Accolade Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
June 27, 2024

There are 15 speakers on the call.

Operator

Hello, and thank you for standing by. Welcome to the Accolade First Quarter 2025 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. Session.

Operator

I would now like to turn the call over to Todd Freeman. Sir, you may begin.

Speaker 1

Thanks, operator. Welcome everyone to our fiscal Q1 earnings call. With me on the call today are our Chief Executive Officer, Rajiv Singh and our Chief Financial Officer, Steve Barnes. Before I turn the call over to Rajiv, please note that we'll be discussing certain non GAAP financial measures that we believe are important when evaluating Acuity's performance. 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's posted on our website.

Speaker 1

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 cause the actual results or accolades differ materially from those expressed or implied in 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 would like to turn the call over to Rajiv.

Speaker 2

Thanks, Todd. We continue to operate in a large market with an opportunity to grow at attractive rates. Customers continue to find tangible value in the services that we deliver. We're the market leader in our category and our objective is to create long term value for our customers, partners, employees and shareholders by adapting our strategy in the best interests of that objective. With that in mind, this quarter we've adjusted our revenue expectations for the year while maintaining our adjusted EBITDA outlook.

Speaker 2

Our rationale is simple. We recognize current financial market factors and the need for reliable bottom line earnings forecasts. With today's guidance, we're creating a higher level of certainty on profitability, while maintaining an attractive growth rate and the upside for our market. More details on the specifics in C section later in this call. Here's what you should take away from today's call.

Speaker 2

First, we're derisking our business while maintaining attractive growth rates in our market, improving sidelines to our profitability objectives and positioning ourselves well for the long term. 2nd, by aligning this way, we give ourselves greater certainty on our out year profitability and cash flows as well. We plan to give you more depth on our long term plan in an Analyst Day later this year. 3rd, the category of personalized healthcare built off of an advocacy platform is now well established in the marketplace. Demand continues to be strong.

Speaker 2

It is true in every new market as you pass the point of category creation, market leaders are established with advantage accruing to the leaders. Accolade was the 1st and only company in our category to reach the public markets. We are now demonstrating scale in growth and profitability that reinforces our standing as a leader in the market moving forward. Establishing a new market and cementing a leadership position in healthcare services is a messy business and not every company chooses the same path or the same discipline. But history dictates that those companies that choose extraordinary focus on their customers, smart growth tactics and scalable profitability always emerge as the winners.

Speaker 2

Finally, as I mentioned earlier, we're in the next stage of building an attractive market and we're doing so in a period of massive technological innovation. The company is better positioned than Accolade to turn generative artificial intelligence and virtual services like primary care expert medical opinion and a trusted partner platform into a mainstay of how healthcare is delivered in the years ahead. I'll now hand it over to Steve for the financial details and I'll return shortly for closing remarks. Steve, over to you. Thanks, Raj.

Speaker 2

I'll recap fiscal Q1 results

Speaker 3

and then comment on our forward guidance. In fiscal Q1, we generated approximately $110, 500, 000 in revenue, representing 18% growth over Q1 fiscal 2024. The outperformance in Q1 was largely driven by timing of revenue recognition. Excluding that timing impact, Q1 revenue was within the guidance range we previously provided. Net revenue recognition timing also had a corresponding positive impact on adjusted EBITDA and adjusted gross margin.

Speaker 3

With that, adjusted EBITDA loss for the quarter was $3, 300, 000 adjusted gross margin increased to 47.8% from 43.5% in the prior year. Turning to the balance sheet. Cash, cash equivalents and marketable securities totaled $231, 000, 000 at the end of the 1st fiscal quarter. Our cash balance combined with our turn to profitability continue to provide us confidence in the strength of our balance sheet and plans to manage our convertible notes, which mature in April 2026. Now turning to guidance.

Speaker 3

We are revising our fiscal year 2025 revenue guidance to a range of $460, 000, 000 to $475, 000, 000 representing year over year growth in the range of 11% to 15%. We are also affirming our guidance for positive adjusted EBITDA in fiscal 2025 in the range of $15, 000, 000 to $20, 000, 000 Let me take a moment to provide a few key points about the guidance. First, we're de risking the revenue guide while preserving our profitability goals. We've used this word de risking a few times today, so let me be clear about what we're saying. The feedback from The Street was consistent last quarter that the number 1 thing the market won't tolerate in the current environment is uncertainty.

