8-K
Phreesia, Inc. (PHR)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 8-K
___________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported)
December 8, 2021
___________________________________
Phreesia, Inc.
(Exact name of registrant as specified in its charter)
___________________________________
| Delaware<br><br>(State or other jurisdiction of incorporation or organization) | 001-38977<br><br>(Commission File Number) | 20-2275479<br><br>(I.R.S. Employer Identification Number) |
|---|
434 Fayetteville Street, Suite 1400
Raleigh, North Carolina 27601
(Address of principal executive offices and zip code)
(888) 654-7473
(Registrant's telephone number, including area code)
___________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, par value $0.01 per share | PHR | The New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 - Results of Operations and Financial Condition
On December 8, 2021, Phreesia, Inc. (the “Company”) announced its financial results for the quarter ended October 31, 2021 by issuing a Letter to Stakeholders (the "Letter") and a press release. Copies of the press release and the Letter are furnished as Exhibits 99.1 and 99.2 to this Current Report on Form 8-K, respectively, and are incorporated by reference herein.
The information furnished under this Item 2.02 and in the accompanying Exhibit 99.1 and Exhibit 99.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference in such filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits.
| Exhibit Number | Description |
|---|---|
| 99.1 | Press release, dated December 8, 2021, by Phreesia, Inc. |
| 99.2 | Stakeholder letter, datedDecember 8, 2021, by Phreesia, Inc. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: December 8, 2021 | Phreesia, Inc. | |
|---|---|---|
| By: | /s/ Randy Rasmussen | |
| Name: | Randy Rasmussen | |
| Title: | Chief Financial Officer |
Document
Exhibit 99.1
Phreesia Announces Fiscal Third Quarter 2022 Results
Raleigh, North Carolina, December 8, 2021 – Phreesia, Inc. (NYSE: PHR) (“Phreesia”) announced financial results today for the fiscal third quarter ended October 31, 2021.
"We celebrated an important milestone in September as we surpassed 100 million patient visits enabled by our platform during the previous twelve months", said CEO and Co-Founder Chaim Indig. "Every member of the Phreesia team has contributed to this achievement; I would like to congratulate them on reaching this milestone, and thank our clients for entrusting us to create a better, more engaging healthcare experience".
Fiscal Third Quarter 2022 Highlights
•Revenue was $55.9 million in the quarter as compared to $38.5 million in the same period in the prior year, an increase of 45%.
•Average number of provider clients was 2,097 in the quarter as compared to 1,737 in the same period in the prior year, an increase of 21%.
•Average revenue per provider client was $19,299 in the quarter compared to $17,490 in the same period in the prior year, an increase of 10%.
•Adjusted EBITDA was negative $17.6 million in the quarter compared to positive $1.2 million in the same period in the prior year, reflecting increased growth investment.
•Cash and cash equivalents as of October 31, 2021 was $400.4 million, an increase of $181.6 million compared to January 31, 2021, driven primarily by our follow-on offering of common stock, which generated net proceeds of $245.8 million, partially offset by cash used for operating activities, capital expenditures and payments of finance leases and other debt.
Outlook for Fiscal 2022
We are increasing our revenue outlook for Fiscal Year 2022 to $211 million from our previously announced range of $195 million to $198 million. Our Adjusted EBITDA outlook for Fiscal Year 2022 is negative $64 million. We expect revenue for Fiscal Year 2023 to grow in the range of 20 to 25% above Fiscal Year 2022 revenue. We also anticipate a continued acceleration in investments in Fiscal Year 2023 from Fiscal Year 2022 levels and will provide an outlook for Adjusted EBITDA for Fiscal Year 2023 when we release our full Fiscal Year 2022 results in March 2022.
Stakeholder Letter and Conference Call Information
For additional information about our quarterly results, please refer to our Quarterly Stakeholder Letter that was furnished with our Form 8-K, which was filed with the SEC and can be found at ir.phreesia.com. The Company will hold a conference call on Thursday, December 9, 2021, at 8:45 a.m. Eastern Time to review the Company’s third fiscal quarter financial results. To participate in the Company’s live conference call and webcast, please dial (866) 211-4557 (or (647) 689-6750 for international participants) using conference code number 7489917 or visit the “Events & Presentations” section of ir.phreesia.com. A replay of the call will be available via webcast for on-demand listening shortly after the completion of the call, at the same web link, and will remain available for approximately 90 days.
