Accolade, Inc.

Q2 2022 Earnings Conference Call

10/7/2021

spk19: navigation as a service infrastructure play, or is that just too out of the box?
spk10: First of all, Stephanie, great to talk to you again. Thanks for being here. I think when we talk about navigation and, you know, anytime we put an umbrella term on a set of capabilities, it's imperative that we kind of break that down and speak to what those capabilities are. A number of companies, yes, are out there speaking about the fact that they deliver navigation today. We would say the number of companies who have delivered, have accumulated the claims, RX, insurance information, and interaction data, as well as clinical data associated with electronic medical record data, as the underpinning to the platform to be able to navigate through benefits, navigate through claims, drive people to the best position, et cetera. I mean, all the things that we've been doing for the last 10 years is still a very, very, very small number of companies. A lot of people use the word navigation. Not a lot of people actually deliver navigation. That would be point number one. Point number two would be, I think you're absolutely onto an idea that speaks to the point, I think it was Ryan's question earlier. We've architected our solution around the idea of delivering capabilities. Now, we weave those capabilities into offerings. Those capabilities are available to our partners. Now, who would we partner with around those capabilities? You know, the way we've always thought about it, Stephanie, is... We'll partner with people who share our mission, who are aligned in our vision around improving health care for the people that they serve, and who are aligned in our belief in the idea of personalized health care. And so I don't know what that means in terms of potential partnerships with navigation vendors down the road, but I can tell you we believe that our capabilities architecture is unique in the industry and gives us an opportunity to be a really productive partner for many.
spk16: Thank you. Our next question comes from David Larson of VTIG. Your line is open.
spk12: Hi. Congratulations on a good quarter. With regards to Accolade One and Accolade Care, it seems to me like even though the clients you have might be charged a slightly higher PEPM rate, the overall cost of healthcare for them would actually decline more given that you'd have a more comprehensive solution Just any thoughts or color around that, and can you put any numbers around that, like the incremental percent savings that they might be able to realize?
spk10: Thanks for the question, David. And absolutely, we believe, and a core to the value proposition of Accolade One that we're taking to our Vanguard customers and then to the customers beyond it, is the idea that when we weave together all of these incremental values, things above and beyond the advocacy solutions that both of those customers had purchased from us in the past, that will improve clinical outcomes and that we will continue to lower costs above and beyond where we are today. The amount of costs that will improve on a year-over-year basis based on those incremental services is going to vary by the population that we serve and the makeup of that population, just as it does if you were to buy a coordinate navigation service today. And so it might be too early for us to speak to those incremental savings. What we can say is we feel so confident in those incremental savings that, as Steve mentioned earlier, Our revenue model creates the opportunity to take a little more risk while adding upside to the opportunity that we think is really material and could be really high value, high margin revenue.
spk12: Okay, great. And then just one more quick one. With the Delta variant, it sounds to me like the impact there was with second MD, some delays in elective procedures. Can you confirm that second MD revenue still grew by at least 30% year over year in the quarter last and that there wasn't really any other drag that you saw from the Delta variant in terms of like the sales cycle. And then it also sounds to me like the Delta variant will become an easier comp or a tailwind in fiscal 23. Just any thoughts there would be helpful. Thank you.
spk06: Hey, David. Nice to talk to you. Yeah, I can confirm with second MD, year-over-year growth rate is in that just north of 30% range. You know, on sales cycle, we're going to come back to you all at the end of the next quarter, and we'll give you a sense of how that's coming through. But for 2ndMD, for sure, that 30% year-over-year growth was achieved.
spk16: Thank you. Our next question comes from Iris Lago-Berringer. Hi.
spk00: Thanks for taking my question. So just one on Accolade 1. Because it's a value-based care model that's quite new in the employer's benefits market, I'm wondering, should we expect slightly a longer sales cycle? I'm also curious how much education needs to be done so that employers are comfortable with a value-based model and also a higher upfront PEPM fee.
spk10: Yeah, thank you. It's a great question. I appreciate the opportunity to talk a little bit more about Accolade One. When you think about Accolade 1, the first thing that I think, and Steve mentioned this earlier in his remarks, and I think it's imperative that we point out, when we talk about a value-based model, what we're not talking about here is a Medicare Advantage subcapitated risk model like some other companies are out in the industry talking about. In fact, self-insured employers have rarely been given an opportunity to participate in a model that will warrant clinical outcomes, warrant cost reduction, while improving employee satisfactions. When we think about this value-based model, what we're essentially going to the customer with is a brand new set of capabilities or a brand new offering that they haven't been approached with in the past that speaks to all of those vectors. The reality is self-insured employers today are very rarely being approached with numbers associated with clinical improvement, with numbers associated with cost reduction and measurable value, while at the same time improving satisfaction of employees. That said, I mentioned in my prepared remarks that you're absolutely right. We think that the preponderance of the interest in Accolade One is really going to be in our existing customer base. Customers who have taken advantage of navigation, expert medical opinion, or Accolade Care in the past and who built off of that trusted relationship and the data set that drives the measurability of the healthcare we've delivered for them will be very interested in upgrading or moving forward to a broader Accolade One solution. And so, in a way, that implies a longer sales cycle, which I think is a little bit different. And maybe I might paint that picture a little bit differently, but I think it gets to the same outcome.
spk16: Thank you. Our next question comes from Vikram Tababotla of Bayer. Your line is open. Okay.
spk14: Hey, thanks for taking the question. Just one quick point of clarification on health reveal. I was just curious, did that contribute at all to the second quarter on revenue or EBITDA, and is there any impact from that contemplated in the fiscal 22 guide? And just anything there around the financial profile, if there's something to note. Thanks.
spk05: Sure. Hey, Vikram. Thanks for being here. First of all, the acquisition just closed, so it's post-second quarter.
spk06: And there's not really any revenue to speak of there. It's really about the intellectual property and the teams that we acquired and the value that's contributing that Shantanu spoke about earlier, along with Raj's existing remarks. And with the team that's coming over, we're factoring that in as part of our guidance in fiscal 22 and from a spend perspective.
spk16: Thank you. I'm showing no further questions at this time. I'll just turn the call back over to Rajiv Singh for any closing remarks.
spk10: We appreciate all of you being here. Thanks for joining us. We look forward to following up the post-call and catching up with you next quarter as well. Thank you.
spk16: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.
spk13: Thank you. Thank you. Thank you. Thank you. music music you Thank you.
spk18: Good day and thank you for standing by. Welcome to the Accolade Q2 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Todd Friedman, Senior Vice President of Investor Relations. Please go ahead.
