Rajeev Singh - Chief Executive Officer Steve Barnes - Chief Financial Officer Shantanu Nundy - Chief Medical Officer Todd Friedman - Senior Vice President of Investor Relations.

Good day, and thank you for standing by. Welcome to the Accolade First Quarter 2023 Earnings Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Todd Friedman, Senior Vice President of Investor Relations. Please go ahead..

Thanks, Victor, and welcome everyone to our first quarter earnings call. With me on the call today are our 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 turning the call over to Rajeev, please note that we’ll be discussing certain non-GAAP financial measures that we believe are important when evaluating Accolade’s performance.

Details and relationship between these non-GAAP measures to the most comparable GAAP measures and the reconciliations thereof can be found in the press release that’s posted on our website.

Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to the risks, uncertainties and other factors that could cause the actual results of Accolade to differ materially from those expressed or implied on the call.

For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. And with that, I’d like to turn the call over to our CEO, Rajeev Singh.

Raj?.

First, we’re participating in more RFPs than ever before. We just had a very strong Q1 in terms of new bookings. Second, customers in this environment are more focused than ever on the rising cost of healthcare. This plays well to our solutions and our proven track record of consistently delivering cost savings over the course of a multiyear contract.

Now, let’s turn our attention to the health plan market. Three years ago Accolade announced our first health plan partnership with Humana, still a strong and valued partner. Since then, we’ve added partnerships via acquisitions, specifically partners like United HealthCare Optum, Aetna, BlueCross BlueShield of Michigan and BCBS Massachusetts.

In addition to our advocacy partnerships like Humana and Blue Shield of California, we recently signed an advocacy and virtual primary care relationship with Priority Health of Michigan.

As it relates to our virtual primary care relationship, Priority will be leveraging our virtual primary care and mental health offering to power their virtual-first plan design. We expect to announce more virtual primary care partners in the months ahead.

At this point, we have health plan partners representing our advocacy, expert medical opinion and primary care and mental health offerings to the market, and we expect to continue to grow our relationships and add new ones moving forward.

Performance in the health plan space in F-Q1 across all these factors was good, especially in Accolade Expert MD customer additions. Via the Health Plan channel, we added a number of brand name customers in the retail, energy and technology industries, highlighting the attractiveness of Accolade Expert MD across sectors and employer profiles.

Our expert medical opinion service continues to be differentiated and is seeing strong win rates. Now, looking at our government business. In fiscal Q1, the Defense Health Agency agreed to extend the TRICARE Select Navigator program for the third and final year of the pilot.

With that news in hand, let’s take a step back and look at the DHA business as a whole. There are now two elements to that business. First, is the TRICARE Select Navigator business I just mentioned.

As the DHA makes a vendor selection for their carrier relationship later this year, and what is referred to as the T5 bid, we believe that the success of this pilot will lead to the DHA looking for these types of capabilities as innovations from their selected vendor in T5.

In that respect, we’re very well positioned with teaming relationships signed with three of the four companies bidding on T5. As with all things with an entity the size of the Defense Health Agency, it will take time. But we continue to position ourselves well for this opportunity in the future.

The second part of our DHA business is our work on the TRICARE Oxygen care demonstration. As you can imagine, military families with children on the spectrum have unique needs and our partnership with Health Net, our specialized nurses are now assisting those families. We see opportunities to expand this population over time.

And in aggregate, we see strong possibilities to continue to grow our overall government business. Before we turn to a discussion on market dynamics and competitive landscape, let me give you a quick recap of what we cover.

We have market-leading offerings at advocacy, expert medical opinion and virtual primary care and mental health; collectively a personalized health care suite. And we have distribution channels through the government, direct-to-commercial clients and through health plans.

This diversified product and distribution strategy minimizes risk while with strong execution, maximizing upside. Now let’s discuss market landscape and competitive dynamics. Our competitive win rate remains strong, and our pricing discipline in those transactions remains at historical levels.

