Q3 2021 Accolade Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the accolade Inc. fiscal third quarter earnings call.
At this time, all participants Arnie listen only mode.
The the speaker presentation, there will be a question and answer session to ask the question. During the session you will need to press star one on your Touchtone telephone. Please be advised of today's conference maybe recorded.
If you require any further assistance. Please press star zero I would now like the hand the conference over to your host SVP of Investor Relations Todd The Freedman Sir. Please go ahead.
Thanks, Operator, welcome everyone to our fiscal third quarter earnings total.
On the call today are chief Executive Officer, once you're sitting on our Chief Financial Officer, Steve Barger sheltering the Andy our Chief Medical Officer will join US for the question and answer portion of the call.
Fortunately called on Washy. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating ecollege performance details of the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations Dara can be found in the press release of is posted on our website also please note that certain statements made during this call the before looking.
The average as defined by the private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results for accolade to differ materially from those expressed or implied on this call for additional information. Please refer to the cautionary statement our press release and her points of the FCC all of which are available on our website with that I will turn the call over to our CEO Rajiv said.
Thanks Todd.
Hello, everyone.
All of us at accolade would like the wish you a happy new year and thank you for joining us to discuss the results of our third quarter fiscal year 2021.
It's a busy time of year for us with the pandemic in vaccines at the front of our members' minds on a set of new customer go lives in early stages, given the beginning of the new calendar year and we're excited to report on our progress.
Put simply we entered 2021 in a strong competitive position than any time in accolade history and the key metrics bear it out.
Revenue of 38.4 million and adjusted EBITDA loss of 11.4 million were both the ahead of our guidance.
We raised additional capital the our our follow on offering in October to further strengthen our balance sheet.
The third quarter represents the end of the traditional health care selling season, and we saw record ads in terms of new customers and members.
We saw continued momentum across all market segments and product offerings further demonstrating the mainstream customers the consulting and broker community carriers and other partners are embracing our leadership position in this important category in.
In fact less than two years ago at the end of fiscal 2019 accolade had 20 customers about 18 months later.
At the time of our follow on offering in October we had nearly five times that number and our momentum has continued into this quarter.
Our customers are seeing tangible results and sharing their results with their peers.
On cost of all call out today is ocean state job lots of who were who reported the two times ROI in the first year with 90 plus percent high cost family engagement and 97% customer satisfaction.
Customers are also speaking about our new solutions.
Hope you take a minute to go to our website, where you can watch the replay of the Johnson controls Webinars, where they discuss the results with the accolade cope the discount response care.
For example, the saved more than 17000 workdays by avoiding unnecessary quarantined.
On the topic, we're seeing strong track traction with accolade cope the response care.
Where we have continued to sign new customers kind of lost the partnership with Labcorp pixel to deliver cobot test to the home.
In a similar vein initial results from our first of mental health integrated care customer are showing positive trends.
It is early to share of the data or make assumptions, but we're very pleased with those early returns and remain enthusiastic about the impact to our partnership with Ginger can have on our customers and their employees mental wellbeing.
On the strength of all of these factors were raising top line guidance for the 2021 fiscal year by $3 million, which Steve will discuss in more detail later in the call.
More qualitatively, we see broad macro trends that are shaping the health care industry and impacting all companies across the healthcare spectrum.
We don't need to explain to you how or why health care has become so broken in the United States. If you are on this call you already know the because you've chosen to get to know us better and understand how we're trying to change the system.
The cobot pandemic has been tragic in many ways and of its exposed some of the worst characteristics of the industry here.
Health care is still too costly it is still too complex and too. Many places it is far too hard for the average person to access quality care or get the importance of information they need to make the right decisions on.
Underlying all of that chaos. However, we have seen how good our health care system can be front line workers nurses doctors lab technicians custodians researchers.
Together they have all been working tirelessly to find the vaccine to heal the sick and the comfort the grieving.
In our darkest moments, we've seen just how powerful the system can be when our industry comes together to solve the problem and it accolade. We believe that is the future of health care and it underscores everything we do.
We believe that the future of health care must be integrated in collaborative and re imagined what the consumer or the member at the center of everything.
We're investing in evidence based clinical programs to help our customers on their members choose the right care and realize the best outcomes.
We understand that the best way to bend the cost curve is to embrace those principles and the focus on total population health.
Because focusing on only the highest cost patients. This year like most of our industry does doesn't help you identify and present prevent the challenges of next year.
We believe that consumers have never had a greater need for high touch empathetic benefit navigation and advocacy services and clinical programs to help them negotiate this increasingly complex marketplace.
The pandemic has elevated and accelerated the discussion about the need to fix the health care system, an accolade is squarely positioned at the confluence of these macro trends.
The distribution of the COVID-19 vaccine in the United States is a great example of this need.
Our incredibly high engagement rates and member satisfaction levels mean, we are the go to source for information in times like these and we have an opportunity the turn tactical interactions in the strategic moments take.
Take the example of a member calling in to find out of vaccines are fully covered by their employer had.
The accolade, we turned those moments and yes, most employers are covering the vaccination into opportunities the answer some of the more strategic questions. The members are facing is it safe do I have to get it one of the potential side effects.
All the while increasing the possibilities to get that the member to the right outcome.
The need for our services clearly could not be more significant than it is right now.
It is with that backdrop that I would like to begin to address the question that many of you of asked from the time of our IPO.
We were very proud to include it the data from an independent study with a on referenced in our IPO prospectus the demonstrated tangible cost savings tackle the its customers on.
