Q4 2023 Accolade Inc. Earnings Call
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Okay.
Good day, and thank you for standing by walking to the accolade fourth quarter of 2020 earnings results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the especially the press star one on your telephone you will then hear an automated message device at your hand. This race to withdraw your question. Please press star one again please.
Today's conference being recorded I would now like to hand, the console would you speak today.
Friedman head of Investor Relations. Please go ahead.
Thanks, Operator, welcome everyone to our fiscal fourth quarter earnings call with me on the call today are Chief Executive Officer, Rajiv <unk>, Our Chief Medical Officer, Steve Barnes chartered and B, Our Chief Health Officer will join the question and answer portion of the call later.
Before turning the call over drugs you. Please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating accolades performance. He tells a relationship between these non-GAAP measures. The most comparable GAAP measures and the reconciliations thereof can be found in the press release and it's posted on our website also please note that certain statements made during this call we'll before looking statements as defined by the.
Private Securities Litigation Reform Act of 1995, such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results for accolade differ materially 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 Archie.
Rajiv.
Thanks, Scott and thank you everyone and thank you everyone for joining us as we kick off fiscal 2024 exactly.
As an appropriate moment to acknowledge that today's ACA latest transform from an advocacy navigation company to a personalized health care company that delivers exceptional high quality health care to our 12 million members across the country.
We're unique in that we offer exceptional service powered by our frontline care teams and technology clinical outcomes driven by our primary care physician therapists nurses and pharmacists and an open platform that makes our partners and the brick and mortar health care system far more effective.
We're building a customer focused nationwide health care company from those unique assets and we're excited about the future.
Today's call marks the end of a transformational year for accolade and the start of the next phase of accolades Appalachia.
In fiscal 2023, we delivered over 30% growth in air bookings over 30% revenue growth in our virtual primary care offering achieved our revenue and adjusted EBITDA targets and ended the year, serving more than 800 customers and 12 million lives.
We have diversified our business across customer size and verticals across solution and across distribution channels.
And given the strategic actions we made at the end of February we enter fiscal 2024 with a more streamlined organization operating as one accolade that is materially closer to achieving positive cash flow.
At a high level, here's what we learned in fiscal 2023.
The market for personalized health care solutions remained strong and the demand environment shows no signs of weakening in spite of the broader macroeconomic environment.
Core to the differentiation of our personalized health care suite is the diversity of our offering is a substantial portion of our new customers opted to buy more than one of our solutions.
Our solutions are differentiated and drive high win rate as demonstrated by adding a significant number of new customers, including a large public University, a major hospitality company and one of the world's largest consumer brands.
Our customers Trust us and value our solution as evidenced by the expansion of our relationships with many of them this year.
And innovators and Disruptors in healthcare you assets.
Differentiated platform as demonstrated by the growth of our trusted partner ecosystem.
At the outset of the year, we believe that these data points would emerge today, we can state the facts.
Now, let's focus on our outlook for the next fiscal year and also give you a preview of what we plan to cover at our capital markets day on May eight.
We spent the last 18 months working hard to integrate the three solutions that we acquired.
Those efforts have produced great results with a more unified customer experience and a strong customer reception to our vision for an integrated personalized health care offerings.
While we've been focused on integration. We've also spent that time, allowing the businesses to run independently in many respects the rationale with very simple we wanted to study and understand the businesses retain critical talent and map out the logical integration points on synergy thoughtfully.
Having accomplished those objectives on February 28, we announced that we are bringing the various teams together under a single unified structure, one product organization, one clinical organization, one care delivery organization one accolade.
This is already having the effect of streamlining decision, making and accolade and improving our operating structure as we scale to serve hundreds more customers and millions more members to.
The common thread through every stage of our growth continues to apply today.
Steve will provide more detail later, but today, we quantified our earlier statements about the improvement in adjusted EBITDA. Our updated guidance today shows that we have cut our expected loss in half this year.
Hopefully with a strategy that allows us to execute well and serve our members and customers with extraordinary quality.
Strong new bookings in fiscal year 'twenty three gives us excellent visibility into fiscal year 2024, and beyond are those of you who are new to accolade. Our initial contracts are typically three years.
Our 33% growth in <unk> bookings gives us good visibility into our current year revenue as well as a solid preview for fiscal year 2025.
Our confidence regarding achieving positive adjusted EBITDA as a business is extremely high.
Looking ahead the momentum we saw last year appears to be continuing in the current year. Both in terms of the size of the pipeline and RFP flow as well as general market interest from both prospective and existing customers.
The pipeline is larger now than it was at this time last year.
Another notable item is the ramping interest and our trusted partner ecosystem from our current customers as well as prospects.
We'll spend more time on this at capital markets day, but new and existing customers and partners are recognizing the value of accolade has a distribution channel and enabling partner for important health care innovation.
