Accolade Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 4, 2023

There are 12 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to Accolade Second Quarter 20 24 Earnings Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' 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.

Operator

You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Todd Freeman, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Thanks, operator. Welcome everyone to our fiscal 2nd quarter earnings call. Within our Houston office today are our Chief Executive Officer, Rajiv Singh Our Chief Financial Officer, Steve Barnes Doctor. Shantanu Nundi, our Chief Health Officer, will join for the question and answer portion of the call later. Before turning the call over to Rajiv, please note We will be discussing certain non GAAP financial measures that we believe are important when evaluating Accolade's performance.

Speaker 1

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 this 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 Actual results or accolades could differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary

Speaker 2

Thank you, Todd, and thank you everyone for joining us today. Having now completed the first half of our fiscal year, there are 4 clear takeaways we'd like our shareholders to take from this call. First, we came in ahead of guidance and consensus in Q2 on both revenue and adjusted EBITDA. 2nd, with each passing quarter, We're closer to crossing the threshold to becoming a profitable, scalable business and will improve people's lives by changing the way healthcare is experienced. 3rd, the demand environment for our solutions remains strong.

Speaker 2

And 4th, we're presenting the market with unique and differentiated perspective, grounded in our roots and advocacy and powered by care delivery that our competition does not offer. That differentiation is bearing us through today and will continue into the future. I'll give you more color on those bullets in a moment, but first, let's hit the 2nd quarter highlights. First, revenue and adjusted EBITDA were both ahead of our guidance for Q2. Revenue in the quarter was $96,900,000 an adjusted EBITDA loss of $8,800,000 both ahead of our previous guidance.

Speaker 2

Revenue highlights in the quarter were marked by continued strength in our virtual primary at Mestral Health offerings and some early recognition of performance based revenues. Steve will give you all the details in his prepared remarks shortly. Over the past couple of months, there have been a number of consistent questions and themes in our investor meetings. I'll take this time today to hit on those topics and provide some current color. The first question we usually hear is about the selling season.

Speaker 2

The demand environment remains strong the selling season continues at a solid pace. I'll remind investors here that with the growth of our middle market business and customer selling motion, Selling season is a year long process at AccoladeNow. We've seen strength across verticals and customer size. As we've said before, More of the deals in the pipeline include multiple offerings and 1 or more trusted partner solutions. We view this as powerful validation of our overall vision as well as the importance of embracing the ecosystem.

Speaker 2

This is reflective of continued interest in our category and our ability to win more than our fair share of the market with our differentiated personalized healthcare suite. The customer additions continue in both our traditional direct channel as well as our rapidly growing health plan business. On the direct side, advocacy and bundled deals have included brand name manufacturers, retail, Automotive, CPG, Medical, Real Estate, Public Sector, Financial Services and many others. And our health plan channel has delivered both quantity and quality, including some notable competitive takeaways through a combination of our direct sales force, Expansions of existing relationships and new logos to our health plan partners, Accolade ExpertMD added fantastic customers, including Nissan North America, Tyson Foods, Philips, TIAA, Spirit Airlines, Mutual of Omaha and Clorox this quarter. We also signed another major health plan partner to resell our advocacy and care solutions.

Speaker 2

In the quarters ahead, we'll give you more visibility into this partnership how we see the targeted addressable market within our health plan relationships continuing to grow. We view these partnerships as incredible opportunities to drive sustainable growth for years to come. Next, let's talk about the competitive landscape and do it on a couple of vectors. First, in a traditional employer sale driven by a consultant RFP in the strategic and enterprise account space, Our competitors remain the usual suspects we've talked about in the past. Our win rate remains strong as evidenced by our growth in bookings over the last several years.

Speaker 2

2nd, in pursuit of health plan relationships, our breadth of product offerings, our technology stack and our open platform oftentimes have us competing with low engagement tech only platforms instead of advocacy competitors, and our win rate there is very high. Why are our win rates strong? Because we're deeply differentiated from the rest of the market. Our customers know that one of the primary underlying causes of the dysfunction in the healthcare system It's the complete fragmentation of the patient experience, from understanding their benefits to how they're with little coordination or empathy. A fundamental principle of Accolade's strategy is to embed the physician in the entire care journey and to do so with advocacy at the core.

