interesting results to share? Are you seeing improvements internally, or are you more focused on driving more business in network solutions from the AI side?

Chaim Indig, CEO

Jailendra, this is Chaim. I'll answer that. Balaji and I were actually given a demonstration earlier today of one of our AI applications being used internally by our Network Solutions team. They wanted to show us the tool they are using for forecasting. I must say I saw Balaji's jaw drop when he realized what the team has been using it for and how valuable it is. We’re seeing its impact in real-time in our business and expect to continue implementing AI thoughtfully throughout our organization where it not only drives real financial impact but also improves outcomes for all our stakeholders. It would be an understatement to say that the impact has been great, and we are very excited.

Operator, Operator

Your next question comes from the line of Ryan Daniels with William Blair.

Ryan Daniels, Analyst

I'm curious about solutions like appointment readiness. You mentioned that it creates a new opportunity to engage users and leverage that for Network Solutions sales. So my question is, does a newer product like that need to reach some critical mass before you can sell it to the pharma customer base? Or is that something that you could just add to existing programs right away? Is it different than another touchpoint for Network Solutions?

Chaim Indig, CEO

Ryan, we think early on, our product organization considers scale and deployment. When we're discussing new offerings, it's usually because it has already reached a scale where we can leverage it in our cross-network solutions. Oftentimes, these products have been in development for years, so from the early stages, a key requirement in all our product briefs is scale. We achieve this regularly and at a good pace with many of our products, thanks to our investments in R&D.

Ryan Daniels, Analyst

Okay. Perfect. And just one follow-up, we've seen a lot more announcements lately from different companies inside and even outside health, like Salesforce rolling out AI agents for appointment scheduling and matching patients to admissions and insurance verification. Are you seeing any changes in the competitive dynamics during discussions with your go-to-market team? Or is your installed base and comprehensive offering still winning more of the market compared to some of those solutions?

Chaim Indig, CEO

I would say our close rates have improved lately. I think a lot of those larger entrants have actually helped us, as potential clients spend more time considering options. We've ended up winning more deals, and I believe it's been a rising tide where, as the market leader, we've benefitted from the increased interest.

Operator, Operator

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

Richard Close, Analyst

First, great results on that breast cancer screening; that's pretty neat. Just maybe digging in a little more on Ryan's question on appointment readiness. Is that something that you charge provider clients to enable, or do you perhaps let them use it like in the past? And since you're discussing Life Sciences, can you talk a little about how they are engaging with that offering? Is it just eligibility and deductible information and similar items? I’d like to better understand.

Chaim Indig, CEO

To answer your question, Richard, we do not currently charge for this product above and beyond what we already charge. It provides significant value to providers by preparing their patients. We are able to add more value to patients and providers, and the investments we’re making are aimed at enhancing our offerings. Regarding network solutions, there are numerous examples, but I won't go into detail on this call. It involves substantial preparation needed to get ready for a visit, allowing for education and preparation before the patient arrives at the office. We have noted an uptick in engagement with Network Solutions as a result.

Operator, Operator

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

Ryan MacDonald, Analyst

Congrats on a nice quarter. Within Network Solutions, we're seeing continued evolution. How are you managing the changes in the advertising landscape for pharma marketing and life sciences, particularly with the regulations limiting the effectiveness of targeting on major social media platforms? From a go-to-market perspective, what are you doing to better position yourself to capture more market share amidst these changes?

Balaji Gandhi, CFO

Well, to speak to our positioning, Ryan, our Phreesia platform of personalized health content is built on very important principles of both privacy and compliance. We’re trying to meet patients where they are with relevant personalized information at key moments in their health care journey. That, we believe, differentiates us as we lead in privacy and consent, providing a unique platform for that. However, yes, there's plenty of competition for advertising dollars.

Ryan MacDonald, Analyst

Okay. Also, as you reiterated your guidance on the average health care services clients and the additions you expect this year, can you share what you are seeing in the early days of the year that gives you confidence in that trajectory? How do you plan to manage investments to meet or exceed those targets as we progress through what may again be a volatile macro environment?

Balaji Gandhi, CFO

Yes, sure. We’ve discussed this in past years. We have invested significantly in the business and continue to allocate a fair amount of capital, particularly in sales and marketing, which includes our Network Solutions. When we provided our projections for fiscal '26, we anticipated variability quarter-to-quarter but sought to set targets that reflected what we believed we could achieve by the year-end. We feel confident in meeting those expectations based on our go-to-market resources.

Operator, Operator

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

Jeff Garro, Analyst

A couple more for me on Network Solutions. First, can you help us understand how far along you are in penetrating all of the 170 million visits on the network with Network Solutions content? Additionally, how are you improving the generation of monetization moments and finding the best personalized matches for your inventory of network solution content to engage with those individual patient moments?

