Phreesia, Inc. (NYSE:PHR) Q2 2023 Results Conference Call September 7, 2022 5:00 PM ET
Company Participants
Balaji Gandhi – Senior Vice President, Investor Relations
Chaim Indig – Chief Executive Officer and Co-Founder
Randy Rasmussen – Chief Financial Officer
Conference Call Participants
Anne Samuel – JPMorgan
Glen Santangelo – Jefferies
Ryan Daniels – William Blair
Richard Close – Canaccord Genuity
Matt Shea – Needham
Stephanie Davis – SVB Securities
Daniel Grosslight – Citi
Jessica Tassan – Piper Sandler
Jack Wallace – Guggenheim
Joe Vruwink – Baird
Joe Goodwin – JMP Securities
John Ransom – Raymond James
Operator
Good morning, ladies and gentlemen, and welcome to the Phreesia Fiscal Second Quarter 2023 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, Senior Vice President, Investor Relations for Phreesia. Mr. Gandhi, you may begin.
Balaji Gandhi
Thank you, operator. Good morning, and welcome to Phreesia’s earnings conference call for the fiscal second quarter of 2023, which ended on July 31, 2022.
Joining me on today’s call are Chaim Indig, our Chief Executive Officer and Co-Founder; and Randy Rasmussen, our Chief Financial Officer. A complete discussion of our results can be found in our earnings press release and in our related Form 8-K 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.phreesia.com.
As a reminder, today’s call is being recorded, and a replay will be available on our Investor Relations website at ir.phreesia.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, the stakeholder letter and our risk factors included in our SEC filings, included in our quarterly report on Form 10-Q that will be filed with the SEC tomorrow.
Our 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 8-K filed after the market closed today with the SEC and may also be found on our Investor Relations website at ir.phreesia.com.
I will now turn the call over to our CEO, Chaim Indig.
Chaim Indig
Thank you, Balaji, and good evening, everyone. Thank you for participating in our second quarter earnings call. In case you didn’t spend the last 30 minutes reading all of our earnings material cover to cover, let me share some key highlights and additional commentary.
Revenue in the second quarter was $68 million, up 33% year-over-year. I want to thank the team for putting up our sixth consecutive quarter of over 30% revenue growth. In the quarter, our average number of health care services clients was 2,776. We added 250 average health care services clients sequentially, establishing a new Phreesia record for the fourth straight quarter. This represents 40% year-over-year growth.
Health care services revenue, which is the combination of subscription and related services and payment processing revenue, was up 29% year-over-year in the second quarter. On a per average health care services client basis, subscription and related services revenue remained in the $11,000 range in the second quarter, reflecting both our land and expand go-to-market motion and the significant growth in average health care services clients.
Payment processing revenue grew 20% year-over-year in the second quarter after having grown 38% year-over-year in the last year’s second quarter. In last year’s second quarter stakeholder letter, we attributed the 38% growth to catch up utilization from the reopening during the pandemic.
Phreesia now impacts more than one out of 10 patient visits in the United States every day, helping the patients become more activated in their health and achieving better health outcomes. The size of our network and the strong execution by our team helped fuel growth in Life Sciences revenue of 46% year-over-year, which was on top of the 95% year-over-year growth in the last year’s second quarter.
Moving on to our outlook for the rest of the fiscal year. We now expect revenue for fiscal 2023 to be in the range of $273 million to $275 million, tightening our previous range of $271 million to $275 million. We expect average Healthcare Services clients to increase by at least 200 in the fiscal third quarter as our investments from the last couple of years continue to fuel our growth.
The operating leverage we began to see in the first quarter gained momentum in the second quarter, and we expect to return to adjusted EBITDA profitable in fiscal 2025. Based on our strong performance, we’ve taken up the adjusted EBITDA outlook for the fiscal year to a range of negative $109 million to negative $106 million from our previous range of negative $126 million to negative $122 million.
