Accolade, Inc. (ACCD) on Q2 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Accolade Second Quarter 2021 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator instructions] I'd now like to turn the conference to your speaker today, Todd Friedman. Please go ahead sir. Todd Friedman: Thanks operator. This is Todd Friedman. I joined Accolade last week to lead Investor Relations. I am looking forward to meeting you in the weeks to come. With me on the call today are Chief Executive Officer, Rajeev Singh and our Chief Financial Officer, Steve Barnes. Shantanu Nundy, our Chief Medical Officer will join for the question-and-answer portion of the call. 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 in evaluating Accolade's performance. Details in the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is 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 for Accolade to differ 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'd like to turn the call over to our CEO, Rajeev Singh. Rajeev Singh: Thank you, Todd. Hi everyone and thank you for joining us to discuss the results of our second quarter and fiscal year 2021. We're excited to report another positive quarter with strong momentum across a number of quarters in the business. We'll get into that details shortly. Our fiscal year started in March at the outset of the pandemic hitting the country. Since then our services have proven to be even more critical to our customers and prospects and we've released a number of new capabilities associated with helping our customers manage through the pandemic. In short, given the nature of what we do, our business has thrived during the pandemic in many ways. Given the strength of our results and sales momentum, we're raising our full year guidance. I'll turn the call over to Steve to provide more color on the financial results and guidance and then I'll return to talk about the business. Steve? Steve Barnes: Thanks Raj. I am pleased to report on our results for our second quarter of fiscal 2021, which ended August 31 and provide an update to our guidance. Revenue of $36.8 million and adjusted EBITDA loss of $8.7 million for the second quarter of fiscal 2021 were both ahead of our previous guidance, reflecting strong growth across all segments of our business. On the strength of these results and continued momentum with new customer bookings, we are raising our full year revenue guidance for fiscal 2021 by $1 million, which I'll discuss at the end of my remarks. I'll spend the next few minutes covering the highlights from the financial statements included in our press release and provide color on a few items. We generated $36.8 million in revenue in the second fiscal quarter representing 24% year-over-year growth. This is $1.3 million ahead of the top end of our guidance range provided during our last earnings call. Revenue growth was driven primarily by strength in new customer ads and therefore members, particularly in the enterprise and midmarket segment. Adjusted gross margin of 43.3% was roughly flat compared to 43.8% in the prior year period, reflecting investments made in new customer launches including the defense health agency contract, which launched in May. Adjusted operating expenses improved to 67% of revenues in Q2 of fiscal 2021 versus 76% of revenues in the prior year period. This improvement reflects two key factors, the first is the scale efficiencies we are realizing as we grow our business. The second is more specific to the current environment as we have carefully managed spend given the uncertainty surrounding the COVID environment. I'll revisit this point of our spend during my guidance remarks. Adjusted EBITDA loss in the second quarter of fiscal 2021 was $8.7 million, which compares favorably to $9.6 million in the prior year second fiscal quarter and was nearly $4 million better than the top of guidance from August. The outperformance in adjusted EBITDA is primarily attributable to higher adjusted gross profit in addition to prudent management of spend in operating expenses during the COVID pandemic. Turning to the balance sheet, cash and cash equivalents at the end of fiscal Q2 totaled $222.1 million with no debt outstanding. Our cash balance reflects $231.2 million of net proceeds from our initial public offering completed in July, net of fees and operating expenses and the pay down of all pending debt during the quarter post our IPO. One item that I'll spend a minute discussing is our accounts receivable balance at the end of fiscal Q2, which increased by approximately $7.7 million over the balance of the end of fiscal Q1. Since COVID hit both of our airline customers ask that we would work with them to help them manage their cash needs during the pandemic. We were happy to do so and to provide payment schedule that better needs out of good partnership and in one case, this allowed us to expand the underlying customer contracts. I'll note that the payment schedules are designed to keep cash receipts from these customers unchanged within our fiscal year and both customers are current on the schedule payment. Finally, we had approximately 49.3 million shares of common stock outstanding as of August 31. Now turning to guidance; for the fiscal third quarter ending November 30, 2020, we expect revenue in the range of $36 million to $37 million representing 23% growth over the prior year at the midpoint and adjusted EBITDA loss in the range of $12 million to $14 million. For the full year ending February 28, 2021, we expect revenue in the range of $159 million to $162 million, a $1 million increase for the range previously provided representing 20% growth over the prior year at the midpoint and adjusted EBITDA loss in the range of $32 million to $36 million unchanged from previous guidance. I'd like to provide two quick comments about the full year forecast. Our team has continued to execute very well during the pandemic and demand for our offerings remains strong. Fiscal year-to-date customer wins and bookings are positive across a variety of industries and product offering, which Rajeev will cover in more depth. We're raising our full year revenue guidance to reflect the outperformance this quarter while still maintaining a conservative approach to our COVID-related reserve. As a reminder this reserve accounts for potential employment related