Q2 2025 Accolade Inc Earnings Call
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Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to Uncle A. 2,25 earnings results conference call. At this time all participants are in a listen only mode.
Speaker Change: after the speaker's presentation that will be a question and answer session.
Speaker Change: To ask a question during the session, you will need press star one on your telephone. You will then hear an automated message about you and your hand is raised.
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Speaker Change: We ask you to limit yourself to one question only.
Speaker Change: Please be advised that today's conference is being recorded. I would like now to turn the conference over to Todd Friedman, Senior Vice President of the Investor Relations. Please go ahead.
Todd Friedman: Thanks for sharing. Welcome everyone to our fiscal second quarter earnings call. With me on the call today, our Chief Executive Officer Rajeev Singh and our Chief Financial Officer Steve Barnes.
Todd Friedman: The fortune of the call over to Rajeev, please note that we will be discussing certain non-gap financial measures that we believe are important when evaluating accolades performance.
Todd Friedman: He tells the relationship between these non-gap measures to the most comfortable gap measures, and the reconciliation of their rods can be found in the press release for this post-it on our website. Also, please note that certain statements made during the call will be forwarding statements as defined by the private securities litigation reform act of 1995.
Todd Friedman: Such for looking at statements are subject to risk uncertainty in other factors that could cause the actual results for accolades to different materialy from those expressed from why them is called.
Todd Friedman: for Digital Information. These referred to our cautionary statement and our press release, and our following to the SEC, all of which are available on our website.
Rajeev Singh: One more note before I hand the call over to the team, after talking to a number of you about the time and logistics we've decided to move the analyst state to the spring and a more accessible location. More details will come closer to the event, and with that I'd like to turn the call over to Rajeev.
Rajeev Singh: Thank you, Todd, and thank you everyone for joining us today on our fiscal 2025 second quarter earnings call. We're speaking to you today from our office in Prague. We appreciate you joining us before the market opens and we'll be brief in our remarks so we can get to Q&A and short order.
Speaker Change: Before I get into the quarter review, I'd like to give you first our perspective on the opportunity we see ahead of faculty.
Speaker Change: I'll use a recent customer presentation to illustrate our view.
Speaker Change: Last month, DeRi University, an accolade customer, participated in a Q&A with one of our analysts to talk about their experience with accolade.
Speaker Change: Since going live with us four years ago, they've expanded the health and benefit services they offer their employees to include a number of partner offerings.
Speaker Change: Seeing incredible results in terms of employee satisfaction and engagement, and created excitement across the entire executive team at Dubri for their approach.
Speaker Change: The whole while keeping medical trend to roughly 2% in a world where healthcare costs are growing 6% to 10% every year.
Speaker Change: Devrive chose accolade many years ago because they recognized that a robust technology stack, leveraging AI was the best way to augment human care teams and scale with the growth they anticipated for their business.
Speaker Change: That in and of itself is the future of healthcare.
Speaker Change: Physician Lead Advocacy, the closes the position gap, and helps people live their healthiest lives while driving lower health care costs.
Speaker Change: That is the company we're building.
Speaker Change: Disruption and healthcare in the United States at scale is no small feat. It requires an understanding that building a great business in a market with massive, powerful incumbents is not an up-and-to-the-right exercise. It requires perseverance and a firm commitment to a differentiated vision.
Speaker Change: The future of healthcare is clearly aligning with accolades view of the world, a collaborative ecosystem sharing longitudinal data to improve the total healthcare experience, lower total costs, and help people live their healthiest lives.
Speaker Change: Every day, we see that vision deliver tangible results with our customers like to buy. It's that success with customers and the continued interests of new customers and partners that steal our commitment to building our business.
Speaker Change: with that.
Speaker Change: Let's talk about the court.
Speaker Change: We have a solid second quarter with revenue above our guided range in a justice event of a head of our four teams.
Speaker Change: We also generated a little bit more than $3 million to cash this quarter.
Speaker Change: has provided more color on the financials, but we're affirming our guidance for the year on the strength of these results and the activity within our business.
Speaker Change: Now, turning to the selling season and an update on our commentary from last quarter. As we've said consistently, the selling season is a year-round process, but there is still a concentration of activity in the summer and fall, as employers aim to roll out new plans and services for January 1.
Speaker Change: The pipeline remains strong, and we've seen a number of exciting new wins.
Speaker Change: The most exciting might have been this past month we want a significant new deal for second MD that was a notable competitive takeaway in the expert medical opinion space.
Speaker Change: A number of larger deals are still in flight, which is consistent with what we've seen in past years, including some deals not tied to a January 1, 2025 gold box.
