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spk09: Good evening, ladies and gentlemen, and welcome to the Freesia Fiscal Second Quarter 2024 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, Freesia's Chief Financial Officer. Mr. Gandhi, you may begin.
spk05: Thank you, Operator. Good evening, and welcome to Freesia's Earnings Conference Call for the Fiscal Second Quarter of 2024 Earnings which ended on July 31st of 2023. Joining me on today's call is Haim 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 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 the 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 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 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. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and stakeholder letter. which were furnished with our Form 8K filed after the market closed today with the SEC, and may also be found on our investor relations website at ir.freesia.com. I will now turn the call over to our CEO, Ayam Indig.
spk02: Thank you, Balaji, and good evening, everyone. Thank you for participating in our second quarter earnings call. Our stakeholder letter earnings release came out about an hour ago, so let me start the call by sharing a few key highlights of the material we released. Total revenue in the second quarter was $86 million, up 26% year-over-year. Subscription and related services revenue grew 26% year-over-year, and your processing revenue grew 21% year-over-year. and network solutions revenue was up 33% year-over-year. Adjusted EBITDA was negative $12 million, $14 million improvement year-over-year. Our average number of healthcare services clients in the quarter was 3,445, up 24% year-over-year. We inched up total revenue per client to $24,914, up 2% year-over-year. I want to thank the team for delivering solid revenue growth while also driving another quarter of nice operating leverage. I speak for all of our employee owners when I say we look forward to returning to profitability. Let me hand it over to Balaji to talk about our fiscal 2024 outcome.
spk05: Thanks, Haim, and good evening, everyone. Moving on to our outlook for fiscal 2024, which ends on January 31st, 2024, we are maintaining our revenue outlook for fiscal 24, which is in the range of 353 to 356 million, implying growth of 26 to 27% over our fiscal 2023 revenue. We are raising our fiscal 24 adjusted EBITDA outlook by $6 million on the top and bottom end of the range. Our new adjusted EBITDA range is negative 54 million to negative 49 million from a previous range of negative 60 million to negative 55 million. The increase reflects continued operating leverage across the organization and continued progress on our path to adjusted EBITDA profitability. We are also maintaining our revenue and profitability targets for fiscal 2025. Those targets are $125 million of revenue in a quarter during fiscal 2025, which implies $500 million of annualized revenue and returning to adjusted EBITDA profitability during the fiscal year 2025. We remain comfortable with our ability to finance our fiscal year 2025 targets with our current cash position. We believe our capital allocation strategy sets us up to deliver on our financial targets for fiscal 2025 and beyond. We continue to focus on driving shareholder value. Operator, I think we can now open it up for Q&A.
spk09: Thank you. If you would like to ask a question on the phone lines today, you can press star 1 on your telephone keypad. If you'd like to remove yourself from the queue, it is star 1 again. We do ask that you please limit yourself to one question and one follow-up. We'll take our first question from Ryan Daniels with William Blair.
spk04: Yeah, good evening, guys. Thanks for taking the question. Balaji, one for you first on the quarter specifically. It looks like the cost of revenues were down year over year despite the strong revenue growth. And I know in the shareholder letter, you've talked about some things you're doing to optimize the platform spend. So can you go into a little bit more detail on that as it looks like pretty impressive cost controls there?
spk05: Yeah. And first of all, Ryan, just to point out specifically on this quarter, there was a little bit of benefit in terms of timing of spending. certain payments. So I think, as we said in the last couple of quarters, we feel pretty good about the improvement we've made on this line. And while there's still opportunity, I think, you know, a lot of the improvement, the big improvement has been seen over the past four to six quarters. And, you know, to your other question, I mean, a lot of this was, look, we made a lot of big investments across the platform. And we just, you know, I think we've talked about this at length about just growing into So I think what you just saw when gross margins were, you know, 500 to 1,000 basis points lower was just us making that investment knowing we were going to go from 1,500 clients to well over 3,000 clients and wanted to make sure we supported all those clients well.
spk04: Okay. That's super helpful. And then one bigger picture question that kind of leads off of that, you've done a great job progressing at or ahead of your schedule to get to the run rate and break even in 2025 fiscal year. And I'm curious if you're willing, as we approach that time point, to go beyond that and give us a little bit better view about what the financial model might look like in however manner you want to characterize it kind of beyond the 2025 goals you've established. Thank you.