Recent Events
Addition of Insignia Health, LLC to Phreesia
On December 3, 2021, Phreesia entered into an agreement to acquire Insignia Health, LLC, a founder-led and mission-oriented company, for $35 million in cash, subject to customary purchase price adjustments. We acquired the company from its founders, the University of Oregon and its other holders of membership interest. We have closely followed Insignia for several years, and long admired the company's background in academic research and its commitment to improving health outcomes through an extensively validated approach to helping patients become more active and successful managers of their health.
COVID-19
In March 2020, the World Health Organization declared the ongoing outbreak of a novel strain of coronavirus ("COVID-19") a pandemic. There continues to be uncertainty as to the duration and extent to which the global
COVID-19 pandemic, as well as the emergence of new variants, may adversely impact the Company's business operations, financial performance, and results of operations, as well as macroeconomic conditions, at this time.
Phreesia, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
| October 31, 2021 | January 31, 2021 | |||
|---|---|---|---|---|
| (Unaudited) | ||||
| Assets | ||||
| Current: | ||||
| Cash and cash equivalents | $ | 400,395 | $ | 218,781 |
| Settlement assets | 16,323 | 15,488 | ||
| Accounts receivable, net of allowance for doubtful accounts of $705 and $699 as of October 31, 2021 and January 31, 2021, respectively | 35,460 | 29,052 | ||
| Deferred contract acquisition costs | 1,705 | 1,693 | ||
| Prepaid expenses and other current assets | 10,450 | 7,254 | ||
| Total current assets | 464,333 | 272,268 | ||
| Property and equipment, net of accumulated depreciation and amortization of $50,838 and $40,148 as of October 31, 2021 and January 31, 2021, respectively | 32,755 | 26,660 | ||
| Capitalized internal-use software, net of accumulated amortization of $29,838 and $25,476 as of October 31, 2021 and January 31, 2021, respectively | 14,079 | 10,476 | ||
| Operating lease right-of-use assets | 2,005 | 2,654 | ||
| Deferred contract acquisition costs | 2,456 | 1,248 | ||
| Intangible assets, net of accumulated amortization of $907 and $525 as of October 31, 2021 and January 31, 2021, respectively | 2,343 | 2,725 | ||
| Deferred tax asset | 150 | 658 | ||
| Goodwill | 8,211 | 8,307 | ||
| Other assets | 2,795 | 1,670 | ||
| Total assets | $ | 529,127 | $ | 326,666 |
| Liabilities and Stockholders’ Equity | ||||
| Current: | ||||
| Settlement obligations | $ | 16,323 | $ | 15,488 |
| Current portion of finance lease liabilities and other debt | 4,597 | 4,864 | ||
| Current portion of operating lease liabilities | 1,116 | 1,087 | ||
| Accounts payable | 11,602 | 4,389 | ||
| Accrued expenses | 18,885 | 18,324 | ||
| Deferred revenue | 12,434 | 10,838 | ||
| Total current liabilities | 64,957 | 54,990 | ||
| Long-term finance lease liabilities and other debt | 5,134 | 6,471 | ||
| Operating lease liabilities, non-current | 1,117 | 1,899 | ||
| Total liabilities | 71,208 | 63,360 | ||
| Commitments and contingencies | ||||
| Stockholders’ Equity: | ||||
| Common stock, $0.01 par value - 500,000,000 shares authorized as of both October 31, 2021 and January 31, 2021; 51,289,020 and 44,880,883 shares issued as of October 31, 2021 and January 31, 2021, respectively | 513 | 449 | ||
| Additional paid-in capital | 849,450 | 579,599 | ||
| Accumulated deficit | (383,487) | (311,777) | ||
| Treasury stock, at cost, 157,612 and 99,520 shares at October 31, 2021 and January 31, 2021, respectively | (8,557) | (4,965) | ||
| Total Stockholders’ Equity | 457,919 | 263,306 | ||
| Total Liabilities and Stockholders’ Equity | $ | 529,127 | $ | 326,666 |
Phreesia, Inc.
