Q3 2024 Accolade Inc Earnings Call
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day and thank you for standing by. Welcome to the Accolade Third Quarter 2024 Earnings Results Conference call. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
Good day, and thank you for setting by walking into the accolade third quarter 'twenty 'twenty four earnings results Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question to recession, you'll need to press star one on your telephone we didn't hear the argument.
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Conference over to your first speaker today.
Freeman Senior Vice President of Investor Relations. Please go ahead.
Todd Freeman: Thanks, Operator. Welcome everyone to our fiscal third quarter earnings call. With me on the call today are our Chief Executive Officer Rajiv Singh and our Chief Financial Officer Steve Barnes. Shantanu Mindy, our Chief Health Officer, will join for the question and answer portion of the call.
Thanks, Operator, welcome everyone to our fiscal third quarter earnings call with me on the call today are our Chief Executive Officer, Rajiv <unk>, Our Chief Financial Officer, Steve bars, Sean Smith, Our Chief Health Officer will join for the question and answer portion of the call.
Todd Freeman: Before turning the call over to Rajiv, please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating accolades performance.
Before turning the call over to Rajeev. Please note that we'll be discussing certain non-GAAP financial measures that we believe are important.
Accolades performance.
Todd Freeman: Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and the reconciliations thereof can be found in the press release that is posted on our website. Also, please note that certain statements made during the call will be forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the actual results for Accolade to differ materially from those expressed or implied on this call.
Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be part of the press release that is posted on our website.
Also please note that certain statements made during the call will be forward looking statements as defined by the private Securities Litigation Reform Act like a 95 such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results for accolade to differ materially from those expressed or implied on this call.
Todd Freeman: 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 will turn the call over to our CEO , Rajiv Singh.
For additional information please refer to our cautionary statement in our press release.
As with the SEC all of which are available on our website with that I will turn the call over to our CEO Rajeev Suri.
Jailendra P. Singh: Thank you, Todd. I'll begin by summarizing the four key themes to my prepared remarks today.
Thank you Todd I'll begin by summarizing the four key themes to my prepared remarks today.
Jailendra P. Singh: One, we had an excellent quarter on both the top and bottom line, and we're raising guidance for the year as a whole.
One we had an excellent quarter on both the top and bottom line and we're raising guidance for the year as a whole.
Jailendra P. Singh: Two, we're reaffirming our outlook for our next fiscal year. It will be our first profitable year as a company while continuing to grow our revenue at 20% per year.
Two we're reaffirming our outlook for our next fiscal year. It will be our first profitable year as a company, while continuing to grow our revenue at 20% per year.
Jailendra P. Singh: Three, our strategy has yielded sustainable market differentiation.
Three our strategy has yielded sustainable market differentiation.
Jailendra P. Singh: which in turn has led to yet another year of strong bookings growth and incredible opportunities for growth inside of our customer base.
Which in turn has led to yet another year of strong bookings growth and incredible opportunities for growth inside of our customer base.
Jailendra P. Singh: And four, based on the strength of that sustainable differentiation, we're raising our profitability guidance on our five-year outlook.
And for based on the strength of that sustainable differentiation, we're raising our profitability guidance and our five year outlook.
Jailendra P. Singh: By all accounts, Q3 was another successful quarter for Accolade.
By all accounts Q3 was another successful quarter for accolade.
Jailendra P. Singh: we're well-positioned to execute on our long-term objective to build a great and enduring company important to the future of American health care. Let me start with the third quarter highlights.
We're well positioned to execute on our long term objective to build a great and enduring company important to the future of American health care.
Let me start with the third quarter highlights.
And then I will provide more color on our outlook.
Jailendra P. Singh: Revenue and adjusted EBITDA were both ahead of our guidance for fiscal Q3.
Revenue and adjusted EBITDA were both ahead of our guidance for fiscal Q3.
Jailendra P. Singh: Revenue in the quarter was $99.4 million, with an adjusted EBITDA loss of $4.6 million, both ahead of our previous guidance.
Revenue in the quarter was $99 $4 million with an adjusted EBITDA loss of $4 6 million Boe.
Both ahead of our previous guidance.
Jailendra P. Singh: With these results, we're also raising our guidance for the full year. You'll hear more details about that guidance for this year in Steve's remarks.
With these results. We're also raising our guidance for the full year, you'll hear more details about that guidance for this year in Steve's remarks.
Steve Barnes: Turning to next year, fiscal 2025, we're reaffirming our commitment to 20% revenue growth and 2 to 4% adjusted EBITDA for the year.
Turning to next year fiscal 2025, we're reaffirming our commitment to 20% revenue growth and 2% to 4% adjusted EBITDA for the year.
Steve Barnes: Our confidence in this guidance is based on the strength of our bookings to date. We've had a strong selling season. We've already exceeded last year's ARR bookings of 72 million, and we're well on pace for growth of more than 20% over last year.
Our confidence in this guidance is based on the strength of our bookings to date, we've had a strong selling season, we've already exceeded last year's <unk> bookings of $72 million and we're well on pace for growth of more than 20% over last year.
Steve Barnes: Positively, as we've mentioned before, the selling season now rolls throughout the year, particularly as it relates to our newer offerings like Accolade Care and ExpertMD, and the continued impact of our growing health plan channel.
Positively as we've mentioned before the selling season now rolls throughout the year, particularly as it relates to our newer offerings like accolade care and expert MD and the continued impact of our growing health plan channel.
Steve Barnes: This booking strength and diversification reflects our differentiation versus our competition and the continued evolution of advocacy into a must-have category for employers looking to control costs.
This booking strength and diversification reflects our differentiation versus our competition and the continued evolution of advocacy into a must have category for employers looking to control costs.
Steve Barnes: Next, let's talk about why Accolade is the differentiated platform for our customers and well positioned for the future.
Next let's talk about why accolade is the differentiated platform for our customers and well positioned for the future.
Steve Barnes: First, our physician-led advocacy teams are more than just navigators, with the ability to deliver care.
First our position let advocacy teams are more than just navigators with the ability to deliver care.
Steve Barnes: integrate with brick-and-mortar care teams and local networks, and solve the access to care problem that we call the position gap.
Integrate with brick and mortar care teams and local networks and solve the access to care problem that we call the positioning gap.
Steve Barnes: We deliver more than navigation. We deliver better health care for our customers that provably lowers cost.
We deliver more than navigation, we deliver better health care for our customers that provably lower costs.
Steve Barnes: Second, resolving the complexity of American healthcare at scale takes more than just our incredible relentless healthcare.
Second resolving the complexity of American health care at scale. It takes more than just our incredible relentless health care advocates.
Steve Barnes: It requires a next generation technology stack driven by artificial intelligence, digital engagement capabilities, and next generation recommendation engines for both our members and our care teams.
It requires a next generation technology stack driven by artificial intelligence digital engagement capabilities and next generation recommendation engines for both our members and our care teams accolade delivers on that promise.
Steve Barnes: Third, this multi-trillion dollar regional complex industry has long desired an open platform, shared data sets, closed-loop reporting, and ultimately real collaboration.
Third this multi trillion dollar regional complex industry has long desired and open platform shared datasets closed loop reporting and ultimately real collaboration.
Steve Barnes: Accolade's growing trusted partner ecosystem delivers the integration of partners in critical categories and delivers real technology integration, choice for our customers, and improved engagement for our members.
Accolades growing trusted partner ecosystem.
<unk> the integration of partners in critical categories and delivers real technology integration choice for our customers and improved engagement for our members.
Steve Barnes: Finally, employers have never had true transparency into how the system is performing for their people, either economically or from an engagement perspective.
Finally employers have never had true transparency into how the system is performing for their people either economically or from an engagement perspective.
Steve Barnes: Accolade delivers live, real-time reporting for every customer.
<unk> delivers live real time reporting for every customer.
Steve Barnes: via our TrueHealth dashboard that highlights who we've engaged and where they are in their journey.
Our true health dashboard that highlights, who we have engaged and where they are in their journey.
Steve Barnes: along with operational metrics that give our customers confidence in the road ahead.