spk05: Thanks, Ryan. Well, let me try to be helpful on that topic. maybe first just taking a step back, and it actually, Ryan, relates to your previous question around gross margin. So we did make some pretty big investments, and growing into those investments is a very important theme when you just think about our financial profile. But I think specifically, let's talk about G and A expenses. And so, and Ryan, you know, specifically, you may remember this from our IPO process, you know, four plus years ago. We were spending, annually about $30 million in G&A, and about to go public with trailing revenue of just over $100 million. And we quickly recognized, and we did a lot of research around this, that to be a high-performing public company with proper controls, processes, systems, et cetera, it was going to be significantly higher. And the research we did concluded it was somewhere in the neighborhood of $20 million a quarter or 80 million annually. So that's a pretty big step up from the 30 we were at. And some of that is people, some of it is just systems and processes, et cetera. And in our research, we realized that a lot of companies delay that investment and we chose to not delay that and do it upfront. And so you saw in our income statement, a big step up in GNA that started to build in fiscal 21 and sort of peaked about seven quarters ago. And I think if you look at seven quarters ago, or over the past seven quarters, G&A has been flat. And I think, you know, kudos to our entire team, both the people in the G&A category itself, but also just all of the folks, you know, in other parts of the company. We have done a great job of growing into that, and so generating operating leverage while we've held that flat. So just maybe some numbers. I'm just looking. 48 percent growth from seven quarters ago in revenue with effectively zero percent growth in GNA. And I think that's very important context for your question. So now maybe turning to your question around beyond 25, we think that now that we've sort of, you know, gotten towards a path of growing into that GNA base where GNA is in the teens as a percentage of revenue, which from all of our research We think that's where we should be. And we feel pretty good about that. So, and again, just to be clear, when we're at about 500 million of revenue, our GNA is around where it is now, it's in the teens. And so beyond 25, we can sort of see ourselves getting back to the profile we had when we went public, which is a 20% grower on the top line and growing profit. And I think, you know, how this sort of step up in profitability manifests We will continue to communicate that as we get closer. We're still, you know, a bit away from that. But I think that was sort of the story we went out with. We're just going to be a much bigger company with a lot more products, a lot of great people. And I think we've had a track record of putting out some longer range targets to try to be helpful. But hopefully that answers your question, Ryan.
spk10: We'll take our next question from Jessica Tasson with Piper Sandler.
spk11: Hi guys, thank you so much for the questions. So congrats on the nice network solutions performance in the quarter. We've obviously seen this as an area of strength for consistent strength for Freesia despite kind of noise across the competitive landscape. So just hoping you guys can offer some perspective on the life sciences digital media market and on the role of programmatic marketplaces as a place to sell inventory.
spk02: Yeah, so first off, look, I think the reason why we had a strong quarter is the strong team. Like all across the board, our team just executed really well, you know, on the network solution side. And that was, you know, our product organization, our sales organization, our content team, our analytics team, and even our network team. You know, there was a lot of coordination here. And Look, I think it's super competitive. It's a hard market. I think we've been fairly consistent saying it's not easygoing, but I think when you, you know, we'll keep attempting to, you know, do what we do, which is winning share and delivering really, really valuable messages to patients that drive phenomenal ROIs continuously, and those ROIs, frankly, improve outcomes. And I think that's what's been really inspiring is you know, as a company, one of the things we've really focused on is not just thinking about it in terms of dollars and cents, but really thinking about it in terms of impact to patients and patient lives and the outcomes that they have, and something we're all pretty proud of here. So the numbers were very much a team effort, but it's something we're really proud of.
spk15: And then you had a question about programmatic.
spk11: Yeah, just curious to know if you guys have a perspective on programmatic marketplaces and whether or not Frigia participates or if that's even relevant to the success of your network solution sales organization.
spk02: Today, we don't participate in programmatic. We've invested heavily in our machine learning and data science. team and the products and being able to take content live thoughtfully for the right patients at the right time. So when we think about being able to deliver the right message to the right patient at the right time, that's something that, frankly, we think we have each skill set in. And, you know, I think programmatic, it's not something that is actually new in the ad business. I think it's maybe a little, it's very much talked about, but it's something that's existed for as long as we've been in the business.
spk11: That's really helpful. And my quick follow-up is just your letter indicated that healthcare services client ads should re-accelerate to about 175 and 3Q, including the clients gained from access e-forms. So just hoping you can give us a little bit of color around the 2Q deceleration and your expectation for kind of the core healthcare services clients growth going forward. Thanks again, guys.