It’s important to note that in the context of the buying dynamics of our industry, customers will often hire consultants who write detailed RFPs that include such requirements as staffing ratios and performance guarantees.

Those customers are concerned with the quality, comprehensiveness and value of the service, given it’s a service that they will ultimately have to state their reputations on with every one of the employees in their business. Those very same employers are wary of vendors who commit to delivering a less comprehensive service at cut rate prices.

All that said, our competitive differentiation for our personalized health care suite comes from our comprehensive approach to engage widely, our data-driven approach to population health and our personalized approach to delivering care and building relationships.

We’re the best in the world in what we do, and our customers continue to show their willingness to pay for that value based on our closed deals and current pipeline. That differentiation and that success will continue to drive the 20% growth rate of our business moving forward.

We’re committed to building that growth while driving profitability and making consistent progress towards our long-term operating margin target of 15% to 20%. To that end, we took some actions across elements of the business since our last call to effectively reap the synergies from three acquisitions last year, among other things.

Steve will talk more about that in his section of the call. Finally, I’d like to spend a moment on our direct-to-consumer virtual primary care and mental health business. Business is strategic to Accolade for a number of reasons and of course the first, the underlying tech stack and capabilities power our Accolade Care business in our B2B space.

It’s also important to point out that the D2C business is a powerful growth and innovation engine for Accolade. In fiscal Q1, the business continued to perform well. Given the performance of other players in the virtual care space, we often hear questions regarding the environment for our D2C business.

In short, we continue to grow well in this space with attractive customer acquisition costs. We attribute our performance in the business, which is differentiated from others to several factors. First, we are a primary care and mental health provider, versus other companies’ urgent care focused approach.

This is particularly important because people who discovered our service for urgent care needs due to COVID restrictions and office visits, oftentimes enjoy the service so much that they embrace our primary care offering. Other urgent-care only focused players don’t see that converse.

Beyond that, our long-term primary care relationships with our members lead to strong retention rates compared to other D2C players. One of the unique things about our service is that our physicians are required to practice with us the majority of their time, and a majority of our clinicians are full-time employees.

Thus our consumers can choose a single doctor and build a long-lasting relationship. And finally, our collaborative care model that blends primary care with mental health is a more effective and scalable way to drive behavioral health visits while delivering better whole person care for our consumers.

We’ll continue to provide regular updates on our D2C business in the quarters ahead as its core to our strategy moving forward. With that, I’ll turn the call over to Steve..

Thanks Raj! Good afternoon, everyone! First, I’ll recap the results for the first quarter of fiscal 2023 before providing more color on the changes that Raj mentioned earlier. We generated $85.5 million in revenue in the first fiscal quarter, representing 44% year-over-year growth on a GAAP basis over the prior year period.

The year ago first fiscal quarter is our last one that does not include results from PlushCare as we completed the acquisition in June 2021.

Fiscal Q1 adjusted gross margin was 45.6% compared to 40.2% in the prior year period, which reflects the positive revenue beat, as well as some expected PG revenue timing that benefited gross margin and adjusted EBITDA, in addition to a higher margin offering mix.

Adjusted EBITDA in the first quarter of fiscal ‘23 was a loss of $15.4 million, which compares to a loss of $12.8 million in the prior year first fiscal quarter. This is ahead of our guidance, primarily due to lower spending than planned in the quarter in some areas such as hiring and personnel costs.

You will also note that we recorded a GAAP noncash goodwill impairment charge of just under $300 million during the first quarter. As you are certainly aware, it is standard to evaluate goodwill balances every quarter. One of the key metrics to analyze is market value, both of the parent company and the underlying acquired assets.

The stock market decline over recent quarters led to our total market cap being below the value we paid for the acquisitions of 2nd.MD and PlushCare. Netpac made an academic exercise to work with our auditors to review the current valuation in comparison to goodwill balances. Now, turning to the balance sheet.