Along with operational metrics that give our customers confidence in the road ahead.
Steve Barnes: For our customers, these differentiators give them the confidence to choose Accolade over the rest of the industry.
For our customers. These differentiators given the confidence to choose accolade over the rest of the industry.
Steve Barnes: And for our shareholders, those differentiators represent an engine of sustainable growth in new bookings, in incremental services that grow revenue per customer, and in technology innovation that drives expanding unit economics into the future.
And for our shareholders. Those differentiators represented engine of sustainable growth in new bookings and incremental services that grow revenue per customer and in technology innovation that drives expanding unit economics into the future.
Steve Barnes: Let me expound on that last point regarding unit economics with some simple but powerful examples about how accolade leverages artificial intelligence.
Let me expand on that last point regarding unit economics with simple, but powerful examples about how accolade leverages artificial intelligence.
Steve Barnes: For our care advocates, we use AI to monitor engagement quality, to summarize encounters and follow-up items, and to route tasks and members to advocate to an experience with their specific need, among other things.
For our care advocates we use AI to monitor engagement quality to summarize encounters and follow up items and a wrap cast members to advocate to have experience with their specific need among other things.
Steve Barnes: every step of the way we're improving efficiency while also improving quality for our members by reducing the opportunities for human error.
Every step of the way we are improving efficiency, while also improving quality for our members by reducing the opportunities for human error.
Steve Barnes: We also use AI in our engagement with healthcare providers, doing risk analysis for every member and building decision and workflow engines to drive better outcomes, among other use cases that support our clinical engagement.
We also use AI in our engagement with health care providers doing risk analysis for every member and building decision and workflow engines to drive better outcomes. Among other use cases that support our clinical engagement.
Steve Barnes: Not every member journey is identical, so we use AI to guide the next best action for our physicians and also help them to keep abreast of and adhere to evidence-based guidelines.
Not every member journey is identical so we use AI to guide and <unk>.
Next best action for our physicians and also help them to keep abreast of and adhere to evidence based guidelines.
Steve Barnes: Lastly, we use AI for analytics for operational excellence. Some of our investment areas are workforce management, reading customer satisfaction sentiment, and predicting engagement level.
Lastly, we use AI for analytics for operational excellence some of our investment areas, our workforce management reading customer satisfaction sentiment and predicting engagement levels all of these drive efficiency and improve the member experience.
Steve Barnes: All of these drive efficiency and improve the member experience.
Steve Barnes: These are just some of the simple examples where our leadership in AI and technology investment will yield value for our operations and efficiency, quality and value and for our shareholders through improving unit economics.
These are just some of the simple examples where our leadership in AI and technology investment.
<unk> value for our operations and efficiency quality and value and for our shareholders through improving unit economics at.
Steve Barnes: At scale, these investments in technology give us better visibility to long-term profitability. It's with that in mind that we are upwardly revising our five-year plan that calls for revenue of more than $1 billion and now adjusted EBITDA between 15 and 20% of revenues in fiscal 2029, which is a five-percentage point raise from our capital markets day in May.
At scale. These investments in technology gives us better visibility to long term profitability.
With that in mind.
We are upwardly revising our five year plan.
For revenue of more than $1 billion.
Now adjusted EBITDA between 15% and 20% of revenues in fiscal 2029, which is a five percentage point Reyes from our capital markets day in May.
Steve Barnes: With that positive news, I'll turn the call over to Steve to give you more color on our financial and operational performance. Steve.
With that positive news I will turn the call over to Steve to give you more color on our financial and operational performance Steve.
Steve Barnes: 1st, I'll recap the results for the fiscal 3rd quarter. And then provide details on our outlook and forward guidance.
Thanks Raj.
First I'll recap the results for the fiscal third quarter, and then provide details on our outlook on forward guidance.
Steve Barnes: We generated $99.4 million in revenue in the third quarter of fiscal 2024.
We generated $99 $4 million in revenue in the third quarter of fiscal 2024.
Steve Barnes: The outperformance relative to our guidance was largely due to early recognition of approximately $2 million of savings-based performance revenue.
The outperformance relative to our guidance was largely due to early recognition of approximately $2 million of savings based performance revenue.
Steve Barnes: I'll note that we previously called out early recognition of performance-based revenue totaling $2 million in fiscal Q2 and $1 million in fiscal Q1.
I'll note that we've previously called out early recognition of performance based revenue totaling $2 million in fiscal Q2 and $1 million in fiscal Q1.
Steve Barnes: From a year to date perspective to the end of fiscal Q3, we've earned and recognized approximately 5Million dollars in aggregate performance based revenue that at the outset of the fiscal year was projected to be earned in fiscal Q4.
From a year to date perspective through the end of fiscal Q3, we earned and recognized approximately $5 million and aggregate performance based revenue.
Outside of the fiscal year of its projected to be earned in fiscal Q4.
Steve Barnes: Fiscal Q3 adjusted gross margin was 46.3% compared to 45.9% in the prior year period, and adjusted EBITDA in the third quarter was a loss of $4.6 million.
Fiscal Q3, adjusted gross margin was 46, 3% compared to 45, 9% in the prior year period and adjusted EBITDA in the third quarter was a loss of $4 $6 million.
Steve Barnes: The positive performance versus guidance reflects the revenue over performance, as well as the impact of the cost reductions via the workforce realignment that we announced earlier this year, along with a continued focus on spend management as we turn toward profitability and fiscal 2025.
The positive performance versus guidance reflects that revenue over performance as well as the impact of the cost reductions via the workforce realignment that we announced earlier this year along with a continued focus on spend management as we turn toward profitability in fiscal 2025.
Steve Barnes: Turning to the balance sheet, cash and cash equivalents totaled $230 million at the end of the fiscal third quarter.
Turning to the balance sheet cash and cash equivalents totaled $230 million at the end of the fiscal third quarter.
Steve Barnes: During the third quarter, we capitalized on an opportunity to improve our balance sheet through the repurchase of $76.5 million of our outstanding convertible notes at a discount for an aggregate purchase price of $65.8 million.
During the third quarter, we capitalized on an opportunity to improve our balance sheet through the repurchase of $76 $5 million of our outstanding convertible notes at a discount for an aggregate purchase price of $65 $8 million.
Steve Barnes: The remaining 211Million dollars of outstanding notes are not due for more than 2 years, and we are confident in our outlook to generating positive operating cash flows with more than adequate capital on hand to achieve our plans without reliance on raising additional capital.
The remaining $211 million of outstanding notes are not due for more than two years and we are confident in our outlook to generating positive operating cash flows with more than adequate capital on hand to achieve our plans without reliance on raising additional capital.
Steve Barnes: Now, turning to guidance on the strength of our Q3 results, we are raising our full fiscal year 2024 revenue guidance to a range of $411 to $415 million, representing pro forma year-over-year growth of 21 to 22 percent.
Now turning to guidance on the strength of our Q3 results. We are raising our full fiscal year 2020 for revenue guidance to a range of $411 million to $415 million, representing pro forma year over year growth of 21% to 22%.
Steve Barnes: We are also improving our full year outlook for adjusted EBITDA loss for fiscal 2024 to a range of $6 to $10 million as we turn the corner on our way to a full year profitability in fiscal 2025.
We are also improving our full year outlook for adjusted EBITDA loss for fiscal 2024 to a range of $6 million to $10 million as we turned the corner on our way to our full year profitability in fiscal 2025.
Steve Barnes: With respect to the fiscal fourth quarter, keep in mind my earlier comment that we recognize about $2 million of PG revenue and fiscal Q3 that shifted from fiscal Q4.
With respect to the fiscal fourth quarter keep in mind My earlier comment that we recognized about $2 million of PG revenue in fiscal Q3 that shifted from fiscal Q4.
Steve Barnes: With that, we are providing fiscal Q4 guidance today of revenue in the range of $121.5 million to $125.5 million and positive adjusted EBITDA in the range of $16 to $20 million.
With that we are providing fiscal Q4 guidance today of revenue in the range of $1 21, 5 million to $125 $5 million and positive adjusted EBITDA in the range of $16 million to $20 million.
