Q3 2023 Accolade Inc Earnings Call
Thank you for standing by and welcome to the accolade third quarter Conference call. At this time, all participants are in a listen only mode.
Speakers presentation there'll be a question and answer session to ask a question at that time. Please press star one wondering your touchstone telephone.
As a reminder, today's conference call is being recorded.
Now I'll turn the call over to your house, Mr. Todd Freeman Senior Vice President of Investor Relations. Please go ahead Sir.
Thanks, Operator, welcome everyone to our fiscal third quarter earnings call with me on the call today are Chief Executive Officer, Rajiv <unk>, Our Chief Financial Officer, Steve Barnes.
<unk>, our Chief Medical Officer will join the question and answer portion of the call later.
I'll turn the call over to Rajeev. Please note that we'll be discussing certain non-GAAP financial measures that we believe are importantly, evaluating equities performance details on the relationship between these non-GAAP measures to the most comparable GAAP measures reconciliations thereof can be found in the press release posted on our website also please note that certain statements made during this call before looking statements.
Private Securities Litigation Reform Act like 95, such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results.
Really from those expressed or implied on this call for additional information. Please refer to our cautionary statement in our press release and our filings with the SEC all of which are available on our website with that I'll turn the call over to our CEO rajeev.
Thanks, Scott and thanks, everyone for being here, while we still have one quarter left to finish the fiscal year. Our Q3 call really marketing ended the calendar selling season and the start of a new plan year for many of our customers.
As such on this call we're happy to provide our preliminary outlook for the next fiscal year and share the foundational details that give us confidence in our market position and our outlook to drive sustainable growth and profitability.
We had a successful 2022, adding new customers expanding existing relationships and increasing our footprint with our growing portfolio of offerings.
The market is speaking clearly that employees and their families want and deserve a better healthcare experience.
Accolades years of proven results, especially our ability to scale with the most demanding and growing customers are factory heavily under by the buyers and they responded by helping us achieve our strongest booking performance in company history.
People will give you more detail, but we expect that when fiscal 2023 is complete we will.
Have grown AOR bookings by more than 30% over last year, giving us confidence in fiscal 'twenty four but also providing the early foundation for continued growth into fiscal 'twenty five.
Notable is the mix of those bookings.
The trends that we've described over the past year, our new renewed and expanded commercial customer relationships were spread across customer size across distribution channel across solutions and across industry verticals.
It's that diversity that validates our strategy and our approach accolades solutions are resonating across the board, especially as we see the majority of new deals evaluating and selecting multiple solutions.
Our renewals are also increasingly expanding to add additional accolades solutions and partner solutions as well.
More and more we're hearing customers talk about their employees' health care experience as a key strategic imperative for driving employee satisfaction and retention.
One of the places where we see this clearly is the volume of advocacy deals this year.
In 2022, we saw renewed focus on the employee health care experience and on return on investment at.
And advocacy was once again front and center for our customers and the consulting community.
With our expanded offerings that we're now able to leverage that obviously discussion to also include other things like primary care mental health and expert medical opinion.
Again, Steve will cover this in more detail in the guidance section, but our confidence in our fiscal 'twenty. Four guide is rooted both in the growth in our newest solution as well as the strength of the advocacy market and our position as the leader of that market.
That leadership was borne out by our performance in this fiscal year and we intend to press our advantage in the years ahead.
The focus on employee experience and return on investment is true of our health plan relationships as well.
Our plants have been an important contributor to our growth this year, both from a logo and a revenue perspective.
Certainly one of the key reasons behind that attraction is the expansion of our offerings to include expert medical opinion and virtual primary care mental health.
This growth has positioned accolade is a core strategic partner as health plans also look to the member experience is a critical measure of success.
Good day member satisfaction.
Decorative priority for most health plans and accolades high NPS is very attractive as a complement to their existing installations.
Before I touch on our consumer and primary care business I'd also like to give you an update on our government business.
By now most of you have heard that the defense Health Agency made an initial selection for the vendors who will service T. Five the next generation of health plan services to the $9 million plus beneficiary Humana.
Humana with avoided the eastern region and try West was awarded the West.
While the vendor selection still needs to be finalized pending likely appeals process. We were thrilled to hear the decision as we've been anticipating an award for some time.
There were three bidders for the T. Five award we have teaming agreements with two other bidders at a strong relationship with a third.
With this decision we are positioned to serve a significant number of tricare families. Once the implementation begins.
At that time, we'll continue to work on our current government contracts demonstrating the tremendous value accolade brings to our current military families through the Tricare select pilot and the oxygen carrying demonstration I will work with a selected five vendors to define our potential scope and we'll provide an update when that scope is finalized.
Very excited to be moving past the evaluation phase of this opportunity and into the planning and execution phase for our category of services, we're extremely well positioned to see the government sector would be a driver of growth for our business in the years ahead as it has been for several years.
With respect to our virtual care business plus gear has continued to deliver outstanding results quarter over quarter.
Plus your team led by founders Ryan Mcquaid and Dr. James <unk> had been in front of the market since its inception, we deliver a wow experience for our members at a rich platform propositions. The result has been increasing subscriber counts with well manage customer acquisition costs.
Importantly on January one we turned on a number of enterprise virtual primary care customers significantly expanding the number of lives lives we're prepared to serve.
The combination of our consumer focused business, which requires a different level of user experience to drive acquisition and retention and our commercial business, which requires a different understanding of how to scale because certain millions of lives creates a powerful platform to drive growth for years to come about a year and a half after the acquisition of plus cure the core hypothesis of this transaction.
That's been validated in both the consumer and enterprise segment, and we're bullish on the future of this business.
