Q4 2022 Accolade Inc Earnings Call
Good day and thank you for standing by welcome to the ACA late fourth quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your first speaker today to Mr. Todd Friedman head of Investor Relations. Please go ahead.
Thanks, Operator, welcome to our fiscal fourth quarter earnings call with me on the call today are our Chief Executive Officer Rajiv.
And our Chief Financial Officer, Steve Barnes <unk>, our Chief Medical Officer will join for the question and answer portion of the call before I turn the call over to Rajeev. Please note that we will be discussing certain non-GAAP financial measures that we believe are important when evaluating performance details on the relationship between these non-GAAP measures to their most comparable GAAP measures and the reconciliations thereof can be found.
Press release is posted on our website. There are also slides accompanying this conference call that are available on the website webcast. The slides will be available for download later following the call.
Also please note that certain statements made during this call will be forward looking statements 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 to differ materially from those expressed or implied on this call for additional information. Please refer to our cautionary statements in our press release, our filings with the SEC.
SEC all of which are available on our website with that ill turn the Bulldogs CEO Rajeev said.
Thanks, Scott and thank you all for joining us today.
Today's call marks an important inflection point.
We've delivered eight consecutive quarters about performance at a remarkable evolution of our business being cognizant of the environment, we're operating in and executing accordingly.
Today, we're stepping back to acknowledge that the macro environment.
It has an impact on our business and no doubt every business in our sector and beyond.
This requires operating with even more disciplined as it relates to profitability and growth.
It is with this changing macro environment in mind, and we are adjusting our go forward forecast today.
We make these adjustments having just completed a very strong fiscal year, where we dramatically expanded our footprint and exceeded our financial targets.
We see it go forward environment supported by the largest sales pipeline in the history of the company.
While there aren't <unk>, we're excited about.
Also headwinds.
As you may have inferred from our press release, our relationship with Comcast will look back to <unk> and <unk>.
In December 2022.
Given that timing it is not a significant impact to FY 'twenty three revenues.
However, combining that customer loss with a challenging macroeconomic environment is worthy of evaluation.
Accordingly, we are moderating our annual revenue growth rates of 20% over the mid term, while reducing our adjusted EBITDA loss on our path to profitability.
We're adjusting our spend to align with the revised growth rate and now expect to achieve full year positive adjusted EBITDA in fiscal 2025.
This is not about being overly optimistic or unduly pessimistic.
Simply about being pragmatic and clear eyed about the road ahead.
Updated forecasts are a reflection of that pragmatism.
More on all of those points later for today's call will follow the following agenda.
I'll quickly highlight the Q4 and FY 'twenty results.
And then we'll talk about what we're seeing in the customer and competitive landscape and how the pipeline looks for the year.
Then I'll give you a broad overview of the steps, we're taking to position accolade for both near term execution and long term positioning to deliver against those growth and profitability goals.
He will then give you more information on the financial results.
I'll talk in a minute about Comcast and how we plan to adapt to the dynamics at play in our industry, but first I'll recap the successes we achieved in fiscal 2022.
First I'd like to acknowledge the incredible efforts and commitments of our employees, who delivered four quarters of outperformance in the midst of an ongoing pandemic.
These teams brought together where organizations can accolade second empty plus care and health revealed while maintaining exceptionally high satisfaction rating across all of those customer base.
We went public two years ago, with 1000 employees 50 customers and $130 million in revenues.
We exited fiscal 2022 with 2300 employees 600 customers and $310 million in revenue and $366 million in the bank.
Accolade today is more durable diversified and set up for long term success than ever before.
Before going any further let's address the head of our Comcast relationship.
First let me express my appreciation to the team at Comcast for being our founding customer and for the visionary leadership and chose to reinvent the healthcare experience for their employees and their families by partnering with the companies at the time had no customers now.
That was 12 years ago and through multiple contract renewals and changes in their business.
Including me joining as CEO almost seven years ago, Comcast has been a great collaborator.
It's important to note that so much has changed over the years.
In fiscal 2018, when we had fewer than 20 customers Comcast represented 45% of our revenues.
Today, we've got more than 600 customers and Comcast represents less than 10% of revenues.
And next year based on the economic structure of their current evaluation process that percentage would have been materially smaller.
Our roster of Fortune 500.
MD of the industry for good reasons customers of this nature oftentimes lead the way with innovation in health care because of their buying power and population size.
Additionally, our customer retention rates have been north of 95% for many years.
While this isolated event is disappointing it is just that an isolated event.
In many ways the diversification of our revenue stream offering and customer base for all in preparation for an event like this one.
While we're always sad to say goodbye to adult brands, we wish Comcast the best of luck with that let's turn our attention to the future.
Our conviction regarding our strategy our offerings and our company remains very strong.
First we're in the midst of an exceptionally strong demand environment, we're participating in more rfps across every market segment, including the middle market enterprise and strategic and government sector.
And Evercore our performance early in the selling season has been strong.
Building off that point, we're in the midst of it.
<unk> select navigator program for the third year of the pilot Youre one of the pilot resulted in us achieving the majority of our performance incentives and we expect our results in year two to be equally strong.
Importantly, we are well positioned to grow in other areas of the Tricare program as well such as our early success with the autism care demonstration.
