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spk09: Good evening, ladies and gentlemen, and welcome to the Frisia fiscal first quarter 2025 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, Frisia's Chief Financial Officer. Mr. Gandhi,
spk14: you may begin. Thank you, operator. Good evening and welcome
spk16: to Frisia's earnings conference call for the fiscal first quarter of 2025, which ended on April 30th of 2024. 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 8K 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
spk15: at
spk16: .FRISIA.com. As a reminder, today's call is being recorded and a replay will be available on our investor relations website at .FRISIA.com following the conclusion of this 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 10Q 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, such as adjusted EBITDA, 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 Form 8K filed after the markets closed today with the SEC and may also be found on our investor relations website at .FREJA.com. I will
spk14: now turn the call over to our CEO, Haim Indig. Thank you Balaji and good evening everyone.
spk01: Thank you for participating in our first quarter earnings call. Our stakeholder letter and earnings release were published about an hour ago. Let me start the call with a couple of highlights. The first quarter marked a very important milestone in our evolution as we returned to profitability. This most recent quarter does not represent a finish line. We believe it represents an important milestone in FREJA's journey and I would like to acknowledge my teammates, our clients and our shareholders for their support throughout through this stage of our journey. I look forward to the next set of milestones. Looking ahead, we have a large, diverse and growing network of patients and providers who we believe enjoy increased value from our solutions. I am most excited about the opportunities that our network and our experienced and dedicated team give us to broaden and deepen the value we bring our clients. Let me now turn it back over to Balaji.
spk16: Thanks Haim and good evening everyone. Let me hit on a couple of the highlights in our letter regarding the first quarter and here is our updated outlook for fiscal year 2025. Q1 revenue was up 21% at $101.2 million. Adjusted EBITDA returned positive for the first time in three years to $4.1 million. Our average healthcare services clients increased by $103 from the prior quarter and total revenue per AHSC was $24,900. First quarter revenue was negatively impacted by roughly $1.7 million in our payment processing line due to an accelerated wind down of a relationship we have with a clearinghouse client who contracted with Frisia to act as their merchant processor for patient payments. The details behind what drove the accelerated wind down of this relationship can be found in our stakeholder letter. The upshot is that the cyber attack on change healthcare and subsequent outages accelerated the wind down of our relationship because change healthcare has not re-enabled a solution that was used by our client. The client relationship represents approximately $8 million of annual revenue and will impact our fiscal 2025 results. Moving to our updated financial outlook for fiscal 2025, we are updating our revenue outlook to a range of $416 million to $426 million from a previous range of $424 million to $434 million. That's an $8 million reduction from the top and bottom end of the range, which incorporates the accelerated wind down of our clearinghouse client relationship. As a reminder, this revenue is in the payment processing line. We are also updating our adjusted EBITDA outlook for fiscal year 2025 to a range of $21 million to $26 million from a previous range of $12 million to $20 million. That's a $6 million increase at the top end of the range and a $9 million increase at the bottom end of the range. We continue to see solid operating leverage in the business. Cash was at $80 million on April 30th, or near the level it was in Q2 of fiscal 21 when we were last profitable. Operating cash flow for Q1 was just under breakeven at negative $721,000. We believe we're well positioned to start generating free cash flow in the second half of this fiscal year. As a reminder, we have no borrowings on a revolving credit facility, which we believe gives us lots of flexibility over the next couple of years. Our internal discounted cash flow analyses reflect more value from investing in shorter payback investments that accelerate profitability. Our views on the best path to driving value for shareholders over the near term and long term have been reinforced in conversations with many Frisia shareholders over the past few quarters. Operator, I think we can now open up the lines for Q&A.
spk09: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening to the loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session, in the interest of time, that you please limit yourself to one question and re-queue for a follow-up. Again, let's press star 1 to join the queue. Your first question comes from the line of Anne Samuel of JP Morgan. Your line is open.
spk06: Hi, guys. Thanks for taking the question. I guess maybe in light of what's happened with change and ascension recently, and you mentioned in your letter that the on-call service had been cyber attacked, I was hoping maybe you could just kind of discuss investments in cybersecurity. Is it something that we should be kind of expecting to come on in the P&L? And maybe just concerns that things like this might be more prevalent, and then kind of along those lines, just any financial impact from the ascension attack. Thank you.