spk05: Yeah, thanks. Thanks, Jess. Yeah, I mean, you know, I think you've seen over the past four or six quarters, you know, it can sort of be jump around a little bit. I think there was a quarter where it was, you know, went down from 206 to 158, 158 to 169. I think we're trying from listening to a lot of folks to try to like, you know, make sure we're giving some visibility into the next quarter because we have it. And that's what we're doing with the 175. I think, you know, I don't think there's a ton to read into 136 versus, 175 versus the last quarter being 169. We continue to add a lot of new clients and feel really good about our ability to continue to grow the business. Teams do a great job.
spk15: We're very happy with the performance, and it's where we thought it would be.
spk10: We'll take our next question from Joe Vrewink with Baird.
spk00: Great. Hi, everyone. Hoping to get a bit more detail on access, e-forms, maybe a two-parter. One, just from a strategic standpoint, what this opens up for Frisia relative to what has been the existing kind of roadmap and strategy in the acute market. And then part B of the question is maybe just a little bit more financial detail. The last question asks about just does seem to be factored into client ads, maybe kind of an annual run rate for that business in terms of revenue contribution and how to think of it going forward.
spk02: Yeah, I'll let Balaji answer the last part of the question because I didn't really understand what you were asking. Maybe he can interpret it. So we were, frankly, we're really excited about it. I personally am excited, but I know everyone that's that's interacted with the Access team has been just blown away. We're really pumped about its capabilities. It got introduced to us, and we've been looking, we've been spending a lot of time with a lot of our clients, and what we realized is that there were certain capabilities we just didn't have. And to have those capabilities, you needed some really deep content. And when this got introduced to us and we realized that we shared a lot of common clients, we realized that, you know, this founder led organization was right for us. And so, you know, we moved fairly quickly. It was, you know, it was a very small business. It came out, it's the foundationally came out of the printing business, which I find to be very interesting because, you know, that's not how we evolved, which has been great. You know, they came out with something that was very physical, but you know, what, what it came from was this idea that forms need to look a certain way. And, you know, as long as I've been in healthcare and doing freesia for over 18 years, Evan and I keep waiting for forms to disappear. And every year there's more mandatory forms that people have to fill out a certain way in a certain format and a certain look. And our clients are telling us that. And we, you know, when we, we looked at one client, they had over 5,000, this one health system that we, we had over 5,000 forms, all different formats and sizes and, different types of signatures that needed to be done. And that was just so much content that was deeply proprietary, and this organization had it. And so it made a lot of sense for us to make it part of Frisian. We're really excited with what we've seen so far, but it's really early days. But it was pretty small.
spk05: And Joe, on your second question, I mean, I think if it wasn't clear from Heim's answer, I mean, this is very much, you know, product acquisition. And if you think about, we've done six acquisitions in our history. They all have that product-centric sort of flavor. And so they bring, some of them have brought, you know, some clients over. I think Access, you know, like some of the other ones, has a lot of overlapping clients, which is great because, you know, it's nice to be able to add more value and deepen some of those relationships we have with existing clients. So it's sort of around the edges in terms of the contribution to those numbers. And similar with the financial profile. I mean, you know, whether it's QDoctor, whether it's Insignia, whether it's MediFind, I mean, you know, the financial contribution here is pretty immaterial. It's really about adding great product design sets and then being that contributor to the 20% grower company that we think we can be beyond 25 and really, you know, being accretive to that growth.
spk15: And helping our clients. Yeah, yeah.
spk00: Okay, that was all great. And then maybe just a second question. You know, you're sitting here as of the July quarter at 86 million in revenue, talking about 125 million in revenue. at some point next year. So you kind of can do the simple math on what needs to be added over the next six quarters. I guess any directional way to think about the contribution in getting to the 125 between the different revenue segments that you break out? Would you maybe expect one to be more influential than the others? Just any way of framing that?
spk05: Yeah, I think the short answer there is no, because And I think we've been very consistent about this. There are just multiple paths to getting to different places, not just 125, you know, getting to 86, for example, from 68, you know. And so, Joe, that's actually a very, very powerful aspect of our business. That said, I think, you know, like today, the composition and the mix of revenue, subscription has held in in that mid-40s as a percentage of revenue for a long time. And you've seen network solutions, you know, I think multiple times surpassed as a percentage of revenue payments. I think this quarter is an example. And that's, you know, sort of a change. That's growing faster, you know, historically has grown faster. But I don't think we're going to be too prescriptive about that. And then in terms of just the path from here to that 125, you know, we'll also point this out. I mean, there's seasonality. There's different quarters where we've added a lot more revenue than, you know, than others.
