Earnings Call Transcript
Phreesia, Inc. (PHR)
Earnings Call Transcript - PHR Q2 2026
Operator, Operator
Good morning, ladies and gentlemen. And welcome to the Phreesia Second Quarter Fiscal 2026 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.
Balaji Gandhi, CFO
Thank you, Operator. Good morning, and welcome to Phreesia's earnings conference call for the 2026 fiscal year, which ended on July 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. As a reminder, today's call is being recorded, and a replay will be available on our Investor website following the conclusion of the call. During today's call, we may make forward-looking 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 and acquisitions. 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 and in our risk factors included in our SEC filings. 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 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. You may also refer to certain financial measures not in accordance with generally accepted accounting principles, such as adjusted EBITDA and free cash flows, for additional information. These non-GAAP measures should be considered in addition to and not as a substitute for our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and stakeholder letter. 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 our second quarter fiscal year 2026 earnings call. I'd like to begin with some exciting news. Earlier today, Phreesia announced a definitive agreement to acquire AccessOne for $160 million. AccessOne is a market leader in healthcare provider financing, serving many of the nation's largest health systems. We have followed AccessOne's progress over many years and admired its approach to addressing a critical gap in care that is consistent with our mission of making care easier every day. AccessOne will expand our addressable market by roughly $6 billion and strengthen our ability to help providers improve collections while preserving patient trust. We believe this acquisition is a natural extension of our payment strategy and will complement Phreesia's existing products. Balaji will provide some details on the transaction. We look forward to welcoming the AccessOne team to Phreesia following the close of the transaction. I am also proud to share that Phreesia achieved an important milestone in the second quarter. For the first time in our history, we were net income positive. As with all of our milestones, achieving positive net income does not represent a finish line. However, this milestone does give us all a great sense of pride and accomplishment in capturing the power of our unique business and financial model and our team's ongoing commitment to being good stewards of capital. Before turning the call over to Balaji, I would like to congratulate my cofounder, Evan Roberts, and David Lanesky on being named President of Provider Solutions and Network Solutions, respectively. These titles reflect their leadership of the provider and network solutions teams, meeting the needs of our clients, and executing on our mission, vision, and values. Evan and David are also invaluable thought partners to me, and I'm pleased to share their titles with you. I'll now turn it over to Balaji to provide some additional details on the AccessOne transaction and provide a review of our results and updated outlook.
Balaji Gandhi, CFO
Thank you, Chaim. First, I also want to congratulate Evan and David on their new titles. Now for some details on the AccessOne transaction. As outlined in our press release and stakeholder letter, the purchase price for AccessOne is $160 million in cash. Phreesia intends to finance the acquisition through a combination of cash from our balance sheet and a new fully committed bridge loan facility. The transaction is expected to close during the third quarter or early fourth quarter of Phreesia's 2026 fiscal year, subject to customary closing conditions and regulatory approvals. We currently expect AccessOne to contribute approximately $35 million in annualized revenue and approximately $11 million in annualized adjusted EBITDA. Once the acquisition is closed, we plan to update our fiscal 2026 outlook to reflect the expected contribution to our results. Overall, we believe this transaction will strengthen Phreesia's financial profile, add profitable growth, and enhance our ability to support clients with innovative payment solutions. We look forward to closing the transaction and working with the AccessOne team. I would also like to touch on our updated total addressable market. The AccessOne acquisition is expected to expand our addressable market by about $6 billion by extending our reach in the payment solution space. We also increased our network solutions TAM by $6 billion as we expect to be able to draw from a larger pool of life sciences marketing dollars as our products become more ubiquitous across our network. Combined, the expansion of our payments and network solutions addressable markets is expected to increase our TAM approximately $24 billion from approximately $10 billion. Now let me provide a few comments around our second quarter results. Total revenue was $117.3 million, an increase of 15% year over year. We are very pleased with our performance on the top line. We ended with average healthcare services clients of 4,467, an increase of 56 AHSCs from the prior quarter and 298 from the prior year. This result was in line with our expectation. Total revenue per average healthcare services client was $26,249, up 7% year over year and flat quarter over quarter, also in line with our