impact due to COVID, particularly relating to the recent announcements from our airline customers about expected reductions to their employee headcount asking further government assistance. Let me expand on that a bit because we appreciate that there is significant focus on the airlines with respect to our revenue guidance. Our revenue guidance fully considers the airline guidance for their planned workforce reductions. It's an additional federal assistance program for the airlines as announced that could have a positive impact on revenue without caution that we would need to spend time understanding any such bailout in our customer's plans. At the same time as mentioned earlier in my remarks, we have carefully managed spend given the uncertainties around COVID. As a result, operating expenses in the second fiscal quarter were lower than our guidance as we advanced hiring later than planned. This approach contributed to the outperformance in adjusted EBITDA in the second quarter. We expect to catch up on that spend in the second half of the fiscal year, thus we've kept the adjusted EBITDA guidance in line with the prior guidance. Our guidance for fiscal 2021 reflects year-over-year revenue growth of about 21%. Over the long term, we expect faster growth rates in our current fiscal year given the demand we see for our offerings and the value create from members and customers, which drives customer acquisition and retention as well as opportunities to grow the business across multiple vectors. I'd like to reiterate that we expect to achieve a topline growth rate of 25% or more on an annual basis for the foreseeable future beyond fiscal 2021. With that, I'll now turn it back over to Rajeev. Rajeev Singh: Thank you, Steve. As Steve gave [ph] detail and I mentioned earlier in the call, our business has performed well through a difficult economic and healthcare crisis in the country. We believe the drivers of that performance are clear. First, all our core services have fundamental value proposition of helping consumers whom we refer to as our members make better healthcare decisions and as highlighted today, our services could not be more vital. In fiscal Q2, our momentum for new customer acquisition continued. We saw new customer acquisitions in every core segment; strategic, enterprise and mid market. Let me highlight a couple of those wins for you here. In the strategic account space, the Board of Regents for the University System of Georgia made the decision to deploy Accolade total health and benefits. The USG currently oversees 26 colleges and universities in Georgia. USG was looking for these solution for their members that we deliver improved healthcare outcomes through provider quality security service and other paid services. After performing a thorough analysis of the market, it shows Accolade total op investments. In the enterprise segment, the City of Fort Worth joined our family of customers as the second major municipality after the City of Seattle. Additionally, we continue to traction in our middle market segment, defined as companies with between 505,000 employees across the country. That traction is fueled by the relationship we're developing with the broker community across the country as well as the continued success of our joint operating with Humana call Humana impact with Accolade. Further, we're pleased to report that Humana has also become an Accolade customer this quarter worth own employees. We expect to roll our offering to Humana employees and their families in calendar 2021. As we outlined in last quarter, we saw every major market segment and across each of our product lines in fiscal Q2. Second, our innovation to the platform allows us to flex our capability to the need to the market in a way that makes us unique in our industry. In fiscal Q1, the release of Accolade COVID response care in May was a direct response to the needs of customers and prospects in essential industries they needed to get their employees back to work safely. In fiscal Q2, we added more customers to the backer offering. We expect to see demand for that service continue through the remainder of the year and into next year. In September, we demonstrated this [indiscernible] again with the release of mental health integrated with Ginger. This offering is in response to a significant need for our customers and their employees and only made more significant by the impact of the pandemic on challenges like depression and anxiety. Our integration with Ginger allows us to leverage our strong engagement levels and proprietary dataset to identify high risk positive population with both physical and mental health challenges and offer them the care that they need when they need it. Moreover the care that these members then receive is mutually integrated and holistic, the collective Accolade Ginger care teams stays on the same page and coordinates a comprehensive suite of services, inclusive of primary care, EAP and brick-and-mortar options when needed. With mental health integrated care, we're bringing collaborative care, a model supported by decades of research to the employer space for the first half. The clinical and economic case for our solution is clear. People with chronic, physical illnesses are twice as likely to suffer from anxiety or depression as their physically healthy peers and for certain medical conditions, the rate is even higher. Studies have estimated it can cost three times as much to treat the physical health of the patient with underlying behavioral health issues and it rather does to treat the same physical health issues in a patient with behavioral health disorder. Integrated coordinated care is the answer. Our first customer offering this offering Temple University Health Systems who will launch in the next few weeks and we look forward to the solution being available to more of our members in the quarters to come, especially in this time of such pronounced needs. Our platform's ability to flex to the very needs of the changing healthcare landscape is unique and valuable to our customers. In early October, we announced a partnership with Pixel by LabCorp to bring at-home test collection to Accolade members and their families. Building on our Accolade COVID response care solution, this partnership allows us to provide at-home COVID test collection kits to support