Phreesia, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Freesia Fiscal Fourth Quarter 2022 Earnings 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, Senior Vice President of Investor Relations. For Freesia, Mr. Gandhi, you may begin.

Thank you, Operator. Good morning, and welcome to Freesia's Earnings Conference Call. for the fiscal fourth quarter of 2022, which ended on January 31st, 2022. Joining me on today's call are Haim Indig, our chief executive officer and co-founder, and Randy Rasmussen, our chief financial officer. The complete discussion of our results can be found in our earnings press release and in our related Form 8 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.freesia.com. As a reminder, today's call is being recorded and a replay will be available on our investor relations website at ir.freesia.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 anticipated performance of our business, including our outlook 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 annual report on Form 10-K, 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. may 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. The 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 after the markets closed on March 30th with the SEC. It may also be found on our investor relations website at ir.freesia.com. I will now turn the call over to our CEO, Heim Indyk.

Hi. Thanks, everyone. Thanks for participating, for joining us.

You'll notice that Balaji didn't say we're at three separate locations. They came over as we do this call together. Really good to see Randy and Balaji in person. And I hope everyone had a chance to read our stakeholder letter, which was put up.

So I guess we'll take the first question.

At this time, if you would like to ask a question, please press star, followed by the number one on your telephone keypad. We ask that you please limit yourself to one question. Your first question comes from the line of Ann Samuel with J.P. Morgan. Your line is open.

Hi, guys. Congrats on a great quarter, and thanks for putting out a long-term target. Appreciate it. You know, as we look at the growth over the next three years, I was hoping maybe you could provide a little bit of color on how we should think about the split between provider-client growth and revenue per provider-client. Because, you know, historically you'd said, you know, new clients should grow at about a 5% rate with revenue per provider-client at mid-teens to get to that 20%, but the split's been a little bit different recently. So should we think about it maybe as a bump in clients early on and then later on the revenue per provider-client will catch up as those clients expand?

And I think when you think about it, we have a table in the quarterly letter that shows over time how the average revenue per client has continually gone up. I think when we look at it, our main selling motion is land and expand. So sometimes there's timing between quarters where we land a client and the client number goes up and then it follows up as we you know, expand into that healthcare client and, you know, move the revenue up. And I think in a period where we've done a lot of investment, I think there's, you know, higher client growth than we have seen in prior periods. And so I think on a quarterly basis, you'll see that average revenue per provider client, you know, vary a little bit, but over the long run still rise year over year.

That's helpful. Um, and then I guess just on the spending for this year, how should we think about the cadence? Should we think about it as, you know, perhaps higher, you know, initially kind of, you know, as you are continuing to spend and as you move towards profitability, you know, kind of coming down, um, or do we, should we think about it as kind of evenly spread throughout this year?

I think when you, when you look at it, um, you know, when we, when we look kind of back at, at previous history, we were profitable historically. There were three years after we went public where we were putting up positive adjusted EBITDA every year. In 21 is really where we decided there's this great market opportunity and we should really invest in people. And most of that investment was in the last fiscal year that we had in 22. So most of the hiring and expense ads has already been done. And we feel like we're in a really strong position to reach the half a billion dollar target that we have for 2025. So when you look at the year of fiscal 23, what you're really seeing is a full year of expense. So we're not necessarily adding large numbers of additional resources or increasing expenses. It's more of the rise from a relative year over year because there's 12 months of expenses included in the 23 numbers.

Our next question comes from the line of Sean Dodge with RBC Capital Markets. Your line is open.

Hey, good afternoon. This is Thomas Keller on for Sean. Thanks for taking the questions. I have a question on subscription pricing. Do those existing contracts have any sort of pricing mechanisms built in as related to inflationary pressures or otherwise, or is that something maybe exclusively negotiated during contract renewals or just with new clients?

I mean, it's typical for us to include language in there that gives us the ability to raise prices as contracts renew year over year. So generally, yes, we do have those type of provisions that allow us to increase price over time.