Speaker Change: In those situations, the customers are not as pressed to make a decision for an November December, open enrollment window.
Speaker Change: There are continues to be good activity across all segments, strategic enterprise, health plans and government.
Speaker Change: Our diversification across those segments is in fact a strength and differentiator of our business.
Speaker Change: The pipeline, our win rates and the pace of discussions gives us confidence in our short and long-term financial targets.
Speaker Change: Turning briefly to our comments from last quarter, as you can see from our reaffirmation of guidance, the actions we took to keep accolade on a solid path to profitability are having the intended effect.
Speaker Change: We've made some changes in our office location strategy as noted as well as adjusted our marketing spend to focus on the most efficient opportunities in terms of return on investment or spend.
Speaker Change: Some of those changes are already visible in the quarters results, while others will continue to have an impact on the year goes on. Particularly where it applies to integrating our text app or managing head count by function or location.
Speaker Change: Importantly, we're taking steps to constantly improve the member experience and achieve the performance guarantees we set with our customers.
Speaker Change: We expect you'll continue to see the results as we march towards positive adjusted event and cash flow this year.
Speaker Change: If you model the guidance, we provided last quarter for revenue growth and adjusted EBITDAX pension. You'll see a business doubling adjusted EBITDA in each of the next two years.
Steve Barnes: So as I turn the call over to Steve, I've never been more bullish about the strength of the market we compete in, the scale and the leverage of our model, and the team we have aligned to execute against our vision.
Steve Barnes: We're going to stay focused on building a great and enduring business. Steve, over to you sir.
Steve Barnes: Thanks, Raj. In the spirit of your opening remarks, I'm going to keep my comments brief as well.
Steve Barnes: Revenue for the quarter was $106.4 million and above the top of our range, while Justice I was well ahead of guidance.
Speaker Change: There were some early recognized PG revenue in the quarter which had a positive impact on both revenue and a juxtapetipet.
Speaker Change: The Justice Department also benefited some solid-expension control, including diligent management of marketing spend that we discussed last quarter, as well as some timing of operating expenses being pushed out to the second half of the fiscal year.
Speaker Change: Aided by finding of collections of receivables and other items, we generated positive 3 cash flow in the quarter of approximately 3.1 million dollars.
Speaker Change: Cash Cash Equivalence and Marketable Security, total more than $234 million at the end of the second fiscal quarter.
Speaker Change: This puts us in a net cash position of more than $23 million relative to our convertible notice. And we expect to generate positive cash flow on a pull-year basis.
Speaker Change: To put that in contact between our operating results, rigorous, trash and expense management, and the positive impact of our note-referred just last year, we have improved our net cash position by nearly $20 million compared to this time last year.
Speaker Change: This leads us in a strong position as we plan refinancing or retirement of our convertible moods that are not due until April, 2021.
Speaker Change: Especially as we begin generating cognitive cash flow this year and beyond. We don't need to carry it much cash on the balance sheet to execute our strategy as we currently have.
Speaker Change: Call it a need for about a hundred million dollars in total cash on hand, plus act as the cash be a credit to abilities or otherwise.
Speaker Change: Based on our market diligence, there appear to be favorable options available that will allow us to retire the debt and maintain a strong balance sheet at favorable terms to execute on our plan.
Speaker Change: Now, turning to guidance to the third fiscal quarter, we are providing the following guidance.
Speaker Change: Revenue in the range of 104 million to 107 million dollars in adjusted e-bathod loss between 3 and 5 million dollars.
Speaker Change: Note that early PG recognition in Q2 primarily came out of Q3, impacting both revenue and a job to leave it off for Q3, while not impacting our full-year forecast.
Speaker Change: With respect to full-year guidance, we are reiterating our fiscal year 2025 revenue guidance of 460 to 475 million dollars.
Speaker Change: and adjusted e-beth out of positive 15 to 20 million dollars.
Speaker Change: I would like to make a comment about the full-year guide in revenue range.
Speaker Change: As we said before, we believe it's critical for a business our size to prove the scale and sustainability of our long-term model. And to that end, we are very focused on driving the profitability as our primary objective.
Speaker Change: We are operating in a dynamic market and will continue to balance revenue growth against our positive objectives.
Speaker Change: We have consistently proven our ability to manage our cost structure and investments to meet and exceed our bottom line targets.
Speaker Change: To that point, the revenue range is a bit wider than we historically have shown at this time of the year.
Speaker Change: I remind you of our past comments about the growing contribution of youths-based revenues in primary care, EMO and our trust department ecosystem, which are more variable based on how we choose to spend marketing dollars to drive those revenues.