Before I talk a bit about the upcoming year and our strategy to continue our momentum I want to take a minute to highlight something that many people take for granted but it's really the foundation of our customer satisfaction.
Every year between October and December almost all of our customers go through an open enrollment process.
Especially when our customers changing their benefits in some way. This is not only the busiest time of year for our frontline care teams.
It can also be the most stressful times for our members and their families to.
To give you some comparisons at the time of our IPO in 2020 accolade had roughly 50 customers in total.
This year, we managed to open enrollment for hundreds of customers. We're now operating at a level of scale with millions of members at high engagement rate that would place us among the largest carriers in the country by membership.
Aside from the obvious importance of delivering the service at scale with high member and customer satisfaction open enrollment presents something far more critical frac late success.
Our new customers, which is usually the first touch point that a new member Hasnt passed with accolade health assistant.
It is the moment that we plant the seeds of proving the value of creating a personal relationship with every engagement opportunity. It is that ability to build personal relationships with millions of members to drive better health care outcomes that differentiates accolade from our competitors.
A key reason for our high win rate.
Turning to the outlook for the next fiscal year and why we believe strongly that we're set up for continued success I'll start with the financials and will end with a word about our strategy and our identity.
Simply put our booking success in the past selling season gives us great visibility and high level of confidence for our fiscal 2024 revenue guide and our profitability outlook, Steve will give you more details here, but we're pleased coming through a difficult macroeconomic environment with this outlook.
We have a business that's diverse in many ways. It's diverse in how we sell we sell across a number of channels, including our direct commercial sales force through our health plan partners, leveraging our trusted partner ecosystem and to the federal government and direct to consumers. Its diverse mix of solutions, we offer our service offerings allow us to meet customers, where they see fit either.
With individual solutions for increased increasingly as bundle multiple offerings.
Our growing primary care business allows us to impact both health outcomes, and overall health care costs and more meaningful way.
And it is diverse in terms of its revenue foundation, our highly visible revenue model allows us to set our investment strategy to pursue the areas of most impactful growth to help drive us towards cash flow positive.
In the next year and beyond.
This diversification is now a core strength of our business driver of complementary value across offerings segment.
And solutions.
And stands in Stark contrast to our business, even just three years ago as.
As we make the turn to free cash flow positive in fiscal 2025, which begins just 14 months from now we will be one of the few scaled diversified healthcare disruptors in the market.
For our customers, while they want to know that we're financially strong they're far more focused on who accolade is as a business and as their personalized health care partner. They know that we built solutions and services that are engineered to cure.
Accolade has spent more than 15 years engineering, a better healthcare experience one that predictably engages members to understand their care needs proactively nugget navigator and the quality care and informed healthcare decisions and addresses barriers to taking health care actions, including social determinants of health all while delivering exceptional.
First of all life experience.
For employers and payers looking to improve the health care and benefits experience for members, while reducing the cost of health care isolated the one company that delivered improvements in outcomes and plant performance by guiding members to the next best clinical action in their personal health care journey and.
And we do it at scale across the entire employee population.
Like our competition accolade solution is predictive proactive and personalized allows us to address barriers to care and offer proven results.
When we say that accolade engineered to care, it's important to recognize the multiple dimensions of what it means to cure.
Cares about the active physically or virtually delivering medical care, whether that is through one of our own physicians and nurses through a trusted partner like BARDA or carrot fertility or through our members' own trusted medical providers.
Ah carrots also about the active carrying for another human being.
Thetic listener instead of the anonymous call center agents.
That is a personal element of the care journey that we can't fully replace with technology, but that we can make better through engineering.
It starts with a fully integrated set of offerings that we can deliver value singularly, but really begins to transform the health care experience when it's used in concert.
It's about having a robust and modular open platform that allows us to plug in third party services and solutions with trusted partners.
Our intelligent technology and proprietary approach helped accolade care teams build lasting personal relationships with everyone. We serve.
This unique approach rests on three foundational pillars the.
The promise of being engineered to cure that we enable predictive engagement deliver proactive care and address the barriers to health care access.
You'll be hearing more about these pillars in the months to come but in short our predictive engagement model continuously captures critical population and unique member health insights. So we can proactively address clinical and cost related risks across the organization.
Supported by this intelligent our team proactively identifies and engages individuals in need of care guiding each member to the next best clinical action. So they can achieve the best possible outcome.
And lastly, accolades diverse care team supported by predictive data with trained to understand and address the needs of each member. So we can engage those likely to face barriers to care and guide them to the right care.
You'll hear more about our engineered to care approach in the months to come and I look forward to sharing more customer success stories around this vision.
I'll turn the call over to Steve.
Thanks Raj.
First I'll recap the results for the third quarter of fiscal 2023, and then provide some details on forward guidance for the fourth quarter and next fiscal year.
We generated $99 million in revenue in the third fiscal quarter, which was ahead of our guidance primarily due to strength in our direct to consumer business as well as member count for our commercial customers, which has stayed relatively strong despite the macroeconomic environment.
Note that the quarter also benefited from about $1 2 million.
Foreman guarantee revenue timing that was not included in our Q3 guidance.
Fiscal Q3, adjusted gross margin was 45, 9% compared to 47% in the prior year period.
Last year Q3 included a performance guarantee revenue timing that benefited gross margin and adjusted EBITDA.
For a more relevant comparison note that are nine months to date adjusted gross margin was 45, 4%, which compares to 43, 1% for the nine months year to date period last year.
Adjusted EBITDA in the third quarter of fiscal 2023 was a loss of $10 $2 million, which was ahead of our guidance and compares to a loss of $11 9 million in the prior year third fiscal quarter.
We are currently at an adjusted EBITDA loss of $39 $3 million year to date and expect to finish the fiscal year and the range. We have consistently provided throughout the year.