Okay, good. And then on life sciences, I guess, how are you allocating those investment dollars there in that business? And I guess, where do you see the most opportunity going forward within that segment? so maybe i didn't totally understand the question so can you can you reframe it so i understand this time yeah just i assume life science is receiving some of the kind of same investments um yeah i guess where's the focus they are they're you know more you know newer products and services or capabilities a bigger you know sales force or just anything to kind of help frame that

All right, I'm going to wax on for a little bit here about our life sciences team. It is just doing – the team is just amazing, okay? So David has done an amazing job. We have leaders that have been called out in the industry. We're not just excited about product, which I'm going to talk about in a minute. I'll talk about our Insights product, which is just one best product of the year from PM360, is that right? Yeah. at best new product it's just you know i was with our our life sciences team last week at their at their off-site meeting and just the energy and the organization is just amazing and what we are going to keep investing there as we invest all throughout the organization but really just the performance And the collaboration that they have as a team has just been wonderful to just be part of. And I'm pretty excited about the leadership there.

And, yeah, we're going to keep investing. We're proud of what they're doing. Okay. All right. Good stuff. Appreciate it, Kelly.

Your next question comes from the line of Jessica Toussaint with Piper Sandler. Your line is open.

Hi. Thank you so much for taking the question. So interested if you could maybe talk about the TAM opportunity across subscription payments and life sciences revenue lines in the payer market. I think you guys reaffirmed the roughly $9 billion TAM in the deck today. So just how do we think about the incremental opportunity that you see as you broaden your market to payers?

Thanks. So I think we're still in the early days of that story. of the payer market. We have payer clients now. Some of our provider clients have frankly turned into payers over the last couple of years. I think we've all seen the market evolve. And some of the change in language is also representation that a lot of our clients have started to take on risk and insure members. At the same time that we've also increased our are offering to the payer market. So you could expect us, as we have, as the investments start to point in the direction of where we're, you know, what the market looks like, you could expect us to come back to market and articulate sort of that, what we think the opportunity is and, you know, what our go-to-market will be in that. I promise, Olaji's pretty good at making us do that over time.

That's helpful. Thank you.

Yeah, I think that's really cool. I guess just a quick follow-up would be, do you need any incremental products or are you just selling essentially the same stack or suite into that market, at least as you think about it today?

So why don't I take a step back, which is we're continuously, I mean, we have for 17 years as an organization, investing in both our existing product and new product. I think all good technology companies are investing in new products for their existing and new users at all time. And we're committed to doing that. If we're not investing in new products, we might as well just, you know, call it a day, right? So expect us to continue as we have both for, you know, pre-public and post-public investing in new products. You know, some of the ones pretty excited about that we've come out, you know, like we've entered new markets around, We've come out with our Connect offering. We're super pumped about our Insights offering. So we expect to both sell existing products into that market and new products.

Awesome. Thank you. Thank you.

Your next question comes from the line of Richard Close with Canaccord. Your line is open.

Yeah, I had a couple of questions. First of all, congratulations on a strong year. But questions with respect to the new client growth. Obviously, you pointed out the 200 plus clients in the fourth quarter was almost as much as fiscal, I think, 19 and 20 in a two year period. Yeah. So I'm curious about looking forward, though. Do you think the pipeline is strong enough to support similar type of growth that you guys just reported in the fourth quarter or any perspectives there would be helpful?

Yeah, I mean, I think if you look at our target of, you know, half a billion in 2025, I mean, that implies, you know, 27 to 29% annual growth. And, you know, as I said, you know, we made a decision in 21 to, put significant investment in the business. And, you know, we're seeing results from that. And that's, you know, really what gives us, you know, some level of comfort to put it out of target like that, because we do continue to see client ads and success in the sales organizations.

