Well, good afternoon, everyone. My name is Craig Hettenbach. I cover the digital health space at Morgan Stanley. I'm very pleased to have with us today Accolade, and CFO Steve Barnes. Just before we get started, for important disclosures, please see the Morgan Stanley Research Disclosure website, www.morganstanley.com/researchdisclosures. So with that, Steve, again, thanks for being here today. Thanks, Craig. I wanna kind of kick off on the Analyst Day that you had in the spring, and just, you know, high level, you laid out targets of a 20% revenue CAGR. If we can just talk about what you see is driving the business and that type of growth, and certainly we can dig into from there. That sounds great, and thank you very much for having us today, Craig. Back in May, you're right, we had our first Analyst Day as a public company, right about the three-year anniversary of our IPO back in July of 2020. What we wanted to highlight in particular for the investment community is how much Accolade has changed while also remaining core to our mission. So when we think about the growth rate of 20% that we see here in the foreseeable future, it's driven by a few really key items. First of all, the demand environment for what we provide is extremely strong. You know, and Accolade is after a mission of helping members of companies, employees and their families, get better healthcare while also reducing the cost of that healthcare for employers. And as we all know, and we're hearing throughout the conference for sure, 6%-8%+ growth year-over-year in healthcare costs is really an incredible burden to employers, and that is the impetus for companies looking for solutions like ours. And so it all starts there. Our navigation and advocacy engine is a way that we provide consumers a single place to go for all their healthcare needs. And over the past few years, in particular, we've added on, through acquisition, our own organic build and integration with the ecosystem, very important capabilities around primary care, expert medical opinion, and a host of, uh, clinical solutions where we partner with companies throughout the ecosystem. Great. Well, we'll look to dig into those as we make our way through the discussion. I also do wanna touch on just the macro, and you just pointed out, you know, demand is extremely strong. I think from the investing community perspective, there's always questions about employers, what's happening, and, and I think the discussions have probably changed, right? Maybe a year or two ago when the environment was very tight, and now you hear of some loosening. I'd be curious to hear how those discussions with your customers have evolved from 12, 18 months ago today, what-- how the value proposition is evolving. Yeah, it has evolved a bit, for sure. During the extremely tight employment markets, 12-24 months ago, I would say there was a balanced view from employers around certainly ROI, but also very important focus around employee experience to attract and retain employees during that, tight environment. I would say while that will continue to be part of the story, ROI and cost, cost opportunities to reduce the healthcare cost trend is front and center for us, and I think we've seen that evolution over the last, you know, 12-18 months go front and center. So ROI is always part of the story. I think it's, you know, number one and two for sure, and then certainly employee experience, is a, is a very important part of that as well. Got it. And with the demand backdrop for your services strong, what are some of the risks investors should at least be aware of in terms of things you're watching closely in the market? Sure. You know, the demand, the demand environment is very strong, but of course, you know, it's a bit of an uncertain macro environment. Maybe we're heading for a softer landing and inflation coming down, which bodes well. But I think importantly, as we sat here last year at this time, we had a similarly, uncertain macro environment, and we had our strongest bookings year ever in terms of growth, year-over-year bookings. And the demand environment feels similar in that, yes, there's some uncertainty, yes, companies need to get over the line with, with implementing new services, but certainly, the demand for our services continues to feel strong in this environment. I think it's all propelled by this seemingly unabated growth in healthcare costs, and we're one of the ports in the storm that we can help companies get after that, while also improving health outcomes for employees and their families. It's, that's the combination that we work against every day. Got it. And, and how should investors think about, within this backdrop and some uncertainty, just the visibility in the business, whether it's when you start a year, you're X% booked, and you have to kind of win business? Like, how does the year typically shape up for an Accolade? Yeah. One of the great benefits of the Accolade business model is that we have really strong visibility forward into our next year guide. So, the most recent guidance we gave for the current fiscal year, for example, was a range of $410 million-$414 million of revenue. We walk in with visibility to somewhere in the neighborhood of 90% of that revenue. Where that comes from is you may be familiar, we have an annual contract value number that we post. So walking into the year, we had just under $310 million of ACV of contracted revenue with commercial customers. We also have other revenue sources that are... we have very good visibility to. One is the consumer-based element of our revenue that comes from the PlushCare acquisition, where we're providing virtual primary care to consumers. Got very good visibility around that, given the subscription-based model and track record of retention. And then the remaining piece, Craig, gets filled in by new bookings in any given customer year, utilization of our own programs and partner programs that drives incremental revenues. And then finally, fluctuations around member counts is part of the story as well, as most of our