Turning to the balance sheet cash and cash equivalents totaled $326 million at the end of the fiscal third quarter and accounts receivable Dsos were in line with prior quarters and about 20 days revenue outstanding.
And finally, we had about $72 4 million shares of common stock outstanding as of November 32022.
And now turning to guidance and elements of our financial model progression towards breakeven.
We are updating our guidance today for fiscal year 2023, and are now forecasting revenue will be in the range of $351 million to $365 million representing year over year growth of approximately 17% at the midpoint.
And we forecast adjusted EBITDA loss guidance between 36 and $40 million.
With respect to the fiscal fourth quarter, we are providing guidance today on revenue in the range of $97 million to $101 million and adjusted EBITDA in the range of a $1 million loss to a positive $3 million.
On today's call. We're also providing a preliminary look at fiscal 2020 for revenue and adjusted EBITDA.
We've said throughout the year that we believe we can sustain a 20% revenue growth rate and we reiterate that outlook today.
Fiscal year 2020 for that 20% growth will be net of Comcast, which will contribute approximately $23 million of revenue for fiscal year 2023.
Based on that math and our current year revenue guidance, we are providing preliminary fiscal year 2020 for revenue guidance of approximately $410 million.
We expect that adjusted EBITDA loss will improve on both a percentage and absolute dollar basis to a range of 5% to 7% of revenues in fiscal 2024.
It's our intention to invest strategically in the growth of the business returning any top line upside back into the business, while maintaining the adjusted EBITDA target.
Historically.
And I'd like to provide a couple more data points to help you model out next year and our path to profitability the following year.
First as Raj mentioned earlier, we've had a very strong selling season.
Youll recall that we signed roughly $54 million of IRR bookings last fiscal year.
So in calendar 2022 closed and more deals on the pipeline for January one 2024 launches, we are well on pace to deliver a growth of more than 30% over last year.
That success is the foundation of our revenue growth forecast for fiscal year 2024, and is already forming the basis for additional growth in fiscal 2025.
Second as you build your models towards breakeven or better better in fiscal 2025, I'd like to give you some guidance on where to model operating leverage across the P&L line items.
We will provide more detail after the fiscal year closes, but at a high level you can expect us to continue improving adjusted gross margin by 100 to 200 basis points per year with a goal of 50% adjusted gross margin in fiscal 2025.
On the operating lines the greatest leverage is in the product and technology line, followed by G&A, and then sales and marketing.
So if we were to improve each of those line items by roughly 100 basis points each year that would get us a five to six percentage points you need in order to achieve breakeven and beyond over the next two years.
I'd like to make one important point to help you understand our view towards these goals.
These are rough guidelines for building models, but we are not as focused on 50 basis points here or there. We're focused on the objective of reaching breakeven in driving profitability thereafter.
If we see a reason to invest more in one area will adjust other spend to accommodate it.
Otherwise the boat is not a G&A target of X percent per se the goal as adjusted EBITDA and free cash flow positive in fiscal year 'twenty and beyond.
I'll also take a moment to anticipate some questions we may get into Q&A.
We've been asked a lot about the labor market and how we work have member count in the face of an uncertain macro environment.
We take a relatively conservative view on member counts when formulating our guidance, but it's more notable that we have a business today that is widely diversified across customers industry solutions and distribution channels.
Two years ago. This was a more relevant discussion when we have 50 customers one of which represented about 20% of revenue and another 20% of revenue.
Was it concentrated in two airlines dealing with Covid.
Today, we are a business that there is more than 700 customers with no single industry vertical representing a concentrated portion of our base.
Second we're often asked about our commitment to achieving positive cash flow and adjusted EBITDA in fiscal 2025.
<unk> continues to be that we remain committed to fiscal discipline and our timeline for profitability and have consistently demonstrated our ability to manage the business in order that we maintain our bottom line target.
To that end, we will continually look at our business defined areas, where we can operate more efficiently.
For example, we're continually finding synergies across the business as we combine all of our capabilities to create an integrated health care platform.
In addition, we continually assess where we concentrate our talent across our various office locations as we are.
We're well situated already into lower cost lower labor cost markets like Prague in Vancouver for example, where we can be opportunistic in our growth investments.
Given our track record of steadily improving gross margin and adjusted EBITDA. We are confident in our ability to manage the business appropriately to stay focused on this goal of adjusted EBITDA and free cash flow positive regardless of the economic environment.
And as I noted last quarter, our convertible bonds are not due for more than three years.
$326 million cash on hand, we have more than adequate liquidity to achieve our financial plan without going back to the capital market, 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 that we have an engine built for growth and sustainability, which will ultimately drive significant positive cash flow.
With that we'll open the call for questions.
Okay.
Hi, operator, we're ready to take questions. Thank you.
Hi, Valerie if there's any questions.
Operator, you there.
Yes.
With us for a moment, we're just our operators seems to have disconnected and so we're working through some difficulties to be hanging with us for a moment.
We'll work through it and we'll be we'll start taking Q&A here shortly.
How much.
That's where most of our guys. When we bought the operator, Mike Cherny gives you can here. So you can ask your question go ahead.
Hi can you hear me.
We've got you.
Okay great.
I appreciate the color.
On both the selling season and into next year, maybe Raj if I can start a bit on some of the selling season commentary can we just dive a little deeper you mentioned the employment dynamic, but also there's a lot going on relative to employers' decisions beyond their appointment levels about whether or not they want to take on new benefits or not how they think through their benefit.
<unk> can you maybe give a little bit of push and pull in terms of what resonated most from whether it's a <unk> total care approach versus point solutions and maybe if there was anything that had a little bit of a.
You get a pause or a pullback or not now call me in six months mentality relative to your ability to layer on new benefits.