employers and their teams through the next phase in this pandemic. Through this partnership, we're able to offer the convenience of at-home test collection instead of having to take a test in a lab or doctor's office or traveling to another testing location. The added bonus is that at-home test collection can be more cost-effective for the employer and on-site testing. Finally, periodically, we'll highlight new capabilities that we're delivering to our customers that demonstrate our continued commitment to innovation. You may recall that a little over a year ago, we acquired a company called MD Insider. In that acquisition, we gained a differentiated dataset that has allowed us to bring data-driven quality insights to bear when connecting our members with providers, which we refer to as intelligent provider matching. In early October, we announced an exclusive partnership with the Global Appropriateness Measures Group, a group of experts who have developed a set of appropriate care measures to identify practice patterns across medical specialties to improve health outcomes and to reduce cost. We'll use these appropriateness measures to augment our intelligent provider matching capabilities. While the benefits of getting members to high-quality doctors are likely intuit, I do think a real example can be helpful to demonstrate how this service becomes relevant to our members and ultimately benefit spend. Recently a member who was newly diagnosed with endometrial cancer messaged Accolade asking for help finding an oncologist, if they a diagnosed a month prior having been able to find and schedule with a quality provider. Of note, she'll not trust for the one for primary care doctor had originally referred her to. Our Accolade nurse random search in the area of new patients, the nurse was able to identify high quality in-network provider close to the member's home; in nurse persisted diligently on the member's behalf, the coverage and scheduling issues engaging directly with center and educating the person on the member's network stats, later facilitating insurance of the member's primary care doctors and potential set. As listed, the Accolade nurse actually found a member a new PCP because the member was not pleased with her original care and potential center was requiring PCP visit and pre-employment level. Of course the Accolade team also knew that strong relationship with a trusted primary care provider would be critical to this member's ongoing health and wellbeing. The member was ultimately seen by the recommended oncologist and to the coordinated efforts of our Accolade health assisted nurse one month sooner than she would have otherwise and she is now scheduled for surgery tomorrow. She's been in ongoing contact with the Accolade team she prepares for a surgery and will of course be here for afterwards with of course with her journey of recovery and thereafter. We hold this member in our thoughts as she gets ready for surgery. Our story implies so many of our members who have been fortunate to be to help in their healthcare journey. Whenever we talk to our own employees about our financial results and the momentum of our business, we've always related our success to the real challenges faced by the people we serve. COVID 19 has created significant challenges in both healthcare and the economy, but it has also helped us demonstrate a powerful combination of rich data and human support when it comes to getting a member in this case one facing a daunting diagnosis to the right care as efficiently as possible. The addition of the appropriate care data to our algorithm will enrich our output and better position our frontline care teams to comprehensively support our members. This is how our commitment to innovation plays out, that is a thoughtful application of our technology to the pain points that riddle our members care journeys. We're relentlessly seeking opportunities to do this and always will be. Our vision for every person to live their healthiest life remains the same and is more important than ever as fee for all the employees of Accolade when I say we feel very fortunate to be in a position to help our member customers when the need is so pronounced. With that operator, we would like to open the call up for questions. Operator: [Operator instructions] Our first question comes from Sean Wieland with Piper Sandler. Your line is now open. Sean Wieland: So I had figured, I'd start with this, the airline contract changes that you talked about, what was the extent, you said you extended the underlying contracts. Can you give us kind of the nature of that extension and you referred to some COVID related reserves where am I -- where does that come into the next? Steve Barnes: Hi Sean, am Steve. Why don’t I take that one. Good afternoon. So first of all let me speak to the reserve and then I'll talk to the airline contract extension that I mentioned in the remarks. As we talked about in the prior quarter, obviously the impact of COVID and given our PMPM revenue model, it can have an impact on our revenues. We are fortunate that we have a very diversified customer base and so the airlines really are the area that create some concern in our book and so what we've done is we've modeled essentially a reserve again our revenues for the rest of this fiscal year and frankly going forward based upon the guidance that the airlines have given about their own employment and we've talked about it in the past that that amounts to somewhere in the range that would take our growth rate up to that normalized 25% growth rate if you were to factor in our revenues essentially without that reserve in it. With respect to the airline and the accounts receivable and the contract extension that I mentioned in the remarks, both of the airlines when COVID hit reached out to us and we think other important vendors as well and asked for some assistance around their own cash flows and so what we did was we offered to move some of those cash flows out of the summer months into the fall. So we restructured those that only inside of fiscal '21. So we moved some payments out of summer into the fall and both airlines are current with those payments. We received cash from both of them according to the schedule. And then finally, the really important part of this I think Sean was that our partnership with