And hey, Richard, just, you know, on your comment about client growth, I think one of the other things we just said in the letters, you know, we think we've got multiple paths to get there. And I think Randy,

question just talked about sort of the cadence and then you know the the the growth you see with land and expand so i wouldn't i wouldn't look at any quarter and you know uh a reflection of how it might might go in the future okay that's fair um appreciate that so on the life sciences um i think it's you know great you guys had i think you called out like a million patient surveys or um You know, you surveyed more than a million patients in calendar 21. So, you know, as we think about, you know, fiscal 23, obviously, I think the new budgets for, you know, marketing by pharma that, you know, set as you enter the new calendar year. I'm just curious your thoughts, obviously, with a significantly higher number of provider clients. you're going to have that many more patient interactions. So the demand I suspect for your life sciences business would be significantly higher as well. Any comments that you can provide in terms of, you know, the budgets that you've seen for your life sciences clients, how we should think about that in terms of maybe year over year growth here for fiscal 23?

Richard, you're asking about how budgets and life sciences customers impact our outlook, growth outlook?

Yeah, not as much as the growth outlook. It's just, you know, the pharma budgets are, you know, marketing budgets are set for like the calendar year, right? So when it begins in January, I think the timing typically is. And, you know, obviously you've grown the client base significantly and you're going to have that many more patient interactions. I suspect that life science companies would be increasing, you know, potentially their budgets they're allocating to someone like Freesia. Are you seeing that?

I think I could say comfortably that we expect to do better this year than we did last year. Okay. I'll take that.

I'm working really hard. Like Balaji's like, all right, we're going to work really hard on you and me. All right, so how did I do? Did I do okay? Yeah, you're fine. All right, awesome. All right, good. Thanks.

Your next question comes from the line of Daniel Grosslight with Citigroup. Your line is open.

Hi, guys. Thanks for taking the question. I was hoping you could put a little bit of a finer point on expense growth in fiscal 23 and beyond. So if I look at the non-cash expenses, per full-time employee, we've obviously had a pretty dramatic increase this quarter and that's carrying over to fiscal 23. But outside of just headcount ads and salary, are you seeing any structural shift in how you're managing that expense side of the ledger? Are you having to invest more in product development as you enter into some of these newer markets like the payer market or as you get bigger into the health system market? curious why we are seeing such a dramatic shift, not just in headcount, but in non-cash expense per FTE.

I think when you're looking at non-cash expense, are you talking about stock compensation?

Oh, sorry. Expenses excluding non-cash expense. Okay. I mean, I think... Sorry, go ahead.

I think GNA is a good example where you know, as we've looked out and said, you know, what is the growth opportunity and what size of company are we going to be? And making sure that we have, you know, scale to reach that, you know, we made a significant investment over the past couple of years. And I think, you know, as we articulated in the quarterly letter, we feel like we've achieved, you know, GMA is a good example of that, where we've achieved the level of staffing and systems and, um investment that we've made to support you know a company that that reaches this um you know 500 million uh run rate business so from the perspective of you know more growth i i think it would be it's minimal you know from from this perspective because much of the investment is there and i think what we're really looking for um you know in the years beyond fiscal 23 is you know operational leverage on that investment which improves our efficiency across the board.

Okay, but there's nothing, I guess, structural in how you're thinking about investing in new verticals and product development that's causing this pretty dramatic increase in expenses per FTE, right?

No. Okay. We work profitable. We like being profitable. We expect to get back to profitable.

Yep. Makes sense. And then on the payment processing expense, that came in a little bit higher than historically around 61-ish percent of payment processing revenue versus historically it's been around 58 percent. Is there anything that's causing this increase in payment processing expense specifically?

I mean, I think there's always a little bit of mix, you know, how, how cards are processed, you know, card present card, not present. Uh, you know, I think there's also, you know, fluctuation sometimes in, uh, visit volumes that can impact that, uh, quarter over quarter, you know, as that business grows, um, you know, as you're aware, you know, Visa and MasterCard have also announced the price increase. So, um, we see some fluctuation in that over time, but then, you know, we also have the ability in our contracts to raise price.

It's those fancy reward cards that are killing us, man.

Rewards cards. Yep. Yep. Okay. Understood. All right. Thanks guys. That's it for me.

Your next question comes from the line of John ransom with Raymond James. Your line is open.

