Phreesia (PHR) Q2 2027 earnings call transcript

Thank you, operator. Good evening and welcome to Frigia's Earnings Conference Call for the Second Quarter of Fiscal 2027, which ended on July 31 of 2026. Joining me on today's call is Jaime 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 8K submission to the SEC, including our quarterly stakeholder letter, both issued after the market closed today. These documents are available on the investor relations section of our website at ir. frigia. com. As a reminder, today's call is being recorded and a replay will be available on our investor relations website at ir. frigia. com following the conclusion of the call.

During today's call, we may make forward-looking statements, including statements regarding trends, our anticipated growth, our strategies, predictions about our industry, and the anticipated performance of our business, including our outlook and visibility regarding future financial results. Forward-looking statements are subject to various risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to differ materially from those described in our forward-looking statements. Such risks are described more fully in our earnings press release, our stakeholder letter, and our risk factors included in our SEC filings, including in our quarterly report on Form 10Q that will be filed with the SEC tomorrow. The forward-looking statements made on this call will be based on our current views and expectations and speak only as of the date on which the statements are made.

We undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information on the occurrence of unanticipated events. We may refer to certain financial measures, not in accordance with generally accepted accounting principles, such as adjusted EBITDA and free cash flow, in order to provide additional information to investors. These non-GAP measures should be considered in addition to and not as a substitute for or an isolation from our GAP results. A reconciliation of GAP to non-GAP results may be found in our earnings release and stakeholder letter, which were furnished with our Form 8K filed after the close today with the SEC and may also be found on our investor relations website at ir.

freesha. com. I will now turn the call over to our CEO.

Hi, Mindic. Thank you, Bellagie, and good evening, everyone. Thank you for joining our second-quarter fiscal year 2027 earnings call. We delivered a solid fiscal second-quarter with revenues, growth, and profitability extension in line with our expectations. We generated positive operating and free cash flow again in this quarter, which together with available cash, allowed us to reduce debt principal by over $23 million while maintaining a healthy cash balance.

Bellagie will cover the results in our outlook. We believe we are uniquely positioned in the market through our diverse set of product offerings to drive meaningful value to every patient visit in the U. S. Access 1 is an important extension of our value proposition, because healthcare consumers are bearing a greater share of the ever-growing cost of healthcare. We've heard from our clients and many other providers across the country that the need for humane and predictable financing solution for healthcare consumers has never been greater.

Provider Connect, our newest network solutions offering, also extends our value proposition and addressable market. Momentum for this new product continues to build. In the GLT1 category, a four-month study showed a 4% incremental lift in new-to-brand prescriptions versus a matched control group and more than 1,000 new patient starts. I am proud of our team's commitment to our mission and values.

Now I'll turn it over to Bellagie to walk through Q2 results in our fiscal 2027 outlook.

Thank you, Hyam. Let me begin with a review of our second quarter financial performance, and we'll then dive into our outlook for fiscal year 2027. Revenue for the second quarter was $129.5 million, an increase of 10% year-over-year. On a sequential basis, total revenue declined approximately 1% from the first quarter, driven primarily by our legacy payment processing revenue.

As a reminder, given the seasonality in our payment processing business associated with the reset of health-planned deductibles, payment processing revenue is typically highest during the first fiscal quarter of each year. We ended the quarter with average health care services clients of $4,744, an increase of 36 from the prior quarter and $277 in the prior year. Client additions in the quarter were in line with our expectations and consistent with our full-year outlook for AHSC growth in the mid-single-digit percentage range.

Total revenue per AHSC was $27,289, up 4% year-over-year. On a sequential basis, total revenue per AHSC declined approximately 2%, reflecting the payment processing seasonality I just described, along with continued growth in our client base.

Moving on to profitability, adjusted EBITDA was $32.9 million, an increase of $10.8 million year-over-year with an adjusted EBITDA margin of 25%. Net income was $1.9 million compared to net income of $700,000 in the prior year period, representing our fifth consecutive quarter of positive net income. Total managed payments were $1.626 billion in the quarter, and our payment solutions revenue rate was 2.4%.