those airlines and the willingness we should to work with them during the depth of the crisis, really rang well with those customers from the standpoint that we expanded some of the services that we provide to them that we do provide to them on an ongoing basis and one case extended the length of the contract by a year or 18 months. Sean Wieland: Okay. And the increase in receivables, is that entirely due to the two airlines or are there other clients as well? Steve Barnes: It's the airlines Sean. As you'll recall, our receivables are typically very low single digit DSP kind of range because our customers typically pass in advance. So the extension you see this quarter, which takes DSOs up into the 25, 26 days range is attributable to the airlines and since the August 31 date there, both of those customers have made payments towards the AR number that you see. Sean Wieland: All right, thanks and just one more if I could slide it in is anything -- any update on the rollout of TRICARE? Rajeev Singh: Hey Sean, this is Raj. In terms of TRICARE, we've not rolled out to the population, the service levels are extremely high. We've got really strong satisfaction rates and really strong engagement rates and so we're continuing. It's early still Sean in that we outlined in May to report out on result as it relates to any of the performance measures associated with the population, but we're bullish on the early returns and all of our results. Operator: Thank you. Our next question comes from Robert Jones at Goldman Sachs. Your line is now open. Bob Jones: I guess maybe just to start with guidance you know any the cadence over the balance of the year, looking at 4Q it does look like the implied revenue growth would be somewhere in the mid teens range, which is clearly below where you've been year-to-date and where you're implying 3Q revenue growth to be. So just wondered if there was any details you could share around expectations for 4Q? Is it related to the savings, is it related to calendar '21 starts or anything else that played that may help explain the back half cadence from here would be helpful? Steve Barnes: What you're seeing there is a couple of things. In terms of raising guidance, we're raising that on the strength -- the bookings strength that we're seeing year-to-date that Raj spoke about. So that's the first 20. What you're seeing in the back half is us pushing forward that COVID related reserve and from the second, third and fourth quarter into the third and the fourth quarter. While we're on the topic, part of the revenue be this quarter attributable back to our membership continues to remain intact on the net same-store basis through the second quarter and up through now. So we're fortunate to not have seen any net fall off from COVID, but we're pushing that reserve into the back half, which thus take the growth rate down from where it was in the fourth quarter. We think that's smart to do that until we have even further visibility on employment in the customer base, which again is really just primarily in the airline -- couple of airline segment. Outside of that on a net basis, we've seen some of our customers grow which have offset any member losses in the books. Bob Jones: So this is nothing negative around the ability to achieve savings that it doesn’t sound like it's baked into the 4Q number. Steve Barnes: That's right. We still have -- we continue to have visibility around the savings number in the range of what you’ve seen historically. Obviously it's been an odd year in terms of utilization of from where we sit today, we do not see any material change in our PG's and cost savings. Bob Jones: Great. I guess just maybe one other one if I could sneak it in, I know relative to initial guidance, you don't bake in midyear starts. You shared some examples of when you recently add. Just curious if there were any midyear wins that are now factored into guidance. I know Humana, you mentioned is a star, but any of the other ones you shared are wins that you had this year are starting midyear or is it all almost gen one starts? Steve Barnes: Mostly gen one starts, but probably we have had wins during the year that you have off gen one starts backing up for a minute Raj spoke about wins across market segment; strategic, enterprise and midmarket. We've also had sales with our Accolade COVID response care offering, which is a great example of an offering that can start anytime outside at the beginning of a benefits plan year. So what you're seeing in our uplifting guidance is some of the impact of off-cycle starts if you will, but the preponderance of the new wins do begin on January 1. Operator: Thank you. Our next question comes from Ricky Goldwasser with Morgan Stanley. Your line is now open. Ricky Goldwasser: So one follow-up of Bob's question and I understand a lone question. So just thinking about the cost savings in the fourth quarter, I know that you're saying that you haven't seen anything out of the ordinary, but really what we think about employee's healthcare utilization coming in or than planned for the year we're hearing that across the board. What do you expect with regards to achieving your cost savings and then about achieving but exceeding your cost savings and operational targets in the fourth quarter? Steve Barnes: Hi Ricky, it's Steve. The way we think about that if you step back and think about how those cost savings agreements are structured, we are typically saving against a healthcare trend line whether it's an industry index or a growth of a particular customer off of a baseline and so our model is designed to do better than the customer would've done without Accolade. So whether it's in a lower spend environment like we saw in the beginning of this year or as it starts to recover and we're seeing that now as utilization goes, we would expect and our data is indicating that we will continue to see against with that trend would tell us and so it looks to be that we will continue to do better than those customers would've done versus trends, which would result in our earning those cost savings based performance guarantees. Ricky Goldwasser: And then when we think about Ginger, it is a trusted partner, preferred partner, can you maybe walk us through the revenue model? How should we think about that and the contribution to the top line for those deals