We remain comfortable with our ability to finance our fiscal year 2025 growth plan and expect to end fiscal 2023 with $165 million to $170 million in cash and cash equivalents. We believe our investments over the last couple of years are helping us keep our product best-in-class, build more amazing new products, expand our relationship with existing clients and grow our network with new clients. 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 open it up to Q&A now.
Question-and-Answer Session
Operator
Your first question comes from the line of Anne Samuel with JPMorgan. Your line is open.
Anne Samuel
Congrats on the strong local growth. I was hoping maybe you could provide a little bit of color on the EBITDA guidance raise. It’s quite a bit more than the second quarter outperformance. Was just wondering, are there any incremental efficiencies you’re finding in the back half? And if so, what are those?
Randy Rasmussen
Thanks for the question. I mean I think we’re really proud of the team for focusing on spending money smartly. I think as we have stated in the past, when you think about each dollar that we spend very carefully, the team has done a great job watching the expenses. And I think that just continues in our culture.
We think about every person that we hire and every dollar that we spend on software services as important. So it’s just that continued focus on making sure that what we spend money on adds value to the business and helps us grow. And where we don’t need to spend money, we pull back.
Anne Samuel
That’s great to hear. Maybe just another one. Your Life Sciences business was once again really, really strong, and that seems to be bucking the trend that we’re hearing from other companies with Life Science and customers. So was just hoping you could provide a little bit of color there on what you’re seeing in Life Sciences and if there’s been any shift in the marketplace?
Richard Close
First, the networks grow in its time. So, the investments we’ve been making in growing the network have really paid off in being able to just expand our footprint, deliver more messages to more patients that add more value second. Second, the team is just amazing. They’ve been doing a great job. And I don’t think we would be where we are if we hadn’t been investing in the products and in the people. And I’m just so impressed by execution all the way through with our Life Sciences or, frankly, with everyone. But I’m calling it out based on this question.
Anne Samuel
That’s great. Congrats on a great quarter.
Operator
Your next question comes from the line of Glen Santangelo with Jefferies. Your line is open.
Glen Santangelo
I just also want to follow up on the digital advertising question. I mean, could you give us a sense for maybe how much of that is already contracted when you look at sort of the balance of the year and maybe how much you have to win on a quarter-by-quarter basis? Because I’m just kind of curious with half the third quarter just about over, I’m kind of curious as to what type of visibility you maybe have in that Life Sciences growth for the balance of the year.
Chaim Indig
We have a fair bit of visibility to the fiscal year, but we still have a bullet like you got — there’s a couple of things, Glen, around just the way we’ve always done our fiscal year. January is sort of the real bogey for us, that we don’t have as much visibility to because often those come in, in next year’s contracts. Does that make sense? Because if our clients are fiscal year, then it really comes in the next fiscal year, that one month bogey.
Glen Santangelo
Right. So you’re kind of suggesting you have pretty decent visibility up through December, right, but the final month of Q4 falls into theoretically, a different fiscal year for your clients. Is that what you’re saying?
Chaim Indig
Yes, I’d say we have decent visibility.
Glen Santangelo
Okay. And then I just wanted to follow up with Randy on the balance sheet, Randy. I mean you guys — this is the first time I think I’ve seen any give specific cash flow guidance by forecasting the cash balance at the end of the year. And if I sort of look at that number, $165 million to $170 million and take that sort of in concert with kind of your EBITDA guidance for this year and also the fact that you’re calling out fiscal ’23 as being the low watermark in EBITDA, is kind of the implication there that you feel very comfortable sort of making it through your fiscal ’25 goals of adjusted EBITDA profitability with the cash that you currently have on the balance sheet? And I’m also curious, is there any other sort of capacity that you have access to that we should be thinking about?
Chaim Indig
Glen, No, I’m going to let Randy answer that question. But I think the reason we decided to put it out there and like print it, it’s just a lot. So there’s just no confusion, right? Because this way we don’t stumble around with the answer that we think is important to a really important question.