revenues are PEPM or PMPM based. ... Got it. All right, that's helpful. Circling back to kind of the strategy at the Analyst Day, and, and I think one thing that resonated is just the breadth of the business, right? When you came public, you had four customers that were 10% or more of revenue. Right. Largest customer today is no more than 5%. And so can you just talk about the evolution of the business? You know, we can get into the virtual primary care, second medical opinion, and just, you know, how you stand today versus just three years ago. Yeah. Really appreciate this point. Not only were there four customers greater than 10%, you know, but they accounted for more than 60% of our revenues back in 2020. So here we are, no single customer greater than 5% of revenues. A broad customer base and across several different vectors. No single customer concentration, industry diversification is strong. We also have these different avenues to drive revenues for the business. The advocacy and navigation offering remains the majority of the revenue in the business, but also growing rapidly and a big part of the story are virtual primary care and expert medical opinion. And we also have channel diversification, which is really strong. So we reach customers both on a direct-to-employer basis. We also have arrangements with health plans, who distribute our products both on a, essentially, a white labeled or co-branded basis and a partner basis. We have a developing government business that is also really attractive and has real future opportunities for growth. So all of these different avenues for growth and different product offerings at various price points make the company extremely healthy from a diversification and visibility standpoint. Great. I want to touch on just the topic of, you know, growth versus profitability. Something that came into focus last year for the industry and has only grown in importance. You know, you're targeting 2%-4% Adjusted EBITDA margins for next year. You're kind of on that path, but, you know, taking a step back as a company that's put up strong growth, but is also kind of on the verge of profitability, how are you managing it in terms of some of the things that are driving the business decisions? Yeah. We certainly hear loud and clear from the investment markets, the importance of helping investors discern companies that actually will be profitable in the long term versus those that will not. Ironically, for us, we've been on this trajectory towards profitability for several years. You know, back in the time of our IPO, with you know, $130 million of revenue, losses 25% of revenue, we've consistently improved that. This year will be low single-digit percentages and loss, and then breaking through to profitability. That's been a big part of our strategy, so our strategy hasn't changed, but we're very focused on getting to profitability. And in fact, over the past year, in integrating two acquisitions, we made some cost cuts. We did a reduction in force to integrate three technology platforms into one, all as part of bringing the company together in a way that can effectively grow in a profitable way. So our expectation is next year, as we break through the profitability, we have profitable growth from there, all driving higher operating leverage as well as cross-sells and up-sells with our customers. Got it. And you mentioned the workforce reduction. We've seen across the space, kind of, companies pull back, and I think in your case, it was also the integration you mentioned. But just from an organization perspective, how has it responded? How is the company kind of holding up today and, you know, kind of line of sight to the future? We're doing quite well. Obviously, any time you do a reduction, that's a hard, that's a hard process, so that was hard for us, too. I think importantly, in balancing growth and profitability, there are decisions that, that you make, that you bring people along. They see it, they understand. Three companies coming together are gonna have certain duplications of cost. It's smart for the business to make, you know, some of those decisions in order to have us have a healthy platform for growth. I think the, the base, employee base has responded really well, and we're now at a point, now in the back half of fiscal 2024 for us, where we're really starting to see, you know, realizing some of those benefits of those reductions that were made, you know, back, six to 12 months ago. So, positioning well, coming out of it, and certainly a lot of companies have had to make some of those choices. Got it. And then going back to margins at the Analyst Day through 2029, you kind of targeted 10%-15% Adjusted EBITDA margins. What does the path look like? Is it a steady cadence from here, or is there anything we should be mindful of in terms of puts and takes around that? Yeah. You know, that target out there for the next five years post getting to profitability, I think it's fairly linear, Craig. One of the things about our business that we're being mindful of, and we'll wanna bring investors along with this, is. It's a very large market with lots of growth opportunity, and so you're always trying to balance growth, profitability in a very healthy way, but for the long-term value of the company. So it's why we laid that out, you know, in a target sense, and then as we move along, I think it'll be fairly linear. Our gross margin expansion continues on in a positive way, which will certainly fuel a part of that. There's operating expense leverage here as we get leverage on the investments we've made across R&D, in particular. So I think it'll be fairly linear, but there may be years where we choose to grow a bit more or choose to put more to the bottom line as we see opportunities come to market. You know, some customer opportunities, it's not always a perfectly straight line as when you see companies come to market for an RFP. So we wanna be really smart about the way we respond to those. ... Got it. I'd like to start trying to just speak with ecosystem partners. That