Second our offerings are differentiated and compelling.
Accolade is a personalized health care company that combines the strength of an advocacy.
With clinical capabilities like primary care mental health support and expert medical opinion.
Those capabilities increasingly tightly integrate it creates a data driven personal and value based health care solutions that healthcare buyers need.
Our customers and prospects I agree as our new sales and cross selling momentum remains strong.
The utilization of primary care and mental health or expert medical opinion capability is exceptional when delivered in an integrated fashion.
Accordingly, we've replaced our competition in those categories at a number of existing advocacy customers, where customers were keen to work with their proven front door to health care for services of this nature.
Additionally, this broader portfolio is more interesting to help plan reseller partners, who want to take accolades capability to their member base.
This month, we announced a partnership with priority health in Michigan, who is incorporating advocacy primary care and mental health into their offerings.
Much as we've already have in place for activate expert MD, we see health plan as a key distribution partner for <unk> care.
Third our ability to address the <unk> equity in healthcare makes our solution essential for employers.
Health care has fallen dramatically short is it providing care to those who don't have easy access to it.
Those impediments could be related to geography, or social or economic factors, we're leveraging our deep customer relationships clinical depth and expertise and machine learning to narrow those gaps.
Finally, our disciplined approach to building our business will differentiate us and uneven economic times.
Our cash position provides the foundation to execute on our strategy.
And our commitment on delivering.
And our commitment to delivering on our path to profitability is even further strengthen in our outlook today IRA.
I raised this point to address the challenge the changing macroeconomic environment and competitive behavior that we believe is not sustainable for the long term.
Our success over the years since attracted our fair share of competition and our win rate has remained very high.
That said more recently, we've seen some of our competition to begin to lower prices to levels, where we believe there must either sacrifice fiscal discipline.
Poor quality deliver delivery to members in.
And strong businesses with a commitment to operating with disciplined survive and thrive in environments. Like these and we are positioning ourselves today to do exactly that.
To that end, while the vast majority of our pipeline is made up of companies evaluating advocacy and personalized health care for the first time.
We also have a meaningful number of prospects, who previously chose lower costs lower engagement competitor years ago and is now reopened rfps after coming to the realization that low cost low engagement solutions did not produce the outcomes experienced an ROI desired.
Now I want to revisit how our core principles shape, our view on go forward guidance.
Our company has always been focused on creating a new category of health care solutions that put people at the center of the service.
And today, our personalized healthcare solutions are doing just that for more than 10 million people.
We've been focused on growing our business on the topline while progressively improving profitability each year.
That commitment has been unwavering since we went public in 2020.
That said as an operating team. We're also committed to confronting the facts in a changing market.
We believe it's smart business to moderate our growth expectations for the year.
At the same time, we think fiscal discipline is important and are also reducing the adjusted EBITDA loss for FY 'twenty three in FY 'twenty four from our previous guidance.
We expect to achieve positive adjusted EBITDA for the full year.
FY 'twenty.
Our guiding principle and challenging environments is to redouble, our focus on execution and discipline.
Our addressable market is growing and our demand environment remains strong with our focus on discipline and execution, we expect to emerge from this challenging environment, even even further differentiate us from the rest of the market.
With that let me turn the call over to Steve Barnes, our Chief Financial Officer.
Thanks, Raj first I'm going to recap the results for the fourth quarter and full fiscal year 2022, before providing more color on the changes in our fiscal 'twenty three guidance.
We generated $93 $8 million in revenue in the fourth fiscal quarter ahead of the top end of our guidance, representing 58% year over year growth on a GAAP basis over the prior year period.
Fiscal Q4, adjusted gross margin was 54, 4% compared to 53, 8% in the prior year period, which reflects the positive revenue beat as well as investments in staffing our front line care teams to support growth and integration.
Adjusted EBITDA in the fourth quarter of fiscal 2002 was $1 8 million, which compares to $2 $7 million in the prior year fourth fiscal quarter.
This was significantly ahead of our guidance, primarily due to the revenue beat as well as lower lower spending them planned in the corner in some areas such as hiring and personnel costs.
For the full year this rolls up to revenue of $310 million and 82% increase over last year on a GAAP basis and <unk>.
30% on a pro forma basis adjusting for the acquisitions.
Adjusted gross margin for the full year was 46, 5% compared to 45, 6% in the prior year.
Adjusted EBITDA for fiscal year, 2022 was a loss of $42 4 million or 13, 7% of revenue significantly better than our guidance and compared to a loss of $26 9 million or 15, 8% of revenue in the prior year.
Turning to the balance sheet cash and cash equivalents totaled $366 million at the end of the fiscal year and accounts receivable Dsos were in line with prior quarters at about 20 days revenue outstanding.
Finally, we had approximately 67 3 million shares of common stock outstanding as of February 28, 2022.
This does not include the approximately $3 4 million aggregate shares related to the second M D plus care earn outs, which will be issued in the near term.
Opening and $70 7 million shares outstanding on a pro forma basis.
And now turning to guidance.
We are updating our guidance today for fiscal year 2023, as well as our mid term outlook.
We are now forecasting fiscal year 2023 revenue will be in the range of $350 million to $365 million.
With an adjusted EBITDA loss between 35 and $40 million.
