Accolade, Inc.

Q1 2022 Earnings Conference Call

7/8/2021

spk_0: the damn think it was standing by welcome to the accolade first quarter twenty twenty two earnings love conference call for this time i'll bet incidents analysts and only mode after the speakers presentation there will be a question and answer session ask a question during the session you will need a star one on your telephone is the advice at his confidence is being recorded if you acquire any better assistance please press star zero i would not attend a conference over just because today thought the admin please go ahead
spk_1: please operator what no one for fiscal first quarter earnings call with we're the call today or chief executive officer was using are cheap and two officers the balls shoved in in the are cheap michael officer will join the question and answer portion of the call leader before caught from the call of it was a please note that will be discussing so and non gaap financial measures that we believe or important when evaluating accolades performance details or relationship between these non gaap measures to the most probable got measures and the reconciliations thereof can be found in the quest release as posted on our website also please note that certain statements made during this call well before looking statements that defined by the private securities litigation reform act of my ninety five such for the give statements are subject to risks uncertainties other factors that could cause the us results of bradley differ materially from those express or implied on his call for additional information please refer to a cautionary statement and personally and our fathers of the fcc oliver are available on our website with that knowledge of the come over to our ceo receive thing thanks on to thank you for joining us it's an exciting time to be here and i call it or one month as the closer the first acquisition and are well underway with the work of integrating accolade plus care and second md into a single bit combine that with the exxon financial results to start the new fiscal year and the return of our first wave of employees to our as which we're very excited about as well as a sense of normalcy returning to the community in which we live and there's a strong feeling about optimists met acolytes that by reasons for optimism are grounded in the simple belief that we can deliver differentiated value brock customers when i joined accolade nearly six years ago it was clear to me that the foundation of advocacy a navigation would be the cornerstone of a richer set of services that could one day bring value base care to the employer health care market advocacy provide the foundational platform of broad engagement longitudinal relationships and a rich dataset that make every incremental as a you add to it better that evidence originally came in the former partner relationships vr trusted supply or program and would eventually validate a bold acquisition strategy geared towards assembling the industries richest set of tools or engagement cost reduction and improving clinical outcomes most importantly our customers have been energized by the new capabilities in their potential for value or deep into these casper conversations and hard at work outlining for each hour at him solutions will do even more for their specific populations additionally are integration and innovation games are working feverishly the launch of fully integrated opera one seamlessly combining advocacy primary care next for medical of it our mission is to create a health care act be beer experience that finally put the consumers beats first and we cannot wait to show you how our vision for the future translates to integrate opera for today i'll spend time talking about our early progress initial successes and high level plans to change the industry
spk_2: earth a quick review the quarter
spk_1: revenue and adjust the with our both ahead of our guys revenue a fifty nine point five million was sixty six percent greater than last year and adjusted ebitda loss of twelve point eight million reflect some of them investments we told you we plan to make in integration and the launch of a new enterprise primary care business people provide more color including some high level comparisons to account for the impact of our second amd the acquisition from the visit business standpoint i want to touch and a few key highlights are the from the quarter including the integration of second empty and posture a positive start to the early sixties and the growing importance of behavioral health i'll start with second md in just three months has because the acquisition with signed up earth crossed out customers with organizations like the city of fort worth and a fortune fifty insurance company at an expert medical opinion to their existing habits the services these early cross dealt with more rapidly than we expected along with second md continued new business success validate our hypothesis of the transaction very clearly additionally as we announced on the transaction close expert medical opinion is now a core component of our total care opera the value proposition and more importantly the measurable impact on employee well being and how bout of immediately been apparent to our customers not only have we seen cross telling says but our first joint cast for one live on july first we're optimistic about the pipeline about for medical opinion in jail for the remainder of the year as well most importantly member mps course bucks for medical opinion remain at historically high levels above ninety it's july so we're in the prime summer months for the traditional helped selling season for those of you are new to our company large employers and to make big decisions related to their healthcare benefits plants in the summer in anticipation of all open enrollment and a january one lot as with told you before with our edition of new capabilities and expansion of our target customers to include businesses of all sizes we are selling throughout the year however it's still an important time in the industry and we've had a very positive set up success with both renewals and new business we signed deals in the first quarter in each of our customer segments middle market enterprise and strategic in addition to some of the notable deals i mentioned per second md we also signed mckesson a porch and fifty pharmaceutical company for total health and benefits are premier offer we also saw expansions in the populations were serving with humana as well as notable customer wins be our new health plan partners would establish relationships with second empty prior to the acquisition one in particular with a fortune one hundred financial services for who has served by to national out i know the multi carrier dimension because while it is one cost for selecting second empty our ability to meet the needs of their all employee base relies on the strength our relationships with multiple carriers one other note i would call your attention to one year ago with them up when we went public we outline the multiple flavors of advocacy operas we bring to market with the belief that customers who choose are lighter touch offering might begin to upgrade more wholesome solutions down the road in fiscal que one we saw earth upgrades from total benefits and total care to total a moon one of those with the pepsi cola national brand averages group which is the second largest france has bottler and distributor absi cowl covering the mid atlantic finally we're continuing to see an increase in interest in mental and behavioral health is past quarter we signed more customers to our mental health integrated care solution which injure incrementally were incredibly excited about the embedded mental health capabilities in our new plus care primary care physicians as covert as exposed the incredible mental health crisis in the country we believe our ability to provide a multi faceted behavioral health solution to customers integrated with the most critical touch primary care is going to be very meaningful to our customers and their employees in their ballots