Steve Barnes: I'd like to call out a couple notable points about fiscal Q4.
I'd like to call out a couple of notable points about fiscal Q4.
Steve Barnes: First, it will be our first $100 million revenue quarter.
First it will be our first $100 million revenue quarter.
Steve Barnes: Consider that when we went public three and a half years ago, we had recently completed our first $100 million revenue fiscal year. So this is a tangible milestone for our company.
Consider that when we went public three and a half years ago. We had recently completed our first $100 million revenue fiscal year. So this is a tangible milestone for our company.
Steve Barnes: Second, fiscal Q4 will be our first significantly positive adjusted EBITDA quarter demonstrating the underlying earnings power in our model and marking a strong launching point for next year when we expect to deliver full year profitability.
Second fiscal Q4 will be our first significantly positive adjusted EBITDA quarter, demonstrating the underlying earnings power in our model American a strong launching point for next year, when we expect to deliver full year profitability.
Steve Barnes: One of the key questions we often get is about understanding the revenue ramp from fiscal Q3 to fiscal Q4.
One of the key questions. We often get is about understanding the revenue ramp from fiscal Q3 to fiscal Q4.
Steve Barnes: There are two factors that primarily impact Q4 revenue relative to the other three quarters.
There are two factors that primarily impact Q4 revenue relative to the other three quarters.
Steve Barnes: The recognition of healthcare cost savings based performance revenue and net new revenue from customers with January 1st go live dates related to new bookings, which Raj noted earlier.
The recognition of health care cost savings based performance revenue and net new revenue from customers with January 1st go live dates related to new bookings, which Raj noted earlier.
Steve Barnes: These are both rooted in highly visible contracted revenue.
These are both rooted in highly visible contracted revenue.
Steve Barnes: Let me take a moment to provide a short explanation of the dynamics of our healthcare cost savings performance guarantee.
Let me take a moment to provide a short explanation of the dynamics of our health care cost savings performance guarantees.
Steve Barnes: Those savings guarantees are measured according to a customer health plan service year, which typically aligns to the calendar year.
Those savings guarantees are measured according to our customer health plan service year, which typically aligns to the calendar year.
Steve Barnes: Given a one to two month timing lag to receive claims data, we currently have the visibility to most of the claims data required to measure our cost savings performance in calendar 2023.
Given a one to two month timing lag to receive claims data. We currently have that visibility to most of the claims data required to measure our cost savings performance in calendar 2023.
Steve Barnes: The claims data we already have in hand provides a high degree of visibility to the savings based revenue we expect to achieve in fiscal 2024, the majority of which gets recognized in our fiscal Q4 P&L.
The claims data we already have in hand provides a high degree of visibility to the savings based revenue we expect to achieve in fiscal 2020 for the majority of which gets recognized in our fiscal Q4 P&L.
Steve Barnes: This dynamic, which has been consistent year over year, along with a track record of consistent historical execution against our performance guarantees, has contributed to a high level of confidence in the achievability of our forward guidance.
This dynamic which has been consistent year over year, along with a track record of consistent historical execution against our performance guarantees.
Contributed to a high level of confidence in the achieve ability of our forward guidance.
Steve Barnes: Those two highly visible factors, savings-based PG revenue, plus January and February revenues associated with new customer bookings, lead to the revenue ramp in fiscal Q4, which has been the case for accolades history.
Those two highly visible factors saving base <unk> revenue plus January and February revenues associated with new customer bookings lead to the revenue ramp in fiscal Q4, which has been the case for accolades.
Steve Barnes: Now, turning to the forecast for fiscal 2025, we are reiterating our guidance for 20% revenue growth and a positive adjusted EBITDA of 2 to 4% of revenue, which is roughly 10 to 20 million dollars.
Jerry.
Now turning to the forecast for fiscal 2025, we are reiterating our guidance for 20% revenue growth and a positive adjusted EBITDA of 2% to 4% of revenue, which is roughly $10 million to $20 million.
Steve Barnes: For fiscal 2025, we are not providing quarterly guidance today, but our historical quarterly revenue trend, whereby at the outset of a fiscal year, we forecast the majority of claims based savings PG revenue and fiscal Q4 will continue to be a good starting point for your model.
For fiscal 2025, we are not providing quarterly guidance today, but our historical quarterly revenue trend whereby at the outset of the fiscal year. We forecast. The majority of claims based savings PG revenue in fiscal Q4 will continue to be a good starting point for your models.
Steve Barnes: This aligns with our capital markets day presentation, which is available on our investor relations website. And I'll make 1.
This aligns with our capital markets day presentation, which is available on our Investor Relations website.
And I'll make one last point before taking questions.
Speaker Change: As Raj mentioned, we are upwardly revising our five-year plan to call for adjusted EBITDA margins of 15 to 20 percent of revenues in fiscal 2029.
As Raj mentioned, we are upwardly revising our five year plan to call for adjusted EBITDA margins of 15% to 20% of revenues in fiscal 2029.
Speaker Change: Our prior guide called for a 200 to 300 basis point improvement each year after turning profitable next year.
Our prior guide called for a 200 to 300 basis point improvement each year after turning profitable next year.
Speaker Change: As we are now seeing the impact of our earlier cost reductions, the efficiencies we're driving through the business from AI and other technology-driven innovations, and the incremental margin impact of customers implementing multiple offerings and associated utilization-based revenues, we see profitable growth from here and believe we can deliver an annual improvement of 300 to 400 basis points over the horizon to fiscal 2029. And with that.
As we are now seeing the impact of our earlier cost reductions the efficiencies, we're driving through the business from AI and other technology, driven innovations and the incremental margin impact of customers implementing multiple offerings and associated utilization based revenues, we see profitable growth from here and believe we can deliver in <unk>.
Fuel improvement of 300 to 400 basis points over the horizon that fiscal 2029.
And with that we'll open the call to questions.
Speaker Change: At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. In the interest of time, please limit yourself to one question. And to withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question.
Thank you.
This time, we will conduct a question and answer session. As a reminder to ask a question.
Crestar one one on your telephone and wait for name to be announced in the interest of time, please limit yourself to one question.
Your question. Please press Star one again, please turn violet compile the Q&A roster on moment for our first question.
Okay.
Speaker Change: And our first question will come from Ryan Daniels from Blair. Your line is open.
And our first question will come from the line of Ryan Daniels from Blair. Your line is open.
Ryan Daniels: Yeah, guys, congratulations on the strong performance. Thanks for taking the questions. I want to hit on one that you mentioned regarding the ability to drive entry year sales. It sounds like bookings are already great, so very good visibility there. But I think something novel that might be underappreciated, and I want to hear a little bit more about it, is your ability to push more entry year sales, so accolade care, expert MD, and then also how you're leveraging health plan partnerships to do that. Thanks.
Hey, guys. Congratulations on the strong performance. Thanks for taking the questions I wanted to hit on one that you mentioned regarding the ability to drive into your sales. It sounds like bookings are already great. So very good visibility there, but I think something novel that might be underappreciated and I want to hear a little bit more about it is your ability to push.
More intra year sales, so alkylate care expert MD and then also how you're leveraging health plan partnership to do that.
Ryan Daniels: That's a good question, Ryan. This is Raj. In fact, it is a really important point and so I'm glad you, I'm glad you call it out. When you think about, in that context of the, I think the phrase you used was intra-year sales, think about it in a couple of components. The first is we have a base of advocacy customers.
Thanks for the question Ryan This is Raj.
In fact that isn't really important point and so im glad you I'm.
I am glad you call it out when you think about in that context.
Interface user the intra year sales to think about it in a couple of components. The first is we have a base of advocacy customers who are.
Raj: who are excellent targets because of the nature of a really strong customer relationship and because of really strong member MPS.
Excellent targets because of the nature of a really strong customer relationship and Kevin really strong member MTS.
Raj: for incremental accolade services that can be layered on well past the beginning of a plan year when most deployments in a strict advocacy only business would occur.
