Yahoo Finance Accolade, Inc. (NASDAQ:ACCD) Q4 2024 Earnings Call Transcript
Accolade, Inc. (NASDAQ:ACCD) Q4 2024 Earnings Call Transcript April 25, 2024
Accolade, Inc. beats earnings expectations. Reported EPS is $-0.1, expectations were $-0.11. Accolade, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello and thank you for standing by. Welcome to Accolade Fourth Quarter 2024 Earnings Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Todd Friedman, Senior VP of Investor Relations. You may begin.
Todd Friedman: Thanks, operator. Welcome everyone to our fiscal fourth quarter earnings call. With me on the call today are our CEO, Rajeev Singh; and our CFO, Steve Barnes. Before I turn the call over to Rajeev, please note that we'll be discussing certain non-GAAP financial measures that we believe are important when evaluating Accolade's performance. Details in relationship between these non-GAAP measures to the most comparable GAAP measures and the reconciliations thereof can be found in the press release that's posted on our website. 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 and uncertainties and other factors that could cause the actual results for Accolade to differ materially from those expressed or implied on the 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. Additionally, there are slides that will accompany the CFO presentation on this call that will be available on the webcast. The slides will be available for download following the call. With that, I'll turn the call over to Rajeev.
Rajeev Singh: Thank you, Todd and thank you to everyone for joining us today on our fiscal '25 kickoff earnings call. This is an important moment for Accolade and for our shareholders. Over the last several years, markets, including health care, have fundamentally changed. Success today requires a balanced growth mindset with a focus on execution, discipline and profitability. Speaking specifically to health care, it's time for digital health care disruptors to prove their business models have product market fit in a large market operating leverage, a discernible competitive advantage and teams that can execute through a challenging environment. Some will succeed and others will not. Accolade is amongst that select group that has succeeded by checking each of these boxes.
Today, we're a well-positioned company, positioned to build a strong and enduring business for our customers, shareholders, employees and partners. With those high-level remarks behind us, let's begin to zoom in on our business and where we stand. We just completed a fiscal year where we delivered north of 20% top line growth and improved our adjusted EBITDA approximately $30 million year-over-year. Both of these achievements are above the expectations that we set at the outset of the fiscal year. As a brief aside on the consistency of our execution, with the exception of a quarter where we lost a large customer 2 years ago, we have consistently met or exceeded expectations since we became a public company in July 2020. Our outlook for fiscal year '25 is also strong.
Consistent with our long-term guidance, we expect top line growth in the neighborhood of 20% and profitable adjusted EBITDA on a full year basis. Today, serving more than 14 million lives across more than 1,200 customers, we are a scaled health care services company with a direct line of sight becoming a Rule of 40 company in the years ahead. Our growth in the year ahead is driven by several things. First, in annual recurring revenue growth rate of 20% in the last fiscal year, reflecting the strength of our business to business, employer government and health plan offerings. Second, the continued strength of a direct-to-consumer business that again grew over 20% last year and is highly differentiated in a competitive market. And third, the exceptional growth of what you will hear us refer to today as platform connected revenues.
These are revenues from offerings either our own or from our partners that are delivered because they are connected to our health care navigation platform. More to come on platform connected and usage-based revenues later in today's call. Let's get into more depth on each element of our business and offerings and why they continue to grow at rates that outpace the market. Our business-to-business offerings focused on employers, health plans and the government are highly differentiated, valuable to our customers and members and scale to deliver growth and profitability. Our health care navigation platform is seamlessly integrated with our own primary care and expert medical opinion capabilities and with our trusted partners. This seamless integration is particularly compelling to employers and unique from our competition.
From an employer perspective, we solve the physician gap, helping people get access to the right care when they need it from us, our partners or from brick-and-mortar health systems, something that is particularly challenging for underserved urban, rural or minority populations. That seamless integration from navigation automated care delivery is enabled by a technology stack which is at scale, state-of-the-art and market leading. It is extensible. And as new capabilities have emerged like generative AI, we've been able to embrace them at pace and deliver leverage to our business. We were recently the recipient the artificial intelligence Excellence Award from the Business Intelligence Group. AI and our investment in technology [indiscernible] are key contributors to the significant improvement in our profitability over the last several years.
That seamless integration enables platform-connected revenues. These revenues reflect visits with our primary care positions second opinion consults with expert specialists and enrollments in our trusted partners program. These revenues grow in 2 ways: through customer adoption of new services and through member utilization of those services. Once we see customer adoption in any given year, we expect member usage of those respective services to grow in each following year up to an appropriate threshold based on the relevance of the respective service to a given population. The flywheel is extremely simple. Customer adoption of the service, deployment of the service, including engagement of the service which grows each year as a cohort. One final point on our business-to-business offerings.
