Accolade Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 8, 2024

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Accolade Third 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. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over Your first speaker today, Todd Freeman, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Thanks, operator. Welcome everyone to our fiscal Q3 earnings call. With me on the call today are our Chief Executive Officer, Rajeev 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. Before turning the call over to Rajiv, please note that 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 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. 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.

Speaker 2

Thank you, Todd. I'll begin by summarizing the 4 key themes to my prepared remarks today. One, we had an excellent quarter on both the top and bottom line and we're raising guidance for the year as a whole. 2, we're reaffirming our outlook for our next fiscal year. It will be our 1st profitable year as a company, while continuing to grow our revenue at 20% per year.

Speaker 2

3, our strategy has yielded sustainable market differentiation, which in turn has led to yet another year of strong bookings growth and incredible opportunities for growth inside of our customer base. And 4, based on the strength of that sustainable differentiation, We're raising our profitability guidance on our 5 year outlook. By all accounts, Q3 was another successful quarter for Accolade. We're well positioned to execute on our long term objective to build a great and enduring company important to the future of American Healthcare. Let me start with the 3rd quarter highlights and then I'll provide more color on our outlook.

Speaker 2

Revenue and adjusted EBITDA were both ahead of our guidance for fiscal Q3. Revenue in the quarter was $99,400,000 With an adjusted EBITDA loss of $4,600,000 both ahead of our previous guidance. 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. Turning to next year, fiscal 2025, We're reaffirming our commitment to 20% revenue growth and 2% to 4% adjusted EBITDA for the year.

Speaker 2

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 72,000,000 and we're well on pace for growth of more than 20% over last year. 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. This booking strength and diversification reflects our differentiation versus our competition and the continued evolution of advocacy Next, let's talk about why Accolade is the differentiated platform for our customers and well positioned for the future.

Speaker 2

First, our physician led advocacy teams are more than just navigators with the ability to deliver care, integrate with brick and mortar care teams and local networks and solve the access to care problem that we call the physician gap. We deliver more than navigation. We deliver better healthcare for our customers that provably lowers costs. 2nd, resolving the complexity of American healthcare at scale takes more than just our incredible relentless healthcare applicants. 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.

Speaker 2

Accolade delivers on that promise. 3rd, this multi $1,000,000,000,000 regional complex industry Has long desired an open platform, shared datasets, closed loop reporting and ultimately real collaboration. 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. Finally, employers have never had true transparency into how the system is performing for their people, either economically or from an engagement perspective. Accolade delivers live real time reporting for every customer via our True Health dashboard that highlights who we've engaged and where they are in their journey, along with operational metrics that give our customers confidence in the road ahead.

Speaker 2

For our customers, these differentiators give them the Confidence to choose Accolade over the rest of the industry. 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. Let me expound on that last point regarding unit economics with some simple but powerful examples about how Accolade leverages artificial intelligence. 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 have experienced with their specific need among other things. Every step of the way, we're improving efficiency while also improving quality for our members by reducing the opportunities for human error.

Speaker 2

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. 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. Lastly, we use AI for analytics for operational excellence. Some of our investment areas are workforce management, reading customer satisfaction sentiment and predicting engagement levels. All of these drive efficiency and improve the member experience.

Speaker 2

These are just some of the simple examples where our leadership in AI and technology investments We'll yield value for our operations in efficiency, quality and value and for our shareholders through improving unit economics. 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 5 year plan that calls for revenue of more than $1,000,000,000 and now adjusted EBITDA between 15% 20% of revenues in fiscal 2029, which is a 5 percentage point raise from our Capital Markets Day in May. With that positive news, I'll turn the call over to Steve to give you more color on our financial and operational performance. Steve?

Speaker 3

Thanks, Raj. First, I'll recap the results for the fiscal Q3 and then provide details on our outlook and forward guidance. We generated $99,400,000 in revenue in the Q3 of fiscal 2024. The outperformance relative to our guidance was largely due Early recognition of approximately $2,000,000 of savings based performance revenue. I'll note that we previously called out early Recognition of performance based revenue totaling $2,000,000 in fiscal Q2 $1,000,000 in fiscal Q1.