Or incremental alkylate and services that can be layered on well past the beginning of the plan year when most deployment and it's true obviously only business would occur.
Raj: That entails things like virtual primary care, expert medical opinion, and of course, all of our trusted partners.
That entail things like virtual primary care expert medical opinion for all of our trusted partner ecosystem.
Raj: Beyond that, you also see the opportunity to grow usage of existing services where customers had signed on to those services, but we had yet to really fundamentally drive to the engagement levels associated with them. Again, same set of services, accolade care, expert medical opinion, and trusted partner ecosystem.
Beyond that you also see the opportunity in.
To grow usage of existing services.
Our customers have signed on to those services, but.
We had yet to really fundamentally drives the engagement levels are associated with that again same set of services accolade care expert medical opinion and trusted partner ecosystem.
Raj: Above and beyond that, getting to the health plan component part of the story, the opportunity in things like our Blue Shield California individual and family plan business, the opportunity to drive utilization up on a month-over-month basis.
Above and beyond that getting to the health plan component part of the story.
The opportunity in things like our Blue Shield of California, individual and family plan business the opportunity to drive utilization.
Raj: is what you might refer to it in that context of in-year sales. All of it gives us the opportunity to continue to grow the business beyond the bookings number that we traditionally talk about, but I appreciate you pointing out, Brian , that that bookings number was also very strong this year.
On a month over month basis is what you might refer to it in that context of in year sales all of that gives us the opportunity to continue to grow the business beyond the bookings number that we traditionally talk about but I. Appreciate you pointing out that that bookings number was also very strong this year.
Thank you.
For next question.
Speaker Change: Our next question comes from Craig Hettenbach from Morgan Stanley . Your line is open.
Our next question comes from the line of Craig <unk> from Morgan Stanley. Your line is open.
Craig Hettenbach: Great, thank you. Raj, just to follow up there, as you think through the approximate 20% growth you're targeting for fiscal 25, can you just touch on by kind of segment, you know, the core advocacy, accolade care and expert medical opinion, any nuances to think through in terms of how the different businesses are performing and kind of build up to 20%?
Great. Thank you Raj just a follow up there as you think through the approximate 20% growth you're targeting for fiscal 'twenty. Five can you just touch on by kind of segment the core advocacy.
<unk> care and expert medical opinion, any nuances to think through in terms of how the different businesses are performing in kind of that build up to 20%.
Raj: I think, and I'll let, Steve, I'll let you jump in and add some color commentary here. Ryan, excuse me, Craig, as you think about that in context first, we expect each of our core businesses to grow in that, you know, in that 20 percent range.
I think and I'll, let Steve I'll, let you jump in and add some color commentary here.
Excuse me Craig as you think about that in context first.
We expect each of our core businesses to grow in that 20.
Steve Barnes: That's part one of the story. Part two of the story is we expect that the business itself has opportunities to see incremental usage across any of our, what we call our variable usage offerings, like expert medical opinion, personal primary care.
20% range.
That's part one of the stories are two of the story is we expect that the business itself has opportunities to see incremental usage across any of our what we call our variable usage offering like expert medical opinion virtual primary care.
Steve Barnes: which give us potential upside to that 20% number. Steve, what would you add to that? Sure. You know, I just reiterate a couple of points here around the different offerings. Craig, to Raj's point, we're really enthused by the continuing demonstration of a broad set of capabilities, different offerings that are contributing to that overall 20% growth rate.
Which give us a potential upside to that 20% of receivables will go to add to that sure.
I'd just reiterate.
Reiterate a couple of points here around the different offerings.
Craig to Roger's point, we're really enthused by the continuing demonstration of a broad set of capabilities different offerings that are contributing to that overall, 20% growth rate and like we've talked about the last several quarters, we're continuing to see the advocacy business show up in a strong way in the approaching 20 <unk>.
Steve Barnes: And like we've talked about the last several quarters, we're continuing to see the advocacy business show up in a strong way in the approaching 20 percent growth rate, expert medical opinion, offering continue to grow in that 20 percent range, and then the virtual primary care offering growing north of that 20 percent target for the reason Raj mentioned, which gives us great confidence in the way we go forward, which is
Growth rate expert medical opinion, offering and continuing to grow in that 20% range and then the virtual primary care.
<unk> growing north of that 20% target for the reasons Raj mentioned, which gives us great confidence in the way we go for it which is when we think about it.
Steve Barnes: When we think about embedding a physician into an advocacy customer, it creates a differentiated opportunity for us to drive incremental revenues. And interestingly, back to Ryan's point about strong bookings group, from the customers we've booked year to date.
Betting a physician into an advocacy customer it creates a differentiated opportunity for us to drive incremental revenues and interestingly back to Ryan's point about strong bookings growth from our customers we book year to date.
Steve Barnes: The vast majority of them, when they're an advocacy customer, we're also bundling with that.
The vast majority of them when they are in advocacy customer. We're also bundling with that expert medical opinion, <unk> virtual primary care and oftentimes a trusted partner or more into that opportunity. So we can show up with a starting point of booking with opportunity to drive incremental value for those members.
Steve Barnes: expert medical opinion and or virtual primary care and oftentimes a trusted partner or more into that opportunity. So we show up with a starting point of booking with opportunities to drive incremental value for those members, more value for that customer in terms of financial return and actually it obviously benefits from all of that. We're seeing that all come together and show up and contributing towards that optimism we have on that growth rate and it's really spread across those different offerings.
More value for that customer in terms of financial return and accurate obviously benefits from all of that we're seeing that all come together and show up in contributing towards that optimism, we have on that growth rate and it's really spread across the different offerings.
Thank you one moment for our next question.
Speaker Change: Our next question comes from Ryan McDonald from Needham. Your line is open.
Our next question comes from the line of Ryan Macdonald from Needham Your line is open.
Ryan McDonald: Hi. Thanks for taking my question and congrats on a nice quarter. Steve, maybe just expanding upon the last commentary as you look at the sort of segments of growth. With expert medical opinion, you know, given all the success that you've had this year in cross-selling that, as we look out into next year, what maybe assumptions are you making in that 20% growth on, in terms of case rate volume growth,
Alright, Thanks for taking my question and congrats on a nice quarter, Steve maybe you could just.
Expanding upon the last commentary as you look at the sort of segments of growth with expert medical opinion, given all the success that you've had this year in cross selling that as.
As we look out into next year, what maybe assumptions are you, making in that 20% growth on in terms of case rate volume growth.
Ryan McDonald: Um, and and, you know, now that we're starting to see some of those case rates start to rise utilization and a lot of the health systems start to rise as we headed the next year, you know, what maybe your assumptions you're building into that and potential opportunities for upside. Thanks.
And now that we're starting to see some of those case rates start to rise utilization and a lot of the health systems start to rise as we head into next year.
Maybe your assumptions youre building into that and potential opportunities for upside.
Ryan McDonald: Great. Thanks for the question, Ryan. Yeah, really important point. A couple things. We are seeing the utilization of the EMO offering be strong. In fact, this most recent quarter in Q3, we saw strength in that business on a sequential basis relative to Q2 and likely reflecting some of those utilization trends you're alluding to in a hospital environment and so forth. One thing to remember about our EMO offering is
Great. Thanks for the question Ryan Yes.
Really important point a couple of things we are seeing the utilization of the emo offering be strong and in fact, the most recent quarter in Q3, we saw strength in that business on a sequential basis relative to Q2 and likely reflecting some of those utilization trends are moving in a hospital environment and so forth.
One thing to remember about our <unk> offering.
Ryan McDonald: Most customers now are either on a case rate basis contract or are moving to one.
<unk> customers now are either on a case rate basis Contra.
Contract, we're moving to one.
Ryan McDonald: Why, when you see in our financials or in the disclosures in our 10-Q, you'll see a continued growth in usage-based revenues or utilization-based revenues. That's across the business, but very much the EMO part is contributing there. We think, you know, as we look out for next year, to your point, I think that 20% growth rate is very, very achievable from the standpoint of
Why when you use in our financials are in the disclosures in our 10-Q Youll see a continued growth and usage based revenues a utilization based revenues that's across the business, but very much the emo partners contributing there we think as we look out for next year to your point I think that 20% growth rate is.