spk02: Thanks, Gigi. Welcome, everyone, to our fiscal second quarter earnings call. With me on the call today are our Chief Executive Officer, Rajiv Singh, and our Chief Financial Officer, Steve Barnes. Shantanu Nundi, our Chief Medical Officer, will join for the question and answer portion of the call later. Before turning the call over to Rajiv, please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating accolades 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 is posted on our website. Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the actual results to be accoladed 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. And with that, I would turn the call over to our CEO, Rajiv Singh. Raj? Thanks, Todd.
spk10: And thank you to everyone for joining us. The second quarter was another strong quarter in our continuing growth and expansion as Accolade reinvents the healthcare market. Revenue and adjusted EBITDA were both ahead of guidance, and we added many new marquee customers across all of our solutions and segments. And we demonstrated the accelerated integration of our acquired companies with the launch of two new solutions – Steve will give you more details on our financial results a little bit later in the call. I want to spend some time today discussing our new solutions and the continued evolution of our strategy and the growth of our target addressable market. Before I do, let me review some highlights of our execution since last quarter. The demand environment for our solutions remains strong, and we added new customers across all market segments and in new sales, upgrades, and cross-sales. We added new customers and signed upgrades this quarter, with well-known companies like Tory Burch and Artisan Partners, as well as a global financial services brand and a global hospitality brand, to name a few. And our health plan partners also continue to add to our customer base. We also signed our first customers for Accolade Care, the primary care and mental health solution we announced at Evolve in September. Given that we only announced this new offering last month, we're clearly pleased with our progress and our pipeline continues to expand. We're also excited to announce that we have two existing customers committed to be the vanguard customers for our new Accolade One solution. Since our IPO just a year ago, we've expanded our addressable market by 10x to more than $200 billion. That is manifesting in new opportunities for our business and represented by a growing pipeline across every market segment in these new categories. Two weeks ago, we challenged the healthcare industry at our annual customer event, Evolve 21. We told our customers, our partners, and the industry that it was time to move forward, that simply applying new technologies to tired old business models only served to perpetuate the inefficiencies of a healthcare industry that now makes up nearly 20% of GDP and delivers subpar outcomes at rising costs for employers. Our challenge included introducing a whole new category called personalized healthcare designed to deliver against the quadruple aim, better patient experience, improving health outcomes, giving physicians the tools they need to serve their patients, and lowering healthcare costs. And we announced two new solutions that specifically answer the call for personalized healthcare. These new solutions, Accolade Care and Accolade One, bring together the capabilities of advocacy, expert medical consults, and primary care and mental health. Employers of all sizes, Recognize that a positive healthcare experience is critical to delivering a superior employee experience. You're seeing this play out in loud voices across the country as millions of people leave their jobs seeking something that works better for them. Sometimes that's a shorter commute. Sometimes it's a better boss. But more than half of all people who leave their jobs today cite a poor healthcare experience as one of the main reasons they quit. This isn't just about cost reduction. It's about employee engagement in an era where employee engagement is a strategic imperative. Employers need a better way. I'd like to spend a minute now briefly outlining the category of personalized healthcare and then tell you more about Accolade Care and Accolade One. For starters, there are three key attributes for any offering in personalized healthcare. First, it's personal. We have to put the humanity back into healthcare. We hold the view that having a long-lasting personal relationship matters. Too many have tried to replace people with technology inappropriately. Innovation and technology are good, and they can make the experience better, but nothing can replace the human experiences in healthcare. Two, or second, it is data-driven. We must harness the power of data to make healthcare better. to make smart recommendations, to build personalized health plans, to equip physicians with the most current clinical guidance. Machine learning and AI should be leveraged to make the experience more personal, not less. And lastly, it is value-based. It's time to replace fee-for-service health care with value-based care. It's time that we measure quality, outcomes, and satisfaction like we do in every other industry. Every Accolade solution is built on these core tenets. and these beliefs are foundational to who we are as a company and who we've always been. With the introduction of Accolade One and Accolade Care, we now offer three different sets of solutions to our customers. First, advocacy solutions that we've been leading the market in for more than 10 years. Second, expert medical opinion solutions like Accolade Expert MD, formerly known as Second MD. And third, our new care solutions, Accolade Care and Accolade One. This set of solutions, unique in their breadth, allow us to meet customers with where they'd like to be met and serve the need most important to them in the current time. All of these solutions are built on a next-generation technology stack that allows us to seamlessly weave capabilities across all of the offerings. Accordingly, capabilities like a true health engine and action plan, which provides the ability to process volumes of healthcare data to determine the next best action for one of our members can be blended with intelligent provider matching, which matches a physician to a member based on cost and quality information, or with benefits plan management, the ability to ingest benefits plan documents at scale and translate them into plain English. Every solution capability can be delivered via any of our core offerings. This nimble technology architecture, coupled with our market-leading data set and AI capabilities, make all of our individual solutions uniquely powerful. When we choose to develop or acquire new technologies, like the health reveal capabilities mentioned in our press release, that will strengthen our true health action plans, our technology diligence is critical to ensuring that new capabilities will work and scale within our architecture. We are building an operating system for the delivery of healthcare at scale, and we believe this is a long-term competitive moat for our company. Now let's talk about these solutions that we're so excited about. Accolade Care represents a leap past the last generation or generation one of the telemedicine solutions on the market. This virtual primary care and mental health solution is unique because it not only blends primary care and mental health via a unique collaborative care model, it also incorporates the capabilities of Accolade's advocacy solutions, things like driving benefit solutions adoption, intelligent provider matching, and care coordination. We expect Accolade Care to be a solution that's appealing to both new prospects in every market segment and a cross-sell opportunity for our existing customers. Accolade Care is available now and, as noted earlier, already has its first customers. Pricing for the solution is on a PEPM basis plus visit fees with performance guarantees consistent with our contracts in the past. Accolade One is our most comprehensive offering. delivering an integrated value-based model to employers that includes a combination of nearly all of Accolade's capabilities, including a number of new innovations that are either available today or in development and demonstrated at Evolve. We expect Accolade 1 to be a significant upsell opportunity for customers that are already taking advantage of some of our solutions. While we will certainly present the solution to new prospects, we expect most prospects to choose to start with one of our core offerings before expanding their relationship with us. Pricing for the solution will be built off of our existing relationships and include value-based gain sharing as we deliver incremental savings and improved clinical outcomes. It will be generally available next year, and we'd expect revenue contribution in our fiscal 2024. At Evolve, we also announced a rebrand for Accolade Expert MD, which previously sold as Second MD, and Accolade Advocacy, our total health and benefits, total care, and total benefit solutions. The rebrand highlights the evolution of our offerings to include more capabilities and bring together the acquisitions into a more unified portfolio. Accolade Advocacy, as always, will still be sold in tiers, and that bundling will continue under the new model. One last note on Evolve 21. It was an inspiring event. We were able to showcase both our customers and our partners, as well as introducing our customers to our new integrated leadership team. Partners like Virta, RX Savings, Sword, Carrot, and Ginger presented, and a great list of customers also presented on their accolade experience. Lastly, before I turn the call to Steve, I want to touch on one other piece of news in today's press release about our acquisition of materially all the assets of HealthReveal. HealthReveal's capabilities address one of the most critical gaps in care delivery today. which is trying to ensure that all physicians are working with the most current evidence-based guidelines when recommending courses of treatment for their patients. Today, that is a highly manual process, largely done through print guidelines or hard-to-access online libraries. When delivered via Accolade's TrueHealth Action Plans, HealthReveal's recommendations will help ensure our primary care physicians are operating according to the most up-to-date evidence-based guidelines, reinforcing our commitment to high-quality personalized healthcare at scale. With this acquisition, we gained competitively differentiated IP and an extraordinarily talented team that we're pleased to welcome to Accolade. While this is a very modestly sized acquisition, it's a good time to refresh on our core principles of M&A, innovation, and partnership. We're building a virtual forward personalized healthcare platform so members always get the care they need when they need it. Our innovation engine continues to be a primary source of new capabilities, and we will continue to fund that engine. Our partnership engine is aligned to integrate partners who share our value orientation, are interested in meaningful integration, and are committed to improving clinical outcomes in chronic conditions or specialty areas. Our M&A focus is on virtual forward solutions that either materially improve our current capabilities or add new capabilities that impact the broad populations we serve. All of that is underpinned by a disciplined approach regarding valuation and P&L profile that are the foundation of our commitment to our shareholders. With that, I will now turn the call over to Steve Barnes, our Chief Financial Officer, to discuss our results and forward-looking guidance. Steve?