Speaker 2

Accolade connects physicians longitudinally with members through our advocacy and healthcare services. Accolade's treating physicians are uniquely positioned to connect brick and mortar physicians with members' benefits and pharmacy coverage through claims and benefits specialists. We can refer to and provide collaborative care with specialists, therapists and point solutions for specific medical conditions that are covered under the member's employer health plan. This is a unique role that only Accolade plays with our customers. By providing the benefits advocacy and navigation services their members need to fully leverage their healthcare options, as well as operating a large and growing care delivery organization, We can fully engage the population, identify and reach high risk members and guide them down care pathways For major costs and misery drivers like cancer, MSK, diabetes and more in a measurable, scalable and deeply differentiated way.

Speaker 2

This is the next generation of efficacy and Accolade is leading the way. Recently, we've also fielded a number of questions about GLP-one drugs and their impact on our business. On this topic, The healthcare industry, employers and consumers continue to learn from their experience with treatment regimens, usage patterns and drug availability. Drug availability has clearly driven some fluctuation in usage on a month over month basis, and we expect that volatility, both upward and downward, to continue with the quarters ahead. That said, demand continues to be strong, and we've also seen the growing attractiveness of non pharmaceutical suitable alternatives like Virta, a company in our trusted partner ecosystem that we profiled in our Capital Markets Day and specializes in diabetes reversal.

Speaker 2

We're also beginning to see new approaches to managing the cost and prescription of these drugs. The University of Texas System decided to stop covering weight loss drugs after seeing its costs for the drug increase from $1,500,000 monthly to more than $5,000,000 monthly over 18 months. And BCVS of Michigan has changed its policy so that patients will be required to be on a lifestyle modification program for at least 6 months before granting approval for weight loss drug therapy. What all of these data points reflect is the clear importance of engaging physicians in the weight loss treatment and a strong advocacy program to help ensure proper usage and program adherence. Finally, regarding the DHAT5 agreement, We continue to await the final resolution of Health Net's protest, which we expect to hear over the coming months, and we'll have more to report after that process resolves.

Speaker 2

With that, I'm going to turn the call over to Steve to review the financials. Steve?

Speaker 3

Thanks, Raj. First, I'll recap the results for the fiscal Q2 and then provide details on the rest of fiscal 2024. As Raj noted earlier, we generated $96,900,000 in revenue in the Q2 of fiscal 2024, representing 11% growth year over year We're 19% pro form a growth excluding the impact of a large customer termination in fiscal 2023. Revenue highlights in the 2nd quarter included Strong contributions across our offerings, reflecting the strength of a diversified personalized healthcare platform with multiple revenue streams. Notably, GLP-one demand remained strong in the quarter, however, not at the surge level we saw in Q1, which contributed to a Slight sequential decline in utilization based revenues from fiscal Q1 to Q2.

Speaker 3

And in fiscal Q2, we also recognized approximately We had initially forecasted these particular PGs At the start of the fiscal year, we generally forecast that savings related PGS will be recognized in our fiscal Q4. When we earn those PGs earlier, we call them out to the extent they are notable. As a reminder, we had a similar pull forward dynamic of about 1 Fiscal Q2 adjusted gross margin was 44.2% compared to 44.7% in the prior year period. The year over year change was driven by investments in our frontline care teams, including investments to launch our enterprise virtual primary care capability. There were also some duplicative staffing costs in Q2 associated with the workforce realignment actions we took at the end of fiscal 2023 as we transition some roles to new geographic locations.

Speaker 3

And as we discussed in Capital Markets Day as well as our prior earnings call, We expect to see the benefits of the workforce realignment materialize in our P and L beginning in the second half of fiscal twenty twenty four. Adjusted EBITDA in the Q2 of fiscal 2024 was a loss of $8,800,000 The positive performance versus our guidance reflects the revenue over performance as well as a keen focus on spend management as we continue on our path to profitability. And turning to the balance sheet, cash and cash equivalents totaled $292,000,000 at the end of the 2nd fiscal quarter. And as a reminder, our convertible notes are not due for about 2.5 years. Finally, we currently have approximately 76,200,000 shares common stock outstanding.