Very very achievable from a standpoint of strength in bookings from new customers and continuing strong utilization.
Ryan McDonald: strengthened bookings for new customers and continuing strong utilization around that. Both reflecting the current environment that you mentioned and also overall our ability to demonstrate to customers the value of the ROI on that service.
Around that both reflecting the current environment that you mentioned and also overall our ability to demonstrate to customers the value of the <unk>.
ROI on that Sir.
Thank you.
Our next question.
Speaker Change: Our next question will come from Jaylandra Singh from Truist. Your line is open.
Our next question comes from the line of Jay Lynn dressing room curious your line is open.
Jailendra P. Singh: Thank you, and thanks for taking my question. I want to go back to the comments around bookings and selling season. You called out strength in new bookings. Were these opportunities, which took a little longer to close last year, now you have clarity? Just wondering if you had any impact on the sales cycle last selling season because of GLP1 taking a lot of mind share. And related to that, did you see a lot of not now employer accounts last selling season, which might be giving you some increased confidence for the next selling season?
Thank you and thanks for taking my question I wanted to go back to the comments around bookings and selling season.
You've called out strength in new bookings what are these opportunities, which took a little longer to close last year now youre clarity just wondering if you had any impact on the sales cycle last selling season because of DLP, one taking a lot of mind share and related to that did you see a lot of not now employer accounts last selling season, which might be giving you.
Some increased confidence for the next selling season.
Speaker Change: Thanks for the question, Jay Lender. In fact, what we talked about in our prepared remarks, Jay Lender, was the fact that we had another very strong selling season. That selling season has us ahead of where we were last year and in a great position to drive 20 plus percent growth from a bookings perspective year over year.
Thanks for the question Jami Andre and factory.
When we talked about in our prepared remarks, the lender was the fact that we.
We had another very strong selling season that selling season has us ahead of where we were last year in a great position to drive.
20% growth from a bookings perspective year over year.
Speaker Change: The consistency of the sales cycle and the consistency of the delivery of those new bookings on a year-over-year basis as we continue to grow our business, we think is reflective of the strong demand in the environment, number one, and number two, the differentiation that I spoke to in my prepared remarks.
The consistency of the sales cycle and the consistency of the delivery of the new bookings on a year over year basis, and as we continue to grow our business, we think it's reflective.
The strong demand in the environment number one and number two the differentiation that I spoke to in my prepared remarks.
Speaker Change: Uh, even better news, which I think is a little different than the way you characterize it. It's not that we saw a number of deals delay, but instead we're beginning to see the 1st things of the pipeline for.
Even better news, which I think is a little different than the way you characterize it as not that we saw a number of deals delay, but instead, we are beginning to see the first inklings of the pipeline or.
Speaker Change: uh for real evaluations happening in calendar 24 and we're encouraged by the signs we see which is now the
Our real evaluations happening in calendar 'twenty for <unk>.
We're encouraged by the signs, we see which is now.
Speaker Change: This would make it the 3rd consecutive year that we've said those words that early results on the pipeline or the opportunities and evaluations that are developing here at the end of 2000 that we're developing at the end of 2023 heading into 2024.
This would make it the third consecutive year that we've said those words that early results on the pipeline or the opportunities and evaluations that are developing here at the end of 2000.
At the end of 2023 heading into 2024 give us continued.
Speaker Change: give us continued visibility and bullishness on the demands for advocacy and navigation solutions, particularly those differentiated like Accolade, in an environment where corporations are concerned about healthcare costs and want to deliver better value for their employees.
Giving us continued visibility and bullishness on.
The demand for advocacy navigation solutions, particularly those differentiated like accolade in an environment where.
Corporations are concerned about health care costs and wanted to deliver better value for their clients.
Thank you one moment for our next question.
Speaker Change: Our next question comes from Stan Bernstein from Wells Fargo. Your line is open.
Our next question comes from the line of Stan Bernstein from Wells Fargo. Your line is open.
Stan Bernstein: Hi, thanks for taking my questions. Maybe digging in a plush here a bit more, just if we think about the interplay here of factors driving growth here, you have obviously the Xerx consumer channel, you've called out GLP ONC here, you're getting the incremental lift from enterprise. Can you just walk through the individual segments that I just discussed in terms of the expectations for growth as we think about next year?
Alright, thanks for taking my questions.
Maybe digging in a plus Cabo more just if we think about the interplay here factors driving growth here.
Direct to consumer channel, you've called out GOP margins here.
We're getting the incremental amount.
Price can you just walk through the individual segment as I just discussed in terms of the expectations for growth as we think about next year. Thanks.
Speaker Change: Hey Sam, thanks for the question. I'll start the answer and then Steve can jump in. When you think about our primary care business, I think it's imperative that you think about it in its components.
Thanks, Dan Thanks for the question I'll start the answer and then Steve can jump in when you think about our primary care business I think it's imperative that you think about it in this component.
Speaker Change: We think about it that way, because it's really fundamentally structured off of the same tech platform, off the same platform of physicians, off the same delivery philosophy as it relates to quality care. And in turn, when you think about the business in those two vectors.
As we think about it that way because it's really fundamentally structured off of the same tech platform off the same platform of physicians at the seams delivery.
Philosophy as it relates to quality care.
And then in turn when you think about the business and those two vectors first let's talk about the enterprise business enterprise business, we've seen extraordinary uptake of customers from the advocacy business taking advantage of our care service. In fact, we saw greater adoption last year, and even better adoption in fiscal <unk>.
Speaker Change: First, let's talk about the enterprise business. The enterprise business, we've seen extraordinary uptake of customers from the advocacy business taking advantage of our care service. In fact, we saw great adoption last year and even better adoption in fiscal 24, or calendar 23, fiscal 24.
24.
Our calendar calendar 'twenty three fiscal 'twenty four.
Speaker Change: That adoption is really driven off this concept that we're embedding physicians into care teams. We're solving a problem we call the physician gap, which is, which fundamentally is built around this or is pointing to this problem that exists in the healthcare system where people can't get to their primary care positions, even if they have one for nearly a month in real days.
That adoption is really driven off this concept that we're embedding positions into care teams. We're solving a problem we call the physician gap, which is which fundamentally is built around this.
Is pointing to this problem that exists in the health care system, where people can't get to their primary care physicians, even if they have one for nearly a month and real days.
Speaker Change: And because of that, we've got an audience where we can drive extraordinary utilization of our primary care service or of our care service within the advocacy.
And because of that we've got and we've got an audience, where we can drive extraordinary utilization of our primary care service our of our care service within the efficacy business that business continues to grow while at the same time, our consumer business continues to grow both of them benefit from the fact that we're a primary care practice that deals with.
Speaker Change: that business continues to grow while at the same time our consumer business continues to grow. Both of them benefit from the fact that we're a primary care practice that deals with multiple conditions including weight loss or diabetes management which is tied to GLP-1. We think of GLP-1 as yet another one of the factors driving the strength of that business and the consistent growth rate.
Multiple conditions, including weight loss or diabetes management, which is tied to <unk>. One we think of DLP one add yet another one of the factors driving the strength of that business and the consistent growth rate Steve.
Speaker Change: Yeah, just add, you know, as today, we're seeing that update that Raj spoke about on the enterprise side, and that growth rate is very high, well north of 20 off of a smaller base that's growing as we roll out to new customers and see higher utilization rates within that base. And then there's the consumer business capability or channel continuing to grow as well.
Yes, I'd just add.
They were <unk>.
Seeing that uptake that Raj spoke about on the enterprise side and that growth rate is very high while macro declining off of a smaller base thats growing as we rollout to new customers and the higher utilization rates within that base and then.
The consumer business capability or our channels continue to grow as well.
Speaker Change: The other thing I'm pointing to, Stan, is the reason for people calling in or requesting an engagement with a primary care doc is across a multitude of channels or reasons.
The other thing I'd point, you to stand as the reason for people, calling in or requesting an engagement with the primary care Doc is across the multiple moves through the channel or region.
