Q1 2023 Accolade Inc Earnings Call

June 30, 2022

Good day, and thank you for standing by and welcome to the activated first quarter 'twenty to 'twenty three earnings results Conference call.

At this time all participants are in a listen only mode. After the speaker's 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 if you require any further assistance. Please press star zero.

And the conference over to speak today, Todd Friedman Senior Vice President of Investor Relations. Please go ahead.

Welcome everyone to our first quarter earnings call with me on the call today are Chief Executive Officer Rajiv.

Chief Financial Officer, Steve bars, chocolate in India, Our Chief Medical Officer will join the question and answer portion of the call before turning the call over to Rajeev. Please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating performance detailed a relationship between these non-GAAP measures. The most comparable GAAP measures. The reconciliations thereof can be found in the <unk>.

Press release is posted on our website also please note that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act 95, such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results differ materially from those expressed or implied on the call for additional information. Please.

Our cautionary statement in our press release and our photos she all of which are available on our website.

I'd like to turn the call over to our CEO Rajeev said Raj. Thanks.

Thanks, Todd and thank you all for being here.

The first few months of a new fiscal year provide useful insight about the year ahead.

Today, we'll share with you that what we've seen thus far and provide our perspective on the market and accolades opportunities.

Let me kick off with our financial performance for the quarter. We came in above the high end of our guidance ranges for both revenue and adjusted EBITDA I'll leave it to Steve to cover that good news in more detail in his section of the call.

Turning to the commercial employer space I think early selling here's what we've seen in the first quarter of our fiscal year.

More new business in fiscal Q1 and has been our historical precedent among.

Among the new advocacy deals we signed a large west coast University system that became a customer that further demonstrates our strength in the university vertical.

Additionally, both our direct selling channel and our health plan distribution partnerships continued to do very well and Standalone expert medical opinion transactions.

Regarding upsell and cross sell of our offerings to date, nearly 10% of our 10 million members are using more than one accolades Felicia.

Tremendous progress since adding our virtual care and expert medical opinion offerings last year.

We also replace competitors in a number of Fortune 100 company and the expert medical opinion market.

These wins include a warehouse retailer financial services firm and an insurance company.

With these wins more than 30% of the fortune 100, using an accolade service today.

Most importantly, our pipeline for new business in the commercial segment remains very strong.

Investor and oftentimes have questions about how the downturn in the market or potential recession impacting the buying behavior of commercial customers two observations for us today.

We're participating in more rfps than ever before.

We just had a very strong Q1 in terms of new bookings.

Second customers in this environment are more focused than ever on the rising cost of health care.

Displace Baltimore solution, our proven track record of consistently delivering cost savings over the course of a multi year contract.

Now, let's turn our attention to the health of that market.

Three years ago, <unk> announced our first health plan partnership with Humana still a strong and valued partner.

Since then we've added partnerships via acquisition, specifically partners like Unitedhealthcare Optum.

Blue Cross Blue Shield of Michigan, and BCBS, Massachusetts.

In addition to our advocacy partnerships like Humana and Blue Shield of California, We recently signed an advocacy and virtual primary care relationship with priority health of Michigan.

As it relates to our virtual primary care relationship priority will be leveraging our virtual primary care and mental health offering to power their virtual first plan design.

We expect to announce more virtual primary care partners in the months ahead.

At this point, we have health plan partners, representing our advocacy expert medical opinion, and primary care and mental health offerings to the market and we expect to continue to grow our relationships and add new ones moving forward.

Performance in the health plan space in F Q1 across all of these factors was good, especially in alkylate expert MD customer initiatives.

The health plan channel, we added a number of brand name customers and the retail energy and technology industries, highlighting the attractiveness of alkylate expert MD across sectors and in flight ops employer profiles.

Our expert medical opinion service continues to be differentiated and are seeing strong win rates.

Now looking at our government business in fiscal Q1, the defense Health Agency agreed to extend the Tricare select navigator program for the third and final year of the pilot.

With that these enhanced let's take a step back and look at the BH, but DHA business as a whole there are now two elements to that business.

First is the Tricare select navigator business I just mentioned.

As the DHA make a vendor selection for their carrier relationships later this year.

Referred to as the <unk> 5 billion.

We believe that the success of this pilot will lead to the DHA and looking for these types of capabilities and innovations from their selected vendor and Deepak.

In that respect, we're very well positioned with teaming relationship side with three of the four companies bidding a key part.

As with all things with an entity besides the.

<unk> agents it will take time, but we continue to position ourselves well for this opportunity in the future.

The second part of our DHA business as our work on the Tri care autism care demonstration.

As you can imagine military families with children and the spectrum have unique needs.

Our partnership with health net or specialized nurses are now assisting those samples.

We see opportunity to expand his population over time.

And in aggregate, we see strong possibilities to continue to grow our overall government business.

Before we turn to a discussion on market dynamics and competitive landscape. Let me give you a quick recap of what will be covered.

Market, leading offerings and advocacy expert medical opinion, and virtually or virtual primary care and mental health electric.

Collectively our personalized healthcare speed.

And we have distribution channels through the government direct to commercial clients and through health plans.

This diversified product and distribution strategy minimizes risks, while with strong execution maximizing upside.

Now, let's discuss market landscape and competitive dynamics.

Our competitive win rate remains strong and our pricing discipline in those transactions remains at historical levels.

It's important to note that in context, the buying dynamic that in the context of the buying dynamics of our industry.

Customers will often hire consultants who rate detailed RFP that includes such requirements staffing ratios and performance guarantees.

Those customers are concerned with quality comprehensiveness and value of the service even if the service that they will ultimately have to state the reputation of thought with every one of the employees in that business.

Those very same employers are wary of vendors, who commit to delivering a less comprehensive service headcount right priced.

All that said our competitive differentiation for our personalized healthcare speed comes from our comprehensive approach to engage widely our data driven approach to population health and our personalized approach to delivering care and building relationships with the best in the World and what we do and our customers continue to show their willingness to pay for that value based on our close deals and current <unk>.

Pipeline.

That differentiation and that success will continue to drive 20% growth rate of our business moving forward.

We're committed to building that growth, while driving profitability and making consistent progress towards our long term operating margin target of 15% to 20%.

And we took some actions across the across elements of the business since our last call to effectively reap the synergies from three acquisitions last year among other things.

Steve will talk more about that in his section of the call.

Finally, I'd like to spend a moment on our direct to consumer virtual primary care and mental health business.

Business is strategic to isolate for a number of reasons.

And of course, but of course, the first the underlying tech stacks and capabilities powered our accolade care business in our <unk> space.

Also important to point out that the DTC business is a powerful growth and innovation engine correctly.

Fiscal Q1, the business continued to perform well given the performance of other players in the virtual care space, we often hear questions regarding the environment for our DTC business.

In short we continue to grow well in this space with attractive customer acquisition costs.

We attribute our performance in the business, which is differentiated from others to several factors.

We are a primary care and mental health provider versus other companies urgent care focused approach. This.

This is particularly important because people who discovered our serviced for urgent care needs due to COVID-19 restrictions that office visits oftentimes enjoy the service so much that they embrace our primary care offering other urgent care only focused players don't see that conversion.

Beyond that our long term, primarily primary care relationships with our members through strong retention rates compared to other DTC players.

One of the unique things about our services that our physicians are required to practice with us the majority of their time and a majority of our submissions are full time employees.

Thus our consumers can choose a single doctor and build a long lasting relationship.

And finally, our collaborative care model that blends primary care with mental health is a more effective and scalable way to drive behavioral health visits while delivering better whole person care for our consumers.

We will continue to provide regular updates on our DTC business in the quarters ahead as its core to our strategy moving forward.

