Rajeev Singh: Sorry about that, Craig. We had some cell phones. We had some sort of an amber alert in our area and our cell phones are all going crazy. Thanks for the question. This is Raj speaking. First of all, I agree, there’s been some [indiscernible] in the overall marketplace as it relates to things like the change breach. That said, I think the biggest thing on customers’ minds today is health care trend line. Steve mentioned it, it’s true not only around GLP-1s, it’s true not only around cancer but it’s also true around inflationary pressures and customer obsession with return on investment. Customers are really pushing hard to see the return on their existing investment. And in many respects, why we’re so excited about the platform connected revenues when our existing customer base which is now 1,200 strong, is coming back to us and saying, “How can you help us maximize the value of everything we’ve already purchased.
” In fact, one of our customers called it sweating his existing assets and that’s — you can imagine that it might be a manufacturing company that use that expression. Our platform gives us the capacity to do exactly that. And so we believe that individual cohorts who are deploying on any given solution will grow on a year-over-year basis. And that focus of growing individual cohorts on existing assets is really where we think our customers are most focused. The second point on that would be we fundamentally believe as well that customers in this environment are looking at the navigation platforms more so than they were in quarters past and that’s reflecting a stronger pipeline.
Operator: Our next question comes from the line of Jeff Garro with Stephens.
Jeff Garro: I really appreciate the helpful information about seasonality of performance guarantee revenue. But I wanted to ask about seasonality for usage-based fees and where our expectations should be there? And part of the question, just trying to get a better understanding of the revenue growth implied for the first quarter versus the full year and kind of recalling that surge in GLP-1 related activity early last year.
Steve Barnes: Jeff, this is Steve. Great question. You think about it, there are a few different angles on usage-based fees for sure. Once a customer is up and launch, so we think of it as a cohort to customers we launch. So think of a brand new set of customers launching on year 1, like Raj described, virtually all of our customers have Accolade care and/or Expert Mental opinion attached and in some cases, a trusted partner. And but they’re starting from 0 because those are all going to be usage-based fees. That customer is going to get ramped up and it might take 2 to 3 years to get to what we view as that kind of rational targeted utilization [indiscernible] that Raj was describing. So in year 1, you should see it grow a bit throughout the year after — into the second half of the year for that first set of customers.
Then once they’re up and running, we see pretty consistent through the course of the year. Certainly, in the case of, for example, our primary care offering in the case of PlushCare on the direct-to-consumer or enterprise side you see some impact from flu season and elements like that but it’s fairly consistent throughout the year.
Rajeev Singh: Jeff, I think if you were to — if we were fully penetrated to all of our customers and deployed for several years across all those customers with all of our services, that’s when you’d start to see seasonality have an impact on platform connected revenues. But today, I think the way you’ve described it means it’s going to be fairly up and to the right like you see on the chart that we displayed in Slide 7.
Steve Barnes: Jeff, there’s one other — if I think about just the add-on to that. Health plans have been becoming a more important part of our revenue growth algorithm. If you think about the arrangement with either Arkansas or California Blue Shield where we’re just launching, you’re also seeing there that [indiscernible] type of cohort effect where we’re having opportunity to do outreach work with that health plan to do engagement on a co-branded basis, those are going to ramp up over time. So those will have I wouldn’t necessarily point to seasonality as much as a ramping part that will take to also hit those rational peaks of utilization opportunity.
Operator: Our next question comes from the line of Ryan MacDonald with Needham & Company.
Ryan MacDonald: I wanted to ask about TRICARE and the T-5 contract. Earlier this year, obviously, we, I think, finally completed the appeals process and we have full awards. And at least from the sort of government website, it looks like that there’s still tracking to launch and start providing care in January of ’25. So what if any at all sort of revenues are you building into the fiscal ’25 guide from that at this point?
Rajeev Singh: Thanks for the question, Ryan. We continue to build in the growth of the Care demonstration. That’s a population we serve exceptionally well. Satisfaction levels are really high and we expect that business to continue to grow. We’re modeling that at modest growth. And we’re really not factoring in any material new growth in the T5 agreement until we can see — until we get a little closer to the actual innovations that the government is going to mandate for their — for the vendors that were selected. We expect that we’ll see a lot more color on that over the course of the next 2 to 3 quarters.
Operator: Our next question comes from the line of Jess Tassan with Piper Sandler.
Jessica Tassan: And appreciate all the detail. I just — I wanted to confirm for the FY ’24 ACV number, can you just remind us again what that comprises what percent of ACV is PMPM versus contingency-based revenue and kind of what’s the assumed attainment of quality and cost base contingencies in that ACV number. Finally — sorry for the multipart question. But just finally, can you confirm utilization-based revenue from both an enterprise and PlushCare perspective would be excluded from that ACV number [ph]?