Perhaps more importantly, this is further evidence of the incremental value we drive via integration of best in class clinical solutions with our open platform combined with our frontline care team's ability to deliver a high level of what we call good utilization.
In short the demand for our services remains strong.
We provide the companies in terms of ROI and cost savings and to their employees and their families via improved health care outcomes and lower cost continues to drive our value proposition and our pipeline.
Additionally, we are especially excited about the growth we're seeing in virtual primary care, it's worth noting that while we may deliver primary care to both commercial customers and directly to consumers. We view our primary care business as a single offering.
It is the same physician base same customer platform and team member experience across the board, whether a patient comes to us directly as a consumer through an employer or a health plan partnership.
Finally, it has become a hallmark of our business that are rapid diversification has provided numerous numerous factors for growth.
Any opportunities to drive growth across all our distribution channels commercial health plan government and consumer.
Now let me give you a preview of our May eight capital markets day.
When accolade what public nearly three years ago I wrote these words in our IPO prospectus.
Strategic executives have long appreciated that the health and well being of their employees is something they must care about and investing.
Employee health and wellbeing is a business continuity issue employers cant afford to overlook it.
Lawyers must give employees and their families trusted clinical guidance and personalized support to help them live their healthiest lives physically emotionally and financially.
In 2020, when we published that perspective.
<unk> with our navigation and advocacy company with $132 million in revenue and surfing roughly 50 customers.
We would become the first publicly traded navigation company.
Today, we're forecasting FY 'twenty for revenue at approximately three times that level, we have more than 800 customers representing 12 million lives and we are a fully integrated personalized health care business.
Over that three years the market is thought to identify the categories that will thrive in a difficult economic environment and beyond and the companies that will lead those categories.
On May eight Las Vegas, Youll hear white personalized healthcare is the future of health care and why accolade is well positioned to lead a massive new category.
First nationwide health care delivery company obsessed with the member experience.
Health care is a four trillion dollar market and yet you would be hard pressed to name. Many health care company that are defined by their obsession with delivering extraordinary customer experiences.
Other categories companies like Chick delay USAA T mobile and zappos lead based on their single minded focus on customer value.
We're building that type of customer focused company in healthcare on May eight we will explain what it means to be obsessed with the member experience in health care and how our unique blend of technology and humanity, what we call engineered to care is the right approach.
We will share new product demos and data points that demonstrate the ROI, we deliver both from a health and cost outcome perspective.
And we will talk about the growing contribution and strategic importance of our primary care offering as well as the increasing collaboration in health care and how we're building our ecosystem.
Steve will dive deeper into our business model to help you understand the path not just to breakeven, but also how we think about accolade underway to being a $1 billion revenue business and beyond.
And as a real highlight will be featuring a number of our customers and partners to help tell the story of the future of health care.
We hope you can join us in Las Vegas or on the webcast.
Reach out to Todd for even if you have any questions now I'm going to turn the call over to Steve to review the financials and share our year end metrics Steve.
Thanks Raj.
First a recap of the results for the fourth quarter of fiscal 2023, and then provide some details on forward guidance for the first quarter and full year for fiscal 2024.
We generated $99 million in revenue in the fourth quarter of fiscal 2023.
Revenue highlights in the fourth quarter included the impact of new customer launches on January one.
Whereas a year ago, we serve more than 600 customers and 10 million members.
We have more than 800 customers representing more than 12 million members.
That growth many of our new customers launched on January one 2023, and the number of customers with more than one of our core services advocacy expert medical opinion and virtual primary care has more than doubled since this time last year.
We also saw in the fourth fiscal quarter continued strength in our virtual primary care offering.
Fiscal Q4, adjusted gross margin was 55% compared to 54, 4% in the prior year period.
The primary factor impacting the year over year comparison was the timing of performance guarantee revenues, which typically yield higher gross margins.
In fiscal 2023, we recognized a larger portion of <unk> revenue in the first three quarters of FY2023 in comparison to the prior year.
Adjusted gross margin for the full fiscal year of 2023 was up slightly year over year.
And adjusted EBITDA in the fourth quarter of fiscal 2023 with $2 $8 million representing.
Representing 3% of revenues and an improvement compared to $1 $8 million and 2% of revenue in the fourth quarter of fiscal 2022.
For the full year this translates to revenue of $363 1 million.
And an adjusted EBITDA loss of $36 5 million both in line with our guidance.
And as a reminder, the Comcast contract ended at the end of calendar 2022, So when you adjust for that customer our revenue growth in fiscal 2023 was north of 20% on a pro forma basis.
And turning to the balance sheet cash and cash equivalents totaled $321 million at the end of fiscal 2023 and accounts receivable Dsos were in line with prior quarters at about 24 days revenue outstanding.