And then I’ll let him answer it.
Randy Rasmussen
Glen, you’re exactly right. We’re confident where our cash balances are. We don’t have any borrowings on our line of credit, and we have adequate cash to execute on our 2025 plan. So we’re feeling really good about our cash.
Glen Santangelo
And really, how big is that line of credit, just remind us?
Randy Rasmussen
It’s $100 million.
Operator
Your next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Ryan Daniels
Nice quarter. Another one on the guidance outlook. I don’t think in the past, you’ve offered guidance on net new client additions. You’re expecting another strong quarter there of at least 200. So what’s helping with the visibility there? Is that related at all to some of the trial packages you’re allowing people and seeing high conversion there such that you have a pretty good feel that those are going to turn into paying clients by the end of the quarter?
Chaim Indig
Well — so yes, we do have pretty good visibility to the quarter and Balaji wanted to make it easy for everyone to model, to be fair. You just — so we just took Balaji’s advice and giving a little bit more visibility. So it was easier to model.
Balaji Gandhi
But Ryan, I don’t think it’s a change in our visibility you, it’s more disclosed with that.
Chaim Indig
Yes.
Ryan Daniels
Thanks Balaji. I appreciate that. And then maybe just at the prepared comments, you have a comment in there about the potential to drive revenue per client for the subscription-related services up to 126,000 versus where it is today, so a tenfold increase. Can you talk a little bit longer term about how that will figure into the growth algorithm maybe after the bolus of new client additions starts to slow down, how you can push them to get more value from your system by expanding the services that they purchased?
Randy Rasmussen
Ryan, I’m going to answer the bigger part of the question. But I just want to clarify. I think you might be doing some quarterly math on annual math because I think we would think about the opportunity to be about 3x. You sort of took the quarterly subscription revenue we did per client and annualize that. It’d be about 1/3 of the 26,000.
Ryan Daniels
Yes. No, I’m just referring to the comment in the release about the when you created the TAM of $6.3 billion, saying 50,000 subs and 126 subscription-related services, so getting up from current levels to that level.
Randy Rasmussen
Got it. And maybe the second part of your question, Chaim can answer.
Chaim Indig
So no, I think I remember right. It’s how do you — how are we going to get more people to buy more of our products and expand.
It’s a pretty simple philosophy that started years and years ago when every and I started the Company. First, you do what you say you’re going to do, you provide as much value as you possibly change your clients. You treat them really well, and then you expand your footprint. And then when you expand the footprint and you provide a ton of value and you treat them really, really well, they buy more products, and they’re willing to try more and then that product is successful.
And then it provides the phenomenal ROI to them and then they go to the next one and then another one. And you’re able to do that because you hire amazing people and you pay them well to build great products and then you implement it really well and it becomes a virtuous cycle, right, where you do what you say you’re going to do. You treat people well and we just try to do that.
Operator
Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open.
Richard Close
Congratulations. Maybe somewhat of a follow-up to that last question by Ryan, but the average revenue per client declined. And obviously, you’ve had significant new client adds over the last several quarters, also introduced new offerings over the last year, referral management and, I guess, auto schedule, to name a few. But how are you thinking about the average revenue per client and timing of when maybe growth reaccelerates on that line item?
Randy Rasmussen
So I can take that. So when we look at the average revenue per client, it also includes our payments business. So when we talk about it going down, we’re really talking about the fact of payments where payments is growing 20%, where our client growth is growing up to 40%. So that’s the main driver. If you look at the average revenue per subscription client, it’s actually been very consistent over the last six quarters.
But if you look at how many clients we’ve been adding the three — for the last three quarters, we’ve been adding over 200. The three quarters before that, it was around 100. So we’re actually very happy that the subscription per client has remained fairly constant even though we’ve had a huge uptick in the number of clients that we’re having. So I think we think from our perspective, it’s pretty healthy, and it is hard to increase that statistic when you’re adding so many clients every quarter.