The diversity of our offerings gives us access to a variety of growth engines. In previous quarters, we've discussed the demand for our offerings from both employers and the government. In today's call, I want to give you more depth on our appeal to health plans. As many of you know, for many years now, we've maintained productive relationships with health plans such as UnitedHealthcare and Aetna, that resell our expert medical opinion service. We're increasingly seeing health plans interested in relationships where certain of our capabilities are embedded into their own employer offerings. Just this past quarter, Blue Shield of California published the results from the first full year offering a virtual first plan design called Virtual Blue powered by Accolade.
The results were outstanding. Here are some highlights. Reduction in overall cost for the population of 8% to 10% and emergency room claims down 11%. 85% of members received a mental health [indiscernible] and bringing you back to the physician gap, 2/3 of their members received an appointment within a single day. In addition, recently, as some of you noted, Blue Cross Blue Shield of Arkansas launched an employer offering powered by our navigation platform where customers have the option to also add Accolade care or second opinion capabilities. We expect our relationships with health plans, both reseller arrangements and partnerships focused on offerings where accolade capabilities are fundamental to the new solution to be a growth engine for the business in the years ahead and Steve will give you more color on how to model these revenues in his remarks.
Moving to our D2C offerings. We offer a compelling and differentiated virtual primary care and mental health offering that continues to grow faster than the rest of the market. Let me outline for you why this growth has continued to outpace other telehealth offerings in the employer and health plan markets and why such growth is sustainable. First, most telehealth offerings in the market offer urgent care, meaning that physicians do not have access to the longitudinal care record of the patient or any information on their corporate benefits. Patients cannot ask to see the same physician again and most physicians are employed in a gig economy part-time role. Our PlushCare direct-to-consumer offering is the opposite of those solutions. Our positions utilizing built-for-purpose longitudinal EMR system, patients can select the primary care position and stay with them and our physicians spend at least 60% of their time serving Accolade patients.
Second, we've built an integrated collaborative care model that embeds mental health care into our primary care model. As Blue Shield California noted in their study, we performed mental health screenings on the majority of our patients and we have behavioral health specialists embedded in every care team, thereby providing a scalable mental health service that patients love. Third, our service is powered by a state-of-the-art digital experience and dedicated physicians from the top 50 medical schools in the country, a combination that yields Net Promoter Scores of around 90 consistently. We simply have an easy-to-use service that delivers exceptional patient value. One final point. We've tightly integrated the teams, services and capabilities from PlushCare since our 2021 acquisition in a way that has fostered the continued growth of the consumer business while allowing us to extend access to the same exceptional care experience from these dedicated physicians to our employer customers.
Notably, approximately 80% of the new Accolade customers that launced on January 1 of this year deployed Accolade care. PlushCare and other acquisitions have flourished since being brought under the Accolade umbrella both individually and as critical components of our B2B offerings. As I turn the call over to Steve, a closing thought. I have never been more bullish about the strength of the market we compete in, the scale and the leverage of our model and the team we've aligned to execute against our vision. As one of our investors and recent [indiscernible] said in a recent blog post, it's time to build in health care. Accolade is leading the way. Steve?
Steve Barnes: Thanks, Raj. I'll recap the results for the fiscal fourth quarter, comment on our outlook and forward guidance and provide additional color on the key drivers of our model as our business has expanded and diversified materially since our IPO in 2020. The webcast will show a set of slides to support these comments and the [indiscernible] will be posted to our IR website after the conclusion of the call. We hit on this at length in our Capital Markets Day presentation last May and it's worth reiterating. We have executed on a strategy that has meaningfully diversified our offering mix, our customer base and our partnerships and by extension the sources of our revenue. Our margin leverage, both gross margin and operating margin is likewise rooted in its diversification as offerings like primary care and our trusted partner ecosystem carry attractive gross margins and also because the attachment and increasing contribution of usage-based revenue like EMO case rate, primary care visit fees and partner ecosystem revenues create the opportunity to capture more wallet share during the year without incremental sales and marketing costs.
You'll note that we are using the term usage-based revenue instead of utilization-based revenue for clarification, starting with this quarter and in our 10-K. As I walk through the results, our key metrics and then our guidance, please keep this diversification and evolution of our business in mind. In that vein, I'll note that many of you have asked for more detail on the various revenue streams and dynamics driving our business. Today, we will provide some of that additional color to illustrate the breadth and strength of our business as we accelerate into profitability. First, let's start with the quarter. On this slide on the webcast, you'll see we generated approximately $125 million in revenue in the fourth quarter of fiscal '24, representing 30% pro forma growth over Q4 of fiscal '23.