Speaker 3

Now turning to guidance. We remain optimistic about our outlook on growth as well as our continued drive towards profitability. And with that, we are maintaining our full fiscal year 2024 revenue guidance in a range of $410,000,000 to $414,000,000 representing pro form a year over year growth of approximately 21% at the midpoint. We are also maintaining our full year outlook on the bottom line for an adjusted EBITDA loss for fiscal 2024 in a range of $6,000,000 to $12,000,000 With respect to the fiscal Q3, keep in mind my earlier comments that we recognized about $2,000,000 of PG revenue in fiscal Q2 That shifted about $1,000,000 revenue each from fiscal Q3 and Q4. And with that, we're providing fiscal Q3 guidance today of revenue in the range of $95,000,000 to $97,000,000 and adjusted EBITDA loss in the range of $5,000,000 to $8,000,000 Tying this adjusted EBITDA guidance to our full year target, we are forecasting positive adjusted EBITDA in the 4th fiscal quarter between $17,000,000 $20,000,000 when we earned the bulk of our PG revenues in that 4th quarter and realized the impact of new customer launches on January 1st, as we outlined in-depth on Capital Markets Day.

Speaker 3

This projection for fiscal Q4 combined with our fiscal year to date performance on our bottom line Give us visibility and confidence in our projections for 2% to 4% adjusted EBITDA positive in fiscal year 2025 and growing profitably thereafter. And with that, we'll open the call to questions.

Operator

Please stand by while we compile the Q and A roster. One moment for our first question. And our first question, Richard, will come from the line of Jeff Garo from Stephens. Your line is open. Jeff Garo, your line is open.

Operator

One moment for our next question. Our next question comes from the line of Craig Hettenbach from Morgan Stanley. Your line is open.

Speaker 4

Yes. Thank you. Raj, you mentioned a few competitive wins. Can you just touch on kind of what's differentiating relative to competitors in the marketplace. And then also any additional color on the multiple offerings, what else you see getting pulled through when customers choose

Speaker 2

to have more than one offering from you. Thanks, Greg. I think the core of our differentiation that we're seeing manifest in many of our platform sell deals where people are buying Our advocacy service plus other services is differentiation associated with having physicians embedded in the care teams, number 1. Number 2, the capacity to engage

Speaker 3

with brick and

Speaker 2

mortar care teams from those physician interactions to drive longitudinal care and improve the fragmentation or actually alleviate the issues associated with fragmentation in the healthcare system. Our value proposition is built off of our incredible capabilities from an advocacy perspective that we've built over the years. Now adding the incremental services and the incremental capabilities associated with physicians, behavioral health specialists and specialists associated with our expert medical opinion service. As it relates to the capabilities or the product offering, we're seeing strength in advocacy. In terms of new bookings, we're seeing strength in advocacy, Ask for medical opinion and customers taking advantage of our Ocular Care service.

Speaker 2

And so incrementally, we mentioned in the script or in the prepared remarks earlier that an increasing number of customers are taking advantage of the trusted partner ecosystem as

Operator

Thank you. One moment. Our next question And our next question comes from the line of Jessica Tassane from Piper Sandler. Your line is open.

Speaker 5

Hi, guys. Thank you for the question and congrats on the strong quarter. I was hoping if you could maybe clarify, are you still expecting to see core navigation ex Comcast returned to about 20% growth in FY 2024. And maybe just how much Visibility do you have into that kind of 4Q ramp at this point? And any update on the annual growth rates for each of the businesses Would be really helpful if they're changed relative to prior expectations.

Speaker 5

Thanks so much.

Speaker 3

Hi, Jess. This is Steve. So First of all, with respect to fiscal 2024, yes, we're still expecting that the growth rate overall to We are in that range of 20%, 21% at the midpoint for the year and lining up around the offerings where Advocacy would be in the neighborhood of 20%. Growth rate and EMO or the expert medical opinion offering in the range of 20 as well and the virtual primary care business growing a bit faster than that. We've got good visibility to that number.

Speaker 3

As Raj mentioned In the prepared remarks, the selling season has been the demand environment is strong, selling season, we've had several good wins, Selling season continues right through here, but we've got good visibility to that for the end of this fiscal year and then Visibility towards our 20% long term growth rate that we've spoken about for next year in particular.

Operator

One moment for our next question. And our next question will come from the line of Jaylendra Singh from Churrus Securities. Your line is open.

Speaker 6

Thank you and congratulations on a strong quarter. I just want to go back to the selling season commentary. We have heard this year that there has been some delay in employer This is making in terms of deciding on benefits for next year. Just curious if you have seen anything on that line among your client base or just the market in general? And related to that, Clearly, addressing the GLP-one medication's demand is on top of mind for most employers.