spk10: And we'll take our next question from Richard Close with Canaccord Genuity.
spk12: Yes, thanks for the questions. Congratulations. Olaji, maybe you could talk a little bit about the Freesia platform update section. You talk about looking at the text messaging part of it. Maybe go into a little bit more details on what you're thinking about the platform.
spk05: Wait, so Richard, do you want me to ask the product? Do you want me to ask you the product question?
spk12: I mean, I'll give it to her. I'm giving it. You always give me a hard time.
spk05: I mean, you know, I think I think our our goal in that just in that section is that we are continuing to make investments in the platform, not just it's not just about new products. It's also just, you know, our ability to communicate with patients faster or better, easier. Um, and, and so I think the, you know, the, the, the comments we made around texting are just, you know, that, that we're continuing to invest in that platform. It's never just like sort of one and done. Um, and you know, the accuracy, security, privacy, all of those sort of aspects matter, but I don't think there was anything beyond that, that we were trying to communicate.
spk02: And we're very proud of the team that spent a lot of time, you know, on that product.
spk05: Yeah, that's fair. It is a stakeholder letter, Richard. It's not just, uh, for investors, but it, It's for clients, it's for all of our employees, et cetera.
spk12: Good.
spk05: All right.
spk12: And then moving on to referral management, if we could talk about that a little bit. You know, maybe a three-part question if I could sneak it in. You talk about MedMind being integrated into referral management. I'm curious on that. And then what is the revenue model? for both MedMind and referral management. You really don't talk about referral management on slide 13 of the presentation. So if you could just remind us how you're thinking about that part of the business going forward.
spk02: So first, Richard, I promise I'm not trying to make fun of you. It's called MediFind, not MedMind. And we do... And so then you were asking about, look, I think we've been invested. In our view, you know, we really, if you look at slide 10 and you think about it, we really think about it all around access. So MediFind, it really, you know, it's a space that our providers and the patients that use freesia have been telling us for years. They love help finding the right doctor at the right time. And so it's a space we've been looking at for a long time. We've been investing a lot in with our Connect platform. It's been growing very, very well. We've done, I want to say, over a million appointments just through referrals alone. It's been growing at a really nice clip. And frankly, just helping people find the right doctor with an online platform is an area we've just been looking at for years. We've looked at building and buying. And we got introduced to MediFind. years ago through a client um and you know an opportunity came for us you know to move really quickly to be able to buy it and and make it part of the free family and we moved i i i just blown away how fast he was able to move we moved unbelievably quickly to be able to make it part of freesia because it as an as a property it's the number one or two and most of the searches that you do when you're looking for a specialist in the markets, in a lot of markets. And, you know, over the next couple of years, we'll be integrating it's Freesia with the, really with the view of driving better access for patients to find the right specialist. This is a platform that has the massive wealth of data and expertise being built up for, you know, I want to say over two decades. And so we were, we just think of ourselves as lucky that they chose us. as the partner to move forward with. And we will continuously invest in it. It was very small, but it is freaking awesome.
spk15: So we're really excited about it. And we thank our client for introducing us to it.
spk10: All right, and we'll take our next question from Glenn Santangelo with Jefferies.
spk13: Oh, yeah, good evening. Thanks for taking the question. Hey, guys, I just want to try to follow up on some of the previous revenue questions, because I think this is a big issue for folks. If you look at your subscription revenue line, you know, clearly it's been decelerating pretty consistently for the past year. And I think a lot of people are focused on provider ads, maybe also decelerating. And then when you take that into context of your fiscal 25 guidance to get to that 125 mil, it almost looks like unless you have a big push from network solutions, you're going to need to see subscription accelerate in fiscal 25 versus fiscal 24. And with, you know, law large numbers becoming a bigger issue, you know, it seems unlikely that that will happen. And so just wanted to get your take on this pathway to 125 million as it relates to subscription revenues. And if we're even thinking about that correctly, you know, as we think about the two-year stack.
spk05: Yeah. Well, thanks, Glenn. And I think this relates to Joe Brewing's question earlier. And I think this is really important. Us being prescriptive about each revenue line item and how that contributes to 125 is really harmful, we think, to the way we run the business, the way we think about building the business up over time. And every 90 days, you get another data point in terms of progress we're making and, you know, you can sort of run numbers and, and see how it builds up. But I think Glenn, this is just one example, maybe to think about how we think about building, uh, you know, a big, uh, business that has long-term durable growth is, is payments. And so if you look back over time, when we, again, we, you know, well, or I guess 17 quarters ago, we went, when we went public, we had 1,558 clients, um, And at that time, we were doing about $290,000 in payment volume per client. And now you fast forward, we've more than doubled the number of clients, right, with the 3445 we have today. And, you know, you round a little bit. I think it was $287,000 was this quarter, $287,000 in payment volume per client. And so what that suggests is we sort of have a similar size and profile client across the entire base as we did then. And does that make sense, Glenn?