Hey, a couple for me. Can you help us tease out the effect of Insignia on both revenue and members? How much does that help in the quarter?

Yeah, I mean, I think when we announced Insignia last quarter, it's not material to the results from a revenue perspective. I mean, you can see the purchase price. It is a small tuck-in acquisition, so it doesn't really impact our outlook significantly.

Okay. Second question, I mean, if we just do the simplistic analysis of SDRs to next 12-month revenue, I mean, you more than doubled your SDR force from July of 20 to July of 21. And, yeah, you're calling for a nice uptick in revenue, but it looks like the revenue per SDR would have to drop pretty meaningfully to just grow, you know, top line acceleration by 500 bits. you know, when you're more than doubling the SDR. So can you kind of help me understand the relationship between revenue and SDR count? And is there something structural where that correlation, which is pretty tight for a couple of years, has kind of broken down?

I mean, I think from the perspective, right, of the SDRs are the generation. So, you know, it's really at the beginning of the revenue cycle. I think, you know, one thing to keep in mind is that we've made significant investments in the last year and we are seeing, you know, 12 months of that expense. So I think you see a dip in productivity when you're looking at, you know, revenue per headcount statistics or revenue per cost. But, you know, I think that dip is temporary, you know, as efficiency, you know, those resources are in place. They've been working for, you know, 12 months and they become more productive. But there's always a period of time where you're onboarding, training.

I think it's kind of normal to see a temporary dip in the statistics.

Okay. And I know you've never grown up that fast. And then lastly, I mean, we've learned that, you know, you've onboarded tenant health care as a hospital client. I guess I would have thought that might have engendered a press release and a little bit of a marketing opportunity for you. So what's your... What's your philosophy? Was that something they asked you not to do, or is it just you guys are quiet and modest and want to keep your light under a bushel?

You know, I think what's important is not putting out press releases. It's doing good work for our clients' job. And the work generally over 17 years has paid off immensely. We tended to, when we put out press releases, it's usually because we get asked to do. I generally believe in a philosophy that, you know, we should just do wonderful things for all of our stakeholders. And over time, it always works out positively. Right. And, you know, frankly, I love that our clients are positively talking about us publicly and privately.

Let me teach you the merits of shamelessness. and substance-free self-promotion. You know, I think we need to talk more about that.

Like, you know, you're not the only parent who loves marketing. You know, drives her crazy. But, you know, we've definitely increased our, you know, our conversations about a lot of what we're doing with our clients on a lot of the social media outlets, which I personally am not really on. That'll be it.

I'll look forward to your Instagram page. Thank you. Thanks, John.

Your next question comes from the line of Stephanie Davis with SCB Lyric. Your line is open.

Hey, guys. This is Joy Zhang on for Stephanie. Thank you for taking my question. I want to circle back to the payer market question again. So I was hoping if you can give more color on what exactly some of the new solutions could look like and what problems you're tackling. And also, how much are those products leveraging the capabilities you've acquired from Insignia Health?

So, Joy, just to be clear, are you asking about the Insignia acquisition?

I think you mentioned earlier that there'll be new products in addition to the Insignia Health acquisition as you expand into the payer market.

Yeah, I'm sure. Like, there will be, and there are. And I think we're... I think we're in the early days of it. You know, philosophically, our thesis is as we, you know, as we have a better understanding of what those products, you know, how we're going to take them to market, we're ready to talk about our early adopters and, you know, some of our later stage adopters, then we usually are more public about what those products do. And I promise you, Balaji, unlike press release, Balaji may talk about this. So it's just a little early right now for us. be talking about it but we're we're really excited about what the team is doing there um but i think it's a little too early for us to to share too much about it but obviously we it's an area we're investing in yeah i know that makes a lot of sense i understand it's early days um maybe it's a follow-up one other thing i'm very excited about some of the the work that um Dr. Hibbard and the team had been doing around the patient activation measure. And we think that that is a, it's not just an important instrument in, from a payer standpoint, I think it's just an important instrument generally for healthcare for folks to be able to understand how we as patients are activated in our healthcare. And I think that that's something that there's hundreds of research studies on. And we're really excited to be able to really expand the footprint and the knowledge base around patient activation.