Consolidated Statements of Operations
(Unaudited)
(in thousands, except share and per share data)
| Three months ended October 31, | Nine months ended October 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Revenue: | ||||||||
| Subscription and related services | $ | 24,365 | $ | 17,468 | $ | 69,069 | $ | 50,196 |
| Payment processing fees | 16,111 | 12,917 | 49,061 | 36,452 | ||||
| Life sciences | 15,439 | 8,079 | 37,083 | 20,221 | ||||
| Total revenues | 55,915 | 38,464 | 155,213 | 106,869 | ||||
| Expenses: | ||||||||
| Cost of revenue (excluding depreciation and amortization) | 11,644 | 6,472 | 30,210 | 16,477 | ||||
| Payment processing expense | 9,449 | 7,530 | 28,822 | 21,125 | ||||
| Sales and marketing | 32,036 | 10,481 | 69,215 | 30,013 | ||||
| Research and development | 15,273 | 5,732 | 34,770 | 16,267 | ||||
| General and administrative | 18,021 | 10,370 | 46,936 | 28,721 | ||||
| Depreciation | 3,719 | 2,447 | 10,717 | 7,125 | ||||
| Amortization | 1,513 | 1,546 | 4,744 | 4,531 | ||||
| Total expenses | 91,655 | 44,578 | 225,414 | 124,259 | ||||
| Operating loss | (35,740) | (6,114) | (70,201) | (17,390) | ||||
| Other (expense) income, net | (114) | 62 | (138) | (229) | ||||
| Interest (expense) income, net | (311) | (467) | (756) | (1,206) | ||||
| Total other expense, net | (425) | (405) | (894) | (1,435) | ||||
| Loss before provision for income taxes | (36,165) | (6,519) | (71,095) | (18,825) | ||||
| Provision for income taxes | (178) | (194) | (615) | (371) | ||||
| Net loss | $ | (36,343) | $ | (6,713) | $ | (71,710) | $ | (19,196) |
| Net loss per share attributable to common stockholders, basic and diluted | $ | (0.71) | $ | (0.17) | $ | (1.44) | $ | (0.51) |
| Weighted-average common shares outstanding, basic and diluted | 51,020,271 | 38,511,370 | 49,943,049 | 37,855,503 |
Phreesia, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
| Nine months Ended October 31, | ||||
|---|---|---|---|---|
| 2021 | 2020 | |||
| Operating activities: | ||||
| Net loss | $ | (71,710) | $ | (19,196) |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| Depreciation and amortization | 15,461 | 11,656 | ||
| Stock-based compensation expense | 25,976 | 9,616 | ||
| Amortization of deferred financing costs and debt discount | 216 | 318 | ||
| Cost of Phreesia hardware purchased by customers | 449 | 604 | ||
| Deferred contract acquisition costs amortization | 1,709 | 2,280 | ||
| Non-cash operating lease expense | 730 | 1,228 | ||
| Change in fair value of contingent consideration liabilities | 209 | — | ||
| Deferred tax asset | 508 | 279 | ||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (6,408) | (5,616) | ||
| Prepaid expenses and other assets | (5,686) | (1,940) | ||
| Deferred contract acquisition costs | (2,929) | (1,901) | ||
| Accounts payable | 9,490 | (2,300) | ||
| Accrued expenses and other liabilities | (5,563) | 3,982 | ||
| Lease liability | (779) | (1,419) | ||
| Deferred revenue | 1,596 | 1,222 | ||
| Net cash used in operating activities | (36,731) | (1,187) | ||
| Investing activities: | ||||
| Capitalized internal-use software | (7,962) | (4,663) | ||
| Purchase of property and equipment | (16,596) | (6,440) | ||
| Net cash used in investing activities | (24,558) | (11,103) | ||
| Financing activities: | ||||
| Proceeds from issuance of common stock in equity offerings, net of underwriters' discounts and commissions | 245,813 | 174,800 | ||
| Proceeds from issuance of common stock upon exercise of stock options | 4,062 | 3,351 | ||
| Treasury stock to satisfy tax withholdings on stock compensation awards | (3,546) | (869) | ||
| Payment of offering costs | — | (226) | ||
| Proceeds from employee stock purchase plan | 1,147 | — | ||
| Insurance financing agreement | — | 2,009 | ||
| Finance lease payments | (3,175) | (1,797) | ||
| Principal payments on financing agreements | (873) | (881) | ||
| Debt issuance costs | — | (69) | ||
| Loan facility fee payment | (125) | (225) | ||
| Payment of contingent consideration for acquisitions | (400) | — | ||
| Net cash provided by financing activities | 242,903 | 176,093 | ||
| Net increase in cash and cash equivalents | 181,614 | 163,803 | ||
| Cash and cash equivalents – beginning of period | 218,781 | 90,315 | ||
| Cash and cash equivalents – end of period | $ | 400,395 | $ | 254,118 |
| Supplemental information of non-cash investing and financing information: | ||||
| --- | --- | --- | --- | --- |
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | 81 | $ | 4,420 |
| Property and equipment acquisitions through finance leases | $ | 2,645 | $ | 6,050 |
| Capitalized software acquired through vendor financing | $ | — | $ | 174 |
| Cashless transfer of term loan and related accrued fees into increase in debt balance | $ | — | $ | 20,257 |
| Cashless transfer of lender fees through increase in debt balance | $ | — | $ | 406 |
| Deferred offering costs included in accounts payable and accrued liabilities | $ | — | $ | 64 |
| Purchase of property and equipment and capitalized software included in accounts payable | $ | 1,082 | $ | 1,681 |
| Capitalized stock-based compensation | $ | 279 | $ | — |
| Cash payments for: | ||||
| Interest | $ | 578 | $ | 1,047 |
Non-GAAP financial measures
Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or loss or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity. We define Adjusted EBITDA as net income or loss before interest expense (income), net, provision for income taxes, depreciation and amortization, and before stock-based compensation expense, change in fair value of contingent consideration liabilities and other expense (income), net.