Speaker 3

We're reducing that uncertainty by moderating the top line while reinforcing our commitment and confidence in achieving our profitability goals. Both Accolade's business and the broader navigation market continue to have the potential to go faster, but we're taking the approach to focus first on growing EBITDA and then driving incremental revenue upside as the business matures. Secondly, we are taking into account a few factors in our revised guidance. 1 is this focus on profitable growth. We are looking at all marketing spend to focus on the most profitable quarters excuse me, to focus on the most profitable opportunities.

Speaker 3

In that vein, we expect to grow our consumer plus care business approximately 20% this year, which represents industry leading growth rates for virtual care and it's also a bit lower than what our guidance contemplated in April and will result in reduced associated marketing spend in fiscal 2025. The same is true when it comes to driving increased usage based revenue for EMO and Enterprise Primary Care. This is largely what we refer to as platform connected revenue and it will continue to grow faster than the overall business, but with a judicious view on balancing marketing spend against our profit objectives. The third factor is customer mix and unit economics. As Raj said, the market is large and while it is early in the traditional selling season, our pipeline remains strong.

Speaker 3

We recently signed a multimillion dollar advocacy deal just to give you a sense that the selling season is off

Speaker 2

to a good start. That said, we

Speaker 3

are not compelled to chase business at margin profiles that do not align with our goal for profitable growth. We are building for the long term and believe strongly that discipline around pricing and margins is the right way to build a healthy business. Along with those revenue factors, we continue to be laser focused on cost management. Continuing the conversation we started with you a year ago, we are constantly looking at ways to improve operating efficiency, including by means of our office strategy, our use of technology and the location of our recruiting efforts. The combination of these factors and a view towards balancing growth and profitability are the underlying reasons why we are maintaining our profitability targets while moderating the revenue guide.

Speaker 3

Next, we are providing fiscal Q2 guidance today of revenue in the range of 104 dollars to $106, 000, 000 and adjusted EBITDA loss in the range of $8, 000, 000 to $10, 000, 000 Note that the previously mentioned revenue recognition timing in Q1 is a key factor for the sequential revenue decline in Q2 along with our approach around balancing growth and profitability.

Speaker 4

Consistent with

Speaker 3

the outlook we provided in April, we expect adjusted EBITDA to be approximately breakeven in the fiscal third quarter with significant positive adjusted EBITDA in Q4, reflecting our ramp in revenue from savings PG recognition, which occurs predominantly in Q4, along with revenue contributions from new customers we expect to launch in January 2025. Finally, for your longer term models, we recommend a mid teens revenue growth rate while projecting the same adjusted EBITDA margin expansion of 300 basis points to 400 basis points per year that we have guided to previously. With that, I'll turn the call back to Raj before taking questions.

Speaker 2

Thanks, Steve. We exist in a healthcare market that clearly requires innovative new companies and categories to deliver better healthcare outcomes for individuals and their families. As we approach a $500, 000, 000 in revenues and profitability, we've created 1 of those companies in 1 of those categories. The creation stages of markets, especially in healthcare in the United States are not straight lines or necessarily smooth roads. As every entrepreneur or business person knows, if everything is a priority, then nothing is a priority.

Speaker 2

In markets like these, the best companies choose their priorities and execute in the face of headwinds, steadfast in their commitment to these principles. Today, we're choosing smart, profitable growth and certainty on the bottom line. That approach accrues the most value to our customers, employees, partners and shareholders over the long term. We continue to lean forward in every way as it relates to evolving and growing our business and most importantly, serving our members and our customers. Our investments in artificial intelligence, tightly integrated offerings and market leading clinical quality and capabilities will continue.

Speaker 2

Today, we have more than 1200 customers and 14, 000, 000 members who rely on us to improve their healthcare every day. And we have an incredibly dedicated group of more than 2, 000 employees focused on creating a fundamentally improved health care experience for those companies and members. That focus has served us well as we've built our business over the last 15 years and will continue to serve us well moving forward. With that operator, we'll now open the call to questions.

Operator

Thank you. Our first question comes from the line of Richard Close with Canaccord. Your line is open.

Speaker 5

Yes. Thanks for the questions. Steve, I was wondering if you can maybe go over the 3 reasons you called out for the lower revenue guidance, maybe a little bit more details there and rank them in terms of the impact on the guidance. And then with respect to not chasing on the advocacy side, not chasing business, are you seeing pricing pressures there or maybe a little bit more detail around that comment?

