Earnings Call Transcript
Phreesia, Inc. (PHR)
Earnings Call Transcript - PHR Q3 2021
Operator, Operator
Good morning, ladies and gentlemen. And welcome to Phreesia’s Fiscal Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. I would now like to introduce Balaji Gandhi, Vice President, Investor Relations for Phreesia. Mr. Gandhi, you may begin.
Balaji Gandhi, Vice President, Investor Relations
Thank you, Operator. Good morning. And welcome to Phreesia’s earnings conference call for the third quarter of fiscal year 2021, which ended on October 31, 2020. Participating on today’s call from Phreesia are Chief Executive Officer and Co-Founder, Chaim Indig; Chief Financial Officer, Tom Altier; and Senior Vice President, Human Resources, Amy VanDuyn. Following prepared remarks from Chaim, Amy, and Tom, we will conduct a Q&A session. A complete disclosure of our results can be found in our earnings press release issued yesterday evening, as well as in our related Form 8-K submission to the SEC, both of which 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 following the conclusion of the call. During today’s call, we will make forward-looking statements pursuant to the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, including statements relating to the expected performance of our business, future financial results, our strategy, our partnerships, expected launches of products and services, long-term growth, overall future prospects, including our revenue, costs of revenue and operating expenses, our business outlook for the fiscal years ended January 31, 2021, and 2022, and the impact of the COVID-19 pandemic on our business. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-Q, which will be filed with the SEC later today. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today and we undertake no obligation to update them as required by applicable law. We will also refer to certain financial measures not in accordance with Generally Accepted Accounting Principles in order to provide additional information to investors. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and supplemental materials, which were furnished with our Form 8-K filed after the market closed on December 8th with the SEC. It may also be found on our Investor Relations website. As a reminder, we are participating on today’s call from four different locations. So we appreciate your patience with us. I will now turn the call over to our CEO, Chaim Indig.
Chaim Indig, CEO
Thank you, Balaji. Good morning, everyone. We hope you are safely navigating the pandemic. Our third quarter results reflect solid performance across our organization. For the fiscal third quarter, total revenue was $38.5 million, up 17% year-over-year. The average number of provider clients was 1,737, up 10% year-over-year. Average revenue per provider client was $17,490, up 5% year-over-year. Life Sciences revenue was $8.1 million, up 21% year-over-year. Adjusted EBITDA was $1.2 million, down approximately $1.8 million year-over-year, reflecting our continued investment in the long-term growth. I want to take a moment to recognize our team’s continued commitment to our clients and their communities throughout the pandemic. In November, their performance was recognized by KLAS Research. In a report based on the firsthand perspective of Phreesia’s clients throughout the pandemic, KLAS rated our patient intake management solution with the highest overall score and the highest COVID-19 response rating amongst 10 vendors evaluated. Specifically, Phreesia was recognized for having the broadest and deepest adoption of our various functionalities, including pre-registration, clinical screenings, payments, and eligibility and benefits. I would like to acknowledge our entire team for this latest third-party validation of their important work and the value it brings to healthcare providers across the country. Now turning to an important and planned leadership transition at Phreesia. In conjunction with our earnings report yesterday, we issued a press release announcing the planned transition of our CFO role from Tom Altier to Randy Rasmussen in May 2021. Since joining Phreesia in 2012, Tom has had a meaningfully positive impact across the organization. His impact goes well beyond our strong financial performance and deep into our culture. Tom is retiring from the CFO post after a long and successful career. We are thrilled that he will stay on as a trusted advisor to the executive team. I speak for the entire Phreesia team in thanking Tom for his contributions and wish him and his family the best as he transitions to semi-retirement next year. In anticipation of Tom’s retirement and as part of our succession planning, we prioritized recruiting a strong finance and accounting leader with deep public company experience in healthcare and software. We found that individual in Randy, who joined us as Chief Accounting Officer in November 2019. Over the past year, Randy has played an important role in our evolution as a public company as he continues to strengthen and expand our finance team to position us for long-term growth. Congratulations to Randy on your new role. Moving on to a brief update on our company’s physical footprint. Back in March, Phreesia prepared our company to operate remotely indefinitely. We continue to operate 100% remotely. Consistent with those plans, we made the decision to allow our New York City office lease to expire at the end of January. We will continue to have a significant employee presence in the New York area, including many members of our leadership team, including Evan and me. However, from a legal and regulatory perspective, our Raleigh, North Carolina office will assume the address of principal executive offices in our SEC filing. Now, we would like to provide an update on our environmental, social, and governance reporting initiatives. I have asked our Senior Vice President of Human Resources, Amy VanDuyn, to share the findings of an important report on gender equality that we recently published. For those of you who have not met Amy, she has led our HR organization for over a decade and has been instrumental in our growth. Amy?