spk16: Sure. Thanks for the question, Annie. So first of all, we actually called this out in the last quarter's letter, Annie, just in terms of our investments in this area. We take this pretty seriously on behalf of our clients and patients, et cetera. But I also think it goes without saying, this is pretty unprecedented and some of the stuff that's going on in the industry. In fact, I was just telling Haim, I was reading an article before this call about the downstream effects of other providers who aren't even the ones being attacked. But Haim, I don't know if you want to add anything specifically about how we planned around
spk01: this. We've been ramping up our investments for years in the space. And obviously, we continue to expect the ramp up, and I think that's built into our forward looking plans. But it's something we take, not just internally seriously, as a company, we take it because a good portion of Phrygia's are also patients, and we provide our data to the system, including our families. This means a lot to us personally.
spk16: And I should probably point this out, too. I think for several quarters now, we've talked about G&A expense and how we spent a lot of capital to build the infrastructure of being a public company of this size. And I think just having gone through some of the stuff in the past few weeks, we've got some great subject matter experts that weren't here at the company three or four years ago, and outside advisors have really
spk15: helped us get through this. So that's part of that G&A expense that we have.
spk09: Your next question comes from the line of Ryan Daniels of William Blair. The line is open.
spk10: Yeah, hey, guys, thanks for taking the questions. And this is Jared Hassan for Ryan. Maybe I'll just ask one on the clearinghouse client wind down. It sounded like that was a relationship that you had decided to walk away from. And then that wind down was just accelerated due to change. So I guess number one, just could you run through sort of the thinking for why you were planning on walking away from that relationship? And then number two, could you just discuss how you're thinking about sort of any risk in model from other client contracts or client relationships that might have a connection to change in some way? Thanks.
spk16: Sure. This was Jared, a unique situation. And so the client is a clearinghouse. And I think I wouldn't characterize as we walked away. I think the way to think about it is they were looking and we put this in the letter, they were looking to consolidate to one vendor. The things they wanted in that, which included print statements, were just not something that we were going to do for a lot of reasons, including the economic profile of that. So it was sort of mutually agreed to wind it down. And I think, as we also said in the letter, that was planned to be later in this sort of this crisis sort of accelerated all that. And really nothing again comes to mind. I think about our last conference call, we spent a lot of time talking about change. And I think every day we're still I mean, we're only three months out from that. We're still seeing impact. So we can't sit here and say there's no impact. But as we sit here today, there's nothing that comes to mind
spk14: like this.
spk09: Your next question comes from the line of Jalendra Singh of True Securities. Your line is open.
spk00: Thank you. And thanks for taking my question. First, a quick clarification, Balaji and Hain. Did you guys like was this decision still TBD when you gave fiscal 25 guidance in mid March about, you know, timing on this clearinghouse client? It was like being determined. Can you clarify on that? And my main question is like, help us better understand the drivers behind, you know, beat and increase compared to your prior outlook on EBITDA. And if a strong start to your focus on returning to profitability changes your views, how you think about the margin progression longer term?
spk16: Sure. That is two questions, but we'll try to hit them. I think it was a fluid situation heading into fiscal 25 in terms of that relationship with that client. But I think we want to be clear that that was we're going to work with them in cooperation with them. And these wind downs take a lot of work, a lot of people and a lot of time. So that was not really envisioned to be in fiscal 25 at all, and certainly not be over a matter of months. So that was but that was something we were planning for. And then and then second, in terms of, you know, margin profile, et cetera, I think you should take away from our comments here that we've been headed in this direction for some time, but we're sort of putting the foot on the gas a little bit more. And to us, we just think that's that's the right thing to do. Cost of capital, interest rates, what have you. We do still prioritize growth. And we think we know that's important because that also helps drive profitability. But I think you should take away that we're probably being a little bit more aggressive on that.
spk09: Your next question comes from the line of Jessica Tassin of Piper Sandler. Your line is open.
spk08: Hi, thanks so much for taking the questions. I was just hoping you could maybe speak a little bit about the provider end market in light of the change disruption, just given the fact that providers obviously have payments delayed or aren't seeing payments at all. Has their willingness to deploy the free just solution changed
spk01: either
spk08: for better or for worse? Thanks.