Steve Barnes: Hi Jeff, this is Steve. I’ll grab that one. So what goes into ACV is just B2B contract revenue. So to your last part of your question, it does not include direct-to-consumer revenue but it would include an estimate of 4 or 12 months utilization-based revenues. To your earlier — the first part of your question, if you think about the ARR number, we spoke about $86 million. We see conversion of 80% to 85% of that number into the ACV number. There’s a — we essentially haircut for PG realization and timing of launches. So if you think about the walk from last year’s ending number, less terminations to GDR, the gross dollar retention and then add in about 80% to 85% of that ARR number you get to the 351. Importantly, one of the key points we’re hoping to drive home here today is the business has expanded and diversified so much since we went public that ACV is one important predictor.
I think it’s in the range of 70 or so percent of this year’s revenue. When you add on to that, the growth vectors on the platform connected revenues that will also add into that ACV number and the direct-to-consumer growth rate and the in-year revenues from new ARR bookings and launches is how we build up the guide to fiscal ’25 revenue.
Operator: Our next question comes from the line of David Larsen with BTIG.
David Larsen: Congratulations on your success with Blue Shield of California. I think 2 of your competitors may be serving that region and both of them seem to be under significant pressure, partly because of the things it sounds like you’re able to do that maybe they’re not. When you talk about utilization and activation, aside from like PlushCare and the expert medical opinion service, are both sort of obviously utilization based. When we talk about like [indiscernible], for example, or a vendor that you’re connecting, measuring activation of those services? And then what is it typically across your entire network? Is it like 20% to 25%? Or is it like 80% and then how much revenue is coming from like those sort of partner vendors if we exclude Plush and also Expert Medical opinion, please?
Rajeev Singh: We’re going to take this answer, David, first of all, thank you for the question. Our success with Blue Shield of California has been a partnership effort in Blue Shield of California and the team here at Accolade get a ton of credit. We’ve partnered really well and the virtual [indiscernible] is something that I think both companies are really proud of. Secondly, as it relates to platform connected revenues, you’re correct. They do include both our expert medical opinion and primary care service and those services or the utilization of the services in our trusted partner ecosystem. Let me give you an example of how we think about a trusted partner ecosystem utilization. We’ll take Virta as an example. 9% of most populations, 9% of the American population [indiscernible].
And I’m just going to use this simple math. So you might presume that 9% of a population using Accolade navigation platform in Virta is a candidate for using Virta. Let’s say 1/3 of that population is reachable in the first year. That might be a cohort that we convert at — say, 50% in that first year. And so we’re talking about 1.5% of the 9% that we reached in that first year. Each year, we have an opportunity to grow that utilization rate as we build a relationship with that membership because we’ve got a long-term relationship with that customer and extraordinary engagement rates. And so it will depend on the service, Dave, with a vendor like Virta might be focused on people who are prediabetic and diabetic with an offering like musculoskeletal, like [indiscernible].
It might be those who are wrestling with musculoskeletal issues that might be a smaller percentage of the population but each have an opportunity to grow each year. Steve or Jeff?
Steve Barnes: I would just add, Dave, to that if you think back to Capital Markets Day last year, I think [indiscernible] Virta remark that when Accolade is present, we’re seeing sometimes 2x utilization there. And so there’s a very symbiotic relationship here between certainly the partner and Accolade and which we’re sharing in the — to the extent we’re able to drive incremental revenue and also to the customer who’s procured that solution believes that they have a real need within their population, they want to see that engagement and ultimate completion. So we’ve chosen that select set of TPEs and design relationships with them, those partners so that we can share in the revenue when we drive that high-quality engagement with the partners.
So today, it’s a very important part of our revenue, still fairly small in terms of the total revenue that Accolade is driving but a very strategically important and growing rapidly. You saw the chart of platform connected revenues and rapid growth rate there, TPEs are a really important part of that growth rate.
Operator: Our next question comes from the line of Stanislav with Wells Fargo.
Stanislav Berenshteyn: Raj, maybe just going back to the prepared remarks, I think you touched on the fact that you’re continuing to execute against a bit of a backdrop of a challenging sales environment. Can you just clarify — what are you seeing in terms of end market demand, maybe competitive dynamics? And maybe if you can frame that on how that compares versus the trailing 12 months.
Rajeev Singh: Yes. Stan, I appreciate you asking the question because I need to clarify maybe any perception that might have been in the prepared remarks. Our new business growth as it relates to ARR growth over the last couple of years has continued to be very strong. And so we are executing well in the market. We don’t think the demand environment has changed dramatically. We think it continues to grow. We think it continues to grow both for new business ARR as well as for platform connected revenues. I think perhaps what you may have been referring to is me speaking to the changing economic conditions and the need to drive profitable growth for companies like ours and the significance of the turn where we’re entering fiscal year 2025 with our first full year of adjusted EBITDA profitability.
And that profitable growth along with the strong demand that we’re seeing is the buzzword of our business, not just growth. We’re going to grow profitably and we’re going to grow responsibly and we expect to continue to grow aggressively going forward.
Operator: Thank you. I’m showing no further questions in the queue. I would now like to turn the call back over to management for closing remarks.
Rajeev Singh: We appreciate all of you being here and we look forward to our follow-up conversations in the days ahead.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