This growth was driven by a healthy mix of PG performance, new customer launch revenues, usage-based visit and case rate revenues and D2C virtual primary care. Adjusted EBITDA was also strong, coming in at $18.5 million, the largest quarter for adjusted EBITDA in Accolade's history. Fiscal Q4 adjusted gross margin was 54.2% versus 50.5% in the prior year period. And for the full year, revenue was $414.3 million and adjusted EBITDA loss was $7.5 million. Note, in fiscal '24, we generated almost $100 million in revenue from PlushCare, our D2C offering which reflects the value and differentiation of that offering and the platform, as Raj described earlier. I'll provide further depth on our various revenue streams shortly. Adjusted gross margin for the year increased to 47.6% from 46.8% in the prior year.
Now turning to the balance sheet. Cash, cash equivalents and marketable securities totaled $237 million at the end of the fourth fiscal quarter, reflecting an increase of $7 million during the quarter. Our cash balance, combined with our turn to profitability, continue to provide us confidence in the strength of our balance sheet and our plans to manage our convertible notes which mature in April 2026. Before turning to guidance, allow me to reiterate that we had a strong [indiscernible] season in fiscal '24, with $86 million of ARR bookings, representing approximately 20% growth over fiscal '23. Keep in mind, the nature of our ARR bookings is evolving to reflect the strength, breadth and appeal of our capabilities to a wide range of participants in the industry.
In addition to contributions from the employer and government markets, Health plan partnerships are meaningful ARR contributors and represent significant growth opportunities for Accolade. Relevant to that point, let me touch on 2 annual metrics that we have shared historically. First, ACV or annual contract value was $351 million at the end of fiscal '24 which compares to $309 million at the end of fiscal '23. As we discussed in detail at Capital Markets Day last year, ACV is a metric whose relevance has evolved since the time of our IPO. 4 years ago, when we were advocacy only and all of our revenue was PMPM-based ACV represented more than 90% of the following year's revenue forecast. With the dramatic expansion of our business since that time, the increasing contribution of usage fees and our direct-to-consumer virtual primary care offering, ACV is still a relevant metric but less so than historically.
This is why we are providing additional color about usage fee growth and the drivers therein as well as a breakout of PC revenues. Gross dollar retention, or GDR was 89% at the end of fiscal year-end '24 and we expect it to be in the 90% range going forward. A couple of comments about DR. First, a portion of the difference from our historical GDR range at fiscal year-end '24 is associated with the ending of our [indiscernible] in April 23 and the delayed launch of T-5. We are bullish on the continued growth and value we provide to government via our autism care demonstration offering and the opportunity to drive revenue in the future via the T-5 program. Another aspect of GDR relates to the maturing profile of our business. Our company now has more than 1,200 customers versus 54 at the time of our IPO.
We are making decisions across the business that are highly aligned with our commitment to delivering profitable growth. As we make that turn, our current focus and offering portfolio is not always aligned with some customer relationships and their contracts with us. We acknowledge that this is part of building a growing company that is disrupting the established health care system and we are making choices that are in the long-term interest of Accolade and our shareholders. Now turning to guidance. We are reiterating our fiscal '25 revenue guidance in providing an initial range of $480 million to $500 million, representing year-over-year growth in the range of 16% to 21%. I'll provide some detail on the revenue build from a couple of viewpoints and in a moment, walk through some slides to illustrate.
As Raj noted earlier, we view our business through 2 broad categories: B2B which comprises employer health plans, government and partner end markets and D2C representing PlushCare, our direct-to-consumer VPC and mental health offering. On the B2B side, our health care navigation platform serves as the chassis upon which we deliver our core advocacy offering, along with integrated add-on elements of VPC, EMO and our broad set of TPE partners which cover a range of critical clinical categories. We call these add-on elements platform connected revenues. Typically, we drive PEPM or PMPM access fee revenues from our navigation platform and usage-based revenues from our platform connected offerings. In addition, our EMO offering is sold on a stand-alone basis, primarily through channel partnerships with health plans.
In D2C, we derive revenues from visit fees and subscription fees. Our D2C margin profile is attractive and we carefully manage customer acquisition costs, retention rates and LTV. Remember that the same virtual primary care offering about spinning doctors, care providers and technology serves our B2B customers, including employers and health plans. The range of our revenue guidance reflects that there is variability in some elements of our model that we manage carefully to balance growth, profitability and shareholder value creation. With respect to adjusted EBITDA, we are improving our guidance for fiscal '25 to a range of 3% to 4% of revenue or approximately $15 million to $20 million. And we are providing fiscal Q1 guidance today of revenue in the range of $103 million to $106 million and adjusted EBITDA loss in the range of $9 million to $12 million.
