Accolade, Inc.

And thank you for standing by. Welcome to the Accolade third quarter 2024 earnings results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during a session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Todd Freeman, Senior Vice President of Investor Relations.

Please go ahead. Thanks, Operator.

Welcome, everyone, to our fiscal third quarter earnings call. With me on the call today are our Chief Executive Officer, Rajiv Singh, and our Chief Financial Officer, Steve Barnes. Shantanu Mindy, our Chief Health Officer, will join for the question and answer portion of the call. Before turning the call over to Rajiv, please note that we will be discussing certain non-GAAP financial measures that we believe are important when evaluating 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 the call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the actual results for Accolade to differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. With that, I would turn the call over to our CEO, Rajiv Singh.

Thank you, Todd. I'll begin by summarizing the four key themes to my prepared remarks today. One, we had an excellent quarter on both the top and bottom line, and we're raising guidance for the year as a whole. Two, we're reaffirming our outlook for our next fiscal year. It will be our first profitable year as a company while continuing to grow our revenue at 20% per year. Three, our strategy has yielded sustainable market differentiation, which in turn has led to yet another year of strong bookings growth and incredible opportunities for growth inside of our customer base. And four, based on the strength of that sustainable differentiation, we're raising our profitability guidance on our five-year outlook. By all accounts, Q3 was another successful quarter for Accolade. We're well positioned to execute on our long-term objective to build a great and enduring company important to the future of American healthcare. Let me start with the third quarter highlights, and then I'll provide more color on our outlook. Revenue and adjusted EBITDA were both ahead of our guidance for fiscal Q3. Revenue in the quarter was $99.4 million, with an adjusted EBITDA loss of $4.6 million, both ahead of our previous guidance. With these results, we're also raising our guidance for the full year. You'll hear more details about that guidance for this year in Steve's remarks. Turning to next year, fiscal 2025, we're reaffirming our commitment to 20% revenue growth and 2% to 4% adjusted EBITDA for the year. Our confidence in this guidance is based on the strength of our bookings to date. We've had a strong selling season. We've already exceeded last year's ARR bookings of $72 million, and we're well on pace for growth of more than 20% over last year. Positively, as we've mentioned before, the selling season now rolls throughout the year, particularly as it relates to our newer offerings like Accolade Care and ExpertMD, and the continued impact of our growing health plan channel. This booking strength and diversification reflects our differentiation versus our competition and the continued evolution of advocacy into a must-have category for employers looking to control costs. Next, let's talk about why Accolade is the differentiated platform for our customers and well-positioned for the future. First, our physician-led advocacy teams are more than just navigators with the ability to deliver care, integrate with brick and mortar care teams and local networks, and solve the access to care problem that we call the position gap. We deliver more than navigation. We deliver better healthcare for our customers that provably lowers costs. Second, resolving the complexity of American healthcare at scale takes more than just our incredible, relentless healthcare applicants. It requires a next-generation technology stack driven by artificial intelligence, digital engagement capabilities, and next-generation recommendation engines for both our members and our care teams. Accolade delivers on that promise. Third, this multi-trillion dollar regional complex industry has long desired an open platform, shared data sets, closed-loop reporting, and ultimately real collaboration. Accolade's growing trusted partner ecosystem delivers the integration of partners in critical categories and delivers real technology integration, choice for our customers, and improved engagement for our members. Finally, employers have never had true transparency into how the system is performing for their people, either economically or from an engagement perspective. Accolade delivers live, real-time reporting for every customer via our True Health dashboard that highlights who we've engaged and where they are in their journey, along with operational metrics that give our customers confidence in the road ahead. For our customers, these differentiators give them the confidence to choose Accolade over the rest of the industry. And for our shareholders, those differentiators represent an engine of sustainable growth in new bookings, in incremental services that grow revenue per customer, and in technology innovation that drives expanding unit economics into the future. Let me expound on that last point regarding unit economics with some simple but powerful examples about how Accolade leverages artificial intelligence. For our care advocates, we use AI to monitor engagement quality, to summarize encounters and follow-up items, and to route tasks and members to advocates who have experience with their specific need, among other things. Every step of the way, we're improving efficiency while also improving quality for our members by reducing the opportunities for human error. We also use AI in our engagement with healthcare providers, doing risk analysis for every member and building decision and workflow engines to drive better outcomes, among other use cases that support our clinical engagement. Not every member journey is identical, so we use AI to guide the next best action for our physicians, and also help them to keep abreast of and adhere to evidence-based guidelines. Lastly, we use AI for analytics for operational excellence. Some of our investment areas are workforce management, reading customer satisfaction sentiment, and predicting engagement levels. All of these drive efficiency and improve the member experience. These are just some of the simple examples where our leadership in AI and technology investments will yield value for our operations in efficiency, quality, and value, and for our shareholders through improving unit economics. At scale, these investments in technology give us better visibility to long-term profitability. It's with that in mind that we are upwardly revising our five-year plan that calls for revenue of more than $1 billion and now adjusted EBITDA between 15% and 20% of revenues in fiscal 2029, which is a five percentage point raise from our Capital Markets Day in May. With that positive news, I'll turn the call over to Steve to give you more color on our financial and operational performance. Steve? Thanks, Raj.

