EarningsCall · ACCD Q1 2025

spk03: Hello, and thank you for standing by. Welcome to the Accolade First Quarter 2025 Earnings Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you limit yourself to one question only. I would now like to turn the call over to Todd Freeman, so you may begin.

spk16: Thanks, Operator. Welcome, everyone, to our fiscal first quarter earnings call. With me on the call today are our Chief Executive Officer, Rajiv Singh, and our Chief Financial Officer, Steve Barnes. Before I turn the call over to Rajiv, please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating accolades performance. Details in the relationship between these non-GAAP measures, the most comparable GAAP measures, and the reconciliations thereof can be found in the press release that's posted on our website. Also, please note that certain statements made during this call will be forward-looking statements as defined in 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 accolade different materially from those expressed or implied in this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. With that, I would just turn the call over to Rajiv. Thank you, John.

spk11: We continue to operate in a large market with an opportunity to grow at attractive rates. Customers continue to find tangible value in the services that we deliver. We're the market leader in our category, and our objective is to create long-term value for our customers, partners, employees, and shareholders by adapting our strategy in the best interests of that objective. With that in mind, this quarter, we've adjusted our revenue expectations for the year while maintaining our adjusted EBITDA outlook. Our rationale is simple. We recognize current financial market factors and the need for reliable bottom line earnings forecasts. With today's guidance, we're creating a higher level of certainty on profitability while maintaining an attractive growth rate and the upside for our market. More details on the specifics in Steve's section later in this call. Here's what you should take away from today's call. First, we're de-risking our business while maintaining attractive growth rates in our market. improving sightlines to our profitability objectives, and positioning ourselves well for the long term. Second, by aligning this way, we give ourselves greater certainty on our out-year profitability and cash flows as well. We plan to give you more depth on our long-term plan in an analyst day later this year. Third, the category of personalized healthcare built off of an advocacy platform is now well established in the marketplace. Demand continues to be strong. It is true in every new market. As you pass the point of category creation, market leaders are established with advantage accruing to the leaders. Accolade was the first and only company in our category to reach the public markets. We are now demonstrating scale in growth and profitability that reinforces our standing as a leader in the market moving forward. Establishing a new market and cementing a leadership position in healthcare services is a messy business. And not every company chooses the same path or the same discipline. But history dictates that those companies that choose extraordinary focus on their customers, smart growth tactics, and scalable profitability always emerge as the winners. Finally, as I mentioned earlier, we're in the next stage of building an attractive market. And we're doing so in a period of massive technological innovation. No company is better positioned than Accolade to turn generative artificial intelligence and virtual services like primary care, expert medical opinion, and a trusted partner platform into a mainstay of how health care is delivered in the years ahead. I'll now hand it over to Steve for the financial details, and I'll return shortly for closing remarks.

spk08: Steve, over to you. Thanks, Raj. I'll recap fiscal Q1 results and then comment on our forward guidance. In fiscal Q1, we generated approximately $110.5 million in revenue, representing 18% growth over Q1 fiscal 24. The outperformance in Q1 was largely driven by timing of revenue recognition. Excluding that timing impact, Q1 revenue was within the guidance range we previously provided. That revenue recognition timing also had a corresponding positive impact on adjusted EBITDA and adjusted gross margins. With that, adjusted EBITDA loss for the quarter was $3.3 million. Adjusted gross margin increased to 47.8% from 43.5% in the prior year. Turning to the balance sheet, cash, cash equivalents, and marketable securities totaled $231 million at the end of the first fiscal quarter. Our cash balance, combined with our turn to profitability, continue to provide us confidence in the strength of our balance sheet and plans to manage our convertible notes. which mature in April 2026. Now, turning to guidance. We're revising our fiscal year 2025 revenue guidance to a range of $460 to $475 million, representing year-over-year growth in the range of 11 to 15%. We're also affirming our guidance for positive adjusted EBITDA on fiscal 2025 in the range of $15 to $20 million. Let me take a moment to provide a few key points about the guidance. First, we're de-risking the revenue guide while preserving our profitability goals. We've used this word de-risking a few times today, so let me be clear about what we're saying. The feedback from the street was consistent last quarter that the number one thing the market won't tolerate in the current environment is uncertainty. We're reducing that uncertainty by moderating the top line while reinforcing our commitment and confidence in achieving our profitability goals. Both Accolades Business and the broader navigation market continue to have the potential to go faster, but we're taking the approach to focus first on growing EBITDA and then driving incremental revenue upside as the business matures. Secondly, we are taking into account a few factors in our revised guidance. One is this focus on profitable growth. We are looking at all marketing spend to focus on the most profitable quarters, excuse me, to focus on the most profitable opportunities. In that vein, we expect to grow our consumer plush care business approximately 20% this year, which represents industry-leading growth rates for virtual care, and it's also a bit lower than what our guidance contemplated in April and will result in reduced associated marketing spend in fiscal 2025. The same is true when it comes to driving increased usage-based revenue for EMO and enterprise primary care. This is largely what we refer to as platform-connected revenue, and it will continue to grow faster than the overall business, but with a judicious view on balancing marketing spend against our profit objectives. The third factor is customer mix and unit economics. As Raj said, the market is large, and while it is early in the traditional selling season, our pipeline remains strong. We recently signed a multi-million dollar advocacy deal, just to give you a sense that the selling season is off to a good start. That said, we are not compelled to chase business at margin profiles that do not align with our goal for profitable growth. We are building for the long term and believe strongly that discipline around pricing and margins is the right way to build a healthy business. Along with those revenue factors, we continue to be laser focused on cost management. Continuing the conversation we started with you a year ago, we are constantly looking at ways to improve operating efficiency. including by means of our office strategy, our use of technology, and the location of our recruiting efforts. The combination of these factors and a view towards balancing growth and profitability are the underlying reasons why we are maintaining our profitability targets while moderating the revenue guide. Next, we are providing fiscal Q2 guidance today of revenue in the range of $104 to $106 million, and adjusted EBITDA loss in the range of $8 to $10 million. Note that the previously mentioned revenue recognition timing in Q1 is a key factor for the sequential revenue decline in Q2, along with our approach around balancing growth and profitability. Consistent with the outlook we provided in April, we expect adjusted EBITDA to be approximately break-even in the fiscal third quarter, with significant positive adjusted EBITDA in Q4, reflecting our ramp in revenue from savings PG recognition, which occurs predominantly in Q4, along with revenue contributions from new customers we expect to launch in January 2025. Finally, for your longer-term models, we recommend a mid-teens revenue growth rate while projecting the same adjusted EBITDA margin expansion of 300 to 400 basis points per year that we have guided you previously. With that, I'll turn the call back to Raj before taking questions. Thanks, Steve.