spk_3: and that's a good segue to transitions to posture
spk_1: first spotted been less than thirty days and the acquisition is closed we've already had the current last year solution as well as our expanded primary care strategy in front of a number of significant cost our field teams have all been trained on plus care and all on exhibitions and were actively executing and across sell of self strategy that looking very positive when we announced the plus your acquisition we talked about a parallel strategy of continuing the focus on the existing direct consumer business while building out and expanded accolade primary care of strategy that leverage is the core strength of our navigation app exceed expert medical have any operates the core cluster business has continued to perform very well in fact what traditional urgent telemedicine providers talked about it hosts cope it returned to lower growth levels posture has continued to grow subscription campus we'll share more about that will report on earth combine quarter in october on a broader enterprise primary care model that work continues we plan to roll out that strategy in the near future one thing we haven't talked about previously is our plan to operate fully featured solution for primary care at a standalone basis to customers and orders that
spk_2: are many customers especially those in the middle market the existing plus care platform is a powerful primary care opera that our customers can begin using immediately it's a testament to the combined execution about the plus care and accolade keep the were able to move as quickly
spk_1: that i'd like to share a member story from a plus your position that i think is a good allegory for our broader primary care strategy this story centers on a member who lives in a rural area far from a medical office a problem for many of our customers by the way suffering from stable hypertension she had reached at the plus care for help rebuild one of her three blood pressure medication a member was complaining of the t but she didn't wanna go to the hospital because it a typical transaction focus telemedicine provider might have simply refilled the medications post your primary care physician built a relationship and convinced the patient don't have a home blood testing kits and centaur the testing kit revealed something serious and the requirement for more tests her glucose liver and kidney levels were very elevated and are he wants he was twice the normal level the member thought hypertension medication was about but in reality she had undiagnosed advanced type two diabetes with chronic kidney disease
spk_3: dyslipidemia and fatty liver
spk_1: at this point you can see the incredible difference in the past your approach compared to traditional urgent telling us the plus your position discuss the number of potential therapists including medication to like outcasts the posture nursing staff guided the patient unglue comedy use and self monitoring for type two diabetes the posture off that engage with the patient the pharmacy and the position to ensure that the correct supplies were ordered and delivered the pace the patient refused influence of constant monitoring follow up and casting was necessary
spk_3: after one month the patient has adopted new behaviors recommended to her by or posture team including installing a treadmill and are not changing your die
spk_1: her blood sugar levels dropped i have three months later a one sea levels and dropped by half and or kidney and liver levels were back to normal levels for blood pressure it also dropped so the position was able to discontinue to women three medications at the next follow up her levels had dropped even further to the point that she was no longer even considered pre diabetic and her blood pressure within a normal read this was a terrific example of a patient who had any clinical success despite having limited insurance coverage in a rural area with no clothes accessed especially care and arguably she was successful because of the virtual chair approach to access to a brick and mortar pursuing was a beret those barriers exist across the country it could be related to location or socioeconomic factors are race we have the opportunity to break those barriers and change the way cures delivered when the push your primary care doctor that delivered this care told the story she talked about the difference of would have been made the member of been engaged with accolades before she knew she had this issue dismember with i pretend she the mouth the medication would already be on accolades rate up to our ongoing monitor class and likely actively engaged with the help of nurse when the member resupply care physician doctor would instantly have all of the patient's medical history list of medications critical insurance information and all the of the benefits the members employer might be provided an integrated medical expert opinion specialist might have been engaged sooner and when it comes to the necessary supplies and followed through this treatment and br to a comprehensive ongoing relationship a position and posture care team would now have the extended capabilities of come with the athletes from my church it as we look to what's next this real life example clearly lines are opportunity a fully integrated data driven approach to improving the well being and overall help by members is the goal and we now have a rich that of assets to achieve it with that i'd like to turn the call over to steep to cover fanatics
spk_3: thanks trash for a recap the results for the first quarter of fiscal two thousand twenty to keep in mind that we close the second them the acquisition on march third just a few days and to our first pittsburgh quarter where appropriate up provide color on the year over year comparison beyond the tables in the press release
spk_1: the plaster acquisition closed in june after the first quarter ended so there's no puskar contribution or impact than any of these results
spk_3: we generated fifty nine point five million dollars of revenue in the first it's a quarter representing sixty six percent year over year growth and a gap basis over the prior year period
spk_1: in our ten you we provide proof forma results for the combined business that show thirty five percent growth year over year as we provide pro forma results for atrophy requirements for the rest of the fiscal year please keep in mind that were selling our solution put together and separately the wow the reported pro forma revenue growth and ability numbers are in and then to reflect the acquisitions said standalone it may not always be a perfect representation of how we felt a customers and run the business overall
spk_3: as a quick example we sell expert medical opinion at part of accolade total care at an app fell and of a standalone solution
spk_1: some of that were we would be required that second and the revenue for pro forma purpose purposes and some of the recognized that accolade revenue
spk_2: the revenue outperformance relative the guidance with largely attributable to salvage execution on multiple fronts
spk_3: both customer member count and performance related revenues exceeded the expectations built them to our fiscal que one guidance including the timing of achievement of a customer performance guarantee that pulled forward approximately one million dollars of revenue into the first quarter which also positively benefited adjusted either