First, I'll recap the results for the fiscal third quarter and then provide details on our outlook and forward guidance. We generated $99.4 million in revenue in the third quarter of fiscal 2024. The outperformance relative to our guidance was largely due to early recognition of approximately $2 million of savings-based performance revenue. I'll note that we previously called out early recognition of performance-based revenue totaling $2 million in fiscal Q2 and $1 million in fiscal Q1. From a year-to-date perspective, through the end of fiscal Q3, we've earned and recognized approximately $5 million in aggregate performance-based revenue that at the outset of the fiscal year was projected to be earned in fiscal Q4. Fiscal Q3 adjusted gross margin was 46.3% compared to 45.9% in the prior year period, and adjusted EBITDA in the third quarter was a loss of $4.6 million. The positive performance versus guidance reflects the revenue over performance as well as the impact of the cost reductions via the workforce realignment that we announced earlier this year along with a continued focus on spend management as we turn toward profitability in fiscal 2025. Turning to the balance sheet, cash and cash equivalents total $230 million at the end of the fiscal third quarter. During the third quarter, we capitalized on an opportunity to improve our balance sheet through the repurchase of $76.5 million of our outstanding convertible notes at a discount for an aggregate purchase price of $65.8 million. The remaining $211 million of outstanding notes are not due for more than two years, and we are confident in our outlook to generating positive operating cash flows with more than adequate capital on hand to achieve our plans without reliance on raising additional capital. Now, turning to guidance, on the strength of our Q3 results, we are raising our full fiscal year 2024 revenue guidance to a range of $411 to $415 million representing pro forma year-over-year growth of 21 to 22 percent. We are also improving our full-year outlook for adjusted EBITDA loss for fiscal 2024 to a range of $6 to $10 million as we turn the corner on our way to a full-year profitability in fiscal 2025. With respect to the fiscal fourth quarter, keep in mind my earlier comment that we recognized about $2 million of PG revenue in fiscal Q3 that shifted from fiscal Q4. With that, we are providing fiscal Q4 guidance today of revenue in the range of $121.5 million to $125.5 million, and positive adjusted EBITDA in the range of $16 to $20 million. I'd like to call out a couple notable points about fiscal Q4. First, it will be our first $100 million revenue quarter. Consider that when we went public three and a half years ago, we had recently completed our first $100 million revenue fiscal year, so this is a tangible milestone for our company. Second, fiscal Q4 will be our first significantly positive adjusted EBITDA quarter, demonstrating the underlying earnings power in our model and marking a strong launching point for next year when we expect to deliver full-year profitability. One of the key questions we often get is about understanding the revenue ramp from fiscal Q3 to fiscal Q4. There are two factors that primarily impact Q4 revenue relative to the other three quarters. The recognition of healthcare cost savings-based performance revenue and net new revenue from customers with January 1st go-live dates related to new bookings, which Raj noted earlier. These are both rooted in highly visible contracted revenue. Let me take a moment to provide a short explanation of the dynamics of our healthcare cost savings performance guarantees. Those savings guarantees are measured according to a customer health plan service year, which typically aligns to the calendar year. Given a one to two month timing lag to receive claims data, we currently have the visibility to most of the claims data required to measure our cost savings performance in calendar 2023. The claims data we already have in hand provides a high degree of visibility to the savings-based revenue we expect to achieve in fiscal 2024, the majority of which gets recognized in our fiscal Q4 P&L. This dynamic, which has been consistent year over year, along with a track record of consistent historical execution against our performance guarantees, has contributed to a high level of confidence in the achievability of our forward guidance. Those two highly visible factors, savings-based PG revenue, plus January and February revenues associated with new customer bookings, lead to the revenue ramp in fiscal Q4, which has been the case for Accolades history. Now, turning to the forecast for fiscal 2025, we are reiterating our guidance for 20% revenue growth and a positive adjusted EBITDA of 2% to 4% of revenue, which is roughly $10 to $20 million. For fiscal 2025, we are not providing quarterly guidance today, but our historical quarterly revenue trend, whereby at the outset of a fiscal year, we forecast the majority of claims-based savings PG revenue in fiscal Q4, will continue to be a good starting point for your models. This aligns with our Capital Markets Day presentation, which is available on our Investor Relations website. And I'll make one last point before taking questions. As Raj mentioned, we are upwardly revising our five-year plan to call for adjusted EBITDA margins of 15 to 20% of revenues in fiscal 2029. Our prior guide called for a 200 to 300 basis point improvement each year after turning profitable next year. As we are now seeing the impact of our earlier cost reductions, the efficiencies we are driving through the business from AI and other technology-driven innovations, and the incremental margin impact of customers implementing multiple offerings and associated utilization-based revenues, we see profitable growth from here and believe we can deliver an annual improvement of 300 to 400 basis points over the horizon to fiscal 2029. And with that, we'll open the call to questions. Thank you.