spk11: We exist in a healthcare market that clearly requires innovative new companies and categories to deliver better healthcare outcomes for individuals and their families. As we approach a half a billion dollars in revenues and profitability, we've created one of those companies and one of those categories. The creation stages of markets, especially in healthcare in the United States, are not straight lines or necessarily smooth roads. As every entrepreneur or business person knows, if everything's a priority, then nothing is a priority. markets like these the best companies choose their priorities and execute in the face of headwinds steadfast in their commitment to these principles today we're choosing smart profitable growth and certainty on the bottom line that approach accrues the most value to our customers employees partners and shareholders over the long term we continue to lean forward in every way as it relates to evolving and growing our business and most importantly serving our members and our customers Our investments in artificial intelligence, tightly integrated offerings, and market-leading clinical quality and capabilities will continue. Today, we have more than 1,200 customers and 14 million members who rely on us to improve their healthcare every day. And we have an incredibly dedicated group of more than 2,000 employees focused on creating a fundamentally improved healthcare experience for those companies and members. That focus has served us well as we've built our business over the last 15 years, and it will continue to serve us well moving forward. With that, operator, we'll now open the call to questions.

spk03: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please limit yourself to one question only. Please stand by while we compile the Q&A roster. Our first question comes from the line of Richard Close with Canaccord. Your line is open.

spk06: Yeah, thanks for the questions. Steve, I was wondering if you can maybe go over the three reasons you called out for the lower revenue guidance, maybe a little bit more details there and rank them in terms of the impact on the guidance. And then with respect to not chasing On the advocacy side, not chasing business, are you seeing pricing pressures there or maybe a little bit more detail around that comment?

spk11: Rich, I'm going to start with that answer and then I'll turn it over to Steve to give you more depth of the P&L. The first thing to point out is the change in our guidance for the quarter and for the year is our choice based on our view. We're constantly assessing our strategy and evolving our strategy. We look at all the constituencies of the business, customers, members, partners, employees, and specifically in this instance, we're talking about shareholders. Last quarter, As we outlined our guidance for the year and we outlined our profitability targets for the year, one of the things we heard from shareholders directly in conversations with some of our shareholders, as well as obviously watching the performance of the equity over the last three months since our last earnings call, was that there was concern about the top line of the business putting pressure on the capacity to achieve our bottom line profitability and cash flow target. And so we made a choice in between this call and the last call to relieve some of that pressure, acknowledging we're still growing at attractive rates, number one. Number two, we're still growing in a market that we think can support even higher growth rates. And number three, we can give ourselves access or availability to upside in that plan, but ensuring that we built a plan that de-risks our capacity to achieve the bottom line. With that, I'll let Steve answer some questions about what specifically we did to ensure our capacity to achieve that bottom line.

spk08: Yeah, thanks, Raj. So, Richard, as we made that decision Raj just spoke about, we then assess where are the opportunities to provide more certainty that have profitability. Remember, this is our first year breaking through into just leave without positive territory and growing profitably or profitable growth from here. So, we look at it as where is the least efficient marketing spend in particular to acquire revenue and where can we take some of that de-risk some of that top line and also ensure the bottom line. So when we looked at that, we looked at a few places. Number one, we looked at the B2C business, which we guided last quarter that we expect to grow, you know, call it mid-20s or even higher 20s growth rate. We're dialing that back closer to 20 with our guidance today. That allows us to pull back on some associated marketing spend and put that towards the bottom line while we also de-risk the top line of the business. Secondly, we talked last quarter a lot about platform-connected revenues. Remember, those are expert medical opinion, virtual primary care, and partner revenues on top of our advocacy platform. Those revenues have been growing rapidly over the past three years and will continue to grow rapidly this year, but they do have associated spend in order to outreach to members and driving people to those certain programs. We can similarly look at where we can dial back some spend at the margin in order to drive those revenues while still growing them attractively. Those are two areas. And then to your third point around, is there pricing pressure in the market? In large part, we see prices holding up where they've been. We have seen a couple of large deals. You've probably seen about the CalPERS deal that had a particularly aggressive pricing profile that we have discipline around where we are willing to go on deals in order to have a commitment to the business in terms of delivering value to customers and members and also to shareholders. So we're maintaining all of that profile while we go after it. But in large part, the commercial market deals We're seeing pricing be relatively steady to where it's been over the past couple of years.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Craig Hitsenbach with Morgan Stanley. Your line is open.

spk00: Thanks. So a question on the platform connected revenue uses-based fees. Can you just talk about on this new guidance just what your visibility is into those drivers, number one? And then on the advocacy front, you know, what are your expectations for this year and kind of on a multi-year, like what's the growth rate trending for that core business?

spk08: Thanks for the question, Craig. So first of all, on the usage-based revenues, we have good visibility to those, particularly, again, when we dial back the growth rate a bit, that gives us even more confidence in being able to see those. So those have been growing. We've mentioned in the last call they doubled two years in a row. We expect those to continue to grow more rapidly than the rest of the business, even this year again. When we look at that on a cohort basis, we have good visibility. We know that when a new customer launches with expert medical opinion on top of an advocacy platform, for example, we can predict with relative certainty around where we'll get to in terms of a threshold in year one and year two and year three. And when we push on that for members who need it, we can drive that growth rate higher. And that's very much where I'm talking about where we can pull back a bit on the associated outreach spend. With respect to the advocacy market, again, we think of it, the business overall, in terms of a B2B distribution channel and a D2C. On the B2B side, it's often advocacy sold in connection with other capabilities, EMO, VPC, and partners. And that business has been growing. The ARR on the business, which is all the B2B revenues, has grown significantly. 20 to 30% over the last couple of years, and we're optimistic on the growth profile for this year again. Again, all of that in the context of the growth rate that we're laying out today, we see that as consistent with the growth rate of the overall business in terms of the opportunity this year.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Cherney with Leroy Partners. Your line is open.

spk07: Afternoon. Thanks for taking the question. I want to go back to Richard's question. In particular, the difference in the in-year revenue changes. We're so used to your model being one with highly predictable revenue where the big variation tends to be outperformance, which we saw this quarter, executing ahead of pace for your customers. So as we see the difference in numbers and the de-risking dynamic for the year, How much of that is tied specifically to advocacy? The reason I'm asking that is I'm not used to seeing a meaningful deviation for a full year revenue on advocacy based on the PMPM dynamics. It's either, in my view, you'd either have lost customers, which you could have walked away from, or something tied to the risk weighting on the performance guarantees. So I just want to make sure we can appropriately bridge The whole, the $22.5 million revenue change, not a huge number at the midpoint, but you should understand the why behind it specifically tied to advocacy if we can.