spk06: Thank you, Raj. First, I'll recap the results for the second quarter of fiscal 22. Keep in mind that we closed the second MD acquisition in Q1 and the plush care acquisition in early Q2. Where appropriate, I'll provide color on the year-over-year comparisons beyond the tables in the press release, and you will find additional pro forma detail in the 10Q. First, we generated $73.3 million in revenue in the second fiscal quarter, representing approximately 100% year-over-year growth on a gap basis over the prior year period, and a $2.3 million beat against the top end of our guidance range. In our 10Q, we provide pro forma results for the combined businesses that show 32% Q2 growth year over year. As we provide pro forma results per SEC requirements for the rest of the fiscal year, keep in mind that we are selling our solutions both together and separately. So while the reported pro forma revenue growth and profitability numbers are intended to reflect the acquisitions as standalone, It may not always be a perfect representation of how we sell to customers and run the business overall. The revenue outperformance relative to guidance was largely attributable to solid execution on multiple fronts, including favorable customer member counts and positive contributions from PlushCare's direct-to-consumer business, both of which benefited adjusted EBITDA. I'll also note that PlushCare achieved a significant milestone this past quarter in having crossed the threshold of 100,000 subscribers on the direct-to-consumer platform in just two years after launching the subscription element of that offering. We are bullish on the growth opportunity of our virtual primary care business, both via the direct-to-consumer model and to enterprises via Accolade Care and Accolade One. Fiscal Q2 adjusted gross margin of 40.9% compared to 43.3% in the prior year period, reflecting investments in staffing our frontline care teams to support growth and integration. As stated in prior earnings calls, we expect adjusted gross margin to remain relatively flat on a full-year basis compared to fiscal 2021. Adjusted EBITDA in the second quarter of fiscal 22 outperformed guidance with a loss of $19.4 million, which compares to $8.7 million in the prior year second fiscal quarter. Turning to the balance sheet, cash, cash equivalents, and marketable securities at the end of fiscal second quarter totaled $384 million. Note that during the quarter, we paid approximately $34 million net of cash acquired and working capital adjustments related to the plush care acquisition. Finally, we had approximately 66.3 million shares of common stock outstanding as of August 31, 2021. This does not include approximately 3.6 million shares to be issued in calendar 22 related to the second MD and plush care earnouts. And now turning to guidance. For the fiscal third quarter ending November 30th, 2021, we expect revenue in the range of $74.5 to $76.5 million and adjusted EBITDA loss in the range of $21.5 to $24.5 million. As noted in the press release, revenue guidance for fiscal Q3 includes approximately $2.5 million from performance guarantees that have been earned and we expect to recognize in fiscal Q3 rather than fiscal Q4. And for the fiscal year ending February 28, 2022, we expect revenue in the range of $303 to $307 million, representing approximately 79% growth over the prior year at the midpoint. We are reiterating adjusted EBITDA loss for fiscal 22, which is expected to be in the range of $49 to $54 million, representing an adjusted EBITDA loss of approximately negative 17% of revenues at the midpoint. And before we open up the call for your questions, I'd like to address some of the top items we've been getting from investors over the past few weeks. First, I'll provide some color about the macro environment particularly around the labor market and the Delta variant impact. And then I'll talk a bit about the financial model for our new solutions that Raj mentioned. I'll start with a broad remark about Accolade's business. We have never felt better about our company, our solutions, our people, our customers, and our market opportunity. Coming off of Evolve, we are hearing feedback from customers that not only validates the personalized healthcare category, but tells us that our relationships are going to progress in a significant and positive way over the coming years. We'll continue to invest against that opportunity, balanced with financial discipline, as we've consistently said. And with all of that said, we see the same things that you do in the macro environment. The labor market is tight in many areas, and the Delta variant is still creating an unusual healthcare spending environment. We've seen virtual care continue to grow as people avoid doctor's offices and become more accustomed to virtual care, but we've also seen pressure on second opinion volumes as people defer elective procedures. As you can see from our guidance, we raised our top line to reflect the Q2 outperformance, but much as we did last year in the early days of the pandemic, we will continue to take a measured approach to our outlook through the end of the year. Now, with respect to our new offerings, Accolade One and Accolade Care, we'd like to outline some key points on our revenue and pricing models. Raj addressed the pricing models for these solutions, and I'd like to give you some quick model color. First, in our view, there is no need for changes to models at this time. From a timing perspective, we have initial pilot customers for Accolade One, and we'll be marketing Accolade One and Accolade Care as part of our portfolio during calendar year 2022 for what we'd expect to be January 1st, 2023 launches. So we expect no impact to the current fiscal year and a relatively small financial impact in fiscal 23 and then growing in fiscal 24, albeit still relatively small compared to the full accolade business and our core advocacy solutions. We expect over time that as we drive this incremental value, we will earn more revenue per customer and contribute to our goals of gross margin expansion. And second, we reiterate our expectations for the long-term operating metrics that we've outlined previously, particularly revenue growth in the 25% range, gross margins greater than 50%, and long-term operating margins as measured by adjusted EBITDA in the 15% to 20% range. On pricing, Accolade Care will consist of PEPM revenues and visit fees from virtual primary care visits, mental health support, and some advocacy services, and include performance guarantees. Accolade One will go a step further, employing a value-based care model that will include upside elements to our revenue that will allow us to share in the benefits of improved outcomes and incremental savings that we expect to drive for our customers. This is consistent with our history of putting a portion of our fees at risk. As you know, our current contracts for accolade advocacy generally include about 10% of fees at risk for cost savings and an additional 20% at risk for the achievement of various value drivers such as member engagement levels and satisfaction. We've consistently demonstrated success in these measures, having historically earned more than 95% of that total PEPM fee opportunity in our advocacy offerings, and through third-party validations of our cost savings, including two in-depth studies by Aon. We have strong conviction based on our past success that weaving together primary care, mental health support, expert medical opinion, and other clinical programs will enable us to drive materially higher cost savings for customers via Accolade One. And with that, I'll turn the call back over to Raj.