With that I'll turn the call over to Steve.

Thanks, Raj and good afternoon, everyone.

First I'll recap the results for the first quarter of fiscal 2023 before providing more color on the changes that Raj mentioned earlier.

We generated $85 $5 million in revenue in the first fiscal quarter, representing 44% year over year growth on a GAAP basis over the prior year period.

A year ago first fiscal quarter as our last one that does not include results from flushed care as we completed the acquisition in June 2021.

Fiscal Q1, adjusted gross margin was 45, 6% compared to 42% in the prior year period, which reflects the positive revenue as well as some expected PG revenue timing that benefited gross margin and adjusted EBITDA. In addition to our higher margin offering mix.

Adjusted EBITDA in the first quarter of fiscal 'twenty, three with a loss of $15 4 million.

Which compares to a loss of $12 8 million in the prior year first fiscal quarter.

This is ahead of our guidance, primarily due to lower spending than planned in the quarter and some areas such as hiring and personnel costs.

You'll also note that we recorded a GAAP noncash goodwill impairment charge of just under $300 million during the first quarter.

As you are certainly aware of the standard to evaluate goodwill balances every quarter.

One of the key metrics to analyze its market value, both the parent company and the underlying acquired assets.

Market decline over recent quarters led to our total market cap being below the value we pay for the acquisitions that second MDM plus care.

Netback needed at an academic exercise to work with our auditors to review the current valuation and comparison to goodwill balances.

Now turning to the balance sheet cash and cash equivalents totaled $336 million at the end of the first fiscal quarter and accounts receivable Dsos were in line with prior quarters at about 23 days revenue outstanding.

And we had approximately $69 7 million shares of common stock outstanding as of May 31, 2022.

That number bumped up to 71 2 million shares in June reflecting the distribution of the vast majority of the shares related to the earn out provisions the second MDM plus care acquisitions.

Now turning to forward guidance and how to think about our financial model progression towards breakeven.

We are updating our guidance today for fiscal year 2023, and now forecast revenue will be in the range of 355 million to $365 million.

Representing growth of approximately 16% at the midpoint.

We are maintaining our adjusted EBITDA loss guidance between 35, and $40 million, which excludes approximately $3 5 million of one time costs associated with the actions that Raj mentioned earlier and I will describe in more detail in a moment.

With respect to the fiscal second quarter, we aren't providing guidance today of revenue in the range of 82.

$3 $5 million in it.

Adjusted EBITDA loss in the range of $18 million to $20 million again, excluding one time costs associated with the realignment of realignment noted earlier.

Also as mentioned earlier Q1 benefited from some expected timing of performance guaranteed revenues, which is the primary driver for the sequential revenue change from Q1 to the Q2 guidance.

Now a few comments about the cost realignment mentioned earlier.

Last year, we completed the acquisitions of second M D plus share and health reveal and grew our head count from Fortune 500 employees to nearly 2400 people.

As we evaluated the economic environment within the context of our revised guidance, we undertook a strategic review of our business to make sure that we're operating at maximum efficiency.

With the ultimate goal of ensuring we have the foundation to deliver on our objective of 20% revenue growth and positive cash flow in two years.

With that review complete we refocused several parts of the business in the second quarter.

This resulted in a reduction of about 4% of our employee base and aligns our cost structure cost structure to achieve our business and financial objectives.

Importantly, we our intention our actions do not impact our frontline care teams.

<unk> has exceptional member experience with NPS scores of greater than 60 for advocacy and 94, plus <unk> an expert.

We expect to continue expanding our frontline care teams to support our existing and new customers.

We've been focused on growing our business on the topline while progressively improving profitability each year.

<unk> has been unwavering since we went public in 2020 and is only stronger today.

With that we are reiterating our objective of positive adjusted EBITDA and cash flow in fiscal 2025, which aligns with calendar 2020 for about two years from now.

Our convertible bonds are not due for approximately four years.

$336 million of cash on hand, we have more than adequate liquidity to achieve our financial plans without going back to the capital markets, placing us in a strong position to execute against our objectives.

In short we continue to believe passionately in the strength depth and breadth of our platform the diversification of our offerings revenue streams and customer base and we have an engine built for growth and sustainability, which will ultimately drive significant positive cash flow.

With that we'd like to open the call to questions.

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question just press the pound key.

Two one question in queue for a follow up.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Ryan Daniels from William Blair. Your line is open.

Hey, guys. Congrats on the strong start to the year and thanks for the question I guess I wanted to ask one regarding the second opinion solutions you mentioned that several times during your prepared comments and discussing the pipeline in the end market and it sounds like that's an area youre seeing some particular progress with displacements and new wins. So can you go into a little bit more deep.

<unk> about.

Why you're seeing such strong performance both in regards to net new adds and then displacements in that business in particular.

Thanks, Brian I appreciate the question.

First youre absolutely correct. We are really excited about that part of our business.

Each of the respective product lines that we deliver to customers.

What we find really exciting about the expert medical opinion business really starts with the differentiated capabilities for the offering.

What we loved about the second of the offering when we when we acquired the company back in March of last year was that it was a personalized service that ended with a video consult with a physician as opposed to other competitors, who might be pushing people more into their local networks or written consultations deliberate.

Later down the road.

That differentiation is beginning to play itself out across both our health plan distribution channels that are finding great value delivering that to their customers and our direct selling motion where are.

Accolade reps previously, we're just offering advocacy and now have three offerings to deliver can deliver an expert medical opinion service, that's highly differentiated and so that's where we're seeing it in terms of the replacement cycles I think what we're finding Brian I think it's particularly heartening for the future is.

Customers are embracing this idea.

Commonality, but we took deliver across all of our services.

<unk> service with a human touch it's data driven.

And fundamentally it's built around.

Building long term relationships and because our each of our services that we're finding our win rates are improving.

Thank you.

Next question will come from.

Comes from the line of Glen Santangelo from Jefferies. Your line is open.

Thanks for taking my question Rajeev I was just sort of follow up with a very high level question. I mean, it seems last quarter. The message was youre seeing customers starting to pull back because of the fear of recession youre seeing any elongation of the sales cycle.

And now we sit here 90 days later, the environment, certainly Hasnt got better and maybe has deteriorated even a little bit more and now the messages, we have more rfps than ever before and we're seeing record bookings this quarter like what changed in the last quarter and how much visibility do you think you have at this point when you look.

<unk>.

The balance of the fiscal year, just given how much it seems things have just changed here recently.

Yes, Glenn Thanks for the question I appreciate you being here.

If you go back to what we talked about last quarter. It maybe I'll just I'll amend.

Amend a little bit of a characterization I think when we talked about last quarter was a look ahead at an uncertain economic environment and a belief that it was prudent.

So at least a coup for the idea that the market may slowdown I think last quarter, we talked about the fact that we saw more rfps during that quarter than we had seen last year or the year before and what we really need to see what now that we've seen the way for their eyes are those contracts going to close or are they going to continue to progress through the pipeline. So that's the way.

We characterize things last quarter. This quarter I think what we're saying is hey, you know what it turns out we actually closed more business. This quarter that we closed last time last quarter last year. This time.

Peers that those deals are actually going to progress and continue to close and so I wouldn't say that things have dramatically changed I would say instead every single quarter, we learn more about how that economic environment is going to impact the buying cycles of our customers, we think and as I mentioned in the script, we think that what we're beginning to understand.

But those customers are interested in managing health care costs and seem to be very interested in continuing to pursue advocacy care and expert medical opinion evaluations. We count all of that is positive news in terms of the performance of the first quarter and.

We're looking forward to how that plays out over the course of the second quarter as well.

Thank you.