spk08: Thanks for the question, Mike. I'll start. This is Steve. Yeah, you should think of the change in the revenue outlook as primarily usage-based revenue. So again, those would be visit fees or case rate fees. And in this case, we're talking about in the direct-to-consumer business, dialing the growth rate back to a still attractive growth rate of about 20%. But dialing that back, there's associated marketing spend that's a big chunk along with that, that's a big part of the revenue reduction as well. That's one. Secondly, platform-connected revenues, which would sit on top of the advocacy for platform revenues, are the other big part of the biggest part of the revenue reduction here. So think of it as usage-based revenues, not necessarily the ACV, PMPMs that you're talking about associated with the traditional advocacy customer base.

spk14: Those are the two core drivers.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Garrow with Stevens. Your line is open.

spk10: Yeah, good afternoon, and thanks for taking the questions. As you've talked about de-risking the growth outlook, one thing we haven't heard about is any change in assumptions around retention or bookings growth. And retention, I think previously you talked about next year, or I guess this current year and going forward, returning to 90% plus gross dollar retention. And on bookings growth, you've roughly alluded to growth in line with your long-term target. So with the change in this year's revenue growth outlook and the moderation of longer-term revenue growth expectations, I wanted to to see if we could dig deeper on those key assumptions around retention and bookings growth.

spk11: Yeah, thanks for the question, Jeff. Nothing really changes as it relates to our view on gross dollar retention from what we talked about last quarter and the ongoing view there. We deliver a lot of value for our customers, and we do a great job retaining them on an long-term basis. In terms of ARR or bookings growth, as Steve mentioned in his prepared remarks, Overall demand environment for the services remains strong. We continue to grow. We've closed more than our fair share of business in the early stages of the year, and we expect selling season to be successful. And we'd expect bookings on an ongoing basis to be pretty close to the growth rate of the business on an ongoing basis. And so, you know, you saw bookings grow from $54 to $86 million over the last three years. That's reflective of that demand environment. And so really, where are you looking for any changes in the way we're thinking about guidance this year? As Steve mentioned, this year or next year, what we're really saying is we're de-risking the usage-based component of the revenue stream. And by de-risking, we're saying we're only going to spend X amount of dollars or the appropriate amount of dollars in order to drive those usage-based revenues.

spk14: And to the degree there's upside that could yield there, we think those will be upside surprises for our investors and shareholders.

spk03: Thank you. Please stand by for our next question. The next question comes from the line of Ryan Daniels with William Blair. Your line is open.

spk15: Yeah, guys, thanks for taking the question. I'll continue down this path of questions on the revenue outlook. I think last quarter you actually mentioned 30% to 35% usage-based and 65% to 70% access fees. And we could probably back into this, but I'll just ask directly on the call. How should we think about those percentages, both this year and then maybe going forward, given an increased focus on marketing yield and kind of getting the appropriate accounts in the door? Thanks.

spk08: Thanks for the question, Ryan. Yeah, I think for this year, you can still think of those percentages as rough ranges, although I'd say for the usage-based revenues towards the lower end of that range for this year. And then given that those usage-based revenues, which include platform-connected revenues and D2C, which are growing faster in the business, that those will climb up over the coming years. But call it the lower end of that range this year, that they're

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Halinder Singh with Truist Securities. Your line is open.

spk21: Yeah, this is Jalandhar Singh from Truist Securities. Actually, I want to double-click on the lowered expectations of PlushCare. Maybe if you can provide some color. How much of that is related to lack of GLP-1-related revenue, which actually did help you guys last fiscal year? because banded drugs are in shortage supply. And while we are on the topic, I mean, Raj, I'm curious on your thoughts around your conversation with employers, weight management, around weight management and GLP-1 in general, and given your new partnership recently announced.

spk13: Yeah, the decision around, thanks for the question, Delanda.

spk11: The decision around how we're thinking about consumer revenues, largely around customer acquisition costs and capping, at what level we think the right long-term lifetime value that customer versus customer acquisition cost ratio is, and being very, very disciplined about that. We have in the past, but ultimately looking at that as one of the opportunities to drive profitability alongside revenue growth. So that's the fundamental driver of that change. And I'll just reiterate what I spoke about early in the first question. We made a choice in terms of the way we're thinking about our strategy all about ensuring we're going to deliver attractive growth rates with certainty of bottom line performance based on the way we believe we have to take care of all the relevant stakeholders in our business. As it relates to GLP-1, it continues to be a driver of interest in the enterprise space. Customers are buying our solution because they want to control that among other costs in the business. It's also a driver of interest from a consumer perspective as well. We've talked in the past that it is a driver of volume in both areas. In the enterprise space, though, remember, we are abiding by the policies associated with that our customers derive for their members, including things like preauthorization, et cetera, to tie out to the customer's trend line performance requirements, et cetera. So nothing tangibly different in terms of the demand environment associated with GLP-1 And I wouldn't attribute any of what we're talking about here today to GLP-1.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Jessica Tyson with Piper Sandler. Your line is open.

spk22: Hi, thanks for taking the question. I was hoping to dig in a little bit about the CalPERS deal. There are some details out there publicly. So another navigation vendor is able to offer a 5.5% cost trend target in 2025. lowering about 60 bits each year from 26 to 29. I guess just if accolades use those cost trend targets or those guarantees as aggressive, how close can you guys get to that, you know, approximately 60 basis point cost trend improvement every year? And just are you enhancing the platform or kind of endeavoring to match those types of targets you know, in the future. Just curious in your views on what is achievable and anything you're doing to kind of, if that's what a competitor is offering and that's what the market kind of looks like at this point, how quickly can you all get there? Thanks.

spk11: Yeah, I appreciate the question, Jeff. A few thoughts. First, performance trend line as it relates to cost trend is one of the factors that's associated with customers making a buying decision. In the case of CalPERS, the deal you specifically referenced, a few things to note. Large opportunities like that one oftentimes have the customer and the consultant or the prospect and the consultant dictating staffing ratios, dictating the number of interactions per person, et cetera, putting extraordinary depth into what they require from a service delivery perspective, including staffing ratios. When we bid that business, we bid it at a level that was associated with our standard performance guarantees and in the neighborhood of where we traditionally are as it relates to the percentage of fees at risk. If you review what the ultimate winning proposal was, we think it's safe to say it was tangibly lower. And by tangibly, I mean materially lower from an all-in fees perspective, number one. Number two, it put a significantly higher amount of their total fees at risk. And number three, it made an assurance around trendline. Are we capable of driving trendline guarantees like the one that were described there? Of course we are. Our capacity to do so depends on how the customer configures our solution, the way we deliver the solution, the engagement rates we deliver for the solution. Doing so when we're delivering at, you know, let's call it materially, materially lower top line fees and with an extraordinary amount of fees at risk, we didn't feel, in our view, was appropriately balancing all of our constituencies, shareholders, employees, customers, members, partners. So we chose to bid at a much higher number with less fees at risk And the performance guarantees that we put at risk we think are very competitive to the way the customer ultimately purchased. So I wouldn't say that was the driving force of why the customer made the selection that they made. Why are other companies potentially being more aggressive from a top-line fees perspective and from a fees at risk perspective? That I can't answer for you. But what I can tell you is in these types of opportunities, we're going to be disciplined about the way we approach things. What we have seen in the past is when companies have been undisciplined, two years from now, three years from now, those deals come back our way. We've seen it happen multiple times over the last five years. And we expect, whether it's this deal or other deals, we'll see it happen again over time. Disciplined behavior from a delivery perspective yields long-term businesses. And so answering your question, yes, yes. We're already capable of delivering those kinds of trend lines. To do so, we're going to do it by delivering a service we know will make our customers happy and that we know we can deliver profitably.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Ryan McDonald with Needleman Company. Your line is open.