spk10: Thanks, Steve. I'm going to close the call by thanking our newly formed team. Six months ago, we were three completely separate businesses, executing against different strategies and different objectives. To see this team come together so quickly and deliver a three-day customer event, speaking as a single team with integrated solutions and a single voice, validated not only the strategy behind the acquisitions, but more importantly, validated our judgment about the quality of the people across these organizations. Thank you to the team. Operator, I'd now like to open the call up to questions.
spk16: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your touch-tone telephone. Again, to ask a question, please press star then 1. We do ask that you limit yourself to one question and a follow-up. Our first question comes from Jalinda Singh of CreditSuite. Your line is open.
spk01: Yeah, thank you. And thanks for all the color on the economics. But I want to better understand the economics for AccurateOne around how value-based pricing is going to work So will you be taking any downside risk or is it going to be all upside potential? And I know you talked about AccurateOne will not contribute until fiscal 24, but I was wondering if any early feedback or interest level you can share from your customers at this point?
spk06: Hi, Joe and Joe, it's Steve. Let me start off with the pricing model and have Raj weigh in a bit on some of the early customer feedback and we can hit some of the expectations on when we'd expect that that revenue to flow. So think of Accolade One as the comprehensive offering with the integration of all of our capabilities, okay? And as Raj mentioned in his comment, this is likely to start as an upsell to customers that are already taking advantage of some of our solutions. The revenue model, let's compare it to Accolade Total Health and Benefits because I think that's a good way to start. Importantly, we want to note We want you to think of this as a fees-at-risk model. This is not to be thought of as a fully capitated medical risk model like a Medicare Advantage model. Think of it more this way. If you think of our typical total health and benefits customer having something like 70% of our PRPM fees fixed with 30% on a performance basis and about 10% of that on a savings basis, What we're looking to do is as we drive more savings for the customer is to have Accolade participate in that additional savings to the upside. Now, to your point, on the downside, we think about it roughly this way. We may go something like 50% fixed instead of 70% fixed and then have some upside to call it 125% or 130% to take advantage of that additional savings on top of the 100%, if you want to think of it that way, on a gain share basis. Importantly, Jalendra, we go back to the point that we have a track record of earning 95% of our PEPM fee and view that downside risk as highly manageable and on the upside, the opportunity to participate in the additional savings that we would expect to occur because we're going so much farther beyond just the advocacy offering into clinical areas around virtual primary care, mental health, and expert medical opinion that we think ought to drive that additional savings.
spk10: Just a follow-up to that. Great to talk to you. Thanks for being here. This is Raj, just jumping in on the customer interest. We obviously have two customers already that we've announced as Vanguard customers. Those two customers are actually in process of preparing for deployment, going into the pilot period. We also have significant interest coming out of Evolve, where a number of our customers have reached out to us and scheduled time to go through what Accolade 1 is, how the integration will work, and how the model will work. And so it's a little early to give you much color on how many customers will embrace it, but what we can tell you is feedback from Evolve, interest in terms of generation of pipeline has all been positive.
spk01: Okay, and then my quick follow up on the EBITDA guidance update. Can you provide more details on what are the new incremental costs you're reflecting in second half, which is resulting in full year guidance unchanged despite EBITDA coming in better in the quarter? Is this related to all kind of the labor market situation or is something else going on? Just help us understand the EBITDA guidance update.
spk06: Sure. Primarily, Jalendra, it reflects additional investments as we're making, thinking about the combined offerings and taking them to market. So you'll see in the fiscal second quarter results, when you look at the OpEx line, you'll see the sales and marketing line growing a bit into the low 20s, low to mid 20% range as a percentage of revenue. That reflects go-to-market investments that we're making. You'll also see some of that spend in the product and technology line. And certainly there are some impacts around wages and labor that are flowing through there as well. I wouldn't point to that as a material factor. I would really point to the investments we're making around the new offerings.
spk16: Thank you. Our next question comes from Michael Cherney of Bank of America. Your line is open.
spk15: Afternoon, and appreciate again all the details as well. Raj, you spent some time at the beginning talking about some of the marquee wins you had both within the core and then obviously talking about the Vanguard wins and Accolade Care. Can you give us a little bit more qualitative big picture overview on what was going on in the selling season, what activity levels tended to be like versus previous years, and at least in terms of how you were thinking about the rollout and some of the wins that you've been able to generate, do you feel happy, comfortable with how things shook out versus where your plan, your team, your sales force was incentivized to go?
spk10: Mike, first of all, great to talk to you. Thanks for making time for us. We're about now a little bit into the third quarter of the year. And what we found, I think a couple of things that I tried to call out in some of my prepared remarks. First, by entering the care delivery space, we've materially expanded our market. And so we actually both saw two Vanguard customers for Accolade. One, but also two customers for Accolade Care, an offering that we actually just announced in late September. And so the idea that we're seeing that pipeline develop, we're also seeing expansion of that pipeline, we're really excited about. In pointing out that we actually saw customer signings in every core segment across every one of our products or offerings, also pointing to the fact that we're looking at the demand environment, seeing an expanding pipeline, seeing continued wins with major customers. One of the major customers, I mentioned a major hospitality corporation. We just got approval to say their name. It's Hyatt Corporation. It just happened a little bit before we published our press release. And so we're seeing great wins with marquee brands. And what we're really seeing, Mike, in my mind, is an increasing alignment with large employers and small, looking at the idea of a platform to weave together everything that they do with an acknowledgement that the point solutions in the market are somewhat overwhelming for buyers to manage. Our capacity to weave together that personalized healthcare platform we think is voting really well for us today and will do even more for us tomorrow.
spk15: And you actually dovetailed nicely into what my follow-up question was going to be regarding that complexity you're seeing on the digital health benefits. Obviously, Accolade's historically been focused on your ecosystem partners, trusted suppliers, the terms that you use. As you think about a go-forward basis, how is that evolving in terms of parties that want to work with you versus parties that might want to go at it on their own, and how does that factor into the value proposition that you're able to deliver in terms of the pitch forward for ongoing new customer wins?
