Accolade Inc at Stifel Cross Sector Insight Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: David Grossman - Stifel Financial Corp. - Analyst : Great. Well, thank you for that. And let's just start at a higher level here is that the premise of Accolade is better clinical outcomes, right, for the members and lower cost for the employers, right? That's fundamentally the premise. And the employer pays for that, right? And the health plan, if it's a health plan, they'll pay for it. So it sounds like a no-brainer, right? Like why not do it? And you've got -- you've delivered guaranteed cost savings against trend among other things that demonstrate your ability to deliver on that promise. So why is it -- what are the obstacles that you face when you go into trying to sell this? Because it seems on the surface to be like why not -- like why wouldn't you do it?

Question: David Grossman - Stifel Financial Corp. - Analyst : So as you start out with one really big customer, right, in Comcast, and your masthead is mostly populated by large, fairly large companies. So is this a service that can be offered to smaller companies profitably? Or are you basically kind of incurring the same cost to service a Global 500 company as you are a midsize business of 5,000, 10,000 employees?

Question: David Grossman - Stifel Financial Corp. - Analyst : So you talked about multiple services, right? And I think your M&A strategy has been the foundation of adding those incremental services. So can you help us understand what's the benefit to the customer to taking more than one service, like what what's compelling to add? So for those of you not as familiar with the company, there are three core services. There's navigation, expert medical opinion or second opinion, and also virtual primary care. So those are the three offerings. What is it that compels somebody to say, yeah, I need more than one.

Question: David Grossman - Stifel Financial Corp. - Analyst : Right. So just to give us a taste of the economics of this, what does it look like? It's $20 a month for core navigation. What if I add the full bundle, how does that change the revenue per client?

Question: David Grossman - Stifel Financial Corp. - Analyst : Right, right.

Question: David Grossman - Stifel Financial Corp. - Analyst : Right. That shows up more in the margin, right?

Question: David Grossman - Stifel Financial Corp. - Analyst : Got it. So one thing that we didn't talk about yet and has over time created some confusion among investors is the performance guarantees in your model there. And I think you did a really good job at your Investor Day of kind of walking people through that, not that sure that made it through to everybody, but it was a good walk around. So the thing that's hard I think for people understand is that performance guarantees are an annual. You earn it over the year. And when you give guidance at the beginning of the year, you typically guide for it to come through into revenue and margin at the end, right? So there's a big skew in revenue and profitability to the back half of the year. And what maybe is a little confusing for some is that those milestones could be earned earlier, right? So that it creates some distortions. So I think the consensus is getting there but it needs to come up a little bit to what your commentary was a few weeks ago. But that's just kind of like getting us to now. But how do you want us to think about performance guarantees in general, right? It's an incentive for you to do a good job -- to do a really good job of earning them, how do you want us to think about your risk profile going forward? How much risk you're going to take, and how it may affect the margins?

Question: David Grossman - Stifel Financial Corp. - Analyst : Right. And there's a few other things that I want to get to. But just quickly, is there anything about the comprehensive nature of the platform now that the [XPG] is more attractive to you, to the extent you talked about it, Todd talked about engagement? Is there anything that we should think about now that you have all three that your ability to take risk improves and your ability to earn that improves?

Question: David Grossman - Stifel Financial Corp. - Analyst : Right. So we talked about revenue and the build by adding new services. But now, what about margin? Because you're going from unprofitable to profitable and cash-flow positive? And I think about 500 basis points of the margin improvement is gross margin, roughly round numbers. And the balance to get you to your first-level target of 10 to 15, I believe, is going to have to come out of OpEx, right? So do you want to walk us through REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2023 / 3:30PM, ACCD.OQ - Accolade Inc at Stifel Cross Sector Insight Conference just very quickly what are the gross margin dynamics as well as what's going to happen on the operating expenses that gets you there, and what kind of visibility you have on that?

Question: David Grossman - Stifel Financial Corp. - Analyst : And I'll come back to this for the time, but I wanted to just to -- I probably should have covered this earlier, it's just because AI is in -- generative AI is so much in the news and just dominating the conversation on Wall Street, do you want to -- you've always infused AI into the way you screen calls in a way you hand people off to different members for your service, why don't you just quickly walk us through what role generative AI is playing in your business opportunities and risks?

Question: David Grossman - Stifel Financial Corp. - Analyst : And so do you see the competitive dynamic changing at all with the use of generative AI?

Question: David Grossman - Stifel Financial Corp. - Analyst : All right. I think we're out of time. So thanks very much. Glad to have you.