Next question will come from the line of Richard close from Canaccord Genuity. Your line is open.

Yes, thanks for the questions. Congratulations Steve I was wondering if you could talk a little bit about.

The raising of the lower end of the revenue range was that primarily you assign the tri care deal and thus you took the discount out that you applied previously.

Hi, Richard Thanks for the question.

Finding the Tricare contract certainly contributed to bringing up the bottom of the range by $5 million, but it wasn't only that we had provided provided some of that.

And there we're also seeing along the lines of what Raj was saying.

Positive momentum around new bookings that gives us good comfort. There. We also saw in the revenue be member counts continuing to hold up.

Which contributed to the member excuse me the revenue beat this quarter and positive performance on PGS. So.

Giving us more confidence and visibility there so raising the midpoint while at the same time, maintaining some balance given the economic environment.

That Raj was just speaking about his comments.

Thank you.

Our next question will come from the line of Michael Cherny from Bank of America. Your line is open.

Afternoon.

Wanted to dive in a little bit as well on the competitive dynamics you talked about the improved close rates, which is encouraging not just for your business obviously.

The state of the market, but last quarter. Another team that you talked about as well was this dynamic of the low cost provider of the offset between.

Offering something thats more.

I guess cut down versus something else, but being a key component of the Comcast loss in particular as you think about that elevated RFP activity youre seeing in this quarter how much of the pit that's being asked for is tied to not only value, but also where can we.

Cut and squeeze you on price.

<unk>.

Thanks for the question, Mike I think if you were to look over the course of <unk>.

One of the things we're most excited about the businesses that over the last 18 months our win rate has been.

That's been very consistent if not improving that that win rate has been has been delivered with pricing that's been very consistent and so as you look ahead.

First first and foremost.

Is a market that's looking for market, particularly in a downturn or a potential recession like we're seeing right now customers are looking for reduced health care costs and what we see in the Rfps that we're responding to today and I mentioned it a bit in my prepared remarks, Mike that the Rfps are very specific about the clinical outcomes they want to prescreen.

How about that.

The needs that they are expected to be billed by the vendors that they are asking asking to respond to the RFP.

And then that comprehensiveness that we're seeing in those Rfps. We think is a reflection of customers embracing the value proposition that accolade delivers to the market and so yes, I think there are other segments of the market that they choose lower cost solutions.

Other good news there Mike because we do have lower cost solutions that are available to customers. If they see lighter touch service desk and so.

Long story wound into a shorter answer for you Mike.

We're really bullish on our prospects and the win rates that we're seeing with price points that are very consistent with what we delivered in the past.

Okay.

Thank you.

Our next question comes from the line of Cindy Motz from Goldman Sachs. Your line is open.

Thanks, Thanks for taking my question and congratulations on the quarter.

I was hoping maybe Steve you could give us some more segment information if you would like to break out of the $85 million in revenue between the core expert in place Karen.

On that it sounds like expert is.

Improving or it sounds it just from your comment it sounds like it's going better.

Just if you could give us any segment information and then also too just.

Just on the one time $3 5 million I guess chart.

Nonrecurring this quarter are we should we expect to see that as well throughout the year is that going to continue like for a couple of quarters any information.

<unk>.

Alright, good afternoon, Cindy why don't I start with the <unk>.

Second question first on the charge associated with the onetime costs that will hit in the second quarter, you'll see that next time.

To be in the neighborhood of $3 5 million.

On the first part the breakdown of the business.

About two thirds associated with the advocacy business with the remaining third split between expert.

Medical medical opinion and virtual primary care.

The direct to consumer being a bit a bit larger than the expert medical opinion, and we're seeing healthy growth rates certainly on the consumer business Raj spoke about it earlier in the <unk> business continues to perform year over year that business is growing in the mid <unk> in terms of growth rate the expert medical.

Opinion business.

A couple of points here number one.

Raj mentioned earlier, new sales volume is very encouraging continuing to see not only standalone expert medical opinion wins.

Seeing knockouts of competitors and we're also seeing bundled deal sell which as you know very importantly, too. Our model is that we believe strongly very much strategic thesis around both acquisitions is that when we can leverage the advocacy based on the relationship with a member to get that member to their needs whether it would be an expert.

Medical opinion, one of our ecosystem partners, where virtual primary care relationship, we're starting to see that flywheel turn and starting to see strong utilization there and so.

Second quarter in a row of positive sequential growth on expert medical opinion. After some slowdown that we saw a couple of quarters ago. So.

Some positive news there.

The 10-Q by the way, it's indeed with this information around pro forma information will be filed tomorrow.

Thanks.

Our next question comes from the line of Jonathan Young from Credit Suisse. Your line is open.

Hi, Thanks for taking my question. So it sounds like new wins are coming in better than expected I guess does this give you enhance confidence in the outlook and the possibility of achieving profitability sooner rather than later and just on these wins do they have.

Mauler cheaper compares pulling back given the current funding environment that may be helping or are they actually still out there and now theyre just not winning anymore. Thanks.

Hi.

Thanks for the question Jonathan I'll try to hit both of those please jump in if you've got anything to add I think in terms of the competitive landscape. It hasnt changed dramatically Jonathan I think what.

We've done.

We've traditionally executed really well it and not saving our value proposition of a comprehensive solution that engages broad populations delivers a personalized.

Service that human based and data.

Data driven population health approach and when we do a great job and I'd say that value proposition our win rates are strong and customers by that comprehensive value.

So.

No dramatic change in the nature of the competitive landscape.

Nor of our of our traditional win rates I think as it relates to profitability.

I think Steve said, it really well in his script were really comfortable with our guidance and our capacity to achieve the path that we've laid out looking forward.

Thank you. Our next question comes from the line of Craig Mark.

From Morgan Stanley you may begin.

Yes, I had a question just on the EBITDA guidance, which you've.

Taken up the low end of revenue you kind of maintained EBITDA.

Do you view that as just kind of conservatism sticking with that or any other elements to be aware of this year and then as it relates to that just on the back of the cost cuts, perhaps speaking to some of the confidence in terms of the path to profitability.

On the back of that.

Sure. Thanks, Craig for the question. So first of all around the cost cuts I would describe this as very much aligning the business post having done three acquisitions, finding synergies, putting aligning cost against the priorities of the business against the 20% growth rate, which had previously been 25. So.

That's a bit more on how we think about the cost cuts as far as this year, bringing up the midpoint the guidance by $2 $5 million and keeping EBITDA, where it is.

We're here at the end of the first quarter, we had a positive first quarter, we want to obviously see how things go over the next couple of quarters with selling season, but.

Good confidence in that 10% or so EBITDA loss and then that continued positive trajectory trajectory from here to breakeven and then.

Adjusted EBITDA and cash flow positive and about two years.

Thank you.

Question comes from line of Jeff Garro from Piper Sandler.

Your line is open.

Hi, good afternoon. Thanks for taking the question, but I'll ask one more on the selling season I'm. Just curious how is activity deferring across your different customer segments of strategic enterprise and mid market.

And how are the distribution relationships that you referenced both the plan and consultant side, helping across those different segments.

Thanks, Jeff I appreciate the question I think in terms of.

Segments, we saw transaction flows in each of those segments over the course of the first quarter. So.

We continue to see traction across ranging from the middle market all the way through strategic accounts.

One.

And we expect that traction to continue into Q into Q2 and beyond.

One of the things. We're most excited about is the company has diversified its capabilities of reaching potential customers is the idea that are directed to our direct to employer business. He is no longer the only driver of value in the business and so while we what I just mentioned the diversification across those markets.