spk10: I'm going to take the first half of that question, Mike, and I'm going to let Shantanu Nandy, our Chief Medical Officer, who really drives all our clinical partnerships, take the second part of that question or speak to how we're selecting partners and working together. From our perspective, this is very much a customer-driven need. Customers are coming to us and saying, what we want is a manicured set of partners that you can bring to bear where you can warrant for us the engagement levels that'll be driven, the clinical outcomes that'll be driven, and a sense of stability or capacity from a financial stability, security perspective, et cetera, of that particular vendor. And so we're not seeing a lot of partners say, I want to go, I want to do something separately. In fact, the demand for partners into the platform is pretty high. Shantanu, would you add a little around how we're thinking about partners moving forward?
spk04: Yeah, absolutely. It's a great question. You know, when we think about personalized healthcare, right, I mean, the whole idea, the third pillar on value-based, that's really our North Star, right? So I think as we think about the different categories we're looking at, what are the cost drivers? that employers are dealing with. We're thinking about what are the clinical outcomes that they're able to warrant. We're also looking at that member experience. We know that's really critical and a huge challenge and top of mind for employers as they think more and more about the employee experience. And so that's really driving a lot of our partner selection decisions and allowing us to continually warrant better clinical outcomes.
spk16: Thank you. Our next question comes from David Grossman of Spiegel. Your line is open.
spk08: Thank you. Good afternoon. Maybe I could just start with a quick financial question. I don't know if I did my math right, but it looks like the implied fourth quarter revenue guidance implies a pretty significant deceleration in year-over-year growth, even if you add that $2.5 million of performance fees. Is my math right, or if not, if it is, can you provide some color on kind of what may be going on that may be impacting that comparison?
spk06: Sure, David. Steve, thanks for the question, and absolutely, we'll walk you through how to think about that. First of all, when you think about the first half of the year and the performance we had in solid execution, raising the guidance, We did pull forward that $2.5 million. We also last quarter pulled forward about $1 million. So if you take that pro forma growth rate and add that in, add that $3.5 million, you get back up into the territory of where I think you would probably be expecting to see. That all said, one of the very important things we're doing here today is similar to where we were this time last year, unfortunately, given the Delta variant and tight labor markets, We are taking a measured approach to the full year, to the rest of the year. And given sometimes the lumpiness of the quarterly revenues and the bookings, we really do guide you to think about the full year growth rate. And when you look at it from that perspective, we're looking at high 20s on a pro forma basis, call it 28% growth rate, which gets you to that point we've talked about before, 25% for accolades. the legacy plush care and second MD business is growing on a plus 30 basis. But what you're seeing there penciling out for the fourth quarter is that bit of our view to take a pragmatic approach while the markets are a bit volatile right now. And that's where you see that guide coming in.
spk08: Got it. Thank you very much for that clarification. And maybe if I could just sidestep over to some of the conversation about Accolade One. And I'm just curious, you know, I know you only have, you know, a short window of experience in talking to customers about, you know, this product. And it sounds like you have a couple that are going to go into a pilot phase. But, you know, as you're talking to them, how does this impact, you know, when they talk to you about the product, how they view their traditional pair relationships? Because so much of what they're really offering is really – a new and different way and disruptive way of delivering, you know, something very similar. So I'm just curious if you have any feedback thus far.
spk10: Absolutely, David. And one of the things that we're most excited about is that we're able to approach our customers with a value proposition that checks a lot of boxes that they've been thinking about for a number of years. When you think about Accolade One, we're improving access to care. we're improving the affordability of care. We're solving some health equity issues associated with that access to care issue in markets where it's been a profound problem for most of the customers that we serve. In all of those respects, David, I would say we're solving the problem in a brand new way and not in a way that they perceived was the responsibility of their carrier, meaning they're looking for broader, more holistic solutions that weave together longitudinal relationships that solve access to care problems on the front end and that solve clinical outcomes on the back end. That's a shift in the mentality of buyers moving away from transactional care, moving away from condition-focused care and moving to that longitudinal model. We think that more and more, those very same customers are coming to us and saying, what you're doing is giving me the capacity to deliver on the hypothesis of value-based care without changing the fundamental rails of the system I've already built my entire ecosystem on. I don't have to change my carrier. I don't have to change my plan design. I don't have to change my network, and I can get all this value. And so I might flip that on its head a little bit, David, and say, in fact, what we're really doing is enabling for our customers and their payer relationship the opportunity to let the status quo remain while delivering outcomes and results that materially improve the status quo. Thank you.
spk16: Our next question comes from Ricky Goldwater of Mortgage Daily. Your line is open.
spk11: Yeah, hi. Good afternoon. Thanks for taking my question. So I wanted to unpack a little bit more sort of some of the near-term trends you are seeing. So first, maybe if we can start, I think we've seen 32% year-over-year revenue growth on a performer basis. Can you just give us the color of that 32%? What's the year-over-year growth for core versus the year-over-year that you've seen from the acquisitions? And then Secondly, and this can count as my follow-up question, you know, clearly there are things that were better in the quarter. The trend is better than you expected and hence the upside. But then, you know, to your comment, you're seeing headwinds from deferral of surgeries. It's impacting second opinion. It sounds like potentially retention, at least in the near term with employers, could be an issue. So can you just help us kind of like unpack and maybe kind of like help bridge between and quantify on what the upside was and then kind of like the offsets? I think that would really help us as we think about our modeling, not just for the second half of the year, but also the comparisons into next year.
spk06: Sure. Hey, Ricky, it's Steve. A couple of things. So when you look at the 32% pro forma growth rate, It's actually healthy across the three businesses. You'll see in the queue where we unpack that for Accolades core business, it's in the range of that 32% number, and for each of the second MD and plush care, it's in the 30% as well. So very strong performance that way across the board, meaning when we reflect on those comments about membership and labor markets, It's really thinking prospectively when we think about the second half and where we may see some impact of the variant and the labor markets. Now, with respect to expert medical opinion, I will note that to that point, with... Some of those expert medical opinions are down a bit as we're seeing fewer elective procedures happening in parts of the country. So there's some there that you'll see the second MD, you know, sequential quarter growth is fairly flat. On the flip side, virtual primary care visits we saw be very strong through the plush care direct-to-consumer platform, and as Raj was just noting earlier, the bullish view we have towards the opportunity with the enterprise around virtual primary care comes from that as well. So interestingly, our diversification a bit within the platform is showing up in the sense that the virtual primary care visits have been positive where there's been a bit of headwind on the expert medical opinion side at the moment for those reasons.
spk11: Thank you.
spk16: Thank you. Our next question comes from Ryan Daniels of William Blair. Your line is open.