Cash and cash equivalents totaled $336 million at the end of the first fiscal quarter, and accounts receivable DSOs were in line with prior quarters at about 23 days revenue outstanding.

Currently, we had approximately 69.7 million shares of common stock outstanding as of May 31, 2022, and that number bumped up to 71.2 million shares in June, reflecting the distribution of the vast majority of the shares related to the earn-out provisions for the 2nd.MD and PlushCare acquisitions.

Now turning to forward guidance and how to think about our financial model progression towards breakeven. We’re updating our guidance today for fiscal year 2023, and now forecast revenue will be in the range of $355 million to $365 million, representing growth of approximately 16% at the midpoint.

We are maintaining our adjusted EBITDA loss guidance between $35 million and $40 million, which excludes approximately $3.5 million of one-time costs associated with the actions that Raj mentioned earlier, and I will describe in more detail in a moment.

With respect to the fiscal second quarter, we are providing guidance today of revenue in the range of $82 million and $83.5 million and adjusted EBITDA loss in the range of $18 million to $20 million, again, excluding one-time costs associated with the realignment noted earlier.

Also as mentioned earlier, Q1 benefited from some expected timing of performance guarantee revenues, which is the primary driver for the sequential revenue change from Q1 to the Q2 guidance. Now a few comments about the cost realignment mentioned earlier.

Last year we completed the acquisitions of 2nd.MD, PlushCare and HealthReveal and grew our headcount from 1,400 employees to nearly 2,400 people.

As we evaluated the economic environment within the context of our revised guidance, we undertook a strategic review of our business to make sure that we’re operating at maximum efficiency, with the ultimate goal of ensuring we have the foundation to deliver on our objective of 20% revenue growth and positive cash flow in two years.

With that review complete, we refocused several parts of the business in the second quarter. This resulted in a reduction of about 4% of our employee base and aligns our cost structure to achieve our business and financial objectives. Importantly, we are intentional on our actions to not impact our frontline care teams.

We are proud of the exceptional member experience, with NPS scores of greater than 60 for advocacy and 90 for PlushCare and Expert MD. We expect to continue expanding our frontline care teams to support our existing and new customers. We’ve been focused on growing our business on the top line, while progressively improving profitability each year.

That commitment has been unwavering since we went public in 2020 and is only stronger today. With that, we are reiterating our objective of positive adjusted EBITDA and cash flow in fiscal 2025, which aligns with calendar 2024 about two years from now. Our convertible bonds are not due for approximately four years.

So at $336 million of cash on hand, we have more than adequate liquidity to achieve our financial plans without going back to the capital markets, placing us in a strong position to execute against our objectives.

In short, we continue to believe passionately in the strength, depth and breadth of our platform, the diversification of our offerings, revenue streams and customer base and that we have an engine built for growth and sustainability, which will ultimately drive significant positive cash flow. With that, we’d like to open the call to questions..

[Operator Instructions]. Our first question comes from the line of Ryan Daniels from William Blair. Your line is open..

Yeah, guys, congrats on the strong start to the year and thanks for the question. I guess I want to ask one regarding the second opinion solutions.

You mentioned that several times during your prepared comments in discussing the pipeline and the end market, and it sounds like that’s an area you are seeing some particular progress with displacements and new wins.

So, can you go into a little bit more detail about why you’re seeing such strong performance, both in regards to net new adds and then displacements in that business in particular? Thanks..

Thanks, Ryan. I appreciate the question. I think first, you’re absolutely correct. We’re really excited about that part of our business and each of the respective product lines that we deliver to customers, which what we find really exciting about the expert medical opinion business really starts with the differentiated capabilities of the offering.

What we loved about the 2nd.MD offering when we acquired the company back in March of last year, was that it was a personalized service that ended with a video consult with a physician, as opposed to other competitors who might be pushing people more into their local networks or to written consultations delivered later down the road.