spk_2: good you want adjusted gross margin of forty point two percent compared favorably to thirty eight point three percent in the prior year period
spk_3: as stated on the queue for pop we expect adjusted gross margin to remain relatively flat this year adjusted operating expenses decreased slightly to sixty two percent of revenues in que one of it's got twenty twenty two percent sixty five percent of revenues in the prior year period
spk_1: and adjusted he began the first quarter of fiscal twenty twenty two as a lot of twelve point eight million dollars which compares the nine point four million dollars in the prior year first fiscal quarter trying to the balance sheet fast cash equivalents a marketable securities at the end of the first fiscal quarter total or hundred twenty five point five million dollars note that during the quarter we paid two hundred thirty six million dollars related to the second and the acquisition and received two and and forty five million dollars and proceed after at many benefits from our convertible notes offering
spk_3: and after the quarter ended we paid approximately fifty three million dollars related to the puskar acquisition
spk_1: so approach or a basis cash cash of berlin and marketable securities were approximately three hundred seventy three million dollars heading into that back and fiscal quarter
spk_3: can't see suitable increase from the end of fiscal twenty twenty one to fifteen point three million dollars at the end of fiscal que one representing about twenty four days revenue up and for the footer consistent with our last update on the expectation that theater normalize normalized the twenty to thirty page
spk_1: and the increase in a are over the prior quarter relate primarily to the acquisition of second md finally we had approximately fifty eight point eight million shares a common back banning as of may thirty first twenty twenty one and know that this does not include any shares related to the second and the earn out where the acquisition of puskar so for your models you should include approximately seven point one million shares issued for the oscar average
spk_0: this in in june
spk_1: additionally there are up to approximately two point two million shares related to the second md iron out and up to one point or million shares related to the busker earn out to be issued and calendar twenty twenty two
spk_4: and now turning to guidance
spk_2: for the fiscal second quarter ending august thirty first twenty twenty one we expect revenue in the range of sixty nine to seventy one million dollars which includes by scare revenue from june nine and adjusted he but i lost in the range of twenty two to twenty five million dollars and for the fiscal year ending february twenty twenty
spk_1: twenty two week that revenue in the range of three hundred to three hundred five million dollars representing seventy eight percent growth over the prior year at the midpoint of the age breaking the down further with said that we forecast that or accolade business at approximately twenty five percent growth and we expect second am the emperor scared to go faster than activities if you assume a full year plus care contribution and combine last year and second md calendar twenty twenty revenue with accolades one hundred seventy million dollars in fiscal twenty twenty one member knew it would give you about thirty percent growth at the midpoint of the rage
spk_2: adjusted ebitda loss for is good twenty two is expected to be in the range of forty nine to fifty four million dollars representing him and jeff believe it i lots of approximately negative seventeen percent of revenues at the midpoint
spk_1: it was consistent with the color we provided last quarter and at the plush care close to expect approximately negative twenty percent adjusted ebitda margin of class care and incremental investment as we build our enterprise american business and now turn it back over to rush for his concluding remarks thank you see before we take any questions a couple of quick announcements we keep an eye on your inbox for a couple of upcoming events we heard good be that following a deep that session on expert medical opinion to are planning the next session later this month which will focus on data were also getting ready to host our annual customer event again in september a tennis will be limited to customers but we do in the webcast the keynote and husband analysts q and a session please reach out to talk for more info if you don't get an email with those save the details operator with that like old in the call for questions
spk_0: thinking as their a reminder to ask the question you on the the pets die when on your telephone so the child question press the pound key christian bible the compare the candy or there as best question concerned david continental it's the fall in line is open
spk_5: i think you are good afternoon i you know watching you get some as the observations about the selling psycho and you know what you're saying you know year to date and now that you've completed these to the else i know you mention integrated offering and going to market with that offering but it's have a little bit too early the comment on that but in another is closed to deals you are meeting with customers and a point in time when they're making decisions you know what are their observations and quest since about you know what's it's becomes and where their interests may lie going forward when you look at the integrated whole
spk_1: yeah that first got gets touchy david and thank you for being here i think it's a it's a yeah it's really important question you ask because our customers just like we are looking the future and ah and in that look at the future their acknowledging that today they're often times confronted with a complex healthcare system and too many solutions to weave together on there are often time times are buyers today or carving out solutions are from the their local health systems and from their plans and looking to weave together their own ecosystem of solutions and unfortunately too many times that's very difficult for them to do and they're saying really low utilization rate ah they hired us to solve that problem when they bought our advocacy services over the course of the years ah what we've been able to do for that does that the network of solutions that we welcome together and we have called artists by program is driving gave and not only honestly says up the partners that we brought to bear and our customer see that metaphor a see that met for as it relates to primary care they see that metaphor as it relates tax for medical opinion and they can see how that metaphor is multiplied when that solution is under the accolade umbrella and gonna be deeply embedded much technology perspective across process perspective in political perspective and so i gave it so far our meetings with our customers have been extraordinarily positive or they understand the hypothesis behind the acquisitions they understand what they are what the long term value proposition should a and die and i think what they're looking for is more moss on on the vision of how that integrates for network over again and then if you kind of take that back to a comment you made also you're prepared remarks about you know offering standalone solutions for both you know second md and for plus care is that targeted at specific market segments are specific problems here trying to solve for the customer or is and mortar
spk_6: or it than that