At this time, we'll conduct a question and answer session. As a reminder, to ask a question, You will need to press star 11 on your telephone and wait for your name to be announced. In the interest of time, please limit yourself to one question. And to withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. And our first question will come from the line of Ryan Daniels from Blair. Your line is open.

Yeah, guys, congratulations on the strong performance. Thanks for taking the questions. I want to hit on one that you mentioned regarding the ability to drive intra-year sales. It sounds like bookings are already great, so very good visibility there. But I think something novel that might be underappreciated, and I want to hear a little bit more about it, is your ability to push more intra-year sales, so Accolade Care, ExpertMD, and then also how you're leveraging health plan partnerships to do that. Thanks.

Thanks for the question, Ryan. This is Raj. In fact, it is a really important point, and so I'm glad you call it out. When you think about, in that context of the phrase used with inter-year sales, think about it in a couple of components. The first is we have a base of advocacy customers who are excellent targets because of the nature of a really strong customer relationship and because of really strong member MPS. or incremental accolade services that can be layered on well past the beginning of a plan year when most deployments in a straight advocacy-only business would occur. That entails things like virtual primary care, expert medical opinion, and of course, all of our trusted partner ecosystems. Beyond that, you also see the opportunity to grow usage of existing services where customers had signed on to those services, but we had yet to really fundamentally drive to the engagement levels associated with them. Again, same set of services, accolade care, expert medical opinion, and trusted partner ecosystem. Above and beyond that, getting to the health plan component part of the story, the opportunity in things like our Blue Shield California individual and family plan business, the opportunity to drive utilization up on a month-over-month basis is what you might refer to as in that context of 10-year sales. All of it gives us the opportunity to continue to grow the business beyond the bookings number that we traditionally talk about. But I appreciate you pointing out, Brian, that that bookings number was also very strong this year.

Thank you. One moment for our next question. Our next question will come from the line of Craig Hettenbach from Morgan Stanley. Your line is open.

Great. Thank you. Raj, just to follow up there, as you think through the approximate 20% growth you're targeting for fiscal 25, can you just touch on by kind of segment, you know, the core advocacy, accolade care, and expert medical opinion, any nuances to think through in terms of how the different businesses are performing and kind of that buildup to 20%?

I think, and I'll let Steve, I'll let you jump in and add some color commentary here. Ryan, excuse me, Craig, as you think about that in context first, we expect each of our core businesses to grow in that 20% range. That's part one of the story. Part two of the story is we expect that the business itself has opportunities to see incremental usage across any of what we call our variable usage offerings, like expert medical opinion, virtual primary care, which give us potential upside to that 20% number. Steve, what would you add to that?