That differentiation is beginning to play itself out across both, our health Plan distribution channels that are finding great value delivering that to their customers, and our direct selling motion, where our Accolade reps who previously were just offering advocacy and now have three offerings to deliver, can deliver an expert medical opinion service that’s highly differentiated.

So that’s where we’re seeing it. In terms of the replacement cycles, I think what we’re finding, Ryan, I think is particularly heartening for the future, is customers are embracing this idea, the commonality of what we deliver across all of our services.

A personalized service with a human touch is data-driven, and fundamentally it’s built around building long-term human relationships and because each of our services does that, we’re finding our win rates are improving..

Thank you. Our next question will come from the line of Glen Santangelo from Jefferies. Your line is open..

Hey. Thanks for taking my question. Rajeev, I just wanted to sort of follow up with a very high-level question. I mean it seems last quarter the message was you’re seeing customers starting to pull back because of the peer recession, you were seeing an elongation of the sales cycle.

And now we sit here 90 days later, the environment certainly hasn’t gotten better and maybe has deteriorated even a little bit more, and now the message is we have more RFPs than ever before and we’re seeing record bookings this quarter.

Like what changed in the last quarter? And how much visibility do you think you have at this point when you look at the balance of the fiscal year, just given how much it seems things have just changed here recently?.

Glenn, thank you for the question, I appreciate you being here. If you go back to what we talked about last quarter, maybe I’ll amend a little bit of the characterization.

I think what we talked about last quarter was a look ahead at an uncertain economic environment, and I believe that it was prudent to at least account for the idea that the market may slow down. I think last quarter we talked about the fact that we saw more RFPs during that quarter than we had seen last year and the year before.

And what we really needed to see was, now that we’ve seen the white of their eyes, are those contracts going to close? Are they going to continue to progress through the pipeline? So that’s the way we characterized things last quarter.

This quarter I think what we’re saying is, ‘hey, you know what it turns out we actually closed more business this quarter than we closed last year this time.’ It appears that those deals are actually going to progress and continue to close. And so I wouldn’t say that things have dramatically changed.

Just that I would say, instead every single quarter we learn more about how that economic environment is going to impact the buying cycles of our customers.

We think, and as I mentioned in the script, we think that what we’re beginning to understand is that those customers are interested in managing health care costs and seem to be very interested in continuing to pursue advocacy, care and expert medical opinion evaluations.

We count all of that as positive news in terms of the performance in the first quarter, and we’re looking forward to how that plays out over the course of the second quarter as well..

Thank you. Our next question will come from the line of Richard Close from Canaccord Genuity. Your line is open..

Yes, thanks for the questions. Congratulations. Steve, I was wondering if you could talk a little bit about raising of the lower end of the revenue range.

Was that primarily, you signed the TRICARE deal and thus you took the discount out that you applied previously?.

Hi, Richard, thanks for the question. Signing the TRICARE contract certainly contributed to bringing up the bottom of the range by the $5 million, but it wasn’t only that. We had provided some of the aspects in there. We’re also seeing along the lines of what Raj is saying is some positive momentum around new bookings that gives us good comfort there.

We also saw in the revenue beat, member counts continuing to hold up, which contributed to the revenue beat this quarter and positive performance on PG.

So, it’s giving us more confidence and visibility there to raising the midpoint, while at the same time maintaining some balance given the economic environment that Raj was just speaking about in his comments..

Thank you. Our next question will come from the line of Michael Cherny from Bank of America. Your line is open..

Good afternoon. I wanted to dive in I think a little bit as well on the competitive dynamics. You talked about the improved close rates, which is encouraging, not just for your business, but obviously the broader state of the market.

But last quarter, another theme that you talked about as well was this dynamic of the low-cost provider, the offset between offering something that’s more, I guess cut down versus something else and that being a key component of the Comcast loss in particular.