Finally, we had approximately $73 1 million shares of common stock outstanding at the end of fiscal 2023.
Now before we hit on forward guidance allow me to reiterate that we had a very strong selling season in fiscal 2023 as Raj noted earlier and in our January call.
We signed $72 million of bookings in fiscal 2023, representing approximately 33% growth over fiscal 'twenty two.
That success is the foundation of our revenue growth forecast for fiscal 2024 and is already forming the basis for additional growth in fiscal 'twenty five.
In addition, let me touch on the two annual metrics that we've shared historically.
ACB or annual contract value was $309 million at the end of fiscal 2023, which compares to $286 million at the end of fiscal 2022.
If you exclude the impact of Comcast $309 million of ACB represents about 20% growth over fiscal 2022.
And gross salary retention was 87% for the year, but again, if you exclude the impact of Comcast pro forma GDR with 96% for the year consistent with our historical trends in the mid to high nineties.
Now turning to guidance, we are updating our guidance today for fiscal year 2020 for spot cargoes.
We start by reiterating that fiscal 2020 for revenue will be approximately $410 million representing year over year growth of approximately 13%.
20%, excluding the loss of Comcast.
First some color on the $410 million of revenue, we expect that growth in our advocacy offering revenues will approach, 20%, excluding the impact of Comcast.
Growth in our virtual primary care offering is expected to be more like in the mid twenties and emo in the 20% growth range.
We have strong visibility to these growth rates based on our air bookings in fiscal 2023, along with retention and expansion with existing customers both of which are reflected in the <unk> number.
As well as continuing momentum in new bookings for fiscal 2024, and plus care, our consumer channel for virtual primary care.
Regarding the <unk> contract that Tricare pilot in our ostracism cares demonstrations, we view these arrangements in aggregate as our government sector opportunity and expect those government revenues to collectively grow on a year over year basis in fiscal 2024.
With respect to profitability and cost structure as we noted in an 8-K on February 28, we recently took some strategic actions to realize cost synergies via workforce reductions associated with integrating our offerings.
With those changes we are meaningfully improving our forecast for adjusted EBITDA loss for fiscal 2024 to a range between 2% and 4% of revenues.
8 million to $12 million, representing an improvement of about 50% from our prior guidance.
With respect to the first fiscal quarter of 2024, we're providing guidance today of revenue in the range of $89 million to $91 million and adjusted EBITDA loss in the range of $15 million to $18 million.
As this is the first time, we're providing quarterly guidance for fiscal 2024, I'd like to call out a couple of notes to help you with your models for the rest of the year.
First I'll comment about Q1 revenue and adjusted EBITDA.
You'll recall that last year in Q1 of fiscal 2023, we noted some expected PG timing that benefited revenue gross margin and adjusted EBITDA.
When you normalize for that impact of <unk> and Comcast are Q1 revenue forecast represents about 20% growth year over year.
Additionally, the cost actions that we announced on February 28, we will have much less of an impact in Q1 and they aren't fully realized in our model until the second half of the year.
As such the Q1 adjusted EBITDA Guide includes a higher level of Opex, and we expect future quarters of the fiscal year to average for the remainder of 2024.
Looking at the quarterly revenue trend for this year, we have consistently noted that it's important to look at the full year.
Timing of <unk> on a quarterly basis is more difficult to predict which is why we take a conservative view on timing of PG revenue achievement at the start of the year.
Our level of annual PG attainment has been relatively consistent historically and we expect the current fiscal year to be in line with our historical PG performance.
As such we generally model for higher PG recognition in Q4 and are making a similar assumption this year.
If you were to normalize <unk> revenue recognition for historical periods, you would see a consistent growth rate in Q1 to Q3, and then a bump in Q4, new customers come onboard typically on January one.
And this year is no different.
Now with respect to our balance sheet as I noted last quarter. Our convertible notes are not due for three years. So.
So with $321 million cash on hand, we have more than adequate liquidity to achieve our financial plans without going back to the capital markets.
Congrats on a strong position to execute against our objectives.
In conclusion, we very much look forward to our capital markets day on May 8th in Las Vegas.
In addition to the points Raj noted earlier at the event, we will provide a more in depth view of key items driving our financial profile, including our growth opportunity plans for continued gross margin expansion and profitability and overall scaling the business.
And we will go deep on the business and financial drivers behind why we continue to believe passionately in the strength depth and breadth of the 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 cash flow.
With that we'll open the call to questions.
Yes.
Our first question comes from Ryan Daniels with William Blair. Your line is open.
Yeah, guys. Thanks for taking the question Raj one for you I thought it was interesting that you talked about how you took some time to study the acquired assets and ensure appropriate integration and Thats, what led to the restructuring and integration at the start of this year. So I think we appreciate the cost reduction and the improved markedly improve.