Speaker 6

So are you seeing that outsized piece of Wallet or mind share impacting the discussion on other areas in any ways? Clearly, new client wins for you guys don't seem to reflect any impact, but just curious your thoughts on both

Speaker 2

Yes, Julien. I think, 1, we're continuing to see a strong demand environment. We're continuing to see customers who But for the three core reasons that they've always purchased solutions our solution, 1st, the desire to control trend line second, the desire to improve the employee experience And third, the desire to improve outcomes as it relates to health care outcomes for their employees. The commentary on GLP-one is actually tied pretty nicely into that in many ways, Jalendra, meaning what our employer is definitely experiencing is this idea that a new medication has come onto the market that's driving healthcare costs. They've got to adjust both from a policy perspective and understand how they're going to apply the appropriate clinical rigor to get the outcomes that they want and to drive the value for their employees that's necessary while controlling costs.

Speaker 2

And so we think in some ways, Absolutely. It's driving an incremental spend, which employers are going to have to fund from somewhere. But incrementally, it actually drives real demand for services like ours. I'll use this opportunity as a moment to defer to our Chief Health Officer, Shafa Nye Nandhi, to talk a little bit about Our clinical view on how to drive value for corporations as it relates to GLP-one and the cost of GLP-one. Jonathan?

Speaker 4

Yes, absolutely Rajan. Yes, Julinder, always good to hear from you and fantastic question. Yes, I think the key that we're hearing from employers and I think for me as a We want to use the demand for GLP-1s to really create a much more comprehensive evaluation and a much more comprehensive plan, for these numbers, right? I think too many Actors in the healthcare system are sort of taking a patient who's interested in a GLP-one and saying, okay, well, let me just prescribe that for you. And I think what we're able to do is we have nutritionists on our staff.

Speaker 4

We are able to we have mental health therapists. So some of these folks, their underlying core issue is actually not related to metabolic issue, but much more related to their mental health. We have people, like we alluded to in the opening remarks, who are actually just interested in addressing obesity and they're aware of non pharmacologic means like reversal of diabetes. And so I think our ability to be able to take them that moment of people's interest and sort of what's become a fad, really use that as a way to open up this much more longitudinal relationship and then have a very broad set of clinical tools and interventions at your disposal. I think it's ultimately serving what members want and serving that employer's interest in managing cost and improving outcomes.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jared Haas from William Blair. Your line is open.

Speaker 7

Yes. Good afternoon. Thanks for taking the questions. This is Jared Haas on for Ryan Daniels. A 2 part question here.

Speaker 7

And just sticking with the demand environment favorability here, I'm curious if there's been any changes in terms of Sort of the themes that are driving that environment or is it still largely focused on cost savings, just especially when we think about the expected price increases coming on next year? And then related to that, as we think about sort of your ability to communicate ROI around cost savings, is there anything that's kind of uniquely changed In terms of how you actually communicate that with clients, do you have any additional sort of tools in the tool bag, so to speak, to really showcase that to prospects? Thanks.

Speaker 2

Thanks, Jared. As it relates to the first question, it's certainly trend line is always an issue, What's also true and it's been it's increasingly true post the 2020 pandemic and shutdown Is that healthcare is becoming increasingly complex. And so while costs are always a driver, even before 20 The increasing fragmentation associated with the increased point solution, Fragmentation associated with the complexity of healthcare and the growth of third party solutions that create that fragmentation is another real driver. And that is a driver that points directly to solutions like ours that act as an umbrella to the healthcare system, Paper over the fragmentation using tools like our advocacy team powered by physicians. And so I think it's a combination of both of those That's really driving the demand for our services and perhaps any mismatch between the demand you might be hearing about for services that are more point solution oriented or in other categories.

Speaker 2

As it relates to your second question, we are consistently showing our customers our value proposition as it relates to the interventions and the engagements that we're driving. Let's start there. Well,

Operator

how much

Speaker 2

of their population are we engaging, the interventions that we drive on their behalf leading to the claim saving Actually, we derive on their behalf as well. And so that's been very consistent over the years and our performance has been extraordinarily consistent as well.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Greg Santangelo from Jefferies. Your line is open.

Speaker 8

Thanks for taking my question.