We have provided below a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure. We have presented Adjusted EBITDA in this press release and our Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short and long-term operational plans. In particular, we believe that the exclusion of the amounts eliminated in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. Phreesia has not reconciled its Adjusted EBITDA outlook to GAAP Net income (loss) because it does not provide an outlook for GAAP Net income (loss) due to the uncertainty and potential variability of Other income, net and Provision for (benefit from) income taxes, which are reconciling items between Adjusted EBITDA and GAAP Net income (loss). Because Phreesia cannot reasonably predict such items, a reconciliation of the non-GAAP financial measure outlook to the corresponding GAAP measure is not available without unreasonable effort. We caution, however, that such items could have a significant impact on the calculation of GAAP Net income (loss).
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are as follows:
•Although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) the potentially dilutive impact of non-cash stock-based compensation; (3) tax payments that may represent a reduction in cash available to us; or (4) Interest expense (income), net; and
•Other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure.
Because of these and other limitations, you should consider Adjusted EBITDA along with other GAAP-based financial performance measures, including various cash flow metrics, net loss, and our GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net loss for each of the periods indicated:
Phreesia, Inc.
Adjusted EBITDA (Unaudited)
| Three months ended October 31, | Nine months ended October 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| Net loss | $ | (36,343) | $ | (6,713) | $ | (71,710) | $ | (19,196) |
| Interest expense (income), net | 311 | 467 | 756 | 1,206 | ||||
| Provision for income taxes | 178 | 194 | 615 | 371 | ||||
| Depreciation and amortization | 5,232 | 3,993 | 15,461 | 11,656 | ||||
| Stock-based compensation expense | 12,929 | 3,316 | 25,976 | 9,616 | ||||
| Change in fair value of contingent consideration liabilities | — | — | 209 | — | ||||
| Other expense (income), net | 114 | (62) | 138 | 229 | ||||
| Adjusted EBITDA | $ | (17,579) | $ | 1,195 | $ | (28,555) | $ | 3,882 |
Phreesia, Inc.
Reconciliation of GAAP and Adjusted Operating Expenses (Unaudited)
| Three months ended October 31, | Nine months ended October 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| (in thousands) | 2021 | 2020 | 2021 | 2020 | ||||
| GAAP operating expenses | ||||||||
| General and administrative | $ | 18,021 | $ | 10,370 | $ | 46,936 | $ | 28,721 |
| Sales and marketing | 32,036 | 10,481 | 69,215 | 30,013 | ||||
| Research and development | 15,273 | 5,732 | 34,770 | 16,267 | ||||
| Cost of revenue | 11,644 | 6,472 | 30,210 | 16,477 | ||||
| $ | 76,974 | $ | 33,055 | $ | 181,131 | $ | 91,478 | |
| Stock compensation included in GAAP operating expenses | ||||||||
| General and administrative | $ | 4,943 | 1,635 | $ | 11,237 | $ | 5,169 | |
| Sales and marketing | 5,169 | 1,008 | 9,046 | 2,530 | ||||
| Research and development | 2,224 | 470 | 4,212 | 1,494 | ||||
| Cost of revenue | 593 | 203 | $ | 1,481 | $ | 423 | ||
| $ | 12,929 | $ | 3,316 | $ | 25,976 | $ | 9,616 | |
| Adjusted operating expenses | ||||||||
| General and administrative | $ | 13,078 | $ | 8,735 | $ | 35,699 | $ | 23,552 |
| Sales and marketing | 26,867 | 9,473 | 60,169 | 27,483 | ||||
| Research and development | 13,049 | 5,262 | 30,558 | 14,773 | ||||
| Cost of revenue | 11,051 | 6,269 | 28,729 | 16,054 | ||||
| $ | 64,045 | $ | 29,739 | $ | 155,155 | $ | 81,862 |
Phreesia, Inc. Key Metrics (Unaudited)
| Three months ended October 31, | Nine months ended October 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Key Metrics: | ||||||||
| Provider clients (average over period) | 2,097 | 1,737 | 1,996 | 1,679 | ||||
| Average revenue per provider client | $ | 19,299 | $ | 17,490 | $ | 59,196 | $ | 51,604 |