As you think about that elevated RFP activity you’re seeing this quarter, how much of the pitch that’s being asked for is tied to not only value, but also where can we cut and squeeze you on price?.

Thanks for the question, Mike. I think if you were to look over the course, one of the things we’re most excited about the business is that over the last 18 months, our win rate has been very consistent if not improving. Now that win rate has been delivered with pricing that’s been very consistent.

And so as you look ahead, the market first and foremost is a market that’s looking for in a market, particularly in a downturn or a potential recession like we’re seeing right now, customers are looking for reduced healthcare costs.

And what we see in the RFPs that we’re responding to today, and I mentioned it a bit in my prepared remarks, Mike, that the RFPs are very specific about the clinical outcomes they want to prescribe about the needs that they are expecting to be filled by the vendors that they are asking – we are asking to respond to their RFP.

And then that comprehensiveness that we’re seeing in those RFPs, we think is a reflection of customers embracing the value proposition that Accolade delivers to the market. And so yes, I think there are other segments of the market that may choose lower-cost solutions.

I think the other good news there, Mike, is we do have lower-cost solutions that are available to customers if they seek lighter touch services. And so long story wounded to a shorter answer for you Mike.

We’re really bullish on our prospects and the win rates that we’re seeing with the price points that are very consistent with what we delivered in the past..

Operator:.

Q - Cindy Motz:.

Thanks! Thanks for taking my question and congratulations on the quarter.

I was hoping maybe Steve, you could give us some more segment information if you would, like the breakout of the $85 million in revenue between the core Expert and PlushCare, and based on that it sounds like Expert is improving or it sounds like – just from your comments, it sounds like it’s going better.

But yes, just if you could give us any segment information. And then also to – just on the one-time $3.5 million I guess non-recurring this quarter, should we expect to see that as well throughout the year? Is that going to continue like for a couple of quarters? Any information is good. Thanks..

Good afternoon, Cindy! Why don’t I start with the second question first. On the charge associated with the one-time cost, that will hit in the second quarter, you will see that the next time and to be in the neighborhood of $3.5 million.

On the first part, the breakdown of the business is about two-thirds associated with the advocacy business with the remaining third split between Expert Medical Opinion and Virtual Primary Care with the direct-to-consumer being a bit larger than the Expert Medical Opinion. And we’re seeing healthy growth rates certainly on the consumer business.

Raj spoke about it earlier. The PlushCare business continues to perform year-over-year, the business is growing in the mid-30s in terms of growth rate. The Expert Medical Opinion business, a couple of points here.

Number one, as Raj mentioned earlier, the new sales volume is very encouraging, continuing to see not only stand-alone expert medical opinion wins, we’re seeing knockouts of competitors and we’re also seeing bundled deals sell, which as you know, very importantly to our model is that we believe strongly very much a strategic thesis around both acquisitions, is that when we can leverage the advocacy base and the relationship with a member to get that member to their needs, whether it be an expert medical opinion, one of our ecosystem partners or a virtual primary care relationship, we’re starting to see that flywheel turn and starting to see strong utilization there.

And so we’re at second quarter in a row of positive sequential growth on Expert Medical Opinion after some slowdown that we saw a couple of quarters ago, so some positive news there. The 10-Q by the way Cindy, this information around pro forma information will be filed tomorrow..

Thank you. Our next question from the line of Jonathan Yong from Credit Suisse. Your line is open..

Hi! Thanks for taking my question. So it sounds like new wins are coming in better than expected.

I guess does this give you enhanced confidence in the outlook and the possibility of achieving profitability sooner rather than later? And just on these wins, do they have – are smaller, cheaper competitors pulling back given the current funding environment and that may be helping or are they actually still out there and now they are just not winning anymore? Thanks..

Thanks for the question Jonathan. I’ll try to hit both of those and Steve please jump in if you’ve got anything to add. I think in terms of the competitive landscape, it hasn’t changed dramatically Jonathan.