Speaker Change: They can also be very well based on how health and partners choose to go live with new customers and members.
Speaker Change: The key message is that we remain confident in our proven track record of managing the business to deliver against our bottom line goal within our revenue guidance range.
Speaker Change: With that, we'll open the call for questions.
Speaker Change: Thank you as a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced to withdraw your question, please press star one one again and again we ask that you limit to one question.
Speaker Change: and please stand by for the first question.
Michael Terny: and our first question will come from Michael Terny with leering partners. Your line is open.
Michael Terny: Great. Thank you. This is Dan Clark on for Mike. Just had a question on the selling season. Can you just talk about where kind of navigation it is, plotting and relative to other big priorities of corporate business here, whether it's Jopi Wands or anything else? Thank you.
Michael Terny: Hey, Dan, thanks for the question, I'll grab that one, Stephen, Todd.
Speaker Change: In terms of interest in the market, oftentimes things like G.L.B.1 will actually spawn more interest in advocacy and primary care because of the necessity for navigation in those complex care situations to be driven by.
Speaker Change: Primary Care Positions, powered by advocacy teams and driving by you. And so, we continue to see trends like GLP ones be drivers of demand for services like ours.
Speaker Change: and often times I think what's unique about our opportunity in those situations, Dan, is that customers can start with primary care. They can start with...
Speaker Change: Advocacy, or they can choose to bundle a package and go all in on everything that we offer. That makes us unique in many respects from our competition and is positive as a relates to our win rate in the markets.
Speaker Change: so
Craig Hettinbach: and our next question comes from Craig Hettinbach with Morgan Stanley. Your line is open.
Craig Hettinbach: Yes, thank you. Just a follow-up question on that selling season and rise you talked about kind of start-time, sometimes in January, sometimes subsequent to that. So just curious how you've visibility shaping up right here and anything else from feedback from customers, thank you hearing that's resonating.
Speaker Change: Thanks for the question Craig and I think this...
Speaker Change: I've part of what's unique about our business and the diversification that we've created over the course of the last four years.
Speaker Change: is that our new ARR, our new business growth in our B2B segment, is really driven across the multitude of channels. You're seeing that in the enterprise and strategic segment, on the employer space, you see that in the health-plan business and you see it in the government business.
Speaker Change: and with each of them, deployment timeframes are somewhat different.
Speaker Change: What we're seeing is, resound in the strong demand across each of the core platforms. And by that, I mean, experimental opinion, primary care, particularly in the health plan space for both of those offerings, as well as advocacy and all of the associated platform connected revenues in the employer space.
Speaker Change: But...
Speaker Change: The what we're seeing across the health plant space is oftentimes the deployment timeframes will not be January 1, they'll be later in the fiscal year or later in the calendar year depending upon their rule outs to those populations and which populations they're serving.
Speaker Change: But the positive news is really strong demand across each of those channels.
Speaker Change: Thank you.
Speaker Change: and their next question comes from Jay Lendra Singh with Krueh, a Stirline is open.
Speaker Change: Thank you for your good morning and thanks for taking my questions so basically I wanted to just stick it up with up to telling Steven
Speaker Change: Clearly, beyond GLP1 impact, just in general, I mean, they have some recent developments in the employer benefits market.
Speaker Change: where you've seen some vendor consolidation, maybe some pricing going on, but just curious, if you're willing to share any key observation in terms of how employers have approached their benefits, employee benefit, this year was last year. Have you seen any dramatic change in your competitive landscape in terms of your competitors, either direct competitors or health plans in terms of pricing, offering any more color beyond the CLP, even to be helpful.
Jail London: Yeah, of course. Of course, Jail London, thank you for the question.
Speaker Change: In each of the different market segments that we play in, so let's just speak to it in the government, the strength of our relationships, and the existing relationships in market, give us some insulation from pricing pressures based on the long-term nature of the relationships in our current service relationships in those markets.
Jellender: in the Health Plan segment, as you think about it, and the reason I answered this way, Jellender is because if you look at the breadth of our ARR, it comes across all three of those segments. In the Health Plan segment, we're exceptionally effective.
Speaker Change: selling in two partners. You've probably saw the recent Celeste announcement, but also work with Lucia LaCalifornia, etc.
Speaker Change: Except for good at selling into those plans and expanding the relationship post that based on the success we've had with there existing customers. Again, a relatively insulated price environment where the distribution power of those health plan partners allows us to have great access to their customer base.
Speaker Change: Finally, in the employer segment, the employers are wrestling with trendline and significant increases in healthcare costs.