spk20: Hi, thanks for taking my questions.

spk09: Raj and Steve, I'm curious, as we've talked to more of the Digital HealthPoint solution vendors more recently, it seems like that one area of surprise as we've gone through this year has been around employee staffing levels at customers with sort of the layoffs to start the year and some of the turnover there having maybe an unexpected impact. Are you seeing any of those impacts in terms of employee accounts in your calculation for the updated guidance. And then secondly, as you talk about pulling back on marketing costs within the customer base, is there any risk here to your ability to hit some of those performance guarantees targets that are associated with engagement as we go through the year based on some of the pullback and spend here? Thanks.

spk08: Ryan, thanks for your question. It's Steve. So first point around employee staffing levels, we have seen some noise at that. We've seen some customers shrinking in employee base. We also have seen offsetting growth, modest growth, but growth to offset that in a sense of our same store member growth across our book has remained relatively flat over the last couple of years, including this year to date. That's not a large impact. We also don't build in an assumption about massive growth there in the current macro environment. To your second point about marketing spend and being able to achieve operational PGs or even savings PGs, we've taken that all into account and are not reducing to that level. What we're reducing is called the marginal incremental marketing spend to drive incremental usage and incremental revenue to hit the higher revenue goal that we've reduced today and not to put our current customer base at risk in terms of operating PGs or savings PGs.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Stephanie Davis with Barclays. Your line is open.

spk23: Hey, guys. Thank you for taking my questions.

spk02: Just given the funding environment and your comments around not pursuing unprofitable businesses being a little bit at odds, I wanted to ask this more directly. Are you still seeing any irrational competitors in the market that's driving this aggressive pricing? Or are you starting to see a limiting factor on customer willingness to pay due to macro? And since you've talked a lot more about your opportunities within your base versus outside of the base, Do you have any opportunity to lean further into cross-selling with your STNA dollars to maybe benefit next year's growth via your existing base?

spk11: Thank you for the question, Stephanie. Let's start with the second question first.

spk01: I know it's a lot of questions.

spk11: That's all right. You're all good. Thank you. Let's start with the second question first. We absolutely have an opportunity to continue to grow and set the customer base. Last quarter, we talked about the growth in platform-connected revenues. Platform-connected revenues continue to grow tangibly and outpace the overall growth rate of the business. Platform-connected revenues is really where you're looking at growth inside the customer base and what other companies, different looking companies might call cross-selling. So that's part one. Answering question number two first. Question number one, are we seeing a commonization or standardization of pricing in the market where by and large, we're seeing rational pricing in the marketplace? The answer to that question is yes. That said, there will always be opportunities where companies might see places where they might be more aggressive or tangibly more aggressive for whatever reasons their business might dictate. And in those situations, what we've decided, and we've decided this over the last several years, is we're building a long-term business. We're building a long-term business that we think can grow attractively with discipline because most customers, not all customers, but most customers will look at track record, will look at referenceability, will look at historical performance against trendline improvement and performance guarantees, will look at consulting relationships and consultants' credibility associated with the services that we deliver, and choose the market leader at price points that can sustain the business we're attempting to build. And nine times out of 10, eight times out of 10, we see that behavior manifesting in the marketplace. There will be on occasion deals that are one-off where the opportunity is large and some competitors are coming in materially lower than what other competitors are coming in at. When those happen, maintain our discipline, run our business, and acknowledge that over time, all of these things tend to work themselves out in the end.

spk03: Thank you. Will you stand by for our next question? Our next question comes from the line of Stan with Wells Fargo Securities. Your line is open.

spk05: Hi, thanks for taking my questions. Maybe circling back to direct-to-consumer plus care guided 20% growth. Can you just walk us through how much of that growth is expected to come from member growth versus pricing? Thanks.

spk08: Hey, Sam. This is Steve. You can think of that primarily as member visit growth, and that's across all the different reasons that consumers come to see a doctor, whether it's you know, for a primary care doctor to be their longitudinal provider, or it's an acute need that then can roll into becoming a plus care patient or a weight loss GLP-1 type of opportunity. But predominantly, you're looking at increases in visits and associated subscription fees.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of David Larson with BTIG. Your line is open.

spk04: Hi. Can you talk about the nature of the timing of the revenue impact in the quarter? I'm assuming that that was a performance guarantee. Is that correct? And if so, can you size it? And then also, I think at one of your analyst days, you were guided to a billion in revenue for fiscal 29. Is that sort of withdrawn? I'm assuming it is. And then can you just sort of comment on the broader market? It seems like we're in an unusual period. Walgreens had a tough quarter this morning, traded down 25%. Health plans are under pressure with utilization and MA rates. Is that going into potentially a more difficult operating environment where they're driving tougher pricing? Thanks very much. Appreciate it.

spk08: Thanks, Dave. This is Steve. You have a few questions in there, Q1 REVs, longer-term outlook, and then maybe more of an environment question. So first of all, in Q1 REVs, yeah, the timing, revenue recognition timing we're talking about is predominantly a performance guarantee type of item that was timing that we would have had in our models originally to have been earned over the rest of the year. It was about $6 million. So my reference in the call was to the fact that X that number, we've been in about the middle of the range of the guidance that we provided. And you've seen this before from us, Dave. We've had times in which when we have a performance guarantee or other revenue recognition items associated with 606 accounting, essentially, we're going to call that out so the street understands you know, the revenue versus the guidance. And so that's where that is. Most of it would have been in Q4. Some of that would have been in Q2 and Q3 as well. But the bulk of it would have been in Q4. Secondly, with respect to our longer-term plan, if you take that mid-teens growth rate and run it out, you'd see a billion dollars closer to coming through and about a year later than that. But importantly, Our view is we'll continue to drive EBITDA growth or adjusted EBITDA growth along the same pattern that we laid out before. So we would expect by that five years out that we'll achieve that 15% to 20% target range and growing thereafter. That's the long-term model that we're seeing today with this guidance dialed back towards the mid-teens. With respect to the, you know, I haven't had a chance to read up on the Walgreens note, but in terms of the overall environment, I think the biggest thing we're seeing is employers recognizing that costs are continuing to rise. This year we expect high single-digit growth in healthcare spend, which continues to put at the forefront Companies like Accolade who can provide a service that when combined can get members to better healthcare and do so at lower costs, that continues to drive the opportunity for us. So that's a bit on your three questions there, Daisy.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Jack Wallace with Guggenheim. Your line is open.

