Phreesia, Inc.

Good morning, ladies and gentlemen, and welcome to the 3DS second quarter fiscal 2026 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, 3DS chief financial officer. Mr. Gandhi, you may begin.

Thank you, operator. Good morning and welcome to Freesia's earnings conference call for the second quarter of fiscal 2026, which ended on July 31st of 2025. 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 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 and acquisitions. 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, such as adjusted EBITDA and free cash flows, 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 8-K filed after the markets 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, Ayman Dink.

Thank you, Balaji, and good evening, everyone. Thank you for joining our second quarter of fiscal year 2026 earnings call. I'd like to begin with some exciting news. Earlier today, Brescia announced a definitive agreement to acquire Access One for $160 million. Access One is a market leader in healthcare provider financing, serving many of the nation's largest health systems. We have followed Access One's progress over many years and admired its approach to addressing a critical gap in care that is consistent with our mission of making care easier every day. Access One We'll expand our addressable market by roughly $6 billion and strengthen our ability to help providers improve collections while preserving patient trust. We believe this acquisition is a natural extension of our payment strategy and will complement Frisia's existing products. Olaji will provide some details on the transaction. We look forward to welcoming the AccessOne team to Frisia following the close of the transaction. I am also proud to share that Brescia achieved an important milestone in the second quarter. For the first time in our history, we were net income positive. As with all of our milestones, achieving positive net income does not represent a finish line. However, this milestone does give us all a great sense of pride and accomplishment in that it captures the power of our unique business and financial model and our team's ongoing commitment to being good stewards of capital. Before turning the call over to Balaji, I would like to congratulate my co-founder Evan Roberts and David Lineski on being named President of Provider Solutions and Network Solutions, respectively. These titles reflect their leadership of the provider and network solutions teams, meeting the needs of our clients, and executing on our mission, vision, and values. Evan and David are also invaluable thought partners to me, and I am pleased to share their titles with you. I'll now turn it over to Balaji to provide some additional details on the Access One transaction and provide a review of our results and updated outlook. Thank you, Han.

First, I also want to congratulate Evan and David on their new titles. Now for some details on the Access One transaction. As outlined in our press release and stakeholder letter, The purchase price for Access One is $160 million in cash. Frisia intends to finance the acquisition through a combination of cash from our balance sheet and a new, fully committed bridge loan facility. The transaction is expected to close during the third quarter or early fourth quarter of Frisia's 2026 fiscal year, subject to customary closing conditions and regulatory approvals. We currently expect Access One to contribute approximately $35 million in annualized revenue, and approximately $11 million in annualized adjusted EBITDA. Once the acquisition is closed, we plan to update our fiscal 2026 outlook to reflect the expected contribution to our results. Overall, we believe this transaction will strengthen Freesia's financial profile, add profitable growth, and enhance our ability to support clients with innovative payment solutions. We look forward to closing the transaction and working with the AccessOne team. I would also like to touch on our updated total addressable market. The Access One acquisition is expected to expand our addressable market by about $6 billion by extending our reach in the payment solution space. We also increased our network solutions TAM by $6 billion, as we expect to be able to draw from a larger pool of life sciences marketing dollars as our products become more ubiquitous across our network. Combined, the expansion of our payments and network solutions addressable markets is expected to increase our TAM to approximately $24 billion from approximately $10 billion. Now, let me provide a few comments around our second quarter results. Total revenue was $117.3 million, an increase of 15% year over year. We are very pleased with our performance on the top line. We ended with average healthcare services clients of 4,467, an increase of 56 AHSCs from the prior quarter, and 298 in the prior year. This result was in line with our expectation. Total revenue per average healthcare services clients was $26,249, up 7% year over year, and flat quarter over quarter, also in line with our expectation. Moving on to profitability, as Haim mentioned, we achieved another major milestone this quarter with net income of $700,000, our first ever positive net income quarter. Adjusted EBITDA was $22 million, an increase of $16 million year over year, with an adjusted EBITDA margin of 19%. Now turning to the balance sheet and cash flow. We ended the quarter with $98.3 million in cash and cash flow loans. This compares to $90.9 million in the prior quarter. Operating cash flow was $14.8 million, up $3.8 million year-over-year. Free cash flow is $9.6 million, up $6 million year-over-year. We have now achieved positive operating cash flow and free cash flow for four consecutive quarters. We expect that the magnitude of cash flow improvement on a quarter-to-quarter basis to vary based on specific timing of invoicing and payments, which you can see in working capital along with CapEx. Our second quarter results reflect the continued strength of our operating leverage and revenue growth. I would like to thank the entire Freesia team for being able to balance the priorities associated with our mission and values and being good stewards of capital, which helped us to achieve positive net income for the first time in our history. Transitioning now to our financial outlook for fiscal 2026. We are maintaining our revenue outlook for fiscal year 2026 at a range of $472 to $482 million. We are updating our adjusted EBITDA outlook for fiscal year 2026 to a range of $87 million to $92 million from a previous range of $85 million to $90 million. That's a $2 million increase at the top and bottom ends of the previous range. We are reiterating our outlook on AHSCs to reach approximately $4,500 in fiscal year 2026 and for total revenue per AHSC to increase in fiscal 2026 compared to fiscal 2025. As I mentioned earlier, we expect to update our fiscal 2026 financial outlook following the close of the Access One transaction. Operator, we can now begin the Q&A session.