Sure.

You know, I just reiterate a couple of points here around the different offerings. Craig, to Raj's point, we're really induced by the continuing demonstration of a broad set of capabilities, different offerings that are contributing to that overall 20% growth rate. And like we've talked about the last several quarters, we're continuing to see the advocacy business show up in a strong way in the approaching 20% growth rate. Expert medical opinion offering continuing to grow in that 20% range. And then the virtual primary care offering growing north of that 20% target for the reasons Raj mentioned, which gives us great confidence in the way we go forward, which is when we think about embedding a physician into an advocacy customer. It creates a differentiated opportunity for us to drive incremental revenues. And interestingly, back to Ryan's point about strong bookings growth, from the customers we've booked year to date, the vast majority of them, when they're an advocacy customer, we're also bundling with that expert medical opinion and or virtual primary care and oftentimes a trusted partner or more into that opportunity. So we show up with a starting point of booking with opportunities to drive incremental value for those members, more value for that customer in terms of financial return and actually obviously benefits from all of that. We're seeing that all come together and show up and contributing towards that optimism we have on that growth rate. And it's really spread across those different offerings.

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

Hi. Thanks for taking my question, and congrats on a nice quarter. Steve, maybe just expanding upon the last commentary as you look at the sort of segments of growth. With expert medical opinion, you know, given all the success that you've had this year and sort of cross-selling that, As we look out into next year, what maybe assumptions are you making in that 20% growth in terms of case rate volume growth? And, you know, now that we're starting to see some of those case rates start to rise, utilization in a lot of the health systems start to rise as we head into next year, you know, what may be your assumptions you're building into that and potential opportunities for upside? Thanks. Great.

Thanks for the question, Ryan. Yeah, really important point. A couple things. We are seeing the utilization of the EMO offering be strong. In fact, this most recent quarter in Q3, we saw strength in that business on a sequential basis relative to Q2 and likely reflecting some of those utilization trends you're alluding to in the hospital environment and so forth. One thing to remember about our EMO offering is Most customers now are either on a case rate basis contract or are moving to one. That's why when you see in our financials or in the disclosures in our 10Q, you'll see a continued growth in usage-based revenues or utilization-based revenues. That's across the business, but very much the EMO part is contributing there. We think as we look out for next year, to your point, I think that 20% growth rate is very, very achievable from the standpoint of strength in bookings for new customers and continuing strong utilization around that, both reflecting the current environment that you mentioned and also overall our ability to demonstrate to customers the value of the ROI on that service.

Thank you. One moment for our next question. Our next question will come from Jaylandra Singh from Truist.

Your line is open. Thank you, and thanks for taking my question. I want to go back to the comments around bookings and selling season. You called out strength in new bookings. Were these opportunities, which took a little longer to close last year, now you have clarity? Just wondering if you had any impact on the sales cycle last selling season because of GLP-1 taking a lot of mindshare? And related to that, did you see a lot of not now employer accounts last selling season, which might be giving you some increased confidence for the next selling season?

Thanks for the question, Jay Lender. In fact, what we talked about in our prepared remarks, Jay Lender, was the fact that We had another very strong selling season. That selling season has us ahead of where we were last year and in a great position to drive 20-plus percent growth from a booking perspective year over year. The consistency of the sales cycle and the consistency of the delivery of those new bookings on a year-over-year basis as we continue to grow our business, we think is reflective of the strong demand in the environment, number one, and number two, the differentiation that I spoke to in my prepared remarks. Even better news, which I think is a little different than the way you characterized it, it's not that we saw a number of deals delay, but instead we're beginning to see the first inklings of the pipeline for real evaluations happening in calendar 24, and we're encouraged by the signs we see, which is now the, this would make it the third consecutive year that we've said those words, that early results on the pipeline or the opportunities and evaluations that are developing here at the end of 2000, that we're developing at the end of 2023, heading into 2024, give us continued, give us continued visibility and bullishness on the demand for advocacy and navigation solutions, particularly those differentiated like Accolade, in an environment where corporations are concerned about healthcare costs and want to deliver better value for their employees.

Thank you. One moment for our next question.

Our next question will come from Stan Berenstein from Wells Fargo. Your line is open.