Richard Close
Okay. And then maybe just on utilization, you made some comments there. And I was curious if you could provide a little bit more context stating revenue outlook incorporates our expectations for utilization in the current environment. Is there anything else to add in terms of just what you’re seeing from utilization or expecting in the back half of this year?
Randy Rasmussen
I mean are you asking about patient utilization in the ambulatory setting. I mean we look at it regularly and think it’s sort of embedded in how we think about our outlook for the year.
Chaim Indig
Or in the acute, we sort of see it all on a daily basis.
Richard Close
Yes, maybe a little bit more context in terms of what is baked into your guidance? Are you looking for any improvement? Or is it just the status quo?
Chaim Indig
I’d say hope is not a strategy, Richard, right, and generally not been my philosophy. I’m pretty — I’m a pragmatist on this, and I think Randy used to like we don’t look for utilization to pop in the second half. I think that that’s — and we don’t see it. So — and we’re not hearing our providers telling us they’re getting ready for the big bolus that’s about to come.
Operator
Your next question comes from Ryan MacDonald with Needham. Your line is open.
Matt Shea
This is Matt Shea on for Ryan. Thanks for taking the question and congrats on a solid quarter. I wanted to touch on payments. So, we’ve been hearing about rising patient self-pay balances at some provider practices, which, in some cases, are turning to bad debt. Curious, if you’re seeing this with your clients? And if so, what impact rising patient balances might have on the payments outlook?
Chaim Indig
I haven’t seen that in any of our numbers. And if we did see that, that would generally bubble up. And I haven’t seen — I haven’t heard of any — we also manage hundreds of thousands of active payment plans and we don’t see any general trend change in any of those across the country. Randy, have you heard?
Randy Rasmussen
Yes, I don’t think we’ve seen anything that would indicate what we’re talking about in our data yet.
Chaim Indig
Yes, but I can pretty much guarantee, there’s someone at Phreesia listening this call right now that’s going to try to figure out if that is the case. But if we do hear it, I’m sure we’ll talk about it, but we haven’t seen it in our numbers.
Matt Shea
Okay. That’s good to hear then. One other one would be, so Epic held a user group in conference in August and announced single sign-on to unify their patient portals and also mentioned the desire to develop and deploy some text-based scheduling and intake solutions. So it sounds like patient portals are getting better in HR vendors and may be interested in moving into text-based offerings.
So just curious if you could comment on the competition and complements that your EHR vendor partners create. And then what impact Epic launching a text-based patient intake solution might have on your existing relationship?
Chaim Indig
I can’t comment on any specific company, but I can say that it’s a lot of work to do the things we do at scale. And we’ve had competition for our products for as long as we’ve been running Phreesia. And I think that, that’s a good amazing thing. But doing what we do at scale with complex data and getting it live at clients and making sure that all variety of different patients in different settings can use it, pretty hard.
And there’s a reason why we have the investment we have in not just our current products, but in our future products that we feel pretty comfortable about our outlook. What we do is hard, right? And — but I also think competition makes everything better. And like frankly, I’d love to see health care in America improve faster if it does it because more people are innovating, that’s great.
Operator
Your next question comes from Stephanie Davis with SVB Securities. Your line is open.
Stephanie Davis
Congrats on the quarter. I was hoping you can give us a refresh on the payment processing brand when you first sign up client? How should we think about the lag until you’re up for run rate? And what sort of optical drag good acre revenue per just given your client growth continues to be outsized.
Chaim Indig
So, Stephanie, you were a little bit choppy for us. Okay. So I heard payment processing ramp, but I don’t think any of us heard the question super credit. Do you mind repeating it?
Stephanie Davis
All right. No worries. I am at a conference, so I apologize for any background noise. But I was asking if you could walk us through the payment processing ramp for when you first sign up a client and how that could lag until you’re at full run rate because I’m trying to look at the optical drag that you’re going to have on your revenue per metric in the near term.