that you signed with Ginger? Steve Barnes: Rajeev you think that started that and then you can jump in and add any color. It's Raj's challenge again, if you think about the way we packaged what we're doing at Mental Health Integrated Care from a revenue perspective, it's important to note that we're going to the customer with a collaborative care model where we're actually targeting segments of the population that might need to service with a greater or more significant need and then driving an integration care solution for them and in fact what we're doing is actually charging an up charge to that customer. So they're purchasing Ginger at a rate that been pre-negotiated by Accolade and then we're charging jointly a higher price point to that customer based on the incremental value that we're providing and then also associated incentives or performance guarantees it can spend against our capability. So that's a ton we're charging for it and I think we expect to look at the price point in the mental health space. We expect to be able to charge an up-charge that could range from 20% to 30% of what those charges are either to those in terms of our revenue streams. It's early days we're in but we're lucky enough to have signed our first customer almost immediately upon delivering the service and the use of those kind of we expect to be able to do so. Ricky Goldwasser: And just to follow-up on that, one just to clarify, when you charge an incremental or higher price point, is that for a specific target population within decline where you might have a higher PMPM or is that across the entire base essentially? Steve Barnes: We're offering the service to their entire base of employees like everything else we offer them. Ricky Goldwasser: And just one quick follow-up, I know Steve you talked about the airlines as the delta between your longer-term growth rate of 25% versus actual results. So just to clarify, is that across the entire year or is it when we think about the fourth quarter, fourth quarter where the growth is in the teens to the difference between that and 25% will be all airlines. So just whether it's concentrated into the fourth quarter or versus the entire year? Rajeev Singh: Sure and let me clarify a couple of things there. First of all, there are reserves that we've put in place is largely to support the impacts on the airlines. We also have what we would consider to be a general reserve for item for customers that we don't see having a specific impact yet, but we think it's smart to do that in the COVID environment. So call it -- the vast majority of that reserve is associated with the airlines and our point about 25% growth rate is if we were to not have that reserve in place, the annual growth rate this year would be in the range of 25% or so. Operator: Thank you. Our next question comes from Michael Cherny with Bank of America. Your line is now open. Michael Cherny: Hey, thank you so much for all the colors you’ve given so far. I want to dive a little bit more into the selling season. You referenced a few pretty signature client wins and obviously going and pitching the value proposition that you have and showing what you’ve been able to do during COVID. Were any of the customers were more prospects they you went out to and said no whether especially the ones that decide not to pick anyone else or pick someone else, what were some of the reactions to the why? How much of it was more macroeconomic type to the recessionary uncertainty versus the value proposition on Accolade? Can you just give us a sense in terms of the win losses, how the losses or the lack of wins would shape out in this particular selling season? Rajeev Singh: If you were to think about, first of all let me start on a broader context. The market momentum is strong across every market segment. I know you had that also ready, midmarket enterprise segment of strategic account also on new accounts closed. Our closure has also been very strong meaning our competitive positioning in each of the core market segment has also been really strong. And so directly into your question to the degree we see a customer or a prospect evaluate the solution and then not do anything, oftentimes, that is oftentimes today really driven by the complexity and the other challenges that they're facing. I think it's early in the year, we had -- there was a small segment of our pipeline that said, look all we can talk about is COVID, how we're going to deal with COVID and how we can deal with the impact on how we're getting healthcare for our employees. You think about a deployment that might happen on January 1 and so less about economic value might and say those prospects that shows that can pertain on the road so to speak albeit a smaller percentage that have ever done so in the past did so largely based on the complexity of the COVID environment and their need to focus entirely on that particular problem, which in part led to the delivery of the COVID response care offering in Q1 this year. Michael Cherny: Thanks Raj and if I could ask a bit of an offshoot of Ricky's questions especially since in line are still learning more about your business and then clearly as noted this is a very weird year for utilization perspective. You gave some commentary around the at risk savings based revenue in terms of your visibility into the fourth quarter. How does the rolling impact change in terms of how you would reset the expectations for the end of year '21, so I guess the 4Q '22 at risk revenue, is there eminent in terms of what you’ve learnt from this year's utilization experience that would change how you would factor that in for next year's potential target savings for your customers? Steve Barnes: Yes, it is a weird year in terms of the utilization no doubt. It depends customer by customer but how those get set but generally speaking the data from this year will get factored in and then either a baseline if it is in a contract that our baseline is getting reset or a contact is a couple years in the midst of being in order, we will look at that baseline but in effect, I think what we continue to come back to is whether it's in a high cost, high utilization environment, costs are rising more rapidly or a lower environment like we were in at the beginning of this year, what we see is that the Accolade model, the clinical and tax