Stan Bernstein: You know, certainly GLP-1s are contributors this time of year, flu seasons or respiratory is a contributor. We're seeing a good balance across all those reasons. And ultimately, the reason people come to Accolade Care or Plush Care is because they're getting an outstanding experience with a primary care doc. And we're in a unique position, as Raj noted, with an employer customer in particular, to help fill that position gap, get someone to a primary care doc.
Certainly GOP ones are contributors this time of the year flu season is a respiratory is a contributor were seeing.
Good balance across all of those reasons and ultimately the reason people come to alkylate care plus share because they're getting an outstanding experience with the primary care Doc and we're in a unique position as Raj noted with an employer customer in particular to help fill that positioning gap gets onto a primary care docs.
Stan Bernstein: very quickly and then become their longitudinal primary care doc as needed or supplement their brick and mortar on the ground up.
Very quickly and then become their longitudinal.
Doc as needed or supplement their brick and mortar.
Roundup.
Thank you one moment for our next question.
Speaker Change: Our next question will come from Jessica Tassin from Piper Sandler, your line is open.
Our next question will come from the line of Jessica <unk> from Piper Sandler Your line is open.
Jessica Tassin: Hi, guys. Thanks for taking the question and congrats on the quarter. So, I have two quick ones. Just first off, is there any part of the early PEG recognition in the third quarter or in the first three quarters of the year that relate to your conservative assumptions heading into the year? Or is that all just truly a matter of timing?
Hi, guys. Thanks for taking my question and congrats on the quarter.
So I had two quick ones just first off is there any part of the early PD recognition and the third quarter or in the first three quarters of the year that relate to your conservative assumptions heading into the year.
Or is that all just really a matter of timing and then just secondarily was hoping you might be able to give us some color on the shape of the primary care and revenue growth in 'twenty and FY 'twenty.
Jessica Tassin: And then just secondarily, was hoping you might be able to give us some color on the shape of the primary care revenue growth in FY25. Should it step up kind of meaningfully in F1Q as you have new enterprise contracts launch, or should we see sequential growth in each quarter of FY25? Thanks again.
And should it step up kind of meaningfully in F <unk> with new enterprise contracts longer should we see sequential growth in.
In each quarter of FY 'twenty, Pat Thanks again.
Speaker Change: Great, thanks for the question, Justice Steve. First of all, on the PG revenue recognition, yeah, I think with a conservative, we start the year assuming we'll need the full year to earn those performance guarantees. And then we, we oftentimes do earn earn them sooner than that. So, yeah, I think you could think of it as.
Great. Thanks for the question, Jeff It's Steve.
First of all on the PJM revenue recognition, yes, I think what I can.
<unk>, we start the year, assuming we will need the full year to earn those performance guarantees and then we.
We oftentimes do earn.
Sooner than that so yes, you could think of it.
Speaker Change: The $2 million we pointed out this year, we expected to earn for the year and we expected, we assumed that the beginning of the year happened in Q4, and then we oftentimes go after and I mentioned $5 million of cumulative revenue earned.
The $2 million, we pointed out this year, we expected to earn for the year. We expected we assumed at the beginning of the year happened in Q4, and then when they oftentimes go after it and I mentioned $5 million of cumulative revenue earned sooner than that Q4, obviously.
Speaker Change: Sooner than that Q4, obviously, we're really happy to see that whenever we can drive that it takes it adds visibility to Q4, both on the top line and on the bottom line, because of the profitability of.
Really happy to see that whenever we can drive that it takes it adds visibility to Q4, both on a top line and on the bottom line because of the profitability of <unk> and with respect.
Speaker Change: And with respect to the CARE business and launch, certainly we expect to launch new customers on January 1. But when we come back in April with our Q4 results and a more formal guide around fiscal 25, we'll give some more color around the different offerings and shapes of that you would expect for your own modeling.
Care business and launch certainly we expect to launch new customers on January one, but when we come back in April with our Q4 results in a more formal guide around fiscal 'twenty five we'll give some more color around the different offerings in the shape of that view that you would expect figure of apparel myeloma.
In Q1 moment for our next.
<unk>.
Speaker Change: Our next question comes from Richard Close from Canada Core Genuity. Your line is open.
Our next question comes from the line of Richard close from Canaccord Genuity. Your line is open.
Richard Collamer Close: Great, thanks for the questions. Congratulations. Steve. I was curious if you can go over the.
Great. Thanks for the questions. Congratulations Steve I was curious if you could go over the.
Steve Barnes: I guess, revised long-term target on the margins in terms of the annual, you guys must have pretty good confidence to go ahead and do that. Can you break out a little bit in terms of thoughts on the cost savings contribution or the reorganization that you did and then maybe the bundled offerings component? Just a little bit more clarity there would be helpful.
And I guess revised long term target on the margins in terms of the annual.
You guys must have pretty good confidence to go ahead and do that can you can you break out a little bit in terms of.
On the cost savings contribution or the.
Reorganization that you did and then maybe the bundled.
<unk> component, just a little bit more clarity there would be helpful.
Speaker Change: Yeah, absolutely. Richard, great to talk to you and appreciate that. Good question. Yeah, absolutely important.
Yes, absolutely Richard Great to talk to you and I appreciate the question Yeah, absolutely important.
Speaker Change: Item in today's announcement is to talk about, you know, the increase in our guide for that out year that fiscal, you know, 5 year out to 15 to 20% revenues profitability, you know, as we're.
Item in today's announcement has talked about the increase in our guide for that out year that fiscal <unk>.
Five year out to 15% to 20%.
Revenues profitability.
Speaker Change: two or three quarters into the year since capital markets day, when we talk about 10 to 15%, a few things have happened. One, we've demonstrated to ourselves that the cost actions that we took in realignment have yielded great results. And in fact, in some ways, you know, by doing that, we're able to go faster and be more efficient and certainly realize cost savings all at the same time. That's one.
Our two or three quarters into the year since capital markets day, when we talked about 10% to 15% a few things that happened one we've demonstrated to ourselves that.
The cost actions that we took in realignment have yielded great results and in fact in some way by doing that we're able to go faster and be more efficient and certainly realized cost savings all at the same time.
Speaker Change: Secondly, Raj spoke in his remarks in a few different ways about the way we're leveraging technology innovation, which is something that we've been doing for several years. But on top of that, AI driven capabilities that are making our frontline care teams more efficient and able to getting members from one place to another or directly to another offering.
Secondly, Raj spoke in his remarks in a few different ways about the way, we're leveraging technology innovation, which is something that we've been doing and activate for several years, but on top of that AI driven capabilities that are making our frontline care teams more efficient, enabling getting members from one place to another or directly to us.
Speaker Change: All of that nets out to further confidence in gross margin expansion that's assumed in our models as we get out into the next several years. So that's the contributor. And then certainly on the operating leverage side of the business, on the OPEX side of things.
Another offering all of that nets out to further confidence and gross margin expansion and that's assumed in our models as we get out into the next several years. So that's a contributor and then certainly on the operating leverage side of the business on the Opex side of things, we're seeing that opportunities for that in a few places.
Speaker Change: We're seeing that opportunity for that in a few places.
Speaker Change: One, you know, we've made significant investments in products and technology. I think it's a very important differentiator for Accolade in terms of the platform that we've built. We'll continue to invest there at a growth rate that'll be important. And we think it outsizes other investments by other companies in our industry. But we are starting to see leverage there where we can really capitalize on the investments that have been made. So that'll net out to a lower growth rate on that number relative to our revenue and margin expansion.
Yes.
We've made significant investments in product and technology, we think it's a very important differentiator for accolade in terms of the platform that we've built will continue to invest there.
Growth rate that will be important and we think outside of those other investments by other companies in our industry, but we are starting to see leverage that where we can really capitalize on the investments.
No.
Net out to a lower growth rate on that number relative to our revenue margin expansion and then other.
Speaker Change: And then otherwise across the P&L we see other opportunities, but that's one in particular that we see contributing toward that bump up in the long-term gap.