Hi, thanks for taking my questions. Maybe digging in a bit more, just if we think about the interplay here of factors driving growth here, you have obviously the direct consumer channel, you've called out GLPOMC here. You're getting incremental from enterprise. Can you just walk through the individual segments that I just discussed in terms of the expectations for growth as we think about next year? Thanks.

Hey, Stan. Thanks for the question. I'll start the answer and then Steve can jump in. When you think about our primary care business, I think it's imperative that you think about it in its components. We think about it that way because it's really fundamentally structured off of the same tech platform, off the same platform of physicians, off the same delivery philosophy as it relates to quality care. And in turn, when you think about the business in those two vectors, first, let's talk about the enterprise business. The enterprise business, we've seen extraordinary uptake of customers from the advocacy business taking advantage of our care service. In fact, We saw great adoption last year and even better adoption in fiscal 24, or calendar 23, fiscal 24. That adoption is really driven off this concept that we're embedding physicians into care teams. We're solving a problem we call the position gap, which fundamentally is built around this, or is pointing to this problem that exists in the healthcare system where people can't get to their primary care positions, even if they have one, for nearly a month in real days. And because of that, we've got an audience where we can drive extraordinary utilization of our primary care service or of our care service within the advocacy business. that business continues to grow, while at the same time, our consumer business continues to grow. Both of them benefit from the fact that we're a primary care practice that deals with multiple conditions, including weight loss or diabetes management, which is tied to GLP-1. We think of GLP-1 as yet another one of the factors driving the strength of that business and the consistent growth rate. Steve?

Yeah, just as, you know, as today, we're... We're seeing that uptake that Raj spoke about on the enterprise side, and that growth rate is very high, well north of 20 off of a smaller base that's growing as we roll out to new customers and see higher utilization rates within that base. And then there's the consumer business capability or channel continuing to grow as well. The other thing I'd point you to, Stan, is the reason for people calling in or requesting an engagement with a primary care doc is across a multitude of channels or reasons. You know, certainly GLP-1s are contributors at this time of the year. Flu seasons or respiratory is a contributor. We're seeing good balance across all those reasons. And ultimately, the reason people come to Accolade Care or Plush Care is because they're getting an outstanding experience with a primary care doc. And we're in a unique position, as Raj noted, with an employer customer in particular to help fill that physician gap, get someone to a primary care doc very quickly, and then become their longitudinal primary care doc as needed or supplement their brick and mortar on the ground up.

Thank you. One moment for our next question. Our next question will come from Jessica Tassin from Piper Sandler.

Your line is open.

Hi, guys. Thanks for taking the question, and congrats on the quarter. So I had two quick ones. Just first off, is there any part of the early PEG recognition in the third quarter or in the first three quarters of the year that relate to your conservative assumptions heading into the year? Or is that all just truly a matter of timing? And then just secondarily, was hoping you might be able to give us some color on the shape of the primary care revenue growth in FY25. Should it step up kind of meaningfully in F1Q as you have new enterprise contracts launch, or should we see sequential growth in each quarter of FY25? Thanks again.

Great. Thanks for the question, Jess. It's Steve. First of all, on the PG revenue recognition, yeah, I think with a conservative, we start the year assuming we'll need the full year to earn those performance guarantees, and then we oftentimes do earn them sooner than that. So yeah, I think you could think of it as the $2 million we pointed out this year, we expected to earn for the year, we assumed at the beginning of the year it would happen in Q4, and then we oftentimes go after it. And I mentioned $5 million of cumulative revenue earned sooner than that Q4. Obviously, we're really happy to see that whenever we can drive that, it adds visibility to Q4. both on the top line and on the bottom line because of the profitability of PGs. And with respect to the care business and launch, certainly we expect to launch new customers on January 1. But when we come back in April with our Q4 results and a more formal guide around fiscal 25, we'll get some more color around the different offerings and shapes of that that you would expect for your own modeling.

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

Great. Thanks for the questions. Congratulations. Steve, I was curious if you could go over the, I guess, revised long-term target on the margins in terms of the annual. Um, you guys must have a pretty good confidence to go ahead and do that. Can you, can you break out a little bit in terms of, you know, thoughts on the cost savings contribution or the, um, you know, reorganization that you did and, and, and then maybe the bundled, uh, offerings component, just a little bit more clarity there would be helpful. Yeah, absolutely.