Yes, I appreciate the question, Mike and sorry about the technical difficulties, there well see if thats your previous capable of moderating itself from here, but let me just get the first call of the first question.
Got a couple a couple of ways to answer your question, Mike and I think it's a really important one the first is to really start and when you think about the growth rate of the company think about the diversified revenue stream.
About our primary care business and to continue the growth rate of that consumer primary care business and then also think about the growth in our bookings numbers, which is what you referred to as it relates to bookings and as it relates to employer buying pattern. One of the things that we continue to see is that employers are interested in looking at driver.
Drivers of employee satisfaction and of course.
Those drivers are employee satisfaction that can measurably provide return on investment lowering cost and so solutions in our category have continued to be really valuable to them now I think the really important question is why are we winning more than our fair share of those transactions and delivered a 30% growth in our bookings on a year over year.
And I spoke to it a little bit in the context of our engineered to care.
Our engineered to care delivery vehicles, and so with that I'm going to turn it over to our Chief Medical Officer Sean.
Talk a little bit more about why we're winning and then I'll maybe jump back in and answer your final question about employer behavior. Jonathan Yes. It's a really great question I think what were hearing pretty consistently from our customers at <unk>.
Conversations with our prospects and our current customers in that.
They're continuing to look for the same thing they are looking for.
You can get to the right number that the right time, right and Thats for our predictive engagement. They are looking for who can get the quality of care and better outcomes. That's the proactive care and increasingly they are saying who can help us also improve health equity and Thats, where our approach to addressing Garrett is coming in.
And just one evidence of that.
We just had a team.
Harvard Business Review magazine, just a couple of weeks ago, and really highlighting our approach to health equity.
Specifically highlight some other work that we did with United Airlines, which we think is pretty pioneering on the front edge improving health care.
For marginalized groups. So I think all of those things are continuing to both rail and driving.
Number of that Raj.
Yes. So lastly, the last part of your question Michael If there was any themes around people pushing transactions on a year over year basis, what were those themes, that's the bottom line as well.
We've seen we've seen really strong growth in bookings across the categories that we deliver and we.
We think the reason, we're seeing that growth as people aren't pushing those transactions and the reason they are not pushing those transactions as we do both we deliver employee satisfaction and we deliver tangible measurable ROI that we warrant with art with our orange guarantees that are embedded savings.
So that's why we think we're seeing this kind of traction right now.
You State the question Mike.
Got it and just one more quick follow up I know you have the multiyear targets that you talked about <unk> being in the various different phases of appeal or whatnot can we just confirm that there is nothing in the long term targets tied to the <unk> announcement.
And how would you think about the visibility youll have it to that.
Yes.
I appreciate the question Mike we're extremely.
Really excited about how well positioned we are in that tricare space in our category and the capacity to grow and the innovations. When you think about our business. There are current plan as you know thats about $10 million ish or revenues associated with our existing relationships with the government.
Those are our oxygen pair demonstration as well as our Tri care connect select navigator program. If those programs were to grow as they are and as they're currently defined.
They could grow to you or ask their current size of course, the timing on that will be variable. The T. Five agreement, having just announced its awards has some variability associated with the appeals process et cetera.
All of that said and this is maybe the direct answer to your question, we have nothing in our 2024 or 2025 model.
In terms of our top line revenues that imply anything other than the simple continuation of the existing revenue stream with some modest growth associated with that.
Way to think about our Tricare business, though is the way I would perhaps we've positioned in the past the strategic account space for us, but there are large transactions out there in the federal government. There are no larger transactions on the federal government our space like this one where you can't predict the timing what you can do is put yourself in an extraordinary position to be.
Ahead of your competition to take advantage when the timing of those transactions it does manifest.
And so yes. The answer is we've got nothing baked into our into our plan outside of what the current revenues are in 'twenty four 'twenty five and we're bullish on the capacity windows when the when that transaction actually does reveal itself that it will present, some upside to our models going forward.
Perfect. Thanks, Thanks, so much.
With the other technical difficulty I think we have an operator online now Victor are you there to take over I'm here.
And as a quick reminder, limit yourself to one question each and once again Thats star one one for questions one more.
Our next question.
Our next question comes from the line of Ryan Daniels from William Blair. Your line is open.
Hey, guys congrats on the quarter. Thanks for taking the question.
Another bit of a follow up there in regards to health equity and social determinants of health. We're also starting to see a lot of Medicare advantage plans and managed Medicaid rfps from the states requiring that and it seems like health plans don't have as robust solutions Sachs. There. So they are going out to partners and I'm curious if you've seen that.
That is an opportunity to continue to expand your distribution channel doing some partnerships with payers on a go forward basis, given your expertise there. Thanks.
Yes.
First of all thanks for the question Ryan and it's great to talk to you I'll start the answer and then again I'll turn it over to our Chief Medical Officer.
Well, maybe in the answer around post in service of health and those capabilities.
One of the things that we really are enjoying about our relationships with health plans as we are growing as we keep growing those relationships from their foundations and expert medical opinion.
He is the Commoditized Asian or the capacity to deliver different components of our capability to those health plans and it means that allows them to take their our capabilities to their customers in the way that they want to deliver them and so to us different capabilities and advocacy for example are becoming more and more important to health plans and.
Those capabilities being delivered via health plans to their members is an important growth opportunity for us moving forward.
Think potentially those capabilities around social determinants of health are also an opportunity in that regard to yes is the answer to your question, but I'll, let Sean can you describe kind of some of the things we do from a <unk> perspective.
Perspective that might be spoke about.
Yes, I think it's a fantastic question I mean I think.
I believe approach.
That's helpful. In terms of help really has been holding in the commercials right.