Otherwise across the P&L, we see other opportunities, but thats one in particular that we've got we see contributing.
Contributing towards that bump up in the long term debt.
Thank you one moment for our next question.
Speaker Change: Our next question comes from Alan Lutz from Bank of America. Your line is open.
Our next question comes from the line of Allen Lutz from Bank of America. Your line is open.
Alan Lutz: Thanks for taking the questions. I want to follow up on that last 1. I guess Steve, you mentioned that.
Thanks for taking the questions I wanted to follow up on that last one I guess, Steve you mentioned that.
Alan Lutz: You know, a lot of this is driven by AI, but not all of it. I'm curious, R, is what's embedded in that five percentage point increase in the profitability targets, is that related to tools, to AI tools that you already have available today? Or is it based off of ones that you may deploy in the future? I'm just curious how you think about that in the context of getting to that fiscal 29 target and the path with 300 bps of margin expansion per year. Thanks.
A lot of this is driven by AI, but not all of it I am curious are is what's embedded in that five percentage point increase in the profitability targets is that related to tools to AI towards that you already have available today or is it based off of ones that you may deploy in the future I'm just curious how you think about that in the con.
Text of getting to that fiscal 2009 target and the path with 300 bps of margin expansion per year.
Speaker Change: Hey, I'm going to take a, I'm going to take a cut at the 1st, at that question 1st, and then we'll let Steve add any additional color. Think about smart and expansion or unit economics, expansion and overall economic expansion of the business. With a couple of drivers, the 1st.
This is Raj wouldn't take a let me take a cut at the first part of that question first and then we'll let Steve at any of the additional color think about gross margin expansion or unit economics expansion and overall economic expansion in the business with a couple of drivers the first.
Speaker Change: is the idea that advocacy customers who are taking advantage of incremental services like primary care, expert medical opinion, and our trusted partners are taking advantage of very high gross margin or strong unit economics offerings as it relates to RP&L and driving extraordinary value for their members.
Is the idea that advocacy customers, who are taking advantage of incremental services like primary care expert medical opinion, and our trusted partners are taking advantage of.
Very high gross margin and our strong unit economics offerings as it relates to our P&L and driving extraordinary value for their members with each cohort that comes on taking advantage of those services. We have an opportunity to continue to grow the usage of those services and in turn drive better unit economics and better profitability.
Speaker Change: With each cohort that comes on taking advantage of those services, we have an opportunity to continue to grow the use of those services and in turn drive better unit economics and better profitability.
Speaker Change: Over the last year to two years, we've seen the first cohorts, and we've seen the results from those first cohorts, which give us great confidence moving forward about our capacity to continue to grow those, to grow the unit economics associated with those offerings, and therefore, the long-term profit margins of the business.
<unk>.
Over the last year to two years, we've seen the first cohort and we've seen the results from those first cohorts, which give us great confidence moving forward about our capacity.
Capacity to continue to grow those.
To grow the unit economics associated with those offering and therefore, the long term profit margins of the business.
Speaker Change: is the investment in technology that can drive efficiencies in the business. Those investments in technology can be non-AI oriented, meaning things like being extraordinarily efficient, consuming data from the rest of the ecosystem so that our implementation costs are going down on a year over year basis, or things like artificial intelligence, where we can be.
Wave of that story is the investment in technology that can drive efficiencies in the business those investments in technology can be non AI oriented, meaning things like being extraordinarily efficient consuming data from the rest of the ecosystem. So that our implementation costs are going down.
On a year over year basis, or things like artificial intelligence, where we can be more efficient as it relates to wrapping calls and doing call summary to consuming benefits information to responding to queries for our for our members and a high quality way, but at a lower cost.
Speaker Change: more efficient as it relates to wrapping calls and doing call summaries.
Speaker Change: to consuming benefits information, to responding to queries for our members in a high-quality way but at a lower cost.
Speaker Change: You would think about those two vectors as significant drivers of value, and our capacity to see the whites of the eyes of those who...
Think about those two vectors are significant drivers of value and and and.
Our capacity to see the whites of the eyes of those.
Speaker Change: of those drivers of incremental unit economics over the last year to two years.
All of those drivers of incremental unit economics over the last year to two years.
Speaker Change: being the fundamental drivers of our confidence as it relates to improving our guidance on the fiscal year 29. Yeah, I just add that to that last point, you know, Alan, I would think of it this way.
The fundamental drivers of our confidence as it relates to improving our guidance on a fiscal year 'twenty nine.
Yes, I'd just add that to that last point Alan.
Speaker Change: These are tools and capabilities internally developed, or in some cases, tools that we license and bring in house that we're using today, but have just begun to demonstrate the availability and capability to achieve.
Think of it. This way these are tools and capabilities internally developed where in some cases tools that we license and bring in house that we're using today, but have just begun to demonstrate the availability and capability to achieve but not nearly reap the full benefits that we see that happening over the next several years.
Speaker Change: but not nearly reach the full benefits that we see that will happen over the next several years as we more deeply embed those and get better and better at those and those feed their way back into the platform and the process that we have. So very much based upon tools that were in the earlier stages of deploying and have some proof points that in fact they are driving those kinds of efficiencies and ability to drive incremental usage-based revenues as Raj was starting his remarks with.
As we more deeply embed those and get better and better at those in those feed their way back into.
The platform and the process that we have so very much based upon tools that were in the earlier stages of deploying and have some proof points that in fact, they are driving those kinds of efficiencies and ability to drive incremental usage based revenues as Raj was starting his remarks.
Thank you one moment for our next question.
Speaker Change: And our next question comes from Stephanie Davis from Barclays. Your line is open.
And our next question comes from the line of Stephanie Davis from Barclays. Your line is open.
Stephanie Davis: Hey, guys, congrats on the quarter. I want to also go down the gen AI route. My question, just given the differentiation that your care advocates really gives the platform, I wanted to hear about what you would view as an automation opportunity versus what you would view as potential opportunity, but not something you would approach because it could potentially dilute your offer.
Hey, guys congrats on the quarter.
I wanted to also go down the Jan AI about my question, just given the differentiation that Youre care advocates really gives the platform I wanted to hear about what you would view as an automation opportunity versus what you would view as potentially.
Opportunity, but not compete with approach because it could potentially dilute your offering.
Speaker Change: Yeah, I think it's a really important question, Stephanie. So first of all, thanks for the question and thanks for joining us.
Yes, I think it's a really important question Stephanie So first of all thanks for the question and thanks for joining us.
Speaker Change: Secondly, the way to think about this in the context of the millions of interactions that we have per year, those interactions can be phone-based, they can be messaging-based, but those millions of interactions involve
Secondly, the way to think about this in the context of the millions of interactions that we have per year. Those interactions can be one day, they can be messaging bay.
But those millions of interactions involved understanding the members need building relationship with a member and then summarizing the transaction and following up on the transaction.
Speaker Change: Understanding the member's need, building a relationship with the member, and then summarizing the transaction and following up on the transaction.
Speaker Change: The component of understanding the members need in building a relationship require a human, require our people, whether those are our care advocates, our nurses, our doctors, or our specialists in any particular field.
The component of understanding of the members need and building a relationship require human require our people whether those are care advocates or nurses or doctors, who are specialists in any particular deal.
Speaker Change: the capacity to summarize what occurred in those transactions to follow up on those transactions in many cases with tasks that are repetitive, understanding a benefit, understanding a claim, inquiring from a health system or a health plan about the validity of a claim or the amount of a deductible, et cetera, are areas that could potentially be automated.
The capacity to summarize what occurred in those transactions to follow up on those transactions in many cases with tasks that are repetitive understanding our benefit understanding our claim enquiring from a from a health system or a health plan about about the validity of a claim.
The amount of a deductible et cetera are areas that could potentially be automated incrementally another area, where the company spent a significant amount of time is actually assessing the quality of our interactions in every one of those trends in every one of those millions of transaction and so the capacity to assess that.
Speaker Change: Incrementally, another area where the company spends a significant amount of time is actually assessing the quality of our interactions in every one of those transactions, every one of those millions of transactions.