driven model enabling us to drive cost lower than they would otherwise be given our model and that's where we get confidence in the earnings on the savings. But no doubt the data from this year will have to get factored in. As you know almost every report is indicating that next year's costs should go up by a fair amount and we think utilization of service will be even more important in environments like that help manage outcomes and cost. Operator: Thank you. Our next question comes Jailendra Singh with Credit Suisse. Your line is now open. Jailendra Singh: So just pulling up on Mike's question about the selling season experience clearly very unique, have you seen or come across like health insurance companies getting more aggressive compared with last year with stuff rolling out or pushing for their own employee engagement or employee navigation services? Just curious about your through there that if you’ve seen any changes in the data approach this year versus past year. Rajeev Singh: I think by and large as we look at the competitive landscape, you really think about it by segment or another and in the strategic account segment, those large accounts we've traditionally seen carriers with their own solutions. We've worked with those very same carries to implement our own solutions when we win those accounts and that we continue to see those carrier solutions present in competitive evaluation in that strategic in house space where we continue to do well. I think it's fair to say also see that high end of the enterprise space, but beyond that, but in terms of change in the competitive landscape I'd say none. In terms of change in win rate in our performance against those type of solutions when were evaluated competitively, I think we continue to perform really well and perhaps even strengthen over the last year. Jailendra Singh: Okay. And then following up on your Ginger integral partnership on Mental Health side and I believe you have seen the offering with the flush care on telemedicine side, are there any other areas or specialties you are focused on which you are likely to explore for single integrated offering in future? Rajeev Singh: So Jailendra I think the way we've delivered the Mental Health Integrated Care with Ginger is a great example of the way we love at the future as it relates to how we want to deliver coordinated or collaborative care. So you'll see us continue to pursue -- to continue to pursue offering like all whether those are our own clinical programs or partnering with third parties to deliver their incremental value. Until now you’ve actually mentioned first today our most significant telemedicine integration where we've integrated and actually delivered them to a number of our customers and you'll see strategic in force as well. Jailendra Singh: And last quick clarification on Humana contract, is that total health and benefits and is that being rolled out for all Humana be that 45,000 plus employees across the country? If that's true implies roughly the $11 million to $30 million annual revenue, does that matter sounds like or will you push me back on any of that? Rajeev Singh: Let me mention [indiscernible] and I'll talk to you about the offering and the population. Yes it's the entire population at Humana as many and we're really excited about that and are able to flex that success with the partnership and their continued bullishness as it relates to the value of the relationship. They're deploying something that we call Humana impact with Accolade which is the very same offering that we're offering with Humana to their customers and so it's very consistent with the offering that the partnership is taking the market and Steve I'll let you comment on the financials. Steve Barnes: So as Raj said, yes it's obviously very exciting to have Humana take the offering to their own employees base without getting to the specifics about the contract it is a total health and benefits offering we've talked about the pricing for that ranging in the high teens to low 20 PM. So you could think of it in that kind of range and I'll leave it there but we're really excited to have Humana on board as an important partner and obviously now as a customer as well. Rajeev Singh: Humana impact with Accolade close to total health and benefits. Operator: Thank you. Our next question comes from Ryan Daniels with William Blair. Your line is now open. Ryan Daniels: Yeah. Good evening and thanks for the color and for taking the question guys. Let me continue with Humana that's a great data point obviously that they're now using it for their internal workforce as well as selling it to ASO accounts and using it for self-insured. I guess the remaining piece of the puzzle there is Medicare Advantage which the huge fully insured market for them, is there any progress there or any potential hurdles that would keep you from looking at that as market opportunities well going forward? Steve Barnes: Maybe the broad context of the relationship and then it direct a question about Medicare Advantage. We are actually taking the product to market in their ASO book. We've actually also see some success with their fully insured book with I believe we announced it last quarter with Hillsborough County public schools and sorry Ryan I think I gave the wrong name. So we're being successful in their fully ensured book as well as in their ASO self insured book and that success obviously met directly to them talking on the offering inside with their own employees and we expect to continue to pursue their opportunities to work together. We think there are a couple of really significant opportunities at utmost. Amongst them are partnering with them in the TRICARE space where we've already got with the door of the TRICARE pilot and they're of course obviously getting each component of that population from a carrier perspective and Medicare advantage. And to answer your question directly, no we don't see any sort of impediments to continue to strengthen the relationship over time finding a path into the Medicare Advantage space. Ryan Daniels: One quick follow-up also on the COVID response or the COVID response care, how should we think about that from a standpoint of selling it to existing customers for a return to work program versus getting new customers and in signing up for that initially and the reason