spk18: Hey, Tim. Thanks for taking the questions. Just to double-click again into the guidance and the environment here, how should we think about your win rates, your expected win rates this year? And to dive further than that, how much of a potential change or lowering of win rates are going to be accolade-related in terms of not wanting to or being unwarranted? unwilling to drop price or to put more fees at risk in the deals. So let's call these non-regrettable losses versus regrettable losses where you're bidding, you think competitively, and you're ultimately losing to a competitor or the company choosing to not go with an advocacy partner. Thank you.

spk11: Yeah, thanks for the question, Jack. The vast majority of our pipeline continues to behave as it always has, and we continue to win what are called majority of the transactions that we play in, we'd expect that win rate to continue. We've had this conversation periodically, Jack, with the market. There's been opportunities where we've talked about, hey, that's a deal, this particular deal, in this particular case, CalPERS, where we were higher priced in the competition. I think to ensure that we're all aligned, we're higher priced in the competition, but offering very competitive and performance guarantees and incentives associated with achievement, but acknowledging that in a deal or in a specific deal where the customer is specifically mandating staffing requirements, et cetera, pricing should be relatively consistent across the board. On occasion, it won't be, and customers are going to have to make a decision. Prospects are going to have to make a decision about who they feel can tangibly, reliably deliver that service on an ongoing basis. So in those one-off situations, yes, we're going to stay disciplined, and we might put ourselves more at risk of not taking on that business. But I'd call that, to your point, not regrettable. In the vein of regrettable losses, we would not expect the take rate to change at all. Our team continues to be very competitive. Our product continues to be differentiated. And we'll keep winning our fair share of those deals. And then in terms of no decisions, Look, I think one of the things I tried to call out in the prepared remarks, this is now a category that is defined, created, and growing every single year, has been for the last five years. And so no decisions continue to decline as a percentage of the overall pipeline. But nonetheless, we'll see some percentage of prospects choosing carrier solutions at lower prices, but that's always been the case.

spk14: Nothing new there, Jack.

spk03: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.

spk14: Thank you all for being here. We look forward to the follow-up conversations.

spk03: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. you Thank you. you Thank you. Thank you. Hello, and thank you for standing by. Welcome to the Appalachian First Quarter 2025 Earnings Results Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you limit yourself to one question only. I would now like to turn the call over to Todd Freeman, so you may begin.

spk16: Thanks, Operator. Welcome, everyone, to our fiscal first quarter earnings call. With me on the call today are our Chief Executive Officer, Rajiv Singh, and our Chief Financial Officer, Steve Barnes. Before I turn the call over to Rajiv, please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating accolades performance. Details in the relationship between these non-GAAP measures, the most comparable GAAP measures, and the reconciliation thereof can be found in the press release that's 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 accolade different materially from those expressed or implied in this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. With that, I would like to turn the call over to Rajiv. Thank you, John.

spk11: We continue to operate in a large market with an opportunity to grow at attractive rates. Customers continue to find tangible value in the services that we deliver. We're the market leader in our category, and our objective is to create long-term value for our customers, partners, employees, and shareholders by adapting our strategy in the best interests of that objective. With that in mind, this quarter, we've adjusted our revenue expectations for the year while maintaining our adjusted EBITDA outlook. Our rationale is simple. We recognize current financial market factors and the need for reliable bottom line earnings forecasts. With today's guidance, we're creating a higher level of certainty on profitability while maintaining an attractive growth rate and the upside for our market. More details on the specifics in Steve's section later in this call. Here's what you should take away from today's call. First, we're de-risking our business while maintaining attractive growth rates in our market. improving sight lines to our profitability objectives, and positioning ourselves well for the long term. Second, by aligning this way, we give ourselves greater certainty on our out-year profitability and cash flows as well. We plan to give you more depth on our long-term plan in an analyst day later this year. Third, the category of personalized healthcare built off of an advocacy platform is now well established in the marketplace. Demand continues to be strong. It is true in every new market. As you pass the point of category creation, market leaders are established with advantage accruing to the leaders. Accolade was the first and only company in our category to reach the public markets. We are now demonstrating scale in growth and profitability that reinforces our standing as a leader in the market moving forward. Establishing a new market and cementing a leadership position in healthcare services is a messy business. And not every company chooses the same path or the same discipline. But history dictates that those companies that choose extraordinary focus on their customers, smart growth tactics, and scalable profitability always emerge as the winners. Finally, as I mentioned earlier, we're in the next stage of building an attractive market. And we're doing so in a period of massive technological innovation. No company is better positioned than Accolade to turn generative artificial intelligence and virtual services like primary care, expert medical opinion, and a trusted partner platform into a mainstay of how healthcare is delivered in the years ahead. I'll now hand it over to Steve for the financial details, and I'll return shortly for closing remarks.