•Provider clients. We define provider clients as the average number of healthcare provider organizations that generate revenue each month during the applicable period. In cases where we act as a subcontractor providing white-label services to our partner's clients, we treat the contractual relationship as a single provider client. We believe growth in the number of provider clients is a key indicator of the performance of our business and depends, in part, on our ability to successfully develop and market our Platform to healthcare provider organizations that are not yet clients. While growth in the number of provider clients is an important indicator of expected revenue growth, it also informs our management of the areas of our business that will require further investment to support expected future provider client growth. For example, as the number of provider clients increases, we may need to add to our customer support team and invest to maintain effectiveness and performance of our Platform and software for our provider clients and their patients.
•Average revenue per provider client. We define average revenue per provider client as the total subscription and related services and payment processing revenue generated from provider clients in a given period divided by the average number of provider clients that generate revenue each month during that same period. We are focused on continually delivering value to our provider clients and believe that our ability to increase average revenue per provider client is an indicator of the long-term value of the Phreesia platform.
Additional Information
(Unaudited)
| Three months ended<br>October 31, | Nine months ended <br>October 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Patient payment volume (in millions) | $ | 682 | $ | 524 | $ | 2,079 | $ | 1,445 | ||||
| Payment facilitator volume percentage | 79 | % | 80 | % | 78 | % | 82 | % |
•Patient payment volume. We believe that patient payment volume is an indicator of both the underlying health of our provider clients’ businesses and the continuing shift of healthcare costs to patients. We measure patient payment volume as the total dollar volume of transactions between our provider clients and their patients utilizing our payment platform, including via credit and debit cards that we process as a payment facilitator as well as cash and check payments and credit and debit transactions for which Phreesia acts as a gateway to other payment processors.
•Payment facilitator volume percentage. We define payment facilitator volume percentage as the volume of credit and debit card patient payment volume that we process as a payment facilitator as a percentage of total patient payment volume. Payment facilitator volume is a major driver of our payment processing revenue.
Available Information
Phreesia intends to use its Company website (including its Investor Relations website) as well as its Facebook, Twitter and LinkedIn accounts as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.
Forward Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended that involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance and may contain projections of our future results of operations or of our financial information or state other forward-looking information. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. 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; and our ability to realize the intended benefits of our acquisitions. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission (“SEC”), including in our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2021 that will be filed with the SEC following this press release. The forward-looking statements in this press release 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 made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements.
This press release includes certain non-GAAP financial measures as defined by SEC rules. We have provided a reconciliation of those measures to the most directly comparable GAAP measures.
ABOUT PHREESIA
Phreesia gives healthcare organizations a suite of robust applications to manage the patient intake process. Our innovative SaaS platform engages patients in their care and provides a modern, consistent experience, while enabling healthcare organizations to optimize their staffing, boost profitability and enhance clinical care.
Investors:
Balaji Gandhi
Phreesia, Inc.
investors@phreesia.com
(929) 506-4950
Media:
Annie Harris
Phreesia, Inc.