EBITDA I am curious so if you can go a little bit more into the operational excellence and go to market strategy and value proposition for clients that had greater integration should also allow.
Yes first of all great to chat with you again, Ryan and thank you for the question.
Hi.
If you were to think about the way we talk to our personalized healthcare suite, we're really looking at an integrated health care delivery vehicles the idea of that.
Every element of our suite builds off and adds complementary value to the other.
So let me put that into context.
And advocacy interaction with the member where the members seeking to find a physician to address the condition that they're wrestling with.
Our capacity in that moment to move from identification of an issue.
Yeah.
Downstream care using our primary care service to lead to <unk>.
Physician search post that to find a specialist all happening in one transaction that occurs within 15 to 20 minutes of the first Outreached accolade is a representation of our vacancy can build up that can be built off up into primary care and into our specialty care service.
Passing to deliver that integrated service is really what we're most excited about and what we think our clients are most excited about one of the things I referenced in the prepared remarks, Brian with the idea of that.
Our clients last year, who purchased.
Purchased our advocacy solution also purchased one other solution or more from us in the last year, that's a reflection of both the differentiation of our value proposition and the differentiation of the integration of the services.
Thank you one moment for our next question.
Our next question comes from Michael Cherny with Bank of America. Your line is open.
Afternoon. Thanks for taking the question I apologize I'm going to have kind of one five questions maybe.
Maybe the question is as you think about the cross sell is you had a pretty impressive number on the amount of customers that has more than one solution.
Does that mean in terms of how pricing has evolved for your business and what the <unk> looks like for customers and again, just one quick technical question for Steve.
I don't believe you're guiding to cash flow positive in this year, but want to make sure nothing has changed about when you expect to get cash flow positive. So thanks, so much.
Yes.
Hi, Mike Good to talk with you and we will we will give you the one five questions and I'll start with the beginning of the answer and then Steve will chime in in and hit the free cash flow question answer as well as any anything you want to add incrementally up pricing Steve.
One of the things that we're most excited about the business. This idea of this integrated offering is the <unk>.
We're seeing very consistent pricing and the advocacy or advocacy navigation offering space.
Those price points have remained relatively consistent and the makeup of those transactions in terms of.
The percentage of fees that are fixed versus variable or performance guarantee oriented.
Save real it's relatively constant as well customers understand the value of the category understand the return on investment and smart customers are willing to pay for that value.
Now as we add an incremental services like virtual primary care and mental health or expert medical opinion, there's multiple ways that the customer can take advantage of that service from us. They can buy on a <unk> basis, where they haven't all you all of you.
Neat opportunity to take advantage of those services for if they prefer to have an opportunity to buy on an as use basis in the case of our virtual primary care, but claims based bill or the case.
Emo a case rate billing model.
Either of those situations accolade is quite comfortable we understand that we're going to drive an enormous value for the customer either way because we are fundamentally it engagement engine for health care.
<unk> confident in the engagement rates, we can drive for our for our own primary care and expert medical opinion services. If the client chooses that variable model, Steve anything you would add one thing before I jump to Mike's question on free cash flow Raj as their trusted partner ecosystem, which is becoming more and more of a center point for us strategically with customers.
Thats a fair amount during the capital markets day on May eight, but we often are data share call. It an administrative fee for making those services available to customers and that also drives incremental revenue essentially utilization based kind of revenue.
Again, we refer to it as good utilization because we're helping members get to the point solutions that are often under utilized by customers.
That would be an add on to the pricing dynamic.
And then with respect to free cash flow, Mike No major changes from what we've talked about in the past meaning.
Adjusted EBITDA is a pretty good proxy for free cash flow plus or minus a couple of things working cash flow timing of customer payments and that kind of thing of course, and then in a year like this year, where we did make some cost structuring changes. We do have severance is that will get paid out that will be.
That along with some other one time type of type of items will occur. This.
This year, but other than that roughly in line with what we've talked about before.
Thank you one moment for our next question.
Our next question comes from Craig had come back with Morgan Stanley . Your line is open.
Yes. Thanks, a question that touches on both plush cure the virtual care as well as the expert medical opinion business. So as the market normalizes here can you talk about I mean, we've seen some signs of increased utilization and some strength in med Tech companies can you talk about what youre seeing there.
As well as the market normalizes and Covid recedes, how that influences kind of puts and takes around the kind of plush care business over the course of this year.
Perfect Craig Nice to talk with you in and.
<unk> is our Chief officer, and head of our care delivery group is on the line as well.
Jonathan I'll open up to you.
To add to anything that I might say here Craig.
Greg when you look at the virtual primary care business virtual primary care and mental health business you look at it of course as you know in two vectors. If you look at our consumer the consumer business as well as in the enterprise business consumer business titled plus share of the enterprise business accolade care.