Chaim Indig
Yes. So I’ll answer some of it, and then I think Randy will answer — might have to answer the other part. So, there’s a couple of points about payments, one, if when we do a land and expand some of the drags just simply like as we add locations, we’re picking up our payments, right?
And then the other thing which I think is — and as we add into the organization, we add more payments. But some of it also has to do with as we ramp, we pick up more cards on file, we pick up more payment plans. And that just becomes a building nature on how we ramp up payments. But I do want to stress that there’s also seasonality in our — in payment numbers. Payments tends to not grow. And frankly, it has just annual seasonality tied to the deductible. It’s probably the best way to think about it.
Stephanie Davis
Is there any — a follow-up…
Randy Rasmussen
We count the customer when the first dollar of revenue comes in. So as soon as they start using our payment solution, we will count them as a client. And as Chaim said, there’s usually a ramp-up period where they’re transitioning to us because there’s always an incumbent payment provider in place. So, it may take three to four months for them to fully be onto our payment solution.
Chaim Indig
Or more…
Randy Rasmussen
In terms of complex there.
Stephanie Davis
So another one on the payment processing side because that was really helpful. Is it safe to suggest that there was a shift away from last quarter’s discounting given the quarter-over-quarter increase in transaction yield? Or is there anything else to call out there just given us a healthy step up?
Randy Rasmussen
I mean there’s different things that can affect that. I mean that’s also the mix of cards, like what they’re paying with the Amex and Mastercard, if it’s card-present, card-not-present, there’s a lot of things that go into that can affect that effectively.
Chaim Indig
And there were some fee changes from the carriers.
Operator
Your next question comes from Daniel Grosslight with Citi. Your line is open.
Daniel Grosslight
Thanks for taking my question and congrats on the quarter, guys. I’d like to follow up on one of Richard’s questions around utilization. I know you mentioned kind of you’re not going on a hope here. But if you listen to many providers in the public markets have said on 2Q is non-COVID utilization remains depressed. And then if you look at kind of the flu season that is happening in the Southern Hemisphere right now and speaking to doctors where they think kind of ambulatory utilization is going to go in the second half.
Can you just put a finer point on how you’re making utilization into your estimates now? Are your clients still at kind of less than pre-COVID utilization? And how should we think about that going into the second half of the year?
Randy Rasmussen
I mean, we look at it every week and to be honest, there are some weeks that are up and then there are some weeks that are down. So I think we generally feel like we don’t have enough data to conclude that there’s a COVID effect and it is not a COVID effect. I think we model it in the sense of — like Chaim said, we’re not expecting some each to come back. I think, typically, when you look at our revenues throughout the year, there — it’s pretty consistent from quarter-to-quarter. There’s seasonality where there’s more payments earlier in the year and then that kind of trails off towards the end of the year and newer clients come on and generally that’s flat quarter-to-quarter during the middle of the year.
Chaim Indig
But we do have — we have the data in real time, right? We used to have big screens when we had offices, we could see utilization of real time.
Balaji Gandhi
And Daniel, one thing I would say that public now for 13 quarters and I think in trying to help people at least do some modeling. The overall payment volume that we report every quarter, if you look at that, I think many of the analysts who look at it this way, if you look at that on a per client basis, it’s pretty clear the commentary from our letter and Chaim’s opening comments, that something unusual was going on with a lot of sort of catch-up utilization last year, and we’re still working through that. I think that’s pretty evident.
Daniel Grosslight
Okay. Good. And then some folks selling into the provider market, not your direct peers, but other, I’d say, health tech provider-focused health tech companies have had some issues selling into the provider market, they’re seeing elongated sales cycles, et cetera. You’re not seeing that which is great. I’m just curious, what’s resonating the most in the market now? And are you seeing any degradation in kind of the starting price and module upsells that would suggest that some folks are being a little more conservative given some pressures in the provider market.
