Accolade, Inc. (NASDAQ:ACCD) Q3 2023 Earnings Call Transcript

Stephanie Davis: Hey, guys, thanks for taking my question and congrats on a solid quarter. Raj, I thought it was notable that we always think of you as an employer facing solution. And then your prepared remarks, essentially just focused on the government and payer business. So with that in mind in those prepared markets potentially reflecting a changing mix in business, I was hoping you could talk about what sort of mix shift that creates in your investment spend, and how you’re looking at hiring across engineers versus sales folks versus care teams, as you go more towards the outside of the employer base.

Rajeev Singh: First of all, thanks for the questions, Stephanie. It’s great to talk to you — Stephanie, it’s great to talk to you again and thanks for being here. Stephanie, I think — here’s the way we think about the business. And we’ll always think about the business. We’ve got a diversified set of channels that we deliver to, and a diversified set of solutions that we delivered to those channels. And we’ve kind of walked through those in the — I won’t walk through each of the commercial sector, our direct to employers segment, and our reaching that segment, either via our direct sales team or VR health plan channel continues to be an extraordinarily important part of our business and the majority of our business. And so if there was any implication or anything that you took out of my prepared remarks, as it relates to our focus on the government business being larger or potentially outside to our commercial business, or even our consumer business, that was not intended.

Instead, I think what we believe is we have really healthy growth opportunities in the commercial segment. We’ve talked in the past about, when you think about the commercial segment and the fact that I think the last time we talked about the number of customers we had, we talked about north of 600. There’s 30,000 35,000 opportunities in that commercial segment. We’ve got plenty of room to grow there and plenty of room to build a billion dollar company just there. We also think there’s a segment in the government space, that has an opportunity to be hundreds of millions of dollars on a long-term basis as well. And beyond that, we think the consumer segment of the direct-to-consumer segment has an opportunity that could potentially be a $1 billion business of its own.

That’s why we’re excited about the business, each of those is going to grow at different rates and therefore require different levels of patients, different level of capital investment, et cetera, we’ve got to do that within the context of being a $500 million company that’s pre cash flow breakeven, or better in fiscal ’25 and that’s what I intend to do. So I wouldn’t say we were over — we’ve shifted our focus in some material way only to say, every quarter we aspire to give you color on all the things we’re working on, because I think in fiscal 2021 — in 2021, when we went public, we were a one product company with one segment. And sometimes we want to make sure that the market as a whole understand that this is a fundamentally different business, more diversified, more capable, and with far more predictability to the go-forward revenue streams and P&L.

Operator: Thank you. One moment for next question. Our next question comes from Stan Berenshteyn from Wells Fargo. Your line is open.

Stanislav Berenshteyn: Hi. Thanks for taking my questions. Maybe I can share a couple here. First, can you quickly just quantify the extent performance-related revenue hit the third quarter? And then within your core navigation and advocacy services, can you share with us what mix of member communications navigation versus advocacy? And whether you’ve seen any changes in that mix over the past couple of years? Thank you.

Steve Barnes: Stan, this is Steve. Nice to talk to you. Thanks for the question. So I think your first question was the mix of TGs versus kind of base fees in the third quarter. While we don’t have that specifically laid out right here for the call, what I will say, Stan, it’s an interesting dynamic and it goes hand to hand with what Raj just described is the evolution of the business over the last 3 years or so. In 2020 when we came public, you’ll remember that TGs were roughly a third of the revenue and 85%, 90% of those savings-based TGs are recognized in the fourth quarter of the business. What we have fast forward today is the advocacy businesses comprises 60% plus of the revenue. So we’ve got a diversified set of revenues and the TGs of the business are being recognized much more ratably during the year.

So rather than 90% of them being with us in the fourth quarter, it’s something like half of them are recognized through the year, and I’m talking now about just the savings-based component. And call it, half of them are recognized in the fourth quarter. And then along those lines, the mix of those on a typical advocacy deals is something like two-thirds of the revenues are fixed and a third of them are variable and within that, call it, 10% of the total of our savings base. So all of that adds up to a diversified, predictable set of business. I’m going to hand it to Raj for the other part of your question.

Rajeev Singh: Yes. Sure. Stan, as it relates to member communications and the breakdown between Advocacy and Navigation, we probably need to follow-up on this one. I’m not so sure I understand the question. We are really good at being able to break out the type of engagement we have with the member, whether it’s a benefits question or claims question, a provider search question or a clinical need broken down by clinical category. We don’t necessarily break out our communication, sort of our messaging by advocacy versus navigation. In fact, we look at both of those things as really an actually tied to the solution that we deliver.

Operator: Thank you. One moment for our last question. And our last question will come from the line of Robert Simmons from D.A. Davidson. Your line is open.

Robert Simmons: Hey, thanks for taking the question. So when you’re building your preliminary fiscal ’24 guidance, what were the key three factors that you considered? And then kind of where would you say is the most potential upside? And where is the most potential downside to your numbers?

Rajeev Singh: Robert, we — first of all, it’s great to hear from you. Will you repeat the question, you cut out a little bit right in the middle.

Robert Simmons: Yes, yes. So I was wondering what are the key three factors that you considered as you’re building your preliminary guidance for next year and where you see the most potential upside or most potential downside?