Got it. Very helpful. And as a follow-up, your half-a-billion-dollar target for FY25 obviously reflects a quarterly run rate of $125 million. This would imply kind of a significant step up from our industry's FY24 numbers. And I think it implies something like 40% plus growth. So can you maybe just reconcile that level of acceleration with your long-term growth target of 20 to 25%?

Well, I think, you know, what we've previously communicated, right, that our long-term growth rate was 20 to 25%. So when you look at the half a billion dollar run rate in 2025, that implies, you know, 27 to 29%. So we did significantly increase our growth rate into the high 20s.

Yeah, and Joy, I think, you know, I think we've also said that there's a long-term growth rate of 2025, but given the investment levels we're making, we made in fiscal 22, there could be periods where it's higher. And I think the 500 million is indicative of that. But I don't know the percentage you threw out. That doesn't sound, 40% doesn't seem to make sense. I think Randy's math is probably closer, but we would sort of have on what quarter in 25 you got to 500. Got it.

Perfect. Thank you.

Your next question comes from the line of Glenn Santangelo with Jefferies. Your line is open.

Oh, yeah. Thanks for taking my question. Haim, I just want to follow up on a couple of the questions that have already been asked, because I think what we're all trying to really wrap our heads around is, you know, we're seeing expenses tick up at a very accelerated rate here at the same time. that revenue growth is decelerating pretty sharply. And I think we're having trouble sort of reconciling why that's the case. And then if you look at sort of the fiscal 25 guidance you've now provided, right? I mean, we're looking at 27 to 29% revenue growth next year, but then you got to step up at least to the mid thirties, you know, in 24 and 25 to get the 500 by the end of the year. So revenue growth dips, then it re-accelerates and we don't really have great visibility on the expense base in 24 and 25 so as we think about this this path to return to profitability is the expense base in fiscal 23 is that is that the number or will it be continued investments in fiscal 24 because the way the release reads it's a little bit unclear that we're going to approach profitability in 2025 could you give us any more color on the trends as we think of the three-year view

I know, Glenn, and I'm very excited that you asked me the question, but I'm going to hand the baton over to Randy because he's probably going to do a better job of answering it than me.

Is that cool? Yeah, that's fine. I'll take the answer from anybody.

All right, go, go, Randy. Yeah, Glenn, so I think if you look at fiscal 23, as we mentioned in the quarterly letter, that's really the low watermark, and we have done a good amount. And that investment has set us up to reach the half a billion dollar goal in 2025. So, you know what that means that we're not planning a lot of expense acceleration. And what you're seeing in 23 is really the investment that we've already made, but we made it in the latter half of the last year. So you, you know, the increase from 22 to 23 is really the impact of having a full 12 months of those expenses. So, you know, from a, operating leverage perspective, we don't feel like we have to make significant investments to achieve those growth rates. So, you know, that's where the approach to profitability in 2025 comes from.

Okay, so that's helpful. So basically the run rate in 23, that's like a reasonable run rate within reason to think about for fiscal 24 and 25, so we can model the leverage off that. Right? Is that correct?

Yeah, I think from an expense perspective, there's... 23 is a good number. Of course, you know, we continue to make investments, but not, you know, at the rate that we made in this last fiscal year where we did a lot of, you know, additional headcount hiring. I think that moderates significantly in 23.

And Randy, if I could just maybe ask you one quick follow-up on the balance sheet. So you got $314 million in cash, and I saw, you know, you increased your revolver up to $100 million. So let's just say you got... a little over $400 million in capacity, right? I mean, you guided EBITDA down, let's call it $150 million. Help us think about not only just a return to adjusted EBITDA profitability, but really a return to positive cash flow, right? Do you think you have enough cash between what you have on hand and the $100 million revolver to make it to positive cash flow before having to raise capital from somewhere else?