The accolade care business being the fundamental increments.
Fiscal 'twenty four we sold accolade care for the first time in fiscal 'twenty three dose those clients are deploying in fiscal 'twenty, four and we will see their utilization add to our to our virtual primary care mental health business in the year ahead, and we're really excited about the traction we saw in that customer base or in our customer base.
In terms of taking advantage of <unk> care.
In terms of expert medical opinion, I think the real question, you're asking there is are we going to see increased utilization as the rest of the industry begins to see the first green shoots of increased utilization.
From a procedural and specialty care perspective, I think the answer to that is if in fact that trend persist and we see that increased utilization across the rest of the ecosystem you would expect it to have a positive impact on our business as well, Jonathan or anything you'd like to add too.
What I've just chipped in there.
Yes, I think the main thing I would say Craig is that.
Like we're national.
Medical practice, and so I think we follow some of the trends of NASA in all primary care practices, which especially over the past year or two have seen increases and decreases I think the primary difference between us and sort of most of the virtual telemedicine space is the fact that we're doing comprehensive primary care and so I think that longitudinal.
The nature of the service that we're providing and then.
The experience that we're being able to provide I think that's really what's driving.
The numbers that Steve talked about earlier is really the fact that.
We're delivering that kind of service and those kinds of outcomes and that's a real differentiator for us.
Thank you we'll move to our next question.
Our next question comes from Jessica Task with Piper Sandler Your line is open.
Hi, Thank you guys. So much further question.
I was hoping you could just describe how accolade is responding to humana's decision to exit the commercial market. When do you guys anticipate the majority of that activity is going to happen.
No that actually kind of.
It tends to maintain relationships. Despite payer changes. So can you just help us understand early conversations and what you think the potential impact.
That decision might be thank you.
Hi, Jeff Thanks for the question.
Couple of thoughts there and I appreciate you calling it out.
First and foremost.
Our relationship we had a great relationship with Humana when they were in the commercial space their decision to exit the space actually has very little impact in terms of either revenues or customer relationships inside the business and the rationale for that is twofold first our customer relationships with customers, who previously were on the <unk>.
Commercial platform leveraging activate services persists.
We're actually in either renewal conversations or in the midst of two to three year relationship with those customers that won't change at all.
That's number one and number two.
In fact, we're continuing to service humana internally for their own employees.
So we would expect there to be no impact on an ongoing basis to be to the business number one and number two.
While humana, while our relationship with Humana was a productive one in the commercial space was relatively modest in terms of its impact on new bookings in any given year.
And we would expect to be able to pick that up on our own.
Thank you one of them before our next question.
Our next question comes from Daryl interesting with <unk>. Your line is open.
Thank you and thanks for taking my questions first one quick clarification on my main question for clarification why is your fiscal 'twenty five margin outlook on slide 26 unchanged. Despite you're pulling forward. The software they will be given recent changes I would've thought some improvement Dale for fiscal 'twenty five and my main question is around.
Almost guarantees.
Ken fluctuate quarter to quarter, but curious if you can share what are your expectations for full year.
On those guarantees in fiscal 'twenty compared to fiscal 'twenty, three and conceptually in terms of how these guarantees work is it like you guys had to perform better than our baseline to be valuable to employers.
Baseline reset every year based on your performance on a barrier just trying to understand with your performance last year that would extend about higher for you to hit those guarantees maybe just help us understand that part.
Yes, I'll be glad to.
And thank you for the question John .
First on fiscal 'twenty five we haven't changed anything in the presentation today will speak to that more in capital markets day on May eight our purpose today with the speak to our formal guidance for fiscal 'twenty four but take your point, we've made some cost structure changes that should certainly take us through as part of the profitability.
Profile going forward.
We'll just we'll hit that more specifically in our capital markets day in a couple of weeks.
With respect to the fiscal 'twenty four assumptions. So when you look at that $410 million revenue stream, which is about a 20% slightly ahead of 20% growth excluding Comcast, but we assume in there for performance guarantees is very consistent with what we've seen historically and as a reminder to your point of how that works.
For our enterprise customers, who have advocacy in particular, where particular thing putting 10% to 15% of those fees at risk on a performance basis, and then earning those cost savings as we either beat a healthcare index of the inflation essentially cost trends for a particular customer.
Or essentially guaranteeing a trend lines off of a baseline when we enter into a contract with that customer over a multiyear period.
You typically see for accolade as we're earning about 95% of the total ppm opportunity across our advocacy base.
Which which pencils out to 75% to 80% of those savings pge's coming in consistently and that happened in fiscal 'twenty three and it happened in years prior.
Early consistently within that range and so we're going to keep those assumptions.
Consistent with historical experience for fiscal 'twenty four.