Rents is exciting our diversity diversification across distribution channels is also exciting. So we saw good traction in the first quarter with our health plan partners, representing both our advocacy and emo businesses and then in that quarter, Jeff and I've mentioned it in my prepared remarks, we also signed for the first time our relationship with <unk>.

Priority health in Michigan to offer our primary care and mental health services to power their virtual first plan design options. So.

Those developments to us help us both diversify our distribution strategy and grow the business.

Thank you. Our next question comes from the line of David Larsen from <unk>. Your line is open.

Hi, can you talk a little bit more about the tricare contract assuming.

You're doing good work for them and they like the return that Theyre getting like when will we hear about an expansion of that contract and what is the total potential revenue contribution of that and when would it actually.

Flow into your P&L and would that be enough to offset the Comcast drag that's kind of really start to impact fiscal 'twenty four thank you.

Thanks for the question David.

We're excited to be able to serve the DHA for the for the <unk>.

Third year of the pilot and so I appreciate you, bringing it up because it does.

It's part of the business that we're really proud of.

<unk>.

When you think about pilots in the government business, particularly around the defense Health Agency and Tricare think about pilot things designed test new innovation prove them out and to determine if a service like this can drive value that value in this particular pilot it's Matt.

<unk> is manifest in cost reductions improved clinical outcomes and member satisfaction remember on this particular pilot, we're serving members who spend more than $100000 a year on health care or have multiple chronic conditions and so we believe that by virtue of the government signing up for the.

Third option Europe the pilot.

We're proving that this service can deliver value we will do so again in year three as we execute well.

And what happens when a government pilot goes well.

And there's a great article by the way.

Military bag in military medicine newsletter that we're happy to share with you post this call.

That speaks to how those pilots then turn into standard innovation that may be a part of the <unk> five which is the bid to government is running right now to select their carriers across both reaches of the government.

We are particularly excited about that opportunity because as these pilot.

Capabilities embed themselves into <unk> five we have teaming agreements signed with three of the four vendors who are bidding.

So our opportunity to become the service delivery engine for this type of innovation and others is pretty unique and profound given the nature of the breadth of our distribution partnerships.

How will that manifest in the P&L.

David I think one of the one of the great parts of the government is the huge opportunity that <unk> DHA presents one of the one of beef.

Realities of dealing with entities at this site is that it takes time and so the T. Five bid is scheduled to be awarded this year I think for those of you who know the government business really well the bid will be awarded and then there's a likelihood of appeals to the bid and appeal to the process and so the current schedule is for <unk> to deploy on.

<unk> 2023, and then those innovations so excuse me.

24 excuse me.

As to deploy 2000 January one 2024, and then for these innovations to begin deploying at the mid point of the year and so that's when you could expect some of these to start to manifest in new revenues.

But we think what's important is the targeted addressable market here is significant our leadership role as material and.

In our distribution strategy and diversified.

Thank you.

Our next question will come from the line of Ryan Macdonald from Needham Your line is open.

Hi, Raj and Steve Thanks for taking my questions and congrats on a nice quarter.

One thing about the employment environment, obviously, the labor market continues to evolve since even the last earnings call as layoffs continue to pick up.

Just like to know to what extent youre seeing that within your customer base and what type of exposure you have there.

And then what assumptions are you making in the.

Forward guidance for the employment outlook.

Customers. Thanks.

Sure. Thanks for the question Brian .

One thing to remind.

Everyone on the call is we're fortunate to have a highly diversified set of customers on the corporate side across.

Many industries, none of which comprises a material amount. So we don't have any individual exposure per se to one particular industry.

That is material.

What we saw in the first quarter is positive member growth within the book that <unk>.

Created some upside which contributed to the revenue beat.

We've modeled an assumed as we head into a difficult environment here is that that will moderate.

The rest of the year. So we're not assuming that that kind of growth will continue in our guidance and so.

So far we.

We're seeing positive activity there with respect to members, but we're cautious given given the recessionary environment that we're in.

Thank you.

Question comes from the line of Stephanie Davis from SCP Securities You may begin.

Hey, guys Congrats on Macquarie and thanks for taking my question.

Given some of the positive tone in your prepared remarks, I'd be curious as to how the accolade sales pitch has evolved as you've seen enterprise benefits that does take a bit of a carrier.

Is there anything new driving the traction is that different than before effectively and as a follow up to that I'd love to be I'd be curious as to any change in preference towards the three offering tiered and if you're seeing maybe a one expand skagit go out like a tightened.

Thanks for the question, Stephanie and thanks for being here.

<unk>.

Okay.

Traditionally accolade is done.

Landed the value proposition associated with return on investment and cost reduction in health care. It really well I think over the last couple of years I think we've expanded that value proposition very clearly as we expanded our suite into personalized health care that we began to talk more and more not just about cost reduction, but also about clinical value improving.

Clinical outcomes and about improving employee engagement in an environment, where that was really important.

Hi.

Candidly speaking our employers leaning in heavier on cost reduction in an environment like this one where most HR departments and CFO are being asked to take a hard look at the bottom line.

The answer to that is yes, and so I think we're leaning into a muscle that we've developed over the years and thats fairly well developed in our sales force.

In terms of offering mix.

It's actually quite interesting, while we do see.

What we call our core offering.

Continuing to grow and interest we oftentimes, but continue to see that growth happening in what we'd call middle market customers customers, who are actually seeking an improved service and seeking lower costs, but don't have the capacity to disrupt their relationship with the carrier was a carve outs and so in that situation it's less about.

Cost of the solution and more about disruption associated with the carrier.

And then finally and then.

Wow.

The traditional flagship offering.

This is actually trending really well finally, I think this idea around land and expand goes beyond growing the advocacy offerings from core uptick to our traditional offerings and it also includes the idea that we're doing well, taking advocacy customers and adding expert medical opinion and care to our offerings are.

To their to their suite of.

Capabilities from accolade.

And that manifests the fact that more than at this point about 10% of our members have more than one accolade offering in front of them.

Thank you. Our next question comes from the line of Stan Bernstein from Wells Fargo. Your line is open.

Hi, Thanks for taking my questions, maybe first continuing on what you were just talking about.

Mentioned earlier, the RFP process is really being focused on staffing ratios performance guarantees I'm curious are there any changes in the level of performance guarantees that youre offering customers versus.

A year or two ago.

Thanks for the questions Dan I think the.

It's a great one because I think it reflects the increased value that we continue to innovate.

For our customers.

If you were to look at <unk> five years ago. I think you might have seen performance guarantees that we're very focused on cost reduction, which we've always been very good as a reliable sustainable basis.

But also areas that might be about benefits adoption or engagement with other with other programs.

We are starting to increasingly be able to deliver therefore promote and deliver to our customers our clinical outcomes the capacity to engage with clinical popular populations of a particular condition and drive improved scoring on those populations and that's something that we're really excited about moving forward as we think it's differentiated and important.

Thank you. Our next question will come from the line of Dan.

Syria from Vandenberg Your line is open.

Hey, Thanks for taking my question.

I wanted to circle back to EBIT and the cadence of that just over the course of the year here.

EBIT guidance didn't.

Move much in.

It looks like Theres going to be some.

More leverage and H two here, but how should we think about the cadence I know you guys mentioned some cost cutting measures are those mostly done with or are we going to see more of that 'twenty two as well.

And which lines do we think.

Looking at the Opex that you will see more leverage over the course of the year and thereafter.

And then I think there was a comment on <unk> revenue and the impact on the Q2.

Just to clarify that would be helpful as well thank you.

Sure Doug Thanks for the question so on EBITDA.

The charge that we mentioned will hit in the second quarter and.

Youll see really the benefit of that in the second half so youll see that to your point, you'll see some of that dropping to.

So the bottom line on the second half.