I'm excited to share for the first time, the a on not only updated their research, but they expanded the study the examine a broader list of customers to include include those with 1000 to 30000 employees.
The results reaffirms, what we saw on the original study accolade delivers tangible measurable improvements to companies of all sizes bending the health care cost curve of material way.
The rigor of the on study creates a strong degree of confidence that these results represent conclusions that are relevant to a broad range of employers in the market.
Now for the sake of my marketing team I have to say the the full report will not be published for a few weeks though.
And wraps up their work shortly but I highly encourage you to go to of web site and sign up to receive the study when its released we're proud of the customers results. The 1200 plus employees that accolade go to work every day with the purpose and passion to serve our customers employees and their families and their businesses.
Our model integrated clinical programs superior member engagement measurable value the customers and partners ability to rapidly integrate on solutions to meet specific needs.
Ultimately delivers better outcomes and lower health care costs. The A. on study quantify those benefits and validates the accolade vision here.
Here are a few of the highlights.
All customers in the study saw lower healthcare cost trends relative to the control group in their first year of engaging with accolade and seeking continued lower trend in the second year.
Accolade lowers employer cost in many clinical categories from mental health, the diabetes and hypertension to hazmat.
Accolade reduces employer health care cost across the member population, including age groups demographics, geography and condition levels.
That is a very high level preview of what you will see in the full report, but I encourage you to read the full report for one simple reason.
If you can understand how a on came to the conclusions and you understand the way they value validated our value proposition and you will understand why employers choose accolade.
It is why I said at the start of the call. The we are better positioned today competitively than at any other time in our history.
With that I'd like to turn the call over to Steve to cover financials and other operating highlights.
Thanks Raj I'm pleased to report on our results for third quarter of fiscal 2021, which ended on November Thirtyth and provide an update to our guidance.
We generated $38.4 million on revenue in the third fiscal quarter, representing 30% year over year growth.
This is $1.4 million ahead of the top end of the range of our guidance, which we provided during our last earnings call.
Revenue growth was driven primarily by strength in new customer adds and therefore members, particularly in the enterprise and Midmarket segments.
Adjusted gross margin of 41.8% was roughly flat compared to 41.1% from the prior year period, reflecting investments we've made in the new customer launches, including the defense Health Agency, which launched in May.
Adjusted operating expenses improved to 71% of revenues in Q3 of fiscal 2021 versus 88% of revenues in the prior year period, reflecting operating scale efficiencies as we continue on our path toward breakeven.
All the visit this point about spend during my guidance remarks.
Adjusted EBITDA loss in the third quarter of fiscal 2021 was $11.4 million, which compares favorably to $13.8 million from the prior year third fiscal quarter and with nearly $600000 better than the top of our guidance from our last earnings call.
The outperformance on adjusted EBITDA is primarily attributable to a higher adjusted gross profit driven by the revenue over performance versus guidance.
Turning to the balance sheet on the strength of our IPO in July and our follow on offering in October.
Cash and cash of closings at the end of fiscal Q3 total of $418.9 million with no debt outstanding.
Our cash balance reflects $208 million of proceeds from the follow on offering net of fees and offering expenses.
Next I'll update you on a cash on our accounts receivable balance.
Our increased the $15.4 million at the end of fiscal Q3, representing about 37 days revenue outstanding driven in part by an increase associated with our airline customers.
You will recall from our last quarter that we are working with our airline customers to help them manage the cash needs during kogut, primarily by changing their payment schedules.
Most customers remain on schedule with their payments and the schedules design the key cash receipts from those customers on changed within our fiscal year.
In addition to the airline impact the AR balance also reflects receivables associated with new customer go lives.
On a go forward basis, we expect the ASO to normalize in the Twentyth of 30 range.
Finally, we had approximately 55.2 million shares of common stock outstanding as of November Thirtyth.
Now turning to guidance for the fiscal fourth quarter ending February 28, 2021, we expect revenue in the range of $51 million to $54 million, representing 18% growth over the prior year at the midpoint.
And the adjusted EBITDA loss in the range of $2.4 million to $5.4 million.
For the full year ending February 22021, we expect the revenue in the range of $162 million to $165 million, reflecting a $3 million increase the the range previously provided which reflects a 23% growth over the prior year at the midpoint.
And adjusted EBITDA of law in the range of $32 million to $35 million.
And now I'll turn it back over to Raj for his concluding remarks.
Thank you Steve.
Amidst incredibly challenging times, we remain focused on our mission and our vision to help every person lead their healthiest life.
That single minded focus has continued to lead the strong results for the company.
With that operator, I'd like to open the call up the questions.
Thank you Sir <unk> as a reminder to ask the question you will need to press star one on your touched on the telephone again Thats star one on your touched on the telephone to ask the question to withdraw your question press the pound key please stand by while we compile the keep on a roster.
Our first question comes from the line of Jeff Garro of William Blair and company. Your line is open.
Yeah. Good afternoon, guys and thanks for taking the questions I want to ask a couple of questions about the fourth quarter guidance and the.
I guess, maybe more specifically about new customer launches and performance based fees. So first on on performance based fees you've talked about the majority of those performance fees fees occurring in your fourth fiscal quarter historically with the visibility you have now on fiscal 2021 performance how is the seasonality of performance fees.
He is played out during the year.
Hey, Jeff This is Steve Thanks for the question the you're right. The the cost savings based performance guarantees we almost in every case deferred and recognized those in the fourth quarter.
We track and see the health care spend finalized in December and then we do the ultimate Charlie.