spk08: Steve, over to you. Thanks, Raj. I'll recap fiscal Q1 results and then comment on our forward guidance. In fiscal Q1, we generated approximately $110.5 million in revenue, representing 18% growth over Q1 fiscal 24. The outperformance in Q1 was largely driven by timing of revenue recognition. Excluding that timing impact, Q1 revenue was within the guidance range we previously provided. That revenue recognition timing also had a corresponding positive impact on adjusted EBITDA and adjusted gross margins. With that, adjusted EBITDA loss for the quarter was $3.3 million. Adjusted gross margin increased to 47.8% from 43.5% in the prior year. Turning to the balance sheet, cash, cash equivalents, and marketable securities totaled $231 million at the end of the first fiscal quarter. Our cash balance, combined with our turn to profitability, continue to provide us confidence in the strength of our balance sheet and plans to manage our convertible notes. which mature in April 2026. Now, turning to guidance. We're revising our fiscal year 2025 revenue guidance to a range of $460 to $475 million, representing year-over-year growth in the range of 11 to 15%. We're also affirming our guidance for positive adjusted EBITDA on fiscal 2025 in the range of $15 to $20 million. Let me take a moment to provide a few key points about the guidance. First, we're de-risking the revenue guide while preserving our profitability goals. We've used this word de-risking a few times today, so let me be clear about what we're saying. The feedback from the street was consistent last quarter that the number one thing the market won't tolerate in the current environment is uncertainty. We're reducing that uncertainty by moderating the top line while reinforcing our commitment and confidence in achieving our profitability goals. Both Accolades Business and the broader navigation market continue to have the potential to go faster, but we're taking the approach to focus first on growing EBITDA and then driving incremental revenue upside as the business matures. Secondly, we are taking into account a few factors in our revised guidance. One is this focus on profitable growth. We are looking at all marketing spend to focus on the most profitable quarters, excuse me, to focus on the most profitable opportunities. In that vein, we expect to grow our consumer plush care business approximately 20% this year, which represents industry-leading growth rates for virtual care, and it's also a bit lower than what our guidance contemplated in April and will result in reduced associated marketing spend in fiscal 2025. The same is true when it comes to driving increased usage-based revenue for EMO and enterprise primary care. This is largely what we refer to as platform-connected revenue, and it will continue to grow faster than the overall business, but with a judicious view on balancing marketing spend against their profit objectives. The third factor is customer mix and unit economics. As Raj said, the market is large, and while it is early in the traditional selling season, our pipeline remains strong. We recently signed a multi-million dollar advocacy deal to give you a sense that the selling season is off to a good start. That said, we are not compelled to chase business at margin profiles that do not align with our goal for profitable growth. We are building for the long term and believe strongly that discipline around pricing and margins is the right way to build a healthy business. Along with those revenue factors, we continue to be laser focused on cost management. Continuing the conversation we started with you a year ago, we are constantly looking at ways to improve operating efficiency. including by means of our office strategy, our use of technology, and the location of our recruiting efforts. The combination of these factors and a view towards balancing growth and profitability are the underlying reasons why we are maintaining our profitability targets while moderating the revenue guide. Next, we are providing fiscal Q2 guidance today of revenue in the range of $104 to $106 million, and adjusted EBITDA loss in the range of $8 to $10 million. Note that the previously mentioned revenue recognition timing in Q1 is a key factor for the sequential revenue decline in Q2, along with our approach around balancing growth and profitability. Consistent with the outlook we provided in April, we expect adjusted EBITDA to be approximately break-even in the fiscal third quarter, with significant positive adjusted EBITDA in Q4, reflecting our ramp in revenue from savings PG recognition, which occurs predominantly in Q4, along with revenue contributions from new customers we expect to launch in January 2025. Finally, for your longer-term models, we recommend a mid-teens revenue growth rate while projecting the same adjusted EBITDA margin expansion of 300 to 400 basis points per year that we have guided you previously. With that, I'll turn the call back to Raj before taking questions.

spk11: Thanks, Steve. We exist in a healthcare market that clearly requires innovative new companies and categories to deliver better healthcare outcomes for individuals and their families. As we approach a half a billion dollars in revenues and profitability, we've created one of those companies and one of those categories. The creation stages of markets, especially in healthcare in the United States, are not straight lines or necessarily smooth roads. As every entrepreneur or business person knows, if everything's a priority, then nothing is a priority. In markets like these, the best companies choose their priorities and execute in the face of headwinds, steadfast in their commitment to these principles. Today, we're choosing smart, profitable growth and certainty on the bottom line. That approach accrues the most value to our customers, employees, partners, and shareholders over the long term. We continue to lean forward in every way as it relates to evolving and growing our business, and most importantly, to serving our members and our customers. Our investments in artificial intelligence, tightly integrated offerings, and market-leading clinical quality and capabilities will continue. Today, we have more than 1,200 customers and 14 million members who rely on us to improve their healthcare every day. And we have an incredibly dedicated group of more than 2,000 employees focused on creating a fundamentally improved healthcare experience for those companies and members. That focus has served us well as we've built our business over the last 15 years, and it will continue to serve us well moving forward. But that operator will now open the call to questions.

spk03: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please limit yourself to one question only. Please stand by while we compile the Q&A roster. Our first question comes from the line of Richard Close with Canaccord. Your line is open.

spk06: Yeah, thanks for the questions. Steve, I was wondering if you can maybe go over the three reasons you called out for the lower revenue guidance, maybe a little bit more details there and, you know, rank them in terms of the impact on the guidance. And then with respect to not chasing on the advocacy side, not chasing business. Are you seeing pricing pressures there or maybe a little bit more detail around that comment?

spk11: Rich, I'm going to start with that answer, and then I'll turn it over to Steve to give you more depth of the P&L. The first thing to point out is the change in our guidance for the quarter and for the year is our choice based on our view. We're constantly assessing our strategy and evolving our strategy. We look at all the constituencies of the business, customers, members, partners, employees, and specifically in this instance, we're talking about shareholders. Last quarter, As we outlined our guidance for the year and we outlined our profitability targets for the year, one of the things we heard from shareholders directly in conversations with some of our shareholders, as well as obviously watching the performance of the equity over the last three months since our last earnings call, was that there was concern about the top line of the business putting pressure on the capacity to achieve our bottom line profitability and cash flow target. And so we made a choice in between this call and the last call to relieve some of that pressure, acknowledging we're still growing at attractive rates, number one. Number two, we're still growing in a market that we think can support even higher growth rates. And number three, we can give ourselves access or availability to upside in that plan, but ensuring that we built a plan that de-risks our capacity to achieve the bottom line. With that, I'll let Steve answer some questions about what specifically we did to ensure our capacity to achieve that bottom line.

spk08: Yeah, thanks, Raj. So, Richard, as we made that decision Raj just spoke about, we then assess where are the opportunities to provide more certainty that have profitability. Remember, this is our first year breaking through into just leave without positive territory and growing profitably or profitable growth from here. So, we look at it as where is the least efficient marketing spend in particular to acquire revenue and where can we take some of that de-risk some of that top line and also ensure the bottom line. So when we looked at that, we looked at a few places. Number one, we looked at the B2C business, which we guided last quarter that we expect to grow, you know, call it mid-20s or even higher 20s growth rate. We're dialing that back closer to 20 with our guidance today. That allows us to pull back on some associated marketing spend and put that towards the bottom line while we also de-risk the top line of the business. Secondly, we talked last quarter a lot about platform-connected revenues. Remember, those are expert medical opinion, virtual primary care, and partner revenues on top of our advocacy platform. Those revenues have been growing rapidly over the past three years and will continue to grow rapidly this year, but they do have associated spend in order to outreach to members and driving people to those certain programs. We can similarly look at where we can dial back some spend at the margin in order to drive those revenues while still growing them attractively. Those are two areas. And then to your third point around, you know, is there pricing pressure in the market? In large part, we see prices holding up where they've been. We have seen a couple of large deals. You've probably seen about the CalPERS deal that had a particularly aggressive pricing profile that we have discipline around where we are willing to go on deals in order to have the commitment to the business in terms of delivering value to customers and members and also to shareholders. So we're maintaining all of that profile while we go after it. But in large part, the commercial market deals We're seeing pricing be relatively steady to where it's been over the past couple of years.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Craig Hichtenbach with Morgan Stanley. Your line is open.