Amy VanDuyn, Senior Vice President, Human Resources
Thank you, Chaim, and good morning, everyone. At Phreesia, we recognize that our ability to execute on our mission of creating a better, more engaging healthcare experience relies on recruiting and retaining individuals who are committed to and aligned with that mission. We are committed to creating a diverse, equitable, and inclusive environment for all regions. As we organize our efforts to begin to publish ESG data, our leadership team and Board determined that gender equality should be the first area we address. We will continue to prioritize and invest in our inclusive culture, Board representation, pathways to leadership for women, pay equity, and strong family leave policies. After researching the universe of reported gender equality data, we determined that in order to provide objective, transparent, and comparable data, we would follow a widely known and accepted framework for reporting, the Bloomberg Gender Equality Index. Here are some highlights from the Phreesia 2020 Gender Equality Report covering our fiscal year ending January 31, 2020. Women make up 50% of our employee base, 44% of employees in our top quartile are women, 42% of senior management are women, 56% of middle or upper management are women, 49% of revenue-producing roles are held by women, 51% of employees promoted during the fiscal year were women, and 91% of women who returned from parental leave between February '18 and January '19 remained employed 12 months after their return. Please note that this data covers all of our U.S. employees and excludes about a third of our employee population who are based in Canada. The full 2020 Phreesia Gender Equality Report is available on the About Us section of our Investor Relations website. The data and the report cover all of the information required by Bloomberg for inclusion in its Gender Equality Index, which is updated annually. We encourage you to review the report and follow up with Balaji if you have any questions. I will now turn the call over to Tom.
Tom Altier, CFO
Thank you, Amy, and good morning, everyone. I will review the income statement, balance sheet, and cash flows for the fiscal third quarter and comment on our outlook for the remainder of fiscal 2021 and fiscal 2022. First, revenue in the third quarter. Total revenue was $38.5 million, up 17% year-over-year. Subscription and related services revenue was $17.5 million in the quarter, up 20% year-over-year, primarily due to new provider clients and expansion of existing provider clients. Payment processing fee revenue was $12.9 million in the quarter, up 12% year-over-year, as patient visit trends recovered to pre-pandemic levels during the month of September and were sustained through the end of the quarter. Provider revenue, which combines revenue from subscription and related services and payment processing fees was $30.4 million, up 16% year-over-year. The two drivers of the 16% provider revenue growth were average provider client growth, up 10% year-over-year and average revenue per provider client, up 5% year-over-year. Our client growth was stronger than recent quarters reflecting increased demand for our offerings. Life Science was $8.1 million in the quarter, up 21% year-over-year. Our Life Science results reflect both strong execution on delivering more messages for existing campaigns and solid demand for new campaigns. Moving on to expenses, I will review several expense line items on an adjusted non-GAAP basis which excludes stock compensation expense from each line item. Please note that for a full reconciliation of GAAP to non-GAAP measures including the adjusted EBITDA is included in our earnings press release and our Form 10-Q to be filed with the SEC. Cost of revenue was $6.3 million or 16.3% of total revenue, up 310 basis points year-over-year reflecting our continued ramp-up in the client services organization during the quarter to support our growth. Sales and marketing expense was $9.5 million or 24.6% of total revenue, up 50 basis points year-over-year. Research and development expense grew 16% year-over-year to $5.3 million and down 10 basis points year-over-year as a percentage of revenue. We expect the pace and level of our investment in R&D to accelerate over the next several quarters and dollars will be allocated across the existing platform, as well as into new products and solutions. General and administrative expense was $8.7 million or 22.7% of total revenue, up 400 basis points year-over-year. That increase is consistent with our commentary for the past year around the continued ramping of public company expenses particularly in finance and legal. From a modeling perspective, we expect to begin to see operating leverage in the fourth quarter of fiscal 2022. Payment processing expense was $7.5 million, up 9% year-over-year. Payment processing margin was 41.7%, up 140 basis points year-over-year, due to the mix of transaction type and lower costs routing of payment. The benefit from mix was more muted versus the