We will now begin the question and answer session. If you'd like to ask a question at this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We will be limiting participants to one question to ensure we give everyone a chance to ask one and come back for follow-ups. Your first question comes from the line of Jared Haas with William Blair. Please go ahead.

Hey, guys. Thanks for taking the questions and congrats on the deal. Maybe I'll just ask the first one on access. One would love to hear a little bit more just how that deal developed over time. And I guess what gives you the comfort that this is the right asset and the right market for what seems like a fairly large scale deal relative to what you've done in the past?

Yeah. So we've been looking at the space for years. We've known this company for many, many years. and a lot of the executives there. We felt a lot of comfort just having watched it. And look, it's a part of the market we haven't been able to play because of both product and regulatory requirements. And it's something our customers have said would really be beneficial to them. So we felt pretty good about that. We also, like frankly, we think it aligns really well with our mission of making care easier every day. And so we, like all the pieces sort of came together And when it became available, we moved pretty aggressively. But it's something we've been watching and paying attention on for years. And so it wasn't a last-minute decision. It was actually something we talked about as a team for years. And we thought it was something in our arsenal that, frankly, would just make a lot of sense to the patients that we serve and the providers we serve. All right. Next.

Your next question comes from the line of Jalendra Singh with True Securities. Please go ahead.

Thank you. Thanks for taking my questions. Congrats on access one deal. But I want to ask about the Freesia voice AI product you guys launched during the quarter. Seems like a pretty exciting product for both patients and providers, but can you help us better understand how this product will drive opportunities in network solutions business, because that's where you are increasing the time pretty substantially, given all the incumbent players in SAP pharma marketing. Just explain to us what gives you confidence in terms of getting some traction in that market.

Yeah, thanks, Jalindra. We did want to take the opportunity to talk about this product because we're very excited about it. It's off to a great start. I think as we've talked about really over several years now, we think about the business holistically, these products that we introduce in the market, when they benefit providers and benefit patients, there are opportunities that creates more engagement opportunities for our network solutions revenue. This is just one example. We also want to take the opportunity explain that sizing and that TAM that that's been increased. I don't, I wouldn't read too much into the timing of the two being linked. It's probably something we would have introduced earlier and we're choosing to do it now.

We are very excited about this product. It's growing rapidly. Our providers are getting phenomenal where the feedback we're getting from this product from the provider network is like nothing I've seen ever before. So we're really excited and that the, the investments we're making in it, A lot of these are investments we've been making for quite some time, and now we feel more comfortable talking about them, as it's really, as this product's been proliferating across the network. And we expect to hear more and more applications around voice AI in the coming quarters.

Your next question comes from the line of Jeff Garrow with Stevens Incorporated. Please go ahead.

yeah thanks for taking the question maybe we'll stick with with voice ai and you know i want to ask where this product sits between a call center type answering service and a nurse triage line and relatedly it sounds like it can handle some clinical questions but do you think it can handle more clinical questions in time thanks

So the answer is yes, we think it will. And we think it's really what it's not. I think I know today it is also already providing massive value to doctors. They're they're using it. The feedback is phenomenal from the providers that are using it. And yes, it's also helping, you know, call center folks. It's helping prescription refills. It's helping with appointment booking. It's it is. rapidly helping all of our clients in all different types of scenarios. And I'm so freaking excited about this product. And it's something that's been rolling out into the network for quite some time. And now we're just excited that we get to talk about it.

Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.

yeah thanks for the questions quite congratulations on the quarter and the acquisition just on the new products voice AI the AI referrals and the auto network tags I'm just curious are all three on this no risk no cost model right now here initially and then how long Um, do you think that'll be until, you know, uh, some of these new products, new functionality can begin to be a positive driver to, uh, the revenue per, um, a AHSC. Just curious.

So we believe very strongly as a company that when you have good products, the product should lead with themselves. And so, yeah, we let our, all of our products at any time, anyone, any one of our clients could use them at no cost. And we expect. Over time, all of these products will have material impact on our revenue. And frankly, they'll also just have material impact on the revenue and the productivity of our clients, which also flows through to our core value proposition. So I am not worried about them in the near future having an impact on our financials as they're already having an impact on the financials for our clients.

And, Richard, just in terms of the actual flow through, I don't think any of this is different than some of the products we introduced, you know, 2021, 2022, 2023, where it's contributing today. And the total revenue per AHSC growth that you're seeing is sort of that waterfall effect, and this will be no different. And that's sort of, you know, that's a big strength of Freesia's business model.

Your next question comes from the line of Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets.

Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyBank Capital Markets. Please go ahead. Scott Sonos with KeyB It seems like just from a quick glance, access one is already embedded in health systems with specialty network groups. Maybe you could just walk through the opportunities on the network solution side. It seems like you have now more touch points with patients in the payment process, multiple points of engagement, and maybe you can drive more incremental revenue opportunities in network solutions via this acquisition. So just help us walk through those opportunities, please.

Yeah, so, Scott, let me correct you on one thing, and hopefully this is all clear. We see the Access One acquisition aligned with the increase in the TAM in our payment solutions category, which is about $6 billion. And, you know, I'd read the whole footnote and back up to the TAM for you, but I think you can go look it up yourself. But really, that's how you should think about Access One, you know, in terms of the near-term opportunity for us. And they work, as I think we talked about in the press release and in the letter, they do have a great footprint and work closely with lots of great partners in the health system space, but also with other types of medical groups.

Your next question comes from the line of Jessica Tasson with Piper Sandler. Please go ahead.

Hi, guys. Thanks so much for taking the question and congrats on the deal. On the Access One, just the payment extensions to patients, can you help us understand who bears risk for those dollars as you wait to collect? Thanks.

Sure. Thanks, Jess. So this is really important, yeah, to understand this. We are not the risk bearer in this relationship, and so we're able to offer the provider clients of Access One, or I should say Access One is able to offer their clients A more robust payment offering and payment plan offering the capital there's an important partner. In this relationship, and there are press releases that you can look up from 2023 and that partner is pnc bank obviously one of the largest banks in the country. So the risk is actually shared between pnc bank and the provider itself, and you should think about us is really you know, helping drive. a lot more, you know, just better solutions to patients in a pretty, you know, technology-first way.

Your next question comes from the line of Ryan McDonald with Needham & Company. Please go ahead.

Thanks for taking my questions. Maybe on excess one, how should we think about the mix of revenue between sort of just pure interest being collected from payment plans relative to, say, fees charged for the 0% interest rate plan they're offering. And then as we think about the cross-sell opportunity once the acquisition's integrated here, do you think there is a nearer term opportunity to sort of cross-sell Access One into your core base or move more of your core subscription offerings, core product offerings up into the health system base that Access One's already serving? Thanks.

yeah so first of all just we'll reiterate we're very excited about this and excited to talk about it today but transaction hasn't closed um so i think you know we're more than happy to talk a lot more about some of our plans but we have to get to the closest transaction first so hopefully everyone appreciates that your next question comes from the line of daniel close light with city please go ahead hi

Hi, guys. Thanks for taking the question. I want to go back to some of your new product development, specifically your AI initiatives. I look back a few quarters ago, most of your AI initiatives were internal in nature, improving operating leverage, et cetera. Now you're actually shipping monetizable external-facing AI products. So as you make that shift from internal-facing to external product shipping, how are you thinking about the balance between investing in AI for internal improvement versus external product development. What does a product roadmap look like in the future? It sounds like you're most excited about voice AI, but I'm sure there's many more products you guys are having in the pipeline. And then finally, how do you intend to price these new products similar to the non-AI products or will they be priced at a premium? Thanks.