In January and February and so this year would be similar to those prior years, where weve deferred and and would recognize those in the fourth quarter. Some customers. We picked that up along the way, but that is generally the case. That's why when you look at our TNL you see somewhere in the range of a third to about 35% of.
The years worth of revenues occur in the fourth quarter, because we're picking up those those cost piece or revenues there and I.
I would say that that she looks similar this year as it has in prior years.
Yeah, I know claims need to the reconcile for sometime after we pass the end of the calendar year, but any visibility or degree of confidence in achieving the.
Similar level of performance based fees compared to your annual contract value or if the view versus what you've done historically.
Right. So it's certainly an incredibly unusual year in terms of the pandemic and spend of.
What we're seeing now remember the way that our contracts work is we generally we earned net revenue when we beat the index or we beat the market and even in this environment in which health care of spend.
Decreased quite a bit immediately after the pandemic and now its rising back up as the people come back into the healthcare system, our data showing that we're continuing to see of against those in the season with all of that said, Jeff we are maintaining some conservatism even within the guidance, we're providing today because it is such an unusual.
Full year in the end of your guidance that we provided.
Understood that's helpful.
One more from me back to the.
The fourth quarter guidance and the the impact of new customers launching on January 1st line I know, there's some diversification there but in your reference in the prepared remarks money customers starting on January Onest, and you've talked about strong customer count growth throughout the year and look forward to on an update on a few months when you close out the fiscal.
Year on where are you on there but in the interim could you discuss the the missed the sign customers that were that were on live as of the end of this November fiscal quarter versus those that that went live as of January onest.
Sure I can give you some give you some color on that.
One of the reasons were so pleased with being able to provide an increase in guidance today in the midst of of pandemic is the underlying core strength of the business that we're seeing and Raj mentioned in his remarks, we're seeing strong growth in terms of new bookings across market segments, meaning size of customer and offerings and.
We've tried to of a strong bookings year. So many of those either went live in terms of open enrollment services in November timeframe were launched on January 1st and some of that uplift in our guidance relate to a strong new bookings season of customers that launched on one one.
Got it that helps thanks for taking the questions guys.
Thanks, Jeff Thanks Gents.
Thank you. Our next question comes from the line of Robert Jones of Goldman Sachs. Your line is open.
Great great. Thanks for the questions I guess, maybe I know, we'll have to wait till next quarter to get the ACB number and guidance.
But maybe just the one to try to get some preliminary thoughts on how you're thinking about revenue growth shaping up for next year and maybe just the frame it a little the some of the the major announcements that you've shared so far with Johnson controls, which you mentioned Humana University system of Georgia, just just making some rough assumptions around you know.
Normal course of of of the economics on on on members employees. It seems like you can get a lot of the way there if not beyond your kind of long term, 25% revenue growth targets. So just wanted to kind of level set the head of the specific numbers next quarter is the is there anything specific around the wins this.
Here that would be different than historical Windoor is the right to think that some of the wins you guys have already announced that are in the book. If you will can really kind of set you up well against your long term targets for the next year.
Hi, This is Steve I'll start and.
A couple of things on the you know the wins from this year are very much a part of what gives us confidence in raising the guidance and the view that we are providing today for this year, we will provide guidance for fiscal 22 in next quarter, but that all said, we're really bullish on the business in the long term.
Growth rate that we've spoken about the 25% plus kind of growth rate that we think is achievable, we do temper that a bit given the the coping environment that we're in.
The fact that there are unemployment issues that given our per member per month revenue model does give us pause it puts us in a place where we want to have some conservatism in the way we think about the numbers, while we're incredibly bullish about the core underlying business and those bookings. This year that we've spoken about I think are in line.
Very much so with the kinds of bookings beat on before from a pricing standpoint, we're seeing it again across offerings often times.
With bolt ons in our trusted supplier of program work over the response care capability and so forth.
Yes. This is Ross I'll, just tell the chime in on the point.
The bottom line is the throughout the course of the year.
Very consistent or on the back that every market segment and then all of our core products of seen traction.
And we are therefore.
Therefore, unable to raise guidance through the throughout the course year, So which day.
Can you see a strong demand environment, well, obviously update guidance EPS release next year coming up next quarter, but.
But.
The outlook in the makeup of the.
The customer signing on that's been part of all year.
Yeah, No no that's encouraging and I guess, just maybe one follow up you guys. You mentioned that you know the raise of from the proceeds from the follow on offering on.
Strengthen the balance sheet balance she was the three pretty good shape to begin with anything you would want to highlight as far as just priorities and use of proceeds use of cash as we think about where the balance sheet. The today post that race.
Okay.
Thanks, Alan and the new add on anything on this hey, the bottom line is we bottom line is we think we we sit in a in the marketplace with the enormous growth opportunities of the huge target addressable market and in a leadership position, where we're acquiring customers across segments and across products.
Yeah on the rapid clip and so on strengthening the balance sheet was entirely about investing in investing in the business clearly in terms of continuing the fund that growth and beyond that to the strategically identify opportunities where we can expand on product portfolio.
And or expand the types of value propositions, we can deliver to our existing customers of the new customers.
We're we're we're consistent against both of those objectives outside of that how much more to give you obviously of before we four we announced new products or new offerings more potential new capabilities, but that's.
That's where our focus is.
Okay, Great I appreciate it thanks.
That's.
Thank you. Our next question comes from the line of Ricky Goldwasser of Morgan Stanley. Your question. Please.
Yeah, Hi, good afternoon.
My questions focused on the partnership with Ginger up can you maybe give us from updates the or in the uptake assets you were seeing with both existing customers and the new wins.
Sure on them in the Charleston is the two to the relationship and the sort of the.