expectation. Moving on to profitability. As Chaim mentioned, we achieved another major milestone this quarter with net income of $700,000, our first-ever positive net income quarter. Adjusted EBITDA was $22 million, an increase of $16 million year over year, with an adjusted EBITDA margin of 19%. Now turning to the balance sheet and cash flow. We ended the quarter with $98.3 million in cash and cash equivalents. This compares to $90.9 million in the prior quarter. Operating cash flow was $14.8 million, up $3.8 million year over year. Free cash flow was $9.6 million, up $6 million year over year. We have now achieved positive operating cash flow and free cash flow for four consecutive quarters. We expect that the magnitude of cash flow improvement on a quarter-to-quarter basis may vary based on the specific timing of invoicing and payments, which you can see in working capital, along with CapEx. Our second quarter results reflect the continued strength of our operating leverage and revenue growth. I would like to thank the entire Phreesia team for balancing the priorities associated with our mission and values and being good stewards of capital, which helped us achieve positive net income for the first time in our history. Transitioning now to our financial outlook for fiscal 2026. We are maintaining our revenue outlook for fiscal year 2026 at a range of $472 to $482 million. We are updating our adjusted EBITDA outlook for fiscal year 2026 to a range of $87 million to $92 million from a previous range of $85 million to $90 million. That's a $2 million increase at the top and bottom ends of the previous range. We are reiterating our outlook on AHSCs to reach approximately 4,500 in fiscal year 2026 and for total revenue per AHSC to increase in fiscal 2026 compared to fiscal 2025. As I mentioned earlier, we expect to update our fiscal 2026 financial outlook following the close of the AccessOne transaction. Operator, we can now begin the Q&A session.
Operator, Operator
We will now begin the question and answer session. If you'd like to ask a question at this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press 1 again. We will be limiting participants to one question to ensure we give everyone a chance to ask one and come back for follow-ups. Your first question comes from the line of Jared Haas with William Blair. Please go ahead.
Jared Haas, Analyst
Hey. Thanks for taking the questions and congrats on the deal. Maybe I'll just ask the first one on AccessOne. Would love to hear a little bit more just how that deal developed over time and I guess, what gives you the comfort that this is the right market for what seems like a fairly large-scale deal relative to what you've done in the past?
Chaim Indig, CEO
Yeah. So, look, we've been looking at the space for years. We've known this company for many, many years. And a lot of the executives there. We felt a lot of comfort just having watched it. And, look, it's a part of the market we haven't been able to play because of both product and regulatory requirements. And it's something our customers have said would really be beneficial to them. So we felt pretty good about that. We also, frankly, think it aligns really well with our mission of making care easier every day. All the pieces sort of came together. And when it became available, we moved pretty aggressively. But it's something we've been watching and paying attention to for years. It wasn't a last-minute decision. It was actually something we thought we talked about as a team for years. And we thought it was something in our arsenal that would make a lot of sense to the patients and providers we serve.
Operator, Operator
Your next question comes from the line of Jailendra Singh with Tru Securities. Please go ahead.
Jailendra Singh, Analyst
Thank you. Congrats on the deal. But I want to ask about the Phreesia Voice AI product you guys launched during the quarter. Seems like a pretty exciting product for both patients and providers, but can you help us better understand how this product will drive opportunities in the network solutions business because that's where you are increasing the TAM pretty substantially? Just given all the incumbent players in SAP pharma marketing, just explain it to us, like, what gives you confidence in terms of getting some traction in that market?
Chaim Indig, CEO
Yeah. Thanks, Jailendra. We did want to take the opportunity to talk about this product because we're very excited about it. It's off to a great start. I think as we've talked about really over several years now, think about the business holistically, these products that we introduce in the market. When they benefit providers and benefit patients, there are opportunities that create more engagement opportunities for our network solutions revenue. This is just one example. Also, I want to take the opportunity to explain that sizing and that TAM that's been increased. I wouldn't read too much into the timing of the two being linked. Probably something we would have introduced earlier, and we're choosing to do it now. We are very excited about this product, Jailendra. It's growing rapidly. The feedback we're getting from this product from the provider network is like nothing I've seen before. So we're really excited. The investments we're making in it, a lot of these are investments we've been making for quite some time, and now we feel more comfortable talking about them since this product's been forthright across the network.
Operator, Operator
Your next question comes from the line of Jeff Garro with Stephens Incorporated. Please go ahead.