Speaker Change: That's pushing employers to push on ROI guarantees in a way that perhaps is even more rigorous than it has been in the past. Unfortunately, we believe leans into our strength.
Speaker Change: All ROI guarantees are not created equal, some customers, you know, some competitors of ours or others in different categories will calculate those things in different ways. We've got a lot of clinical rigor and actual rigor associated with the way we calculate ROI and we're quite comfortable leaning more into those ROI guarantees.
Speaker Change: this year and even in last year.
Speaker Change: We do that, though, with a really keen eye gelander on our path to profitability and ensuring that we're signing good long-term business where we can meet the needs of the customer on a locked-room basis.
Speaker Change: But I would say long ago it's shorter answer to your question because I think your question was very focused on the employer's face. There's more focus on rigor associated with ROI, more focus on at risk revenues and pushing that in that direction.
Speaker Change: and work quite comfortable going in that direction, as long as the customers willing to come along with us on the journey associated with actual rigor and understanding how to calculate our law.
Speaker Change: [inaudible]
Speaker Change: And our next question comes from Jeff Garrow with Stephen's your line as open.
Jeff Garrow: Good morning. Good afternoon, Prague. Thanks for taking the question. Maybe one house keeping item before my more substantive question. What was hoping to see if you could give us the detail on the utilization based revenue in the quarter.
Speaker Change: for the morning of Jeff. And so, he said space revenue in the quarter.
Speaker Change: which similar to how it's been tracking call it we're running around.
Speaker Change: 35 or so percent of the total and it comes from a few places. It comes from both on the employer or the B2B diet. We generate those from EMO and BPC and partners.
Speaker Change: and as well on the direct consumer side of the business. So we're seeing that come in in the neighborhood of, you know, in the 30s as a percentage of revenue. I think it was around 32 percent of total revenue for the water.
Speaker Change: and Continuance to trend about as we've seen in prior quarters a few dynamic. One would be, we're driving those revenues off of the advocacy platform, selling in bundles.
Speaker Change: Secondly, we are seeing EMO customers shifting from PMPM or PETM contract over to usage-based contract. So that's those both contribute to a growing percentage of revenues there. And then finally, on the D to C side, we're certainly managing those cost of customer back, this one cost as we described in the last quarter.
Speaker Change: [inaudible]
Jeff Garrow: and take care of your next question as well, Jeff, on the more sensitive side. Yeah, thank you. Thanks for providing that detail in the additional color. We've had a few questions I'm selling to you, but maybe to ask God on the other side of that coin about retention. Just, you know, curious if you can give us some comments on how much of the book is up for renewal this year versus last year and you've alluded to this a little bit in some of your comments, but would love to hear more. I'm whether we should expect him another round of...
Speaker Change: Sorting out partners that are completely aligned on accolades value proposition and around appropriate unit economics that allow you to hit your long-term profitability goals. Thanks.
Speaker Change: and maybe you can chime in on the incremental.
Speaker Change: We've talked about before in the enterprise book of business, but we've got a duty business and a B2B business in the B2B business, our contracts are typically about three years.
Speaker Change: and so in that context, about a third of your contracts are up for renewal in any given year.
Speaker Change: and as we illustrated with the derived point, we offer exceptional value to our customers and therefore the retention rates we'd expect to be in that 90% or above range, we'd call that number we talk about as gross solver attention.
Speaker Change: and we'd expect that to be in that same area this year. You're correct. Over the last two years we did some work around identifying customer contract that we thought weren't consistent with our path of profitability, but we feel like we're in the next stage of our growth now. We've identified we're now in the process of
Speaker Change: and growing and growing with sustainable strong new business. And so I think that that stays for our businesses behind us.
Speaker Change: And our next question comes from Richard Closke with Canacord, your line is open.
Richard Closke: Yeah, thanks for the questions. With respect to, you know, I guess, you know, you're looking at thisness in terms of new business being government.
Richard Closke: I hope to be here.
Richard Closke: and the employer's side is a little bit more robust.
Speaker Change: and sounds like it could maybe be launching various times during the year. So how are you thinking about growing in the core advocacy as we look into the next year sounds like it may be a new year in this.
Speaker Change: after then his local entrance.
Steve Barnes: Hey, thanks for the question Richard and I'll take, we're going to probably tag team this one as I can see Steve's chomping at the bit, I answer at least the component of it so.
Speaker Change: But let me start with this.
Speaker Change: The positive news associated with the health plan growth is that health plan growth can happen across all of the product segments.