spk15: Yeah. Yeah.
spk05: Okay. Okay. And the reason and how this relates to sort of your question is, if you look at our take rate over that same period of time, our take rate was 3.04 back then. It's 2.91 this quarter. 23 basis points, right? And I think we've talked about this over the past several quarters, but our philosophy has been Like we just want to do right by our clients, add more value. We have other products to sell them in subscription. We're obviously, you know, thrilled to be able to also generate revenue in network solutions, you know, across a lot of those same clients. And so that 23 basis points, you know, across a billion dollars in payment volume in a quarter is a few million bucks, right? And you start to think about, well, you know, are we giving up you know, revenue in the near term, knowing that it's the right thing to do for our clients, but also it's there in the long term. And so, again, there's going to be periods where we can take revenue. There's going to be periods where, you know, revenue might not show up in a quarter. That's sort of how we think about it over time. The numbers are the numbers. I think, you know, our comment is we feel good about the fiscal 25 targets.
spk13: Okay, that's fair. If I could just ask my follow-up on the EBITDA side, I think this is the sixth quarter in a row you've comfortably beat EBITDA. And when we look at the full year guidance, right, it assumes no leverage, you know, from the 20-something percent revenue growth in the back half of the year. And, you know, I understand, you know, the wanting us to be conservative with respect to the guidance. But I guess what my question really is, is as you think about this path to be in a $500 million company, Hein, do you feel like the existing infrastructure of the company is sufficient to be able to handle $500 million plus in revenues and continuing with these physician ads? Or do you think there's going to have to be some investment made at some point to better handle the growth?
spk02: Well, I think we are making a lot of investments continuously. And I think that You know, we will continue to make investments, not just in getting to 500, but I plan on being here after that, right? And so, you know, a lot of the investments we're making now are for beyond that. And we think that continuously, we're not playing just the game for next quarter or next year. It's let's make sure that we build a sustainably large competitive moat And at the same time, just provide phenomenal value to our clients. And while also keeping an eye on the bottom line for our shareholders.
spk05: And, you know, Glenn, I just add to that comment. I think we're actually trying to run the business and grow the business in a way that, you know, we don't lead to the concern you have, which is, you know, are we under investing in the business? And we're trying to do both, you know, at the same time. And I think Again, you know, credit to the entire Frigia team for doing that.
spk15: It's not easy.
spk10: We'll take our next question from Scott Shanehouse with KeyBank.
spk06: Hi, Hyman Balaji. I just wanted to dig further into your Access eForms acquisition. I guess this kind of ties into the long-term revenue guidance bridge. But you mentioned in your stockholder letter that the Access eForms has a vast catalog of content in acute care spaces. Does this enhance your current number of modules that you're able to cross-sell? And then should this also translate into higher revenue per AHSC as you're able to sell more and more modules into the acute setting?
spk02: So I think early on it will probably have very minimal impact to our revenue per client. I think that there's a bunch of work we have to do to they can make it tied into Freesia, which we have already started the investment in. But over a long period of time, I think it's going to add significant value to our clients. And when you add significant value, we have a pretty good track record of sharing that value upside. Look, it's not a sexy thing. We're like, if anyone's ever been through a hospital, there's just lots of paperwork that needs to be documented and signed continuously. And that And to that point, like, that content is just hard to replicate. And people often view content in sort of the watching a video or having it be like a book. But the reality is content in healthcare is like the vast, whether it's when we bought Insignia and it was patient activation measure, you know, we view that as really as content. Or if it's you know, this, which is just this massive library of forms. And that example of 5,000, that was just one client that had built out 5,000 forms for us. So what we really have to do is do that lift of making those types of forms available for the vast majority of our network over the next couple of years.
spk05: And, you know, Scott, I don't think that you need to get, like, you know, too deep into your question around Revenue, I mean, think about the scope, right, of things that we can do. And, you know, we have a big PAM number and subscription. And I think our philosophy has always been build, rent, or buy. And this falls into that arena, and this just happened to be something that we, you know, would buy. But it's not going to be for every client. So when you spread the opportunity across a base of 3,500 clients and however many we're at, you know, two years, three years, five years from now, I don't think that's going to be material.