Now turning to the balance sheet and cash flow updates. We ended the quarter with $74.6 million in cash cash equivalents and restricted cash. This compares to $76.4 million in the prior quarter. We delivered our ninth consecutive quarter with positive operating cash flow and free cash flow. Operating cash flow was $18.3 million, up $3.5 million year-over-year. Free cash flow was $13.8 million, up $4.2 million year-over-year. This cash flow, together with available cash, allowed us to reduce debt principle by over $23 million while maintaining a healthy cash balance.

We expect that the magnitude of improvement on a quarter-to-quarter basis to vary based on specific timing of invoicing and payments, which you can see in working capital along with CapEx.

Our second quarter results demonstrate our team's focus on growing our network, expanding our offerings, driving operating leverage, and strengthening our balance sheet. I would like to acknowledge the entire Freeja team for their contributions. Transitioning to our outlook for fiscal 2027. We are maintaining our revenue outlook for fiscal 2027 at a range of $510 million to $520 million. The revenue range provided for fiscal 2027 assumes approximately $37 million of contribution from Access 1 and no additional revenue from potential future acquisitions completed between now and January 31, 2027. We are maintaining our adjusted EBITDA outlook for fiscal 2027 at a range of $125 million to $135 million. The restructuring plan we implemented in May is expected to result in meaningful annualized run rate expense savings, which were reflected in the outlook we provided on March 30 and reaffirmed on May 27.

We are maintaining our expectation for AHSC growth in the mid-single digit percentage range and for total revenue per AHSC growth in the low single digit percentage range in fiscal 2027. Operator, I think we can now open up the lines for the Q&A session.

Yeah, thanks, Sean. This is a lot of you all started and kick it over to time to add anything. We're feeling really good about this acquisition. I think better now than at the time when we close the acquisition. We've got lots of conversations, both internally and externally, around the value proposition, specifically to that segment of the market that you cited. It does, obviously, these two things do take time, but I'd say the progress we've made over the past several months, you mentioned it starts with the securitization expansion, and then it's just really go-to-market and product fit, everything like that.

I agree. We are seeing some early wins in the market and hopefully the next couple of quarters will be talking about this a lot more, but we are starting to see wins in the market and we're really excited. The whole team is we're getting very, very positive feedback from clients around the offering. So existing clients, we are very excited. We think this is going to be a growth lever over the next couple of years. So stay tuned.

Sure. So first of all, as you saw in a lot of our materials that we released tonight, we were speaking to total revenue, and so if we just sort of step back and think about where we are from a revenue perspective, it's pretty much the same place from a total revenue perspective. Underneath, we have seen a lot of progress on the second half in network solutions in terms of business activity. The team has done an excellent job. I think our new products like provider connector resonating. So I think we're pretty encouraged by where we are today, relative 90 days ago, or even 180 days ago.

Yeah, thanks, Stan. And yes, we could mention that in our letter and it did. The answer is yes, it did help convert some new business activity and relates to the prior question too.

Sure. One of the greatest hits questions we've received for seven years. And I think the only kind of correction maybe we would make to your question, Jess, is I think you said changing dynamics. And this has pretty much been sort of a normal dynamic for the entire history of the company. And I think we're trying to be very clear about where we differentiate ourselves from a product perspective, from a go-to-market perspective, how we work with clients, et cetera. So there's really nothing new to call out, but they are all competitive with us. And that's just the nature of the space. I think as we've talked about for the last several years now, we do lean into different markets really based on the economic profile.

That is a big influence in how we make decisions. But again, nothing really new to report there.

I would probably add that the team is doing just a really just great job. And our clients seem to be very, very happy as I spend a lot of time with them.

I mean, just the earlier question around, as the year is progressed, we've had some nice wins. The team has done an excellent job. And I think you just point out the aspect of our business model, part of the reason the team is able to do an excellent job is because we're also adding more footprint on the provider side. So those things go together.

So all that continues to have good momentum.

So I'll add a large answer to the question with specifics on how to think about it. But I think what we're seeing now is providers are under a significant amount of strain with a lot of the changes happening across the payer. And as we've always said throughout our history, one of our North Stars is just making sure that we could be great partners to those providers that are serving American patients. And so we're acutely aware of having to provide as much value to them right now while they're facing severe economic strain, because there were the changes in the payer dynamics.