Speaker Change: Many of our health plant partners are offering advocacy, offering primary care, and expert medical opinion or offering some combination of those bundles. So, there's breadth there, so just because it's health plan doesn't mean it's not going to have a positive impact on the advocacy growth.
Speaker Change: That's part one, part two, you're correct.
Speaker Change: They're going to deploy in cycle with their customer contracts to the degree they're going live to fully ensure populations. They're going to go live based on the operational needs and the needs of their customers in those books.
Speaker Change: and while we'll have some impact on working with them as a partner on when they're going to deploy, we acknowledge that ultimately that choice is going to be left up to those offered to those plants.
Speaker Change: The great news underneath that while we have less control of the deployment timeframes is the opportunities are often times very substantive with very large populations that can have an opportunity to impact things.
Speaker Change: We haven't really given, obviously haven't given any guidance for next year's revenues per se.
Speaker Change: But I think with that color in mind, we'd expect that you're going to continue to see growth in the enterprise primary care and the expert medical opinion businesses alongside of the advocacy business and the long-term growth rates of those three businesses which we've called out in the past remain intact.
Speaker Change: and Stephen, I think you're that.
Stephen: Yeah, I think you hit it with that last point, Rajeev, we've given that.
Stephen: To a point where we've hit a last couple of quarters that continues to prevail is a telling of funnled steel. So, I have to see on its own.
Speaker Change: is becoming rare and rare. Customers are leaning into, when you think about those ROI needs that customers have given the elevated cost environment. They recognize that advocacy is attractive, but it's purchasing other elements along with it really is the fondal kind of deal. So we don't necessarily think of it as just straight off advocacy. We look at it as B to B going to market with great solution. So if you look at our bookings, girls.
Speaker Change: Over time, that's really the indication for what we think of as one of the underlying points of the health of the business and driving revenue growth overall by increasing those platform revenues.
Speaker Change: You over here.
Jessica Tassan: Our next question comes from Jessica Tassan with Pipe for your line is open.
Jessica Tassan: Hi guys, thank you for taking the question.
Jessica Tassan: I wanted to ask just when we think about the selling season and FY-25's bookings ARR for 26 conversion.
Jessica Tassan: Kind of, how much of the bookings number is guaranteed revenue for, you know, PMPM, revenue versus variable. And it's, is that kind of mix in line with the historical two-thirds one-third.
Speaker Change: And then how should we going forward think about the coverage of the low end of your revenue side versus kind of your high visibility or PMPM, revenue?
Speaker Change: and Revenue Visibility. Yeah, thanks.
Steve Barnes: I guess this is Steve. I'll start it off. So first of all, in terms of selling these in this year with it not being complete to Rajeev's point yet, there's still a car to be turned over. But if I look back, you know, historically it's just over the last couple of years.
Steve Barnes: More of the business has become the opportunity to have with health plans.
Speaker Change: that are not the theme as an employer going live, let's say, on January 1st. So, the more of the percentage is kind of the lean that way, as part of that dynamic. So, one, you have a long state that might be different than January 1st and two, more of an opportunity, whether it's a hunting license to partner with that plan to acquire customers together or to launch a program like virtual blue into an individual and family find that where those can ramp over time.
Speaker Change: So that's a dynamic that persists.
Speaker Change: In terms of the ranges of guidance that we provide in terms of when you think about the PEPM versus the usage based revenues, when we look at, for example, this year, the full-year guidance on the fourth quarter, I say it's a very similar dynamic that we've had in prior quarters.
Speaker Change: We look at that fourth quarter. There's about 30, little low 30% of the total years revenues expected in there and that's driven by savings TG, which are really PEPM revenues, so that we have to achieve them. They're typically measured on a calendar year basis.
Speaker Change: New launches of ARR and then finally the variable where the usage base revenues are processed, EMO, DTC and then directed consumers.
Speaker Change: I would say those dynamics are pretty similar to this year than we've seen in last year and years prior as far as our assumptions on that bridge.
Jarrett Khafts: and our next question comes from Jarrett Khafts with William Blair, your line is open.
Jarrett Khafts: and I think for taking the questions and this is Jared, on for Randy and you know, let I'd like to give questions.
Jarrett Khafts: or I'm selling environment. Sir, the August Ask One relative to the model, it looked like the gross margin declined sequentially in the second quarter. I assume a lot of that is related to performance guarantees, but maybe I just asked for any additional color you'd share there. And then any expectations as to how we should think about the second half modeling balance between gross margin and opx relative to your EBITDA guidance.