I ask is either way it could potentially create an air pocket. If we look back a year from now maybe in the period where there's a vaccine and the change then broken with people getting immunity whatever it might be and they no longer need that specific products. So maybe it's not big enough to impact growth year-over-year but is there a plan in place to make sure that you guys can convert new customers to full-time customers and some of the core products if and when that ends and the revenue from customers that sell other novel solutions to ensure that growth there on the same time basis can offset any of that? Steve Barnes: I think it's a great question Ryan and I appreciate you asking that. I think if you think about our customer acquisition since we released COVID response care in May, we've see more than a handful of customers come on. Those have come on both as standalone Accolade COVID response care customers and as customers who are purchasing the solution. We're already running one of our other lending point offerings. We also see importantly customers who have purchased COVID response care to begin their relationship also purchase after some period of time leveraging COVID response care also purchase one of our lending point offering Accolade Total Benefits, Accolade Total Care. We think one of the fundamental values of the solution Accolade COVID Response Care is you get an understanding of what a frontline care team can do for you in a situation of need and to the degree that's a particularly significant need for you right now demonstrating that capacity gives us a good opportunity to convert those customers. It's too early to tell you what the conversion rate is going to be Ryan but we are focused on it. So we definitely have an effort on converting customers who are not any of our core platforms over to them over time and I think early returns would indicate that we're going to be pretty good about making that happen. Operator: Thank you. Our next question comes from Matthew Gilmore of Baird. Your line is now open. Matthew Gilmore: I wanted to follow up on the selling season comment. It sounds like the momentum continues to be very strong. Can you remind us when the selling season generally concludes, for you all is it the next month or so? And then I know you don’t provide the ACV on a quarterly basis, but on a qualitative perspective, can you just give us some sense for the visibility you have towards whatever your internal targets are? Steve Barnes: I think the way to think about our traction from a new bookings perspective is we're continuing to see traction across each of our executives and so we're -- that traction in each core that we've delivered, we've delivered incremental new customers in each of those market segments and that the selling season is somewhat different by the market segments that we're selling in. And so you've seen large strategic account will be making decisions early in the buying cycle. You'll remember that most of our customers in that segment are deploying on January 1 because that was buying year and therefore need time to deploy their solution and so you'll see the first six months may extending into nine-month, that's the selling season for strategic accounts. You'll see that season being roughly approximate for enterprise accounts and you can see midmarket accounts who can buy anytime during the year continue to buy through the fourth calendar fourth quarter of the year because the clinic time is more compressed and because they tend to be less bias towards January 1 deployments. So it's sort of a sliding scale associated with selling season front year being very bias towards strategic accounts the back end of the year continuing with middle market accounts. Matthew Gilmore: And then maybe following up on the airline discussion, I appreciate it makes all the sense in the world to be really conservative here with the guide. I was curious with the -- with furloughs that have been announced. Is that more or less in line with what you had been assuming and are the furloughed employees that have been announced, are they keeping their health benefits for now or are they already rolling off? Just curious how that has been working? Steve Barnes: So on that point, fortunately we haven’t seen really significant amount of unemployment in the base right now. What you're hearing from us and particularly the questions earlier around the Q4 growth rate all gets to this. We're trying to do is maintain a level of conservatism and in the midst of the pandemic that we think is really smart to do while you're hearing from us a really strong underlying core growth of business. And to come back to your earlier point, while we don’t speak to ACV on an inter-year basis, our raise in guidance what you're hearing from us is we're even ahead of where would've expected to be to a new set of initial guidance and so we are setting that reserves. It's primarily -- it's hitting the fourth quarter disproportionately which is what's compressing that growth rate, but what we expect is if and when those unemployment and our furloughs happen at the airlines we expect that it would be some take rate that we've modeled to offset the pure unemployment that we're using both from internal models and from guidance we're getting from those customers around their expectation of furloughs. Operator: Thank you. Our next question comes from Stephanie Davis with SVB. Your line is now open. Stephanie Davis: Hi guys. Thank you for taking my question. So I figured I jumped on the selling season that kind of bandwagon and ask from there, you pointed to a number of health wins in the quarter. Within these wins, are you seeing any change in buying activity post COVID such as shift to a different level of offering or change of pipeline volume or maybe a greater loan from mid year starts, so it all depend on that. Rajeev Singh: I think as you look at year and the entirety of the year, we've seen consistently strong demand in each of the quarters we've essentially completed a bit across every market segments. So the answer to the first question, as a change in terms of the demand, I think demand has strengthened. In terms of the customer's buying criteria and where we are seeing customers buying each of the core offering, I'd say so that's the type of Accolade total benefits and