Phreesia Q2 FY2027 Earnings Call - Revenue Growth Driven by AccessOne and Network Solutions Momentum

Operator: Good evening, ladies and gentlemen, and welcome to the Phreesia second quarter fiscal 2027 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, Chief Financial Officer, Phreesia: Thank you, operator. Good evening, and welcome to Phreesia’s earnings conference call for the second quarter of fiscal 2027, which ended on July 31st of 2026. Joining me on today’s call is Chaim Indig, our Chief Executive Officer. A more complete discussion of our results can be found in our earnings press release and in our related Form 8-K submission to the SEC, including our quarterly stakeholder letter, both issued after the markets closed today. These documents are available on the investor relations section of our website at ir.phreesia.com. As a reminder, today’s call is being recorded, and a replay will be available on our investor relations website at ir.phreesia.com following the conclusion of 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 10-Q that will be filed with the SEC tomorrow. The forward-looking statements made on this call will be based on our current views and expectations and speak only as of the date on which the statements are made.

We undertake no obligation to update and expressly disclaim the obligation to update these forward-looking statements to reflect events or circumstances after the date of this call or to reflect new information or the occurrence of unanticipated events. We may 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-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 stakeholder letter, which were furnished with our Form 8-K filed after the close today with the SEC and may also be found on our investor relations website at ir.phreesia.com. I will now turn the call over to our CEO, Chaim Indig.

Chaim Indig, Chief Executive Officer, Phreesia: Thank you, Balaji, and good evening, everyone. Thank you for joining our second quarter fiscal year 2027 earnings call. We delivered a solid fiscal second quarter with revenue growth and profitability expansion in line with our expectations. We generated positive operating and free cash flow again this quarter, which together with available cash allowed us to reduce debt principal by over $23 million while maintaining a healthy cash balance. Balaji will cover the results and 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. AccessOne 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 a humane and predictable financing solution for healthcare consumers has never been greater. ProviderConnect, our newest network solutions offering, also extends our value proposition and addressable market. Momentum for this new product continues to build. In the GLP-1 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 Balaji to walk through Q2 results and our fiscal 2027 outlook.

Balaji Gandhi, Chief Financial Officer, Phreesia: Thank you, Chaim. 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 plan deductibles, payment processing revenue is typically highest during the first fiscal quarter of each year. We ended the quarter with average healthcare services clients of 4,744, an increase of 36 from the prior quarter and 277 from 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 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 principal 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’d like to acknowledge the entire Phreesia 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 AccessOne 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.

Operator: We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sean Dodge with BMO Capital Markets. Your line is open. Please go ahead.

Sean Dodge, Analyst, BMO Capital Markets: Yeah. Thanks. Good afternoon. Maybe just starting on AccessOne. Last quarter, you all talked about the changes you made to your securitization facility and how that enables you to offer the upfront funding to other non-investment grade clients. Just any updates you can share on how selling into this kind of new part of the base is going, and then maybe just how the process of restarting the AccessOne selling motion just in general is going. Thanks.

Balaji Gandhi, Chief Financial Officer, Phreesia: Yeah. Thanks, Sean. This is Balaji. I will start and kick it over to Chaim to add anything. We are feeling really good about this acquisition. I think better now than at the time when we closed the acquisition. We have had lots of conversations, both internally and externally, around the value proposition specifically to that segment of the market that you cited. And so, obviously these things do take time, but I would say the progress we have made over the past several months, you mentioned it starts with the securitization expansion, and then it is just really go to market and product fit, everything like that. I am looking at Chaim. He has got anything.

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

Operator: Your next question comes to the line of Brian Tanquilut with Jefferies. Your line is open. Please go ahead.

Cameron, Analyst, Jefferies: Hi. Congrats on the quarter. This is Cameron on for Brian. Could you guys talk a little bit about what you’re seeing in network solutions, particularly the areas you called out earlier in the year that you were having a lack of visibility in? Has anything changed there? And just any update you could give us there.

Balaji Gandhi, Chief Financial Officer, Phreesia: Sure. First of all, as you saw in a lot of our materials that we released tonight, we’re speaking to total revenue. If you 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 ProviderConnect are resonating. So, I think we’re pretty encouraged by where we are today relative to 90 days ago or even 180 days ago.

Cameron, Analyst, Jefferies: Thank you.

Operator: Your next question comes to the line of Stan Berenshteyn with Wells Fargo. Your line is open. Please go ahead.

Stan Berenshteyn, Analyst, Wells Fargo: Thanks for taking my questions. I guess sticking with network, you pulled out in the prepared remarks that you saw a GLP-1 campaign that you tested and generated a positive ROI. Can you just comment on how that pilot went? Did it convert any follow-on contracts or any expanded opportunities as a result of the results that you saw in the pilot? Thanks.

Chaim Indig, Chief Executive Officer, Phreesia: Yeah. Thanks, Dan. Yes, we did mention that in our letter, and the answer is yes, it did help convert some new business activity and relates to the prior question, too.