I think what we’ve done, we’ve traditionally executed really well at enunciating our value proposition of a comprehensive solution that engages broad populations, delivers a personalized service that’s human-based and that data driven population to health approach.

When we do a great job of using of enunciating that value proposition, our win rates are strong and customers buy that comprehensive value. So there’s no dramatic change in the nature of the competitive landscape, nor of our traditional win rates. I think as it relates to profitability, we’re – I think Steve just said it really well in his script.

We’re really comfortable with our guidance and our capacity to achieve the path that we’ve laid out moving forward..

Thank you. Our next question will come from the line of Craig Hettenbach from Morgan Stanley. You may begin..

Yes, I had a question just on the EBITDA guidance you know, which you’ve taken up the low end of revenue and you kind of maintained EBITDA.

Do you view that as just kind of conservatives sticking with that or any other elements to be aware of this year? And then as it relates to that, just on the back of the cost cuts, perhaps speaking to some of the confidence in terms of the path to profitability on the back of that..

Sure. Thanks Craig for the question.

So first of all around the cost cuts, I would describe this as very much aligning the business post having done three acquisitions, finding synergies, putting – aligning costs against the priorities of the business against the 20% growth rate, which had previously been 25%, so that’s a bit more on how we think about the cost cuts.

As far as this year bringing up the midpoint of the guidance by $2.5 million in keeping EBITDA where it is, this just has to do with we’re here at the end of the first quarter, we had a positive first quarter.

We want to obviously see how things go over the next couple of quarters with selling season, but have good confidence in that 10% or so EBITDA loss and then that continued positive trajectory from here to breakeven and then adjusted EBITDA and cash flow positive in about two years..

Thank you. Our next question will come from line of Jeff Garro from Piper Sandler. Your line is open..

Hi! Good afternoon team and thanks for taking the questions. I’ll ask one more on the selling season.

I’m just curious, how is activity differing across your different customer segments of strategic enterprise in the mid-market? And how are the distribution relationships that you referenced, both the plan and consultant side helping across those different segments?.

Thanks Jeff! I appreciate the question. I think in terms of segments, we saw transaction flows in each of those segments over the course of the first quarter.

So we continue to see traction across – you know ranging from the middle market all the way through strategic accounts, that’s point one, and we expect that traction to continue into Q2 and beyond.

One of the things we’re most excited about as the company has diversified its capabilities of reaching potential customers, is the idea that our direct-to-employer business is no longer the only driver of value in the business.

And so while we – what I just mentioned, the diversification across those market segments is exciting, our diversification across distribution channels is also exciting. So we saw a good traction in the first quarter with our health line partners representing both, our advocacy and EMO businesses.

And then in that quarter Jeff, and I mentioned it in my prepared remarks, we also saw it for the first half, our relationship with Priority Health in Michigan to offer our primary care and mental health services to power their virtual first plan design options.

So those developments to us, help us both diversify our distribution strategy and grow the business..

Thank you. Our next question comes from the line of David Larsen from BTIG. Your line is open..

Hi! Can you talk a little bit more about the TRICARE contract, assuming you’re doing good work for them and they like the return that they are getting.

But like, when will we hear about an expansion of that contract and what is the total potential revenue contribution of that and when would it actually flow into your P&L? And would that be enough to offset the Comcast drag that’s going to really start to impact fiscal ‘24? Thank you..

Thanks for the question, Dave. We’re excited to be able to serve the DHA for the third year of the pilot and so I appreciate you bringing it up, because it’s a part of the business that we’re really proud of.

When you think about pilots in the government business, particularly around the Defense Health Agency and TRICARE, think about pilots as things designed to test new innovations, prove them out, and to determine if a service like this can drive value.

That value in this particular pilot is manifest in cost reductions, improved clinical outcomes and member satisfaction. Remember, on this particular pilot, we’re serving members who spent more than $100,000 a year on healthcare or have multiple chronic conditions.