previous quarter as evidenced by the sequential 130-basis-point decline in payment processing margin. Going forward, we expect margins to return to the 40% range with quarter-to-quarter variability due to the transaction type mix. Adjusted EBITDA was $1.2 million, down from an even $3 million in the prior year. The decline is largely due to the acceleration in investment across the company as we capture the growth opportunities we are seeing in the market. Shares outstanding as of December 4th were $44.2 million. Cash on the balance sheet on October 31st was $254.1 million, up $169.9 million from July 31st. Shares outstanding and increase in cash incorporate the 5.7 million shares issued in net proceeds of $174.5 million related to our equity offering, which closed on October 23rd. Cash flow from operations for the quarter was an outflow of $667,000 versus an outflow of $3 million in the prior quarter. Capital expenditures for the quarter were $3.7 million, up $200,000 year-over-year, and $3.7 million includes $1.9 million of capitalized software development. In terms of our outlook for the remainder of fiscal 2021, which ends on December 31, 2021, we expect to report revenue for the full fiscal year of $146 million to $147 million. For the full fiscal year 2022 ending January 31, 2022, we expect revenue to grow between 20% and 25% over fiscal year 2021. We will invest more cash into the business in fiscal 2022, compared to fiscal 2021, as we continue to ramp up hiring across the organization to support our anticipated growth. I look forward to working closely with Randy and our team over the next several months to ensure a smooth transition of the CFO reins on May 1, 2021. Congratulations to Randy on his promotion. We are ready to take your questions. Operator?
Operator, Operator
Thank you. Your first question comes from Anne Samuel with JPMorgan. Anne, your line is open.
Anne Samuel, Analyst
Hi. First I’d like to offer my congratulations to Tom on your upcoming retirement.
Tom Altier, CFO
Thanks, Anne.
Anne Samuel, Analyst
You have recently quantified the acute market opportunity in some of your presentations and I was just wondering how we should think about how that’s going to contribute to growth going forward? Is that part of why you think you can exceed 20% next year or should we just think about this is more providing a longer tail for growth?
Chaim Indig, CEO
Anne, the way we have been talking about is that it is one of our growth drivers and it gives us a little bit more comfort in being able to provide guidance moving forward. But this to us is a multi-year driver of growth, not just next year. So I think this helps us continuously hit our growth objectives while providing for a comprehensive solution to a broader set of clients.
Anne Samuel, Analyst
That’s great. And then maybe one more, the competition of your provider growth was just a little different this quarter. You saw really strong growth in provider clients, but the revenue per provider client was just a little bit lower than historical. So I was just wondering is that maybe COVID or is there any nuance to that?
Chaim Indig, CEO
The way I like to think about it is, our sales team and our implementation team just really focused on getting out in front of people that needed our solution. And we are really heads down and focused on getting Phreesia in the hands of providers and patients that needed to be able to do their jobs to treat patients and we had an unexpectedly strong quarter on provider growth.
Anne Samuel, Analyst
Great. Well, congrats on the nice quarter guys.
Chaim Indig, CEO
Thank you. Good luck.
Operator, Operator
Your next question comes from the line of Ryan Daniels with William Blair. Ryan, your line is open.
Ryan Daniels, Analyst
Yeah, guys. Thanks for taking the question. I guess one is just around the increasing R&D spend. Can you highlight any particular areas in the existing product suite or maybe moving into acute that you are focused on investing in on a go-forward basis?
Chaim Indig, CEO
Hey, Ryan. I think the best way for us to think about it is we will continuously communicate to all of our investors and the market where we are actively investing. And as we have visibility, as we have clients using those products. As we understand how we will add value and drive ROI, we are continuously committed to informing our investor base on those new products and we will only do it after we have people using the product, right? It’s really across all the areas that we have been actively communicating.
Ryan Daniels, Analyst
Okay. Fair enough. And then as we look out to the coming fiscal year, obviously nice that you guys are willing to provide the 20% to 25% guidance. So a couple of questions on that. Number one is, what are the underlying assumptions in the market, is that just kind of pre-pandemic normalcy in your customer base? And number two, just what gives you the comfort, even before the fiscal year ran to provide that guidance, is it just the strength in new implementations, etc.? Thanks.