spk_1: nope divisions we christians we are really got going here at accolade the mission has always been to meet the customer where they'd like to be met are different customers are different stages of their journey and so ah three or four years ago or three years ago we announced that it various flavors are advocacy operates meeting the cat right different price points with different engaged a levels are we think the same story through bradford for medical aid were or every single hr buyer has that moment we're one of their employees give them a ring and says some families that one of their family members has been diagnosed with cancer what a white you ah second and our our second empty or expert medical and is least give them the answer to that to that question or we think that same stories true on virtual primary care our customers are looking for particularly those who are wrestling with access it availability as you are looking for answers to questions like that and as opposed to trying to shoehorn them into a particular solution we want to solve their problem as and and that's been the nature of the way we think about approached the market brock
spk_7: great thank you
spk_0: and you
spk_1: thank you my next question comes from michael chang you would think of america yeah is open
spk_8: ah afternoon congratulations on the nice quarter of a want to follow up a little bit on the selling soothing comments roger that he made a comment chain that some of the cross sell came earlier than you expected if you could characterized will get more about that cross cell is there any common trait that you see between
spk_1: the customers and what's driving some of those quit their cross sell capture an earlier pace than you would expect it to think freely and also think back to the ah experts second opinion deal he did were it seem like you had a client their those very excited about center crosstown curious to think about what we should be expect with built into guidance as we removed ref the selling see them and through pistol trying to sure blimey let me take the qualitative of than answered i'll leave the out the guy is part of the olive the hard part of the question steve how to answer that be at the fun part of that and nia the personal thanks for been or mike and thanks extra the and worst the are
spk_3: interesting leave you look at of that mixed odds cross our customers that we saw the earth order since we had fired second md we thought customers who were already in the process of evaluating ah second md ah who were adelaide customers who made of i knew you were in the process a diary
spk_1: technically before the opposite with our customers who i began and close the evaluation after the acquisition began ah and we saw customers who are who were ah looking at a o already on existing solutions and decided to make a changeover us since post the acquisitions all three varieties of types of feels closed and so i think the good news is customers on the mentally understand that second opinion utilization is critical that if you can get utilization rate above two percent above reproach that the you can yield outside value and extraordinary employees that
spk_3: accidents and that to the degree that not saying that it's of a the other vendors that they're working with ah damn a lot of confidence that they can do so with accolade it's uploaded by and i'm like this is steve the as speak to a bit about the guidance and what fact it in as rise mention were really really excited about their early momentum with caught selling that's occurring already and and we have of course battered some of that into guidance but remember where we are in the selling then i this really will become a and more significant factor in fit into pittsburgh twenty three strictly with respect to revenue because as you know most of our deals set up to be implemented during open enrollment and then launched on january first so he could think of the revenue impact from crop selling as fairly minor on and at that three hundred to three hundred family and our top line up new guidance were given for the year really has a lot more do at a coup or organic growth from accolade and then on it's own second md strong growth continuing their and then plus care as well both both of which you'll recall ah we signal that those companies we expect a growl and the thirty five to forty percent
spk_1: great on their own so to speak as were bringing together that integration and coming to market with accolade maintaining that growth rate on a quirk ganic basis at twenty five percent are so it cancels out to that dad got in strange perfect lynch's one hopefully very quick follow up on the poll for the you had on the at risk revenue that one million dollar the mention his tell us that supposed to be part of the normal course of business that you would have nice and for kids curious how pulled forward it was at that's exactly right the way to described at their mike will
spk_4: we we expected it to a fair later in the fiscal year and we achieved that in there in the first fiscal quarter and so require that air so we think it's important that you you understand as you're analyzing these results so very strong first quarter up from for all the buildings around member towns and pg
spk_1: performance on it's own and then you had that odd that caught million dollars for for some cute for into que en
spk_9: excellent they so much
spk_0: thanks mike
spk_10: and qnx class incomes on ricky god was there with morgan stanley gelinas open yeah hi good afternoon ah recovers questions here and for first without i'm trying to understand the outside and a quarter i'm it sounds like favorite one marines from the pool forward of the ordinance came in and everything about the remaining outside and what are you from or and words from on
spk_2: apply to your estimates on second empty performing in in the in the quarter
spk_3: great hierarchy at yeah a couple of thing there if you peel apart and them and them you'll see the ten which also either just got fired or will be filed imminently we do pull apart the pro forma numbers for second md an accolade in the in the qc you'll get a chance to take a look there yeah you'll see the different components of it and you'll see on in the year over year organic basis that second indeed grew up in the low forties as of a forty percent of forty two percent year over year so very strong growth they wrote year and muted assume that that was that we we got guided towards a thirty five to forty percent range there so sure
spk_1: on gotham second md and importantly with accolade we're starting to see ah give the the negative effects of coal bed ah were off a bit in a very positive way meaning employee child came up strong or for accolade across our our customer base which is positive and at it and final
spk_3: lee with respect the pgs as you know we we assume different elements of that around the savings pg is and the operational pages and were pretty we performed very well across all the different categories customer satisfaction engagement raids and cost savings to the extent of savings are booked that early in the year
spk_10: you know about eighty percent of the cost savings revenues do get booked in the fourth quarter but some of those do get up during the year and so with a strong are you on across each other's different categories great and room am can you help us quantify the size of the investment that you're making ah to integrate the businesses and as we think about the those investments should rethink about them happening in fiscal year twenty two or should model an elevated know
spk_3: i've offered vestments spilling over to twenty twenty three ah sure i can help you at that are quite a bit tacky if you think about looks work backwards from the guidance that we just are presented and and out about said our host or what what you had seen previously so with the three hundred to three and five million dollar top line guides and the either dial deputy that i lost god a forty nine to fifty four million dollars if you look at that step up from we provided last quarter prior to the acquisition what you would see there is a few few different elements one were investing significantly in the integration across the front line care teams and the technologies that are