Chaim Indig
So, I’m going to take this opportunity to give a huge shout to our provider sales organization and our go-to-market team, first and foremost. The reason we’re doing well, like without a question is our client success team, our sales organization, our demand gen team, our marketing team, it is — they are just doing a phenomenal just — I’m just so excited every time I get on the weekly calls that I listened in, and I just — that’s first point.
And so I’m sort of calling to right now and saying, thank you, although they’ll hear it on the all company call later. Next, it’s in away and expect. And that’s part of our selling function. And I think that, that’s wildly important and we’ve sort of been pounding on the table for 13 quarters, and we want everyone to understand, that’s our selling motion.
We believe at Phreesia that we should build trust. The way we build trust is we land in net account. We provide a phenomenal amount of value and we grow our footprint and then we get the right and the privilege to continue to grow that account. And we think that is the way we’ve worked that that’s how we invest money. It’s more expensive on the onset, but the payback, we believe, is significantly better, and it gives us better visibility and a better client experience. And our products provide amazing value.
Daniel Grosslight
Yes. So, no degradation in kind of that starting price or no conservatism seen in folks buying up additional modules?
Chaim Indig
No. No, we haven’t seen it yet.
Operator
Your next question comes from Jessica Tassan with Piper Sandler. Your line is open.
Jessica Tassan
Congrats on the quarter, and thank you guys for squeezing me in. I was hoping you can maybe give us a little bit of detail about whether or not your Life Sciences revenue growth has anything to do with kind of your mix of specialists. And then just secondarily, I was curious to know how is Life Sciences revenue able to grow without kind of commensurate utilization per provider just because we’ve historically sort of thought of that the Life Sciences offering is being impression driven, but would love to know if that’s changed at all.
Chaim Indig
Yes. No, no problem. So I’m going to ask sort of the second question first mostly because I probably — I’ve already forgotten the first question. And so I’ll reask it. So I want to be clear, like the network is growing tremendously. And yes, it is — we do — most of our revenue monetization for Life Sciences, not all of it, but most of it is after we deliver the message to the patient in a very targeted consent-driven model, right?
So patients of it, but as the network has grown, the our overall usage has grown. So since we’ve been public, the network is more than doubled, right? And so, if you just play it out just 13 quarters, we just had tremendous amount of volume growth, we’re seeing one out of every 10 visits right now in our network. So that’s one and two. It’s not just the number of specialists. It’s just the sheer volume of patients that we see has helped us.
And having that view longitudinally and being able to provide the right type of content for them to help them drive the right type of care and — has been very, very valuable to patients, which has allowed us to significantly expand our Life Sciences revenue. I don’t know if that answer that — and yes, I told you for the question. So.
Jessica Tassan
No, I think you answered honestly all of them. I guess just my follow-up would be, is there sort of a Life Sciences ROI that you would be pointing us to? And then just curious to know, is patient insights, I think you guys mentioned this in the letter, is that a new billable product? And does it change your view of the TAM for Life Sciences segment at all. And that’s it.
Chaim Indig
So, we do have a website for Life Sciences, it’s lifesciences.phreesia.com. You can totally go in, there’s a bunch of ROI examples on that, it’s a great website. So, go there every day. I do. It’s wonderful. And then what was the other. Is there TAM…
Jessica Tassan
Yes, it’s billable product.
Chaim Indig
You sell it, we’ve mostly been bundling it in because it’s so valuable. We’ve gotten just great feedback from clients on it, and we are using it right now as we’re getting people used to using it as an offering. So I’d say right now, it’s mostly being bundled in. And just if it does change the TAM, I promise Balaji will make us put out another TAM and talk about it. So he — that is not coming now though.
Operator
Your next question comes from Jack Wallace with Guggenheim. Your line is open.