This represents revenue growth of approximately 15% at the midpoint and an adjusted EBITDA loss of negative 10% to 11%.
The change from the preliminary guidance. We provided in January is primarily related to a few factors.
First is the Comcast contract, which will end in December and reduced revenue in the fourth quarter from the roughly $5 million.
Secondly, you will recall in January we expected revenue excuse me, we expected between 50 and $60 million of new business signed in fiscal 2022.
Our final results came in closer to the middle of that range and we ended fiscal 2022 with annual contract value of approximately $286 million.
We have also included some reservation on the lower end of our guidance related to the Tri care pilot.
As a government program the pilot requires annual reauthorization.
And while we fully expect a pilot to be renewed for the third year and we are bullish on other opportunities with the federal government. We haven't yet received the official authorization.
And the last factor relates to our comments about the macro and competitive environment as.
As we said we're in a favorable start to the selling season and our pipeline is strong.
But with what we're seeing in the market, we are moderating our expectations and we'll give you ongoing color about the selling environment as the year progresses.
As it relates to our mid term outlook, we're now forecasting 20% growth excluding the loss of Comcast.
So as you look out beyond fiscal 'twenty three if you grow the business, 20% ex Comcast you will get to around $500 million in fiscal 2025 revenue.
Importantly, we remain committed to our goal of consistent progress toward profitability.
The loss of a more mature and large customer like Comcast will impact gross margin.
While we won't try to recoup the entire gross margin loss at one, particularly in fiscal 'twenty four when the impact is greatest we are adjusting our spend and now project positive adjusted EBITDA in fiscal 2025.
One last note about spending in fiscal 2023.
Like all of you we see what is happening in the stock market while at the same time, our focus on employee recruiting and retention.
To that end, we are incorporating a stock component along with cash for our fiscal 2023 corporate bonus plan.
Aside from providing a lever to manage cash. It also provides a clear incentive for the team to execute against our strategy and even further aligned with shareholders.
This will result in a bump to stock based compensation of approximately $14 million in fiscal 2023.
Now before we take your questions I want to align my comments today with remarks, we made in our January call regarding the revenue growth breakdown in modeling the path to profitability.
The revenue impact I, just described primarily impacted or advocacy growth rate.
The one caveat I would add is that posture finished fiscal 'twenty to stronger than expected, but given the macroeconomic volatility we havent changed our internal estimate for that revenue in fiscal 2023, and therefore, the implied growth rate is a bit lower than we said in January .
While this updated framework results in a lower revenue target, we are adjusting our spend to improve our path towards positive adjusted EBITDA in fiscal 2025.
Finally allow me to take one more step.
While we had some difficult news to report today. This event has also given us the opportunity to take stock of accolades from a broader perspective.
Two three or four years ago. This kind of event would've had a much deeper impact on our business.
Build accurately through internal innovation and M&A for growth and durability.
Just compared to a year ago, our customer base are more diversified we have growth opportunities across multiple vectors are revenue spread across different sources and structures and we are working but meaningful health care challenges.
When you went public to create the foundation for the business we are operating today.
We continue to be confident about the future and the value we bring to our 600 plus customers and 10 million members, even as we make adjustments to our spend to align our near term business objectives with our path to profitability.
With that we'll open the call to questions.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone to which are your question. Please press the pound key.
We ask that you please limit yourselves to one question and if time permits we'll take follow up questions. Please standby, while we compile the Q&A roster.
I show. Our first question comes from the line of micro Cherny from Bank of America. Please go ahead.
Good afternoon, and thanks for all the color.
I wanted to dive in a bit on the differential in your commentary, Steve a little bit further and also make sure I heard correctly.
So if you think about that bridging and the 25% growth that you had estimated on the last earnings call.
Comcast takes out a little more than a percent of that or percent behalf I guess based on the timing.
It seems that maybe a percent on bookings when you talked about the conservative nature of the rest of the business.
Much of that is truly.
In year.
This win versus how much is some of the dynamics around performance based fees that you may expect our expect not to get versus how much is employment levels at your customers I know, it's a lot of moving pieces, but I want to make sure. We can bridge a little bit better and I just have one quick clarification after.
For Mike. Thanks for the question first you're right that Comcast and softness.
Softness in the IRR bookings in fiscal 'twenty, two to come off the top for roughly a point each headwind on growth.
The remainder of the guide is across the various factors you mentioned were softening the diamonds.
To recognize the macro environment private equity.
As it relates to <unk>.
Thoughtful around head count and a highly inflationary environment for sure being thoughtful around the timing of being able to book and launched new business in the year.
And Mark just recognizing that bind decisions last year pushed a bit towards the end, which is what resulted in the softer <unk>.
All our win rate remains strong when there is a decision we're thoughtful about.
Some of those decisions were slower.
One of the very important point.
As we address all of them.
And then looking at the revenue softness we look directly to our spend profitability and you see that we'd be fiscal 'twenty two.
Handsomely in terms of.
Bottom line as well as the top line and we're rolling that forward to remain committed to the overall profitability structure from here through to fiscal 'twenty five.
Lisa.
Got it.
One clarification, you talked about the 20% annual revenue growth.
Excluding Comcast I want to make sure that's completely out of the baseline in terms of how to think about 'twenty four and 'twenty five want to make sure I get the math correct.