spk_2: supporting that so that we can create an incredible experience for that consumers who's who are or the members were a
spk_1: customers are the business and for our front frontline care team to bring together each of these complex out so where does that show up in our piano shows up in the form of half the revenues are gross margins which has a lot to do with while with why we think not expect roughly flat gross margins this year some of that investments happening on the frontline carotenes
spk_3: you'll also see at m product and technology so will continue to invest daily thing as significantly there so that number on a be in that low twenties as a percentage of revenue on another area where investing in ricky is a prop distribution so if you look at the sales and marketing line this year ah that number with expecting a lot from what was in the high teens in fiscal twenty one into the low twenties as a percentage of revenue this year and that has everything to do with building out an expanding our a good market teams the business development teams and the underlying a marketing teams who are building that broader story that right
spk_11: i spoke about in as prepared remarks and was just answering on a further questions which is p thing this all together in a way that will be completely integrated connectivity between navigation advocacy and the primary care and second md expert medical opinion elements so it really shows up across the piano
spk_3: our in those different ways
spk_11: bring him he adjusted a bow off into the sixteen or seventeen percent of revenue range this year and will continue that investment while we chunk down towards breakeven over the next couple of years so that's very intentional that we continue that a capitalize on the growth opportunity in front of us while we also maintained
spk_3: that discipline for break even
spk_10: the next couple of years that very helpful i'm going to feed in effect of my in one lifetime when i think about last year when i think about for you are competing with her who are you're replacing and it think of the classroom of it is quite extensively sweeping
spk_1: up there is competing at just with primary care and behavioral health but also an urgent care your without i'll grab that when a stretch out with give up we fundamentally position are offering to our customers with the believe that the highest value we can provide it's from a primary care and and behavioral health perspective and that that solution of course is in a position where when delivered and when they implemented on behalf of the customer can also serve the needs up helping in hers and care situations oftentimes one of the things we see it that urgent care is it the lead in and bet that leads to a primary care relationship and so are our customers i think ah the the baseline positioning in the umbrella underwear where where where delivering the opera is certainly primary care for weeks back
spk_12: fact that he will lead to urgent care and are emerging care situations where i will drop is it that way as well
spk_0: thank you very much
spk_13: thank you in gear and next question comes from ryan daniels with william blake airline is open
spk_1: yeah guys congrats on the strong start to the year i just wanted to have a follow up question on the sales pipeline i know game the for the heavy part of the year for you and i'm curious if you're seeing more momentum towards the or products given the return to work and maybe a need to reengage a workforce after being absent for a year or perhaps trying to keep the work was engaged it's still working remotely to kind of dry cultural aspects for the organizations that help you with conversions or and conversations with quiet back i think again iran and thanks for the question ah in fact i've you really hit on some of the macro tell when that we think are a part of what's happening in in corporate america today are are simply engagement is fundamentally ah a challenge for companies wide wrestling not only with returned to work but a variety of other issues that at their employees and their families distracted ah second are with return to work dark darpa are a number of clinical and healthcare needs that are not but his energy to lot to employees and their family and figuring out where to find them and help in a a system that over the last fifteen months through contra last dog shock
spk_0: ah is another or tell when a driver and so ah on up bought a macro basis we think are tailwind that are driving what we continue to see is growing pipeline and growing up and and a good deed opportunity for the business
spk_5: thank you are next question comes from challenges sing with credit suisse yeah line is open
spk_1: at thanks and congratulations on a strong quarter on i would go back to selling the than depression and that thanks for highlighting and and and congrats on those contract when a theme setting in the has been going really well for you live
spk_14: my questions that around are you guys thing anything you can delay employers are evaluating the alternatives on greatest offering given all the confide a shown and unicode apart while month even insurers are gradually expanding and pushing for their own or partner does and how solution also like a related to that curious on your part that only kissed the
spk_1: being and flies looking for a better breed went abroad or you're coming off implies having vendor fatigue and looking for more comprehensive solution to do with a little play without on that yeah thank you delighted for the question and not and allah or try to wrap every element that question up in one answer and if i miss something lisa is follow up that will make sure uncovered all ah as it relates to let's start with top how are buyers approaching ah the the selection process in two thousand and twenty one and how is that evolved or two thousand it it i think the single largest area that we that we'd points you is that increasingly were seeing buyers come to the tape well with be up with a value orientation and a clear understanding of what that value or it is nest or buyers understand that when you're seeing hundreds of solutions in the marketplace at differentiating the pretenders from the real value drivers are are going to be measured by value clinic
spk_3: go outcomes lowered costs employee satisfaction
spk_1: and that are increasingly there's a demand that contracting vehicles and ah and measurement and ah and the and die and success of measures are all geared around those values drivers to that point one i'd say that certainly more profound and twenty one that it wasn't funny and we obviously believe that place to directly in our paper ah it and feel a incidentally on that point the idea of being able to prove that are you with documented savings the documentary reports as opposed to very important as well or to that of the question i think give our companies are increasingly looking to find their answers from a single place where they can drive ah a compelling healthcare experience with deep integration are particularly around cool drivers around ah it launched you know relationships now
spk_3: occasion primary care being to really good examples and so are we think we're said that hand was as manifesto that aussie journal article a couple of quarters ago that talked about this but that kind of manifesting across the industry particularly as they are while it's absolutely true and strategic enterprise out still other while middle market account do not have the staff to really work through and understand the desk are all it's gleason's that are on the market and i think those are too bad as as the i would they are two things that are evolving as twenty one ah as as the at the midpoint of the twenty one year