spk00: Thanks. So a question on the platform connected revenue uses-based fees. Can you just talk about on this new guidance just what your visibility is into those drivers, number one? And then on the advocacy front, you know, what are your expectations for this year and kind of on a multi-year, like what's the growth rate trending for that core business?

spk08: Thanks for the question, Craig. So first of all, on the usage-based revenues, we have good visibility to those, particularly, again, when we dial back the growth rate a bit, that gives us even more confidence in being able to see those. So those have been growing. We've mentioned in the last call they doubled two years in a row. We expect those to continue to grow more rapidly than the rest of the business, even this year again. When we look at that on a cohort basis, we have good visibility. We know that when a new customer launches with expert medical opinion on top of an advocacy platform, for example, we can predict with relative certainty around where we'll get to in terms of a threshold in year one and year two and year three. And when we push on that for members who need it, we can drive that growth rate higher. And that's very much where I'm talking about where we can pull back a bit on the associated outreach spend. With respect to the advocacy market, again, we think of it, the business overall, in terms of a B2B distribution channel and a D2C. On the B2B side, it's often advocacy sold in connection with other capabilities, EMO, VPC, and partners. And that business has been growing. The ARR on the business, which is all the B2B revenues, has grown significantly. you know, 20 to 30% over the last couple of years, and we're optimistic on the growth profile for this year again. Again, all of that in the context of the growth rate that we're laying out today, we see that as consistent with the growth rate of the overall business in terms of the opportunity this year.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Michael Cherney with Lirik Partners. Your line is open.

spk07: Afternoon. Thanks for taking the question. I want to go back to Richard's question. In particular, the difference in the in-year revenue changes. We're so used to your model being one with highly predictable revenue where the big variation tends to be outperformance, which we saw this quarter, executing ahead of pace for your customers. So as we see the difference in numbers and the de-risking dynamic for the year, How much of that is tied specifically to advocacy? The reason I'm asking that is I'm not used to seeing a meaningful deviation for a full year revenue on advocacy based on the PMPM dynamics. In my view, you'd either have lost customers, which you could have walked away from, or something tied to the risk weighting on the performance guarantees. So I just want to make sure we can appropriately bridge The whole, the $22.5 million revenue change, not a huge number at the midpoint, but you should understand the why behind it specifically tied to advocacy if we can.

spk08: Thanks for the question, Mike. I'll start. This is Steve. Yeah, you should think of the change in the revenue outlook as primarily usage-based revenue. So again, those would be visit fees or case rate fees. And in this case, we're talking about in the direct-to-consumer business, dialing the growth rate back to a still attractive growth rate of about 20%, but dialing that back, there's associated marketing spend that's a big chunk along with that, that's a big part of the revenue reduction as well. That's one. Secondly, platform-connected revenues, which would sit on top of the advocacy for platform revenues, are the other big part of the biggest part of the revenue reduction here. So think of it as usage-based revenues, not necessarily the ACV PMTMs that you're talking about associated with the traditional advocacy customer base.

spk14: Those are the two core drivers.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Garrow with Stevens. Your line is open.

spk10: Yeah, good afternoon, and thanks for taking the questions. As you've talked about de-risking the growth outlook, one thing we haven't heard about is any change in assumptions around retention or bookings growth. And retention, I think previously you talked about next year, or I guess this current year and going forward, returning to 90% plus gross dollar retention. And on bookings growth, you've roughly alluded to growth in line with your long-term target. So with the change in this year's revenue growth outlook and the moderation of longer-term revenue growth expectations, we'll want to to see if we could dig deeper on those key assumptions around retention and bookings growth.

spk11: Yeah, thanks for the question, Jeff. Nothing really changes as it relates to our view on gross dollar retention from what we talked about last quarter and the ongoing view there. We deliver a lot of value for our customers, and we do a great job retaining them on an long-term basis. In terms of ARR or bookings growth, as Steve mentioned in his prepared remarks, Overall demand environment for the services remains strong. We continue to grow. We've closed more than our fair share of business in the early stages of the year, and we expect selling season to be successful. And we'd expect bookings on an ongoing basis to be pretty close to the growth rate of the business on an ongoing basis. And so, you know, you saw bookings grow from $54 to $86 million over the last three years. That's reflective of that demand environment. So really, where are you looking for any changes in the way we're thinking about guidance this year? As Steve mentioned, this year or next year, what we're really saying is we're de-risking the usage-based component of the revenue stream. And by de-risking, we're saying we're only going to spend X amount of dollars or the appropriate amount of dollars in order to drive those usage-based revenues.

spk14: And to the degree there's upside that could yield there, we think those will be upside surprises for our investors and shareholders.

spk03: Thank you. Please stand by for our next question. The next question comes from the line of Ryan Daniels with William Blair. Your line is open.

spk15: Yeah, guys, thanks for taking the question. I'll continue down this path of questions on the revenue outlook. I think last quarter you actually mentioned 30% to 35% usage-based and 65% to 70% access fees. And we could probably back into this, but I'll just ask direct on the call. How should we think about those percentages, both this year and then maybe going forward, given an increased focus on marketing yield and kind of getting the appropriate counts in the door? Thanks.

spk08: Thanks for the question, Ryan. Yeah, I think for this year, you can still think of those percentages as rough ranges, although I'd say for the usage-based revenues towards the lower end of that range for this year. And then given that those usage-based revenues, which include platform-connected revenues and D2C, which are growing faster in the business, that those will climb up over the coming years. But call it the lower end of that range this year.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Halinder Singh with Truist Securities. Your line is open.

spk21: Yeah, this is Jalendra Singh from Truist Securities. Actually, I want to double-click on the lowered expectations of PlushCare. Maybe if you can provide some color, how much of that is related to lack of GLP-1-related revenue, which actually did help you guys last fiscal year? because banded drugs are in shortage supply. And while we are on the topic, I mean, Raj, I'm curious on your thoughts around your conversation with employers, weight management, around weight management and GLP-1 in general, and given your new partnership recently announced.

spk13: Yeah, the decision around, thanks for the question, Dilanda.

spk11: The decision around how we're thinking about consumer revenues, largely around customer acquisition costs and capping at what level we think the right long-term lifetime value that customer versus customer acquisition cost ratio is, and being very, very disciplined about that. We have in the past, but ultimately looking at that as one of the opportunities to drive profitability alongside revenue growth. So that's the fundamental driver of that change. And I'll just reiterate what I spoke about early in the first question. We made a choice in terms of the way we're thinking about our strategy all about ensuring we're going to deliver attractive growth rates with certainty of bottom line performance based on the way we believe we have to take care of all the relevant stakeholders in our business. As it relates to GLP-1, it continues to be a driver of interest in the enterprise space. Customers are buying our solution because they want to control that, among other costs to the business. It's also a driver of interest from a consumer perspective as well. We've talked in the past that it is a driver of volume in both areas. In the enterprise space, though, remember, we are abiding by the policies associated with that our customers derive for their members, including things like preauthorization, et cetera, to tie out to the customer's trend line performance requirements, et cetera. So nothing tangibly different in terms of the demand environment associated with GLP-1. And I wouldn't attribute any of what we're talking about here today to GLP-1.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Jessica Tyson with Piper Sandler. Your line is open.