Speaker 2

Rich, I'm going to start with that answer and then I'll turn it over to Steve to give you more depth of the P and L. The first thing to point out is the change in our guidance for the quarter and for the year is our choice based on our view, we look at we're constantly assessing our strategy and evolving our strategy. We look at all the constituencies of the business, customers, members, partners, employees and specifically in this instance we're talking about shareholders. Last quarter, as we outlined our guidance for the year and we've outlined our profitability targets for the year, 1 of the things we heard from shareholders directly in conversations with some of our shareholders as well as obviously watching the performance of the equity over the last 3 months since our last earnings call, was that there was concern about the top line of the business having putting pressure on the capacity to achieve our bottom line profitability and cash flow targets. And so we made a choice in between this call and the last call to relieve some of that pressure acknowledging we're still growing at attractive rates, number 1.

Speaker 2

Number 2, we're still growing in a market that we think can support even higher growth rates. And number 3, we can give ourselves access or availability to upside in that plan, but ensuring that we built a plan that derisked our capacity to achieve the bottom line. With that, I'll let Steve answer some questions about what specifically we did to ensure our capacity to achieve that bottom line. Yes.

Speaker 3

Thanks, Raj. So Richard, as we made that decision Raj just spoke about, we then assess where are the opportunities to provide more certainty to that profitability. Remember, this is our 1st year breaking through into adjusted EBITDA positive territory and growing profitable growth from here. So we look at it as where is the, call it, least efficient marketing spend in particular to acquire revenue and where can we take some of that derisk some of that top line and also ensure the bottom line. And so when we looked at that, we looked at a few places.

Speaker 3

Number 1, we looked at the B2C business, which we guided last quarter that we expect to grow, call it mid-20s or even higher 20s growth rate. We're dialing that back closer to 20 with our guidance today. That allows us to pull back on some associated marketing spend put that towards the bottom line while we also derisk the top line of the business. Secondly, we talked last quarter a lot about platform connected revenues. Remember those are expert medical opinion, virtual primary care and partner revenues on top of our advocacy platform.

Speaker 3

Those revenues have been growing rapidly over the past 3 years and will continue to grow rapidly this year, but they do have associated spend in order to do outreach to members and driving people to those certain programs. We can similarly look at where we can dial back some spend at the margin in order to drive those revenues while still growing them attractively. Those are 2 areas. And then to your 3rd point around, is there pricing pressure in the market? In large part, we see prices holding up where they've been.

Speaker 3

We have seen a couple of large deals. You've probably seen about the CalPERS deal that had a particularly aggressive pricing profile that we have discipline around where we are willing to go on deals in order to have the commitment to the business in terms of delivering value to customers and members and also to shareholders. So we're maintaining all of that profile while we go

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Craig Hetzenbach with Morgan Stanley. Your line is open.

Speaker 6

Thanks. So question on the Platform Connected revenue uses base fees. Can you just talk about on this new guidance, just what your visibility is into those drivers, number 1? And then on the advocacy front, what are your expectations for this year and kind of on a multiyear, like what's the growth rate trending for that core business?

Speaker 3

Thanks for the question, Craig. So first of all, on the usage based revenues, we have good visibility to those particularly again when we dial back the growth rate a bit that gives us even more confidence in being able to see those. So we have those have been growing. We've mentioned in the last call, they doubled 2 years in a row. We expect those to continue to grow more rapidly than the rest of the business, even this year.

Speaker 3

Again, when we look at that on a cohort basis, we have good visibility. We know that when where we'll get to in terms of a threshold in year 1 year 2 year where we'll get to in terms of a threshold in year 1 year 2 year 3. And when we push on that for members who need it, we can drive that growth rate higher and that's very much where I'm talking about where we can pull back a bit on the associated outreach spend. With respect to the advocacy market, again, we think of it the business overall in terms of a B2B distribution channel and then B2C. On the B2B side, it's often advocacy sold in connection with other capabilities, EMO, VTC and partners.

Speaker 3

And that business has been growing the ARR on the business, which is all the B2B revenues has grown 20% to 30% over the last couple of years and we're optimistic on the growth profile for this year again. Again, all of that in the context of the growth rate that we're laying out today, we see that as consistent with the growth rate of the overall business in terms of the opportunity this year.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Michael Cherny with Leerink Partners. Your line is

Speaker 7

open. Afternoon. Thanks for taking the question. I want to go back to Richard's question, in particular, the difference in the in year revenue changes. We're so used to your model being 1 with highly predictable revenue where the big variation tends to be outperformance, which we saw this quarter executing ahead of pace for your customers.