Speaker 6

Hey, Steve, I want

Speaker 8

to follow-up with you on a couple of financial questions. When we look at your long term guidance that you provided, that 5 year look out Fiscal 'twenty nine, I think the assumption was right, you're assuming 20% compounded annual revenue growth getting to a 10% to 15% margin in that year. Should we assume that the progression to get there will be somewhat linear? And Is it also a fair assumption to assume that your cash flow will somewhat equate to your adjusted EBITDA similar to maybe how it's trended this year? And I guess the reason I'm asking right is because I think, as you mentioned in your prepared remarks, you said the converts are only 2.5 years away into 2026 and basically the amount of converts are almost exactly equal with the cash that you have and those converts are trading somewhere in the low 80s.

Speaker 8

And so I'm kind of curious as to what the plan is and how we think about profitability and cash generation in the next kind of couple of years to prepare to basically refinance or do something with those converts. Sorry, a lot of questions

Speaker 3

here, my bad.

Speaker 1

I'll stop there.

Speaker 3

Yes, yes. But all closely tied together. So I appreciate it. I'll kind of wrap them all together, Glenn. First of all, you have it right that 20% growth rate CAGR that we're seeing is all based upon the demand environment and our over the past several years and what we're seeing as Raj was just describing.

Speaker 3

And so we're expecting that to continue, call it, over That foreseeable future, particularly that 5 year period you talked about, which is back in our Investor Day back in May, we laid out that path to 20% growth towards $1,000,000,000 and fairly linear projection is how our progression is how we're thinking about that EBITDA bottom line As we break through into next year in the positive territory there and adjusted EBITDA, our guidance is in the range of 2% to 4% of revenue and would expect As we always do, balancing growth with profitability as we've done historically on our way to breakeven and into And then going forward, there's a big opportunity in front of us. So we want to make sure we invest accordingly, which we will do, but also drive profitability on that path. As to your other part to your question around free cash flow and balance sheet, Yes. We would expect free cash flow to be within range of adjusted EBITDA. There are always puts and takes around working capital timing, The CapEx on the business is fairly modest, typically a few $1,000,000 a year or a percentage point or 2 of revenue and that's usually with respect to things like the capitalized software and normal kind of work Station CapEx for employees, but that's really the extent of it.

Speaker 3

With respect to the balance sheet, you're right, we've got about $292,000,000 in cash On the balance sheet as we ended the August quarter, the converts are due in 2.5 years in August of 2026. And we would expect by that time to be well into cash flow positive and have a lot of optionality around whether we Pay it down in part or in full or refinance it, we'll certainly be looking about that and talking about with investors over the coming quarters as that becomes closer, but we feel we'll have lots of optionality around that as we break through into cash flow and profitability.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Alan Lutz from Bank of America. Your line is open.

Speaker 9

Thanks for taking the questions.

Speaker 2

One for Raj or Steve. Raj, you talked about the rapidly growing health plan channel. Is there a way to frame how much of the 19% growth you saw in the quarter is coming from the health plan channel? And then I guess over time is the expectation That's going to grow as a percentage of growth. And then one for Steve.

Speaker 2

I guess, is there anything to call out related to the GLP-one dynamic and Why GLP-one related activity declined quarter over quarter? Thanks. Yes, sure. On the first question associated with breaking out health plan, new bookings versus our employer or government new bookings, we haven't broken them out that way, Alan. What I will say is When we talk about the announcement of a new partner like we talked about today, what we're really talking about is the expansion of our TAM, new opportunities to go into Our health plan book of business, in this case, for advocacy care and our expert medical opinion capabilities And that opportunity manifests over a over quarters years and we expect that we're really excited about this opportunity more to come in terms of commentary around that TAM in future quarters.

Speaker 2

We would expect over time absolutely that health plan channel, which was relatively nascent, if you knew our company 4 years ago, there wasn't much of a health plan channel in terms of Our go to market motion today, if you're going to look across our book of business, it's a pretty material part of How we go forward and we believe we're competing very effectively in terms of winning new opportunities to approach Alpine books of business. So yes, we expect it to be a growing percentage of our new bookings in years ahead. Steve, do you

Speaker 3

like to grab the GLP-1? Sure. And Alan, to your question about GLP-1s, both Raj and I had some elements of comments in here that overall, this Been a driver of interest and strength around our particularly around our primary care capabilities as consumers and employees of Our commercial customers have inquired about and sought advice and prescriptions for that. We had quite a big surge for it in Q1. Growth continued there, but not quite at that same level.