Richard, great to talk to you and appreciate the question. The absolutely important item in today's announcement is to talk about the increase in our guide for that out year, that fiscal five-year out to 15% to 20% revenues, profitability. As we're two or three quarters into the year since Capital Markets Day, when we talk about 10% to 15%, a few things have happened. One, we've demonstrated to ourselves that the cost actions that we took in realignment have yielded great results. And in fact, in some ways, by doing that, we're able to go faster and be more efficient and certainly realize cost savings all at the same time. That's one. Secondly, Raj spoke in his remarks in a few different ways about the way we're leveraging technology innovation, which is something that we've been doing at Accolade for several years. But on top of that, AI-driven capabilities that are making our frontline care teams more efficient. in able to getting members from one place to another or directly to another offering, all of that nets out to further confidence in gross margin expansion that's assumed in our models as we get out into the next several years. So that's a contributor. And then certainly on the operating leverage side of the business, on the OpEx side of things, we're seeing opportunities for that in a few places. One, you know, we've made significant investments in product and technology. We think it's a very important differentiator for Accolade in terms of the platform that we've built. We'll continue to invest there at a growth rate that will be important, and we think it outsizes other investments by other companies in our industry, but we are starting to see leverage there where we can really capitalize on the investments that have been made. So that'll net out to a lower growth rate on that number relative to our revenue margin expansion. And then otherwise, across the P&L, we see other opportunities. But that's one in particular that we see contributing towards that bump up in the long-term gap.

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

Thanks for taking the questions. I want to follow up on that last one. I guess, Steve, you mentioned that a lot of this is driven by AI, but not all of it. I'm curious, is what's embedded in that five percentage point increase in the profitability targets, is that related to tools, to AI tools that you already have available today, or is it based off of ones that you may deploy in the future? I'm just curious how you think about that in the context of getting to that fiscal 29 target and the path with 300 bits of margin expansion per year. Thanks.

Hey, this is Raj. I'm going to take a cut at that question first, and then we'll let Steve add any additional color. Think about gross margin expansion or unit economics expansion and overall economic expansion of the business with a couple of drivers. The first is the idea that advocacy customers who are taking advantage of incremental services like primary care expert medical opinion and our trusted partners are taking advantage of very high gross margin or our strong unit economics offerings as it relates to our p l and driving extraordinary value for their members with each cohort that comes on taking advantage of those services we have an opportunity to continue to grow the usage of those services and in turn drive better unit economics and better profitability. Over the last year to two years, we've seen the first cohorts, and we've seen the results from those first cohorts, which give us great confidence moving forward about our capacity to continue to grow the unit economics associated with those offerings, and therefore the long-term profit margins of the business. The second wave of that story is the investment in technology that can drive efficiencies in the business, Those investments in technology can be non-AI oriented, meaning things like being extraordinarily efficient, consuming data from the rest of the ecosystem so that our implementation costs are going down on a year-over-year basis, or things like artificial intelligence, where we can be more efficient as it relates to wrapping calls and doing call summaries, to consuming benefits information, to responding to queries for our members in a high-quality way but at a lower cost. You would think about those two vectors as significant drivers of value and our capacity to see the whites of the eyes of those of those drivers of incremental unit economics over the last year to two years being the fundamental drivers of our confidence as it relates to improving our guidance on the fiscal year 29. Yeah, I'd just add that to that last point.

You know, Alan, I would think of it this way. These are tools and capabilities internally developed or, in some cases, tools that we license and bring in-house that we're using today but have just begun to demonstrate the availability and capability to achieve, but not nearly reach the full benefits that we see that will happen over the next several years as we more deeply embed those and get better and better at those and those feed their way back into the platform and the process that we have. So very much based upon tools that were in the earlier stages of deploying and have some proof points that in fact they are driving those kinds of efficiencies. and ability to drive incremental usage-based revenues, as Raj was starting his remarks with.

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

Hey, guys. Congrats on the quarter. I want to also go down the Gen AI route for my question. just given the differentiation that your care advocates really gives the platform, I wanted to hear about what you would view as an automation opportunity versus what you would view as potential opportunity, but not something you would approach because it could potentially dilute your offering.