How is working I will say we are.
We acquired the first customer from where.
We see great moving the pipeline is very strong there we see.
The man chopping the you want to jump in and talk a little bit about how the relationship has gone.
Yeah, absolutely. Thanks for taking some of the question you know I think first of all from the demand perspective.
As the physician.
The acutely aware of how much of mental health.
The is really a crisis around the country and I think that being reflected on the interest that were seeing on.
And I think there is also a broader recognition from the market that with a lot of differ.
Different point solutions out there that I think the.
There is a lot of the interest for solutions that's true.
Try the outcome and ultimately lead to the cost savings and so I think all of those are pretty.
Greetings and the thing it tailwinds around the partnership of Ginger, which the whole idea was to create you know us.
Solution that that integrated physical and mental health with an eye toward outcomes, which we thought was pretty differentiating from how the rest of the market in mental health has pursued it and so.
With that you know the two teams of gotten into the really great cadence on.
Starting pulp to learn a lot from that first customer that Roger mentioned and you know a lot of great early indications that.
That's where we're having the impact that we wanted to see at the outset.
Sure. So as we think about the relationship and the uptake of customer is this the sort of kind of funny Dawn offering you did we could see adding upside middle of year I did not necessarily customer screens on if they launched the program, but something that they would add on as the year progresses.
Certainly Ricky we would we would expect the offerings like this one like we saw the covers the response here this year.
I can think of the response here. This year are our products or offerings that are capable of launching new year.
While some of our core offerings are capable of launching the midyear as has been noted previously on many.
Many of them launch predominantly on one one coincident with the plan here. So I think the the short answer to your question is yes, it's very feasible and it will be largely dependent on the.
The culture of on.
Deployment of Rollouts of the customers who are purchasing.
And then when we think about you know what the Delta between the revenue guide trees into EBITDA guide tens of there's less of a snow through.
Can you maybe talk a little bit about the investments that you are it to you.
Sure doing in the how should we.
Think about these investments is it really kind of like on swap meet our models from.
The next year understanding that it's too early for guidance yet.
Sure Ricky.
Ricky This is Steve thanks for the questions on.
A couple of things as we've raised guidance on in terms of revenue and seeing a very core strong core underlying business, it's really important to us to maintain a net profitability target but.
Non of rush to outperform per se on the bottom line given all the opportunities we see two investing in growth.
For example of investing in distribution around sales and marketing not just adding quota carrying reps so to speak but also building strong relationships in channels with brokers and consultants and others in those channels. The way we work with Humana for example, investing behind those those opportunities.
The drive a smart growth with attractive unit economics is how we think about it. So when you step back I would harken back to guidance, we've spoken about in the past, which is this idea of a demonstrable step towards breakeven as we drive attractive growth so that idea of roughly two years.
The out to a breakeven or roughly breakeven profile is still how we think about the business, so big market opportunity, creating value by pursuing it with attractive unit economics to get to a responsible breakeven type of profile over the next couple of years.
Thank you.
Thank you.
Thank you. Our next question comes from Michael Cherny of Bank of America. Your line is open.
Thanks, so much for taking the questions.
Hold on a little bit more on that thread relative to the EBITDA side tying back a couple of questions. The you addressed earlier you know as you think about the the the future growth and you talked about the mid Twentys give.
Give or take long term growth targets, the you've had the.
Would there be any desire or I guess, how would you contemplate, especially with some of the new products the potential to essentially <unk> spend to accelerate the growth or is that more effect of wanting to stay measured role of products as is the not get too ahead of your skis in terms of new customer momentum just trying to think about the puts and pulls on.
On the long term trend and how you think about manage those cost of that's the phones lines.
He said it kind of hit that from us on the first of all on Mike net.
And again.
Steve Let me take that from a philosophical one and then I can get you to that any color.
Okay.
From my perspective, I like the way, we think about it we've tried to be very disciplined consistently the in terms of the way we talk about our business and the way we run our business that we see on 25% growth rate as part of the I can see.
And that we're going to run the business in a disciplined fashion trending towards that breakeven point on interest on 23.
The acknowledgement as well that you did agree we see growth opportunities that are more material the net 25% assets.
On a huge targeted addressable market with the leadership position that we'll evaluate those opportunities potentially and biased toward the spending against those opportunities.
And so to the degree of we're outperforming on you're going to see of spend into that outperformance on.
Continue that growth trajectory in the continues of distance ourselves from the competition as it relates to both innovation and customer acquisition.
Yes, I think the the reverse is also true.
Yes, just the.
From a from a top line growth perspective, and you'll see us yet disciplined from a bottom line perspective to the degree that growth doesn't materialize.
The easily.
Yes, Hi, Mike.
The thing I'd add to that is as you see us for example in this quarter outperforming on the top line and pursuing those opportunities as Raj just spoke of.
Disciplined towards maintaining the bottom line targets as well as the step towards breakeven. So we have the very I think healthy tension as we run the business make between pursuing growth the pursuing growth at attractive unit economics levels, while we maintain that discipline to to roughly breakeven.
When you dig in on the metrics behind the business one more.
Law longest term contracts are three year of type of multi year contracts on the EM.
The bases that are very predictable you could make a strong arguments to invest the more.
The growth, where we are today investing in.
20, or so percentage of revenue.
Sales and marketing on what we're doing so with the with the real eye towards maintaining that step of course.
Right and the discipline business towards breakeven.
On Swift the growth opportunity in front of us.
Yes, that's very helpful and I guess, one follow up the Ross you kind of gave me the the opening for you.