Do you think about that given that the 25 number came down by about $100 million overall.
That's right Mike So what we're effectively doing there and if you think about Comcast in fiscal 'twenty, two having been about $28 million of revenue to take about five out to get to your fiscal 'twenty. Three number if you were to back then.
And then put a 20% growth rate on top of that.
Compounding for the next two years, that's how you get to the approximately $4 million in fiscal 'twenty.
Got it thanks.
Thank you.
As a reminder, we ask that you please limit yourself to one question.
And I show. Our next question comes from the line of Ryan Daniels from William Blair. Please go ahead.
Hey, guys. Thanks for taking the question I don't know how much detail you can go into this but clearly a question. We'll get is in regards to the Comcast relationship, especially as it was an anchor tenant for the organization. So.
Clearly good relationship you had 12 years with them multiple renewals so they like the service they got the ROI what was it.
Led to the change on a go forward basis to kind of and that relationship was it.
What you talked about with competitive pricing you indicated that pricing would have made it much less than 10% going forward under newer term. So I just want to give a little more color on what you were referring to there and maybe what drove that loss. Thank you.
Yes, I appreciate the question Raj as Raj.
A few thoughts.
First and foremost I appreciate you pointing out the fact that the Comcast relationship has been a really productive one over the course of 12 years and multiple contract renewals.
We think over time and customers begin to evaluate.
Buying criteria in terms of what they're most interested and I can't speak specifically to all the rationale for Comcast buying criteria, but I can say.
We're really focused on servicing clients, who are looking at them.
Proving out care outcomes, while achieving the return on investment that's associated with achieving those health care outcomes.
In terms of.
In terms of that specific instance, I would say.
We may have seen a divergence of those.
Motive admission there.
Raj, it's imperative that <unk> pointed out we've had a customer retention rate Ryan up 95% on an ongoing basis for many years first and secondly.
We view this as an isolated event not one that we expect to repeat itself in the customer base.
Thank you.
Our next question comes from the line of Jonathan <unk> from Credit Suisse. Please go ahead.
Hi, Thanks for taking the question I guess, when you think about the 20% growth rate when adjusting for Comcast on a go forward basis.
Much conservatism or you're kind of building into that because obviously the Comcast relationship wasn't a surprise.
To you get to us given how long that relationship, Wisconsin I'm just wondering how much conservatism is built into our top line and then commensurately with that when you think about that that bridge to point to positive EBITDA in 'twenty five given the current inflationary environment and kind of what's going on are there any pushes and pulls on any.
The hiring that you'll need to do to achieve that 20% and achieve that EBITDA positive.
Thanks.
We're having a bit of a hard time hearing you will try to recap your question I think Steve.
Yes.
We'll recap your question. Please catches it catches up or if we're missing. It I think you asked the question how much conservatism is baked into the 20% growth rate excluding Comcast.
And what impact if any would be inflationary pressures on our high rate of bill each machine.
At 20% growth rate.
Yep Yep.
Okay.
Sure.
So Jonathan first of all on the level of conservatism in the 20% when we look at the starts with our with our pipeline as Raj mentioned in his comments. The pipeline is strong and we're seeing a lot of interest in particularly in terms of RFP volume from customers large and small many of which have.
Ever purchased an advocacy offering.
So based upon that relative to ratios that we see in terms of deals close the size of <unk>.
Pipeline do you feel like Thats, a good estimate.
And we're tempering it a.
A bit though given the macroeconomic factors and the possibility that decisions will push so the 20% we put together.
That is based on really a pragmatic view.
Clearly difficult environment in terms of people and.
Inflationary environment. This is top of mind for us to obviously really.
An inflationary environment.
That's true.
A broad set of employee benefits not just salary.
Compensating with with stock and attracting great people to the mission.
But we have here that comprehensive package and I alluded to it in my comments.
Making sure.
Employees across all of those vectors is built into what we see.
One last comment there as we look at managing our space and as we bring the growth rate.
We look very hard at rigorous spending control opportunities that we have across the book remember still barely a year into two significant acquisitions or we see more opportunities.
Two integration et cetera, and then finally with a large customer transitioning well, we see opportunities there as far as reallocation.
Thank you.
I show. Our next question comes from the line of Glen Santangelo from Jefferies. Please go ahead.
Yes, thanks for taking my questions.
Raj and Steve I wanted to flush out some of these comments on this revenue shortfall because it seems like you take your revenue guidance down by call. It roughly 35 million Bucks and if we know Comcast is I don't know a little more than $5 million of that for a couple of months. It seems like the short feel fall here is at least $25 million to $30 million now you said that.
You had you had some expectation of new business of about $50 million to $60 million and half of that maybe didn't show up and I'm trying to figure out what happened from January 10th when you reported your last quarter. When seemingly you had some visibility on all of the January one starts to kind of now and then and then if you.
You can just roll into that Youre sort of comments about the competitive landscape and some competition lowering prices I just want to make sure I understand the competitive dynamics and also the last part and then I'm done.
<unk> care and second M D or are they performing up to your expectations or is any of the.
$30 million and weakness.
Coming out of either of those two businesses, thanks, and I'll stop there.
Sure. Thanks Glenn.
So the bridge to the midpoint.