Speaker 7

So as we see the difference in numbers and the derisking dynamic for the year, how much of that tied specifically to advocacy? The reason I'm asking that is, I'm not used to seeing a meaningful deviation for a full year revenue on advocacy based on the PMPM dynamics. It's either in my view, you'd either have lost customers, which you could have walked away from or something tied to the risk weighting on the performance guarantees. So just want to make sure we can appropriately bridge what the whole the $22, 500, 000 revenue change, not a huge number at the midpoint, but just to understand the why behind it specifically tied to advocacy if we can.

Speaker 3

Thanks for the question, Mike. I'll start. This is Steve. Yes, you should think of the change in the revenue outlook as primarily usage based revenue. So again, those would be visit fees or case rate fees.

Speaker 3

And in this case, we're talking about in the direct to consumer business, dialing the growth rate back to still attractive growth rate of about 20%, but dialing that back, there's associated marketing spend that's big chunk along with that. That's a big part of the revenue reduction as well. That's 1. Secondly, platform connected revenues, which would sit on top of the advocacy core platform revenues are the other big part of the biggest part of the revenue reduction here. So think of it as usage based revenues, not necessarily the ACV, PMPMs that you're talking about associated with the traditional advocacy customer base.

Speaker 3

Those are the 2 core drivers.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Jeff Garro with Stephens. Your line is open.

Speaker 8

Yes, good afternoon and thanks for taking the questions. As you've talked about derisking the growth outlook, 1 thing we haven't heard about is any change in assumptions around retention for bookings growth. And retention, I think previously you talked about next year or I guess this current year and going forward returning to 90% plus gross dollar retention and on bookings growth, you've roughly alluded to growth in line with your long term target. So with the change in this year's revenue growth outlook and the moderation of longer term revenue growth expectations, Wanted to see if we could dig deeper on those key assumptions around retention and bookings growth.

Speaker 2

Yes. Thanks for the question, Jeff. Nothing really changes as it relates to our view on gross dollar retention from what

Speaker 4

we talked about last quarter

Speaker 2

and the ongoing view there. We deliver a lot of value for our customers and we do a great job retaining them on a long term basis. In terms of ARR or bookings growth, as Steve mentioned in his prepared remarks, the overall demand environment for the services remains strong. We continue to grow. We've closed more than our fair share of business in the early stages of the year and we expect Teleteon to be successful.

Speaker 2

And we'd expect bookings on an ongoing basis to be pretty close to the growth rate of the business on an ongoing basis. And so you saw bookings grow from $54, 000, 000 to $86, 000, 000 over the last 3 years. That's reflective of that demand environment. And so really where you're looking for any changes in the way we're thinking about guidance this year. As Steve mentioned, this year or next year, what we're really saying is we're de risking the usage based component of the revenue stream.

Speaker 2

And by de risking, we're saying we're only going to spend X amount of dollars or the appropriate amount of dollars in order to drive those usage based revenues. And to the degree there's upside that could yield there, we think those will be outside surprises for our investors and shareholders.

Operator

Thank you. Please stand by for our next question. The next question comes from the line of Ryan Daniels with William Blair.

Speaker 9

I'll continue down this path of questions on the revenue outlook. I think last quarter you actually mentioned 30% to 35% usage based and 65% to 70% access fees. And we could probably back into this, but I'll just ask directly on

Speaker 8

the call. How should we

Speaker 9

think about those percentages, both this year and then maybe going forward given an increased focus on marketing yield and kind of getting the appropriate counts in the door?

Speaker 3

Thanks. Thanks for the question, Ryan. Yes, I think for this year, you can still

Speaker 4

think of those percentages as rough ranges, although

Speaker 2

I'd say for the

Speaker 3

usage based revenues towards the lower end of that range for this year. And then given that those usage based revenues, which include platform connected revenues and B2C, which growing faster in the business, that those will climb up over the coming years. But call it the lower end of that range this year, that 30% to 35% is our current expectation.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Halendra Singh with Truist Securities. Your line is open.

Speaker 4

Yes. This is Jalendra Singh from Truist Securities. Actually, I want to double click on the lowered expectations of Plush Care. Maybe if you can provide some color, how much of that is related to lack of like GLP-one related revenue, which actually did help you guys last fiscal year because branded drugs are in shortest supply. And while we are on the topic, I mean, Raj, I'm curious on your thoughts around your conversation with employers, rate management around rate management and GLP-one in general and given your new partnership recently announced.