You kind of obviously, a nice succeeds momentum in terms of the number of new customers added can you give us any sense of the push and pull you had in some of the discussion during the selling season, we hear so much from companies about basically everything its koby, Toby COVID-19ien and figuring out how to return to work on all these on.
The dynamics well you actually can help with that the on that front and have the ready made solution. So I guess, it's the as you sat through whether that's specifically or just pitching the the total wears of accolade how have those discussions Dr shape out in and how where some of the proof points really able to shine through to allow you to drive growth.
Customer additions that you have.
Thanks for the question Mike any of you if you think about the.
Rewind, the or excuse me zoom out to the highest level of what accolade provide extraordinary relationships with members who are seeking health care of but.
But confused by the health care system, we build trust with those members those back from the yields more interaction therefore high engagement.
Because we do have the job of getting them to the right place the lower cost.
Is the amount.
There is no there's been no more profound set of needs as it relates the health care questions and decision, making at the occurred in the last 12 months with.
Cobot and now rolling into the back of E.
So first testing then the vaccine and then of course, the mental health challenges and the big Big.
Yes.
And so everything that prospects have been talking about in many respects Mike has been have been things that the the England, yes data to their employees start with education moves towards the guidance.
And then you will yield better results and so.
On a sort of way of saying things our entire business is built on building relationships and leveraging those relationships to drive the guidance towards.
Clinical outcomes of lower costs this year that needs the more profound the number of.
We've been able to sit on a lot more boardrooms than weve had enough on.
Then the other vendors who might be more condition.
Great. Thank you.
Thank you. Our next question comes from the line of Geralyn dressing.
The credit Suisse. Your line is open.
Hi, Thanks I want.
One follow up on the question earlier on about the implied Q4 guidance is it fair to say that a add on to the total stops the revenue is fixed and the the 3 million dollar range you have on the guidance is that all of the functional flow savings based revenue and operational performance revenue because I'm assuming that the.
Fixed portion of its pretty much locked in at this point, but most of the contracts like on the effective one one just curious if you can give some at the more color around the.
It is debatable of did the and the when you say that that the building some cushion that book two of fiscal Q4.
Is it more on the savings side on some of that would be able to the should be a bit of.
Hi, John Day, Steve Thanks for the question.
Yeah, you're you're in the right ballpark in the fourth quarter that you can think of that as you know somewhere in the range of the third being a variable based revenue.
The the reason when you think about whats in there when we think of fixed revenues, we think of the PMPM revenues members times of PMPM range, there's always some.
Some uncertainty around how many employees are going to be on the rules. So to speak when we're in the midst of the of the situation like we are right now so you maintain some conservatism on those so we we don't get ahead of ourselves given that employers are still managing their businesses through the pandemic.
And then with respect to the P. Jeeze similar type of approach, where we want to have some conservatism around the given the unusual environment that we're in and so you're you're seeing that in the in the guidance. We're providing today all of that to say a lot of the uplift relates to the new customers, we booked in the growth that we're seeing.
The the confidence we have in the business.
Okay, and the last quarter, you talked about a lot of those benefiting from the slower hiding the time I was just curious that if you still continue the main guns on where do you on hiding of even when the demanded by method of Okay. For you guys. Just curious like of how you're thinking about that.
Sure. So you will see this year or this quarter I should say the third quarter Opex as a percentage of revenues grew a bit on a sequential basis. That's the impact of us are letting out the range of it as we came out of the initial part of the flow of it.
Perfect you know back in March April may add and the confidence that we saw as we booked more customers prepared for customer launches in the fourth quarter and are seeing the demand environment remains strong. So it's always about maintaining that balance of hitting those bottom line targets and reinvesting often times.
Back in the that growth as we over performed on time.
Okay and the last question the logic I was wondering if you can spend some time on the competitive landscape.
I have come across several did some held companies, which have historically focused on some points solutions are some set of services and non looking to explore the employee navigation employee engagement of services for the employers I know it just on the under penetrated market, but do you think or we'd had there's a good and increased competition in.
The space and the more interest from other players there.
You can the cross the do not of fees any thoughts on that.
Raj you maybe on mute.
Oh.
I was on mute I, just gave a great answers on under all line items.
That's right.
And again the screen Docie. Thanks of the question on.
Yeah, when we when you think about the competitive landscape in.
Having seen navigation Baptist Health management I think.
The the speech has been fairly competitive from a long time with digital only providers.
Tended to solve the problem on.
Fundamentally by providing digital tools to consumers to be able to manage their healthcare decision, making that's proven to be an effective for a number of years offer a variety of reasons that we bottom line to in previous conversations you've also seen company really focused on either conditions force very specific populations high cost debt.
Or those who are dealing.
Dealing with acute condition I think you'll continue to see activity in those spaces those categories might might choose the potentially position themselves more and navigation or advocacy.
Largely because of that category. The this category navigation ABSSSI.
It's growing really quickly and therefore, it might be advantageous position themselves there, but we haven't seen a material change in company entering the space with the variety of tools needed to be able to deliver value to customers for all of that as you know me.
From line Cherokee.
She is critical to the.
On the program.
Based on the Steve.
So all of which drive cost saving the you're willing to sign up to write down of the dollar or so.
Has the competitive landscape changed on that regard no have we seen more companies.
Doing the same thing, but announcing that they're engaged.
One of the there.
Uh huh.
Okay. Thanks.
Thank you. Our next question comes from the line of Schon relaying the of Piper Sandler Your line is open.
Thanks very much. So my question is on the recent price transparency rule for providers and I wanted to get your sense of how you see this longer term impacting your value proposition and net care navigation space.