Thank you one moment for our next question.
Yes.
Our next question comes from Jeff Garro with Stephens. Your line is open.
Yes. Good afternoon, thanks for taking the questions maybe stay on the performance guarantee topic in and Steve can I ask you to disc.
Describe how the seasonality of performance guarantees has changed over time may I think historically its been fourth quarter loaded in and hence the conservative approach to the guidance, but but curious to see how this all of that has changed over time with the diversification of the customer base and then.
Raj and Sean to do if they could talk about engagement level. Two I think that'd be helpful. Because I just think of that going kind of a hand in hand with that strong 95% or so performance guarantee achievement. Thanks.
Hi, Jeff Thank you for that.
And I will take the opportunity as well to clarify a bit about the Q1 guidance, which actually has something to do with the seasonality of the performance guarantees that I'll lay out and that has offset Raj and chancellor engagement question.
The way those.
Those cost savings <unk> typically happen.
If there are claims base and they are measured off of a year end calendar calendar year look back are they brought out basis, we're going to measure those at the end of the year and we are going to forecast that those <unk> come in at the end of the year.
A conservative way of looking at it. So when you look at this year's Q1 guide, we're essentially assuming that most of those are going to come out later in the year. However, what we've historically been experiencing experiencing experiencing as we're been earning those earlier during the year. So take fiscal 'twenty three for example.
Earned a lot of those <unk> sooner than Q4 and book them earlier.
A little bit of a downward growth rate. This Q fiscal 'twenty three Q4 compared to the prior year. It's why Jeff if you cut through all of that we always like to walk you through the idea of look at the overall annualized growth rate because sometimes the timing of earning those PGS can happen one quarter or.
Or another and it doesn't really change the impact for the full year.
That when you look at the fourth the fifth.
24 guide and Youre looking at that Q1 number keep in mind that we're assuming that PGS are going to be pushed out towards the end of the year.
Let me hand, it to Raj first to talk about engagement rates with customers and perhaps Jonathan had China, yes perfect.
I think the way to think about this and I appreciate the question very much.
If you look at what customers contracts with us or they want to drive engagement. They want their employees to be more engaged in their own health care.
They want to see trend line reduction, but oftentimes that trend line reduction is driven by engagement levels. The capacity to turn those engagement levels into engagement with their own third party programs through things like our trusted partner ecosystem.
They want to ensure that their employees are.
Really satisfied so high NPS levels associated with the service that they're receiving.
Those things tend to manifest themselves into the performance very performance guarantees that Steve talked about that's what customers want therefore, they baked those into their agreements our capacity to drive extraordinary engagement.
Is really unprecedented in the market and so we're driving 50 60, 70% engagement rates for most of the employee but most of the employers we serve and when we achieve those engagement rates faster, we drive more value for the customer faster, which often manifests with savings early engagement levels faster than expected as well as.
As net promoter scores that are extraordinarily high and so to tie the two points together.
When we drive engagement at the levels, we're capable oftentimes we achieve for bonus guarantees in advance of the end of the year and Thats what drives the advanced booking up.
Thank you all remember for a next question.
Our next question comes from Stephanie Davis with SDP Securities. Your line is open.
Hey, guys. Thank you for taking my question I was hoping you could walk through some of the puts and takes from the restructuring there's any lingering cost how could weigh on the P&L early in the year.
How youre viewing the mix of cost savings flow through instead of just investing for growth.
The faster growth areas of the business.
Thanks, Stephanie and Steve Yeah. Thank you very much for the question. So February 28, we announced the cost structuring restructuring actions that you're speaking to and the impact that you'll see is if you look at the Opex line of our P&L.
Youll see fiscal 'twenty for the roughly flat with fiscal 'twenty. Three so we took a fair amount of cost out starting at the highest level of the organization. When you think about putting three companies together accolades second MTM bus care over the last 18 to 24 months, we were able to identify duplication both in people.
And some opportunities within system and also integrate the back end of the company as Raj was explaining earlier and how we brought the offerings together.
Net of that is.
About the Opex for fiscal 'twenty, three and I'm speaking about adjusted operating expenses now so take out the effective.
Our compensation and depreciation and amortization, which can make the numbers a little noisy.
We're looking at taking adjusted Opex from about 57% of revenue in fiscal 'twenty three down to about 50% of revenue in fiscal 'twenty four and then having.
Our cost structure thats fairly constant year over year.
With respect to quarterly bump you will see the fuller effects of this happen in the second half of fiscal 'twenty four.
Because we took those actions right around February .
February 28, we do have some transition happening in the first quarter and into the second quarter, where there's some duplication of costs there as we get the effect of that in the second half.
One other thing I would like to reiterate this is really about the opex side.
On the infrastructure side of the business with respect to member serving.