was another takeaway from the Analyst Day, particularly as it relates to just the growth opportunity, but also margin. And, you know, I would say more broadly across healthcare, you hear often about partnerships and the importance, and it was helpful to hear from some of your partners at the Analyst Day. But how should investors think about how you're utilizing these partnerships for the overall health of the business? Yeah. It's a really important part of what we're doing at Accolade, and what we've recognized over the past four or five years in particular, is having this front-end navigation and advocacy platform, in which we work with employers to have all the signals come to Accolade so that the employees and their families come to Accolade for every single question. What we've found is it's an opportunity to leverage all the innovation that's happening in the ecosystem beyond the capabilities that we owned. Things like best of breed, MSK providers, diabetes and weight loss-focused companies, behavioral health companies. There's some great innovation out there that sometimes struggle to reach customers, 'cause the CHRO is a very hard person to get to. We represent a really symbiotic relationship there with those partners, and it's also great for our customer and their employees, because we're helping bring out innovation, bringing solutions to them, leveraging our channel. It's what we're, we're in a really exciting part of our business now, recognizing when a member comes to us, we can leverage data, we can leverage our own internal algorithms to understand where to get someone to a partner. When we do that, our business model is set up to take advantage of it. We'll get better clinical outcomes for that member, get better ROI for the customer, and we have financial arrangements with our partners that make sense for us to share in the revenue when we drive good and appropriate utilization for those partnerships. I think those point solutions would, and the customers would tell you, underutilization of great clinical capabilities due to the engagement problem is something they struggle with, and that's really Accolade's core competency, is driving engagement and utilization for our members. So there's a great marriage and opportunity for us to leverage the core competency of our model. Great. You mentioned MSK and behavioral health. Are those just some of the success stories, or how do we think about from a partnership perspective, what segments you're finding the most traction, having the impact on the business, maybe today, and then as we look forward, what could be right, you know, to kinda add from a partner perspective? Yeah. This is where being in close dialogue with our customer is really where this all happens, where we make decisions around which verticals to pursue. We know from our customer success teams and our actuarial and data teams working with customers to understand, you know, a company that has truck drivers, for example, may struggle with MSK overuse, whereas another company might struggle more with behavioral health, or some might have both. We look at the data, we work with those customers to understand where are those biggest categories, and it wouldn't surprise you. We see where we see the biggest opportunities. It's where the largest spend happens. It's certainly in diabetes partnerships. Virta is one, a company specializing in diabetes reversal that we profiled on our Investor Day, that we're seeing great traction with, Sword and Hinge, our partners in the MSK category. Could go on and on. Family planning, and so forth, are areas that are high on the minds of employers, and they represent opportunities where there's great clinical capabilities that we don't own ourselves, but we can bring to those customers and their members. Great. I wanna shift gears and just talk about technology. And I know you've made a lot of investments in the platform, and that's, I think, one of the things from an operating leverage going forward as you continue to scale. But, you know, can you help us in terms of contextualize the investments that you've made, and in particular, when we think about all the focus now on AI, what you're using for kind of internal purposes or, you know, sales motion, things like that, from a AI perspective? Absolutely. You know, our customer for our own technology is twofold. One is our frontline care teams. So the people who are benefits experts, navigation experts, nurses, doctors, pharmacists, they're looking for tools that help them understand: What is the profile of the member who I'm working with? How can I best help them? So what we do is we've built algorithms that leverage external sources of data, leverage our own history of working with members, to build essentially a profile around the member and create what we call a clinical foundation score, to help identify which are the members that are most at risk, and how can we help them the best way. And we can leverage AI and other models in a platform that we've been building out now for about eight years, that's very much part of our own proprietary capabilities, as well as leveraging tools that, and software platforms from third parties. Very importantly, you know, that's on the clinical side. We can also leverage this to determine workflow and other kinds of very transactional aspects of managing the frontline care team, so we can be efficient with our time. But in the end, Craig, I think it's really important to remember that healthcare is deeply personal. We always wanna have a person who's available to you. If you're struggling with a cancer diagnosis and a depression and maybe some other issue with someone in your family, it's hard to solve that just through technology, just through an app. We always want the person to be able to punch out, if you will, and get to that nurse, get to a doctor, get to support, and then surround them with technology capabilities so that they can self-serve when they'd like to self-serve, or reach a member through messaging, but leverage the technology platform and those