About $27 $5 million to the midpoint, let me just take that break it down in pieces first of all Comcast call it $5 million on the IRR shortfall from prior year.
We came in at the bottom end essentially of that $50 million to $60 million range and the booking of about 55 or so when you adjusted for PGE is you end up at about 50. So there's there's another five to 10 there alright. After that you are talking about really abroad.
Softening, particularly around the advocacy side.
<unk> business continued to perform along lines of what we described in the lab.
Although we are certainly cautious about elective procedures as we've spoken about.
The virtual primary care business remains in line with what we talked about the advocacy business is really where we see because it tends to be a larger purchase for our.
Broadest offering where we are tempering our expectations around not just new business bookings, but also being super thoughtful around employment and other variables that go into the revenues associated with that book given the inflationary.
Essentially recessionary environment, we're heading in.
Thank you.
I show. Our next question comes from the line of Jeff Garro from Piper Sandler. Please go ahead.
Yeah. Good afternoon. Thanks for taking the question I wanted to dive a little deeper in the comments on the macro environment and pricing. So I would ask if the predatory pricing or just kind of aggressive pricing is that on any particular offering or across all and then how should we think about performance guarantees.
And your ability to offset lower based pricing from peers with the promise of stronger results.
Thanks, Jeff for the question I think in terms of when you think about pricing I think we are.
Clearly now having established a brand new category in personalized healthcare in establishing that the category is actually very interesting.
While we are.
While we're looking at this year's revenues.
And moderating those those expectations, we are continuing to see really strong demand environment from customers looking at personalized healthcare because of that we've attracted us.
As you would in any space that is growing at this kind of clip.
We've attracted instead of competition some of them are approaching that.
This space with lower with materially lower price points, others, who are looking at it from a materially lower service quality perspective.
We think over time, those things iron themselves out ultimately customers are seeking as we noted in our prepared remarks customers are seeking improved health care outcomes.
And return on investment, we traditionally see that in our full service advocacy offering and what we're beginning to see already as the early stages of customers, who having chosen in the past lower costs lower engagement lower outcome orientation solutions are now coming back into our pipeline and revisiting accolade solution.
The chosen core surpassed so I'd say, Jeff to answer your question directly we are really thinking more about the more full service advocacy offerings as it relates to the pricing pressure.
But we expect over time that that in the near term that that pricing pressure will alleviate itself as customers choose value for price.
And Jeff as it relates to performance guarantees in the past we have in our guidance here.
Always with performance guarantees frankly take that into two pieces first.
Operational type performance guarantees that relate to engagement rate and customer satisfaction rates.
And.
Other kinds of engagement and operational.
Rigor that we apply and we continue to have very good visibility there.
Apply that same type of view towards fiscal 'twenty three.
<unk> based revenues similarly, although as you know those can bounce around a little bit, particularly coming out of Covid health care trend.
It has been.
Radically over the last couple of years. So we do apply some additional hedge in there to ensure that our forecast represents a range, where we feel confident in achieving.
Thank you.
I show. Our next question comes from the line of Ricky Goldwasser from Morgan Stanley . Please go ahead.
Yeah, Hi, good afternoon. So.
Two part question.
One when you think about your forecast between now through 2025 and that.
CAGR of 20% top line growth.
Are you assuming any price pressure.
And that 20% or are you assuming sort of steady state and to your point to your customers well.
We will also make like trying to understand the value and the second part of your question as we think about the your large employer book can you just tell us what percent of the book is up for renewal in the next couple of years.
Alrighty, thanks for the questions.
In terms of the first 0.1.
One of the things that we take the most heart is both the incredible demand environment.
Evaluations participating at today, given the long term win rate a bit.
And the continuation of that win rate into this fiscal year. The second part of that story from a pricing assumption perspective.
We are receiving vendor of choice selections and new business wins right now at price points that are very similar to where we've operated in the past customers are aware, particularly in a space like health care and what we're talking about delivering healthcare services with doctors and nurses and frontline care teams that.
There is a cost of delivering services.
Particularly customers, who are focused on improving clinical outcomes clinical quality and return on investment.
<unk> to demonstrate the capacity and the wherewithal to to choose solution may be higher priced than others, but our demonstrated value in a proven demonstrated value over the years. So thats part one in terms of our go forward assumptions in terms of customer renewals with customers every year for up for renew.
And as we pointed out in the past tricky.
Sure.
Because of the incredible value, we deliver for our customers our renewal rates arent customer retention rates have been 95%.
Or at least the last five years and probably longer than that.
We continue to see that.
Vast majority of our customers renew their agreements with us because of the value we provided and the relationships that we picked up with.
Their employees.
Thank you.
I show. Our next question comes from the line of Cindy Motz from Goldman Sachs. Please go ahead hi.
Hi, Thanks for taking my question just following up on the.
Revenue retention.
What I'm feeling like as Youre expecting maybe that would continue that in the <unk> market. It feels like some of this may be competitive pricing.
Not fly maybe is maybe it is more of a temporary thing.
Some players try to win customers, but then in the end you know if youre running business and everything you have to think about the sustainability of that.
Whether theyre going to be.
Continue to be well funded.
Can be around so I guess would you sort of say that this is something it sounds like that you think is more temporary but then I also just didn't want to ask.