And so we believe that by virtue of the government signing up for the third option year of the pilot, that we’re proving that this service can deliver value. We’ll do so again in year three as we execute well.

And what happens when a government pilot goes well? There’s a great article by the way in military medicine newsletter that we’re happy to share with you post this call, that speaks to how those pilots then turn into standard innovations that may be a part of the T5 bid, which is the bid the government is running right now to select their carriers across both regions of the government.

We are particularly excited about that opportunity, because as these pilot capabilities embed themselves into T5, we have teaming agreements signed with three of the four vendors who are bidding T5.

So our opportunity to become the service delivery engine for this type of innovation and others is pretty unique and profound given the nature of our – the breadth of our distribution partnerships.

So how will that manifest in the P&L? Dave, I think one of the great parts of the government is the huge opportunity that TRICARE and DHA presents, and one of the realities of dealing with entities of this size is that it takes time. And so the T5 bid is scheduled to be awarded this year.

I think for those of you who know the government business really well, the bid will be awarded and then there’s a likelihood of appeals to the bid and appeals to the process. And so the current schedule is for T5 to deploy on January 1, 2023, and then those innovations – excuse me, 2024, excuse me.

Is to deploy January 1, 2024, and then for these innovations to begin deploying at the midpoint of the year. And so that’s when you could expect some of these to start to manifest in new revenues, but we think what’s important is the target addressable market here is significant.

Our leadership role is material and our distribution strategy is diversified..

Thank you. Our next question will come from the line of Ryan MacDonald from Needham. Your line is open..

Hi Rajeev and Steve! Thanks for taking my questions and congrats on a nice quarter. I want to talk about the employment environment. Obviously the labor market continues to evolve since even the last earnings call as labs continue to pick up.

Would just like to know to what extent you’re seeing that within your customer base and what type of exposure you have there? And then you know what assumptions are you making in the forward guidance for the employment outlook at your customers? Thanks..

Sure! Thanks for the question Ryan. One thing to remind everyone on the call is we’re fortunate to have a highly diversified set of customers on the corporate side across many industries, none of which comprises a material amount. So we don’t have any individual exposure per se to one particular industry that is material.

What we saw in the first quarter is positive member growth within the book that frankly would create us some upside which contributed to the revenue beat.

We’ve modeled and assumed as we head into a difficult environment here is that, that will moderate for the rest of the year and so we’re not assuming that that kind of growth will continue in our guidance. And so, so far we’re seeing positive activity there with respect to members, but we’re cautious given the recessionary environment that we’re in..

Thank you. Our next question will comes from line of Stephanie Davis from SVB Securities. You may begin..

Hey guys! Congrats on the quarter and thanks for taking my question. Just given some of the positive tone in your prepared remarks, I’d be curious as to how the Accolade sales pitch has evolved as we’ve seen enterprise benefits budgets take a bit of a turn.

Is there anything new driving the traction? Is that different than before effectively? And as a follow-up to that, I’d love to be – I’d be curious as to any change in preference towards the three offering gears, and if you’re seeing maybe a win expand strategy grow as budgets tighten?.

Thanks for the question Stephanie, and thanks for being here. I think traditionally Accolade has done – has landed the value proposition associated with return on investment and cost reduction in healthcare really well.

I think over the last couple of years I think we’ve expanded that value proposition very clearly as we expanded our suite into personalized health care, that we began to talk more and more not just about cost reduction, but also about clinical value, improving clinical outcomes and about improving employee engagement in an environment where that was really important.

Candidly speaking, our employers leaning in heavier on cost reduction in an environment like this one where most HR departments and CFOs are being asked to take a hard look at the bottom line. The answer to that is yes. And so I think we’re leaning into a muscle that we’ve developed over the years, and that’s fairly well developed in our sales force.

In terms of offering mix, I think it’s actually quite interesting. We do see what we call our core offering continuing to grow in interest.