spk17: Yeah, thank you for taking the questions. This is a little bit of a follow-up on an earlier one, but I'm curious as a lot of the point solutions appear to be coalescing around the navigation space and providers. I think it's driving a lot of M&A in the space. I think we saw Virgin today by WellTalk and some other M&A activities. So I'm curious what you're seeing as you go to the sales pipeline on the competitive front if that's changed a lot or if your acquisitions and continued innovation have really allowed you to stay ahead of the curve there.
spk10: Thanks for the question, Ryan. We do fundamentally believe that this concept of personalized healthcare and the idea of personalized healthcare platforms that are built forward on human relationships, powered by data and everything that that implies around artificial intelligence and machine learning and measurable around value-based outcomes, that that is fundamentally differentiated and continues to be differentiated in the marketplace. The way we've always talked about this, and I know you might have heard this from us before, Ryan, we break up the competition in multiple forms. You mentioned WellTalk. There are those companies out there that are digital forward solutions, really geared around driving digital only or highly digital engagement. And there are a category of solutions like that that traditionally drive lower engagement levels and aren't willing to warrant real cost savings on a population basis. There are also companies in the traditional navigation space who have focused on navigation as a whole but not necessarily woven together some of the other components of the story around provider selection, around the virtual primary care and mental health, and around things like downstream expert medical consultations. In those regards, we think we have an opportunity to materially improve the performance or the delivery of value-based care and savings and engagement levels. There's also a category of competitors out there. As you mentioned, there's a wide variety of players in this space who are episodic in nature, who are looking at transactional care or looking at moments in time where consumers are entering the healthcare system and attempting to help those consumers during those moments. We think those episodic solutions have value, but are unable to manage population health and long-term cost reduction on a population basis. And then finally, there's on-site, there's on-site, near-site providers in the space who are also really, in our view, focused on those transactional moments where without access to claims data, without access to the data set underneath that longitudinal journey, they're unable to provide the longitudinal care necessary. And so summarizing all of that, Ryan, the categories of competitors have certainly expanded. Different companies are acknowledging the value of navigation, the value of a data set that we've spent 10, 12 years accumulating, and the value of longitudinal relationships We're pleased with the idea that many of these concepts are ones that we've been talking about for the last 10 years and that we're building everything that we've acquired and built on our own on top of those principles.
spk17: That's very helpful, Culler. I appreciate that. And then maybe as a follow-up and taking a different twist on this, does it actually open up with your broader capabilities, new market potential for you? You mentioned near-site and on-site. We talked about value-based care and some of the providers taking on MA risk or provider groups entering into ACOs or commercial shared savings. As they take on that risk and evolve their models, they may look to someone like an accolade that can help them with engagement and second opinions and network management, kind of everything that you do for your core employer customers. So do you see that as a market that could also open up for you longer term given the capability set and some of the needs that they have to stay competitive? Thanks.
spk10: Yeah, I think it's such a great question, Ryan, in part because it really points to the fact that what we've really put together, both through our own innovation and the innovation of the companies that we've now made a part of the Accolade family, is a suite of capabilities that range from primary care to finding the best doctor using cost and quality data to consuming benefits data at scale so that we can make you aware of the benefits programs in your ecosystem and to being able to process millions of claims per day, per week, so that we can understand where you are in your journey and understand what the financial impacts of all of these healthcare incursions are. Each of those capabilities are interesting to our partners on a standalone basis, and for some of our partners, they're interested in our offerings as a whole. What you've seen from us over the course of the last two or three years is we've gone from a company that really sold exclusively directly to employers to now a company that derives a material portion of our customer relationships from relationships with health plans and others who are looking to take advantage of those capabilities in a way that gives significant value to the remainder of the ecosystem they've assembled for their customers. So, you know, I'm not speaking specifically to the examples that you gave, Ryan, but we've built an architecture and a set of capabilities that allow us to be extremely partner-friendly with partners who share our value orientation and who share our desire to fix health care. And so that was a long-winded way of saying yes.
spk17: I appreciate it. Thank you.
spk16: Thank you. Our next question comes from Richard Close of Canaccord Genuity. Your line is open.
spk07: Yeah, thanks for the questions. Congratulations on the results. Appreciate the comments on being bullish on the virtual primary care. I'm curious, you know, how you're thinking about the competitive environment in this subsegment. You said you were selling all the products on a standalone. I'm curious whether you're bumping into the likes of Teladoc or any others and how these conversations are going with potential customers.
spk10: Thanks for the question, and I appreciate you being here. Let me give you a color on the competitive landscape. Certainly in the virtual primary care and mental health space, which is where we play with accolade care, we would be bumping into the competitors that you might expect who have staked a claim in either telemedicine, urgent care, or in primary care in some way, shape, or form. So that list of competitors is unlikely to be different than the one you might expect it to be. Where we differentiate in that respect is at our core is We've added to the capability to deliver primary care and mental health a set of capabilities underneath that that you might more often equate or associate with navigation. We can help you understand what your benefits are and then actually prescribe those benefits right from the doctor's visit. We can help you understand which physician you're supposed to see using data so that when we send you to that physician and we book that appointment for you, we know we're getting you to the best possible doctor. Those capabilities, which previously have been under the cover or auspices of our navigation tools, are now also available in our accolade care offering. That's fundamentally differentiated. And so to us, what we're really excited about is the pipeline's growing there. We're finding, you know, we signed our first couple of deals faster than we expected to, which has now happened twice. The same thing happened with expert medical opinion a quarter ago, is we're seeing... demand from new prospects, and, and this is very exciting, we're seeing customers, particularly after our Evolve conference just two weeks ago, raising their hand and saying they want to know more. And their familiarity with our existing solutions and those existing navigation capabilities make the accolade care offering even more sensible to them. And so that pipeline continues to grow. And I think maybe to your point, Those are a set of transactions or deals that we didn't get to play in in 2020. So here we are in 2021. That's a brand-new category, and we're excited about the fact that we're starting to see victories in that brand-new category.
spk07: Thanks. Very helpful there. And I guess my follow-up, going back to Juan and the two companies that are going to pilot that, I respect that you guys aren't announcing who those actual clients are, but can you give us a little bit of a description of maybe like the scale of the companies or sort of any characteristics specific to them?
spk10: Absolutely. Two parts to that story because there's two customers. One We're unable to give you the exact name, but we can tell you it's a company that you would call the Fortune 500, a very large business that's leveraging the solution. They're an existing customer who chose to be one of our Vanguard Accolade 1 customers. And really leveraging it, and this is maybe a little bit more color than we've previously provided, leveraging it not just for all the capabilities that we've talked about, but leveraging it at its core as a part of an initiative within their business to address healthcare inequity. And that's something really exciting for us. This idea that our solutions can be at the pointy end of the sphere for a company that has a corporate initiative around inequity and addressing inequity and healthcare inequity being right at the front of that for them was one of the drivers of them embracing Accolade 1. The second customer I can actually name today, because they've begun talking about it publicly, is a company called Metasource. And so it's a smaller company with, we'll call it several thousand employees, smaller than this, obviously, this Global 500, not a small company. But what we tried to do with these Vanguard customers was pick one large customer and pick one mid-sized customer so that we could demonstrate this value with the different needs of customers of those sizes. What we're hearing in terms of interest from our customer base, though, is across the book. And so we see mid-market, enterprise, and strategic customers raise their hand to learn more about where we are.