Speaker Change: Good morning, Jared. So yeah, the sequential decline is almost completely attributable to the fact that in Q1
Speaker Change: We had a significant pull forward of a PG of about $6 million, which is really 100% margin. So, if you normalize for that...
Speaker Change: and look at the full year. We expect to be in approaching or coming up on 50% gross margins for the year.
Speaker Change: and so it's typical for us to be in the mid 40s, upper 40s in Qs1, 2 and 3 and then above that range for Q4 as we recognize more performance guarantee revenue which is high margin or 400% margin in that case.
Stephanie Davis: Our next question comes from Stephanie Davis with Baraclays. Your line is open.
Stephanie Davis: Hey guys, thanks for taking my question. I wanted to dig into that second empty takeaway comment, this is now the second film. See you then where we've had a decent amount of takeaway commentary.
Stephanie Davis: So first part, when you're winning the takeaways, is it generally against the narrower point solution.
Speaker Change: or are you seeing a mix of platform takeaways as well? And secondly, we look at the broader challenges these in. Are you seeing more of a mix of green field versus takeaways in your opportunity set or are you seeing a kind of lean one way as you expanded your channels on the health plant channel?
Stephanie Davis: Yeah, thanks for the question Stephanie and let's start with the second question first because I think it's the most important
Speaker Change: The majority of opportunities we're closing continue to be of the Greenfield variety, new opportunities being created by customers.
Speaker Change: who haven't yet really experienced power of a personalized healthcare platform, who may be in the past have been seeking those types of solutions from their carriers, but now looking at healthcare instructors like Accolade as Bible All Turnetive and driving the growth of our business.
Speaker Change #100: That said, there are competitive takeaways. We talked last quarter, about one. We talked this quarter, about one.
Speaker Change #101: in one case was a platform take away and us becoming the advocacy and navigation solution which included and ultimately a core reason for our takeaway last quarter was the breadth of our platform, the integration of that platform and the advance nature of our technology strategy is related to weaving partners in.
Speaker Change #102: that moved that customer from a different vendor over to Acalate.
Speaker Change #103: But this quarter was a, I wouldn't call it a point solution in that the, it's an expert medical opinion opportunity that, that gives us an opportunity to expand into other areas of their business. And so,
Speaker Change #104: We view every opportunity with a customer, whether it's expert medical opinion, primary care, or advocacy, as the first step in demonstrating our value and then expanding inside that customer.
Speaker Change #105: to drive what we call platform-connected revenues as a relates to our P&L and so in both cases, I think what's most important as a wrapper around.
Speaker Change #106: The answer is, in the vast majority of our new wins, our Greenfield opportunities because the market continues to expand on a macro basis.
Speaker Change #106: Where we're seeing takeaways.
Speaker Change #106: Our customers who might have been lured by
Speaker Change #107: Lawyer prices by ROI guarantees in the past. Now returning to a level of, oh, we understand what proven results look like. We understand what referenceability looked like and we're leaning into proven results like those that actually can deliver in any of the different solutions that we're offering.
Alan Lutz: The next question comes from Alan Lutz with Bank of America. Your line is open.
Alan Lutz: Good morning and thanks for taking the question.
Rajeev Singh: Raj, can you expand a little bit on the derived relationship?
Alan Lutz: It seems like they have expanded with you, and obviously you talked about their low medical trends. Can you talk about maybe opportunities to use their model or what you've done with them? And what's the opportunity there to expand with your other customers that maybe aren't using the broader sector?
Alan Lutz: Thank you.
Speaker Change #109: Yeah, I love that question and I appreciate it very much. I think it's an incredible customer because they're so lean into partnering with us to define a healthcare strategy for their employees on a macro basis where accolades as the platform.
Speaker Change #110: He is a driver, actually it's a platform inclusive of the data that we collect on their behalf, is a driver of their overall strategy as it relates to plan design, as it relates to partnerships.
Speaker Change #110: has it relates to how they're defining copays and deductibles with their employees. All of that work.
Speaker Change #110: in partnership with us.
Speaker Change #111: has given them, and obviously we should give credit where credit is due, the deprived benefits team and HRT must be exceptional in managing trend using our platform, but also in terms of educating their employees and weaving together the right set of benefits and partners.
Speaker Change #111: in that context, I believe we have a role to play.
Speaker Change #112: with all of our customers in that very same regard. And you'll see us doing that more and more with customers to rise webinar, which is, by the way, for those who haven't listened to it, also on the Accolade website at accolade.com.
Speaker Change #112: is the first opportunity for us to initiate for the rest of our customer base and for new partners or new customers down the road.