Speaker 3

So in Q2, As we've read, I think even perhaps in one of your pieces recently about some supply constraints happening that may affect Some of those prescriptions and for us visit, but I think what we are really Positive about here as we think about the strength of the performance of the company on the back of a diversified platform that in any given quarter is not dependent upon Outsize growth in any one of those, importantly, the advocacy offering continues to grow at attractive rates, same with Extra Medical Opinion and Primary Care, all growing along the lines of those growth rates we outlined in the past and certainly in-depth on our Investor Day. So that's a bit about what we're seeing specifically with GLP-1 in terms of financially and more broadly across the platform.

Operator

Thank you. And one moment for our next question. Our next question will come from the line of Jeff Garo from Stephens. Your line is open. Jeff, your line is open.

Operator

You may be on mute. All right, we'll go ahead and continue. One moment for our next question. Our next question will come from the line of David Larsen from BTIG. Your line is open.

Speaker 10

Hi. Can you give a little bit of color around your ACV, your annual contract value in your pipeline? I think it came in at $309,000,000 at the end of the last fiscal year. So if we increase that by 20%, should we expect $371,000,000 for And then your bookings, I think, were turning in around $70,000,000 annually. Should we expect that number to be like $84,000,000 for fiscal 20 24 annually, which would be up 20%.

Speaker 10

Just any color there would be very helpful. Thank you.

Speaker 3

I'll kick it off Raj and feel free to jump in, of course. Dave, so with respect to bookings, Raj talked about selling season. The fact is we're right in the midst of selling season right now and continue And the close deals around that, but you're right in the data you're quoting as far as end of year last year ACV and ARR. Well, we report out on those at the end of the fiscal year. So we'll come back to you, given that those are key metrics that we hit in the Q4 call.

Speaker 3

But in terms of color, as we both were commenting on in various ways, got good visibility Our current year outlook in terms of our guidance for the year and towards that 20% top line growth rate that we've been speaking about consistently.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Stan Berenstien from Wells Fargo. Your line is open.

Speaker 2

Hi. Thanks for taking my questions. Maybe sticking with virtual primary care, Can you share what percent of new PlusCare members in the quarter joined as a result of those members seeking GLP-one related care? Thanks. And we haven't broken out membership by conditions that they're seeking.

Speaker 2

What we can tell you and

Speaker 1

what we talked about

Speaker 2

in the Half quarters is that a double digit percentage of those business came from or were associated with GLP-one or weight loss and that trend continued into this quarter.

Operator

Thank you. One moment for our next question. And our next question will come from the line of Robert Simmons from D. A. Davidson.

Operator

Your line is open.

Speaker 2

Hey, thanks for taking the question. So can you talk a bit about the kind of the ramp and traction that you're seeing with Virtual primary care and with taking pledge to the enterprise? Yes, absolutely. Happy to. I think it's one of

Speaker 3

the parts of the business When

Speaker 2

we took Accolade Care or taking Pluscare to the enterprise as you put it in last year that we were most excited about the to go live with call it, 500,000 people or so at the beginning of the year. What we're seeing and I'll give Doctor. Nundi, an opportunity to weigh in here as well. What we're seeing is, first, that not only do we go live with that base, but that we saw the kind of utilization that we would expect on that base in the 1st 7, 8 months since we've gone live. The second thing, we learned a lot.

Speaker 2

We learned a lot about Incremental ways at which people were engaging with our solution, which has led us to really refine our value proposition associated with physicians being embedded in our advocacy care teams. And the reason for that is just the use cases that Customers and members are identifying through their usage that we're really excited about. Shantanu, would you like to add a little bit more color there?

Speaker 4

Yes, absolutely. And it's such a great question. Yes, I mean just to give a couple of clinical examples of areas where like Roger alluded to, I mean I think We anticipated we know that 20%, 30% of Americans don't have primary care physicians and that our solution Because we're delivering primary care virtually comprehensively would be a great option for them. I think some of the learnings beyond that was we started seeing members who have Primary care physicians, but just weren't able to access them or weren't able to get, sort of the solutions from those primary care physicians come to us. So one example is, Patients being discharged from the hospital, it's very well studied that patients get better outcomes if they see their PCP within 48 hours of discharge from the hospital, but because of the access issues, a lot of times people weren't able to see their doctors in that shorter period of time.