The you want to grab that one.
Yeah, absolutely. It's a great question you know as you know one of the most common you know.
Points in some of care journey that we helped on what is it planning of provider and we've made a lot of investment and being able to personalize the that that decision and help match people to the best provider for the I think for US the new transparency rule is it's actually really excited I think what the.
Allows us to do it had even more granular data that we can use in concert with other day I mean, we know what the patient prices is important at the end, it's a critical input into the decision, but so is the quality of provider. So it was the appropriateness of the care of the provider. So is the the safety and quality of the facility that they're in.
And so we look at it as really additive to what we're able to provide which is we're able to combine multi.
Multiple data points, together, including price transparency data and deliver that in a way that consumers can understand it actually helped on you know make that right decision for them and ultimately get the better health outcomes. So the <unk>.
So we're very bullish on the on the new regulation.
That's great. Thank you and then I just wanted to check.
Check in again on the Airlines day announced that they were bringing back some of their furloughed employees employees of.
Did that have any impact on your guidance.
Hey shown on this is Steve I would say a little bit.
But not a not a lot certainly the majority of what you're seeing in the guide is.
The the underlying business launches on one one ER and and so forth. The airlines, we maintain a conservatism around in the in the fourth quarter, primarily because it's not clear exactly when and how many of those employees come back and the just the overhang of.
The the airlines are obviously still.
You know punching through a low travel environment. So we're we're maintaining or.
Some real rational conservatism there.
Okay, and Steve you said that that you're managing cash collections for the airlines to be flat for the fiscal year or is there any kind of catch up payment that is planned for next fiscal year.
Oh, we don't comment specifically on customer contract churn on but I would say the that that was primarily the meant to address the acute situation of the pandemic and to keep or any of the of the.
The changes on the contract tried to keep that inside the fiscal years, otherwise those relationships continue to be sure on and those contracts are yeah.
Our our the way the third originally structured.
All right thanks very much.
Thank you.
Thank you. Our next question comes from the line of Matthew Gilmore of Baird. Your line is open.
Hey, Thanks for the question, maybe going back to the A. on study I was curious if that was specific to the total health and benefits sort of some of the other products and then more broadly of is this the segment of the market. The smaller employers are they more sensitive to studies like that or is it a similar dynamics of the to the price.
Higher study for for large employers and in terms of the importance of from the.
Oh, the you want to grab that one.
Yeah, absolutely the it's a great question on <unk>, We love talking about that study on you know I think on the first yes. This is this is the total health and benefit customers and that's really a function of the fact that he wanted to do the most rigorous study design possible and so what that net is we wanted to have a base line here, we want it to go look at customers at one year and look at them.
Two years at the just in terms of where the business was two years ago <unk>. The preponderance of our customers were on total health and benefits on.
In terms of your second point I think it actually ties to the earlier question about competitiveness to I think where we are today or what you.
You know different navigation services out there I think the markets matured to the point, where ultimately what they care about is costs and outcomes and that's extremely difficult to achieve in health care as you know and so for US I think the day on study. It is it is a significant competitive differentiator right because it allows us to say that.
Independently through a very rigorous study design are able to demonstrate.
A significant it's the same cost savings, we think that that's difficult to replicate a frankly and it's important to all sides of the customers because ultimately one of the greatest challenges that small customers ourselves on facing as you know the the significant cost and as we're looking at the next year and think prediction of the potentially another double digit year.
In terms of a cost trend, we think thats going to be <unk> of the critical importance to the all sorts of customers.
Okay, Great and then I guess the wanted to ask about the the Tricare contract that I know in the past. The you said you know the implementations gone really well I was hoping you could remind us.
About the process that they'll go through to determine when the potentially expand the number of lives.
You're supporting does that take place in calendar 2021 or is that further out.
I think that's the best way to think about that is in the best way to think about that is.
We had a measurable period of on which we can demonstrate value associated with the.
The agreed upon vegetables for the contract that was agreed upon measurables for the contracts just the take one step back look fairly similar to the types of performance guarantees and incentives and we educated a day.
On market on as it relates to our.
Consumer customers or excuse me our commercial customers.
Bad debt deployment really went mine in the early part of this year and May I ask.
He'd be on the early part of last year calendar 2020.
Yeah.
We would we would expect that we need at least the year on.
Potentially longer to be able to.
Show the effect of all of the capabilities that we delivered the most consumers and then on claims run out against that year or potentially longer so.
We don't have an exact timeframe, where the government will make the decision.
The fact that would be in lease 2021 calendar or early calendar 2022.
We continue to give you more color commentary on where we are we continue to expand the the to the growth side of the population in terms of our members engaged and we continue to see really strong results as it relates to engagement levels within the populations as well as sub debt.
It's actually less.
Great. Thanks, a lot.
Sure.
Thank you. Our next question comes from the line of head of Blade of D.A. Davidson. Your question. Please.
Hi, I first wanted to ask a bit of the follow up on the purchase price. The rule. Obviously the rule itself will not change the impact of high prices and the overall spend levels or your overall consumer demand, but do you have any concerns that more consumer friendly price menu may impact the number of annual encounters from have with your numbers.
Oh do you agree on that.
Yes, it's it's a great questions. The kind of on you know I think from the decision around making Ah choosing a provider is an incredibly complex and personalize the decision right. I mean, I think all of us have been in that position of trying to find the doctor and and and price and cost of certainly a critical input, but we do really look at it is.