Speaker Change #113: that we can play a broader role than just delivering the technology and personalized health care platform. We can actually be strategic advisors in helping you define how you want your program to work, where you want trendline to be, and why you think it should work that way.
Ryan McDonald: And our next question comes from Ryan McDonald with Needleman Company. Your line is open.
Ryan McDonald: Thanks for taking my questions. One of the touch on sort of the optimization of marketing spend and as you kind of roll that into the
Ryan McDonald: the model in practice now, sort of overseeing any differences in utilization rates across.
Speaker Change #115: I think there's either it whether it's D to C plus care or platform connected revenues on the enterprise side and then, you know, as you're going through the selling season, how are you sort of messaging, especially on the platform connected revenue side, to perspective customers and we'll kind of feedback or you're getting from that this far. Thanks.
Young: Young, let me see if it makes sense you'll start with that one and then you can jump in there.
Speaker Change #117: Let's start with the directing consumer business.
Ryan McDonald: That's a week-over-week exercise, Ryan, of us, monitoring the customer acquisition cost, acknowledging that different cohorts and customers will drive different life-time values and therefore we're going to be very smart about marrying up life-time value of a customer against customer acquisition cost. And on a week-over-week basis, particularly in a market like this one,
Ryan McDonald: where there's intense competition for way lost customers or you name it. We're going to stay disciplined as we've talked about in the past and on occasion it'll impact the utilization. To the degree it does, what we're finding is we're continuing to be able to attract and retain customers in that direct consumer business at an attractive clip on a long term, a lifetime value of the customer.
Speaker Change #118: As it relates to platform-connected revenues and the marketing spend associated with...
Speaker Change #119: Driving New Member Acquisition for Platform Connected Refinance, which for everyone else on the call, as a reminder, is defined as anything on the advocacy platform, primary care visits, expert medical opinion cases, or trusted partner enrollments.
Speaker Change #119: Often times that conversation with our customers.
Speaker Change #119: is tied in tandem with a question that we just talked about.
Speaker Change #120: How much trend line are we trying to drive? Where are you against what you're trying to achieve for the year? It's October. What are we trying to achieve in the back half of the year when most of your members have already gone through their deductible and are starting to consume health care at pace?
Speaker Change #121: In those situations, we're actually working in that vein, to go to customers to share in costs.
Speaker Change #122: Would you like to run more campaigns into your book and help us to break some of those costs because we believe it will drive trend-line value for you on a long-term basis.
Speaker Change #123: That's a relatively new motion for us, because we have so much data, we can actually point to where we think the opportunity is and where we think the spend should be allocated, but so far those conversations have been very productive with our customers.
Speaker Change #123: and you that.
Speaker Change #123: It's a dumb-in-down on the health plan for the last blow, Rajeev, I think he may end.
Speaker Change #124: This is a joint effort often times with us and our customer or partner. So we do our own outbound marketing, our own programs.
Speaker Change #125: and also it's important that the customer lean in with whether it be helping us reach their members promoting to incentives or otherwise to population.
Speaker Change #126: We have that type of dynamic, and the derived sample is really a perfect one in which the...
Speaker Change #127: The Kair, in this case, at the very end, is so completely aligned with believing in the these will lead to better health outcomes but also they need to play a part.
Speaker Change #127: in promoting and supporting the program when that happens.
Speaker Change #128: We can also spend our dollars really widely in terms of stratifying population.
Baron Stain: And our next question will come from Stain, Baron Stain with Wells Fargo. Your line is open.
Baron Stain: Hi, thanks for taking the questions. If we look at the drug consumer business, do you just comment under the hood if we look at the demand drivers there, any changes in teams?
Speaker Change #130: So what extent does Joe P.1 perhaps contribute to the demand that you're seeing in any changes versus the last vote one for? Thanks.
Speaker Change #130: Yeah, thanks for the question, Stan. I would say given the time from that you just laid out in terms of the last 12 months, I wouldn't say there's any tangible change. There's that's implos associated with...
Speaker Change #131: Changes in that demand cycle based on drug shortages, et cetera, but by and large, GLP1 demand has been a constant in the overall flow of...
Speaker Change #132: Consumer Primary Care. I think most importantly in that story, you've heard it from us before, so I'll go, I'll brush safe briefly.
Speaker Change #133: Most companies out there that are offering GLP1 alternatives are doing so in a very transactional drug-oriented or focused model. We are a primary care service.
Speaker Change #134: and so customers come to us because they're seeking a primary care position in a longitudinal relationship.