Speaker 3

From a year to date perspective through the end of fiscal Q3, we've earned and recognized approximately $5,000,000 in aggregate performance based revenue that at the outset of the fiscal year was projected to be earned in fiscal Q4. Fiscal Q3 adjusted gross margin was 46.3% compared to 45.9% in the prior year period and adjusted EBITDA in the 3rd quarter was a loss of $4,600,000 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 in fiscal 2025. Turning to the balance sheet, cash and cash equivalents totaled $230,000,000 at the end of the fiscal Q3. During the Q3, we capitalized on an opportunity to improve our balance sheet through the repurchase of $76,500,000 of our outstanding convertible notes at a discount for an aggregate purchase price of $65,800,000 The remaining $211,000,000 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.

Speaker 3

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 $411,000,000 to $415,000,000 representing pro form a year over year growth of 21% to 22%. We are also improving our full year outlook for adjusted EBITDA loss for fiscal 2024 to a range of $6,000,000 to $10,000,000 as we turn the corner on our way to a full year profitability in fiscal 2025. With respect to the fiscal Q4, keep in mind my earlier We recognized about $2,000,000 of PG revenue in fiscal Q3 that shifted from fiscal Q4. With that, we are providing fiscal Q4 guidance today of revenue in the range of $121,500,000 to $125,500,000 and positive adjusted EBITDA in the range of $16,000,000 to $20,000,000 I'd like to call out a couple of notable points about fiscal Q4.

Speaker 3

First, it will be our first $100,000,000 revenue quarter. Consider that when we went public 3.5 years ago, we had recently completed our first $100,000,000 revenue fiscal year. So this is a tangible milestone for our company. 2nd, fiscal Q4 will be our 1st 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. One of the key questions we often get is about understanding the revenue ramp from fiscal Q3 to fiscal Q4.

Speaker 3

There are two factors that primarily impact Q4 revenue relative to the other three quarters. The recognition of healthcare cost savings based performance revenue and net new revenue from customers with January 1 go live dates related to new bookings, which Raj noted earlier. These are both rooted in highly visible contracted revenue. Let me take a moment to provide a short explanation of the dynamics of our healthcare Those savings guarantees are measured according to a customer health plan service year, which typically aligns to the calendar year. Given a 1 to 2 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.

Speaker 3

The claims data we already have in hand provides a high degree of visibility to the savings based revenue we to achieve in fiscal 2024, majority of which gets recognized in our fiscal Q4 P and L. 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. Those two highly visible factors, savings based PG revenue, plus January February revenues associated with new customer bookings lead to the revenue ramp in fiscal Q4, which has been the case for Accolade's history. 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 $10,000,000 to $20,000,000 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 in fiscal Q4 will continue to be a good starting point for your models.

Speaker 3

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. As Raj mentioned, we are upwardly revising our 5 year plan to call for adjusted EBITDA margins of 15% to 20% of revenues in fiscal 2029. Our prior guide called for a 200 to 300 basis point improvement each year after turning profitable next year. As we are now seeing the impact of our earlier cost reductions, the efficiencies we are 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.

Speaker 3

And with that, we'll open the call to questions.

Operator

Thank you. At this time, we'll conduct A question and answer session. One moment for our first question. And our first question will come from the line of Ryan Daniels from Blair. Your line is open.

Speaker 4

Yes, guys. Congratulations On the strong performance, thanks for taking the questions. I want to hit on one that you mentioned regarding the ability 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 as your ability to push more intra year sales, so Accolade Care, ExpertMD And then also how you're leveraging health plan partnership to do that? Thanks.

Speaker 2

Thanks for the question, Ryan. This is Raj. In fact, it is a really important point. And so I'm glad you called it out. When you think about In that context of the I think the phrase used was intra year sales, think about it in a couple of components.

Speaker 2

The first We have a base of advocacy customers who are excellent targets because of the nature of a really strong customer relationship Because of really strong member MPS for incremental accolade services that can be layered on well Past the beginning of a plan year when most deployments in a straight advocacy only business would occur. That entails things like virtual primary care, expert medical opinion, and of course, all of our trusted partner ecosystem. Beyond that, you also see the opportunity in 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 that. Again, same set of services, Accolade Care, expert medical opinion, trusted partner ecosystem. 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 is what you might refer to it in that All of it gives us the opportunity to continue to grow the business beyond the bookings number that we traditionally talk about.