It started with this really simple idea.
Having our health assistance that really represent the communities that we serve.
Hi, Terry model that we've built which is a behavioral science approach to really be able to understand members understand their specific needs and over the last several years really a lot of investment in data and technology wasn't needed to build the scale that although it was really interesting about the work we did with the <unk> that it was sort of proof positive that our approach that we've taken.
Brexit, we dissolved in Holland, it around a commercial population, but without taking here really really sick and complex veteran who was that.
Model extended extremely well.
I think that bodes really positively in terms of thinking about other populations that we might want to address over time is that ultimately the barriers that these different populations, whether Medicaid or Medicare populations are near a lot of the same challenges that working or working for and work with American base and so we think there's really a huge opportunity.
And as Raj said.
The address the population over time.
Yeah.
Thank you one moment for our next question.
And our next question comes from the line.
Smarts from Goldman Sachs. Your line is open.
Hi, Thanks for taking my question and congratulations on the quarter I was just wondering because you usually Steve give us maybe a breakdown of the divisions I. It sounds like expert MTS doing pretty well and it looks also like plus carriers continuing to grow higher than we would've expected, but maybe just a breakdown there.
And then would you expect that to continue like sort of rough percentages into next year. Thanks.
Sure. Thanks for the question.
Give you some comments and color on that for the third quarter and also look ahead basis.
For the Q3 over performance versus our guidance, we saw strength across the different categories.
Advocacy had strong performance.
Plus care businesses continued to grow in the range of 30% topline and expert medical opinion.
Pad rebounded quite a bit.
We'll have quarters that as we look ahead the strong bookings that we deem this calendar year that Raj spoke about in his comment give us a lot of confidence that the advocacy part of the businesses.
On track to begin to get back to that 20% growth rate. In addition to <unk> continuing to perform over and above the 20% growth rate on the virtual care business and the expert medical.
Opinion business growing in the neighborhood of 20%. So importantly, assuming the diversification of the platform and the different revenue streams that we have in the different business unit and sources of revenue. We have we're really trying to be quite an asset in terms of new business as well as the ongoing customers.
Thank you one moment for our next question.
Our next question will come from the line of Craig had inbox from Morgan Stanley . Your line is open.
Yes. Thank you Raj I just had a question on just the element of cross selling in the portfolio today. So after the acquisitions of plus Karen second MD now many quarters under your belt, just how are the customer discussions changing in terms of what they're valuing the most and how may that be kind of helping you in the marketplace.
I appreciate the question Greg Great to talk to you again I think the.
Maybe it's a new process of two different from two different advantage point.
Existing customers, who would take advantage of our advocacy solution have a platform by which they can drive engagement for other solutions. They have known that forever, because we've been coming to them with our trusted partner ecosystem talking them about herta talking to our carrier talking to you about sort and we saw great uptake in those solutions within our customer base because those customers.
New that we can drive engagement at higher levels than they could do independently.
When we came to market with an expert medical opinion in a virtual primary care and mental health solution or <unk>.
Customers had a first evaluate.
The capacity of those solutions, where they functionally superior did they deliver the value that they were expecting or better and how do they compare to our competition. What they found was that we checked all those boxes, we have best in class solutions that drove extraordinary value independently. They already knew that we can drive extraordinary engagement and so what do we see.
That early evaluation process post the acquisition, we saw a great uptake I think we talked last quarter about the fact that 10% of our lives are now live on more than one solution that accolade that number continues to grow.
And what we're seeing it most of our new deals now switching to the second vector new deals and new transactions, new customers getting to know us full stop or buying more than one solution as they go through the process I think the maybe going back to a macro trend Craig that you and I have talked about in the past.
Benefits buyers are achieved by the idea that thousands of solutions that they're getting approached by every single day, a want a single place to go to find the value that they need while we think we've done.
Sexually well over the course of the last two years or three years as we've together the highest value solutions those things that provide the most clinical value with the right levels of engagement and in turn drive lower cost and better satisfaction and so we're seeing in both of those vectors at.
That the conversation is now shifting to but when should we deploy it and in what order should we deploy it burst is are these the right answer for us.
Yes.
For next question.
Our next question comes from the line of Glen Santangelo from Jefferies. Your line is open.
Yes, Thanks for taking my question good evening.
Steve I wanted to talk to you about the forward guidance, if I look at the fiscal 'twenty four guidance, you sort of laid out it kind of assumes.
Rough numbers like an incremental $45 million to $50 million in revs, and maybe about $14 million of an improvement in EBITDA at the midpoint, which would kind of imply an incremental 30% adjusted EBITDA margin is that the right way to think about it because.
What I'm.
What I'm trying to do is sort of extrapolate that through to 'twenty five right I mean to get depending upon what you think the incremental margins are I'm trying to get a sense for what youre expecting.
Revenue growth to be in fiscal 'twenty, five in and sort of comparing that to what you told us a long time ago historically about the long term EBITDA margins of the business in the 15% to 20% range. Thanks. So if you can just sort of reconcile all those numbers that would be helpful. Thanks.
Sure Thanks, Glenn and thanks for the question.
First of all we're really pleased.
<unk> bookings of fiscal 'twenty three are all coming off of calendar 'twenty two to be able to provide preliminary guidance that we're 10 number.
North of 20%, excluding the Comcast.
Termination this year and to reiterate over and again the importance to us by fiscal 'twenty five breaking through to breakeven and so Glenn we think it's a combination of a few things first of all diversification on the top line and growth rate, we've got good visibility to that and confidence.
Coming off of the.
Bookings decreased this year secondly, with respect to gross margins that certainly have.
Continue to expand over time, we can see we see that on a continued march up from there and then finally <unk>.