aharris@phreesia.com
(929) 526-2611
phrex992quarterlystakeho
Quarterly Stakeholder Letter THIRD QUARTER | FISCAL YEAR 2022
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 2 Dear Phreesia stakeholders, We celebrated an important milestone in September when we exceeded 100 million patient visits enabled by our platform over the previous 12 months. The entire Phreesia team has contributed to this achievement, and I would like to congratulate each and every member of our organization on reaching this milestone. It 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 help them create a better, more engaging healthcare experience. As our capabilities have grown, so too has our impact on each patient visit. Our tools now extend beyond patient registration and revenue cycle management, enabling healthcare organizations to improve patient outcomes through our access, activation and digital engagement offerings. This expansion would not be possible without the significant growth of our team. We have invested in leadership development over many years, both by promoting strong performers within our organization and by recruiting high-caliber talent to Phreesia. I would like to acknowledge all of Phreesia’s managers, whose consistent leadership has enabled us to deliver for our clients as we continue to experience significant growth. It’s due to their excellence that Phreesia was recently recognized as one of Inc.’s Best-Led Companies of 2021. As we move into the final quarter of Fiscal Year 2022 and look ahead to the new year, we will continue to allocate capital based on our team’s ongoing review of opportunities and our performance against our expectations. We wish all of our stakeholders a happy, safe and healthy holiday season, and we look forward to reconnecting in 2022. On behalf of the leadership team, thank you for your interest in Phreesia. Chaim Indig Co-Founder and Chief Executive Officer DECEMBER 8, 2021
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 3 Fiscal Year 2022 Third-Quarter Highlights We saw strong growth across Total Provider and Life Sciences Revenue, Average Number of Provider Clients and Average Revenue per Provider Client in the quarter. KEY PERFORMANCE METRICS $15.4 Provider Clients Our product-led go-to-market strategy continues to drive provider network growth. In the third quarter, we supported an average of 2,097 provider clients, an increase of 110 clients over the previous quarter, and an increase of 360 clients over the previous year’s third quarter. Our year-over-year client growth is a noteworthy achievement, and we are very pleased with the win rate and close rate metrics we monitor regularly. Phreesia’s value propositions in cash-flow improvement and labor productivity have been key drivers of client growth for many years. Those areas have become even more important over the past several months, as countless media reports have described healthcare
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 4 Click to watch the webinar organizations curtailing their operating hours and reducing their number of beds—or, even worse, shutting their doors altogether—due to staffing shortages and the COVID-19 pandemic. Meeting healthcare staffing demands is not a new challenge; medical practices and health systems have had trouble finding employees for years. But today, that problem has turned into a full-fledged crisis. In a recent webinar hosted by Phreesia, medical practice operations and revenue cycle management expert Elizabeth Woodcock, DrPH, MBA, FACMPE, CPC, discussed the current staffing landscape and strategies to help weather the labor shortage, encouraging healthcare organizations to embrace technology and automation to improve the patient experience—and increase employee retention. Staff turnover is reaching new, unfortunate heights. The staffing crisis is not a short-term issue that can be overcome in six months. The result of COVID-19 is that your staff can work for anyone, anywhere in the world, from home. We need to fundamentally change the way we do things— automation alone isn’t enough; we have to use technology to optimize the way we work.” —ELIZABETH WOODCOCK, DRPH, MBA, FACMPE, CPC Many clients have told us that they are relying on Phreesia’s digital tools to help them sustain their operational and financial health amid staffing challenges, and to position themselves for ongoing success. We will continue to dedicate ourselves to providing our clients with the resources they need to work safely and efficiently. Through the Phreesia Dashboard, we can have our patients register on their own device, notify them to wait in their cars and direct them to the appropriate area for care. We have eliminated countless hours of redundant work, freeing our staff to do other important tasks.” —PHILIP COBURN, CHIEF OPERATING OFFICER, TRUSTCARE HEALTH