Speaker 2

I appreciate you pointing out, Brian, that that bookings number was also very strong this year.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Craig Hettenbach From Morgan Stanley, your line is open.

Speaker 5

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, athlete care and expert medical Any nuances to think through in terms of how the different businesses are performing and kind of that build up to 20%?

Speaker 2

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 20% range. That's part 1 of the story. Part 2 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 as per medical opinion virtual primary care, which give us Potential upside to that 20% number. Steve, what would you add

Speaker 3

to that? Sure. I'd just reiterate a couple of points here around the different offerings. Correct. 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.

Speaker 3

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% growth rate. The expert medical opinion offering continue to grow in that 20% range. And then the virtual primary care offering growing north of that 20% target For the reasons Raj mentioned, which gives us great confidence in the way we go forward, which is 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 growth. From the customers we've booked year to date, the vast majority of them When they're an advocacy customer, we're also bundling with that expert medical opinion and or virtual primary care and oftentimes a trusted partner or more into that opportunity.

Speaker 3

So we show up with a starting point of bookings With opportunities to drive incremental value for those members, more value for that customer in terms of financial returns and Accolade obviously benefits from all of that. 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.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Ryan MacDonald from Needham. Your line is open.

Speaker 2

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, given all the success that you've had this year and Cross selling that. As we look out into next year, what may be assumptions are you making in that 20% growth on in terms of case rate volume growth? 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, What may be your assumptions you're building into that and potential opportunities for upside?

Speaker 3

Thanks. Great. Thanks for the question, Ryan. Yes, really important point, a couple of things. We are seeing the utilization of that EMO offering 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 the hospital environment and so forth.

Speaker 3

One thing to remember about Our EMO offering is most customers now are either on a case rate basis contract or moving to 1. That's 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 as we look out to next To your point, I think that 20% growth rate is very, very achievable from the standpoint of Strengthen 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.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Jaylen Drazingh from Churros. Your line is open.

Speaker 6

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 GLP-one taking a lot of mind share.

Speaker 6

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 2

Thanks for the question, Jaylen. In fact, what we talked about in our prepared remarks, Jaylen, 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. 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 1, and number 2, the differentiation that I spoke to in my prepared remarks. Even better news, which I think is a little different than the way you It's not that we saw a number of deals delay, but instead we're beginning to see the first inklings of the pipeline for real evaluations happening in calendar 2024 and we're encouraged by the signs we see, which is now the 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 that were developing at the end of 2023 heading into 2024 Give us continued visibility and bullishness on The demand 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.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Stan Berenstyn From Wells Fargo, your line is open.

Speaker 6

Hi. Thanks for taking my questions. Maybe digging in on Pluscare a bit more, just we think about the interplay here of factors driving growth here, you have obviously direct consumer channel, you've called out GLP-1s 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.

Speaker 6

Thanks.

Speaker 2

Hey, 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 its components. 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.

Speaker 2

And in turn, when you think about the business in those two vectors, 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 2024, calendar 2020 3 fiscal 2024. 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 physicians even if they have one for nearly a month in real days.

Speaker 2

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 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 A practice that deals with multiple conditions, including weight loss or diabetes management, which is tied to GLP-one. We think of GLP-one as yet another one of the factors driving the strength of that business and the consistent growth rate. Steve?

Speaker 2

Yes.

Speaker 3

I'll just add, today we're seeing that update that Raj spoke about on the enterprise side and that growth rate It's very high, well in record 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 The consumer business capability or channel continuing to grow as well. The other thing I'd point you to Stan is the reason for people calling in or requesting an engagement with the primary care doc It is across a multitude of channels or reasons. Certainly GLP-1s are contributors this time of the year. Flu seasons or respiratory is a contributor.

Speaker 3

We're seeing Good balance across all those reasons and ultimately the reason people come to Accolade Care or PlushCare 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 position gap, get someone to a primary care doc Very quickly and then become their longitudinal primary care doc as needed or supplement their brick and mortar on the ground up.