Which is where the impact will be as far as the PG revenue. My comment there was that in Q1, we had some timing a performance guarantee revenue that was high gross margin and included in our guidance previously.

Point, there was that it contributed to the gross margin outperformance versus prior year by about five points towards an element and the contribution.

That PG timing in Q1.

Thank you.

Our next question comes from the line of Sandy Draper from Guggenheim. Your line is open.

Thanks, very much I think my question is just kind of interpret just to clarify I heard.

Did you say in your prepared remarks margin product mix impacted the gross margins.

Purely due to the.

Performance guarantees or is anything on plus here versus.

Expert and D or the base business that makes actually contributed or was it really just a performance guarantee so I just wanted to clarify that thanks.

Sure. Thanks Sandy.

Actually I'm glad you raised that to clarify because the contribution there was from from both CPG performance as well as the offering mix.

For one bus care operated at higher gross margins than that.

The broader business, which contributed this year and with that number last year, given the timing of the acquisition.

So those were both really contributors to that outperformance.

Thank you I'm not showing any further questions in the queue.

Ill turn the call back over to management for any closing remarks.

Thank you everyone for being here and we look forward to updating everyone again in our Q2 call.

And this concludes today's conference call and thank you for participating you may now.

Now disconnect everyone have a great day.

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Good day, and thank you for standing by and welcome to the activated first quarter 2023 earnings results Conference call.

And the conference over to speak today, Todd Friedman Senior Vice President of Investor Relations. Please go ahead.

Thanks, Victor and welcome everyone to our first quarter earnings call with me on the call today are Chief Executive Officer, Rajiv <unk>, our Chief Financial Officer, Steve bars, Jonathan <unk>, Our Chief Medical Officer will join for the question and answer portion of the call.

Turn the call over to Rajeev. Please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating accolades performance detailed a relationship between these non-GAAP measures. The most comparable GAAP measures. The reconciliations thereof can be found in the press release is posted on our website also please note that certain statements made during this call will be forward looking statements as defined.

The private Securities Litigation Reform Act of about 95.

Forward looking statements are subject to the risks uncertainties and other factors that could cause the actual results for ocwen differ materially from those expressed or implied on the call for.

For additional information please refer to our cautionary statement in our press release and our funds. The SEC all of which are available on our website and with that I'll turn the call over to our CEO Rajeev said Raj.

Thanks, Todd and thank you all for being here.

The first few months of a new fiscal year provides useful insight about the euro.

Today, we'll share with you that what we've seen thus far and provide our perspective on the market and accolades opportunities.

Let me kick off with our financial performance for the quarter. We came in above the high end of our guidance ranges for both revenue and adjusted EBITDA.

Leave it to Steve to cover that good news in more detail in his section of the call.

We closed turning to the commercial employer space I think early selling season, here's what we've seen in the first quarter of our fiscal year.

Closed more new business in that in fiscal Q1 and has been our historical precedent.

Among the new advocacy deals we signed a large west coast University system that became a customer that further demonstrates our strength in the university vertical.

Additionally, both our direct selling channel and our health plan distribution partnerships continued to do very well and Standalone expert medical opinion transactions.

Guarding upsell and cross sell of our offerings to date nearly 10% of our 10 million members are using more than one accolade solution, reflecting tremendous progress since adding our virtual care and expert medical opinion offerings last year.

We also replace competitors in a number of Fortune 100 company in the expert medical opinion market.

Those wins include a warehouse retailer financial services firm and an insurance company.

With these wins more than 30% of the fortune 100, using an accolade service today.

Most importantly, our pipeline for new business in the commercial segment remains very strong.

Investor and oftentimes have questions about how the downturn in the market for potential recession impacting the buying behavior of commercial customers two observations for us today.

First we're participating in more rfps than ever before.

We just had a very strong Q1 in terms of new bookings.

Second customers in this environment are more focused than ever on the rising cost of health care.

Well do our solutions and our proven track record of consistently delivering cost savings over the course of a multi year contract.

Now, let's turn our attention to the health plan market.

Three years ago, <unk> announced our first health plan partnership with Humana still a strong and valued partner.

In fact, we've added partnerships via acquisition, specifically partners like Unitedhealthcare, Optum, Aetna Blue Cross Blue Shield of Michigan, and BCBS, Massachusetts.

In addition to our advocacy partnerships like Humana and Blue Shield of California, We recently signed an advocacy and virtual primary care relationship with priority health of Michigan.

As it relates to our virtual primary care relationship priority will be leveraging our virtual primary care and mental health offerings to power their virtual first plan design.

We expect to announce more virtual primary care partners in the months ahead.

Performance in the health plan space in <unk>.

Q1 across all of these factors was good, especially an accolade expert MD customer initiatives.

Our expert medical opinion service continues to be differentiated and are seeing strong win rates.

Now looking at our government business in fiscal Q1, the defense Health Agency agreed to extend the Tricare select navigator program for the third and final year of the pilot.

With that does enhance let's take a step back and look at the <unk> DHA business as a whole there are now two elements to that business.

First is the Tricare select navigator business I just mentioned.

As the DHA make a vendor selection for their carrier relationships later this year.

Referred to as the <unk> 5 billion.

We believe that the success of this pilot will lead to the DHA and looking for these types of capabilities and innovations from their selected vendor in <unk> <unk>.

That respect, we're very well positioned with teaming relationship side with three of the four companies bidding a key part.

As with all things with an entity the size.

Until the agency it will take time, but we continue to position ourselves well for this opportunity in the future.

The second part of our DHA business as our work on the Tri care autism care demonstration.

As you can imagine military families with children and the spectrum have unique needs.

Our partnership with health net or specialized nurses are now assisting those pamphlets.

We see opportunity to expand this population over time.

And in aggregate, we see strong possibilities to continue to grow our overall government business.

Before we turn to a discussion on market dynamics and competitive landscape. Let me give you a quick recap of what we cover.

Market, leading offerings and advocacy expert medical opinion, and virtually virtual primary care and mental health.

Collectively our personalized health care suite.

And we have distribution channels through the government direct to commercial clients and through health plans.

This diversified product and distribution strategy minimizes risks, while with strong execution maximizing upside.

Now, let's discuss market landscape and competitive dynamics.

Our competitive win rate remains strong and our pricing discipline in those transactions remains at historical levels. It.

It is important to note that in context, the buying dynamic that in the context of the buying dynamics of our industry.

Customers will often hire consultants, who ranked detailed RFP that includes such requirements staffing ratios and performance guarantees.

Customers are concerned with quality comprehensive best in value of the service even if the service that they will ultimately have to state the reputation thought with every one of the employees in that business.

Those very same employers are wary of vendors, who commit to delivering a less comprehensive service headcount right priced.

Fine.

That differentiation and that success will continue to drive to 20% growth rate of our business moving forward.

We're committed to building that growth, while driving profitability and making consistent progress towards our long term operating margin target of 15% to 20%.

And we took some actions across the across elements of the business since our last call to effectively reap the synergies from three acquisitions last year among other things.

Steve will talk more about that in his section of the call.

Finally, I'd like to spend a moment on our direct to consumer virtual primary care and mental health business.

Business is strategic to isolate for a number of reasons.

And of course, but of course, the first the underlying tech stacks and capabilities powered our accolade care business in our <unk> space.

It is also important to point out that the DTC business is a powerful growth and innovation engine correctly.

Fiscal Q1, the business continued to perform well given the performance of other players in the virtual care space, we often hear questions regarding the environment for our DTC business.

In short we continue to grow well in this space with attractive customer acquisition costs.

Attribute our performance of the business, which is differentiated from others to several factors.