You'll see on Slide 6 that we will lay out a view of our expected approximately -- approximate quarterly revenues and adjusted EBITDA ramp in fiscal '25 which sum to the midpoints of the respective annual ranges. As a reminder, for advocacy deals, we placed on average about 10% to 15% of our fees at risk on a performance basis to demonstrate measurable health care cost savings for our customers. As in previous years, at the start of the year, we forecast that the majority of those claims-based savings PGs will be recognized in fiscal Q4 which along with the impact of forecasted new customer launches on January 1, are the primary drivers of the higher portion of annual revenue in fiscal Q4. This quarterly ramp is very similar to the ramp we outlined this time last year at our Capital Markets Day which we ultimately exceeded.
On the next slide, you'll see a view of adjusted EBITDA, in which we expect the loss to narrow in fiscal Q2 then to be approximately breakeven in fiscal Q3 with the second half of the year generating significant positive adjusted EBITDA. On the next slide, we'll walk through revenue composition. We've talked about the growing contribution of usage-based revenues over the past few years. This represents the biggest shift in our business model since the IPO. With a few years of operating history behind us following the PlushCare [indiscernible] acquisitions, we'd like to lay out in some detail the impact of the usage-based revenue. For definition, usage-based revenue largely represents primary care visit fees, expert medical opinion case rate consultations and TPV revenue that is tied to usage.
Importantly, usage-based revenue has grown from 15% of revenue in fiscal '22 to 27% in fiscal '24 and we expect it will represent approximately 30% to 35% of revenue in fiscal '25. This represents growth from the existing navigation customers who are adding platform connected offerings, plus growth from new customers launched within our bundled solution which includes the platform connected offerings, EMO and care and increasingly choosing to also attach a trusted partner as well as the increasing utilization of these platform connected offerings by the population who have access to them. As noted by the dark blue line in the graph, platform connected revenues approximately doubled in each of fiscal years '23 and '24 and we expect those revenues to continue to grow materially in fiscal '25 as we drive incremental usage-based revenues from each of our cohorts of customers.
What's most exciting about this dynamic as we don't expect or need to see dramatic changes in usage rates to drive revenue opportunity. We have more than 12 million lives covered under Expert MD and more than 1.5 million lives under Accolade care. Relatively small increases in EMO utilization, [indiscernible] rates or TPE referrals can add meaningful revenue growth in any year. Health plan partners leveraging Accolade Care to deliver virtual primary care will also be a driver of usage revenues as evidenced by the Blue Shield of California example that as described earlier. And on Slide 9, you'll see a view of fiscal '25 revenue. When you apply the contracts that I just laid out, you'll see in the current year or forecast a walk from fiscal '24 results to our fiscal '25 guidance.
Starting with the fiscal '24 revenue of $414 million, these first few bars should look familiar from our Capital Markets Day last year. You have the impact of churn offsetting growth in new ARR and in year launches. You'll also note that we don't carry 100% of ARR into the following year's revenue forecast based on start dates and some conservatism around PG attainment in year 1 of the new contracts. I'll point out 2 columns that provide additional detail in our model. First is the increase in usage-based revenue and the second is the growth in D2C primary care. To better understand the dynamics of increasing revenue from new offerings and increased usage, let's look at an example customer on the next slide. This slide shows one of our larger customers who started with Accolade navigation platform in 2018.
We show a 5-year progression on the slide, starting with fiscal '20 when the PMPM revenue was approximately $8, all on an access fee-only basis. Over the next few years, this customer grew modestly through head count and TPE adoption and then in fiscal '22, the customer added EMO and in fiscal '23, the customer added Accolade Care and several more TPE solutions. You can see that as we have delivered more offerings, more services and more care to the customer and its members, we have also seen our revenue from this customer growth with the PMPM increasing approximately 50% from a start as a navigation only customer. We consider this a model customer, one which has invested with us to deploy a fully integrated stack of health care capabilities rendered as a single place for all its employees and members of their families to turn for their health care and benefits needs.
The impact of the customer is better outcomes across their population and lower medical expense. And as we look ahead, we expect our wallet share with this customer to continue to grow. When you apply that model to a broader book of health care navigation customers, as we drive additional attachment and usage of these platform connected offerings, we can see a significant revenue expansion opportunity in the range of 50%. This incremental revenue lift with existing customers layers on top of our enterprise and consumer growth engines, providing the foundation for sustainable revenue and margin expansion. To recap, today, we outlined several elements at the heart of the business we are building, including delivery of platform-connected revenues on top of our health care navigation platform which drives scale and differentiation.
The diverse -- the strength of our diversified revenue streams, the integration of our platform, operations, offerings and capabilities and the predictability of our model. Combined with the close of another year of sound execution give us confidence that fiscal year '25 will be our first full year of profitability on an adjusted EBITDA basis on the path to creating significant value for members customers, partners and our employees and shareholders. And with that, we'll open the call to questions.
See also
20 Cheapest Countries to Study Abroad and
10 Best Construction Materials Stocks To Invest In Right Now.
To continue reading the Q&A session, please click here.