Speaker 2

Yes. The decision around thanks for the question, Linda. The decision around how we're thinking about consumer revenues largely around customer acquisition costs and capping at what level we think the right long term lifetime value of that customer versus customer acquisition cost ratio is and being very, very disciplined about that we have in the past, but ultimately looking at that as 1 of the opportunities drive profitability alongside revenue growth. So that's the fundamental driver of that change. And I'll just reiterate what I spoke about early in the first question.

Speaker 2

We made a choice in terms of the way we're thinking about our strategy all about ensuring we're going to deliver attractive growth rates with certainty of bottom line performance based on the way we believe we have to take care of all the relevant stakeholders of our business. As it relates to GLP-one, it continues to be a driver of interest in the enterprise base. Customers are buying our solution because they want to control that among other costs to the business. It's also a driver of interest from a consumer perspective as well. We talked in the past that it is a driver of volume in both areas.

Speaker 2

In the enterprise space though, remember, we are abiding by the policies associated with that our customers derive for their members, including things like pre authorization, etcetera, to tie out to the customer's trend line performance requirements, etcetera. So nothing tangibly different in terms of the demand environment associated with GLP-one and I wouldn't attribute any of what we're talking about here today to GLP-one.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Jessica Tyson with Piper Sandler. Your line is open.

Speaker 10

Hi, thanks for taking the question. I was hoping to dig in a little bit about CalPERS deal. There are some details out there publicly. So another navigation vendor is able to offer a 5.5% cost trend target in 2025, lowering about 60 bps each year from 26 to 29. I guess just if faculty views those cost trend targets or those guarantees as aggressive, how close can you guys get to that approximately 60 basis point cost trend improvement every year?

Speaker 10

And just are you enhancing the platform or making or kind of endeavoring to match those types of targets in the future? Just curious on your views on what is achievable and anything you're doing to kind of if that's what a competitor is offering and that's what the market kind of looks like at this point, how quickly can you all get there? Thanks.

Speaker 2

Yes. I appreciate the question, Jeff. A few thoughts. First, performance trend line as it relates to cost trend is 1 of the factors that's associated with customers making a buying decision. In the case of CalPERS, the deal you specifically referenced, a few things to note.

Speaker 2

Large opportunities like that 1 oftentimes at the customer and the consultant or the prospect and the consultant, dictating staffing ratios, they say in the number of interactions per person, etcetera, putting extraordinary depth into what they require from a service delivery perspective including staffing ratios. When we bid that business, we bid it at a level that was associated with our standard performance guarantees and in the neighborhood of where we traditionally are as it relates to the percentage of fees at risk. If you review what the ultimate winning proposal was, we think it's safe to say it was tangibly lower and by tangibly, I mean materially lower from an all in fees perspective, number 1. Number 2, it put a significantly higher amount of their total fees at risk. And number 3, it made an assurance around trend line.

Speaker 2

Are we capable of driving trend line guarantees like the 1 that were described there? Of course, we are. Our capacity to do so depends upon how the customer configures our solution, the way we deliver the solution, engagement rates we deliver for the solution. Doing so when we're delivering at, let's call it materially lower top line fees and with an extraordinary amount of fees at risk, we didn't feel in our view was appropriately balancing all of our constituencies, shareholders, employees, customers, members, partners. So we chose to bid at a higher much higher number with less fees at risk.

Speaker 2

And the performance guarantees that we put at risk, we think are very competitive to the way the customer ultimately purchased. So I wouldn't say that was the driving force of why the customer made the selection that they made. Why are other companies potentially being more aggressive from a top line fees perspective and from a fees at risk perspective? That I can't answer for you. What I can tell you is in these types of opportunities, we're going to be disciplined about the way we approach things.

Speaker 2

What we have seen in the past is when companies have been undisciplined 2 years from now, 3 years from now, those deals come back our way. We've seen it happen multiple times over the last 5 years and we expect whether this deal or other deals, we'll see it happen again over time. Disciplined behavior from a deliberate perspective yields long term businesses. And so answering your question, yes, yes. We're already capable of delivering those kinds of trend lines.

Speaker 2

To do so, we're going to do it by delivering a service we know will make our customers happy and that we know we can deliver profitable.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Ryan MacDonald with Needham and Company. Your line is open.