spk_1: yeah that kind of you actually colored my and a follow up question the got i noticed in your earnings really that tab some comedy around your value based model for the first time for just want to clarify that i mean can you give some examples be more specific like how the contract might look like are and maybe to levels that view gonna get have any value base er ist shedding contracts with employers ah what did he know we have we we have we we take risks with our customers about about a third about these are read an ongoing basis today and so got it in that regard to are we taking risk with any player everyone are limited our and player but i had that element of bob taking risk in it i think to the more to the point of your question around value based arrangement
spk_2: ah here's what we would oh yet you thought weeping the future is about extending that capability by and tying it out to not just cost reduction a clinical value and that that is fundamentally going to be the future the employer space ah and so i would will give a little bit more detail of
spk_3: by our thinking about contracting and when we deliver the integrated offering i which will be a little the later this year
spk_15: okay and then when quick up and question was do you do you know god cast your outlook for fiscal twenty two
spk_16: ah we do i think challenger for for as you can consider that adjusted a bit odd numbered to be a pretty good proxy for free cash flow maybe a bit higher than that this year add to the tune of a few million dollars for related the timing but it than that if in that same ballpark
spk_0: i paid thank you
spk_1: thanks joan injured thank you i next question comes from jeff guy the paper thin the yelling is open yeah good afternoon thing for taking the questions and congrats on the quarter see you've spoken about the the very possibly about your health plan partnership i'm i'm curious about what's driving success with those channel partnership than a second part of the question is was over time i would expect some some efficiency some leverage from using those those channels but other so upfront investment the build those relationships that are part of the sales and marketing button and that you mentioned earlier a gap i great shock you ah yes there are some investments in building out new channel relationships with our with our carrier our earth ah we continue to be bullish on the opportunity to grow that channel and we continue to see organic expansion within those towns that have already been solidified really wants the relationship is for by we have an opportunity to roll with within their customer base and yeah we absolutely believe that can be an efficient customer get our customer acquisition strategy that an optimal you're saying that in terms of even well speed mention the increase in sales and marketing spanish this year ah we're still seeing really extraordinary cuts crack positions or ltd ah operations in the business so awkward we're we're still very efficient myself arctic perfect and that's part of the require any up the reason for our success with those channels
spk_17: he is fundamentally in offering strategy of meet the customer where they want to be back and so we started with multiple forms of advocacy that avid see delivering cord differentiation for carriers who might otherwise be unable to deliver that blend of technology clinical get on to cook capabilities and advocacy out with
spk_1: in adding expert medical opinion and virtual primary care with added to the solutions that are really quarter what customers are looking for and therefore i added new tools that are terrier partners can take to their customer base it's to differentiate itself so that the breadth and depth our services i think if one of the things that really attracts or
spk_18: august a while ago
spk_1: i i found that that helps great here the differentiation as as well as continued focus on unit economic the second question for from me just on thing about the outlook and the contribution from second and the event maybe you could revisit the
spk_3: variable component of that business and and how much he the now the you expect of the business of we think about that a rolling forward the contribution and up the first the full quarter throughout the rest of the year
spk_1: sure and jeff is steve okay to talk to you again at it so second them the ad through the their revenue model has a couple of different ways that and as part of accolade that we go to market with that expert medical opinion offering sometimes it's a pm pm on things sometimes that they chase rate ah price but it often times has a performance guarantee associated with it and as you'll recall the ah the returns on a on an expert medical opinion ah service through to the second md are offering it's very substantial something like five thousand dollars a not on average and they can exceed twenty five or thirty thousand dollars on a surgery isn't bad so it's it's quite an attractive return for the paying customers on the way that the pj's show up though is that unlike accolade where where differing a lot of that savings based revenue to the fourth quarter second md recognize we were able to recognize those typically at the year goes on
spk_18: because it's a different concept so what you're going to see with accolade over time jeff is that fourth quarter which today has a much more significant portion of in a year's worth of revenue on it will start to flatten out a bit of as we bring on board second and deeper a full year plus care
spk_11: for our just clue that transaction as you know as you see that in this year's fourth quarter and then next year when you're looking at that on a year over year basis you'll see the to seasonality of the state revenue recognition start the flat out of that so won't be as dramatic at it as it has been ah with accolade
spk_0: great thanks for that
spk_1: thank you jeff
spk_19: think yeah next question comes from richard close with it kinda continuity gelinas of him
spk_17: yeah great and thank you congratulations on men are acquisition as well as the first quarter maybe just to your hit on a couple of the questions said early ben ben answered i'm hour or address but i'm could add a little to and or with respect to
spk_20: you're talking with customers in the pipeline and and your the conversations around value and ah yeah maybe somebody other companies that are you looking at navigation
spk_1: in our customers are potential customers confused at all is there a lot of noise out there that guys have to sort out educate the customer ron i'm just curious thoughts on that first of all ah ha
spk_21: brad a thanks for the question and proceed to be in here i think the at the the best way that is ideally be your question is really made let me try to rephrase the question make sure i'm confident that i'm gonna come back young that with
spk_1: the my view on the market is ripe with where i knew and france or innovation and time and know it can be confusing is that is that noise confusing prospects fires in the market and how are they responded to that conclusion i kept that walrus correct correct okay perfect and so i think you're absolutely right that of macro be or the matter is you that you're discussing which is odd of a plethora of solutions in the market is creating some confusion for buyers and it's not just by it's consultants and brokers that even curators were struggling under the weight up having to keep up with the animations in the in the market we believe fundamentally that that is part and parcel of why we're finding success in the market it's not the only reason but it is a part of the reasons customers view on a platform for weaving together their healthcare ecosystem big that luxury today ah mckesson with that we mentioned on a comic