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 5 Subscription and Related Services Our Subscription and Related Services’ revenue growth of 39% in the third quarter reflects investments we initiated and accelerated in prior years. In addition to the increased size and scale of our teams that enable speed and ease of sales and onboarding, our investments in new products and client success are helping to expand our footprint with existing clients. Our Patient Chat offering is just one example of how these investments have delivered value to existing Phreesia clients. We launched Patient Chat, our two-way text-messaging product, in Fiscal Year 2020 to help our clients reach patients more quickly and reliably, and to meet patients’ expectations of increased access to digital tools. A March 2021 survey conducted on Phreesia’s intake platform found that patients are increasingly comfortable using digital communication tools like text messaging in healthcare settings. Not only do our clients tell us how much their patients appreciate the convenience, we see the evidence in our data: As of October 2021, our attach rate for Patient Chat was roughly 50%. While many team members across the organization have contributed to this achievement, the work of our Product Management, Engineering and Client Solutions teams has been pivotal to the development and deployment of our Patient Chat offering over the past two years. We believe the investments we have made across these three functional areas have given us the strength and agility to quickly build and deploy new products to existing clients. THE PHREESIA PLATFORM
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 6 Payment Processing Update Our patient payment volume grew 30% over the prior year’s third quarter and decreased a slight 2% over the previous quarter. We anticipated and assumed a dynamic environment in patient visits and payments and incorporated this into our previous revenue outlook. Our payment-facilitator volume percentage was 79%, down 70 basis points year-over-year and up 100 basis points from the previous quarter. The year-over-year decline reflects an increase in the number of clients who utilize Phreesia as a payment gateway but not as a payment facilitator. We anticipate that our payment-facilitator volume percentage will decline slightly over time as we increase our penetration of larger health systems that are less likely to use Phreesia as a payment facilitator. PAYMENT PROCESSING VOLUME TRENDS • Patient payment volume: We believe that patient payment volume is an indicator of both the underlying health of our provider clients’ businesses and the continuing shift of healthcare costs to patients. We measure patient payment volume as the total dollar volume of transactions between our provider clients and their patients who utilize our payment platform, including via credit and debit cards that we process as a payment facilitator, as well as through cash and check payments, and credit and debit transactions for which Phreesia acts as a gateway to other payment processors. • Payment facilitator volume percentage: We define payment facilitator volume percentage as the volume of credit and debit card patient payment volume that we process as a payment facilitator as a percentage of total patient payment volume. Payment facilitator volume is a major driver of our payment processing revenue. Life Sciences Our Life Sciences team was a key contributor to our overall performance, as evidenced by the area’s exceptional 91% year-over-year revenue growth in the quarter. We believe our overall value proposition is resonating well in the market. Our team had many opportunities over the quarter to highlight new survey data collected on Phreesia’s platform, including articles featuring our research on patients’ use of support programs and vaccine education, and engaging social media posts to drive awareness about vaccine hesitancy and misinformation.
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 7 Our Life Sciences colleagues also spoke as thought leaders on numerous webinars and panels, and authored blog posts such as these pieces on the opportunity to drive medication adherence with point-of-care marketing and the advantages of point-of-care marketing as third-party cookies are phased out. Top Leaders in SaaS For the fourth consecutive year, a Phreesian was recognized in The Software Report’s Top 50 Woman Leaders in SaaS. In October, our General Counsel, Allison Hoffman, was named to the 2021 list. Honorees are chosen based on their demonstrated leadership capabilities, career track record and quantifiable contributions to the Software-as-a-Service (SaaS) industry. Our CEO, Chaim Indig, also was recognized by The Software Report as one of its Top 50 SaaS CEOs of 2021. We are thrilled to see our leaders continue to receive well-deserved recognition for their contributions to our field. Source: Phreesia
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 8 Information Security and Compliance In September, our platform earned renewed HITRUST CSF Certification for information security. This designation validates Phreesia’s commitment to meeting key regulations and protecting sensitive information. This recertification underscores Phreesia’s dedication to safeguarding sensitive personal health and financial information. We prioritize security in every decision we make as an organization. This continual third-party examination gives patients and providers using our platform confidence that their information is safe with Phreesia.” —WES SHRINER, SENIOR DIRECTOR OF INFORMATION SECURITY, PHREESIA In addition to our HITRUST CSF Certification renewal, Phreesia’s commitment to privacy and security is evidenced by top industry credentials such as SOC 2 Type 2 certification, PCI Point- to-Point Encryption (P2PE) validation and recognition as a Level 1 PCI DSS service provider.