Speaker Change #134: and some of those cases when they're looking for a primary care doc, they also are looking for that medication. But there's a notable difference in why they come to us versus why companies might be going to other places that are maybe more focused on acquiring customers for just the purpose of delivering GLP-1 medications.
David Larson: And our next question comes from David Larson with BTIG, your line is open.
David Larson: Hey, congratulations on the good quarter and delivering good trendline for your clients. Can you talk about the trusted partners ecosystem a bit more? Like, what is the revenue model there? Any sense for how much revenue contribution there was from your trusted partners?
Speaker Change #136: and then just maybe any highlights or anecdotes seems to me like one of the values, actually brings to clients is you're a one stop shop, which includes plugging in best of breeds when possible. So any color there will be very helpful. Thank you.
Speaker Change #137: Yeah, thank you for the question. If you think about why Accolade is so powerful.
Speaker Change #138: as it relates to being at a kind of platform for our customers. It's of course the advocacy service and the relationships we build our own primary care and expert medical opinion services, but also...
Speaker Change #138: This incredibly rich ecosystem that we've woven together across a wide variety of condition-oriented solutions, sometimes people refer to them as point solutions.
Speaker Change #138: Those solutions have been curated with an eye towards clinical rigor, trend-line improvement and exceptional service. And because we've done that curation, I'm behalf of our customers, many of our customers, majority of our customers.
Speaker Change #139: Shoes in some way, shape or form to acquire partners or to acquire those solutions, unacquilate paper.
Speaker Change #140: Now there's the reason they do that beyond the clinical rigor value, et cetera, that I just spoke to, is we actually integrate with those solutions.
Speaker Change #141: and so while the industry is right with press releases about partnerships, very rarely the those partnerships turn into the level of integration that our partners have committed to with accolade.
Speaker Change #142: where we're seeing a round trip, or what we call closed loop reporting, we understand that only of whether someone's been referred to a program, but whether they actually enrolled in the program, when they enrolled in the program, if they graduated, if that is a concept of that program, and the value that we achieve from it. And we do that with the vast majority of our partners.
Speaker Change #142: That level of integration gets deeper each year as we align more on the resources to building out depth with our partners. What's that allow us to do? It allows us to improve clinical engagement.
Speaker Change #142: to drive better ROI for the customer.
Speaker Change #143: and in turn, directly have an impact on trend line. Now that's going to be different for every customer based on their need. If you're a customer with a large diabetic population, then a particular segment of our partner solutions might be most valuable to you.
Speaker Change #143: The same story is true if you've got a particular challenge with muscular skeletal.
Speaker Change #143: Our capacity to understand your need, guide you to the right partner and then prove that that our very successfully valuable.
Speaker Change #144: Through closely reporting and the integration we've built with our trusted partners is why we're differentiated in the market and why customers are really flocking to those solutions via accolade as opposed to buying them independently.
Jack Wallace: and our next question comes from Jack Wallace with Guggenheim. Your line is now open.
Jack Wallace: Hey, thanks for taking my questions. You can call it out and you're prepared to mark the step up and expect this in the second half of the year. How should we think about the bucketing and the cadence of those costs? Thank you.
Steve Barnes: and Jack Morning, this is Steve. So, a couple of things.
Steve Barnes: You mentioned, I think you said the back half of the year a step up in some calls with
Steve Barnes: Really, what I'm thinking about there is a sober and air mouth gross margin line. In fact, that could be either around 50% gross margin. So, if you look at sequential operating expenses.
Speaker Change #146: We had a very favorable key to in terms of bottom lines, we had favorable key one. What I'm thinking about there is timing of marketing spend. Primarily around direct consumer to Rajeev Singh's point earlier, we're being very disciplined about when and to what is spent, we invest there and also on the B2B side as well whether that be marketing programs or opportunities that we see during the year where there's some movement along those lines. So, if you look at the Q3 guys on the trusty law, there's about $4 million at the midpoint.
Speaker Change #147: That would be consistent with that link, we had a B in Q2, some of that would do to the revenue.
Speaker Change #148: and comments that I made earlier. A bit of that is due to offering fences that I'll move from Q2 and Q3 and Q4. And maybe just a final point would be...
Speaker Change #149: given our focus in credible public home profitability this year, we'll evaluate every opportunity whether that pushes to Q3 or perhaps even to Q4 that is the governor for offset this point in time, it can be very focused on that. She can profitability within that revenue range.
Rajeev Singh: At this time, I would now like to turn the call back over to Rajeev for closing remarks.
Rajeev Singh: We appreciate all of you being here today and look forward to our follow-up conversations and we'll talk to you shortly.
Speaker Change #150: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change #150: i
Speaker Change #150: i