Jack Wallace
Congrats another really solid quarter and really solid first half of the year. I just wanted to hit the software sales per software revenue per provider client question from a different angle. Maybe it will help us get a little bit better context for the relatively flat rate we’ve seen over the last six quarters. There’s been — you had some accelerating client wins, just thinking about the cohorts from the first half of this year and how they’ve matched up relative to cohorts from the prior two years.
Are these new customers coming on buying more or less software in the prior cohorts? And then if — to use the prior cohorts as a potential guide, what kind of lift in upselling have those prior cohorts seen, if not maybe on an annual basis, but some trajectory to kind of just give us something to think about as you’re building your client base.
Randy Rasmussen
Yes, sure. I mean I think we are generating most of the new revenue from new client apps as you’ve seen in the numbers. So I think from the perspective of they are buying multiple products, I think it kind of varies by customer size. So I don’t know if there’s any distinct pattern. I think where we’ve seen it as just the sheer volume of new customers just has to trust that statistic or cut flat. As I mentioned before, we’re adding a lot of clients price at the rate that we have if you look over the last six months or six quarter period. And we continue to also expand in those clients. I don’t think there’s a particular pattern or cohorts that that’s an indication. I think we’ve just been.
Chaim Indig
We’re just doing really well.
Randy Rasmussen
Has been selling in lots of different areas of across the board.
Balaji Gandhi
And Jack, the other thing is we did share four years worth of gross revenue retention and client retention. And then you obviously saw the subscription revenue per client holding in, in spite of adding almost earning that clients year-over-year. So I think that just sort of suggests that people are still starting to work with us in the same way.
Jack Wallace
Yes, that’s helpful. And then just a housekeeping item for me. How many SDRs do we end up with at the end of the quarter?
Randy Rasmussen
189.
Jack Wallace
Got you. Thank you.
Randy Rasmussen
I am sorry 187.
Operator
Your next question comes from Joe Vruwink with Baird. Your line is open.
Joe Vruwink
Great. I think in the past, you’ve discussed a 6- to 18-month time frame for really knowing the productivity of a new hire. And I guess we’re kind of in that time frame for last year’s class, and we’re also now starting to see the revenue per employee metrics trending higher on a year-over-year basis. Is productivity all going according to plan? Or does the improved EBITDA outlook for the year essentially say this is now tracking better than your expectations?
Chaim Indig
It’s — I would say — I do know. I’m just trying to think how much I’d say the team is doing unbelievably well, and we’re tracking better than our expectations.
Randy Rasmussen
The allometric are tracking are moving in the direction that we bumped them to very strongly…
Chaim Indig
We expect productivity to go back to where it was. Yes. Our cost to acquire is looking really good. Our revenue per employee is looking good to I think we’re pleased.
Joe Vruwink
Okay. Great. And then I know this fiscal year is meant to be the low watermark for EBITDA. I’m curious if you look at specifically the trend in subscription gross margin that increased sequentially, and obviously, you onboarded a lot of new clients. So I would imagine you probably had a stable customer success and implementation team behind that. Do you think it’s too early to maybe call the trough in subscription gross margins, and we should kind of expect further improvement from these levels? Or might there still be some incremental investments needed there?
Randy Rasmussen
I mean in Q1, we had actually talked about that we had an expectation that gross margins less payments or the subscription margin as you’re referring to, would go up in the low 70s. And I think this quarter, you see it improve. And that improvement like everything else, we’ve done a little bit better than we thought. I think the organization is really thoughtful about spend and how we’re using resources. So, we expect that margin to continue to improve in the second half.
Operator
Your next question comes from Joe Goodwin with JMP Securities. Your line is open.
Joe Goodwin
So your employees have sequentially come down the past two quarters. And I’m just curious, is that natural attrition? Or is that for attrition? Any commentary would be great.