spk07: Thank you very much. That's very helpful. Thanks.
spk16: Thank you. Our next question comes from Jeff Garrow of Piper Stanley. Your line is open. Thank you.
spk09: Yeah, good afternoon, and thanks for taking the questions. I want to ask about your channel partners, so two parts. The first is just if you could give any color on the contribution this selling season from channel partners, and the second part is looking forward, are channel partners excited about offering Accolade One and Accolade Care, and what kind of education is needed to really arm those partners for success there?
spk10: Thanks for the question, Jeff. Great to talk. We are seeing continued traction. So when you talk about partners, there are multiple varieties of partners that we work with. We certainly work with plans who are offering our solutions to their customers. We also work with brokers and consultants who are recommending us to their clients and or working with us to educate their teams on the value propositions that we deliver. Our Health plan channel continues to strengthen. We continue to see value in working with plans to accentuate or drive value to their solutions by leveraging our engagement and clinical capabilities. And we expect that part of our business to continue to grow over time. I think the core of your question, Jeff, is are those health plans or other partners finding value in Accolade One and in Accolade Care? And what we can tell you definitively is the need from our partner community to find virtual forward health care solutions that address things like access and affordability of care alongside longitudinal care journeys is very, very real. And so absolutely, the interest in that partner channel has expanded significantly. in part because we've got a brand-new value proposition that we can deliver to them with expert medical opinion and virtual primary care and mental health. Those are conversations we could not have with many of our plan partners and other partners just six or nine months ago. Those conversations have opened up brand-new paths for us to add value, and we're excited about where they might lead.
spk09: Excellent. That helps. My thoughts, let's switch gears a little bit. you know, it's been another interesting year in terms of healthcare utilization. So I'm just curious where visibility is towards achieving performance fees related to the calendar 21 period that will impact your fiscal fourth quarter at this point in the year and how that's been factored into the guidance.
spk06: Sure. Hey, Jeff. Quick reminder for everybody that for our total health and benefits customers, that point of, you call it 10% or so of the PEPM fee is savings-based, and you've got another 20% on performance-based guarantees. Performance-based, excuse me, operational PGs are things like clinical outcomes, engagement rates, customer satisfaction. We're typically measuring those as the year goes along, and for savings, you measure that typically on a calendar year. Contract year typically goes January through December. I would say this. We've got about six months or so of data here. Halfway through the year, claims data lags by a couple months, so we're looking at six or seven months of data. What we're doing in our guidance there, Jeff, is factoring in, taking a really pragmatic approach again to the end of the year, knowing we've got a track record of earning 95% of the whole PEPM fee, typically in high-spend and low-spend environments. Mentioned in the prepared remarks, it's a It's a bit unusual with healthcare spending going on right now in the world, so we are going to just factor that in with a bit of measured approach to the year. Again, similar approach to what we would have taken this time last year.
spk09: Got it. Thanks again.
spk06: Thank you.
spk16: Thank you. Our next question comes from Ryan McDonald Needham. Your line is open.
spk20: Thanks for taking my questions. Raj, maybe first one for you. Obviously, you're servicing a lot of inbound demand right now for the new products and the rebrand, but given how much the portfolio of offerings has evolved over the past 12 months, as you start to think about next year and proactively going out to market and you're getting past that inbound demand servicing, How are you educating or structuring the sales organization in terms of what they'll be leading with this greatly expanded use cases?
spk10: That's a great question, Ryan. Thank you for being here. First of all, I think the first important element for us was an acknowledgement that by virtue of the expanded capabilities of the company, it was imperative that we redefine not just who we are, but what we think the industry is demanding and therefore what we're responding to do. That's personalized health care. And the idea of personalized health care is we believe all of our solutions fall into that umbrella, that umbrella of human forward. Whether you're buying our advocacy solutions, our expert medical opinion solutions, or our care solutions, you're going to find that we're going to deliver you a human relationship. We're going to power it with data. So we're going to be very smart about leveraging the underpinning data asset that we've been building for the last 12 years to guide our action. And all of it's going to be built around this value measurable orientation. Everything we do, whether that's performance guarantees, incentives, or fees at risk, put us in alignment with the customer, which all three of those things we think are fairly unique in the industry. And so all of our solutions are built around that idea. The reason that's important, Ryan, is we've been talking about this since we've been public. Our mission is to meet the customer where they want to be met. And an acknowledgement that some customers are looking at access to care issues or looking at primary care deserts and thinking, This is the problem I have to solve. And for those customers, our teams are going to be really smart about positioning accolade care as the right solution for them. Others are looking at solving other problems around more acute conditions, cancer treatments, et cetera. Those might be customers looking at expert medical opinion. And of course, we've been leading the advocacy or navigation space for the last 10 years. And we expect to continue to participate in all the RFPs and all the evaluations that are happening in that space. And really, in many respects, to be creating those. And so we're not fundamentally restructuring the sales organization in any way, shape, or form, Ryan. We've got a sales team that's focused on plans. We've got a team focused on mid-market, on the enterprise segment, and on the strategic segment. What we've done is really given them more tools in their bag so that as they understand a customer's needs, which is what they're really trained to do, discover what the customer's pain points are, that they have now, in our view, the biggest bag or the largest or the greatest breadth of potential offerings for those customers to solve their problems with that orientation around those first three values that I talked about.
spk20: Very helpful. And then just a quick follow-up. The health reveal acquisition, the technology there looks pretty unique and differentiated. We'd just love to know a little bit more about how that functionality can expand upon what you've got with the true health engine already. Thanks.
spk04: Yeah, that's a fantastic question. This is Shantanu Nandi. We're super excited about this. As you alluded to, CORA actually has been our next best action capability, right? So this idea of using all the data that we have, translating it into insights, and putting that right into our workflow so that our frontline care teams can guide members on what's the clinically most impactful next step for them. What HealthReveal does, what they've figured out, is really how to deliver a much deeper set of clinical insights using not only claims data and some of the data that actually historically has had, but also electronic health record data. And so for us, this was a capability that was on our roadmap. And for us, we really think of this as a huge accelerator to be able to, again, bring a lot more of those evidence-based clinical insights to our physicians and also to the rest of our frontline care team, which we think aligns really well with personalized healthcare. the whole second pillar around being data-driven.
spk20: Excellent. Thanks again.