total care and Accolade Total Health and Benefits. What has changed during the year is the customer's significant progress around COVID and the management of COVID-19 as it relates to taking care of their employees, that started with the clinical program that we were delivering to our customers for and talking to our prospects about and added value to the solution we currently deliver and then added when we delivered Accolade COVID Response Care. Accolade COVID Response Care clearly gave us an offering that could deploy within the year and has deployed within the year with those customers particularly those in essential industries and had to return to employees who work over the last two or three months. I think the Accolade Mental Health integrated care offering that we just delivered is another example of something that's sort of directly responsive to the needs of the market right now and that we're seeing Temple University Health System a deployment in year solution that was impacting a particularly profound need for the customer. And so the flexibility of our technology platform and the flexibility of our capability to deliver new offerings based on customer's needs is actually creating opportunities to the point of your question deploying in year with some of these new solutions. Stephanie Davis: Kind of more of a demand for near term solutions just given the pandemic and I have a quick modeling question for this. The first is what happened to your model and the airline [ph] and then get a big reserve release or do you keep it on the books until the full year which is the COVID. And the second is do you have any update on customer account and member accounts? Steve Barnes: So first on the way that we'll think about the airlines is if there is an additional bailout, there should be some upside to the model, but we'll have to look and see what that bailout looks like and how it impacts those customers in particular, but essentially what we would be doing is taking away that reserve and which it would hit sometime after that announcement occurs, but we'll need to analysis it if there should be some upside to the model and that would impact essentially this year if that fail out anytime soon. And then secondly with respect to customer accounts, we will wait until end of year is how what we've said we'll talk about customer account ACV and with our retention specifically at the end of year, but hopefully what you’ve heard today in our remarks is that we have strong wins across segment and across offerings. So last time we spoke about customer and count was that the IPO which we said we had 60 customers significantly since then. Operator: Our next question comes from Hannah Baade with D.A. Davidson. Your line is now open. Hannah Baade: I want to touch on customer rollout in this environment. What's the percussion of products that you were seeing most commonly. I recall Johnson control is ones that COVID response last quarter. Have you continued to see COVID response as part of the initial plan? Rajeev Singh: We actually have seen it as one of the ways that customers engage with us and so I'd say particular the middle market and enterprise segment customers who are very focused and oftentimes have constrained you need to be very focused on one particular item particularly when it's a significant return to employees during a pandemic. Active COVID Response Care is a great place for them to start. Maybe a little bit to the point of Ryan's question earlier, once they dig in and land with COVID Response Care, customers see the value of a frontline care team that help them manage them complex healthcare issues because they see the value of our clinical programs and our capacity to guide people to the right clinical outcome and that creates a really almost launch point for them to move from Accolade COVID Response Care to one of our core offerings are we've already seen that happen a couple of times. Hannah Baade: Great. Thank you. And maybe just to follow-up on Ginger, what factor drove this relationship to become an integrated partnership as opposed to a solution and in the Trusted Supplier Program? Rajeev Singh: Let me turn that call over to our Chief Medical Officer, Shantanu Nundy. Shantanu Nundy: Great. That's such an important question and thanks for the opportunity to comment on that. I think part of what we're seeing and I think we're all seeing and feeling on different level is the demand environment right and clearly mental health of the crisis in this country right now and has been a long-standing issue. On the other side, we're seeing a proliferation of new virtual care options and those have been really promising right therapy, vertical psychiatry a lot more discussions and adoption from patient, but what really was missing sort of as that market matures is that sort of much more whole person compressive orientation that we started hearing and customers say while how does virtual care linked in person care? What happens, how does it interplay with the investments that I've already made in EAPD? How does it integrate into physical health into primary care and most critically, will this provide incremental clinical outcomes and cost savings right, which particularly is important in this environment that we're in. And so we saw an opportunity to really pursue a deeper type of integration and partnership where were bringing our clinical capabilities to bear with Ginger's clinical capabilities to really answer a lot of these core questions to create something that creates incremental value that creates a much more seamless experience whether that experience is offline or online it's much more comprehensive so they can manage people that have co-morbid say diabetes and depression and that really helps to reach those numbers who need it most. And so those were a large part of the motivation for why we decided to take a bigger step here. Operator: Thank you. I am not showing any questions at this time. I'd now like to turn the call back to Rajeev Singh for closing remarks. Rajeev Singh: We appreciate all of you making time to spend time with us and with us on our fiscal Q2 and we look forward to catching up with you again next quarter. Thanks very much. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.ACCD Ratings Summary
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