Operator

Thank you. One moment for our next question. Our next question will come from the line of Jessica Tassen From Piper Sandler, your line is open.

Speaker 7

Hi, guys. Thanks for taking the question and congrats on the quarter. So I had a few quick ones. Just first off, is there any part of the early PG recognition in the Q3 or in the 1st three quarters of the year that relate Your conservative assumptions heading into the year or is that all just truly a matter of timing? And then just secondarily, I was hoping you might be able to give us some color on the shape of the primary care revenue growth in FY 2025.

Speaker 7

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 FY 2025? Thanks again.

Speaker 3

Thanks for the question, Jeff. It's Steve. First of all, on the PG revenue recognition, yes, I think With a conservative, we start the year assuming we'll need the full year to earn those performance guarantees. And then We oftentimes do earn them sooner than that. So yes, I think you could think of it as the $2,000,000 we pointed out this year, we expect And we expected we assumed that the beginning of the year happened in Q4 and then we oftentimes go after it.

Speaker 3

And I mentioned $5,000,000 of cumulative revenue earned 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 PGS. 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 2025, We'll give some more color around the different offerings and shapes of that that you would expect for your own modeling.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Richard Close from Canaccord Genuity. Your line is open.

Speaker 6

Great. Thanks for the questions. Congratulations. Steve, I was curious if you can go over the, And I guess, revised long term target on the margins in terms of the annual, you guys must have a pretty good confidence to go ahead and 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

Speaker 3

component, Just a

Speaker 6

little bit more clarity there would be helpful.

Speaker 3

Yes, absolutely. Richard, great to talk to you and appreciate the question. Yes, absolutely. Important item in today's announcement is to talk about the increase in our guide for that out year, that fiscal 5 year out To 15% to 20% revenues profitability. As we're 2 or 3 quarters Into the year since Capital Markets Day, when we talk about 10% to 15%, a few things have happened.

Speaker 3

1, we've demonstrated to ourselves That the cost actions that we took in realignment have yielded great results. And in fact, in some ways, by doing that, we're able to go faster Certainly, more efficient and certainly realize cost savings all at the same time. That's one. 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 at Accolade for several years. But On top of that, AI driven capabilities that are making our frontline care teams more efficient, enable to getting members from one place to another or Directly to another offering, 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.

Speaker 3

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. One, we've made significant investments in products and technology. We 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 will 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 So that will net out to a lower growth rate on that number relative to our revenue margin expansion.

Speaker 3

And then otherwise across the P and L, we see other opportunities, but that's one in particular that we see contributing towards that bump up and the long term guide.

Operator

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

Speaker 2

Thanks for taking the questions. I want

Speaker 6

to follow-up on that last one. I guess, Steve, you mentioned that

Speaker 2

A lot of

Speaker 6

this is driven by AI, but not all of it. I'm curious, are is what's embedded in that 5 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 2019 target and the path with 300 bps of margin expansion per year?

Speaker 6

Thanks.

Speaker 2

Hey, Alan. This is Raj. I'm going to take a cut at the first part That question first and then we'll let Steve add any additional color. Think about gross margin expansion or unit economics expansion and overall economic expansion of the business with a couple of drivers. The first 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 our P and L and driving extraordinary value for their members.

Speaker 2

With each cohort that comes on taking advantage of those services, we have an opportunity to continue to grow the use Those services and in turn drive better unit economics and better profitability. Over the last year to 2 years, we've seen the first 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. The second 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 members in a high quality way, but at a lower cost. You think about those two vectors as significant drivers of value and Our capacity to see the whites of the eyes of those drivers of incremental unit economics Over the last year to 2 years, being the fundamental drivers of our confidence as it relates to improving our guidance on the fiscal year 2019.

Speaker 2

Yes, I'd just add that to that last point. Alan, I would think of

Speaker 3

it this way. 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 and capability to achieve, but not nearly reap 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 we're 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.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Stephanie Davis from Barclays. Your line is open.

Speaker 8

Hey, guys. Congrats on the quarter. I want to also go down the Gen AI route for my question. Just given the differentiation that your Care Advocates really gives the platform, I want 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

Speaker 2

Yes. I think it's a really important question, Stephanie, so first of all, thanks for the question and thanks for joining us. 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 understanding the members' need, building a relationship with the member And then summarizing the transaction and following up on the transaction. 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 deal. 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, etcetera, are areas that could potentially be automated.