spk_3: a large honestly up any ah mckesson purchase both accolade total health benefits and expert medical opinion you're seeing more and more companies look at the breadth of offering from a single location where the it if the offerings can be integrated you know they're going to be utilized and we know one person responsible for all of that value back and
spk_1: fusion weeping confusion noise in the market a creek to the value of platforms are where we are in and argue ah have the right platform for our customers to weep all that body together
spk_19: that's how file and then again maybe steve if i can ask a question at i appreciate the flattening out the fourth quarter with second m d and and damn now plush in being included
spk_1: but if more customers are moving towards value would in a you have you know that value coming in like you said predominantly in in the fourth quarter
spk_2: down as a gal you becomes a greater max
spk_1: add at a record and told i think i completely understand the question it's early days yet we're getting to the point where raj i think in answering challengers question is it's early days for us to move to a different type of contracting than we have today around valuable contracting and caught the on the next generation of that as we bring all of these capabilities together so as we come back to you switzerland absolutely at latter part of this year with more visibility around how that looks will give you some color about the expectations are on the financial model but i wouldn't expect that have a material impact certainly and fiscal twenty two
spk_22: the being the current fiscal year
spk_0: because that's how i just wanted to clarify that they give congratulations i like injured
spk_23: and year or next question comes from stephanie davis lived as revealing carolina's open hey guys congrats from the quarter and thanks take my question as always
spk_24: i want to dig a little bit about this trajectory toward them a integrate care offering
spk_3: how should we think about the value of a physical footprint and this is something that you either think you can to proceed as an enemy a opportunity or that something that will lead partnership so you consult lot last mile care
spk_25: okay let me take the end
spk_3: scuse me japanese a talk with you
spk_23: i get a chat
spk_1: so i am i had a peanut right before i reckon for us to question answers we gotta get that was not here to you know what he devoted to new allows anna figure you earthly i get so sorry about that was down with this option athena so seventy persuade thought he had thanks for the question ah the last mile care is extraordinarily important or let me take the first part of that question and then a minute i'm an of are as doctrine on the to engage in talk a little bit about the power of glamorous than into in terms of a model ah for for us we do fundamentally believe that that either three trillion four trillion dollar ecosystem that the capacity to collaborate across the industry is imperative we will be working directly with bricks and brick and mortar healthcare systems on the ground or that are servicing are existing customers we think importantly stephanie and and jump and after this alternate offer something new importantly one of the things that so powerful about our model is that we can deliver the concept of value based care while running on the chafee of a fee for service our healthcare system that but that doesn't require our customers make radical change around the platform that they're currently right
spk_17: and that's really important we're not taking away choice or not forcing them to make radical changes to their existing infrastructure which they fundamentally would struggle to implement instead we can bring this really are whole concept to them and leverage everything that they are already using company you want to jump in there and maybe speak to our our think about that yeah opponents of here are the such an important question on it i think you know from from the clinical perspective right the thing we think about that the most and the high numbers point is the decision the clinical decision that people make in allies right and that decision is really upstream of the service itself and so when you think about that that number story that that we started with on of the number with you know where with diabetes and that the liver function or issue it really where the system fall down the nose for that person who is on what we call the interstitial space rated like the dead than the space between the that's where
spk_0: people have to go home and and now make those decisions every day about their health and wellbeing and so for us that's where we thrive that's what you know we gonna trade over the past decade plus and so we think that sets up a really nice way to collaborate with the ecosystem where it's worth
spk_1: really think they were going to help people get the better decisions for going to be accountable for that we're going to guide them through you know the five thousand hours that they're not in a physical brick and mortar environment but we ought to actually see the need for that brick and mortar service and we just want to make sure that people are ultimately getting the right care that they need to get to the outcomes i got to follow up on that one do you need be the kind of the new a pair up to the client or the something where you might want to steer them to them do it more hybrid or with gone models are starting to appear to given their claim that have improved our ally and coffee then again will take the this one i think it's stephanie one of the think that we pride ourselves on is a capacity to get people to the right care by leveraging the tools that are in are too bad as it relates to ah are in charge of provider matching capability that weaves together cost quality he and appropriateness care measures are as for medical opinion capabilities which allows to ensure that one the right witnesses or at the up
spk_17: i think the are the addition around ah areas that are focused on quality and costs and august and measures like the measures that were focused on with our customers are clearly going to be interesting to to partner with us on behalf of our customers flipper shovel you anything there
spk_1: yeah another go to add a big part of i think what you're getting out with the option that and believe is is really in know that that as in a brick and mortar site moved to validate care as many employers have feel onside clinics or that particular brick and mortar a local said that they did all partnerships with you know how did that for them or modified into
spk_3: maybe party your question and i think you're reading my mind it at the diet and perfect perfect yeah and i think i think the short answer is it is absolutely i mean already here today we have a number of customers that have you know on like clinics i think on i think absolutely as the market continues to move towards mortalities providers and i think there's real aperture
spk_5: kennedy's killed them to provide differential value getting numbers to those environments and even though that are that are getting terror at those local council peregrinations they're still they're still missing a lot of the data on that they need to really serve those numbers on and those numbers are still going to have or other care needs that may or may not be best served by
spk_26: those those are those little providers and so