Chaim Indig, CEO
When you talk about guidance, you are talking about next year or just for some clarification, Ryan, are you talking about for the end of the year or...?
Ryan Daniels, Analyst
For '20... for 2022. Okay.
Chaim Indig, CEO
For 2022. Okay. Look, we think it’s really important for us as an organization to be able to set the appropriate expectations and guide rails around growth. We have also very clearly articulated that there are some COVID disclosures. So I can’t tell you what will happen with COVID in the future. But we think we have provided ample disclosures should that provide any massive change. Balaji, did I answer that properly?
Balaji Gandhi, Vice President, Investor Relations
Yes. Yes. Our guidance is not sort of some kind of prognostication on the pandemic. It’s just based on what we know now?
Ryan Daniels, Analyst
Okay. And if I can squeeze in one more question, Tom, first congratulations and then any color...
Tom Altier, CFO
Thank you.
Ryan Daniels, Analyst
...more view on the retirement and just how long you are going to stay on as an advisor? Thanks and congrats.
Tom Altier, CFO
Thanks, Ryan. I will be CFO until May 1st and plan to stay on as an advisor for a certain period of time, although I won't specify exactly how long. I am very confident that Randy will be able to take over the CFO position. He has extensive experience with public companies, including SAP and Metadata, and he will have completed two 10-Ks by that time. I trust his abilities moving forward, and we are looking forward to the transition.
Operator, Operator
Your next question comes from the line of Sean Wieland with Piper Sandler. Sean, your line is open.
Sean Wieland, Analyst
Hi. Thank you. I will add my semi-congrats to Tom for your semi-retirement. Tom, are you going to be signing the 10-K and...
Tom Altier, CFO
Yes.
Sean Wieland, Analyst
Okay. And with you staying on for a little while, is that going to be a full-time role or a part-time?
Tom Altier, CFO
I think it’s part-time, special projects, that kind of thing.
Sean Wieland, Analyst
Got it. All right. My question is about the decline in payment margins. You mentioned investments as you capture growth opportunities. What specific investments and growth opportunities are you observing in the market?
Tom Altier, CFO
Wait. So was that for our call or for the other call.
Sean Wieland, Analyst
Yeah. That was for your call.
Tom Altier, CFO
Okay. Just checking. So look we are investing across the Board, right? Our general thesis is, we want to capture unfair share of market. We see a fair bit of demand and so we are hiring in our SDR program, we are hiring. We are growing our sales organization, our implementation teams, our customer success teams, and very specifically our engineering teams, and all of the resources to support those; we expect all of those parts of our organization to materially grow significantly.
Sean Wieland, Analyst
Awesome. Thank you.
Tom Altier, CFO
Thank you.
Operator, Operator
Your next question comes from the line of Donald Hooker with KeyBanc. Donald, your line is open.
Donald Hooker, Analyst
Good morning. I'll take a chance and ask a question you might not answer, but I’ll try. Last quarter, you provided some updates on your exposure to the hospital sector. I noticed you had a strong net client addition for the quarter. Can you give us some details about what percentage hospitals represent in your client base or revenues? It seems like an interesting opportunity, and while I assume it’s small, I’m just curious.
Chaim Indig, CEO
So, what I will say is that our sales organization has been doing a phenomenal job as has all the other parts that are working with and implementing on our hospital opportunities. And our communications team, who I know is listening right now, will absolutely communicate where appropriate any of our hospital wins. They are in charge. They are not Tom or I in how we communicate any of the successes we have in the hospital space.
Donald Hooker, Analyst
Okay. I understand you may not want to answer these questions, but I'll ask for some details anyway. The market has been challenging for your clients, particularly physician practices. It seems like conditions are improving. Can you provide any updates about your clients, such as revenue retention and attrition? I recognize there has been great revenue growth, but I'm curious how typical metrics like attrition and revenue retention are performing given the changes in the marketplace.