spk01: I think thanks for the question, Jess. I think it's the market's been pretty perceptive to what we're doing. I don't think I think there was a period of a couple of months where the prioritization was making sure that they could have claims filed. But the vast majority of our providers, the providers and prospects are filing claims now. So I don't we don't really see this backing up the market tremendously. I think that there is a general view that there needs to be continuous investment in technology to drive efficiency and and and produce better margins for a lot of these providers. So we've seen the end market still pretty good for us. But I wouldn't say it's it's not without challenges. But I think the team has done a phenomenal job of continuously winning accounts
spk15: and growing our share of the market.
spk14: Your next question
spk09: comes from the line of Stephanie Davis of Barclays. Your line is open.
spk07: Hey, guys, this is Anna Krasinski on for Stephanie. Thank you for taking our questions. I was hoping you would talk a bit about what your strategy is around accelerating growth in revenue per client. And is this going to be more of a cross-sales of existing products for clients or more into the new cohort?
spk16: Sure. Thanks, Anna. So the way to think about it, I think we've been talking about this for the past few quarters. There's growing the network and then there's the three different revenue lines on how we generate revenue off of it. I think you should take away that network solutions will absolutely be the single biggest driver of how the total revenue per client grows. I think we've talked a lot about payments. You don't really create that much more in payments. It comes from new client growth. I think a lot of the products that we have currently, but also the ones we're going to produce, do you have price associated with some of them and there will be revenue? But I think that will be certainly lag behind network solutions. So I think the short answer and takeaway is network solutions should be the driver of that.
spk09: Your next question comes from line of Scott, Showhouse of KeyBank. Your line is open.
spk05: Hey, team, I wanted to ask you about this product update on the MediFind appointment request. This is live and I'm assuming and what are you seeing in terms of the traction for booking appointments for specialty providers and how does this fit in with your broader approach on new provider targeting new provider clients?
spk01: Thanks. Well, so far the adoption has been very, very well received. So early days and we'll give more updates in the in the coming quarters. But we expect, you know, when we talk to a lot of specialists, you know, their biggest the biggest thing we've been hearing for years is they want the right specialists, want the right types of patients to be able to make appointments with them because they want to deliver the right type of care to them. And so we do see this as being just a massive value driver across the spectrum of specialists that we both support today. And we think it's going to be a very large driver in helping us win clients in the future. But early traction has been really good. Like we've been more than pleasantly surprised with a lot of the data I've been seeing from the MediFind team.
spk15: And we've been investing, we've been increasing our investment in that.
spk09: Your next question comes from line of Richard Close of Kenna Court Security. Your line is open.
spk13: Great. Thanks for the question. Congratulations. Network, which you just mentioned, Balaji, continues to outperform our expectations. And the commentaries from commentary from some other companies has been pretty favorable in terms of the demand and environment. So I'm curious your guys thoughts looking forward on network solutions, just the commentary on the market and then as a follow up with respect to the MediFind campaign caught my eye. And curious if this is a channel, an opportunity for network revenue growth. And if so, does it expand the budget you're going after with the pharma companies?
spk01: Richard, I'll answer some of that. If I miss anything, Balaji will jump in as he usually does. I would answer your second question first. And yes, we think MediFind has the potential to be very, very positive offering to our network solutions clients. And so we do expect and plan on monetizing the product over a long period of time, also with network solutions. And I think you should expect to see us continue investing in that space. And look, the network solutions team has been getting great feedback from our clients because we've been delivering very strong ROIs at significant scale with both broad disease states, but also very specific patient populations where they are delivering the message at the right time to them, drives a phenomenal outcome. And so we expect network solutions to be a big driver for the organization, but also a huge driver of returns for our clients.
spk16: And Richard, I think the only comment I'd add is on network solutions as it relates to the year. Just remember that it's not linear and there's business that gets sold through the year as well. We're very bullish about that space. I think that should be clear from all of our comments. But you do have to be a little bit careful how you model it in terms of how it flows through the year.
spk09: Your next question comes from the line of Ryan McDonald of Needham. Your line is open.
spk11: Thanks for taking my questions. Maybe just first on the payments business, can you just talk about the health of that business, the client wind down and what sort of you're seeing in terms of growth there, what expectations for growth? And then quick for Balaji on gross margins, first quarter, I think in over a year with gross margins over 80 percent. Just curious how you're thinking about that gross margin line and how sustainable maybe these 80 percent plus levels are as we go through the rest of the year.