Sorry, there's a lot of questions. We had to limit it to one question. And if you have more, we can come back to it. But why don't I start with, we've been investing in both internal and external facing AI tools. I don't think the answer is one or the other. I think now we just feel more comfortable talking about them publicly. These are things that we've been rolling out to our clients for some time. And look, I think our general view is like lean in first and making sure that the product's really valuable and when you provide a ton of value to clients, you know, and they're appreciative of it and they see it, it's like monetizing, it becomes an afterthought. And we generally focus first on building amazing products and making them very valuable to our clients. And then, you know, after that, the dollars generally have flown. So we expect to continue to invest both in internal use and external, but I think we're, We're now comfortable saying like we have multiple sets of AI products that have been actively they're actually being used by our clients across the board. And we are monetizing them. Today.

As a reminder, we will be limiting participants to one question in order for everyone to have a chance to ask a question and come back for follow ups. The next question comes from the line of Steven Valliquette with Mizuho Securities.

Please go ahead. Great, thanks. Yeah, thanks. Good afternoon. Thanks for taking the question here. So another question here on the pending Access One acquisition. I guess within the class industry rankings, which I know are not always critical, it looks like they ranked number three or number four in the patient financing services category over the past couple of years. But really, my question is really just about their market share against some of those other players. you know, the $35 million in revenue seems, you know, kind of low within a $6 billion TAM. I'm not sure that's the right way to think about market share or not, but just curious to get thoughts on just market share and positioning relative to the, you know, size of other players in that space. Thanks.

Yeah, Stephen, thanks for the question. And again, we're trying to be as helpful as we can because, you know, one, we're excited about this, but two, it's also the largest acquisition we're, you know, we've done to date, but also have to be kind of respectful of the process and get to the other side of things before we could talk more about it. But you've got this sort of backup on the TAM in the TAM slide, and you've got the revenue. So I think you can do some math there yourself.

And we expect to continue to invest in the platform, in the product. Absolutely.

Your next question comes from the line of Brian Tanquillette with Jefferies. Please go ahead.

Hey, good afternoon, guys, and congrats. Just maybe a question on sales and marketing. Obviously, that continues to go down, so just curious, you know, how much more runway do you think we can bring that down, both on a dollar basis versus percentage of revenue? Thanks.

Yeah, I mean, I think what we've seen there, and we've talked a lot about this, just the productivity we've gotten, but also the type of, you know, the profile of clients that we're trying to add on the provider side, but also just continue to get a lot of deepening relationships and new ones on the network solution side. So we're getting good productivity, but I think we both like to remind people that we are investing pretty significantly in sales and marketing as a dollar amount, and you should expect it to kind of be in these levels, but we're getting some good productivity there.

Your next question comes from the line of Jean Mannheimer. with Freedom Capital Markets. Please go ahead.

Thank you, and congrats, guys, on the good numbers this quarter. Just revisiting Access One, I know you say you're somewhat limited in what you can talk about, but historically, can you talk about the growth rate of the company in the last couple of years and whether you think that you can accelerate it as part of the Freesia portfolio?

I think what we can say, Gene, We didn't acquire it to, you know, to kind of not grow it. And obviously, I mentioned we're also going to invest in it. You know, we're not going to be able to provide historical numbers on that. The company has, you know, has a good reputation. And as I said, we followed it for a long time. But we absolutely intend to, you know, invest in and grow that.

As a reminder, if you'd like to ask a question, please press start, followed by the number one on your telephone keypad. Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.

Yeah, thanks for the follow-up. Balaji, I wanted to go back to Jalindra's question on network solutions, Tam, because I guess I just don't understand why voice AI specifically drives such a large increase in TAM of

like six billion so is there any way you can provide some examples or maybe more thoughts on that tam growth yeah so richard first of all i think you know you know sort of how we operate we want to be really thoughtful about what what we share there's competitive reasons etc but i think to the specific question around the tam um the point i think was we're trying to make with chilindra was that this that opportunity in the new town is big in and of itself um it's not exclusive to you know the voice ai product we think that could be one area that could help us penetrate it but there will be others that you will hear about so you're getting sort of the opportunity set first and i think you know in our fashion you'll hear you'll hear more about other ones in the future that's that's about all we could say your next question comes from the line of jeff garo with stevens incorporated

Please go ahead.