Chaim Indig, CEO
So, look, I want to be very thoughtful, because our clients as much as they focus or they have to pay attention to revenue. The thing that they are most focused on right now is treating their patients. And as much as for the last quarter when we reported a lot of visits have come back. I think a lot of them are acutely aware of their communities in the rise of COVID-19 in their communities and the impact it’s having on their patient populations. So I think their number one focus is on making sure they think about and treat their patients where appropriate in all environments. And that’s a very tough situation and I am very lucky that I get to work with organizations like that and being able to care for patients and I know everyone else at Phreesia feels the same. That it is very much mission aligned. Tom, if you want to talk about anything else around that?
Tom Altier, CFO
Yeah. Just specifically to answer the question, we are not seeing any significant difference in the revenue retention numbers as a result of COVID.
Donald Hooker, Analyst
Okay. Thank you so much and congrats, Tom. Bye.
Tom Altier, CFO
Yeah. Thank you.
Operator, Operator
Your next question comes from the line of Ryan MacDonald with Needham. Ryan, your line is open.
Ryan MacDonald, Analyst
Good morning. Thanks for taking my questions, and Tom, congratulations. I guess just starting out. You talked about patient visit volumes obviously trending back to pre-pandemic levels through the end of the quarter. We would just be curious to understand what you are seeing sort of through the month of November to the extent you can provide some clarity, as we are starting to see shutdowns again with another wave of cases coming?
Chaim Indig, CEO
I will jump in to clarify. We do not provide near-term updates on visit volume during this forum. Our team works closely with the Commonwealth Fund and Harvard on publishing, focusing on shaping the public policy debate. From our perspective, we haven’t and will continue not to give real-time updates on visit volume in this setting.
Ryan MacDonald, Analyst
Sounds good. As a follow-up or from a different perspective regarding your outlook for 2021, we are a couple of months away from the potential mass distribution of the vaccine. Assuming that hospitals and clinics are managing this distribution, is there a growing use case or demand for the Phreesia platform and zero contact intake to assist in managing what is likely to be a significant increase in patients visiting clinics and hospitals during that distribution process? Thank you.
Chaim Indig, CEO
We have been actively collaborating with a wide range of clients, including major health systems and states responsible for vaccine distribution. Our teams are working closely with these clients, and we are dedicated to supporting them in helping their patients. This commitment is central to our mission and motivates us daily. While I wouldn’t forecast any specific revenue opportunities, I can affirm that this company remains focused on fulfilling our mission.
Ryan MacDonald, Analyst
Thanks.
Operator, Operator
Your next question comes from the line of Stephanie Davis with SVB Leerink. Stephanie, your line is open.
Stephanie Davis, Analyst
Thank you. Tom, congrats on a well-deserved retirement. Randy, congrats on your new seat and Chaim, biggest congratulations for getting out of a New York City lease, not an easy feat. So good work there. Now, you have been putting up consistent outperformance in the Life Sciences business for a few quarters now. I was hoping we could take a step back and see if there’s any dramatic changes that have accelerated your traction there, either in the market or in your offering?
Chaim Indig, CEO
I want to clarify that we did not terminate our New York City lease. Instead, we allowed it to expire and did not sign a new lease because we could not find affordable space before the pandemic. I want to emphasize that we are not out of the lease, and our landlords have been great to us over the decade we were there. Regarding Life Sciences, we have communicated this in previous calls. We have consistently increased our investment in the Life Sciences team, which has done an excellent job collaborating with our clients and providing significant value during and before the pandemic while building trust with both new and existing clients. We have made substantial investments in this area and plan to continue doing so across various aspects of the organization, including sales, content creation, data science, and product development. We are very pleased with the ongoing results from that team and the positive impact on our mission and company culture.
Stephanie Davis, Analyst
And is it safe to read through given this outperformance during lower visit volumes during the pandemic that as things start to go back to normal next year you could see even further of an uptick there?
Chaim Indig, CEO
I don’t believe anything is completely secure in this world. However, I am very confident that we have an exceptional group of individuals who will keep striving to provide outstanding products, great value, and achieve excellent results for our clients. If we stay committed to doing the right thing and work towards our mission, I believe we are in a stronger position than any company could hope for.
Stephanie Davis, Analyst
Sounds good. Thank you.
Chaim Indig, CEO
Thank you.
Operator, Operator
Your next question comes from the line of John Ransom with Raymond James. John, your line is open.