Joining a deleverage on opex, while at the same time, where we are investing in the business against that growth opportunity all of that taken together gives us that profile towards what we what we're laying out today and seeking essentially the EBITDA loss from 10 or 11% of revenues.
The 7% range and then to breakeven and positive two years out from now in the fourth quarter call. When we finish out the year, we'll provide more color on all of that in more detail on the forward guidance, but I think all of that sets up and what we're essentially saying today is we are reaffirming with confidence that model that we've laid out on that.
March towards breakeven and profitability, while we're growing with.
Top line of the business in a very very healthy way and maybe just add that last question. We can jump to the excellent Ssds answer for Glenn's question before adjusted next one yes, I think what we tried to lay out today with a view to fiscal 'twenty for revenues is just that.
Based on the performance of the business. So far this year that we feel really good about there about top by next year. In fact, we took that at the.
Topline guide did a little bit ahead of the consensus numbers that are out there right now and.
And we feel really good about our path to profitability, we will give a ton more guidance around how all of that work that you noted I think of it in your preliminary note earlier, we don't typically give a whole bunch of detail on the Q3 call. We give a lot more detail in the Q4 call. We'll plan on doing that in the Q4 call when we talked about 24.
<unk> to 'twenty five as well.
One moment for our next question.
Our next question comes from the line of Jonathan Young from Credit Suisse. Your line is open.
Hi, Thanks for taking my question and congrats on the strong results in selling season, I guess the extent in your comments about what employers are looking for the hurdles to achieve performance guarantees risen during the selling season has the ask from employers to you increase more than normal given the backdrop on enhancing benefits.
And I, just ask just to get a better sense of.
Are they asking more from you than just competitors just aren't able to keep up and you're just.
Massively outperforming them.
I appreciate the question Jonathan it's great to talk to you again.
Maybe let me have said.
And a little different way I don't think they've changed dramatically I think a couple of things have happened though.
We've lived in a competitive universe since we were.
At the beginning of time and by competitive Universe. I mean, we lived in a universe, where customers had extraordinary demand in terms of the return on investment associated with our solution.
Since the company was founded we've been putting fees at risk since the company was founded we've been we've been warranty cost saving on a comparative year over year basis.
It's different in most categories.
Ill health care benefits delivery most category.
Looser ROI requirements and the one that exists in our categories I think what perhaps has changed it not the rigor of which customers are asking for measurement and asking for accountability, but instead. The fact that we now have most of our competition theres been a lot of new competition in the space over the last several years most of our competition does not have to live through one or two year.
Years of actually delivering improving they can deliver against that value.
Accolades proven history of having done so for 789 years.
And then doing so again in the last year is.
Is proving to be a competitive advantage customers are seeing our history and our proven capacity to deliver return on investment against some of our competitors, perhaps not being able to do quite as much.
As a driver of us winning more market share.
Thank you one moment for our next question.
Our next question comes from the line of William Hoover from Canaccord. Your line is open.
Hi, yes. Thank you I'm on for Richard close Thanks for taking my questions and congratulations on the quarter.
So I was hoping you could provide a little more color on kind of how health plan sales.
I believe last quarter I would say that to help branch sales were double digit percentage.
The new <unk>.
Coming on and I Wonder if you could provide a little more color on how thats progressing and kind of expectations with new relationships.
And the expansion of existing relationships, maybe some timing for the future quarters or any expectations.
Okay.
I appreciate the question and thank you William for being here.
Let me break down the <unk>.
Channels by which we deliver our service and then I'll come back to the health plan.
A growth vehicle I don't think we gave a bunch of detail as it relates to <unk>.
As it relates to the percentage of new IRR.
But instead, what I can tell you it.
We've got our direct to employer segment, we've got our direct to be at the Health plan segment. We've got our government segment and we have our consumer segment each of those when we look at them. However have a capacity to grow in the 20% to 30% range depending upon the market segment that we're in and what we're seeing across each of those has the capacity to deliver our primary.
Care business, our <unk> business, and our and our advocacy business, we think each of those segments and each of those categories have an opportunity to grow in the 20% to 30% range. What we've seen with our health plan business is particularly strong delivering capabilities like expert medical opinion virtual primary care, which is becoming increasingly.
<unk> important to that channel and individual components of advocacy is sharpening spoke about earlier in his answer to the question around us around social determinants of health and so what we continue to see with that health plan channel and hopefully this answers. Your question Liam is opportunities to go into the channel or existing partners with new capability some of them that are.
A component of the advocacy solution, we deliver to our customers.
And the capacity to grow New health plan partners over time, but we'd love about that channel and we love about our mid market offering and what we love about our consumer business is that each of those channel continue to sell even when the so-called selling season for health care in the enterprise segment stops and so what thats, creating is less and less seasonality.
Our business and more and more predictability based on sophistication.
Thank you one moment for our next question.
Our next question comes from the line of <unk> Singh from <unk>. Your line is open.
Thank you and good afternoon, everyone.
I actually wanted to top.
Talk about some long term high level question what are the trends we are seeing in <unk>.
Broader market is that more and more employers are trying to narrow down the benefit vendors. They are working with.
Radio vendors have talked about trying to get into more risk based arrangements so that to drive more engagement with these vendors.
If these trends accelerate how do you think about the value of employee and location and bright engagements and with you guys provide if we do see these trends kind of moving forward and continue.
A few years. So maybe you can give us some high level thoughts on that three to five years from now.
I think that trend exists Gen. I think first of all it's great to talk to you again, sorry, I got Super excited to answer your question I forgot to be blood. It's good to talk to you again and thanks for being here.
That trend that you are speaking to do employers want to consolidate the number of vendors that they are working with yes, and they have for the last several years.