spk06: Thanks for all that color. I appreciate that. My follow-up is around the nascent payer referral. Obviously, open enrollment season is coming up here quickly. Can you just remind us of the profitability metrics on this business? I think you've mentioned before that it doesn't require a huge sales uplift, and these are pretty high incremental margins. I just wanted to get some more additional color on that. Thanks.
spk05: Yeah. I mean, I don't think, I think what we've said is it's early and, you know, we're every, every season, you know, we, we learn a little bit more about this. I don't think there's anything, Scott, that we could sort of take away around like any kind of unit economics, but I will say that we, you know, we learn more from it every year and, and it's, and it's still early and, you know, an open romance around the corner.
spk10: We'll take our next question from Daniel Gross Lightwood City.
spk08: Hi, guys. Thanks for taking the question. You previously mentioned that the sales cycle has become a bit more challenged broadly as everyone is taking a pretty hard look at tech spend and deciding what to cut. Can you just comment on how the selling season has changed this year or is changing? If you've had to provide more discounts, et cetera, and how we should really think about that average revenue per user for on the subscription side for the remainder of the year?
spk02: Look, I think I wish there was a selling season. I feel like, you know, selling season for us is Monday to Friday and it starts at 9 a.m. and goes to 5 p.m. East Coast, West Coast and everything in between. Every week we're out there calling all practices and health systems and big groups and small groups and you know, single hospitals and multi-hospital groups and the team's doing really just good work getting in front of the right clients. And then as we win the clients, we have a pretty good track record of keeping them and selling them more stuff. And the way we sell them more stuff is we introduce product that adds a lot of value to them. And sometimes we give it to them. Sometimes we sell it to them. And sometimes, you know, we part of the transaction. So really, you know, we get it from transactions. So I've been really happy. I still think it's hard, but I think the team's doing a great job in a tough environment. And I think a lot of that is not just the sales marketing organization, but it's also the product organization. We have good product and it really starts with good product. And we do a good job of selling to our clients and we do the things we say we're going to do. implement them really well, and we try our best to treat them as awesome as we can.
spk05: And, you know, I'd also add that if, when you think about just a client, you know, we do have these three different revenue lines. And obviously, I'm sure it's helpful for people to look at subscription, look at payments, look at network solutions independently, and that's fine. But at the end of the day, you know, when we think about our go-to-market, we think about you know, cost of acquiring customer and all that type of stuff. It's really the totality of it. And that, as I said, I think earlier in the remarks, you know, that inched up a couple of points year over year to just around $25,000.
spk08: Yep. Yep. Okay. And then, Balaji, on the funding need, I know you mentioned that you can get to your fiscal 25 targets, you know, profitability within fiscal 25 without raising additional capital. But if you could put perhaps maybe a finer point on that, you know, you do spend, call it 20 million or so on capitalized software, et cetera. So I'm just curious if you think you can get to free cash flow profitability with your current cash position or beyond that 25, you think you have to perhaps raise additional capital to get you there?
spk05: Well, I think the earlier comment, you know, to Ryan's question, you know, we talked about growing profitably beyond that. So, you know, I think let's start, Daniel, with, you know, like it's, you know, get to adjusted EBITDA profitability. I think there's milestones along the way. You look at the operating cash flow this quarter. I think we're all very proud that that's a single-digit number. You know, that's sort of returned to a single-digit loss number for the first time really since this big investment cycle happened. So that's a data point. And then, you know, adjusted EBITDA, operating cash flow. and then free cash flow. So I think we should, let's be clear, that comment earlier around growing profitably beyond fiscal 25 was intended to say, we can grow the business at that rate and we can, you know, invest in it as we continue to grow. But it's not like, you know, that's, that we need, you know, we envision ourselves needing to come to the market to raise money to grow the business at that. So just want to be clear about that.
spk10: We'll take our next question from Ryan McDonald with Needham.
spk16: Hey, this is Matt Shea. I'm for Ryan. Thanks for taking the question and congrats on the strong quarter. Wanted to start with network solutions. There was a comment in the stakeholder letter that discussed you guys delivering more messages in the first half of 2024 than anticipated with some of those messages originally being expected for the second half. So curious if we should interpret this as a pull forward of spending. or could the strong first half performance lead to incremental programs or upsells for additional messages in the second half? We'd just like to kind of unpack that and help understand what your expectations are for the back half of the year.