John Ransom, Analyst
Good morning. I am not on any other calls. But have you...
Chaim Indig, CEO
All right. Good morning, John.
John Ransom, Analyst
Okay. Good morning. So Life Sciences we heard some feedback that maybe that business won’t be flat for the next 50 years. So you are a little more optimistic there. So what’s the change?
Chaim Indig, CEO
Well, I can’t commit to the next 50 years, because I think Tom will be 131 by then. What would you be, Tom?
Tom Altier, CFO
That’s…
Chaim Indig, CEO
Probably 100 or less, probably 110, so I am not…
Tom Altier, CFO
121.
Chaim Indig, CEO
All right. Tom will be 121. All right. So look what I can say is that we had a thesis that if we made the right investments with the right team and leadership, we would be able to produce results. When we got comfortable that we were producing some of those results with David at the helm and a lot of the investments we made. We felt more comfortable being able to talk about it a little bit more to the public markets. And what I will say is we are going to keep making those investments, because we think that it returns very well to us and our investors and to our clients. So I will guess communicate that we will continue to make investments when we think that that capital will return to us in the investor base.
John Ransom, Analyst
Okay.
Operator, Operator
Your next question comes from the line of Hannah Baade with D.A. Davidson. Hannah, your line is open.
Hannah Baade, Analyst
Hi. Thanks for taking the question and I extend my congrats to Tom on retirement as well. As you enter the acute care market, could you compare and contrast the length of the sales cycles between ambulatory and acute? And have you devoted SDRs solely to the acute sales motion?
Chaim Indig, CEO
We have primarily focused on health systems that include both hospitals and acute care facilities in ambulatory services. Our Sales Development Representatives are dedicated to reaching out to these health systems. In the early stages of the hospital market, we plan to concentrate on hospitals where we currently have or could establish an ambulatory presence, which will help create a seamless patient experience.
Hannah Baade, Analyst
Great. Thank you. And obviously, you have an incredibly strong cash balance sheet post the follow on. Could you provide some clarity on your plans to use this and if your overall capital allocation strategy has shifted in any regard since the IPO? Thank you.
Chaim Indig, CEO
Well, I am still cheap, and I will probably always stay cheap. So from a capital allocation perspective, we still think about it very much like each dollar being very precious to us and we want to allocate it appropriately. And so, in general view we have as an organization is, is it going to materially return value to us and our clients and our investor base, and our employee population. And if it does those things and helps with the mission then we feel comfortable utilizing it in the near-term. I think, Tom has communicated that we will increase our investments across the Board and then, I think, that’s all I can say about that. Well, that answers is that right?
Tom Altier, CFO
Yeah. I think that’s an appropriate answer.
Operator, Operator
Your next question comes from the line of Sean Dodge with RBC Capital. Sean, your line is open.
Sean Dodge, Analyst
Thanks. Good morning. Maybe on the provider, Tom, you have highlighted the strength. Can you give us a sense of those new ones you added in the quarter, what proportion came from the existing clients that you are expanding in and how many were net new or I guess and I will call like new logos for you?
Tom Altier, CFO
Sure, let me clarify that. All of those would be new clients. If you add to that number, it indicates a new client, not an expansion of an existing one. Am I providing enough detail?
Sean Dodge, Analyst
No. Okay. That’s a good clarification. You have a multi-site, multi-specialty practice. If you add one site, that counts as one, and if you add all eight sites, that still counts as one, but it does increase the average revenue for that client. Is it…
Chaim Indig, CEO
Yeah. That just the interpretation site, I think, we actually sold it out in a bunch of our documents too.
Tom Altier, CFO
Yeah. Yeah. That’s correct.
Chaim Indig, CEO
You can actually see it in the S1. I think there is a whole section on explaining exactly what that metric is.
Sean Dodge, Analyst
All right. Then the lease expiration, can you give us a sense of the savings you have realized there and then it looks like the lease for the Ontario offices also expires in 2021. It is virtualization in New York something we should expect maybe happen more company-wide or is this just specific to New York?
Chaim Indig, CEO
I would not anticipate any savings because, based on the research that Amy, myself, and several other executives have conducted, going virtual should not be considered a cost-saving measure. Instead, it should be seen as a means to operate and manage the business. We do plan to allocate some funds toward collaboration and bringing our teams together. The intention is not to save costs; rather, it is about how we function as a company during this time. You can expect changes in our lease in Ottawa going forward. However, we will likely maintain a physical presence there for various legal reasons, and our employees do need to work in an actual location. Did I capture that correctly, Amy?