algorithms to make us more efficient and scale with that human-based service always being our mission. ... Got it. So you mentioned a period of investment up to 8 years to kind of get to, to where you are today. On a go-forward basis, is it just incremental in terms of certain areas where you might boost spending or not? Or how do you manage that going forward? Yeah, I think, I think it is largely built foundationally. And I would also reference back to my point earlier about having brought together technology platforms of three different businesses, Accolade, 2nd.MD, and PlushCare, as we've integrated them over the last two years and taken really the best of each of those firms' technology platforms into one unified platform. The heavy lifting of that work is largely done, and now we constantly innovate on top of that platform. I think if you were to look at that from a P&L perspective, what does that mean? The large and largest of investments we've made are historical. From here, you'll see the R&D investment continue to grow, but at a much slower rate. You'll see operating leverage on that, and you'll see that R&D investment come down into the teens and low double digits over the coming years as a percentage of revenue, as we continue to grow. Got it. I wanna shift gears just to the topic of weight management. It's certainly been something at this conference, and even before, it very topical, broad-ranging implications across the healthcare ecosystem. I think for PlushCare, you guys have double-digit% of total visits related to this category. Can you talk about what you're doing in this space and what it means for the overall business? Sure. Certainly, weight management and GLP-1s, in particular, are on everybody's mind and certainly our customers' mind. So if you think about our commercial customers coming in and new opportunities coming into calendar 2024, we're all thinking about not just the growth of medical and Rx spend, but what are the drivers, and certainly GLP-1s are a big contributor there. I think we, we can help in a few different ways. One is, as the advocacy partner to these customers, we can continue to be the trusted advisor we are and help employees and their families understand what's covered under their plans, how to get to the right clinical solution. Importantly, when we have PlushCare or Accolade Care involved, we are providing a very clinically oriented solution, a true primary care visit, to make a clinical assessment of whether a person is appropriate for one of the drugs, for example, and if so, help them get a prescription, with help with follow-up, and ensure that the right dietary exercise and whatever other prescription is required for that member is appropriate. So we're seeing this really, it is driving demand for sure. Customers have questions about this. There's even quite a dispersion of the way employers are handling what's covered, whether they're covering this for weight loss or not. And that's a conversation we're right at the center of. So it's driving some growth on the consumer platform. It's also a hot topic with our commercial customers. Got it. How about from the behavioral health side? Also, something that is very topical in terms of a large and growing market. You know, how that kind of is intertwined with some of the things you're doing on virtual primary care. Yeah. Yeah, behavioral has been one of the... Prior to GLPs, I think we would probably have all said that it's the largest grower and the area of most interest. You know, we, we get at this, in helping customers and members solve this in a few different ways. One is, on the advocacy side, we have our own behavioral health nursing team, so when, if a person comes in and is potentially, has anxiety or depression, we'll do the basics of a PHQ-9 assessment, if the person is potentially in need of some additional support, perhaps get them to a nurse. We also have our own, therapy capabilities that, on the primary care side, that's attached to the PlushCare and Accolade Care platform, where we have therapy coverage across, all the states in the US. And then finally, and very importantly, we have partnerships with two great companies in the space, in Lyra and Headspace, and formerly the Ginger, part of that equation, in which we're partnered with those firms in order to, if employers have made arrangements with them to help drive utilization and what we call closed-loop connection, so that if someone needs that point solution partner, we can track their utilization of it and make sure that our nurses and other clinical team members are aware, so that we can service it in the best way possible. Got it. I wanted to circle back to the advocacy market, and particularly from a competition perspective. When we talk to various players in the space, I think the focus is really, it's a big market. It's underpenetrated. Of course, every company wants to win- Right -their fair share. But just what are you seeing in the competitive landscape today versus 12, 18 months ago? You know, there's a number of kind of private companies that are funded, if we can start there. Sure. I think, your first point, I would, double underscore. It feels like a very large market with opportunities, for multiple companies to grow here. But most of the opportunities we see are greenfield opportunities. These are companies that have not, you know, carved out their services, if you will. And I'm speaking specifically about advocacy and navigation, they haven't carved that out from the carrier. It's where a lot of the most of the opportunity is, candidly. The other thing is, the competitive landscape, I think, has kind of, solidified into a few different alternatives that customers are considering. One is, you know, pure carve-out from the, from the carrier, in which they're gonna consider Accolade, along with one or two of our direct competitors, who you're alluding to there, Craig. The other part might be a lower cost, very digital, if not digital-only solution. That's probably gonna get lower engagement, probably lower ROI, not as