Chaim Indig
I think it’s net. We’ve not had — I don’t know how you answer that question? Look, I think it’s natural attrition. And we — I think the team has done a very good job of making sure that folks we want to keep are well rewarded and the team has done a phenomenal job. But yes, we do see ebbs and flows, but I think more important is I think I’d say our team, what is up 2x from 12 months ago…
Randy Rasmussen
It almost triple over three years.
Chaim Indig
And almost triple over three years. And we tend to look at it not on a quarterly basis but trending over time.
Joe Goodwin
Understood. Okay. And then, you commented on the retention briefly earlier in the call, but — so there’s been no movement on your client health care services client retention at all even seen anything maybe from the macro or anything like that?
Chaim Indig
No.
Randy Rasmussen
It helps consistent with. We look at it on a monthly basis, and it’s consistent where it’s been in the past year or so.
Operator
Your next question comes from John Ransom with Raymond James. Your line is open.
John Ransom
If we were to look at the customers you’re adding today you talked about 200 and then the ones you added this quarter. So let’s just call it 450 round number. Is this customer class on average, a bigger set of providers as in bigger hospital systems or bigger doctor groups? Or is the average sort of TAM on a per provider basis today kind of the same as you’ve added all along.
Chaim Indig
John, they’re all different sizes. They’re enterprise clients. They’re small. They’re medium. The one thing they all are, though, it’s they’re all land. And then we look to expand them. And we’re absolutely seeing more large clients, but we’re also seeing tons in the midsize, and we’re seeing those that are part of networks. I think the team has just done a phenomenal job of selling across the spectrum and helping to provide Phreesia all those that needed. We think about it more enterprise versus health list.
John Ransom
And then secondly, I mean, I think we understand the core of Phreesia and you guys are adding new capabilities. If you were to kind of isolate on one or two capabilities that you’ve added, is there anything that, gosh, this is going better than we thought, and this could be the next big revenue? Or is it — is it more that this is — we should think about it as the Company is what it is, and these are just enhancements that kind of accentuate around the core, if you will.
Chaim Indig
Well, all right. Well, I don’t think the Company is what it is like we’ve been making significant investments. I’d say the investment since we’ve been making around products and Life Sciences have been great. Hopefully, over the next quarters, we’ll be making some other announcements and some new products that are getting a lot of traction we’re excited about. But our access products have been unbelievably successful, and that’s around appointments and how people get into providers.
We’ve had insights. It’s just been just — it’s one of the most rocking products we’ve had in years. So I’d say, John, we have — we’ve made big investments in R&D and people and those investments, we’re starting to see pay off, right? We’re building great products that are adding a ton of value…
Joe Vruwink
You went virtual a couple of years ago. I mean I have not coming off, but — so it doesn’t sound like that’s really been an impediment to productivity or creativity.
Chaim Indig
We just had to — we were already high-grade pre-COVID, right? So — in a lot of ways, I think this made it easier for everyone to work on in an equal playing field. Has it been harder for some, Yes, right now, Balaji and Randy are sitting around my kitchen table, right?
Randy Rasmussen
What’s for dinner, Balaji? Is it good or…
Chaim Indig
We have takeout.
Balaji Gandhi
Next time, you’ll have to cook at helping you.
Chaim Indig
But I think as an organization, our view is how do we make sure that we just do what’s right for our clients and build great products. And our product organization has just done a phenomenal job of understanding what the client needs are and just iterating and building, testing and making sure that the products we build get used and provide a phenomenal amount of value. And we just care about making sure that we make health care outcomes and we track what I want to…
Joe Vruwink
Sorry, I broke up. That’s it for me. Thanks guys. Appreciate it.
Operator
There are no further questions at this time. I’ll turn the call back to Chaim for his closing remarks.
Chaim Indig
I want to thank everyone for joining us for the call. I want to thank everyone on our Phreesia team and all of our shareholders, and I hope everyone has a great start to the month of September, and hopefully, we see everyone in the fall.
All right, bye-bye.
Operator
This concludes today’s conference call. You may now disconnect.
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