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 9 Investments in Growth We ended the quarter with 1,490 employees, an increase of 252 team members over the previous quarter and 764 employees over the previous year. We hired more staff in every area of our organization with the most significant increases in our sales, marketing and engineering teams. Our hiring activity is an important aspect of our capital allocation strategy. However, as we have previously communicated, growth is not free. We believe it is important to reward our team members for their past, current and expected future performance. Total compensation increases represented approximately 13% of year-over-year increases in our third-quarter operating expenses: Cost of Revenue, Sales & Marketing, Research & Development and General & Administrative. We know we ask a lot of our team, and our results over the past several quarters reflect their ability to meet the demands of a rapidly growing company in a diverse and complex industry. Our recent compensation increases are a recognition of the high-caliber talent across our organization, and we continue to compensate our team very well in a highly competitive environment. OPERATING EXPENSE TRENDS
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 10 Addition of Insignia Health, LLC to Phreesia On December 3, Phreesia entered into an agreement to acquire Insignia Health, LLC, a founder-led and mission-oriented company, for $35 million in cash, subject to customary purchase price adjustments. We acquired the company from its founders, the University of Oregon and its other holders of membership interest. We have closely followed Insignia for several years, and long admired the company’s background in academic research and its commitment to improving health outcomes through an extensively validated approach to helping patients become more active and successful managers of their health. Insignia has an exclusive worldwide license for the Patient Activation Measure (PAM®), which was created by a team of researchers at the University of Oregon led by Dr. Judith Hibbard, who has joined Phreesia in an advisory role. PAM is widely known as the gold standard of patient activation measures, supported by more than 700 peer-reviewed studies published in leading healthcare journals over the past 17 years. The research validates that the brief PAM survey can accurately measure a patient’s level of “activation”—their knowledge, skills and confidence for self-management—which correlates to a patient’s current and future health outcomes. PAM results are used to improve risk identification, guide patient support and evaluate impact as a patient-reported outcome measure (PROM). PAM is the only measure of patient activation to receive an endorsement by the National Quality Forum (NQF), and the only one to be utilized by the U.S. Centers for Medicare and Medicaid Services (CMS) and the U.K.’s National Health Service (NHS) beginning in 2019 and 2017, respectively. Since its founding, Phreesia has put tools in the hands of patients because we believe all patients want the opportunity to participate in their care. Our commitment to driving high rates of self-service utilization has made us experts in reaching the vast majority of patients where they are, leading to better overall experience, data and outcomes. With PAM and related activation-based coaching and patient education solutions, Insignia brings to Phreesia a proprietary and universally accepted model that will enable us to understand and engage patients in more personalized ways based on their level of activation. We believe that this acquisition is a natural extension of our core strengths and aligns with our mission to create a better, more engaging healthcare experience. Cash Flow In addition to income statement line items, we are increasingly investing in property and equipment purchases such as data-center equipment and capitalized software that support our ongoing growth and product expansion.
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 11 CASH FLOW FROM OPERATIONS AND CAPITAL EXPENDITURES Updated Outlook for Fiscal Year 2022 We are increasing our revenue outlook for Fiscal Year 2022 to $211 million from our previously announced range of $195 million to $198 million. Our Adjusted EBITDA1 outlook for Fiscal Year 2022 is negative $64 million. With fewer than eight weeks remaining in our fiscal year, we have sufficient visibility to eliminate a range for our outlook for the next year. We expect revenue for Fiscal Year 2023 to grow in the range of 20 to 25% above Fiscal Year 2022 revenue. We also anticipate a continued acceleration in investments in Fiscal Year 2023 from Fiscal Year 2022 levels, and will provide an outlook for Adjusted EBITDA for Fiscal Year 2023 when we release our full Fiscal Year 2022 results in March 2022. We do not expect the Insignia Health acquisition to have a material impact on our Fiscal 2022 and Fiscal 2023 results. 1 We have presented Adjusted EBITDA in this letter and our Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short and long-term operational plans. Adjusted EBITDA is a supplemental measure of our performance that is not required by, or presented in accordance with, GAAP. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income or loss or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity. Phreesia has not reconciled its Adjusted EBITDA outlook to GAAP Net income (loss) because it does not provide an outlook for GAAP Net income (loss) due to the uncertainty and potential variability of Other income, net and Provision for (benefit from) income taxes, which are reconciling items between Adjusted EBITDA and GAAP Net income (loss). Because Phreesia cannot reasonably predict such items, a reconciliation of the non-GAAP financial measure outlook to the corresponding GAAP measure is not available without unreasonable effort. We caution, however, that such items could have a significant impact on the calculation of GAAP Net income (loss).
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 12 Forward Looking Statements This stakeholder letter includes express or implied statements that are not historical facts and are considered forward-looking within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Forward-looking statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance and may contain projections of our future results of operations or of our financial information or state other forward-looking information. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. 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; our ability to attract, retain and cross-sell to healthcare provider clients and our ability to realize the intended benefits of our acquisitions. The forward-looking statements contained in this letter are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission (“SEC”), including in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, and in our Quarterly Report on Form 10-Q that will be filed with the SEC following this letter. The forward-looking statements in this letter 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 made in this letter to reflect events or circumstances after the date of this letter or to reflect new information or the occurrence of unanticipated events, except as required by law.
QUARTERLY STAKEHOLDER LETTER | THIRD QUARTER 2022 | 13 About Phreesia Phreesia gives healthcare organizations a suite of robust applications to manage the patient intake process. Our innovative SaaS platform engages patients in their healthcare and provides a modern, convenient experience, while enabling our clients to enhance clinical care and drive efficiency. INVESTOR RELATIONS CONTACT: Balaji Gandhi, investors@phreesia.com MEDIA CONTACT: Annie Harris, aharris@phreesia.com