We're always focused on obsessing with member experience being great. So.
We're very much investing in those frontline care teams and that experience, obviously doing everything thats great for that experience on the integration side, but also continuing to invest there. So this is much more about an opex and overhead kind of cost reduction.
Thank you one of them before the next question.
Our next question comes from Jonathan Young with Credit Suisse. Your line is open.
Hi, Thanks for taking my question I guess, just going back to some of your comments about GMO and plus care kind of in the 20% to 20% plus range kind of how are you thinking about that progressing throughout the year and I guess, it's somewhat similar to what you experienced in FY2023 so I guess should we take it that.
The consistent growth trends are positive in terms of how youre thinking about utilization throughout the year and any updated thoughts on if.
If it's.
We could see a possible acceleration, if you're taking a conservative stance there.
Question Jonathan.
Theres really two vectors that drive extra medical opinion, so what we call our accolade expert MD that drive growth for alkylate expert Mg.
First is obviously new bookings.
And so we've continued to see traction it's a market that continues to grow it's a market that continues to drive value for customers and offering that continues to drive value for customers and so new customer acquisition continues to grow at scale and at pace. The second part of the story is clearly the second the next thing you mentioned, which is utilization.
In fiscal 2020 in 2021, and even into 2022, the entire industry saw compressed utilization, especially care <unk>.
Michael procedures et cetera.
There are early signals that to calendar 'twenty three is beginning to see some uptick in that utilization. If in fact that utilization does uptick consistently on a nationwide basis as Sean mentioned earlier, we do provide our services expert medical opinion or primary care across the country.
If that persists then there is potentially upside to what we've modeled but what we've modeled.
<unk> is consistent with what we've seen over the last several years.
Thank you one moment for our next question.
Our next question comes from Stan Bernstein with Wells Fargo. Your line is open.
Alright, Thanks for taking my questions Raj do you see any opportunities to leverage large language models with <unk> to enhance your.
Karen navigation advocacy services would love to get your thoughts on this.
Thanks for the questions Dan absolutely I think it I think.
When transformative transformative technologies like large language models become.
Mainstream as prevalent as they are today it would be silly to imply that theyre not going to have an impact on health care and therefore, not going to have an impact on our business. They will now where we expect them to have impact is potentially in areas like intent understanding understanding the intent to the members as they are coming in.
Turning that intent into.
Possible.
Intelligence as it relates to how we are routing them to the right level of clinician at the right level of expertise inside of our business.
We're actually already doing some experimentation in those areas.
<unk>.
We're actually delivering and pilots to customers today, and so we would expect that these types of capabilities.
<unk> will still ultimately we are still talking about health care and so our capacity to leverage technologies like this to be smarter about how we guide people's care or how we drive value to People's care is still going to lead to a clinician a clinician a physician or a nurse or a therapist, who can drive.
<unk> for that person and do so with the human touch.
That's been so essential to the incredible NPS levels of our service and the clinical value of our service Sean to do anything you'd add there.
I think the only thing I'd add is.
One of the areas that we've been really effective and it is really building workflows that work for our clinicians and our position I think when you look at the national problem of burn out which has affected capacity.
Sort of traditional health systems.
A major role as Raj said for technology to help enable that thats already been the case for us.
We have our own proprietary electronic health record as an example, that's built and sort of purpose built for physician workflow and so those kinds of tools.
The fact that we've invested in building our own I think puts us in a really strong position to be able to invest in those new technologies like those.
Those AI models.
And then continue to improve that physician experience, which ultimately we see drives a better member experience and better outcomes.
Thank you one moment for our next question.
Our next question comes from Richard close with Canaccord Genuity. Your line is open.
Yes.
Congratulations thanks.
Congratulations on all the.
Progress Steve I was wondering if you could talk a little bit about the fourth quarter revenue you guys hit the midpoint.
Just curious was there something that you didn't necessarily get since.
Since your IPO you guys have been exceeding the top end of the range, so being pretty conservative with your guidance and just trying to think about.
Looking at the next year, how we should read what you have for the first quarter and the year.
Sure Hi, Richard Thanks for the question.
Completely appreciate your point Roger recent research on listing on this exact topic.
<unk>.
Good visibility to our revenue stream when you think about the model. It's <unk> base, we have a view of membership.
So coming into any particular year quarter, we have strong visibility where there is variability is usually along two fronts.
One is the claims based performance guarantees so thinking about earlier and the other would be around chase rate revenues, our utilization based revenues so at the margin.
Not quite getting to the top end of the range by one or $2 million in any quarter could have to do with.
Something along those lines, where you might have a whole set of Pg's you could go after and in our case in a high inflationary.
Year like calendar 'twenty two.
There is a PG or two that you don't get I think the big picture.