Amy VanDuyn, Senior Vice President, Human Resources
Yes. That was a great response.
Sean Dodge, Analyst
Okay. All right. Thank you.
Chaim Indig, CEO
Thank you.
Operator, Operator
Your next question comes from the line of Scott Schoenhaus with Stephens. Scott, your line is open.
Scott Schoenhaus, Analyst
Thank you. Hey, Chaim and team. My first question is on your current sales pipeline, if you could provide us the proverbial color there? If your sales team also had to realign strategies to go after a certain mix of clients as a result of COVID and the now the pending vaccine? Thanks.
Chaim Indig, CEO
So what I can say about our sales pipeline is I am ever really going to give information about it. But I can say our sales team is doing a phenomenal job at working with prospects and existing clients on making sure that they are talking about and articulating and helping them in any way shape or form through the sales process. And it is a phenomenal sales organization that when I was starting my career, I would have begged to join. And if any of folks that would love to join the phenomenal sales organization please send them to Balaji, because we are actively recruiting and it is a great place for people to grow their career.
Scott Schoenhaus, Analyst
Great. I have a follow-up question regarding your guidance for revenue growth in fiscal year '22. Can you provide more detail on the balance between growth from provider clients and revenue providers in that growth rate? Thank you for your time and congratulations to Tom on his retirement as well.
Tom Altier, CFO
Thank you.
Chaim Indig, CEO
I would actually let Tom answer that question, because I think it’s his turn.
Tom Altier, CFO
Yeah. So we did have outsize provider client growth in the third quarter. I think your question was around fiscal '22 and I would expect the growth percentages to moderate back toward what we were doing pre-pandemic, maybe not all the way there but head in that direction. So if that answers your question.
Scott Schoenhaus, Analyst
It does. Great. Thank you.
Tom Altier, CFO
Thanks.
Scott Schoenhaus, Analyst
And hey, Tom, just to maybe clarify a little bit more on that question, could we see some fluctuation in terms of quarter-to-quarter?
Tom Altier, CFO
Yeah. Yeah. You are going to see some fluctuations quarter-to-quarter, as Balaji mentioned.
Operator, Operator
Your next question comes from the line of David Larsen with BTIG. David, your line is open.
David Larsen, Analyst
Sorry about that. Congratulations on a pretty good quarter, guys. Can you maybe talk about your sales force? How many sales guys do you have now? I know some of them were kind of focusing on other areas of the business during the pandemic, are they all now sort of fully ramped back up? Thanks.
Chaim Indig, CEO
No problem. First, I want to clarify that we have both male and female salespeople in our organization, and Amy can provide insights on our perspective on gender diversity if you ask her. We actually transitioned several members from cross-selling to the new sales team due to the prioritization and focus on our clients. So, Tom, how many salespeople do we have now?
Tom Altier, CFO
Yeah. Excluding SDRs, we have about 40 right now.
Chaim Indig, CEO
Yeah. And I think we are at 100-ish SDRs and we don’t really hire those roles in December for obvious holiday reasons.
David Larsen, Analyst
Okay. And then can you maybe just talk a little bit about pricing, obviously, not getting too specific. But I mean it looks like your payment processing fees, pretty good sequential increase despite the concerns around COVID subscription-related services. There was talk about a potential air pocket earlier in the year. It looks like there’s no air pocket. So are you getting any pushback on pricing at all or not really and folks just sort of want to implement this and deploy and be as productive as possible.
Chaim Indig, CEO
I like to think of our situation as navigating a pre-pandemic pattern. Similar to a skilled pilot who tries to avoid turbulence, we have worked to minimize disruptions while delivering value to our clients. Our focus is continually adjusting to where the team can best direct its efforts. We hold regular operational meetings with an excellent group of operators who monitor our progress and strategically allocate resources. I believe having experienced management is a key factor in our current success, and we wouldn't be where we are today without this strong leadership team.
David Larsen, Analyst
Okay. And then just with respect to pricing, like are you seeing any other solutions built within other ambulatory EMR products that are now competing with fears that are putting downward pressure on price or is that or have you not really seen that?