Yeah, I mean, I think if you look at, you know, the 314 that we have on the balance sheet, we feel like we have a very strong position in our balance sheet. The, you know, we did raise the line of credit from 50 to 100 million, and we haven't been using that so that we have the full capacity of that line. So, you know, I think in, you know, for fiscal 23, we're very comfortable with the strength of our balance sheet and being able to fund the business.

But I guess the question was, can you make it to 25 with the cash out?

Yeah, I mean, I think from the perspective, we're not really giving, you know, explicit guidance on that.

I think we feel confident in the balance sheet this year.

And, you know, glad to say, you know, the term approach profitability, and I think all of the comments, you know, expenses, expense growth decelerating and revenue growth accelerating are from the historicals, you know, I think you could probably put some estimates together and see, you know, how much cash we probably need in the business, but I don't think we can comment specifically on your question.

Perfect. You gave me a lot to work with. Thanks a lot.

Your next question comes from the line of Ryan McDonald with Needham. Your line is open.

All right. Thanks for taking my questions. I first wanted to start on the Meditech and Cerner integrations and validations. Can you just discuss the opportunity that partnering with these additional vendors creates, especially as you're going after sort of the upper end of the market with the health systems and hospitals and perhaps how that can unlock the opportunity versus what you were doing previously? Thanks.

I think I've been pretty consistent with saying eventually we've got to be everywhere, right? That's sort of our goal. And, you know, we started this 17 years ago to build a small business. look, as much as we compete with pretty much every EMR vendor, we're also partnered with almost all of them. Or we work with them, or we integrate with them in a collaborative way and work with their technology, like interchange and interoperable with them, and we're committed to always doing that. And I think this is just a view that we've been having success in those markets, and we just want to make sure that the integration is, you know, how our clients want to be. And we look forward to working with them. They've been great so far.

Excellent. My follow-up is on the life sciences business, and I know we talked about it a little bit here, but as we think about the trajectory of the end market and the shift towards digital marketing spend, we've obviously seen a multi-year pull forward in the investments there. And so as you're thinking about expectations for fiscal 2013, you know, what sort of moderation and spend are you expecting or in the movement of that spend over to digital channels, you know, in the implied sort of assumptions for this year? And what are, I guess, are you hearing from your clients from that perspective? You know, are we still very early innings or is this an instance where, you know, we saw a really aggressive pull forward and that, you know, now they're satisfied with kind of the levels we're at? Thanks.

So, you know, I think All clients are different.

And I think what in, you know, working with, you know, talking with our clients and our team that work with them all the time, all of them are consistently looking at what programs and partners drive a phenomenal amount of value. And during the, you know, the shift, like the rapid shift during COVID, there was a lot of programs that were run, including ours, that provided a huge amount of value, and if they provided a huge amount of value, you tend to do more of it, right? And I'm sure that there was a bunch of programs, digital or none, that didn't provide a lot of value, and they probably won't do more of those. But I think sort of putting a bucket under a one-size-fits-all, like, do I think, like, we're going back to the day of as many pharma sales reps calling on doctors? No. That's my opinion, and the data seems to correlate to that, but do I think that a lot of the investments in products that have been made and new tactics, if they bear fruit, you're going to keep doing more of it? I don't know if I, you sort of skate, I don't know if you know, I'm from Edmonton, right? So very big Edmonton line is you skate to where the puck is going, right? So I sort of view like no one's putting that genie back in the ball.

I guess, would you say that in those conversations, like, are you seeing instances where now these vendors are starting to talk about consolidating spend against those more effective channels that you talked about?

Thanks. I do think that there's more spend continuously going towards channels that are proved to be very effective, which the data has shown we are one of those very, very effective channels. Not only are we one of those effective channels, we are one of those channels, one of the few channels with broad scale to reach those patients and help them understand the therapies available to them and learn more about the therapies that they are on. So we are very excited about continued investment in this area.

Your next question comes from the line of Joe Vruelink with Baird.

Your line is open.