Yeah, and I think to a high point, you know, you have lots of data on this now over the years. I remember, you know, I'm saying almost the same thing we're doing during the pandemic, and obviously a different set of challenges then. And, you know, what we did in terms of how we work with clients, then we were pretty happy with those results. So I think this is a very similar situation. And then Daniel, just to be helpful on the modeling side, I think if you just sort of listen to the commentary here, we're maintaining our revenue. If you took some of that revenue, the second half out of subscription, and we do have a little bit more clarity on the second half of our network solutions, you could bump that up.

But I think overall, nothing's really changed with total revenue perspective, and things are going in the direction we anticipated.

Look, Rama, I think what you highlight, you do a great job of highlighting some of the things that have been just wildly well received by our client base as of late. And I think the front end revenue cycle is an area that it just says a lot of room for continuous improvement. And, you know, we expect to continue to help our clients out. We're not going to comment on some of the new products that we are coming out with, but we are very excited about our ability to help providers from their practices in the most thoughtful and efficient manner of helping with them with the revenue cycle and all their other operational needs. So we are doubling down and continuing our commitment in providing phenomenal tools to providers that help them help their patients.

Yeah, the only I was going to add is, you know, Ryan, the access one thesis was really exactly an extension of everything you articulated.

I think we are very thoughtful. So obviously we're embracing AI across our organization and it's had meaningful impact on all aspects of how we operate, run, and build product at Frigio, inclusive of selling products, supporting it for our clients. And as I think about new products that we're building, there are one such as voice AI that change how the providers are engaging with their patients. There's things like plan match that allow them to do in the loop before they don't work for automating how they understand and pick the right plan. And those are all those are all things that frankly we're just hard to imagine doing in a non-AI world. And as we keep investing in new products in and around network solutions and in and around payments in or around workflow, our realization is that AI is not just a way of thinking.

It's allowing us to do things that frankly are we're beyond the scope of imagination even three to five years ago. And empowering our team to be able to think that way has opened up massive opportunities and given us the ability to test out those opportunities and those ideas in a much faster, more cost effective manner. And we've seen that throughout the operations of the business where we were able to produce things, put it out there, see its reaction, and at the same time then very effectively that scale it if it does make sense. So AI's frankly changed the playing field and from my own personal perspective, it made me more excited about Freeja and what lays in front of us and the opportunity set than I would say ever in our history.

And I think we're well positioned as an organization to not only continue to grow but frankly in the future I think accelerate our growth.

Yeah, Peyton, I'd say it's a host of things. I think that we have been, our team has done an excellent job and been very disciplined about expense management and around return on investment. And I think we've shown that over time we want to leave ourselves room to make investments for growth. And we've done that for many, many years. It's that, the revenue mix piece is sensitive. That's another component of this. AI is another one. I mean, as you probably know from following other companies, it is a very dynamic and fluid time. And we're in the early innings of our AI deployment. And so we also want to be kind of, you know, prudent about how we share that as well.

So it's all of those things, but nothing inconsistent with how we thought about, you know, investments and the best.

Yeah, what we'd say there is we holistically think about total revenue. I think we've been clear about that. And I think Himes' point earlier about really working with our clients through the operating environment there and is what really rules the day. And I think we're going to continue to communicate with all of you about total revenue, thinking about total revenue per client.

I think you'll see the mixed fluctuate. I think that's just something that we think is okay and as a sign of our diversity and our business model. So I would just say fluctuation where anything else. And we'll try to get in front of that as much as we can with all of you.

And then I know you obviously mentioned that the deductibles reset last quarter, just any visibility into pace of how patients are kind of getting through their deductibles into the back half of your year. Yeah, I mean, I think we look at all this data very carefully and do a lot of trending. I think we did talk about earlier this year, there being a little bit more weakness even beyond seasonality. But nothing really notable to call out the second quarter as it relates to volume trends or as it relates to deductible sort of reset trends. So nothing to call out.

I will now pass the call off to Hyam for closing remarks. I'd like to thank everyone for joining us for another earnings call. And we'll talk to you all in 90 days. And if you have any questions, please feel free to reach out to Bellagie investors at freesia. com or myself.

Thank you, everyone, and have a great evening.