Speaker 11

Hi, thanks for taking my questions. Raj and Steve, I'm curious, as we've talked to more of the digital Health Point solution vendors more recently, it seems like that 1 area of surprises we've gone through this year has been around employee staffing levels at customers with sort of the layoffs to start the year and some of the turnover there having maybe an unexpected impact. Are you seeing any of those impacts in terms of employee accounts in your calculation with the out your guidance or for the updated guidance? And then secondly, as you talk about pulling back on marketing costs within the customer base, is there any risk here to your ability to hit some of those performance guarantees targets that are associated with engagement as we go through the year based on some of the pullback in spend here? Thanks.

Speaker 3

Brian, thanks for your question. It's Steve. So first point around employee staffing levels, we have seen some noise at that. We've seen some customers shrinking in employee base. We also have seen offsetting growth, modest growth, but growth to offset that in a sense of our same store member growth across our book has remained relatively flat over the last couple of years, including this year to date.

Speaker 3

So that's not a large impact. We also don't build in an assumption about massive growth there in the current macro environment. To your second point about marketing spend and being able to achieve operational PGs or even savings PGs, We've taken that all into account and are not reducing to that level. What we're reducing is call it the marginal incremental marketing spend to drive incremental usage and incremental revenue to hit the higher revenue goal that we've reduced today and not to put our current customer base at risk in terms of operating PGs or savings PGs.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line Stephanie Davis with Barclays. Your line is open.

Speaker 12

Hey guys, thank you for taking my questions. Just given the funding environment and your comments around not pursuing unprofitable businesses being a little bit at odds, I want to ask this more directly. Are you still seeing any irrational competitors in the market that's driving this aggressive pricing? Or are you starting to see a limiting factor on customer willingness to pay due to macro? And since you've talked a lot more about your opportunities within your base versus outside of the base, do you have any opportunity to lean further into cross selling with your SG and A dollars maybe benefit next year's growth via your existing base?

Speaker 2

Thank you for the question Stephanie. Let's start with the second question first.

Speaker 10

I know we have a lot

Speaker 2

of questions. That's all right. You're all good. Thank you. Let's start with the second question first.

Speaker 2

We absolutely have an opportunity to continue to grow as a and outpace the overall growth rate of the business. Platform connected revenues continue to grow tangibly and outpace the overall growth rate of the business. Platform Connected revenues is really where you're looking at growth inside the customer base and what

Speaker 8

other companies

Speaker 2

the different looking companies might call cross selling. So that's part 1, answering question number 2 first. Question number 1, are we seeing a commoditization or standardization of pricing in the market where by and large we're seeing rational pricing in the marketplace? The answer to that question is yes. That said, there will be there will always be opportunities where companies might see places where they might be more aggressive or tangibly more aggressive for whatever reasons their business might dictate.

Speaker 2

And in those situations, what we've decided and we've decided this over the last several years is, we're building a long term business. We're building a long term business that we think can grow attractively with discipline because most customers, not all customers, but most customers will look at track record, will look at referenceability, will look at historical performance against trend line improvement and performance guarantees. We'll look at consulting relationships and consultants credibility associated with the services that we deliver and choose the market leader at price points that can sustain the business we're attempting to build. And 9 times out of 10, 8 times out of 10, we see that behavior manifesting in the marketplace. There will be on occasion deals that are 1 off where the opportunity is large and some competitors are coming in materially lower than what other competitors are coming in at.

Speaker 2

When those happen, we maintain our discipline, run our business and acknowledge that over time all these things tend to work themselves out in the end.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Stan with Wells Fargo Securities. Your line is open.

Speaker 4

Hi, thanks for taking my questions. Maybe circling back to direct to consumer plus care guide at 20% growth. Can you just walk us through how much of that growth is expected to come from member growth versus pricing? Thanks.

Speaker 3

Hey, Sam. This is Steve. You can think of that primarily as member visit growth and that's across all the different reasons that consumers come to see a doctor, whether it's a for a primary care doctor to be their longitudinal provider or is that an acute need that then can roll into becoming a PlusCare patient or a weight loss GLP-one type of opportunity. But predominantly, you're looking at increases in visits and associated subscription fees.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of David Larsen with BTIG. Your line is open.

Speaker 13

Hi. Can you talk about the nature of the timing of the revenue impact in the quarter? I'm assuming that that was a performance guarantee. Is that correct? And if so, can you size it?