And so that trend already this will accelerate into the future I don't know the answer to that question, but I think all signs point to yes.
If that's true.
Do they want return on investment as a driver of value because they are tired.
Buying 10 different point solutions, all of them, saying theyre going to save money and yet their overall health care trend line goes up answer to that is also yes of course, they do and so are they going to be more demanding as it relates to return on investment guaranteed and performance guarantees I think the answer to that it also yes, and the question becomes well what do you need well very clearly you need an engagement engine.
And to be able to get your people to the solutions that you want them to use in order to lower cost you need a population health strategy that helps you understand which solutions you need.
Need a means of reaching.
That stratified population with the right actions, we call them throughout the actions that accolade, but the capacity to guide them to the solutions that they need when they need them at the right time at the right place.
That is exactly what <unk> does and so in that context. If you already had a platform that was already based on there was already measured on performance guarantees and return on investment you would leverage that platform to answer the question that you just talked about.
When we look at a 30% growth rate on bookings. This year I think what we're seeing is the trend the very trends that youre talking about manifest in the behavior, that's happening in our space and so.
If that behavior continues it bodes well for our company.
Thank you for a moment for next question.
Our next question comes from the line of Ryan Macdonald from Needham Your line is open.
Hi, Raj and Steve Thanks for taking my questions and congrats on the preliminary good news with <unk> five my two questions really are just focused on that first off with with.
Humana and try west winning the two regions does that still placed unit position Q.
When both opportunities.
If they go through appeal and sort of stick with those.
Two two carriers and then second as we look into fiscal 'twenty four and the preliminary guidance you placed in there today on the adjusted EBITDA side are you already contemplating incremental investments that youll need to make to start to scale up.
The staff for launching Tri care.
Preparation for a 2025 launch thanks.
Thanks for the question Ryan.
Let me hit both of those and as Steve If you want to jump in if I missed something.
So first the first part of your question as it relates to.
Do we have an opportunity in both regions at the regions remain awarded as they are the answer to that question is absolutely yes.
I think what we've talked about and we're only able to publicly disclose that we've signed teaming agreements with two of the partners. We've got a really strong excuse.
He'd be with two of the parties that bid the agreement we have.
A really strong relationship with the other.
We believe there is opportunities to team across both of those regions, regardless, who ends up winning EBIT. After the appeals process. So.
So that's part one of the answer part two of the answer then is and I agree with you.
Really optimistic about the future of our capacity to grow the business in that category.
Have we already factored in investments, but I think the really great news there we've already built a service infrastructure to serve the government we've done that in our autism care demonstration, we've done that with our Tricare select navigator program.
Oftentimes building out a new service in a new service offering the most expensive part of that story is the initial build out.
Phase in of the of the offering we've already done that work and so our capacity to grow from here really is leveraged off of variable costs associated with the growth of population.
The business, we're very familiar with and we're quite comfortable that with Manuel.
And the only hey, Brian This is Steve the only thing I'd add to that is when you see the preliminary guide there to the topline in the 5% to 7% on the bottom line, what youre hearing from us.
Any variability and there will be about investment into fiscal 'twenty, five and staying committed to that breakeven and positive free cash flow in fiscal 'twenty, five, but given some room there.
Pending some opportunities upon groups.
Thank you.
For next question.
Our next question comes from the line of Jessica <unk> from Piper Sandler Your line is open.
Hi, Thank you guys for taking my question and congratulations again on the quarter. So I was just hoping for some detail about the size and the duration of the autism caris demonstration and can you remind us what services, you're offering and how you were kind of able to transform the accolade and.
Navigation offering to specifically state that population.
And then maybe if you could remind us how much is that contract contributing to the P&L and as the renewal tied to the <unk>.
Thank you.
Thanks, Jeff for the question.
<unk> is a unique program. It is a clinical pilot program being run in a in a core set of regions.
To actually deliver an extraordinary amount of clinical value for families who are wrestling with the challenge of managing children, who are on the spectrum.
Dr. <unk> on these here in case, we need a more details on the program itself, but the nature of the agreement.
Is to actually deliver.
As a as an increment to our stand alone from the T five arrangement.
That demonstration has actually been renewed and like all government contracts, Jeff is a year over year renewal process.
The agreements are one year in nature, it's been renewed and and we were seeing extraordinary value and we believe theres an opportunity to grow from its current region into new regions moving forward.
If it does in fact do so as we've talked about in the previous answer to the previous question that would represent upside to the model and the way, we're thinking about it Steve or something I think yesterday.
Yes, I think the only thing I would add from a clinical perspective on your question around what does it take to be able to adapt the model I mean, I think over finding again is that our model very extensible right. I mean, I think if you think about what we're doing on the commercial side raw competitive dealing with people with really complex medical needs are addressing them in a full person way are doing care coordination for those.
Families and so whether that transplant, whether that oncology or in this case, whether it's around autism.
Very similar stat, the foundational capabilities, we need on most of the incremental investment was around some of the specific requirements that the government has around data.
While we found that the model we have is very accessible.
So we've been very happy with.
Outcomes will get it.
Thank you one moment for our next question.
Our next question comes from the line of Stephanie Davis from SVP Securities. Your line is open.
Hey, guys. Thanks for taking my question and congrats on a follow up call later.
Raj.
I thought it was notable that we always think of you as an employer facing solutions and in your prepared remarks, essentially just focus on the government payer business.
So with that in mind in the prepared remarks, but the changing mix in business.
I'll lead hoping you could talk about what sort of mix shift that create enduring investment and how youre looking at hiring across engineers versus sales folks versus clarity as you go more towards the.
Outside of the employer base.
First of all thanks for the question sounds great to talk to you and it's great to talk to you again and thanks for being here.