spk05: Sure. Thanks, Matt. Look, it's the former of your two scenarios. It is pulling it forward, and I think the team has done an outstanding job. of performing in the first half of the year, and we're able to deliver those messages for our clients, which is great. But at the same time, look, the lack of us rolling that into the guidance for the remainder of the year is because there is some in-year activity that we want to wait and see. And, you know, Matt, that's not really any different than every other year for Freesia. And so that's just sort of where we are at this point in the year. And so I would absolutely think of it as both worlds.
spk16: Okay, got it. That's helpful. And then maybe sticking with Network Solutions, turning to Member Connect. Obviously, annual enrollment period is different every year, but curious kind of how the Medicare Advantage lead generation business has gone this year to date, kind of relative to your expectations. And then, again, not knowing what AEP is going to look like yet. Just curious if there's anything that gets you guys excited about this year's AEP in particular, whether it be any conversations you guys have had with payers or Any plans to maybe weaponize some of those communication preferences, insights you generated from your recent survey of Medicare Advantage beneficiaries?
spk05: Well, I think the first part of your, you know, question, and you sort of answered it probably yourself, which is, you know, most of this year is not really, you know, relevant. The show really starts, you know, with the open enrollment, the annual open enrollment period. And, you know, we'll just say it again. Like, you know, it's still very early. I think we like having, you know, exposure in the payer space. We gained that through the acquisition of Insignia and then launching into this, you know, product with MemberConnect. But no real, you know, nothing really new to update there from the last time we talked.
spk15: And, you know, we're still excited.
spk10: We'll take our next question from Sean Dodge with RBC Capital Markets.
spk03: Yep, thanks. Good afternoon. Just on the healthcare services revenue for AHSC metric, it's continuing in that $18,300 range. I'm just curious, the underlying dynamics there, you're cross-selling and expanding into more locations, and that should help grow that metric, but that's being offset by newer clients that are starting with fewer solutions. And there's also, is there a client size mix impact at play too? And what I'm trying to get at is just understanding how much progress you're making with the cross-sell and land and expand absent these other offsetting factors. Is there any way you can kind of quantify the kind of list you're getting from cross-selling and land and expanding?
spk05: Yeah, we are growing within our base, but I think, Sean, the comment earlier around just using that payment as an interesting way to think about it, because, you know, upwards of 80% of our clients you know, are a payment facilitator, you know, we're the payment facilitator for. And so if we were running about $290,000 in payment volume in a quarter when we were 1,558 clients, and it's about the same number now, you know, there's a number of doctors or providers, you know, associated with a client. There's a number of patients they see. There's a certain amount of payment volume that crosses. I think that's as probably as powerful a way to think about has the sizing or, you know, the shape of our footprint changed over four years. And, you know, it just really hasn't. And, you know, I think our go-to-market of letting people try the product and, you know, and then, you know, they convert over and, you know, then they try a new product. It's sort of that is that does distort that number over time. But I think we brought this up. You know, we've added so many clients over time that, you know, that can sort of take longer and we're okay with that. You know, we feel really good about that.
spk03: Okay. And then you mentioned during one of the earlier questions, there were some benefits from payment timing you realized during the quarter. Can you quantify for us how much that was?
spk05: Did you say payment timing? I missed that.
spk03: I don't, it was something you said, I think in response to like Brian's question, you said there was a benefit in the quarter from payment timing.
spk05: Oh, no, that wasn't payment timing. Yeah, that was, yeah, in cost of sales. Yeah, there was just like a vendor where we had like, you know, an expense that will reverse. So that reversed. So my point is our gross margin, you know, in this quarter is probably running 50 to 100 points, basis points higher. Just like a one-time benefit. Think about it that way. But we're still, you know, go in the same sort of range.
spk15: Okay. All right. Great. Thank you again.
spk10: Our next question comes from Jeff Garrow with Stevens.
spk14: Yeah. Good afternoon. I have a question on the sales and marketing spend. It looks like sales and marketing spend down both year-over-year and quarter-over-quarter while you all keep adding healthcare services clients at a healthy clip and have a multitude of growth drivers on the network solutions side. So I want to ask if there's color that you could add on mix and trends in sales and marketing spend on new healthcare services, client-focused resources, where you have that good balance of growth versus resources versus network solutions, which I think clearly in an earlier growth stage.
spk05: Well, network solutions is actually 18 years old. old in terms of being part of our business, I think that sales and marketing expense line is for all areas of the company. I think, you know, we're constantly sort of, you know, calibrating that. And I don't think there's anything that's changed a whole lot over the past few quarters. But just know that, and I think this comes up a lot too, that that is absolutely supports clients added in healthcare services, but also, you know, brands that we add, and even things we do in the revenue cycle area. So I don't think anything particular to call out there. You can see that we, again, continue to get nice operating leverage on that sales and market.