Chaim Indig, CEO
I believe we will continue to encounter competing solutions, particularly since much of the market is still paper-based. However, we haven't observed this leading to significant downward price pressure. The primary factors influencing pricing are the realities of the current global situation, and I don't see that as our biggest challenge to date.
David Larsen, Analyst
Thanks so much. Appreciate it.
Operator, Operator
Your next question comes from the line of Daniel Grosslight with Citi. Daniel, your line is open.
Daniel Grosslight, Analyst
Hi, guys. Thanks for taking the questions here. Obviously a pretty phenomenal result in terms of the number of providers added this quarter. I was wondering if you can provide a little more detail on those providers. Are these folks that you had initial conversations with kind of earlier in the year and just held off on really pulling the trigger because of COVID and now they are doing it or are these conversations that more recently started? And going forward into 2022, do you expect most of the adds for providers still to be folks that you had started conversations with during the pandemic and just held off on buying a new solution?
Chaim Indig, CEO
I believe in engaging with as many practices, health systems, and groups as we can, and we've been doing so for 16 years. We reach out to them through various channels, whether it's through our sales development representatives or our marketing tools. It's not a question of if they'll become Phreesia clients, but rather when. Some of these conversations have been ongoing for a decade, while others have only started in the past few months, covering a wide range of sizes and complexities. Our aim is to be present in front of as many groups as possible in a variety of cost-effective ways. You have our assurance that we will continue this effort, enabling us to provide as much support as possible for those practices.
Daniel Grosslight, Analyst
Got it. Okay. And on the increased investments that you are going to make going forward, how much of that do you expect will flow through the income statement and how much will be capitalized?
Chaim Indig, CEO
Tom?
Tom Altier, CFO
You have both components. I can’t provide an exact breakdown. The capitalized costs will mainly be for data centers and capitalized software costs. These are the two significant capital expenditures moving forward. The remainder will be reflected in the income statement.
Chaim Indig, CEO
Okay. But we should see a step up in CapEx going forward?
Tom Altier, CFO
Yeah. You are going to see it in data center and in caps off from both of them.
Daniel Grosslight, Analyst
Yeah. Got you. Okay. Thanks. And I will add my congrats to Tom on your retirement and Randy on your expanded role. Thanks guys.
Tom Altier, CFO
Thanks a lot. Appreciate it.
Chaim Indig, CEO
Sure.
Operator, Operator
And we have time for one more question. We do have a follow-up from John Ransom with Raymond James. John, your line is open.
John Ransom, Analyst
Hey. Just to go back one more time Tom on Phreesia hospital growth. Maybe you put your finger on what’s changed the hiring that I am exciting about the opportunities moved really quickly. And I don’t know you guys are mostly circle back, so can you kind of put your finger on what’s changed? And secondly, are these hospitals are coming from locations where you are already generally intakes are there and you are fully positioned those versus you ran additional?
Chaim Indig, CEO
So I think what I heard was are we mostly selling to hospitals that are already ambulatory clients? Is that right? And is the…
John Ransom, Analyst
Yeah.
Chaim Indig, CEO
These are mostly places where we have seen success on the physician side, and that’s where we tend to focus. I’m not sure if I would describe it as accelerated in the hospital environment. I think we are just now ready to talk about it. We have been investing in it for years and we…
John Ransom, Analyst
Yeah.
Chaim Indig, CEO
…expect to continue to invest great amounts for years to come in the future. And I think the hospital space is a really tough space but one that the patient experience and intake and everything around that has a ton of areas of improvement. We are really excited to be able to be working with clients in that space.
John Ransom, Analyst
Great. That’s all for me. Thank you.
Chaim Indig, CEO
Great.
Operator, Operator
This concludes our question-and-answer session. I will now turn the call back over to Chaim Indig for closing remarks.
Chaim Indig, CEO
I just want to say congratulations to Tom and Randy, and wish everyone on this call with listening a happy holidays and a happy New Year and to please stay safe and I can’t wait to see all of you hopefully in the New Year well vaccinated. All right everyone. Have a great one.
Operator, Operator
Ladies and gentlemen, this concludes today’s conference call. On behalf of Phreesia, thank you for participating. You may now disconnect.