Anthony I think here's the way, we think about the business and we will always think about the business.
We've got a diversified set of channels that we delivered CFO .
And a diversified set of solutions that we deliver into those channels and we've kind of walked through those.
I won't I won't walk through each of those.
The commercial sector, our direct to employer excitement and are reaching that segment either via our direct sales TMR via our health plan channel continues to be an extraordinarily important part of our business.
And.
And the majority of our bid so if there was any implication or.
Anything that you took out of my prepared remarks as it relates to our focus on the government business being larger or potentially the outside to our commercial business or even our consumer business.
That was that was not intended instead.
Instead, I think what we what we believe is we have really healthy growth opportunities in the commercial segment, we've talked in the past about when you think about the commercial segment and the fact that I think last time, we talked about the number of customers. We had we talked about north of 600.
There's 30000 35000 opportunities in that commercial segment, we've got plenty of room to grow there and plenty of room to build $1 billion company. Just there. We also think there is.
Segment in the government space that has an opportunity to be hundreds of millions of dollars on a long term basis as well and beyond that we think it can.
<unk> segment of the direct to consumer segment has an opportunity that could potentially be a $1 billion business on its own.
Why were excited about the business each of those is going to grow at different rates and therefore require a different level of patients, but the level of capital investment et cetera, We've got to do that within the context of being a $500 million company Thats pre COVID-19.
Cash flow breakeven or better in fiscal 'twenty, five and Thats, what we intend to do so.
I wouldn't say we were over that we've shifted our.
Our focus in some material way only to say every quarter, we aspire to give you color on all the things we're working on because I think in fiscal 2021 and two in 2020. When we went public we were a one product company with one segment and sometimes we want.
To make sure that the market as a whole understand that this is a fundamentally different business more diversified more capable.
And with far more predictability to the go forward.
As to the go forward revenue streams in P&L.
Thank you one moment for next question.
Our next question comes from Steve.
Dan Bernstein from Wells Fargo. Your line is open.
Hi, Thanks for taking my questions, maybe I can share a couple here first can you quickly just quantify the extent performance related revenue hit the third quarter and then within your core navigation and advocacy services can you share with us what.
Mix of member communications navigation versus advocacy and whether you've seen any changes in that mix over the past couple of years. Thank you.
Hey, Ben this is Steve.
Nice to talk to you. Thanks for the question. So I think your first question with a mix of <unk> versus <unk>.
Kind of base fees in the third quarter.
We don't have that specifically laid out right here for the call what I will say it then that's an interesting dynamic and it goes hand in hand with what Raj just described the evolution of the business over the last three years or so.
In 2020, when we came public you will remember that PGS, where roughly a third of the revenue.
$85, 90% of those savings based PGS are recognized in the fourth quarter of the business, where we have fast forward today as the advocacy businesses comprises 60% 60 plus percent of the revenues. So we've got a diversified set of revenue and the <unk> of the business are being recognized much more ratably.
During the year, so rather than 90% of them being with us in the fourth quarter, it's something like half of them are recognized through the year and I'm talking now about just saving based component and call. It half of them are recognized in the in the fourth quarter and then along those lines the mix of those on a typical advocacy deal or something.
Two thirds of the revenues are fixed and a third of them are variable and within that call. It 10% of the total our season. So all of that adds up to a diversified predictable set of business I'm going to hand, it to Raj for the other part of your question, Yes sure.
As it relates to member communications and the breakdown between advocacy navigation.
Need to follow up on this because I'm not totally sure I understand the question.
We're really good at being able to breakout the type of engagement, we have with the member whether the benefits question. The claims question I'll provider search question or a clinical needs breaking broken down by clinical category.
We don't necessarily breakout our communication.
Our messaging by advocacy versus navigation in fact, we've looked at both of those things is really inexorably tied to the solution.
Thank you one moment for our last question.
And our last question comes from the line of Robert Symons from D. A Davidson your line is open.
Hey, Thanks for taking the question. So when you are building your preliminary fiscal 'twenty guidance what were the key swing factors that you considered and then kind of where would you say has the most potential upside nowhere has the most potential downside to your numbers.
Our rubber we first of all it's great to hear from you we repeat the question.
Cut a little bit right in the middle.
Yes. So I was wondering what are the key swing factors that you considered as youre, putting youre probably opened Harry the guidance for next year, and where you would see the most potential upside or most potential downside.
Got you Robert This is Steve. Thanks for the question, let me hit that I think I think this is the last one so raj for any closing comments.
First of all when we walk into fiscal 'twenty four.
Full of things picking up unemployment before we've got a diversified platform of 60 ish percent of the revenue coming from the advocacy business and on balance the virtual primary care and mental health.
Expert medical opinion and trusted partner ecosystem revenue when you put those altogether, we walk into the year with a set of contracted revenue. It goes back to the earlier comments Raj Nathan in the call, which is a strong bookings strong bookings year on top of that set of existing customer base gives us a good forward look.
And then what we layer on top of that R&D consumer revenues, primarily from the bus fare platform. When you think about opportunities on the upside certainly.
The opportunity on consumer revenues in the year bookings for next year being even stronger and then certainly the macro environment. It's on everybody's mind, what are assumptions, we make fairly modest assumptions around the macro environment as it relates to our customer book. So when you add all of that.
Other.
Really pleased.
Enter today's call, giving preliminary guidance of that 20% growth rate the impact of a lost customer earlier in the year and as you can hear from US today, we're really enthusiastic about the strength and breadth of the business and the demand environment for our offerings.
With that.
We've we've come to the end of our prepared remarks as well as the Q&A session and we're thrilled.
Utility to share our results with you and we appreciate all of you being here. Thanks, everyone have a great day.
Goodbye.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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