Operator: Your next question comes to the line of Jessica Tassan with Piper Sandler. Your line is open. Please go ahead.

Jessica Tassan, Analyst, Piper Sandler: Hi, guys. Thank you very much for taking the question. Our question is maybe can you help us understand your exposure to EHRs that have a competitive check-in management solution? I think the AHSC growth continues to be really impressive to us. Just interested to know, are these new sales occurring in providers whose EHR does not offer a check-in management solution? Or just maybe can you update us on how you are selling into new AHSCs, just given the changing competitive dynamics on the virtual intake management? Thank you.

Balaji Gandhi, Chief Financial Officer, Phreesia: Sure. One of the greatest hits questions we have received for seven years. 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 a normal dynamic for the entire history of the company. I think we are 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 is really nothing new to call out, but they are all competitive with us, and that is just the nature of the space. I think as we have 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.

Jessica Tassan, Analyst, Piper Sandler: Got it. Thank you.

Chaim Indig, Chief Executive Officer, Phreesia: I would probably add that the team is doing really just a great job, and our clients seem to be very, very happy, as I spend a lot of time with them.

Operator: Your next question comes to the line of Scott Schoenhaus with KeyBanc. Your line is open. Please go ahead.

Scott Schoenhaus, Analyst, KeyBanc: Hey, thanks, guys, for taking my question. You guys had a nice quarter in Network Solutions. Anything specific to call out there if it indeed is maybe a little bit from ProviderConnect early traction? Between the two budgets, between ProviderConnect and your legacy D2C, are there anything notable in terms of the macro or the backdrop between those two that’s evolving or changing? Thanks.

Balaji Gandhi, Chief Financial Officer, Phreesia: I mean, just the earlier question around as the years progress, we’ve had some nice wins. The team has done an excellent job, and I think just point out the aspect of our business model, part of the reason the team’s able to do an excellent job is because we’re also adding more footprint on the provider side. So all that continues to have good momentum.

Operator: Your next question comes to the line of Daniel Grosslight with Citi. Your line is open. Please go ahead. Hello, Daniel from Citi. Your line is open. Please go ahead.

Daniel Grosslight, Analyst, Citi: Hi, guys. Thanks for taking the question. I want to focus a little bit on the subscription offering and really the pricing within subscription. I know there’s a deliberate effort on your end to kind of moderate price a little bit to encourage more downstream revenue from your AHSCs. I’m curious if you can maybe provide a little bit more guidance on how we should be thinking about pricing within the subscription offering, and then on a sequential basis for the remainder of the year, if we should kind of think about that line item as flat sequentially in Q3 and Q4. Thanks.

Chaim Indig, Chief Executive Officer, Phreesia: I will let Elijah answer the question with specifics on how to think about it. But I think what we are seeing now is providers are under a significant amount of strain with a lot of the changes happening across the payer. As we have 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. We are acutely aware of having to provide as much value to them right now, while they are facing severe economic strain because of the changes in the payer dynamics.

Balaji Gandhi, Chief Financial Officer, Phreesia: Yeah. I think to Chaim’s point, you have lots of data on this now over the years. I remember Chaim saying almost the same thing verbatim during the pandemic, and obviously a different set of challenges then. What we did in terms of how we worked with clients then, we were pretty happy with those results. I think this is a very similar situation. Daniel, just to be helpful on the modeling side, I think if you just sort of listen to the commentary here, we are maintaining our revenue. If you took some of that revenue in the second half out of subscription, and we do have a little bit more clarity on the second half on Network Solutions, you could bump that up. But I think overall, nothing is really changed from a total revenue perspective, and things are going in the direction we anticipated.

Operator: Your next question comes to the line of Ryan MacDonald with Needham. Your line is open. Ryan, please go ahead.

Ryan MacDonald, Analyst, Needham: All right. Thanks for taking my questions and congrats on a nice quarter. Maybe to discuss sort of the product strategy and R&D investment that you are making for the provider practices and new features and functionality. It seems like with PlanMatch and sort of expansion of capabilities around eligibility and verification that you are sort of continuing to round out, let us call it, the front end of the revenue cycle there. I think you offer payment estimation and coordination of benefits now. How do you think about additional expansion into areas like prior authorization, given it is a high-value problem? You talked about providers being under a lot of financial strain, and if you look at that area, is there a way to monetize that it is more directly monetizable for Phreesia when the provider benefits in sort of shifting the pricing model over time? Thanks.

Chaim Indig, Chief Executive Officer, Phreesia: Look, Ryan, I think you did a great job of highlighting some of the things that have been just wildly well-received by our client base as of late. I think the front-end revenue cycle is an area that just has a lot of room for continuous improvement. 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 run their practices in the most thoughtful and efficient manner while helping them with their revenue cycle and all their other operational needs. So we are doubling down and continuing our commitment and providing phenomenal tools to providers that help them help their patients.