Speaker Change: And so the capacity to assess the quality of those transactions by
Quality of those transactions by.
Speaker Change: By understanding our follow-up, by understanding the amount of time we're taking to follow-up, by understanding the strength of the data collected about the interaction are all things where artificial intelligence and just traditional technology can play a significant role. And so
My understanding or follow up by understanding of the amount of time, we are taking the follow up by understanding.
The strength.
The data collected about the interactions are all things, where artificial intelligence and just traditional technology can play a significant role and so.
Speaker Change: Absolutely, the idea of understanding a need and the idea of building a relationship, those are human attributes that we would be loathe to change or to in any way try to automate. But you see, there's a huge slice of the pie left where we think artificial intelligence, generative AI, and the companies and technologies that are littering the landscape to deliver value there are gonna be really interesting to accolade.
Absolutely the idea understanding of need and the idea of building relationships. Those are human attributes that that we would be low to change or to to in any way trying to automate, but you see there's a huge slice of the pie left where we think artificial intelligence generative AI.
And the company and technology that are that are literally in the landscape to deliver value there are going to be really interesting bachelet.
Thank you.
One moment for our next question.
Speaker Change: And our next question comes from Jenny Shen from BTIG. Your line is open.
And our next question comes from the line of Chinese Shen from BTG. Your line is open.
Speaker Change: Hi, this is Jenny Shen on for David Larson. Thanks for taking my question and congrats on the good quarter. I just want to ask about the TRICARE contract, whether you have any updates there on a start date, how large the contract will be, and whether any of that is baked into your fiscal 25 guidance or the five-year outlook. Thank you.
Hi, This is Jenny Chen on for David Larson, Thanks for taking my question and congrats on the good quarter.
Just wanted to ask about the Tricare contract, whether you have any updates there on a start date, how large the contract will be and whether any of that is baked into your fiscal 'twenty five guidance or a five year outlook. Thanks.
Speaker Change: Thanks for the question. As it relates to our government business writ large, think about it in a couple of components today. Our autism care business continues to perform well, continues to deliver extraordinary value for the members that we're serving as well as.
Hi, Thanks for the question as it relates to our government business Red large think about it in a couple of components today or autism care business continues to perform well continues to deliver extraordinary value for the members that we're surveying as well as.
Speaker Change: for the health plan slash TRICARE organization.
For the for the Health plan Slash Tri care organization.
Speaker Change: As it relates to the TRICARE contract or T5, it has not resolved that particular pilot organization, that particular appeal has not resolved at this point, and we're reluctant to give you any guidance as to when it will resolve given that it's outside of our control. What we can tell you is
As it relates to the Tricare contract our key five.
It is not resolved that.
The pilot organization does that particular appeal has not resolved at this point.
We're reluctant to give you any guidance as to when it will resolve given that is outside of our control, but we can tell you is.
Speaker Change: No material assumptions are baked into our out-year guide or the guide that leads you to the fiscal year 29 billion dollars in revenues
No material assumptions are baked into our out year guy or the guy that leads you to the fiscal year 2000 9 billion revenues.
Speaker Change: What you should expect in the out year is that we've banked in rational assumptions knowing that we cannot control when the government appeal will finalize and therefore we've built a business based on what we have good visibility to for the year ahead.
What you should expect in the out year is that we've baked in rational assumptions, knowing that we cannot control when the government appealable.
We will finalize and therefore, we've built a business based on what we have good visibility too for the year ahead.
Thank you.
Our next question.
Speaker Change: And our last question for today will come from Jack Wallace from Guggenheim Partners. Your line is open.
Yes.
And our last question for today will come from the line of Jack Wallace from Guggenheim Partners. Your line is open.
Jack Wallace: Hey, thanks team. Thanks for taking my questions. A lot of them asked the answer. I got to first housekeeping item very pro forma growth rate, comfortable sharing.
Hey, Thanks team thanks for taking my questions.
I have been asked and answered I've got two first housekeeping item.
Pro forma growth rate comfortable sharing.
Jack Wallace: Basically, performance X, the loss of large customers you had the last couple of quarters, and I got a follow-up.
Basically performance ex the loss of large customers you had last couple of quarters and I've got a follow up.
Speaker Change: I'm sorry, we lost your question about halfway through. Would you mind repeating it?
Yeah, I'm sorry, we lost your question about halfway through would you mind repeating it.
Speaker Change: problem. Is there a pro forma growth rate you're comfortable sharing? So growth x the loss of the large customer?
No problem.
Is there a pro forma growth rate youre comfortable sharing so growth ex velocity large customer last year.
Speaker Change: You mean for fiscal 24 or fiscal 25?
You mean for fiscal 'twenty for fiscal 'twenty five.
Speaker Change: Yeah, fiscal for this completed quarter.
Jack.
For this.
Speaker Change: I think last quarter was 19% off of a 10, 10 and a half percent growth rate. I just trying to get, get a sense for the drag.
Completed quarter.
I think last quarter was 19% off of a 10, 5% growth rate I'm, just trying to get a sense of the drag.
Speaker Change: Sorry, I misunderstood your point. Yeah, it was about a 17% growth rate in the quarter on a pro forma basis for Q3.
Sorry, I misunderstood your point, yes, it was about a 17% growth rate in the in the quarter on a pro forma basis for Q3.
Speaker Change: Thank you and then just wanted to ask the visibility question in a slightly different way. Is there a mix shift in the level or the.
Thank you and then just wanted to ask the visibility question slightly different way.
Is there any mix shift in the level are they.
Speaker Change: what's called nine or ten months so far and this year that would be different than the visibility or the mix from last year and I asked that because you've made a couple of comments around some of the utilization based opportunities potentially providing upside and was curious if there is a shift between the utilization based and the non-utilization based bookings at this point going into
Bookings through let's call it nine or 10 months, so far this year that would.
You'd be different than the visibility or the mix from last year and I asked that because you've made a couple of comments around <unk>.
Utilization based.
Opportunities and to providing upside I'm just curious if there is a.
Shift between the utilization base non utilization utilization based bookings at this point going into the year.
Speaker Change: So I think about it as the mix of the bookings is pretty similar year over year, which aligns roughly to the, you know, the breakdown of the percentage of revenues in the business advocacy, expert medical opinion, virtual primary care. I think an important.
No I think about it is the mix of the bookings is pretty similar year over year, which aligns roughly to the breakdown of the percentage of revenues in the business of advocacy expert medical opinion virtual primary care I think an important point, though to drawback to Rogers comments is that when we Val.
Speaker Change: point, though, to draw back to Raja's comments is this. When we value a booking on a utilization-based item, we're going to be fairly conservative going in. And then you'll see sometimes upside to that ARR or ACD number in terms of revenues realized as that customer matures with us.
You are booking on a utilization based item, we're going to be fairly conservative going in and then youll see some kind of upside to that IRR or ACB number in terms of revenue is realized as that customer matures with us we've engaged with that population and we drive utilization.
Speaker Change: We've engaged with that population and we drive utilization with that customer, which is which will get you to utilization based revenue. So that's some of the dynamic in there. That's driving that. And we've seen that.
With that customer and which is which will get you to a utilization based revenue. So that's some of the dynamic in there thats driving that and we've seen that.
Speaker Change: You know, we've now got a couple of years under our belt, obviously, with selling bundled offerings and seeing that be fairly consistent with customers that have bundles.
We've now got a couple of years under our belt, obviously with selling bundled offerings and seeing that be fairly consistent with customers' bundles.
Bundles.
Got it. Thank you so much I appreciate it.
Thank you. Thank you.
Speaker Change: This concludes the question and answer session. I would now like to turn it back to management for closing remarks.
This concludes our question and answer session I would now like to turn it back to management for closing remarks.
Management: Thank you, everyone, for being here today, and we look forward to catching up with you down the road.
Thank you everyone for being excited and we look forward to catching up with you down the road.
Goodbye.
Speaker Change: for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.
Thank you for your participating participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Thanks for watching!
Okay.
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Okay.
Good.
Yes.
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Okay.