One just about the cadence of EBITDA because it looks like you know obviously, it's better than we would've expected full year you are expecting.
So so I guess not the next quarter, but it looks like it's going to be maybe positive through the third and fourth quarter anyway. If you could just give us something about the cadence there.
And I'll stop and maybe ask one more follow up.
Thanks, Andy Let me take the first question and then I'll, let Steve take the.
Second question regarding it.
And the distribution of that EBITDA for the year.
I think the answer to your question as it relates to the competitive landscape and customer retention is in line with the way you asked the question absolutely. We believe that this isolated event we intend.
We've got great visibility into customer retention on a year over year basis, and we would expect that our retention rates remained on it on a.
Midterm long term basis in that very high 90, 90, plus percent range on an ongoing basis, but over time, there will be an any in any market, particularly one growing this fast the majority of our evaluation our evaluations for Greenfield brand, new customers, who have never looked at advocacy.
Personalized healthcare before.
There is an occasion.
Some customer trading I referenced in my prepared remarks today.
We added customers from our competition, where our customer our customers are consolidating all of expert medical opinion virtual primary care and advocacy.
Our relationship and we've seen that in a number of different spots that said.
By and large we're really focused on continuing to grow the organic space. This year and we'd expect that that will continue for the foreseeable future. Steve do you want to hit the EBITDA point.
Sure So cindy on the cadence of EBITDA for fiscal 'twenty three.
Fiscal or excuse me in the first fiscal quarter will be the low watermark. If you will on the guidance, we provided and then.
Fiscal second and third quarter trend down but bill.
Negative and then fourth quarter positive EBITDA to net out to the.
37.
<unk>.
Okay, Yeah that makes sense and then I guess I mean, if I could just add one more so as we project forward I.
I guess, we see a similar sort of like seasonality or way if I mean, if you have any color there would be helpful.
Sure, yes that shape on a quarterly basis is a good one to use similarly in fiscal 'twenty four.
We provided in the presentation. There you would see that that we expect that loss be cut about in half in fiscal 'twenty four with positive EBITDA in fiscal 'twenty five.
But given the business seasonality.
<unk>.
Persists as well.
Thank you.
I show. Our next question comes from the line of Ryan Macdonald from Needham. Please go ahead.
Alright, thanks for taking my questions.
Steve I think you mentioned in the prepared remarks about the gross margin impact from from Comcast coming out of the model as it being a more mature customer being a bit accretive to gross margins.
Sort of walk us through what sort of expectations for gross margins are or the magnitude of that impact in fiscal 'twenty three and then as we think about the bridge to the adjusted EBITDA maybe.
Maybe where some of those cost efficiencies can come into the model as we think about the opex lines. Thanks.
Sure and so on.
More mature customers.
Ramp up in a new customer there is a fair amount of investments to be made in both on the opex side.
The frontline care team side.
Service line so.
That is a.
A little bit north of the corporate average gross margin that will come out in fiscal 'twenty four so fiscal 'twenty for gross margin you can think of.
Roughly flat to a bit up in fiscal 'twenty three.
But to give you a little bit.
Hit there.
But importantly, when we look across the business and look for opportunities.
<unk> cost savings.
<unk>.
We just came off a year of beginning to integrate three businesses in which we see more opportunities to lean into those.
And in transitioning Comcast off, particularly in the Opex line, there are opportunities to reallocate that spend in other areas. So.
Those are some of the target areas that we have for you.
Reducing some spend some growth areas as we lower our topline growth rate.
Thank you very much.
Thank you. Thank you I show. Our next question comes from the line of Sandy Draper from Guggenheim. Please go ahead.
Thanks, very much just first just a quick housekeeping question.
And I apologize if I missed it did you guys give the actual revenue breakouts between advocacy expert Nd and then virtual primary care plus care.
Yes, Andy this is Steve we haven't specifically.
On the last call we spoke to.
And expert medical opinion growth rate in the neighborhood of 20%.
First of all primary care plus care business closer to 30, and what we're saying to you today is that that advocacy line, that's coming down based upon the factors that we gave today and those are how you aggregate that down and Youll see in the 10-K filing.
Tomorrow, the spread but you can think of the business is about 65% or so advocacy today with the balance across expert medical opinion.
Virtual primary care.
Okay, great I'll wait for that.
I appreciate that and then my broader question and it's sort of been asked it a slightly different angle just trying to think in this macro environment, if I put myself in the shoes of an <unk>.
Person there is a lot of challenges there.
Pressure with retaining people hiring people.
Paying maybe higher bonuses higher signing bonuses retention bonuses et cetera, I can understand why they would maybe not want to commit to a new purchase or be hesitant to step up and so I'm wondering have you seen signs of that or is that what you are factoring in and maybe is that.
A follow on to that is this a situation where someone is less likely to do accolade one and it is all in and say yeah that makes sense, but that's a much bigger ticket items. We're just gonna do Abbas advocacy, we're not going to do all three I'm just trying to not do that.
Roy isn't there and longer term this won't happen that maybe those are the pressures that are at play Im just trying to get any additional commentary there. Thanks.
Yeah. Thanks for the question I think it's a really great ones, Andy and I think here's the way we think about it first while we do see a really strong demand environment and customers are really focused to your point. They are focused on retaining their employees in a in a market that at least today is has a very full employment market.