Jeff Garro, Analyst
Yeah. Thanks for taking the question. Maybe we'll stick with Voice AI. And I want to ask where this product sits between a call center type answering service and a nurse triage line, and really, it sounds like it can handle some clinical questions, but do you think it can handle more clinical questions in time?
Chaim Indig, CEO
Thanks. So the answer is yes. We think it will. And we think it's really it's not, I think. I know today it is also already providing massive value to doctors. They're using it. The feedback is phenomenal from the providers that are using it. Yes, it's also helping call center folks. It's helping prescription refills. It's helping with appointment booking. It is rapidly helping all of our clients in all different types of scenarios, and I'm just so excited about this product. It's something that's been rolling out into the network for quite some time, and we're now just excited that we get to talk about it.
Operator, Operator
Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.
Richard Close, Analyst
Yeah. Thanks for the questions. Congratulations on the quarter and the acquisition. Just on the new products, Voice AI, the AI referrals, and the out-of-network tags, I'm just curious. Are all three on this no-risk, no-cost model right now here, and then how long do you think that'll be until some of these new products, new functionality can begin to be a positive driver to the revenue per AHSC? Just curious.
Chaim Indig, CEO
So we believe very strongly as a company that when you have good products, the products should lead with themselves. So, yeah, we let all of our products at any time any one of our clients could use them at no cost, and we expect over time, all of these products will have a material impact on our revenue. They also just have a material impact on the revenue and productivity of our clients, which also flows through to our core value proposition. I am not worried about them in the near future having an impact on our financials as they're already having an impact on the financials for our clients. Just in terms of the actual flow-through, I don't think any of this is different than some of the products we introduced in recent years. Where it's contributing today, and the total revenue per AHSC growth that you're seeing is sort of that waterfall effect, and this will be no different. That's a big strength of Phreesia's business model.
Operator, Operator
Your next question comes from the line of Scott Schoenhaus with KeyBanc Capital Markets. Please go ahead.
Scott Schoenhaus, Analyst
Hey, guys. Congrats on the quarter and acquisition. You reported a healthy 25% growth rate in network solutions. AccessOne expands your team in life sciences. It seems like just from a quick glance, AccessOne is already embedded in health systems with special network groups. Maybe you could just walk through the opportunities on the network solution side. It seems like you've now more touchpoints with patients in the payment process. Multiple points of engagement. Maybe you can drive more incremental revenue opportunities in network solutions via this acquisition. So just help us walk through those opportunities, please.
Chaim Indig, CEO
Yeah. So, Scott, let me clarify one thing. We see the AccessOne acquisition aligned with the increase in the TAM in our payment solutions category, which is about $6 billion. I think you can look it up yourself. That's how you should think about AccessOne in terms of the near-term opportunity for us. They work closely with lots of great partners in the health system space, but also with other types of medical groups.
Operator, Operator
Your next question comes from the line of Jessica Tassan with Piper Sandler. Please go ahead.
Jessica Tassan, Analyst
Hi, guys. Thanks so much for taking the question, and congrats on the deal. On the AccessOne, just the payment extensions to patients, can you help us understand who bears risk for those dollars as you wait to collect? Thanks.
Chaim Indig, CEO
Sure, Jess. This is really important to understand. We are not the risk bearer in this relationship. We're able to offer our provider clients of AccessOne a more robust payment offering. The capital, there's an important partner in this, and there are press releases that you can look up from 2023. That partner is PNC Bank, obviously, one of the largest banks in the country. So the risk is shared between PNC Bank and the provider itself. You should think about us as really helping to drive better solutions to patients in a technology-first way.
Operator, Operator
Your next question comes from the line of Ryan McDonald with Needham and Company. Please go ahead.
Ryan McDonald, Analyst
Thanks for taking my questions. Maybe on AccessOne, how should we think about the mix of revenue between just pure interest being collected from payment plans relative to fees charged for the 0% interest rate plan they're offering? And then as we think about the cross-sell opportunity once the acquisition's integrated here, do you think there is a near-term opportunity to sort of cross-sell AccessOne into your core base or move more of your core subscription offerings, core product offerings up into the health system base that AccessOne's already serving? Thanks.
Chaim Indig, CEO
We're very excited about this. Excited to talk about it today. But the transaction hasn't closed. So we're more than happy to talk a lot more about our plans, but we have to close this transaction first. Hopefully, everyone appreciates that.