Yeah, I think it's a really important question, Stephanie. So first of all, thanks for the question and thanks for joining us. Secondly, The way to think about this in the context of the millions of interactions that we have per year, those interactions can be phone-based, they can be messaging-based, but those millions of interactions involve understanding the member's need, building a relationship with the member, and then summarizing the transaction and following up on the transaction. The component of understanding the members' need and building a relationship require a human, require our people, whether those are care advocates, our nurses, our doctors, or our specialists in any particular field. The capacity to summarize what occurred in those transactions to follow up on those transactions in many cases with tasks that are repetitive, understanding a benefit, understanding a claim, inquiring from a health system or a health plan about the validity of a claim or the amount of a deductible, et cetera, are areas that could potentially be automated. Incrementally, another area where the company spends a significant amount of time is actually assessing the quality of our interactions in every one of those millions of transactions. And so the capacity to assess the quality of those transactions by understanding our follow-up, by understanding the amount of time we're taking to follow up, by understanding the strength of the data collected about the interaction are all things where artificial intelligence and just traditional technology can play a significant role. Absolutely. The idea of understanding a need and the idea of building a relationship, those are human attributes that we would be loathe to change or to in any way try to automate. But you see, there's a huge slice of the pie left where we think artificial intelligence, generative AI, and the companies and technologies that are littering the landscape to deliver value there are going to be really interesting to accolade.

Thank you. One moment for our next question. And our next question will come from Jenny Shen from BTIG. Your line is open.

Hi, this is Jenny Shen on for David Larson. Thanks for taking my question and congrats on the good quarter. I just want to ask about the TRICARE contract, whether you have any updates there on a start date, how large the contract will be. and whether any of that is baked into your fiscal 25 guidance for the five-year outlook. Thanks.

Thanks for the question. As it relates to our government business writ large, think about it in a couple of components today. Our autism care business continues to perform well, continues to deliver extraordinary value for the members that we're serving, as well as for the health plan slash TRICARE organization. As it relates to the TRICARE contract or T5, it has not resolved. That particular appeal has not resolved at this point, and we're reluctant to give you any guidance as to when it will resolve, given that it's outside of our control. What we can tell you is no material assumptions are baked into our out-year guide or the guide that leads you to the fiscal year $29 billion in revenue. What you should expect in the out year is that we've baked in rational assumptions, knowing that we cannot control when the government appeal will finalize. And therefore, we've built a business based on what we have good visibility to for the year ahead.

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

Hey, thanks, team. Thanks for taking my questions. A lot of them asked the answer, but I got two. First, housekeeping item, very pro forma growth rate, comfortable sharing, basic performance X, the loss of large customers you had the last couple quarters, and I got a follow-up.

Jeff, I'm sorry. We lost your question about halfway through. Would you mind repeating it?

No problem. Is there a pro forma growth rate you're comfortable sharing? So growth X, the loss of the large customer last year? You mean for fiscal 24 or fiscal 25, Jeff? For this completed quarter. I think last quarter was 19% off of a 10, 10 and a half percent growth rate. Yeah. I'm just trying to get a sense for the drag.

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

Thank you. And then I just wanted to ask the visibility question in a slightly different way. Is there a mixed shift in the level or the bookings through what's called nine or 10 months so far this year that would be different than the visibility or the mix from last year. And I ask that because you've made a couple of comments around some of the utilization-based opportunities potentially providing upside. I'm just curious if there is a shift between the utilization-based and the non-utilization-based bookings at this point going into the year.

No, I think about it as the mix of the bookings is pretty similar year over year, which aligns roughly to the, you know, the breakdown of the percentage of revenues in the business, advocacy, expert medical opinion, virtual primary care. I think an important point, though, to draw back to Roger's comments is this. When we value a booking on a utilization-based item, going to be fairly conservative going in and then you'll see sometimes upside to that ARR or ACV number in terms of revenues realized as we that customer matures with us we've engaged with that population and we drive utilization uh with that customer which is which will get you to utilization based revenue so that's uh some of the dynamic in there that's driving that and we've seen that We've now got a couple of years under our belt, obviously, with selling bundled offerings and seeing that be fairly consistent with customers that have bundles.

Got it. Thank you so much. Appreciate it.

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

Thank you, everyone, for being here today, and we look forward to catching up with you down the road.

Goodbye.

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