And then we're also focused on addressing issues like health care equity et cetera.
That is.
The last year in fiscal 2022, we saw some.
The focusing of buyers' attention based on their focus on return to office.
Those states Covid pandemic related and I think we're cautiously optimistic about the future of this year looking at the <unk>.
Manned environment and the number of evaluations that were participating in.
We're clearly looking to see at the number of opportunities that progress and actually make buying decisions when customers make buying decision we have a very strong win rate.
When prospects make buying decisions, we have a really strong win rate.
To the degree those buying decisions actually occur or versus customers choosing to kick the can down the road after an evaluation cycle, which leads to your the second part of your question, which is is there a likelihood.
<unk> might be evaluating components of our solutions versus the entirety.
Our solutions and accurate one and I think it's a various viewpoint I think customers will continue to want to buy in components and it is really a significant driver of the way we've architected our strategy the meter customer.
I'd like to be met whether that expert medical opinion virtual primary care and mental health or advocacy or in those cases, where it's all of the above so yes, I think there may be a propensity for that type of buying to occur this year.
And we'll have a lot more data as we come as we come back to you in Q2, and the Q3 earnings calls.
Great really helpful commentary, thanks, so much.
Thank you I show. Our next question comes from the line of Stephanie Davis from SBB Securities. Please go ahead.
Hey, guys. Thank you for taking my question.
I would go back just a little bit more.
These forward evolution of your pricing model.
Seeing some pushback in the employer market around P. M. P M solutions, and I know you've talked about going more.
New products.
Should we think about.
Maybe the mix of how you're selling and how you are.
Looking out forward.
Thanks for the question Stephanie I think.
Consistently over the course of the last several years.
Thank you Paul.
Over the last five years, we've delivered to customers our pricing solution that gave them an opportunity to put a percentage or rfps that risks typically that number has been in the neighborhood of about 30% of our fees at risk.
That's been consistent year over year and continues to be fairly consistent in terms of the outlook.
The transactions that are that are occurring in fiscal 2023, and our view on that on those customer contracts that were most interested in pursuing in fiscal 2023.
We believe that.
<unk> of our fees at risk associated with clinical outcomes return on investment and employee satisfaction are appropriate for most of our customers there will be those customers who take advantage. If you've heard this before from us Stephanie there'll be those customers, who take advantage of all of our solutions looking at advocacy expert medical opinion primary care and mental health.
And a suite of our partner solutions, where we've got the capacity to be more proactively managing all of their population health and the choices that we're making across the ecosystem and in those situations, where we have a more pronounced control capacity.
We're willing and able to take more feed more of our fees at risk. We don't think that's the preponderance of our customer base and we would expect that over the course of fiscal 'twenty, three youre going to see customer breakdown, it looks fairly similar or a new customer breakdown. It looks fairly similar to the breakdown you saw in 'twenty, two or 'twenty one.
Thank you.
I show. Our next question comes from the line of Richard close from Canaccord Genuity. Please go ahead.
Yes.
Obviously, it's been a competitive business for some time so.
Just curious your thoughts on the pricing environment, and maybe a timeline of when it deteriorated or.
Is the pricing.
Pricing environment more competitive.
Follow on to Stephanie's question in terms of other people coming in and going more at risk any thoughts there would be helpful.
Richard I think.
We look at the competitive dynamic in the following ways.
You can tear prospects, who are looking at solutions in our category.
As those who are really focused on clinical outcomes, improving employee satisfaction and delivering return on investment because they are improving outcomes, we think thats the preponderance of the marketplace.
That marketplace is continuing to make buying decisions that are just with the way. The market is always purchased and we feel really great about our capacity to win the vast majority of those those opportunities that actually transact.
Another component of the buying cycle, that's always existed that's been more price conscious it's been more focused on finding low cost solutions that are either entirely digitally oriented.
That offer.
Les in terms of services or perhaps where the companies are more capable or willing to take lower profit margins in those situations.
We think that those are deals that we have always in the past shown discipline around and haven't necessarily pursuit and we will continue to behave that way.
Thank you.
I show. Our next question comes from the line of Stan Bernstein from Wells Fargo. Please go ahead.
Hi, Thanks for taking my questions.
Maybe on the 20% intermediate growth guidance, how should we think about the different components of advocacy versus plus care versus expert opinion and within advocacy maybe as an add on is the expectation for <unk> to be flat and membership to be the growth engine, there or is the expectation for <unk> to be somewhat under.
Pressure.
Given the competitive dynamics you cited earlier.
Hey, Ben this is Steve so.
Long term basis think about that 20% as being pretty similar across the different business segments.
Expert medical opinion, plus there are smaller in terms of lower base right now Scott.
We've called out is growing a bit faster than that.
But think of it as not just membership within customers, but most.
The majority of our business today is direct to employers and therefore a lot of.
That growth is being projected upon new customer logos as well as growth within those employer pieces in terms of ppm.
And where those are coming in we talked a little bit about in the last.
Call were too about case rate revenues on expert medical opinion, theres a bit of a dynamic there where some of that book is transitioned to Q3 off of a PM TM, but taking it all the way back to Roger's point, we think customers who are looking at these services, particularly advocacy.