Operator, Operator
Your next question comes from the line of Daniel Grosslight with Citi. Please go ahead.
Daniel Grosslight, Analyst
Hi, guys. Thanks for taking the question. I want to go back to some of your product development, specifically your AI initiatives. If I look back a few quarters ago, most of your AI initiatives were internal in nature, you know, improving operating leverage, etc. And now you're shipping monetizable external-facing AI products. As you make that shift from internal-facing to external product shipping, how are you thinking about the balance between investing in AI for internal improvement versus external product development? What does the product roadmap look like in the future? It sounds like you're most excited about voice AI, but I'm sure there are many more products you guys are having in the pipeline. And then finally, how do you intend to price these new products similar to the non-AI products, or will they be priced at a premium? Thanks.
Chaim Indig, CEO
Sorry. There's a lot of questions. We gotta limit it to one question. If you have more, we could come back to it. But why don't I start with we've been investing in both internal and external-facing AI tools. I don't think the answer is one or the other. I think now we just feel more comfortable talking about them publicly. These are things we've been rolling out to our clients for some time. Our general view is like, lean in first and make sure that the product's really valuable. When you provide value to clients, monetizing becomes an afterthought. We generally focus first on building amazing products and making them valuable to our clients. After that, the dollars generally flow. We expect to continue to invest in both internal use and external. We're comfortable saying we have multiple sets of AI products that have been actively used by our clients across the board, and we are monetizing them today.
Operator, Operator
Your next question comes from the line of Steven Valiquette with Mizuho Securities. Please go ahead.
Steven Valiquette, Analyst
Great. Thanks. Good afternoon. Thanks for taking the question here. So, yeah, another question here on the pending AccessOne acquisition. I guess within the class industry rankings, which I know are not always critical, it looks like they ranked number three or number four in the patient financing services category over the past couple of years. But really, my question is really just about their market share against some of those other players. The $35 million in revenue seems low within a $6 billion TAM. Sure that's the right way to think about market share or not, but just curious to get thoughts on just market share and positioning relative to the size of other players in that space? Thanks.
Chaim Indig, CEO
Yes. Steven, thanks for the question. Again, we're trying to be as helpful as we can because we're excited about this, but it's also the largest acquisition we've done to date. I have to be respectful of the process. I think you can do some math there yourself. We expect to continue to invest in the platform.
Operator, Operator
Your next question comes from the line of Brian Tanquilut with Jefferies. Please go ahead.
Brian Tanquilut, Analyst
Hey. Good afternoon, guys, and congrats. Just maybe a question on sales and marketing. Obviously, that continues to go down. So just curious, how much more runway do you think we can bring that down both on a dollar basis versus a percentage of revenue? Thanks.
Chaim Indig, CEO
Yeah. I mean, I think what we've seen there, and we've talked a lot about this just the productivity we've gotten, but also the profile of clients that we're trying to add on the provider side. We're getting productivity, but, you know, we are investing significantly in sales and marketing in the dollar amount. You should expect it to stay at these levels, but we're getting good productivity.
Operator, Operator
Your next question comes from the line of Gene Mannheimer with Freedom Capital Markets. Please go ahead.
Gene Mannheimer, Analyst
Thank you, and congrats, guys, on the good numbers this quarter. Just revisiting AccessOne, I know you say you're somewhat limited in what you can talk about. But, historically, can you talk about the growth rate of the company in the last couple of years? And whether you think that you can accelerate it as part of the Phreesia portfolio?
Chaim Indig, CEO
What we can say is that we didn't acquire it to not grow it. Obviously, I mentioned that we're also going to invest in it. We're not gonna be able to provide historical numbers on that. The company has a good reputation and, as I said, we followed it for a long time. We absolutely intend to invest in and grow that.
Operator, Operator
As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.
Richard Close, Analyst
Yeah. Thanks for the follow-up. Balaji, I wanted to go back to Jailendra's question on network solutions, TAM, because, you know, I guess I just don't understand why Voice AI specifically drives such a large increase in TAM of like, $6 billion. So is there any way you can provide some examples or maybe more thoughts on that TAM growth?