high up the chain. I think consultants would say those are interesting, but not necessarily gonna get you to the ROI opportunity if you were to make the investment in a full carve-out. Then finally, the carrier. Sometimes customers will default back to just sticking with the carrier. I think our point of view is that you know the ASO platform is what a lot of companies are on, who are dealing with that 6%-8% growth year-over-year in spend. Our point there is carving that out and truly giving consumers one place to go in a consumer-focused way, that we can wrap around all these clinical capabilities, is what you need to do in order to get after that trend line and reduce it, while also creating a much better experience for your employees. Got it. Maybe we can pivot to the virtual primary care and, you know, particularly what attracts you most to PlushCare? Again, this is a category, there's a lot of different offerings out there. Clearly, the business is growing well, so just how that business is performing versus others in the space. Yeah. So we acquired the PlushCare business in June of 2021, so we've had it, you know, as part of Accolade for a little bit more than two years now. And you're right, the capability of virtual primary care continues to grow. In fact, it's growing faster, on, you know, that capability, faster than the 20% growth rate overall of Accolade. There's a few reasons for that. One, we think it's a best-in-class primary care offering. You know, we really wanna make this point. It's not an urgent care, in-and-out capability. This is truly going after the fact that 30% or so of Americans do not have a primary care relationship. If you were to try to get an appointment with your primary care doc in any major city, it might take you 30 or 40 days. Many are not accepting new patients. You could go on the PlushCare app right now and within 2 hours, get an appointment with a doctor who came out of the top 50 medical schools, who loves practicing on that platform because it's a primary care experience. And so we've got great NPS on that platform, somewhere in the area of 90. So consumers love it, physicians love practicing on it, and we see people repeat visits with it, which tells us it's a really important platform that is serving a real need. Importantly, this year, on January first of 2023, we ported that capability over to our first set of a large set of employer customers by bundling with our advocacy offering. That was very much part of the strategy, was to, one, support the growth of the consumer side, but two, really enable that, primary care, capability for employer customers. We think employer customers, also struggle with this underutilization of primary care by their employees, and that's very much a contributor to why, in the U.S., we have higher costs and lower quality outcomes than in other parts of the world, where they, leverage primary care in a better way. We think partnering it with the advocacy engine is a real way to do that, and so that's strategically very important to us, and we think it's a big part of the growth opportunity. Got it. Just sticking with the competitive landscape, anything from an RFP perspective that is changing? I mean, more broadly, one thing we hear is just the selling season itself has been kind of extended or kinda goes through the year, but anything you would point out to around process? Yeah. I think you're right about the selling season. It really is beginning to end. We even have, I think, in a couple of months here, we'll hear companies starting to talk about January first, 2025, you know, advocacy and navigation, because for large customers, it takes more than a year to even implement. So they're gonna do that RFP and start that process for more than a year. But I think what we're seeing consistently in RFPs this year, the same as last year, is this part about: Help us understand where the areas are of ROI and opportunity to help us control cost, and how you would do that in a way that works great for our employees and their families, to get them a great experience. And for us, we think a competitive advantage at Accolade is to weave in those other capabilities, when appropriate, for a customer, that can add to this value, whether it be primary care, expert medical opinion, or other partners on the ecosystem. Providing that in an integrated way that makes it easy for consumers and the contracting easy for the customer, that seems to be a winning combination and a differentiator for us. Great. Well, as we wrap up and come up on time here, just to finish up, you know, looking out the next 12-18 months, I mean, you've provided a nice roadmap in terms of things and targets you have, but what are some things kind of a year from now, you hope to kinda check off, if you will, or wanna make sure that you're executing on, for investors? Two things come to mind. One, path to profitability. You know, we've laid out, as we talked about, next year, we'll break through to profitability. That's really important to demonstrate. I think no matter how many times we say it, investors will wanna see that occur, and so we're extremely focused on that. And then secondly, more strategically, as far as the operating model of the business, this demonstration that the advocacy and navigation engine is a way to engage with consumers and then help them get to other services that either we own or we partner with, or even that are not on our platform, but a customer has chosen, and we can get them to that place because we have this great engagement with their employees. That's really the part of the, the model that I think a year, two years from now, we'll be having even more and more examples of that and be able to demonstrate that for, for investors and customers and prospective customers. I think that'll be really important to, to the value of Accolade and where we sit in that healthcare ecosystem. Great. Well, with that, I think we're right on time. So, thanks so much for spending time with us today, and appreciate it, Steve. Thank you, Craig. Really appreciate it.