Speaker 2

Incrementally, another area where the company spends a significant amount of time It's actually assessing the quality of our interactions in every one of those in every one of those millions of transactions. And so the capacity to assess the quality of those transactions 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 And are all things where artificial intelligence and just traditional technology can play a significant role. And so Absolutely. The idea of understanding a need and the idea of building a relationship, those are human attributes That we would be loath 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 technology that are littering the landscape Deliver value there are going to be really interesting to accolade.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Jenny Shen from BTIG. Your line is open.

Speaker 7

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 2025 guidance or the 5 year outlook? Thanks.

Speaker 2

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 for the health planTRICARE organization. As it relates to the TRICARE contract or T5, It is 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.

Speaker 2

What we can tell you is No material assumptions are baked into our out year guide or the guide that leads you to the fiscal year $29,000,000,000 in revenues. What you should expect in the out year is that we've baked in rational assumptions knowing that we cannot control when the government appeal will finalize. And therefore, we've built the business based on what we have good visibility to for the year ahead.

Operator

Thank you. One moment for our next question. And our last question for today will come from the line of Jack Wallace from Guggenheim Partners. Your line is open. Hey,

Speaker 9

thanks team. Thanks for taking my questions. A lot of them have to answer, I got 2. First housekeeping item, very Pro form a growth rate, you're comfortable sharing, basic performance ex the loss of large customers you had the last couple of quarters?

Speaker 2

And I've got a follow-up. I'm sorry, we lost your question about halfway through. Would you mind repeating it?

Speaker 9

No problem. Is there a pro form a growth rate you're comfortable sharing, so growth ex the loss of the large customer last year?

Speaker 3

You mean for fiscal 2024 or fiscal 2025, Jack?

Speaker 9

For this Completed quarter. I think last quarter was 19% off of the 10.5% growth rate. Yes. I'm just trying to get a sense for the drag.

Speaker 3

Sorry, I misunderstood your point. Yes, it was about a 17% growth rate in the quarter on a pro form a basis for Q3.

Speaker 9

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 bookings through, let's call it, 9 or 10 months so far this year that would be different than the visibility or the mix from last year. And I ask that because you made a couple of comments around some of the utilization based opportunities that's potentially providing upside. Just curious if there is a shift between the utilization base and the non utilization base bookings at this point going into the year?

Speaker 3

I think about it as 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 advocacy, expert medical opinion, virtual primary care. I think an important point though to draw back to Raj'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 ACV number in terms of revenues realized as we that customer matures with us, We've engaged with that population and we drive utilization with that customer, 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 we've now got a couple of years under Obviously, we're selling bundled offerings and seeing that be fairly consistent with customers that have bundles.

Speaker 9

Thank you so much. Appreciate it.

Speaker 3

Thank you.

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back to management for closing remarks.

Speaker 6

Thank

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

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Key Takeaways

  • Accolade delivered $99.4 million in Q3 revenue and an adjusted EBITDA loss of $4.6 million, both surpassing guidance, prompting a raise in full-year revenue guidance to $411 million–$415 million and an improved adjusted EBITDA loss outlook of $6 million–$10 million.
  • The company reaffirmed fiscal 2025 targets of 20% revenue growth and 2%–4% adjusted EBITDA, which would mark its first full year of profitability.
  • Strong bookings momentum was highlighted by exceeding last year’s $72 million ARR in new bookings, driven by year-round sales of core advocacy, Accolade Care, ExpertMD, and partnerships with health plans.
  • Accolade emphasized its differentiated platform—built on physician-led advocacy, AI-powered technology, an open partner ecosystem, and real-time “True Health” reporting—to drive customer preference and sustainable growth.
  • The five-year outlook was raised, now targeting over $1 billion in revenue and 15%–20% adjusted EBITDA margins by fiscal 2029, up 5 percentage points on margin guidance from the prior Capital Markets Day.
AI Generated. May Contain Errors.
Earnings Conference Call
Accolade Q3 2024
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