Balaji Gandhi, Chief Financial Officer, Phreesia: Yeah, the only thing I was going to add is, Ryan, the AccessOne thesis was really exactly an extension of everything you articulated, so

Operator: Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open. Please go ahead.

Richard Close, Analyst, Canaccord Genuity: Yes. Thanks for the question. Congratulations on the quarter. Just maybe on the AI front and maybe diving a little bit deeper into Ryan’s last question, but on the payments side, whether it’s your patient payments, your legacy offerings, or with AccessOne, how are you thinking the opportunity to inject AI functionality into that drive greater engagement with patients? Just a little open-ended question, but curious on your thoughts.

Chaim Indig, Chief Executive Officer, Phreesia: I think we are very thoughtful. We are embracing AI across our organization, and it has had meaningful impact on all aspects of how we operate, run, and build product at Phreesia, inclusive of selling product, supporting it for our clients. As I think about new products that we are building, there are ones such as VoiceAI that change how the providers are engaging with their patients. There are things like PlanMatch that allow them to do things that were just human-in-the-loop before. Now we are automating how they understand and pick the right plan. Those are all things that frankly were just hard to imagine doing in a non-AI world. As we keep investing in new products in and around network solutions and in and around payments, in and around workflow, our realization is that AI is not just a way of thinking.

It is allowing us to do things that frankly were beyond the scope of imagination even three to five years ago. 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. We have seen that throughout the operations of the business, where we are able to produce things, put it out there, see its reaction, and at the same time then very effectively then scale it if it does make sense. AI has frankly changed the playing field and from my own personal perspective, it has made me more excited about Phreesia and what lays in front of us and the opportunity set than I would say ever in our history.

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

Operator: Your next question comes to the line of Jailendra Singh with Truist Securities. Your line is open. Please go ahead.

Peyton Engdahl, Analyst, Truist Securities: Hi, this is Peyton Engdahl in for Jailendra. Thanks for taking my question. I just wanted to hit on the Adjusted EBITDA performance in the quarter. It was another solid quarter on the Adjusted EBITDA line, so just want to get your thoughts on why you guys decided to maintain the Adjusted EBITDA guidance there. Does that primarily reflect the continued prudence around network solutions revenue and the mix with that? Or is there anything you want to call out incremental that you are expecting in the second half as to why you guys decided to maintain?

Balaji Gandhi, Chief Financial Officer, Phreesia: Yeah, Peyton, I’d say it’s a host of things. I think that our team has done an excellent job and been very disciplined about expense management and around return on investment. 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, it’s the revenue mix piece is sensitive. That’s another component of this. AI is another one. 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. So we also want to be prudent about how we share that as well. So it’s all of those things, but nothing inconsistent with how we’ve thought about investments in the past.

Operator: Your next question comes from the line of Alexei Gogolev with JPMorgan. Your line is open. Please go ahead.

Destiny Jackson, Analyst, JPMorgan: Hi, this is Destiny Jackson on for Alexei. Thanks for taking my question. As you moderate your subscription pricing to drive downstream payments and network growth, how are retention and attach rates evolving, and how should we think about the long-term mix shift in revenue per client?

Balaji Gandhi, Chief Financial Officer, Phreesia: You might have to repeat that. There were a bunch of things in there, Destiny. If you repeat that question.

Destiny Jackson, Analyst, JPMorgan: As you moderate the subscription pricing to drive down the payment to network growth, what are you seeing in terms of retention and attach rates, in terms of how are they evolving, and then the long-term mix shift in revenue per client?

Balaji Gandhi, Chief Financial Officer, Phreesia: Yeah. What we’d say there is we holistically think about total revenue. I think we’ve been clear about that. And I think Chaim’s point earlier about really working with our clients through the operating environment they’re in 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 mix fluctuate. I think that’s just something that we think is okay and is a sign of our diversity and our business model. I would just say fluctuation more than anything else. And we’ll try to get in front of that as much as we can with all of you.

Operator: Your next question comes from the line of Ryan Halsted with RBC. Your line is open. Please go ahead.

Ryan Halsted, Analyst, RBC: Good afternoon. Thanks for taking the question. Maybe a question regarding your payment solutions business. Any color on macro trends into patient volumes from your perspective of facilitating 180 million visits? Then, I know obviously you mentioned that the deductibles reset last quarter, just any visibility into pace of how patients are getting through their deductibles into the back half of your year?

Balaji Gandhi, Chief Financial Officer, Phreesia: Yeah, 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 in the second quarter as it relates to volume trends or as it relates to deductible reset trends. So nothing to call out.

Operator: We have now reached the end of the Q&A. I will now pass the call off to Chaim for closing remarks.

Chaim Indig, Chief Executive Officer, Phreesia: I’d like to thank everyone for joining us for another earnings call, and we’ll talk to you all in 90 days. If you have any questions, please feel free to reach out to Balaji, [email protected], or myself. Thank you everyone, and have a great evening.