Just one input right now on a lot of share decisions of the consumer you may want to pay for a higher cost of provider. If there's the commensurate increase in value that you can get in terms of the quality of the complication that you're gonna Saizen and that's what we see and that's what our our record of Dan with serving these numbers of that what's.
Really missing is not necessarily a single self service tool, but it's the ability to integrate disparate pieces of information and deliberate in the personalized empathetic way that ultimately is what our consumers are looking for and ultimately what drives the greatest value and so we don't anticipate that this alone is going to a degree.
The stand gauge on that we see we think it's going to continue to be able to expense of what we can we can deliver to our members.
Awesome, Thanks, and just sort of follow up when thinking about the initial PMT on rate on the customer land how does that vary when accolade is replacing other solutions versus a greenfield customer. Thanks.
Oh no anything from.
Hi, Steve.
[noise], but sure sorry.
Hello. This is Steve so the the way to think about that is generally speaking if you think about total health and benefits, where oftentimes, replacing member services provide the services and clinical services.
The the health plan is providing and so there are some potential for saving there of the way to think about it really the we think about it with our customers in terms of the ROI, that's generated and you harken back to that.
On report from the returns and the savings that we're generating for customers is that we think of it in that way. The return on the P. M. P. M. A C that are the customers investing.
Well.
Great. Thanks, guys.
Thank you. Our next question comes from the line of Richard close of Canaccord Genuity. Your line is open.
Great. Thank you for the question on the maybe a follow up on mikes questions on your client discussions Raj I just wonder if you could talk a little bit give us some insight in terms of maybe how.
The discussions with potential customers changed from the beginning of the year to the ended the year and how would you know maybe compared to past years, what they were mainly focused on on and I think you said demand overall demand is accelerating is is there any any way or any met.
Rick you can provide to sort of quantify that.
Uh huh.
Or soft ex the question Richard on the.
Let me start with the beginning at all and.
With the early part of the question, which is how are the conversations evolving over the course of the calendar year, perhaps really even from the.
Years previous two of pandemic your life of the only half this year.
By and large what I would say for sure. It by segment, we saw even in the middle part of the year as we were in the heart of the makeup of the first wave of the pandemic customers were very very preoccupied understandably with coke and coal the testing access to care and an understanding.
How to keep their employees day.
They are immediate response to that was not only a accolade told the response carrying out the returned to work, but also the set of clinical programs available to all of our customers to help them manage on.
Their employees, the play education and access to care et cetera. The.
Beyond that the the conversations have continued to then moving into a sense of what population health looks like for 2021, I think whos. The first wave of the pandemic. The conversations moved into we believe that costs are are potentially depressed in 2020 in 2000.
The 21 to the degree of the return how can we manage that again an area, where we think we can play a really significant role or prospect of customers as it relates to engaging in total population health management restart of the case the clinical programs.
Today.
The little early the tell was the second wave of on us and the vaccine upon.
Huh.
Where the conversations will lead us.
We do know that there they are growing as it really the conversations continue and that's our relevance continues to be really really hot spot on I think Richard has it relates setting metrics. We can guide you too I think we're really focused on.
On the growth.
And across each of the core products I will update guidance next quarter up from.
For the in terms of in terms of where we are basically the perspective on our expectations for the next year beyond that I think it's more of a qualitative view on the continued strength of the business as evidenced by the top line growth for the company.
Okay, that's very helpful and if I could slip on in for Steve appreciate.
I appreciate the comments on the visibility in the <unk>.
With respect the performance fee and I think we've discussed previously about two thirds of performance fees are based on.
Operational metrics, maybe a the net promoter score engagement customer satisfaction I would it's the I would think that you performed very well on.
Those engagements during code. The is is there any insight you can provide in terms of how that has trended during the year.
Sure and thanks for the question Richard Good to talk to you.
First of all you are right that of the of the variable revenue or performance based revenues of about two thirds of them are operational types of performance guarantees like engagement rates consumer satisfaction as measured by MTS sort of see Scott engage.
Engagement of families and membership of those.
Those have trended very well during the year, obviously, it took the different shape and weighted that happened from the beginning of the year when could first it hit to where it is today. It's all on we've been helping members and dose of four now three of those kinds of operational PGS and then as it relates to the the other part.
The cost savings or PGS those are primarily measured in the fourth quarter of contractually in determining the dollar amount that we earn but we're able to track him as we move through the year and I would say, we've got good visibility baked into the guidance that we provided as it relates to those.
The P. geez.
Okay. Thank you very much.
Thank you. Our next question comes from the line of David Grossman of Stifel. Your line is open.
Hi, good afternoon, and thank you.
I wanted to go back to the from your prepared remarks, and I, maybe I didn't catch this right, but I I thought you said that ramping new business or.
Could be a temporary drag on gross margin and I just wanted to make sure I heard that right and if I didn't hear that right. Maybe you could perhaps better help me better understand that dynamic.
Sure Hi, David It's Steve went.
When you look at a one way to think about that is you are right in October and November and going into December and January wasn't go lives. We're certainly investing in launching new customers part of that is staffing up you'll see historically, our fiscal third quarter, which which includes that October November timeframe.
Gross margins do compress a bit ex reflecting the staffing up for.
Four of those one one launches and a part of what you're hearing from us in the fourth quarter guidance.
Not only strong top line, but also investment in those new customer launches to ensure that they go really well while we also from best in a in growth parts of the business for new business around the innovation and the of sales and marketing that's a bit of Robin the dynamic that we see in third and fourth quarter.
I got it thanks for that and then I know.
On the question just about the business model I'm curious, whether you can give us the sense of.