Speaker 4

And so our physicians were able to see those numbers right in that critical moment and I think resulting in downstream reductions and things like readmissions. A second example is Pretty commonly, members can't get in to see their physicians around a time where they need to refill. And we're finding that that's an opportunity to actually talk to those members about the chronic conditions that they're getting the refills for and inform them about some of the trusted partners that we have that can also help complement sort of the pharmacologic options. So just some examples of where we're able to drive value for employers and sort of those moments of need and really lean into that physician led efficacy approach.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Jack Wallace from Guggenheim Partners. Your line is open.

Speaker 11

Hey, thanks for taking my questions and congrats on the beat. Speaking of the beat, you beat by more than The $2,000,000 pull forward, but you kept the full year guidance. I'm just wondering if you could help us think about the Kind of the buckets of where the you could end up in the higher end of the range or the lower end of the range, just thinking of whether it's performance guarantees, New wins or even some of the utilization fees and those assumptions in the back half of the year? And on that point, just how much of that might be swing factor related to the GLP-one space? Thank you.

Speaker 3

Hey, Jack, it's Steve. So you're right. We beat the Range by a little bit more than the performance guarantee. Remember, just walking you back a quarter ago, we raised guidance last quarter. We're reaffirming that guidance as we're here moving through selling season and driving growth across the business.

Speaker 3

As we head into the back half of the year, Certainly, the variables on the business are around the items you talked about, the virtual primary care utilization and EMO utilization and PGs, we factor into our guidance historical performance and what we're seeing this year as well into the guidance and And I have good confidence in that number. And we'll certainly report back on how we progress there. But Important point here is that we raised guidance last quarter and we're reaffirming that today.

Operator

Thank you. One moment for our next question. Our next question will come from the line of John Penney from Canaccord Genuity. Your line is open.

Speaker 11

Hi, John Penney on for Richard Close. Congrats on the quarter. I guess, Going back to virtual primary care, is that 20%, 21% that you're calling for in guidance? Is that, like Consistent across commercial and consumer is like commercial kind of coming off a smaller base and going to be bigger? Any color around that would be great.

Speaker 11

Thanks.

Speaker 3

Sure. So first of all, the 20% to 21% growth rate, that's for the entire business. The way to think about that Is that we've got the 3 different offerings that are driving growth in the business. The advocacy business itself is will be in the neighborhood of 20%, Virtual primary care business growing faster than 2020 and the enterprise primary care business will be growing quite a bit faster than that, but it's off of a small base because we're in our 1st year there. So when you take that together with the consumer business, you put those together, it's growing faster than I call it mid-20s and then Expert Medical Opinion offering growing in the neighborhood of 20.

Speaker 3

So all of that together Get you to that about 20% to 21% growth for this year with the virtual primary care business growing a bit faster than that.

Operator

Thank you. One moment for our next question. And our next question will come from the line of Ryan McDonald from Needham and Company. Your line is open.

Speaker 9

Thanks for taking my questions. Congrats on a nice quarter. Maybe just to touch on the T5 contract, you mentioned that you're still awaiting decision on the Health Net appeal here. But given that the Congressional Research Service had provided an updated timeline now, Does that give you any increased confidence on we're sort of nearing a conclusion, where you're actually going to get a final decision on the appeal and that we can start moving forward with this process. Thanks.

Speaker 2

Ryan, there's one thing certain, we know this can last forever. We expect to see a conclusion to the appeals process in what I would expect to be a reasonable timeframe, call it, over the course of the next 3 to 6 months. As the government has proven over the course of the last year, it's difficult to bank on those types of time lines even though there is Expressions of the desire to get to the NC appeals process, but yes, we'd agree, we'd expect over the course of the next 6 months or so that we're going to get to some sort of conclusion and that At that point, we're going to be in a place where we're well positioned to grow our business within the government.

Operator

Thank you. And I'm not showing any further questions in the queue. With that, I'll turn the call back over to Rajeev Singh for any closing remarks.

Speaker 2

I appreciate everyone being here. Thanks for the time and we look forward to talking with you next quarter.

Operator

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

Speaker 5

Goodbye.

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Earnings Conference Call
Accolade Q2 2024
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