spk16: Thanks. Yeah, sure. Thanks, Ryan. So I think I think on the first part of it, the payments, it's probably the part of our business that has been the easiest to probably follow outside of probably the covid period there, where we saw utilization go down for eight weeks or so pretty sharply. And then we had sort of the rebound the following fiscal year. But if you just follow it, I mean, the volume tends to track with seasonality in the first part of the year being stronger. It lags subscription because of, you know, we have we have an attachment rate of around 80 percent. And that's sort of just been the cadence of it. I think in the first quarter, we obviously highlighted the one point seven million dollar impact. If you actually had that back to payments, it would be pretty consistent with every other first quarter we've had as a public company. And then on the second question, you're on gross margins. All right. So on gross margins, look, we're doing well. I think this was a topic on the last call. And I think, you know, to be over that percentage that you cited at 80 percent is pretty good. It's the highest around the highest we've been. We're always looking for opportunities to be as efficient as we can and drive that margin. But I think if you sort of modeled it there, you should be able to comfortably get to the revenue and even the outlook that we have.
spk14: Your next question comes in line of Jeff Garrow.
spk09: Stephen Jones is open.
spk12: Yeah, good afternoon. Thanks for taking the questions. I was hoping you could give some further comments on the mix and quality of health care services clients that you're adding with that leveling out around 100 net ads per quarter.
spk16: Thanks. I mean, Jeff, I think, you know, it's nothing different than what we've seen in the past. At least I said to say the past four to six quarters, we have, you know, large enterprise clients. You know, we have midsize, we have small. I think the biggest sort of filter to put on on these numbers like the hundred and three is the payback period. And so we're running these through today is just a shorter payback. And what does that mean? It means, well, if they're in a promo period, we expect them to convert. We would like them to attach with payments and we would like to be able to show content for our pharma clients.
spk09: Your next question comes from the line of Aaron Kimson of Citizens JMP. Your line is open.
spk02: Great. Thanks for the question. Can you get an update on where you're at with Frisia India since its launch in January? And investors should think about the margin effect of that organization as being a component of the increased FY 25 EBITDA guide or something that will provide more of a margin benefit in FY 26 and beyond.
spk16: That was really just a more of a legal sort of transaction that took place. And we wanted to get in front of that and share that with everyone. Financially, the expenses were already running through our P&L, so there's really no change to the profile of the business. And that's frankly one of the reasons we've been able to get a lot of operating leverage are all the folks and resources over there. But nothing really to call out in terms of post close.
spk09: Your next question comes from the line of Daniel Grosslight of City. Your line is open.
spk03: Hey, guys, thanks for taking the question. You saw a bit of pay create degradation this quarter in payments. How are you thinking about pricing and should we expect more degradation this year? Are you comfortable now with how pricing has shaped up?
spk16: We're always visiting this and I think, Daniel, we've talked about this too, is we think about it as the profit dollar, the gross profit dollar from a dollar of payment volume that crosses. So as long as we can continue to grow profitable payment dollars, we will experiment with different offerings on price. I think we've touched the two eight range before, if you went back a couple of years, if you modeled around two point eight percent, you'd probably be safe. But it might be higher in some quarters, might be in
spk14: the two eights and other quarters. And
spk09: your next question comes from the line of Jack Wallace of Guggenheim. Your line is open.
spk04: Hi, this is Mitchell on for Jack. Thanks for taking my question. Could you please elaborate on the shorter payback investments you reference and how that differs from maybe what your focus was 12 months ago or so? Thanks.
spk16: Yeah, it was I'm probably going back more than more than 12 months. So there's really two ways to think about it. One is just like the profitability that we can generate on a different on a specific opportunity. All the opportunities have profit associated with them. But we're we're definitely optimizing for more of that today. But I think another sort of way to think about it is if there's other products that we could sell to that same client, we sort of are looking at underwriting it as trying to do that sooner. And does that client is that a better fit for the products we have and not really willing to maybe wait a longer period of time?
spk09: As there are no further questions, this concludes our Q&A session. I will now turn the conference back over to Hymn Indig for some closing remarks.
spk01: Thanks, everyone, for joining the call. And I want to thank again my teammates and I look forward to seeing everyone over the summer and talking again in about 90 days. Have a great summer, everyone.
spk15: Thank you.
spk09: This concludes today's call. You may now disconnect.
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