This goes back to John and Glenn's questions a little bit, but the incremental revenue you've been adding kind of per expense dollar has been really efficient for the last few years now. If I just think about the EBITDA guide, it would seem that more growth is possible if I just keep efficiency ratios the same. I guess, what are the puts and takes? You talked about onboarding a lot of new hires, but as they ramp and become productive, that would seem to help efficiency. I guess, what are some of the considerations or is just more growth possible, but maybe just need to get a little deeper into the year to see it?

I think we need to get further into the year to see how some of these investments pay off before I would say that. But I also think, which is also, I think we have telegraphed, really important to note, wages have gone up, right? And we want to be an employer of choice at all times. And part of that thesis is making sure that we pay and our total compensation level for our teammates is is good, right? I think in life, you sort of get what you pay for, and we want to make sure we get the best. And I think we have a lot of the best. And so I do think that has played into some of the efficiency levels, but I also think that now that we understand what that looks like as an organization, we have to make sure that we get back to the place where we feel the investment level should be.

It'll take a couple quarters, but I feel pretty good about it. Okay, thank you very much.

Your next question comes from the line of Ryan Daniels with William Blair. Your line is open.

Yeah, guys, thanks for taking the questions. I guess a lot of the big picture ones are asked, so I'll go to some nuances. Looking to get an update on what the traction's been with Connect. Are you seeing more growth there, and is it really focused more on the core, the plus offerings, and how broad is the network today that you've been able to develop it?

Um, it's growing, um, I think the, some of the metrics that we're looking at right now, so we're pretty excited about, um, the offering Ryan and, um, it's growing very quickly. The thing we look at, uh, which is probably a hard fact to the days of like how we've always thought about our businesses, not the size of the network, but how much usage and volume are we putting through it? And we're seeing volume increase pretty rapidly. I'm not just the same reason I'm not excited about press releases. I'm not excited about lots of product that doesn't get used. I care about whether the products we build and deploy and invest in get heavily used by all the stakeholders. And internally, we often call it utilization, although we're moving more and more towards activation is the terminology that we use. So we think it's more appropriate. But it's in the markets, and a lot of the markets it's in. It's growing fairly rapidly.

Okay, that's helpful. And then I noticed you guys are offering a free trial of your services, I think, through June. And I'm curious if you've done that before and if that's a big demand stimulator. And if so, what the conversion rates have looked like from offering a free service to paying clients.

I think, yes, we do often for a lot of our clients. products and both for new and existing clients, we'll often test out different promotions and we'll do them at different times of the year for different types of products and different markets. And generally speaking, you know, we have an analytics team that, you know, looks at sort of the uptick and how it's going and what the sensitivity is on it. And I would say that if the team is running a promotion and it's probably adopted, it's probably effective and it's working. And if it doesn't work, then they tend not to do the, that promotion or offers. And I don't think it's like, I will say that it's not like, you know, offering until June or it's, there's continuously rolling different types of things that they look at for different segments of the market. And again, they try to use, you know, as much as you can, data to decide what's working and what's not. And it's really about making sure that people understand the things that we do and how they could drive a huge amount of value to their organizations and value to their patients. I think, Randy.

Yeah, I think one thing that we look at, too, is, you know, what are the retention rates of new clients and you know, we included that in the quarterly letter, right? On a revenue basis, it's, you know, approximately 95%. And on a client basis, it's 90%. So, you know, we find as we're acquiring customers, they're staying with us. And, you know, as Heidi said, the utilization and the activation of our product is high with these customers.

Yeah, understood. And then maybe the final one I'll ask here is a bit of a big picture question. We've discussed this in the past, but If we think of macro drivers, obviously there's labor shortages, which are likely to continue, and you can help with that. There's the kind of movement to digital front door, and you can help with that. There's the need to drive activation and bring patients back into the care workflow post-COVID. So a lot of things moving the market, and that's probably what's driving a lot of your growth and investment. But I'm curious if there's any one trend that you see as most significant and sustainable when you speak to your clients that's really pushing them towards your solution. Thank you.