First we are a primary care and mental health provider versus other companies urgent care focused approach.

This is particularly important because people who discovered our serviced for urgent care needs due to COVID-19 restrictions on office visits oftentimes enjoy the service so much that they embrace our primary care offering other urgent care only focused players don't see that conversion.

Beyond that our long term, primarily primary care relationships with our members through strong retention rates compared to other DTC players.

Of the unique things about our service is that our positions are require to practice with us the majority of their time and a majority of our submissions are full time employees.

Thus our consumers can choose a single doctor and build a long lasting relationship.

We will continue to provide regular updates on our DTC business in the quarters ahead as its core to our strategy moving forward.

With that I'll turn the call over to Steve.

Thanks, Raj and good afternoon, everyone.

First I'll recap the results for the first quarter of fiscal 2023 before providing more color on the changes that Raj mentioned earlier.

We generated $85 $5 million in revenue in the first fiscal quarter, representing 44% year over year growth on a GAAP basis over the prior year period.

The year ago first fiscal quarter as our last one that does not include results from <unk> as we completed the acquisition in June 2021.

Fiscal Q1, adjusted gross margin was 45, 6% compared to 42% in the prior year period, which reflects the positive revenue beat as well as some expected PG revenue timing that benefited gross margin and adjusted EBITDA. In addition to our higher margin offering mix.

Adjusted EBITDA in the first quarter of fiscal 'twenty, three with a loss of $15 4 million.

Which compares to a loss of $12 8 million in the prior year first fiscal quarter.

This is ahead of our guidance, primarily due to lower spending than planned in the quarter and some areas such as hiring and personnel costs.

You'll also note that we recorded a GAAP noncash goodwill impairment charge of just under $300 million during the first quarter.

As you are certainly aware of the standard to evaluate goodwill balances every quarter.

One of the key metrics to analyze its market value, both the parent company and the underlying acquired assets.

Market decline over recent quarters led to our total market cap being below the value we pay for the acquisitions of second MDM best care.

Netback needed at an academic exercise to work with our auditors to review the current valuation and comparison to goodwill balances.

And we had approximately $69 7 million shares of common stock outstanding as of May 31, 2022, and that number bumped up to 71 2 million shares in June reflecting the distribution of the vast majority of the shares related to the earn out provisions the second MDM plus care acquisitions.

Now turning to forward guidance and how to think about our financial model progression towards breakeven.

We are updating our guidance today for fiscal year 2023, and now forecast revenue will be in the range of 355 million to $365 million representing growth of approximately 16% at the midpoint.

We are maintaining our adjusted EBITDA loss guidance between 35, and $40 million, which excludes approximately $3 $5 million of one time costs associated with the actions that Raj mentioned earlier and I will describe in more detail in a moment.

With respect to the fiscal second quarter, we aren't providing guidance today of revenue in the range of <unk> 82.

The $3 5 million.

And adjusted EBITDA loss in the range of $18 million to $20 million again, excluding one time costs associated with the realignment of realignment noted earlier.

Also as mentioned earlier Q1 benefited from some expected timing.

<unk> guaranteed revenues, which is the primary driver for the sequential revenue change from Q1 to the Q2 guidance.

Now a few comments about the cost realignment mentioned earlier.

Last year, we completed the acquisitions of secondhand plus share and health reveal and grew our head count from Fortune 500 employees to nearly 2400 people.

As we evaluated the economic environment within the context of our revised guidance, we undertook a strategic review of our business to make sure that we're operating at maximum efficiency with the ultimate goal of ensuring we have the foundation to deliver on our objective of 20% revenue growth and positive cash flow in two years.

With that review complete we refocused several parts of the business in the second quarter.

This resulted in a reduction of about 4% of our employee base and aligns our cost structure cost structure to achieve our business and financial objectives.

Importantly, we are intentional actions do not impact our frontline care teams.

We're proud of exceptional member experience with NPS scores of greater than 60 for advocacy and 94, plus <unk> an expert.

<unk>.

We expect to continue expanding our frontline care teams to support our existing and new customers.

We've been focused on growing our business on the top line, while progressively improving profitability each year.

<unk> has been unwavering since we went public in 2020 and is only stronger today.

With that we are reiterating our objective of positive adjusted EBITDA and cash flow in fiscal 2025, which aligns with calendar 2020 for about two years from now.

Our convertible bonds are not due for approximately four years.

With $336 million of cash on hand, we have more than adequate liquidity to achieve our financial plans without going back to the capital markets, placing us in a strong position to execute against our objectives.

With that we'd like to open the call to questions.

As a reminder to ask a question you will need to press star one on your telephone.

To withdraw your question just press the pound key.

Two one question in queue for a follow up.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Ryan Daniels from William Blair. Your line is open.

Why you're seeing such strong performance both in regards to net new adds and then displacements in that business in particular thanks.

Thanks Raj I appreciate the question.

First you are absolutely correct.

All excited about that part of our business.

In each of the respective product lines that we deliver to customers.

We find really exciting about the expert medical opinion business really starts with the differentiated capabilities of the offerings.

What we loved about the second MD offering when we when we acquired the company back in March of last year was that it was a personalized service that ended with a video consult with a physician as opposed to other competitors, who might be pushing people more into their local networks or to written consultations delivered.

Later down the road.

That differentiation is beginning to play itself out across both our health plan distribution channels that are finding great value delivering that to their customers and our direct selling motion.

<unk>.

Accolade reps previously, we're just offering advocacy and now have three offerings to deliver can deliver an expert medical opinion service that's highly differentiated.

So that's where we're seeing it in terms of the replacement cycles I think what we're finding Brian I think it's particularly heartening for the future is.

Customers are embracing this idea.

Commonality, but we took deliver across all of our services.

Personalized service with a human touch it's data driven.

And fundamentally it's built around the building.

Building long term relationships and because our each of our services does that we're finding our win rates are improving.

Thank you.

Question will come from.

Comes from the line of Glen Santangelo from Jefferies. Your line is open.

<unk>.

The balance of the fiscal year, just given how much it seems things have just changed here recently.

Yes, Glenn Thanks for the question I appreciate you being here.

If you go back to what we talked about last quarter I, maybe I'll, just I'll amend a little bit of a characterization I think when we talked about last quarter was a look ahead at an uncertain economic environment and a belief that it was prudent.

Tim.

<unk> account for the idea that the market may slowdown I think last quarter, we talked about the fact that we saw more rfps during that quarter than we had seen last year or the year before and what we really need to see what now that we've seen the way for their eyes are those contracts going to close are they going to continue to progress through the pipeline. So that's the way we characterize things.

Last quarter this quarter I think what we're saying is hey, you know what it turns out we actually closed more business. This quarter that we closed last time last quarter last year. This time either.

Tears that those deals are actually going to progress and continue to close and so I wouldn't say that things have dramatically changed I said I would say instead every single quarter, we learn more about what how that economic environment is going to impact the buying cycles of our customers, we think and as I mentioned in the script, we think that what we're beginning to understand.

And is that those customers are interested in managing health care costs and seem to be very interested in continuing to pursue advocacy care and expert medical opinion evaluations. We count all of that is positive news in terms of the performance of the first quarter and.

We're looking forward to how that plays out over the course of the second quarter as well.

Thank you.

Next question comes from the line of Richard close from Canaccord Genuity. Your line is open.

Yes, thanks for the questions. Congratulations Steve I was wondering if you could talk a little bit about.

The raising of the lower end of the revenue range was that primarily you assign the tri care deal and thus you took the discount out that you applied previously.

Hi, Richard Thanks for the question.

Finding the Tricare contract certainly contributed to bringing up the bottom of the range by $5 million, but wasn't only that we had provided provided some of that.

