Phreesia (PHR)

Healthcare technology company Phreesia (NYSE:PHR) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 15.4% year on year to $109.7 million. The company expects the full year’s revenue to be around $477 million, close to analysts’ estimates. Its GAAP loss of $0.11 per share was 35% above analysts’ consensus estimates.

Company Overview

Founded in 2005, Phreesia (NYSE:PHR) is a healthcare technology company that offers a cloud-based platform for patient intake management, enabling providers to streamline administrative tasks.

Key products include solutions for patient self-check-in, eligibility verification, and billing. The company generates revenue through software subscriptions, transaction-based fees, and consulting services.

The healthcare technology industry focuses on delivering software, data analytics, and workflow solutions to hospitals, clinics, and other care facilities. These companies enable providers to streamline operations, optimize patient outcomes, and transition to value-based care models. They boast subscription-based revenues or long-term contracts, providing financial stability and growth potential. However, they face challenges such as lengthy sales cycles, significant upfront investment in technology development, and reliance on providers’ adoption of new tools, which can be hindered by budget constraints or resistance to change. Over the next few years, the sector is poised for growth as providers increasingly prioritize digital transformation and efficiency in response to rising healthcare costs and patient demand for seamless care. Tailwinds include the growing adoption of AI-driven tools for patient engagement and operational improvements, government incentives for digitization, and the expansion of telehealth and remote patient monitoring. However, headwinds such as tightening hospital budgets, cybersecurity threats, and the fragmented nature of healthcare systems could slow adoption.

Competitors include Cerner Corporation (NASDAQ:CERN) and privately-held Allscripts Healthcare Solutions and Athenahealth.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $419.8 million in revenue over the past 12 months, Phreesia is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive. On the bright side, Phreesia’s smaller revenue base allows it to grow faster if it can execute well.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Phreesia grew its sales at an exceptional 27.5% compounded annual growth rate. Its growth beat the average healthcare company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Phreesia’s annualized revenue growth of 22.2% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was healthy.

We can dig further into the company’s revenue dynamics by analyzing its number of customers, which reached 4,341 in the latest quarter. Over the last two years, Phreesia’s customer base averaged 21.7% year-on-year growth. Because this number is in line with its revenue growth, we can see the average customer spent roughly the same amount each year on the company’s products and services.

This quarter, Phreesia reported year-on-year revenue growth of 15.4%, and its $109.7 million of revenue exceeded Wall Street’s estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to grow 13.5% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is healthy and suggests the market is forecasting success for its products and services.

Phreesia’s high expenses have contributed to an average operating margin of negative 36.2% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Phreesia’s operating margin rose by 3.4 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 49 percentage points on a two-year basis.

In Q4, Phreesia generated a negative 6.9% operating margin.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although Phreesia’s full-year earnings are still negative, it reduced its losses and improved its EPS by 42% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q4, Phreesia reported EPS at negative $0.11, up from negative $0.56 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Phreesia’s full-year EPS of negative $1.02 will reach break even.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While Phreesia posted positive free cash flow this quarter, the broader story hasn’t been so clean. Phreesia’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 20.2%, meaning it lit $20.21 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Phreesia’s margin expanded by 12.5 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

Phreesia’s free cash flow clocked in at $9.20 million in Q4, equivalent to a 8.4% margin. Its cash flow turned positive after being negative in the same quarter last year, marking a potential inflection point.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Phreesia has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 64.1%, meaning management lost money while trying to expand the business.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Phreesia is a well-capitalized company with $84.22 million of cash and $17.8 million of debt on its balance sheet. This $66.42 million net cash position is 4.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Phreesia blew past analysts’ EPS and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. Overall, this quarter had some key positives, but the market seemed to be hoping for stronger revenue guidance. The stock traded down 5.5% to $22.57 immediately following the results.

Updated: May 22, 2025 at 11:36 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Phreesia.

Phreesia isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s customer growth has been marvelous, the downside is its operating margins reveal poor profitability compared to other healthcare companies.

Phreesia’s P/E ratio based on the next 12 months is 28.7x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $31.77 on the company (compared to the current share price of $24.71).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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