So, Ryan, you know, I think one of the things that I, and we have talked about this over the years, I think one of the benefits that has sustained our growth for all these years is that our acknowledgement that it's not a one-size-fits-all. You know, Evan often says there's no silver bullets for anything. It's just making sure that we continuously deliver a phenomenal amount of value for all of our stakeholders. And if we... we think about our products and our team and all the things we do, you know, it becomes very fulfilling when you know that you might go in, you know, a client might start using us for one reason, and over time, you know, the value proposition won't shift. It will just grow. And that, to me, is sort of a hallmark of what makes a great business. And that's also why our retention, we thought about it as we were writing their stakeholder letter. Why was it important for us to disclose some of our retention metrics? Because we think it's important for all of our stakeholders to understand that the investments we're making are really for that long-term value and for our clients and their patients. But I also would say, like, you know, as you think about value proposition, it's not the same for everyone. For some people, it's labor. For others, it's cash flow. For others, they have to solve a clinical problem, and we're how they do it.

All right, appreciate all that, and thanks for all the color. Congrats, and congrats to David and all the life sciences success in particular. It's been really outperforming our thoughts. Thanks.

Yeah, that team is just doing great.

Your next question comes from the line of John Ransom with Raymond James. Your line is open. John, you're back.

Hi. I know you missed me. So the French word segue, we're going to just make a beautiful segue into life science. So you guys, I'm old enough to remember that you used to kind of dourly talk about life science being this, you know, forever flat business, and now it's not. And you've praised the team, but is there – kind of for us who look outside there, is there a simple correlation we can draw between your labels among your provider group and your lifetime revenue, or is what's driving the growth something different than that? But I would think the more providers that you add, the more eyeballs that see the ads and the more money you can make. But can you kind of help us out with sort of some simple correlations there?

Well, so your – correlation that you are making is wildly important the network has grown significantly and i think we've we we did want to like paint that picture for a reason so you know that that has without question given us the word scale right so we have a broad reach we're able to segment appropriately we invested significantly in data science and being able to you know, understand segment population better. We invest in just a phenomenal team, but we've also invested in new products like our insect product, right? Like that allows, gives us and our clients much better visibility and understanding about what consumers are saying and why things, why things, what matters to them, why they matter. And that's been a really powerful tool in our arsenal to be able to, you know, demonstrate significant value to our clients. And, you know, I think we link to it in our, you know, I don't know, did you see the insights report, Jeff? Like the example we put out about migrating? It's that. That stuff just isn't easily accessible to a lot of people, and we've made it accessible to our clients. And, you know, we're pretty excited because what that also does is demonstrates the depth of understanding we have about .

You know, again, a good segue.

We're like bread and ginger. The, you know, there are a number of companies who are trying to capture this digital move by big pharma from, you know, running midnight ads on TV channels, hoping to catch one fish to much more targeted ads. Do you have a perspective of what Frisia brings to the table when you're talking to a manufacturer versus some of your able competitors who kind of come at it maybe a little different way?

Look, I think that there's different parts of a marketing funnel, and there's some tactics that are used to sort of get people into an office, right? There's some tactics that are used to get you to switch messaging. What we really talk about is we know when we engage a patient, it's a patient. You don't have to guess. We don't talk about it as consumer marketing. The only people we really reach are patients and they've opted in for us to deliver a very targeted message that because the information we have is relevant to their healthcare. When you deliver something that opted in and relevant and it's at the right time, it's wildly effective in being able to engage those patients in their care. And what we've been able to demonstrate is that that engagement has a very strong ROI. And we're able to do it at scale and reach patients that would otherwise be pretty hard for these organizations to be able to reach right before they are about to see a care provider.

Thank you, sir.

Oh, Haim, you know, that's as excited as I've ever heard you, so, you know, I give you an eight. That might be a good one. All right.

All right. So I will say, it's much nicer having Randy and Balaji here doing it all together. So thank you, everyone, for participating. And I think I do like the evening call more than first thing in the morning. So maybe we'll make this how we will moving forward. Thanks, everyone. And I'll talk to you all soon.

This concludes today's conference call. Thank you for joining. You may now disconnect.