And there we're also seeing along the lines of what Raj was saying.

Positive momentum around new bookings that gives us good comfort. There. We also saw in the revenue be member counts continuing to hold up.

Which contributed to the member excuse me the revenue beat this quarter and positive performance on Pge's. So.

Giving us more confidence and visibility there so raising the midpoint while at the same time, maintaining some balance given the economic environment that that Raj was just speaking about his comments.

Thank you.

Our next question will come from the line of Michael Cherny from <unk>.

<unk> of America. Your line is open.

Afternoon.

And I think a little bit as well on the competitive dynamics you talked about the improved close rates, which is encouraging not just for your business obviously.

This state of the market, but last quarter. Another theme that you've talked about as well was this dynamic of the low cost provider of the offset between.

Offering something thats more.

I guess cut down versus something else, but being a key component of the Comcast loss in particular as you.

Think about that elevated RFP activity youre seeing this quarter.

How much of the pitch that's being asked for is tied to not only value, but also where can we cut and squeeze you on price.

Yes.

Thanks for the question, Mike I think if you were to look over the course of <unk>.

One of the things we're most excited about the businesses over the last 18 months.

Our win rate has been has.

That's been very consistent if not improving that that one rate had been has been delivered with pricing thats been very consistent and so as you look ahead.

First first and foremost.

Is a market that is looking for in a market, particularly in a downturn or a potential recession like we're seeing right now customers are looking for reduced health care costs and what we see in the Rfps that we're responding to today and I mentioned it a bit in my prepared remarks, Mike that the Rfps are very specific about the clinical outcomes they want to prescreen.

<unk> about that.

They are expected to be billed by the vendors that they are asking or asking you to respond to the RFP.

That comprehensiveness that we're seeing in those Rfps, we think is a reflection of customers embracing the value proposition that alkylate delivers to the market and so yes. There I think there are other segments of the market that may choose lower cost solutions I think the other good news there Mike because we do have lower cost solutions that are available to customers if they see.

<unk> lighter touch service desk so.

Long story wound into a shorter answer for you Mike Scott, we're really bullish on our prospects and the win rates that we're seeing with price points that are very consistent with what we delivered in the past.

Thank you. Our next question will come from the line of Cindy Motz from Goldman Sachs. Your line is open.

Thanks, Thanks for taking my question and congratulations on the quarter I did I was hoping maybe Steve you could give us some more segment information if you would like to break out of the $85 million in revenue between the core expert in place Karen just on that it sounds like expert is.

Improving or it sounds like just from your comment sounds like it's going better, but yes, just if you could give us any segment information and then also too.

Just on the one time $3 5 million I guess charterer.

Non recurring this quarter are we should we expect to see that as well throughout the year is that going to continue like for a couple of quarters any information.

<unk>.

Alright, good afternoon, Cindy why don't I start with the <unk>.

Second question first.

The charge associated with the onetime costs that will hit in the second quarter, you'll see that next time.

The neighborhood of $3 5 billion.

On the first part the breakdown of the business.

About two thirds associated with the advocacy business with the remaining third split between expert.

Medical medical opinion, and virtual primary care with.

With direct to consumer being a bit <unk>.

Larger than the expert medical opinion, and we're seeing healthy growth rates certainly on the consumer business Raj spoke about it earlier in the <unk> business continues to perform year over year that business growing in the mid <unk> in terms of growth rate the expert medical opinion business.

A couple of points here number one.

Raj mentioned earlier, new sales volume is very encouraging and continuing to see not only standalone expert medical opinion wins.

Seeing knockouts of competitors and we're also seeing bundled deal sell which as you know very importantly, too. Our model is that we believe strongly very much a strategic thesis around both acquisitions is that when we can leverage the advocacy based on their relationship with a member to get that member to their needs whether it would be an expert.

Medical opinion, one of our ecosystem partners, where virtual primary care relationship, we're starting to see that flywheel turn and starting to see strong utilization there and so.

Second quarter in a row of positive sequential growth on expert medical opinion. After some slowdown that we saw a couple of quarters ago. So.

Some positive news there.

The 10-Q by the way you can do with this information around the pro forma information will be filed tomorrow.

Okay. Thank you.

Our next question comes from the line of Jonathan Young from Credit Suisse. Your line is open.

Hi, Thanks for taking my question. So it sounds like the new wins are coming in better than expected I guess does this give you enhance confidence in the outlook and the possibility of achieving profitability sooner rather than later and just on these wins do they have.

Smaller cheaper compares pulling back given the current funding environment that may be helping or are they actually still out there and now theyre just not winning any more.

Hi, Thanks for the question Jonathan I'll try to hit both of those ZIP. Please gentlemen, if you've got anything to add I think in terms of the competitive landscape. It hasnt changed dramatically Jonathan I think what.

We've done.

We've traditionally executed really well it and us hitting our value proposition of a comprehensive solution that engages broad populations delivers a personalized.

Service that human based and data.

Data driven population health approach and when we do a great job and I'd say that value proposition our win rates are strong and customers by that comprehensive value.

So.

No dramatic change in the nature of the competitive landscape.

Nor of our of our traditional win rates I think as it relates to profitability.

I think Steve said, it really well in his script were really comfortable with our guidance and our capacity to achieve the path that we've laid out looking forward.

Thank you. Our next question comes from the line of Craig Mark.

From Morgan Stanley you may begin.

Yes, I had a question just on the EBITDA guidance, which you've.

Taken up the low end of revenue you kind of maintained EBITDA.

On the back of that.

Sure. Thanks, Thanks, Craig for the question. So first of all around the cost side, Joe I would describe this as very much aligning the business post having done three acquisitions, finding synergies, putting aligning cost against the priorities of the business against the 20% growth rate, which had previously been 25. So.

That's a bit more on how we think about the cost cuts as far as this year, bringing up the midpoint the guidance by $2 $5 million and keeping EBITDA, where it is the fact that we're here at the end of the first quarter. We had a positive first quarter, we want to obviously see how things go over the next couple of quarters with selling.

Season, but.

Good confidence in that 10% or so EBITDA loss and then that continued positive trajectory trajectory from here to breakeven and then.

Adjusted EBITDA and cash flow positive.

Two years.

Thank you.

Next question comes from the line of Jeff Garro from Piper Sandler.

Your line is open.

And how are the distribution relationships that you referenced both the plan and consultant side, helping across those different segments.

Thanks, Jeff I appreciate the question I think in terms of.

Segments, we saw transaction flows in each of those segments over the course of the first quarter. So.

We continue to see traction across ranging from the middle market all the way through strategic accounts.

One.

And we expect that traction to continue into Q into Q2 and beyond.

One of the things. We're most excited about is the company has diversified its capabilities of reaching potential customers is the idea that our direct to direct to employer business. He is no longer the only driver of value in the business and so while we.

Just mentioned the diversification across those market segments as exciting are diverse.

Vacation across distribution channels is also exciting so we saw good traction in the first quarter with our health plan partners, representing both our advocacy and emo businesses and then in that quarter, Jeff and I mentioned it in my prepared remarks, we also signed for the first time our relationship with <unk>.

Priority health in Michigan to offer our primary care and mental health services to power their virtual first plan design options. So.

Those developments to us help us both diversify our distribution strategy and grow the business.

Okay.

Thank you. Our next question comes from the line of David Larsen from BTG.

Your line is open.

Hi, can you talk a little bit more about the tricare contract assuming.

Youre doing good work for them and they like the return that Theyre getting like when will we hear about an expansion of that contract and what is the total potential revenue contribution of that and when would it actually.

Flow into your P&L and would that be enough to offset the Comcast drag that's kind of really start to impact fiscal 'twenty four thank you.