And expert medical opinion, as we bring them all together they want to understand ROI and a market that's extremely crowded with whether it be small point solutions or other customers that aren't able to warrant that ROI. The way that we do consistently by putting a portion of our fees at risk and having had the ROI externally.
Validated you think that ultimately the differentiator why customers Dubai and why they renew at such.
High rates and so that all we leave all of that together.
And look at the growth of the breadth of the pipeline tells us that we think that 20% grocery it makes sense across the different.
Offerings capabilities.
But maybe to the last part of that question Stan.
We believe over time that.
That those customers.
And now those customers represent the preponderance of the marketplace are willing to pay for value.
And that that value will represent consistent BPM fees, what we've what we've represented in the past.
Thank you.
I show. Our next question comes from the line of Dev, whereas fly from <unk> capital markets. Please go ahead.
Sorry, this is brendan on for Doug.
Question. My question is what types of clients are you seeing the most demand from accolade. One is there more converting existing customers or have you seen new client demand and what are like the typical sales cycles on this thank you.
Thanks for the question, we continue to see great.
And traction from our existing customer base as it relates to looking at accolade on and that's really.
Where the preponderance of our focus has been.
We look at new prospects and this goes to one of the earlier questions at as.
Perhaps looking at.
Either the platform that we see or some of the individual solution accolade care, our accolade expert M D.
A reasonable landing points for new prospects, who are potentially just.
Just beginning to explore the opportunities in terms of health care reinvention.
That market is growing so fast in each of those categories are demonstrating such demand.
We want to simplify those sales cycles and meet the customer where they would like feedback so going all the way back to the beginning accolade. One is really we're seeing we're seeing continued interest in the customer base, where we're really focused.
Thank you.
Our next question comes from the line of David Larsen from BTG. Please go ahead.
Hello. Thank.
Thank you for taking my question. This is Aaron on for Dave.
Few questions from my end.
So first I guess, what do you see as the largest long term opportunity from your Tri care pilot in terms of revenue.
And then my next question is how much cross selling or are you seeing from accolade.
Advocacy.
Care and extra R&D and how much cross sell revenue are you factoring into your 2023 guidance. Thank you.
This guidance I'll, let Steve answer that question at the end, let me let me.
First address.
The cross sell up sell opportunities and.
Remind me of your first question Besides cross sell upsell Crevier Frankfurt the Tricare opportunity. So I'll start with Tricare will go cross sell upsell, let Steve I'll, let you answer the question on guidance.
As it relates to Tri care I. Appreciate the question. There's a couple of components to that story there as far as the renewal of the Tricare select navigator program. Additionally.
I think a quarter or two ago, we announced that we had actually expanded into a new pilot all the autism care demonstration capacity to deliver services to military family Who's who are wrestling with.
With children on the spectrum that services in pilot today to a small population in the mountains in the mountain region, and we expect that that has a significant opportunity to expand.
Across the country to a material population incrementally the government is today in the process.
Choosing a health plan or the T five contract.
That selection will be happening this year that selection should go into place on one 123, or perhaps 124, we have teaming agreements with a number of the vendors who are bidding that T. Five agreement and those TV teaming agreements give us an opportunity to deliver innovation as a subcontractor.
With those plants. So those are some of the vectors that we think are a part of a really exciting opportunity for growth.
And Aaron to pick up on your question about cross selling.
That's how we think about that.
I remember on our last call we talked about about 40 customers. Both 20, who had bought multiple offerings out of the gate dramatically and then about 20 that we have up sold in one direction or the other but primarily selling expert medical opinion into the advocacy.
So if you think about that as representing on the neighborhood of six or 7% of the base right out of the gate and this being our first full year on the selling season, we would expect that breakthrough in that 10% or so range of our total book and grow that overtime, but.
What we're seeing now when we go to market. We go to market with all of the offering. So oftentimes we are either starting with advocacy and then displacing or adding on other of those offerings or selling a bundle right out of the gate.
Thank you.
How shall we have time for one last question last question comes from the line of Cindy Motz from Goldman Sachs. Please go ahead.
Hi, I just had one last one.
So thanks for referring to the presentation too because I actually haven't seen it so where you break out all the expense items in that long term EBITDA margins of 15% to 20%. So long term I mean.
Can I assume that's like in the 2000 by 2029 2030 or I mean is that is that what you're thinking like is.
Is achievable and I appreciate the breakout for the expense items that lines as well.
But any color there would be great.
Sure.
And Sidney first of all.
The growth rate of 20% and.
An adjustment to what we had in the past, but the overall P&L construct an EBITDA opportunity into that 15% to 20%, yes, I would think of that as the longer term profile. So kind of five years plus is the right way to think about that.
Three years is the outlook.
We've provided today.
Getting to.
Breakeven.
The progression beyond that.
Several years out.
I appreciate you calling that out as any I think it is imperative to note that with our updated guidance today, we've really tried to place a premium on the idea of that.
We're evaluating our adjusted EBITDA loss and driving improved efficiency in the business to get to adjusted EBITDA positive in fiscal 2025.
Thank you.
That concludes the Q&A session at this time I'd like to turn the call back over to management for closing remarks.
We appreciate all of you being here today, and we look forward to catching up with you down the road. Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Bye.
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