spk_27: the absolutely think that building on the capability that raj talked about that in a war going to be able to construct on are those ecosystem at alternately get to the outcomes that that employers a look in the ghetto
spk_0: there have been banned the
spk_28: thank you and yeah next question comes from david less than with be airline is open
spk_29: hey congratulations on a i could quarter can really talk a little bit about arm your long time expectations for gross margin i fully understand their on vestments going into our integration are this year for passion second empty busy think about like fiscal twenty three and beyond
spk_3: our where would you expect gross margins the trend what will guess you there and over what time period facts
spk_1: he the steve good grade to talk to you
spk_3: you're right i absolutely taking gross margins up over time is part of our plan and expectation while we invest in in that part of the business this year and into next year roughly flat is this year's that think of that as mid forties with the with a long term target into that get these caught the mid fifties
spk_1: over the longer term think we're going to see those this year and really into next year it's similar types of gross margins in that mid forties range to bring all of these capabilities together to great create that fully integrated experience that drives the kinds of health outcomes and costly
spk_3: even that we think are critical that are driving the growth in new customers and the verify retention rates we have with existing customers now overtime how we take that from the mid forties up into the fifties it'll be through a few different things i'm very importantly continuing to build out the technology platforms that create integrations that help our frontline carotenes be more efficient so it's leveraging the ai machine learning engine to do something we called next best action to help our frontline care teams know what would be the next best thing to recommend or where someone to direct where to direct a member elsewhere in ecosystem that all as an automate that more makes our teams more efficient
spk_1: by the way raza lieutenants prepared remarks will have a a segment and analysts segment on data coming up over the coming weeks that i will go deeper into that and then secondly as we cross on up so others leverage and operating leverage on the business overall including on the gross margin like as we are success
spk_28: oh with transaction like raj mentioned with mckesson and selling thought about and benefits and expert medical opinion that combined offering they're certainly leverage that we have on the frontline charities that equates to improving gross margin at the margin if you will so there's there's opportunities there are those are are too big actors were we think of driving gross margin prove money or time great thanks has that's very helpful and then we heard from a couple of health plans like first of all they're very very very large health plans and are very much aware of accolade and we've heard a comment here in there like accolade is are doing such a good job they're they're taking away some potentially like fully enjoy your business from us because if there is the you know employer groups can purchase the self insured product at a lower price point the news actually they can get the benefits
spk_1: have you seen any large health plans to react accolade and try to bring in some of the services themselves have you seen any by of backlash the right way to describe it but at at i mean i'm assuming of is now human how good your sales are bite to receive march plans respond to your efforts here and can anyone it's been unexpected lately facts i appreciate the question i think you know are awesome and with we can we talk about it a little bit earlier ah we're finding increasingly that carriers understand i'm where i'm gonna actually i'll flip your question and take it in a positive way they're looking at them
spk_28: and acknowledging that we can add value to them with our differentiation and so ah we acknowledge as well though to be clear that they're going to be moments where where there's a level of just where we're going to exist in a marketing compete where they've got their own advocacy solution but yet who ah when we when those opportunities we have an opportune
spk_30: easy to collaborate with them and serve the cost for well so i think the at the short answer your question no longer i throw a can get up off
spk_2: a concrete rather a good corner thanks for much
spk_3: think they'd
spk_31: think you're next question comes from ryan mcdonald with need needham gelinas of in i think you're taking my questions and congrats on a great quarter of right image than that your behavior holders continued to have a strong impact on selling season in this is something we've heard similarly with other that organizations we've spoken with but there's still this added layer of
spk_1: complexity there within the different behavioral can't help models of of trying to navigate that as you look at the evolution of of accolade him in with your partnership with ginger and the mental or the behavior have component that included with pie scared to talk about how your positioning those two as as you start to integrate plus care more directly into your you're selling model thanks
spk_17: a request brian glad you're here i'm a domino on and a question over to are cheaper cost or something
spk_3: yeah it's it's such an important questions was right so top of mine and and worst thing that i come up over and over again from our customers than the concern that motion health and now i think the short answer is in a we don't think that there's not a one size approach right to your point know but era out covers and very rub brought in it from in a
spk_31: rationing theft emotional how the substance abuse kids and more a typical on psychiatric conditions and so we think that over time there's gonna be it's gonna require on multiple types of services integrated together top million people
spk_3: a part of the challenges you know it's scale i mean there's that you know there's a shortage nationally of therapist storage actually it's like hydrogen it's a really thinking about on an approach that the need aren't players very very broad aids on while also maintaining high quality outcome is really what we're focused on i for one at it as a follow up for steve is do you know that is sleep very early days in the integration of both acquisitions but just curious teacher thought the maybe some areas legside surprise in terms of synergies that the you they may have discovered that maybe he didn't expect does sort a pre acquisition not as we think about the disease is being integrated thanks sure how i thank god that the most part upside were seeking is on go to market opportunity that really raw spoke about earlier we're seeing very strong reception from our customers and prospective customers around the integration of the offering them the opportunity we have
spk_32: not only optimized but the drive more and better utilization of the services regulates the other mckesson example it by expert medical opinion along with other up and benefits as that is a great example were seeing that across the business and i think just and on the ground the way we're working together with at the teams
spk_0: accolades second and the has been really incredible like minded people with a common mission to improve health care
spk_1: massively improved health care has been really the backbone of the early successes had their and and i were also seen a similar and whiplash care in the early days here so it's mostly about up line and and that tam expansion opportunity and i it's been really positive so far
spk_0: great thanks again
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