Thanks for the question Dave.

We're excited to be able to serve the DHA.

The third year of the pilot and so I appreciate you, bringing it up.

It's part of the business that we're really proud of.

When you think about pilots in the government business, particularly around the defense Health Agency and Tricare think about pilots as things designed test new innovations prove them out and to determine if a service like this can drive value that value. In this particular pilot is Matt is as manifest.

In cost reductions improved clinical outcomes and member satisfaction remember on this particular pilot, we're serving members who spent more than $100000 a year on health care or have multiple chronic conditions and so.

We believe that by virtue of that.

The government signing up for the third option Europe the pilot that.

We're proving that this service can deliver value we will do so again in year three as we execute well.

And what happens when a government pilot goes well.

There's a great article by the way.

Military magazine military Medicine newsletter that we're happy to share with you post this call.

We are particularly excited about that opportunity because as these pilot capabilities embed themselves into <unk> five we have teaming agreements signed with three of the four vendors who are bidding and.

So our opportunity to become the service delivery engine for this type of innovation and others is pretty unique and profound given the nature of our good breadth of our distribution partnerships.

How will that manifest in the P&L.

David I think one of the one of the great parts of the government is the huge opportunity that <unk> DHA presents one of the one of beef.

Realities of dealing with entities of this size is that it takes time and so the T. Five bid is scheduled to be awarded this year I think for those of you who know the government business really well the bid will be awarded and then there's a likelihood of deals to the bit and appeal to the process and so the current schedule is for <unk> to deploy on.

One 2023, and then those innovation excuse me.

24 excuse me.

But we think what's important is the targeted addressable market here is significant our leadership role as material and.

In our distribution strategy and diversified.

Thank you.

Our next question will come from the line of Ryan Macdonald from Needham Your line is open.

Hi, Raj and Steve Thanks for taking my questions and congrats on a nice quarter.

One thing about the employment environment, obviously, the labor market continues to evolve since even the last earnings call as layoffs continue to pick up.

Just like to know to what extent youre seeing that within your customer base and what type of exposure you have there.

And then what assumptions are you making it.

Forward guidance for the employment outlook at your customers. Thanks.

Sure. Thanks for the question Ryan.

One thing to remind.

Everyone on the call is we're fortunate to have a highly diversified set of customers on the corporate side across.

Many industries, none of which comprises a material amount. So we don't have any individual exposure per se to one particular industry.

That is material.

What we saw in the first quarter is positive member growth within the book that created some upside which contributed to the revenue beat.

We've modeled an assumed as we head into a difficult environment here is that that will moderate for the rest of the year. So we're not assuming that that kind of growth will continue in our guidance and so.

So far we're seeing positive activity there with respect to members, but we're cautious given given the recessionary environment that we're in.

Thank you. Our next question comes from the line of Stephanie Davis from FCB Securities You may begin.

Hey, guys Congrats on Macquarie and thanks for taking my question.

Just given some of the positive tone in your prepared remarks I'd be curious as to how the alkylate sales pitch has evolved as you've seen enterprise benefits that does take a bit of a carrier.

Is there anything new driving the traction is that different than before effectively and as a follow up to that I would love to be I'd be curious as to any change in preference towards the three offering tears and if you're seeing maybe a one expand strategy go allied better tightened.

Since the question, Stephanie and thanks for being here.

Okay.

Traditionally accolade is done.

Landed the value proposition associated with return on investment and cost reduction in health care really well I think over the last couple of years I think we've expanded that value proposition very clearly as we expanded our suite in the personalized healthcare that we began to talk more and more not just about cost reduction, but also about clinical value improve.

Clinical outcomes and improving employee engagement in an environment, where that was really important.

Hi.

Candidly speaking our employers leaning in heavier on cost reduction in an environment like this one where most HR departments and CFO are being asked to take a hard look at the bottom line.

The answer to that is yes, and so I think we're leaning into a muscle that we've developed over the years and thats fairly well developed in our sales force.

In terms of offering mix.

It's actually quite interesting, while we do see.

What we call our core offering are continuing to grow and interest we oftentimes, but continue to see that growth happening in what we would call middle market customers customers who are.

Actually seeking an improved service and seeking lower costs, but don't have the capacity to disrupt their relationship with the carrier was a carve outs and so in that situation it's less about.

Cost of the solution and more about disruption associated with the carrier.

And then finally and then.

Wow.

The traditional flagship offering.

This is actually trending really well finally, I think this idea around land and expand goes beyond growing the advocacy offering from core uptick to our traditional offerings and also includes the idea that we're doing well, taking advocacy customers and adding expert medical opinion and care to our offerings are.

To their to their suite of.

Capabilities from accolade.

And that manifests the fact that more than that at this point about 10% of our members have more than one accolade offering in front of them.

Thank you. Our next question comes from the line of Stan Bernstein from Wells Fargo. Your line is open.

Hi, Thanks for taking my questions, maybe first continuing on what you were just talking about.

Mentioned earlier, the RFP process is really being focused on staffing ratios coupons guarantees I'm curious are there any changes in the level of performance guarantees that youre offering customers versus.

A year or two ago.

Thanks for the questions Dan I think the.

It's a great one because I think it reflects the increased value that we continue to innovate for our customers.

You were to look at <unk> five years ago, I think you might've seen performance guarantees that we're very focused on cost reduction, which we've always been very good as a reliable sustainable basis.

But also areas that might be about benefits adoption or engagement with other with other programs, but what we're starting to increasingly be able to deliver a therefore promote and deliver to our customers our clinical outcomes the capacity to engage with clinical populates, a population from a particular condition and drive improved.

Scoring on those populations and that's something that we're really excited about moving forward as we think it's differentiated and important.

Yeah.

Thank you.

Next question will come from the line of Dave.

Syria from Bahrenburg Your line is open.

Hey, Thanks for taking my question.

I wanted to circle back to you.

EBIT and the cadence of that just over the course of the year here.

EBIT guidance didn't move.

Move much.

It looks like Theres going be some.

And which line do we think.

When you look at the Opex that you will see more leverage.

Of course of the year and thereafter.

Then I think there was a comment on <unk> revenue and the impact on the Q2 guide.

Just to clarify that would be helpful as well thank you.

Sure Doug Thanks for the question so on EBITDA.

<unk>.

The charge that we mentioned will hit in the second quarter and Youll see really the benefit of that in the second half. So youll see that to your point, you'll see some of that dropping to.

So the bottom line second half.

Which is we're in the impact will be as far as the PG revenue. My comment there was that in Q1, we had some timing of performance guarantee revenue that was high gross margin and included in our guidance previously.

Point, there was that it contributed to the gross margin outperformance versus prior year by about five points towards an element in that contribution from that PG timing in Q1.

Thank you.

Our next question will come from the line of Sandy Draper from Guggenheim. Your line is open.

Thanks, very much I think my question, just got answered, but just to clarify.

Did you say in the prepared remarks margin our product mix impacted the gross margins was that purely due to.

The performance guarantees or is anything on plus here versus.

Expert and D or the base business that makes actually contributor was it really just a performance guarantee so I just wanted to clarify that thanks.

Sure. Thanks, Andy.

Actually I'm glad you raised that clarify because the contribution there was from from both CPG performance as well as the offering mix.

One bus care.

Operating at higher gross margins.

The broader business, which contributed this year without a number last year given the timing of the acquisition.

Those were both.

Really contributors to that outperformance.

Thank you I'm not showing any further questions in the queue I'd like to turn the call back over to management for any closing remarks.

Thank you everyone for being here and we look forward to updating everyone again in our Q2 call.

And this concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q1 2023 Accolade Inc Earnings Call

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