Speaker 13

And then also, I think, at 1 of your analyst days, you'd guided to $1, 000, 000, 000 in revenue for fiscal 20 29. Is that sort of withdrawn? I'm assuming it is. And then can you just sort of comment on the broader market? It seems like we're in an unusual period.

Speaker 13

Walgreens had a tough quarter this morning, traded down 25%. Health plans are under pressure with utilization and MA rates. Is that going into like potentially a more difficult operating environment where they're driving tougher pricing? Just thanks very much. Appreciate it.

Speaker 4

Thanks, Steve. This is Steve. Let me

Speaker 3

hit you have a few questions in there. Q1 revs longer term outlook and then maybe more of an environment question. So first of all, in Q1 revs, yes, the timing revenue recognition timing we're talking about is predominantly a performance guarantee type of item that was timing that we would have had in our models originally to have been earned over the rest of the year. It was about $6, 000, 000 So my reference in the call was to the fact that ex that number we've been in the about the middle of the range of the guidance that we provided. And you've seen this before from us, Dave, we've had times in which we when we have a performance guarantee or other revenue recognition items associated with 606 accounting essentially, we're going to call that out so that the Street understands the revenue versus the guidance.

Speaker 3

And so that's where that is. Most of it would have been in Q4, some of that would have been in Q2 and Q3 as well as the bulk of it would have been in Q4. Secondly, with respect to our longer term plan, if you take that mid teens growth rate and run it out, you'd see $1, 000, 000, 000 closer to coming through in about a year later than that. But importantly, our view is we'll continue to drive EBITDA growth or adjusted EBITDA growth along the same pattern that we laid out before. So we would expect by that 5 years out that we'll achieve that 15% to 20% target range and growing thereafter.

Speaker 3

That's the long term model that we're seeing today with this guidance dial back towards the mid teens. With respect to the I haven't had a chance to read up on the Walmart and the Walgreens note. But in terms of the overall environment, I think the biggest thing we're seeing is employers recognizing that costs are continuing to rise. This year we expect high single digit growth in health care spend, which continues to put at the forefront companies like Accolade who can provide a service that when combined can get members to better health care and do so at lower costs that continues to drive the opportunity for us. So that's a bit on your 3 questions there, Dave.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Jack Wallace with Guggenheim. Your line is open.

Speaker 14

Hey, team. Thanks for taking the questions. Just to double click again into the guidance and the environment here. How should we think about your win rates, expected win rates this year? And further than that, how much of a potential change or lowering of win rates are going to be accolade related in terms of not wanting to or being unwilling to drop price or put more fees at risk in the deals.

Speaker 14

So let's call these non regrettable losses versus regrettable losses where you're bidding you think competitively and you're ultimately losing to a competitor or the company not choosing to not go with an advocacy partner? Thank you.

Speaker 2

Yes. Thanks for the question, Jack. The vast majority of our pipeline continues to behave as it always has and we continue to win what I call the majority of the transactions that we play in. We'd expect that win rate to continue. We've had this conversation periodically, Jack, with the market.

Speaker 2

There's been opportunities where we've talked about, hey, that's a deal. This particular deal, this particular case, CalPERS, where we were higher priced than the competition. I think to ensure that we're all aligned, higher priced than the competition, but offering very competitive performance guarantees and incentives associated with achievement. But acknowledging that in a deal or in a specific deal where the customer is specifically mandating staffing requirements etcetera, Pricing is pricing should be relatively consistent across the board. On occasion, it won't be.

Speaker 2

And customers are going to have to make a decision, prospects are going to have to make a decision about who they feel can tangibly reliably deliver that service on an ongoing basis. So in those 1 off situations, yes, we're going to stay disciplined and we might put ourselves more at risk if not taking on that business. But I'd call that to your point not regrettable. In the vein of regrettable losses, we would not expect the take rate to change at all. Our team continues to be very competitive.

Speaker 2

Product continues to be differentiated and we'll keep winning our fair share of those deals. And then in terms of no decisions, look, I think 1 of the things I tried to call out in the prepared remarks, this is now a category that is defined, created and growing every single year has been for the last 5 years. And so, no decisions continue to decline as a percentage of the overall pipeline. But nonetheless, we'll see some percentage of prospects choosing carrier solutions at lower prices, but that's always been the case. Nothing new there, Jack.

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

Speaker 2

Thank you all for being here. We look forward to the follow-up conversations.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Accolade Q1 2025
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