We oftentimes continue to see that growth happening in what we call middle-market customers, customers who are actually seeking an improved service and seeking lower cost, but don’t have the capacity to disrupt their relationship with the carrier in terms of carve outs.

And so in that situation, it’s less about cost of the solution and more about disruption associated with the carrier. And then finally, while the traditional flagship offering is actually trending really well.

Finally, I think this idea around land and expand goes beyond growing the advocacy offering from core up to our traditional offering and it also includes the idea that we’re doing well, taking advocacy customers and adding expert medical opinion and care to our offerings or to their suite of capabilities from Accolade.

And that manifests in the fact that more than – at this point about 10% of our members have more than one Accolade offering in front of them..

Thank you. Our next question will come from the line of Stan Berenshteyn from Wells Fargo. Your line is open..

Hi! Thanks for taking my question. Maybe just continuing on what you were just talking about. You mentioned earlier the RFP process has really been focused on staffing ratios, performance guarantees.

I’m curious, are there any changes in the level of performing guarantees that you’re offering customers versus maybe a year or two ago?.

Thanks for the question, Stan. I think it’s a great one, because I think it reflects on the increased value that we continue to innovate off and deliver for our customers.

If you were to look at Accolade five years ago, I think you might have seen performance guarantees that were very focused not only on cost reduction, which we’ve always been very good at on a reliable, sustainable basis, but also areas that might be about benefits adoption or engagement with other programs.

What we’re starting to increasingly be able to deliver and therefore promote and deliver to our customers are clinical outcomes; the capacity to engage with clinical population populations in a particular condition and drive improved scoring on those populations and that’s something that we’re really excited about moving forward as we think it’s differentiated and important..

Thank you. Our next question will come from the line of Dev Weerasuriya from Berenberg. Your line is open..

Hey! Thanks for taking my question! I wanted to circle back to EBITDA and the cadence of that just over the course of the year here. EBITDA guidance didn’t move much and it looks like there’s going to be some more leverage in H2 here. But how should we think about the cadence? I know you guys mentioned some cost-cutting measures.

You know are those mostly done with or are we going to see more of that to our H2 as well? And which lines do we think, when you look at the OpEx that you’ll see more leverage over the course of the year and thereafter? And then I think there was a comment on PG revenue and the impact on the Q2 guide. Just clarifying that would be helpful as well.

Thank you..

Sure Dev. Thanks for the question. So on EBITDA, the charge that we mentioned will hit in the second quarter and you’ll see really the benefit of that in the second half. So you’ll see that to your point, and you’ll see some of that dropping to the bottom line on the second half, which is where the impact will be.

As far as the PG revenue, my comment there was that in Q1, we had some timing of performance guarantee revenue that was high gross margin and included in our guidance previously, the point there was that it contributed to the gross margin outperformance versus prior year by about five points.

There was an element in their contribution from that PG timing in Q1..

Thank you. Our next question will come from the line of Sandy Draper from Guggenheim. Your line is open..

Thanks very much. I think my question has just been answered, but just to clarify, I heard you say in the prepared remarks margin or product mix impacted the gross margins.

Was that purely due to the performance guarantees or is there anything on PlushCare versus Expert MD or the base business that, that mix actually contributed or was it really just performance guarantees? So I just wanted to clarify that. Thanks..

Sure. Thanks Sandy. Actually, I’m glad you raised that to clarify, because the contribution there was from both the PG performance, as well as the offering mix. For one, PlushCare operated at higher gross margins than the broader business, which contributed this year and was not in the number last year given the timing of the acquisition.

So those were both really contributors to that out performance..

Thank you. And I’m not showing any further questions in the queue. I’d like to turn the call back over to management for any closing remarks..

Thank you everyone for being here, and we look forward to updating everyone again in our Q2 call..

And this concludes today’s conference call. Thank you for participating. You may now disconnect.

Everyone, have a great day!.