Phreesia Adapts To New Operating Environment But Visibility Awaits

Summary

• Phreesia went public in July 2019, raising $167 million in gross proceeds in an IPO.
• The firm provides patient intake and communications software to healthcare organizations in the U.S.
• PHR has adapted nimbly to customer needs as a result of the Covid19 pandemic.
• My bias on the stock Neutral until we learn more about the net effects of the new operating environment.
• Looking for more stock ideas like this one? Get them exclusively at IPO Edge. Get started today »

Quick Take

Phreesia (NYSE:PHR) went public in July 2019 and raised $167 million in gross proceeds from a U.S. IPO.

The firm provides healthcare IT software to streamline patient processing and communications for healthcare organizations.

PHR has responded nimbly to customer needs but its sales cycles have likely been negatively impacted by the Covid19 pandemic’s effects on its client decision processes and its own operations.

My bias on the stock is Neutral until we gain more visibility into the firm’s forward operating expectations given a sharply changed operating environment.

Company

New York-based Phreesia was founded in 2005 to provide healthcare organizations with patient onboarding and engagement software communication solutions.

Management is headed by Director and CEO Chaim Indig, who has been with the firm since the company’s inception and was previously Manager of Spotfire.

Phreesia has developed a suite of end-to-end solutions to manage patient intake processes with an integrated payments solution for secure processing of patient payments, and a channel for life sciences companies to engage patients using targeted and direct communication.

Below is a brief overview video of the company’s offerings:

Source: Phreesia

Various features of the Phreesia platform include initial patient contact, registration, appointment scheduling, payments as well as post-appointment patient surveys.

The Phreesia platform is available for mobile devices, through a web-based dashboard for use by providers, self-service intake tablets named PhreesiaPads, and in-person kiosks.

For the year ended January 31, 2019, Phreesia facilitated over 54 million patient visits at about 50,000 individual healthcare providers, in 1,600 healthcare organizations across all 50 US states.

Additionally, management says that PHR’s platform is highly customizable and scalable to any size healthcare organization while integrating within a provider client’s workflows and leading Practice Management and Electronic Health Record systems.

Market & Competition

According to a 2018 market research report by Grand View Research, the global patient care management market was valued at $7.5 billion in 2017 and is projected to reach $25.9 billion by 2025, growing at a very strong CAGR of 17.0% between 2018 and 2025.

The main factors driving market growth are the increasing emphasis on patient-centric and more efficient care management, the growing burden of healthcare expenditure as well as rapid adoption of technological advancements.

Other factors fuelling market growth include a growing geriatric population and a growing incidence of chronic illnesses requiring ongoing management.

The North American region held the largest market share in 2017 due to advancements in the IT solutions sector as well as an increase in demand for affordable and salable products to reduce healthcare costs.

The European region is projected to grow at the fastest rate due to increasing adoption of advanced health informatics due to a growing emphasis on patient-centric care.

Major competitors that provide or are developing patient care management software include:

• Allscripts Healthcare Solutions (MDRX)

• Epic Systems

• Cognizant (CTSH)

• EXL Service (EXLS)

• Koninklijke Philips (AMS:PHIA)

• Athenahealth

• Cerner (CERN)

• Medecision

Recent Performance

PHR’s topline revenue by quarter has grown consistently quarter over quarter until the quarter ended January 31, 2020, which produced flat results versus the previous quarter:

Gross profit by quarter has also grown similarly, plateauing in the quarter ended January 31, 2020:

Operating income by quarter has fluctuated and made little progress toward breakeven:

Earnings per share (Diluted) are still some distance away from breakeven:

Source for chart data: Seeking Alpha

Since its IPO, PHR’s stock price has risen 45 percent vs. the U.S. Healthcare Services index’ rise of 21.1 percent and the overall U.S. market’s fall of 2.7 percent in the past 12 months, as the chart below indicates:

Source: Simply Wall Street

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:

Measure	Amount
Market Capitalization	$937,900,000
Enterprise Value	$871,450,000
Price / Sales	4.07
Enterprise Value / Sales	6.98
Enterprise Value / EBITDA	-634.52
Free Cash Flow [TTM]	-$3,270,000
Revenue Growth Rate	24.92%
Earnings Per Share [FWD]	-$0.66

Click to enlarge

Source: Company Financials

As a reference, a relevant public comparable to PHR would be Allscripts Healthcare (MDRX), though Allscripts is a much larger and more diversified firm, so the comparison is far from exact; shown below is a comparison of their primary valuation metrics:

Metric	Allscripts (MDRX)	Phreesia (PHR)	Variance
Price / Sales	0.51	4.07	695.3%
Enterprise Value / Sales	1.00	6.98	599.8%
Enterprise Value / EBITDA	18.29	-634.52	-3569.6%
Free Cash Flow [TTM]	$147,180,000	-$3,270,000	-102.2%
Revenue Growth Rate	1.2%	24.9%	1909.7%

Click to enlarge

Source: Seeking Alpha

Commentary

In its last earnings call for the full year ended January 31, 2020, management highlighted its recent Covid19-related activities.

In response to recent customer demand, the firm deployed its Covid19 Screening module to assist customers in triaging at-risk patients, which it had done for 2.5 million patients as of the earnings call date.

Additionally, there appears to be customer demand for its automation solutions in regard to telehealth patient interactions, which are likely to show continued growth in the years ahead and patient care systems learn about and build out these capabilities.

Thus, management is ‘preparing for a future that is less reliant on the physical waiting room.’

As to its financial results, revenue rose by 25% year-over-year and the firm grew average revenue per provider client by 18%.

Cash flow from operations was positive, though minimal, while representing an improvement over the previous same period.

The firm finished the fiscal year with $90 million in cash and only $20 million in outstanding borrowings, so the balance sheet looks clean, an especially important result going into the severe recession as a result of the Covid19 pandemic.

While the firm has already seen the negative impact of far fewer in-patient visits, the rise in telehealth visits and the firm’s offering in this regard is a partially compensating factor.

So, although management is not providing forward guidance due to the high degree of uncertainty on the continued restrictions for seeing non-Covid19 patients, the firm appears to be quite nimble in adapting its system capabilities to the multiple new realities brought forward by the pandemic.

As for the stock, with a forward expectation of -$0.66 in EPS, assuming that continues to be reality, it is difficult to pin a value on the stock, given so much uncertainty.

With the firm seeing longer sales cycles, I suspect forward EPS will be worse than that.

My bias on the stock has to be Neutral until we gain more visibility into how the pandemic will affect the firm’s product mix and uptake throughout the rest of FY 2021.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.