For us as we look at this as the <unk> performance was very consistent in calendar 'twenty two with years past, meaning we achieve about 95% of the total.
Opportunity.
Last year as well as in prior years, but I would attribute it to that not getting every every PG opportunity quite achieved in calendar 'twenty, two but nonetheless feel very confident going forward.
And that forward guide.
Thank you one of them report next question.
Our next question comes from Sandy Draper with Guggenheim. Your line is open.
Okay.
Thanks very much.
My question is probably for Steve on the.
On the cost efficiencies.
Thank you for addressing this way it sounds like one it's not going to be at the cost of goods line, but it's going to be below and operating.
Direction, you can give us in terms of the <unk>.
Savings, where they are coming out of product technology sales and marketing G&A, where we should be thinking about.
Rough percentages of where the savings are.
Are going to come out that would be really helpful. Could you just sort of think about how it flows through and where the leverage can be going forward as we look out towards the future years. Thanks.
Sure Hi, Andy Thanks for the question, yes. So.
The cost structure benefits really were realized across all lines of the opex, the P&L and Youll see it if you as you look at the where the cost charges are laid out in the earnings release are certainly the 10-K, you see a good chunk of it come out of a product and technology as well.
There's some duplication in sales and marketing and certainly in G&A from having brought three companies together.
Relatively spread evenly.
The other takeaway for US is we're growing the business, 20% top line, we continue to invest in each of those areas as needed, but we're able to take out some duplication. There. So it is primarily an opex story, there is a little bit.
Fixed costs that may have impacted the cost of serve line what youll see when you dig into that.
That.
Breakdown on the P&L, but primarily in Opex story spread fairly equally across the line items.
Sandy as Steve mentioned this earlier, but.
You're essentially seeing flat opex from fiscal 'twenty, three heading to fiscal 'twenty four and at the end.
Ultimately that represents a reduction in opex from about 57% of revenues in fiscal 'twenty three to somewhere closer to 50% of revenues fiscal 'twenty four.
Thanks, you wanted over for the next question.
Our next question comes from David Larsen with <unk>. Your line is open.
Hi.
Im assuming that Comcast would have been worth around $7 million in revenue.
In <unk> fiscal <unk> 24, and then just doing some math it looks like there was about $5 million performance guarantees.
In fiscal <unk>.
<unk> of 23 is that correct.
And then also with the cost reduction efforts here I think the warn act calls for like 60 days notice is that why we're not going to see the cost benefit until two H fiscal 'twenty four and why wouldn't we start seeing that in fiscal <unk> of 24, if it's only 60 days.
And by the latest fiscal <unk> of 24. Thank you.
Yeah. Thanks for the question I'll take the first part of it and Steve can take the second I'll take the second part of it Steve will take the first.
Yes. This has nothing to do with the warrant active it is fundamentally about just being prudent about the way we run the business.
In terms of transition timeframes, ensuring that we not only have appropriate transition timeframes to ensure that the business is running smoothly.
And also imperatively that we do the right thing by people exiting the business to make sure that.
We're doing that in a way that we and all of our in place can be proud of.
Sure and back to your first part of your question I think the tactical question around the puts and takes you're right that there was about $7 million of Comcast revenue in Q1 of the prior year and then the remainder of.
North of $3 million.
<unk> that were high gross margin <unk> got effectively.
The timing item that I referred to in my remarks.
Just about right.
Okay.
Thank you everyone before next question.
Our next question comes from Ryan Macdonald Needham Your line is open.
Hey, this is Matt Shea on for Ian Thanks for taking the questions I wanted to touch on the T. Five contract now that Triwest Award has been confirmed in the West do you guys have any greater sense of what your role will be with Triwest and what kind of investments do you anticipate in conjunction with scaling for that August 2024 Star.
And then if you have any updates around the humana relationship in the east as well, we'd love to hear those thanks.
Thanks for the question Matt.
Clearly.
One step closer to <unk> five being a reality so we got through the first appeal that first appeal was rejected then there was a.
Re essentially a rebid that led to the award that was just announced to both try west in the Humana.
Unfortunately, Matt there is also an appeals potentially an appeals process to this new award and so.
We're waiting until we get to the other side of the of the appeals window as are all of the vendors who have been awarded at this point and so.
Not much new to report we continue to be bullish on the opportunity to participate in <unk>, we continue to see real opportunities, where our technology and our services can be valuable to both of the awarded parties wherever they may be postponing any incremental protests.
And.
And we think we're really well positioned to take advantage of them when they come.
Thank you I'm not showing any further questions. It sounds like to turn the call back over to Raj Singh for any closing remarks.
We really appreciate everyone taking the time today, we're excited to see many of you on May eight in Las Vegas, We hope you can join us for our capital markets day at that thank you all.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Goodbye.
Okay.
[music].
Okay.
Okay.