spk22: Hi, thanks for taking the question. I was hoping to dig in a little bit about the CalPERS deal. There are some details out there publicly. So another navigation vendor is able to offer a 5.5% cost trend target in 2025. lowering about 60 bits each year from 26 to 29. I guess just if accolades use those cost trend targets or those guarantees as aggressive, how close can you guys get to that, you know, approximately 60 basis point cost trend improvement every year? And just are you enhancing the platform or kind of endeavoring to match those types of targets you know, in the future. Just curious in your views on what is achievable and anything you're doing to kind of, if that's what a competitor is offering and that's what the market kind of looks like at this point, how quickly can you all get there? Thanks.

spk11: Yeah, I appreciate the question, Jeff. A few thoughts. First, performance trend line as it relates to cost trend is one of the factors that's associated with customers making a buying decision. In the case of CalPERS, the deal you specifically referenced, a few things to note. Large opportunities like that one oftentimes have the customer and the consultant or the prospect and the consultant dictating staffing ratios, dictating the number of interactions per person, et cetera, putting extraordinary depth into what they require from a service delivery perspective, including staffing ratios. When we bid that business, we bid it at a level that was associated with our standard performance guarantees and in the neighborhood of where we traditionally are as it relates to the percentage of fees at risk. If you review what the ultimate winning proposal was, we think it's safe to say it was tangibly lower, and by tangibly I mean materially lower from an all-in fees perspective, number one, Number two, it put a significantly higher amount of their total fees at risk. And number three, it made an assurance around trendline. Are we capable of driving trendline guarantees like the one that were described there? Of course we are. Our capacity to do so depends on how the customer configures our solution, the way we deliver the solution, the engagement rates we deliver for the solution. Doing so when we're delivering at, you know, let's call it materially, materially lower top line fees and with an extraordinary amount of fees at risk, we didn't feel, in our view, was appropriately balancing all of our constituencies, shareholders, employees, customers, members, partners. So we chose to bid at a much higher number with less fees at risk And the performance guarantees that we put at risk we think are very competitive to the way the customer ultimately purchased. So I wouldn't say that was the driving force of why the customer made the selection that they made. Why are other companies potentially being more aggressive from a top line fees perspective and from a fees at risk perspective? That I can't answer for you. What I can tell you is in these types of opportunities, we're going to be disciplined about the way we approach things. What we have seen in the past is when companies have been undisciplined, two years from now, three years from now, those deals come back our way. We've seen it happen multiple times over the last five years. And we expect, whether it's this deal or other deals, we'll see it happen again over time. Disciplined behavior from a deliberate perspective yields long-term businesses. And so answering your question, yes, yes. We're already capable of delivering those kinds of trend lines. To do so, we're going to do it by delivering a service we know will make our customers happy and that we know we can deliver profitably.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Ryan McDonald with Needleman Company. Your line is open.

spk20: Thanks for taking my questions.

spk09: Raj and Steve, I'm curious, as we've talked to more of the Digital HealthPoint solution vendors more recently, it seems like that one area of surprise as we've gone through this year has been around employee staffing levels at customers with sort of the layoffs to start the year and some of the turnover there having maybe an unexpected impact. Are you seeing any of those impacts in terms of employee accounts in your calculation for the updated guidance. And then secondly, as you talk about pulling back on marketing costs within the customer base, is there any risk here to your ability to hit some of those performance guarantees targets that are associated with engagement as we go through the year based on some of the pullback and spend here? Thanks.

spk08: Ryan, thanks for your question. It's Steve. So first point around employee staffing levels, we have seen some noise at that. We've seen some customers shrinking in employee base. We also have seen offsetting growth, modest growth, but growth to offset that in a sense of our same store member growth across our book has remained relatively flat over the last couple of years, including this year to date. That's not a large impact. We also don't build in an assumption about massive growth there in the current macro environment. To your second point about marketing spend and being able to achieve operational PGs or even savings PGs, we've taken that all into account and are not reducing to that level. What we're reducing is called the marginal incremental marketing spend to drive incremental usage and incremental revenue to hit the higher revenue goal that we've reduced today and not to put our current customer base at risk in terms of operating PGs or savings PGs.

spk03: Thank you. Please stand by for our next question. Our next question comes from the line of Stephanie Davis with Barclays. Your line is open.

spk23: Hey, guys. Thank you for taking my questions.

spk02: Just given the funding environment and your comments around not pursuing unprofitable businesses being a little bit at odds, I wanted to ask this more directly. Are you still seeing any irrational competitors in the market that's driving this aggressive pricing, or are you starting to see a limiting factor around customer willingness to pay due to macro? And since you've talked a lot more about your opportunities within your base versus outside of the base, Do you have any opportunity to lean further into cross-selling with your STNA dollars to maybe benefit next year's growth via your existing base?

spk11: Thank you for the question, Stephanie. Let's start with the second question first.

spk01: I know it's a lot of questions.

spk11: No, it's all right. You're all good. Thank you. Let's start with the second question first. We absolutely have an opportunity to continue to grow into the customer base. Last quarter, we talked about the growth in platform-connected revenues. Platform-connected revenues continue to grow tangibly and outpace the overall growth rate of the business. Platform-connected revenues is really where you're looking at growth inside the customer base and what other companies, different looking companies might call cross-selling. So that's part one. Answering question number two first. Question number one, are we seeing a commonization or standardization of pricing in the market where by and large, we're seeing rational pricing in the marketplace? The answer to that question is yes. That said, there will always be opportunities where companies might see places where they might be more aggressive or tangibly more aggressive for whatever reasons their business might dictate. And in those situations, what we've decided, and we've decided this over the last several years, is we're building a long-term business. We're building a long-term business that we think can grow attractively with discipline because most customers, not all customers, but most customers will look at track record, will look at referenceability, will look at historical performance against trendline improvement and performance guarantees, will look at consulting relationships and consultants' credibility associated with the services that we deliver, and choose the market leader at price points that can sustain the business we're attempting to build. And nine times out of 10, eight times out of 10, we see that behavior manifesting in the marketplace. There will be on occasion deals that are one-off where the opportunity is large and some competitors are coming in materially lower than what other competitors are coming in at. When those happen, maintain our discipline, run our business, and acknowledge that over time, all of these things tend to work themselves out in the end.