spk16: Thank you. Again, ladies and gentlemen, to ask a question, please press star then 1. In the interest of time, we do ask that you please limit yourself to one question. Our next question comes from Stephanie Davis of SDV Lerink. Your line is open.
spk19: Thank you for taking my question, guys. I want to continue on an earlier thought. If we wanted to roll forward the idea that care navigation is becoming table stakes, and it's a bit more commonplace in general for some of these digital platforms to have a care navigation play inside of it, have you ever thought of taking advantage of that trend, selling instance of your platform, and gaining a new revenue stream as a navigation as a service infrastructure play? Or is that just too out of the box?
spk10: First of all, Stephanie, great to talk to you again. Thanks for being here. I think when we talk about navigation and anytime we put an umbrella term on a set of capabilities, it's imperative that we kind of break that down and speak to what those capabilities are. A number of companies, yes, are out there speaking about the fact that they deliver navigation today. We would say the number of companies who have delivered, have accumulated the claims, RX, insurance information, and interaction data, as well as clinical data associated with electronic medical record data, are the underpinning to the platform to be able to navigate through benefits, navigate through claims, drive people to the best position, et cetera. I mean, all the things that we've been doing for the last 10 years is still a very, very, very small number of companies. A lot of people use the word navigation. Not a lot of people actually deliver navigation. That would be point number one. Point number two would be, I think you're absolutely onto an idea that speaks to the point, I think it was Ryan's question earlier. We've architected our solution around the idea of delivering capabilities. Now, we weave those capabilities into offerings. Those capabilities are available to our partners. Now, who would we partner with around those capabilities? The way we've always thought about it, Stephanie, is... We'll partner with people who share our mission, who are aligned in our vision around improving health care for the people that they serve, and who are aligned in our belief in the idea of personalized health care. And so I don't know what that means in terms of potential partnerships with navigation vendors down the road, but I can tell you we believe that our capabilities architecture is unique in the industry and gives us an opportunity to be a really productive partner for many.
spk16: Thank you. Our next question comes from David Larson of BTIG. Your line is open.
spk12: Hi. Congratulations on a good quarter. With regards to Accolade One and Accolade Care, it seems to me like even though the clients you have might be charged a slightly higher PEPM rate, the overall cost of healthcare for them would actually decline more given that you'd have a more comprehensive solution Just any thoughts or color around that, and can you put any numbers around that, like the incremental percent savings that they might be able to realize?
spk10: Thanks for the question, David. And absolutely, we believe, and core to the value proposition of Accolade One that we're taking to our Vanguard customers and then to the customers beyond it, is the idea that when we weave together all of these incremental values, things above and beyond the advocacy solutions that both of those customers had purchased from us in the past, that will improve clinical outcomes and that we will continue to lower costs above and beyond where we are today. The amount of costs that will improve on a year-over-year basis based on those incremental services is going to vary by the population that we serve and the makeup of that population, just as it does if you were to buy a coordinate navigation service today. And so it might be too early for us to speak to those incremental savings. What we can say is we feel so confident in those incremental savings that, as Steve mentioned earlier, Our revenue model creates the opportunity to take a little more risk while adding upside to the opportunity that we think is really material and could be really high value, high margin revenue.
spk12: Okay, great. And then just one more quick one. With the Delta variant, it sounds to me like the impact there was with second MD, some delays in elective procedures. Can you confirm that second MD revenue still grew by at least 30% year-over-year in the quarter last and that there wasn't really any other drag that you saw from the Delta variant in terms of like the sales cycle. And then it also sounds to me like the Delta variant will become an easier comp or a tailwind in fiscal 23. Just any thoughts there would be helpful. Thank you.
spk06: Hey, David. Nice to talk to you. Yeah, I can confirm with second MD, year-over-year growth rate is in that just north of 30% range. You know, on sales cycle, we're going to come back to you all at the end of the next quarter, and we'll give you a sense of how that's coming through. But for 2ndMD, for sure, that 30% year-over-year growth was achieved.
spk16: Thank you. Our next question comes from Aris Lago-Beringer. The line is open.
spk00: Hi. Thanks for taking my question. So just one on Accolade 1. Because it's a value-based care model that's quite new in the employer's benefits market, I'm wondering, should we expect slightly a longer sales cycle? I'm also curious how much education needs to be done so that employers are comfortable with the value-based model and also a higher upfront PEPM fee.
spk10: Yeah, thank you. It's a great question. I appreciate the opportunity to talk a little bit more about Accolade One. When you think about Accolade One, the first thing that I think, and Steve mentioned this earlier in his remarks, and I think it's imperative that we point out, when we talk about a value-based model, what we're not talking about here is a Medicare Advantage subcapitated risk model like some other companies are out in the industry talking about. In fact, self-insured employers have rarely been given an opportunity to participate in a model that will warrant clinical outcomes, warrant cost reduction, while improving employee satisfactions. When we think about this value-based model, what we're essentially going to the customer with is a brand new set of capabilities or a brand new offering that they haven't been approached with in the past that speaks to all of those vectors. The reality is self-insured employers today are very rarely being approached with numbers associated with clinical improvement, with numbers associated with cost reduction and measurable value, while at the same time improving satisfaction of employees. That said, I mentioned in my prepared remarks that you're absolutely right. We think that the preponderance of the interest in Accolade One is really going to be in our existing customer base. Customers who have taken advantage of navigation, expert medical opinion, or Accolade Care in the past and who built off of that trusted relationship and the data set that drives the measurability of the healthcare we've delivered for them will be very interested in upgrading or moving forward to a broader Accolade One solution. And so, in a way, that implies a longer sales cycle, which I think is a little bit different. And maybe I might paint that picture a little bit differently, but I think it gets to the same outcome.
spk16: Thank you. Our next question comes from Vikram. Do you have a ball slot? There, your line is open. Okay.
spk14: Hey, thanks for taking the question. Just one quick point of clarification on health reveal. I was just curious, did that contribute at all to the second quarter on revenue or EBITDA, and is there any impact from that contemplated in the fiscal 22 guide? And just anything there around the financial profile, if there's something to note. Thanks.
spk05: Sure. Hey, Vikram. Thanks for being here. First of all, the acquisition just closed, so it's post-second quarter 2022.
spk06: And there's not really any revenue to speak of there. It's really about the intellectual property and the teams that we acquired and the value that's contributing that Shantanu spoke about earlier, along with Raj's existing remarks. And with the team that's coming over, we're factoring that in as part of our guidance in fiscal 22 from a spend perspective.
spk16: Thank you. I'm showing no further questions at this time. I'll just turn the call back over to Rajiv Singh for any closing remarks.
spk10: We appreciate all of you being here. Thanks for joining us. We look forward to following up with you post the call and catching up with you next quarter as well. Thank you.
spk16: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.
Disclaimer

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