Balaji Gandhi, CFO
Yeah. So, Richard, first of all, I think you know how we operate. We want to be really thoughtful about what we share. There's competitive reasons, etc. I think to the specific question around the TAM, the point we were trying to make is that the opportunity in the new TAM is big in and of itself. It's not exclusive to the Voice AI product. We think that could be one area that could help us penetrate it. But there will be others that you will hear about. So you're getting sort of the opportunity set first, and I think in our fashion, you'll hear more about other ones in the future. That's about all we could say.
Operator, Operator
Your next question comes from the line of Jeff Garro with Stephens Incorporated. Please go ahead.
Jeff Garro, Analyst
Yeah. Thanks for taking the follow-up question. Wanna make sure we hit network solutions and updated discussion on visibility for the rest of the year and progress to date on the upsell season for pharma advertisers. Thanks.
Balaji Gandhi, CFO
I could start, and Chaim can fill anything in. It's still early in the calendar. But I think things are off to a good start. Long way to go. As we sit here today, we're in a similar place we were last year at this time. The data that we look at will give you updates along the way, and the next one will be in December.
Operator, Operator
Your next question comes from the line of Steven Valiquette with Mizuho Securities. Please go ahead.
Steven Valiquette, Analyst
My question was just touched on a little bit, but I was just curious again with the network solutions. As far as the reacceleration in growth there. Is there any color on whether you were able to add more pharma brands or maybe just better revenue per pharma brand? Just curious if you could then provide more color on the drivers of the reacceleration in growth. Thanks.
Balaji Gandhi, CFO
Yeah. There are two pieces to that. Yes, our relationships have grown. But there are also just the campaigns that we've sold into the year that we're pacing throughout the year. That came up in a lot of the follow-ups from last quarter that we expected to see the growth that we saw in the first quarter, and we expected to see the growth we saw in the second quarter. But we, as we look at these things over the course of the year and why we don't guide on a quarterly basis on that. I don't know if we should think about it as reacceleration. But the team's performing really well, and I feel good about where we are.
Operator, Operator
Your next question comes from the line of Gene Mannheimer with Freedom Capital Markets. Please go ahead.
Gene Mannheimer, Analyst
Thanks for the follow-up. I just wanted to ask if you can share what is the customer overlap between Phreesia's Intake Solutions and AccessOne's customer base?
Balaji Gandhi, CFO
So, Gene, we need to be careful and wait until we close to give more detail. But what we thought about topic, and that it would be helpful is that we do have overlapping customers. I think when we close the transaction, we will incorporate that into our AHSC account.
Operator, Operator
Your next question comes from the line of Ryan McDonald with Needham and Company. Please go ahead.
Ryan McDonald, Analyst
Hi. I figured I'd take a second crack at one here too as well. Maybe just to talk about the AI competitive landscape. Chaim, did you say in one of your earlier responses that you are monetizing AI solutions at the moment? If so, I'd be curious to know, now that we're seeing larger platform vendors like Epic starting to release some of their AI functionality and Doximity taking various AI functionality and building it in and offering it for free. Can you talk about the evolution within your customer base on willingness to pay for AI functionality and sort of what the runway is here for monetization of those features? Thanks.
Chaim Indig, CEO
I think that market is massive. When we talk to customers, it's not just a solution, it's game-changing, and we see it ourselves. We can do things that people always dreamed about. The idea of being able to answer a phone call and help someone schedule a visit is pretty game-changing. We think the market is massive. We have been and are monetizing this product today. We expect to continue to monetize it, and it is growing rapidly.
Operator, Operator
Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.
Richard Close, Analyst
Yeah. Thanks for the follow-up. On the R&D leverage, sure. Number three. You cited repurposing tools to revenue-generating activities. Can you go into more detail on what that was? Can that continue going forward?
Balaji Gandhi, CFO
That was, Richard, very much like a one-off thing that we wanted to call out. Similar to the earlier question about sales and marketing, we are getting lots of productivity. Sometimes, you get productivity in different areas. We are investing a lot in R&D, and that's gonna continue. But we just want to call out that nuance in the quarter.
Chaim Indig, CEO
Richard, here, I thought you were gonna ask about Sesame Street.
Operator, Operator
There are no further questions at this time. I will now turn the call back over to Chaim Indig for closing remarks. Please go ahead.
Chaim Indig, CEO
Thank you, everyone, for joining our earnings call. We look forward to talking to everyone again in ninety days. I hope everyone has a great fall. Have a great day.
Operator, Operator
Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.