Balaji Gandhi, CFO

Yes. So, Jeff, we did share the 170 million visit milestone. However, the unique nature of Phreesia's business model means there are numerous ways we bring value to our clients across those visits. As Chaim mentioned, certain products are generating value for providers, creating revenue through subscriptions or payment processes, while others are contributing to Network Solutions revenue. You shouldn't view all 170 million visits as generating revenue from all three lines; that’s a unique characteristic of our business model. You can estimate Network Solutions revenue by dividing our total revenue by visits, which we've made available since we went public. The revenue per visit continues to increase, and we believe that trend will persist due to the new products we've introduced in recent quarters.

Jeff Garro, Analyst

Excellent. I appreciate that. I have one more on Network Solutions. Back in mid-December, you expressed positive sentiments on the progress for Network Solutions during the key selling season for pharma advertising. Is that still the case here a few months later? Additionally, how do you feel about visibility moving forward?

Balaji Gandhi, CFO

Yes. No change; we are in the same position, maintaining our financial outlook as shared in December.

Operator, Operator

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

Daniel Grosslight, Analyst

Congrats on another strong quarter! There's been considerable macro noise lately regarding consumer confidence, Medicaid, enhanced subsidies on exchanges, and physician payment rates in Medicare. Are you seeing any impact from these macro factors on your business or on the sales cycles this year? If you have this data available, could you also provide an estimate of what percent of your visit volume is coming from individuals on Medicaid or those utilizing exchanges?

Balaji Gandhi, CFO

So, Daniel, I think the first thing we want to convey is that we're monitoring all these trends closely. So far, there's nothing to particularly highlight at this moment, but we’ll keep you informed if anything changes. Regarding our payer mix, I apologize, I don't have the exact percentage of visits related to Medicaid readily available, but I do not anticipate it being significantly different from the overall patient population including Medicare or employer-sponsored coverage.

Chaim Indig, CEO

No change. I mean, I think we talk a lot about capital allocation. For the last six years of being public, our philosophy has been to allocate capital to generate good, solid, durable growth that's profitable. Sometimes this is achieved through organic means; other times it's done through inorganic acquisitions. Historically, we've focused heavily on organic growth, and we have a rigorous process in place for assessing potential inorganic opportunities. We're pleased to have the robust balance sheet and cash flow that allows us to continue pursuing both avenues for sustainable growth.

Operator, Operator

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

Scott Schoenhaus, Analyst

On your investment letter, you mentioned your after-hours service was back online, which is good to hear. But it also reminds me that you had two other acquisitions last year. Are you fully charging for those platforms now? How should we view their contributions as tailwinds for fiscal '26?

Balaji Gandhi, CFO

Yes. And actually, Scott, those three acquisitions were all completed in calendar '23, which means fiscal '24 for us. Thus, we didn't do any acquisitions in fiscal '25, but the other two acquisitions contributed to growth as anticipated. As we've noted, MediFind and Access have driven revenue and contributed to growth as expected when we made those acquisitions.

Scott Schoenhaus, Analyst

You're right; time flies. I want to follow up on the recent question regarding capital allocation. Would you consider deploying excess cash through share repurchases if valuations were depressed? Now that you are generating cash and are expected to maintain accelerating growth, how flexible and adaptable is your capital allocation strategy?

Balaji Gandhi, CFO

You should take away that we’re always striving to position ourselves for flexibility. However, we are fundamentally a growth-oriented company focused on driving profitable, durable growth. That's how we prioritize our capital allocation, and it will guide us in the upcoming years.

Operator, Operator

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

Jessica Tassan, Analyst

Just wanted to check in on the Network Solutions side. Can you remind us when you can upsell or resell these contracts throughout the year? Are contracts usually time-bound or impression-bound? I’m curious about understanding per average health care services client revenue over the course of the fiscal year.

Balaji Gandhi, CFO

Yes, it's throughout the year. We sell campaigns for a fixed number of messages delivered, and once those campaigns are completed, we resell them. I don't know if that answers your question, Jess, but that’s the overall process.

Chaim Indig, CEO

We do forecasting for that.

Balaji Gandhi, CFO

Yes. And Chaim addressed AI as an interesting application for that, helping us with forecasting.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Chaim Indig.

Chaim Indig, CEO

Thank you, everyone. The last 20 years have been wonderful. We look forward to the years ahead, and we have just begun this amazing journey. So thanks to everyone for joining us this quarter, and we’ll talk to you in a couple of months.

Operator, Operator

This concludes today's conference call. You may now disconnect.