spk14: Great. That helps. And one more question on the spend side, maybe a follow-up to Glenn's earlier question, that the guidance does seem to imply some ramp in OPEC spending in the second half versus the first half. So we want to see if there's any areas of investments you would call out or maybe part of the ramp is some type of expense from the integration of MediFind and Access built in. Thanks.
spk05: There you go.
spk15: That's the answer. You answered it yourself. Done. Thanks again, guys. Thanks.
spk10: We'll take our next question from Jack Wallace with Guggenheim.
spk07: Hey, thanks for taking my questions. Just wanted to go back and see if there's a connection between the Access eForums acquisition, which sounds like it's primarily in the hospital space, as well as the payments commentary you've had, Balaji, and if we should expect there to be a higher level of inpatient mix that will help boost the payment volumes and potentially even a higher take rate. And then I've got a follow-up.
spk05: I don't think I draw any connection to that time with you.
spk02: No, but I will say we're very happy with the progress we've been making in the hospital space. And it's an area we continue to invest in, and it's an area of great need. And I think we still are very excited about it.
spk07: Got it. Thanks. And then just thinking about the mix of growth into the 125 number, and maybe to ask those you know, the questions slightly differently is should we expect any composition mix within the, the client base into larger customers that have more, more wallet share, more TAM per client opportunity as, as being a driver to get to that figure. Thank you.
spk05: I mean, you know, I think, I think one thing, Jack, that over time, you know, we do, we are, you know, moving to more of an enterprise model. And so if you think about, Some independent groups that have become affiliated with some of these large physician aggregators out there were able to sort of do more enterprise deals at that level. But again, that's just an aggregation of what would have been, you know, an individual smaller freezer client that's now just a large enterprise and part of that. But, you know, healthcare is still pretty big. I think the data from the American Medical Association is 51% of groups are still and providers are smaller. Obviously, there's some very large ones too, but no, not really.
spk10: We'll take our next question from Robert Simmons with DA Davidson.
spk01: Hey, thanks for taking the question. I was wondering if you could talk about... patient volumes over the course of the quarter, what did you see month to month? And also, what did you see so far this quarter?
spk05: When you say this quarter, you mean the second quarter?
spk01: No, sorry. I want to say, what did you see in the second quarter, month to month, and what have you seen so far in 3Q?
spk05: Yeah, I mean, I think we brought this up maybe last on the last call in a lot of the meetings we've had with investors over the past few months. I mean, a lot of the things that sort of swing payments for us. We have seasonality. Let's start with that, right? Deductibles reset at the beginning of the calendar year. So we have the natural seasonality, which you see that bump in our fiscal first quarter. And then there's how many Mondays are in a given month, and more people tend to go to the doctor on Monday than on Friday, sort of the opposite of what you see in retail. So, Robert, just one good example is this year, July 3rd fell on a Monday, You know, and so a lot of people took that day off right into the holiday. And so that you had, you know, some of the smoke fire stuff in the month of June, you know, you had some flooding stuff in July. You know, I guess we hear about some hurricane category five rolling up the Northeast now. These are sort of the things that swing back and forth. We're pretty distributed across different specialties, across different geographies. So, I mean, again, the points I brought up are probably what drives a billion being 990, you know, sequentially.
spk01: Got it. Okay. And then your head count has been coming out pretty steadily since it peaked about a year and a half ago, maybe. The pace has declined a bit. I mean, do you expect that to settle out here pretty soon? When does it start to grow again? What are your expectations there?
spk05: Well, I think this goes to the earlier comment around just sort of like investments we made. I think you know, and sort of our path to profitability, I think we've been pretty consistent. That number will sort of be in this sort of range, plus or minus, you know, plus or minus 10%. You know, you should expect it to sort of be in that range, and we feel pretty good about that. But to be clear, I mean, and I think this was maybe Glenn's question, we are still investing in the business for long-term growth. Got it.
spk01: Thank you very much.
spk15: Yep.
spk09: And that concludes the question and answer session. I'd like to turn the call back over to Chaim Indyk for any additional or closing remarks.
spk02: Thanks, everyone, for joining us for this call. I look forward to talking to all of you in 90 days and maybe in between if we're lucky. Cheers.
spk10: And that does conclude today's presentation. Thank you for your participation. You may now disconnect.
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