Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Established fourteen years ago, <a href="https://www.smartkarma.com/entities/phreesia-inc" target="_blank" data-smartkarma-citation="entities:28197:1" rel="noopener">Phreesia Inc (PHR US)</a> is a leading solutions provider that caters to the health market in the US. The IPO price range is between USD15 and USD17 per share, while the IPO deal size is expected to be around USD111.2m, assuming a price of USD16 (the mid-point of the proposed offer price range). We have analysed Phreesia’s background and its business model, comparing it with similar platforms. We have also analysed the financial performance and position of the company and its valuation based on the offer price range. Based on our analysis, we think the company could see strong short-to-medium-term growth, although long term growth appears questionable. Our key points are:<ul>
<li>Phreesia has been in the market for a relatively long time but still looks immature as a business. The company, which operates a subscription-based model, does not seem to offer a unique value proposition to its clients. The Phreesia Platform lags in terms of features offered compared to recently emerged platforms.</li>
<li>The current growth momentum in Average Revenue per Provider (ARPP) is likely to continue over the short term. However, long term growth requires Phreesia to develop the features of its platform to outperform competitors, and in turn, secure a growing number of provider clients. This is crucial in sustaining its ARPP growth.</li>
<li>We feel that payment processing revenue is a long-term growth driver.</li>
<li>Phreesia is still a loss-making firm and does not seem likely to turn profitable over the short term.</li>
<li>The company is likely to trade at an FY1 EV/sales of 3.8x looking quite expensive when compared to certain other established peers.</li>
</ul><div class="content-caption">Deal Specifics of Phreesia’s Global Offering</div><table class="table table-striped"><tbody>
<tr><td colspan="2">Details:</td></tr>
<tr>
<td>Price Determination Date</td>
<td>July 17th, 2019</td>
</tr>
<tr>
<td>Expected IPO price per share:  </td>
<td>USD 15 and USD 17</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td>7,812,500 shares of common stock</td>
</tr>
<tr>
<td>Underwriters: </td>
<td>J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and William Blair &amp; Company, L.L.C.</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td>Approx.USD111.2m (based on Median)</td>
</tr>
<tr>
<td>Use of Proceeds</td>
<td>
* USD18.1m (16%)- to pay a cash dividend to the holders of 22,871,507 shares of our Senior Convertible preferred stock;
* USD17.7m (16%)- repay all of our revolving line of credit with Silicon Valley Bank;
* Other particular uses not detailed with certainty. Hopes to invest some of the net proceeds of this offering in interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government
</td>
</tr>
</tbody></table><div class="content-remarks">Source: Company Disclosures</div>We go through the details below.

Established fourteen years ago, Phreesia Inc (PHR US) is a leading solutions provider that caters to the health market in the US. The IPO price range is between USD15 and USD17 per share, while the IPO deal size is expected to be around USD111.2m, assuming a price of USD16 (the mid-point of the proposed offer price range). We have analysed Phreesia’s background and its business model, comparing it with similar platforms. We have also analysed the financial performance and position of the company and its valuation based on the offer price range. Based on our analysis, we think the company could see strong short-to-medium-term growth, although long term growth appears questionable. Our key points are:
Phreesia has been in the market for a relatively long time but still looks immature as a business. The company, which operates a subscription-based model, does not seem to offer a unique value proposition to its clients. The Phreesia Platform lags in terms of features offered compared to recently emerged platforms.
The current growth momentum in Average Revenue per Provider (ARPP) is likely to continue over the short term. However, long term growth requires Phreesia to develop the features of its platform to outperform competitors, and in turn, secure a growing number of provider clients. This is crucial in sustaining its ARPP growth.
We feel that payment processing revenue is a long-term growth driver.
Phreesia is still a loss-making firm and does not seem likely to turn profitable over the short term.
The company is likely to trade at an FY1 EV/sales of 3.8x looking quite expensive when compared to certain other established peers.
Deal Specifics of Phreesia’s Global Offering
Details:

Price Determination Date
July 17th, 2019


Expected IPO price per share:  
USD 15 and USD 17


Number of Shares for IPO:
7,812,500 shares of common stock


Underwriters: 
J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and William Blair &amp; Company, L.L.C.


IPO base deal size: 
Approx.USD111.2m (based on Median)


Use of Proceeds

* USD18.1m (16%)- to pay a cash dividend to the holders of 22,871,507 shares of our Senior Convertible preferred stock;
* USD17.7m (16%)- repay all of our revolving line of credit with Silicon Valley Bank;
* Other particular uses not detailed with certainty. Hopes to invest some of the net proceeds of this offering in interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government


Source: Company DisclosuresWe go through the details below.

Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

Thematic (Sector/Industry)

The suggestion of government orchestration against <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono</a>’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the Nikkei that the Japanese Health Ministry is considering setting rules on new drug usage during this fiscal year, starting with <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono</a>’s Opdivo and <a href="https://www.smartkarma.com/entities/6091" target="_blank" data-smartkarma-citation="entities:6091">Astellas</a>’s Repatha. Patients may be limited to those who can see certain impact from the treatment, which in turn would mean the drug could only be prescribed at those institutions with the facilities to check…

The suggestion of government orchestration against Ono’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the Nikkei that the Japanese Health Ministry is considering setting rules on new drug usage during this fiscal year, starting with Ono’s Opdivo and Astellas’s Repatha. Patients may be limited to those who can see certain impact from the treatment, which in turn would mean the drug could only be prescribed at those institutions with the facilities to check…

Opdivo Singled Out in Government Rule Change

Japan

Software Service, Inc. develops and sells medical information software for hospital uses.  The products include electronic medical carte and order entry system.  The Company also provides training and maintenance services.

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Software Service (3733 JP)

Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia

Established fourteen years ago, Phreesia Inc (PHR US) is a leading solutions provider that caters to the health market in the US. The IPO price...

Aqila Ali

Opdivo Singled Out in Government Rule Change

The suggestion of government orchestration against Ono’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the...

Pelham Smithers Associates

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