Yeah, thanks for taking the follow-up question. We'll make sure we hit network solutions and an updated discussion on visibility the rest of the year and progress to date on the off-sell season for pharma advertising. Thanks.

Yeah, I can start, and Haim can fill anything in. It's still early, Jeff, in that, you know, sort of in the calendar, but I think things are off to, you know, a good start, a long way to go. I think we can say that as we sit here today, we're in a similar place we were last year at this time, the data that, you know, we look at. And, you know, we'll sort of, you know, give you updates along the way. And, you know, the next one will be in December.

Your next question comes from the line of Stephen Valliquette with Mizuho Securities. Please go ahead. Mr. Valliquette, your line is open. Please go ahead.

Oh, sorry. Yeah, my follow-up question was just sort of touched on a little bit, but I was just curious, again, with the network solutions, as far as the reacceleration and growth there, is there any color on whether you're going to be able to add more pharma brands or maybe just better revenue per pharma brand? Just curious if you could provide any more color just from that direction as far as that reacceleration. Maybe it's something else altogether, but just curious to hear about more of the drivers of the reacceleration and growth. Thanks.

Yeah, and so there's sort of two pieces to that, Steven. So one is, yes, I mean, obviously, you know, our relationships have grown, but there's also just the campaigns that we've, you know, sold into the year that we're just, you know, pacing throughout the year. And I think that's something that came up in a lot of the follow-ups from last quarter that we expected to see the growth that we saw in the first quarter, and we expected to see the growth we saw in the second quarter. But, you know, we sort of look at these things over the course of the year and why we don't guide, you know, on a quarterly basis on that. But I don't think you should, you know, I don't know if, you know, acceleration is really the way to think about it. But, you know, the team's performing really well and feel good about where we are.

Your next question comes from the line of Gene Mannheimer with Freedom Capital Markets. Please go ahead.

Thanks for the follow-up. I just wanted to ask if you can share what is the customer overlap, say, between Freesia's intake solutions and Access One's customers?

So, yeah, so, Gene, again, you know, got to be careful and wait until we close on more detail. But we thought about this topic and that it would be helpful to you. So, obviously, we shared one in the press release, and that was, you know, intentional. And there's a client mentioned there. But there are others. And that was another reason we have some familiarity and history with the company from following it for many years is that we do have overlapping customers. I think when we close the transaction, we'll incorporate that into our AHSC account.

Your next question comes from the line of Ryan McDonald with Needham & Company. Please go ahead.

Hi, I figured I'd take a second crack at one here too as well. Maybe just to talk about the AI competitive landscape. Haim, did you say in one of your earlier responses that you are monetizing AI solutions at the moment? And if so, I'd just be curious, you know, now that we're seeing larger platform vendors like Epic starting to release some of their AI functionality, you know, Doximity taking various AI functionality and sort of building it in and offering it for free. Can you just talk about sort of what the evolution here is within your customer base on willingness to pay for AI functionality and sort of what the runway is here for monetization of those features? Thanks.

I think the market is massive, right? When we talk to customers, it's not a solution. It's they're looking, this is game changing and we see it ourselves, right? We're able to do things that people always frankly dreamed about. or could never even imagine dreaming about. You know, the idea of like being able to answer a phone call and help someone schedule a visit is pretty game changing, right? So we think the market is massive. And frankly, we have, yes, to very clearly state we have and are monetizing this product today. And we expect to continue to monetize it. and it is growing rapidly.

Your next question comes from the line of Richard Close with Canaccord Genuity. Please go ahead.

Yeah, thanks for the follow-up. On the R&D leverage... Number three!

Don't say we don't give you chances, Richard. Oh, we're excited!

All right. So you cited repurposing tools to revenue-generating activities.

um can you go into any more detail what exactly that was and uh can that continue going forward no that was that that was like very much like a one one off sort of thing that we wanted to call out and again similar to the earlier question about sales and marketing i mean we're getting lots of productivity sometimes you know you're getting productivity in different areas but but um again we're investing a lot in r d and that's going to continue but that was we just want to call out that um Yeah, nuance in the quarter.

Richard, here I thought you were going to ask about Sesame Street.

There are no further questions at this time. I will now turn the call back over to I.M. Indig for closing remarks. Please go ahead.

Thank you, everyone, for joining our earnings call. We look forward to talking to everyone again in 90 days, and I hope everyone has a great fall. Have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.