How much of automation in the market and the model can tolerate as the business matures and and where we are on that journey, particularly on the large companies segment. It was there is there some kind of curve set of trials as you get to know these clients better or.
I know it varies by customer size, but is there any other factors we should consider EPS. We think about you know how many of you know kind of physical interactions you will have versus how many of the automated overtime.
Asked I'll start on that Raj do you like the chime in yeah. There are a couple of weighted to be thinking about that David and I would I would step all the way back to our model at its core which is we believe very strongly that the engagement of members and getting them to the right to help out.
Is it important to combine that clinical expertise the empathetic touch along with the technology and innovation behind the to help its scale.
And we're constantly balancing those investing in that as customers mature for example, we see mobile interactions and self service interactions increase as customers get to know us better.
So there is that the efficiency built into customers as they mature with us.
But as we introduce more offerings and continue to add on to that relationship. It's the it's kind of the constantly moving target across customers, but there certainly are those kinds of efficiencies that can happen with customers as we grow with them.
One last point of I know, we're running out of time.
Quick additions of that as we as we add interactions with customers and at age out those customers from the various data sources, we're able to better of Restrike population and then therefore prioritize and guidance at the to the right programs at a how the prioritize risk stratify fashion.
And that might be though in a day.
Missions of the technology of levers that Steve mentioned, the single biggest drivers of of long term launch.
Long term step functions from March.
All right great. Thanks very much.
<unk>.
Thank you on our next question comes from Stephanie Davis of the B Leerink. Your line is open.
Hi, guys enjoy sang on from Stephanie.
Swap income talk about if there were any level of the revenues reserves going into the quarter and was any of that reversed.
Hi, Julie <unk>, meaning with respect to the third quarter.
The.
He gets your is your question I think you know the beating the the.
Items that we provided was multi faceted of some of that was related to stronger membership growth. So you can make the point that we have the level of conservatism, but fortunately.
Fortunately showed up better even than we had from their model of so there are elements there, but we outperformed in terms of just membership Uh huh.
Reminder of that we have a very diversified customer base across the industry, So where we do see some industries.
Industries under pressure like the airlines those are well meet up four from from customers in retail on technology and financial services. So there were certainly some of the beat there are other parts of the outperformance came from a new offerings I hope the response, Kara Ross spoke about and accolade boost and some trusts the supply.
Our upsells in period revenues and the finally, just continued strong performance on the on on the PGS and the operational performance guarantees on as we just talked about on the a question or two ago.
Got it thank you and as a follow up.
Can you provide any color on what the current mix of airline revenues are and what the mix of Comcast is.
The so airlines and Comcast was that your <unk> was that your point yes.
Yeah.
Yeah, so you'll.
You will see references throughout all of our 10-Q about major customers that those percentages I've been on roughly consistent quarter over quarter, you saw the Comcast hop back on our largest customer.
In line with expectations, but nonetheless, the the big trend is that as the business grows.
Each single customer it becomes less of a percentage of our total revenue, which is obviously healthy from of diversification standpoint.
The that trend.
Continues and we expect it to continue into the future.
Got it thank you.
Thanks.
Thank you on our next question comes from David Larsen of BTI G.
Please go ahead.
The Larson your line is open please make sure on muted.
Sorry about that congrats on the good quarter with the revenue growth of 30%. This quarter I mean, it seems to me like you know the 25% growth longer term.
That might be a little bit conservative I mean, I'm just thinking about fiscal 2022 of the variables in my mind are people going back of the doctors' offices and claim sort of catching up.
From the delayed care that have happened over the past year and then also the labor markets can you maybe just talk a little bit about that do you need to see you know a significant improvement on the labor markets to meet that sort of 25% growth in revenue bogey.
And then with the clean sort of catch up assuming that does happen in your mind is that of potential tailwind or headwind or neutral. Thanks.
Hey, Hey, David It's Steve here. So a couple of things obviously, we're pleased with the 30% growth rate in the third quarter and.
I understand your underlying point will come back with with future guidance.
Importantly, I don't think were dependent upon you know very discrete or specific employment factors into that long term target growth rate of 25%.
What we're looking at there is very early stages of an extremely large market in which you know most recently reported just under 100 customers against the market of 20000, plus opportunities, that's where that growth comes from that strong demand environment across from the speaking to that's what gives us confidence in that kind of.
25% plus growth rate opportunity and then with respect the claims catch up on it we view it as more neutral because our contracts are generally structured that arc costs need to do better than market, so whether mark spending environments on lower like they were this year were higher like we all expect them to be net.
Next year, the accolade service or the show up just like the a on the study we talked about earlier will describe that we do better on a.
Materially better than the market because of our model I think that that's the take away for us It gives us confidence in the on the strength of the business and the opportunity in front of us.
Okay, one more really quick follow up assuming claims costs do come in significantly higher in fiscal 22 relative to fiscal 21 and assuming the he can provide you know the typical percent cost savings might that result in higher sort of performance fees in fiscal Fourq, you 22 or is that not how the plant the the contracts are structured.
[noise] generally not David there is a cash on them we do that.
The smart our customers appreciate it they want to know how to budget of the service. So there isn't a you know just on limited upside on the contract. Our view is continuing to provide that you really strong ROI for customers that will result in high.
The trends for the customer and which should show up in retention of new customer acquisition.
Okay, great. Thanks.
Thank you at this time I'd like to turn the call over to run Jeeves thing for closing remarks, Sir.
Thank you operator, we appreciate all of you being here and tuning into our Q3 uptake on we look forward to talk to the next quarter and ER and looking at the just this morning, thanks very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect bye.
Good bye.
[music].