Accolade, Inc. (ACCD) Q2 2023 Earnings Call Transcript

Accolade, Inc. (NASDAQ: ACCD) Q2 2023 earnings call dated Oct. 06, 2022

Corporate Participants:

Todd Friedman — Senior Vice President of Investor Relations

Rajeev Singh — Chief Executive Officer

Steve Barnes — Chief Financial Officer

Analysts:

Michael Cherny — Bank of America — Analyst

Glen Santangelo — Jefferies — Analyst

Jonathan Yong — Credit Suisse — Analyst

Jailendra Singh — Truist Securities — Analyst

Cindy Motz — Golden Sachs — Analyst

Craig Hettenbach — Morgan Stanley — Analyst

Stephanie Davis — SVB Securities — Analyst

Ryan Daniels — William Blair — Analyst

Richard Close — Canaccord Genuity — Analyst

Stan Berenshteyn — Wells Fargo — Analyst

Dev Weerasuriya — Berenberg — Analyst

Ryan MacDonald — Needham — Analyst

Sandy Draper — Guggenheim — Analyst

Jessica Tassan — Piper Sandler — Analyst

Robert Simmons — D.A. Davidson — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Accolade second 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 for today, Todd Friedman, Senior President of Investor Relations. Please go ahead sir.

Todd Friedman — Senior Vice President of Investor Relations

Thanks, operator. Welcome everyone to our fiscal second quarter earnings call. With me on the call today is 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 this 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 when evaluating Accolade’s performance. Details of 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 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 would turn the call over to our CEO, Rajeev Singh.

Rajeev Singh — Chief Executive Officer

Thanks, Todd. And thank you everyone for being here. We are now officially more than halfway through our fiscal year and even more so through the traditional healthcare buying season for employers, which of course makes up a material component of our growth outlook for the year ahead. Additionally, as we open this call we’re in the heart of an open enrollment season for our existing customers and typically marked the beginning of a very busy season for Accolade’s Care team, and the implementation process for many of our new customers who are targeting a January 1, 2023, to go live.

With those notes as a backdrop, and in spite of a challenging macroeconomic backdrop Accolade continue to perform well across every major segment of the business. Of course that begins with our financial performance. For fiscal Q2 2023, we came in above the high end of our guidance ranges for both revenue and adjusted EBITDA and we’re well positioned for a strong second half of the year. Steve Barnes, our Chief Financial Officer will cover our financial performance in more detail later in this call. Turning our attention to the business landscape. A few high-level observations before I get into the specifics on each of our core business segments.

First, the strategic expansion of our product portfolio in fiscal year 2022 is paying dividends in fiscal year 2023. In our Commercial or Employer segment, the majority of our customers purchasing our advocacy services are choosing to purchase our Accolade Care and Accolade Expert MD services at the same time, thus validating the personalized healthcare suite Accolade unveiled last summer. In our Health Plan and Government segments, we’re seeing interest across the breadth of our offerings as well.

Second, across every major segment that we’re in, we are in the early stages of cultivating a massive target addressable market that today is largely underpenetrated. The recent Willis Towers Watson survey estimated that 20% of companies have some form of navigation solution. Other surveys represented penetration rates below 20% for full carve-out solutions like Accolade’s. Regardless of which survey you read, all indicates there’s a massive unserved marketplace. Importantly, those same studies expect penetration to more than double over the next several years.

Third, we are well-positioned to win in the market we created because we are differentiated and diversified. Our differentiation brings from the breadth of our offerings and the proof points of performance. No other company in our category can point to integrated offerings in advocacy, expert medical opinion, and primary care and behavioral health, with third-party validated savings across a variety of customers. Our long-term customer retention rates validate that fact. Our diversification is a product of our investment in building multiple distribution channels including the commercial employer segment, health plans, government and direct-to-consumer.

The strength of our position is furnished by our strong balance sheet and our plan to achieve profitability in the near term. Now let me provide more specific updates on each of our business segments, starting with the Commercial segment. While our business has shifted to a model where we are now selling throughout the year, it’s still true that summer and fall months are the most important for businesses who are making buying decisions to prepare for a January 1 launch. We’ve continued the momentum from last quarter across all solutions and segments. To date, we are on pace to exceed our annual recurring revenue results from last year and put ourselves in a positive position to drive growth for next year.

There still remains a number of key customers and RFPs to close, but our win rate and mix of business gives us confidence in our ability to continue signing new business throughout the year. Contracts we signed today are generally slated to go live in January or later. So while deals signed in calendar 2022 provide a small amount of revenue in the fiscal fourth quarter, the real benefit provided is the foundation for revenue growth in fiscal 2024 and beyond. This is an important element of our business model that provides visibility into next year’s revenues. We’re experiencing strength across all segments and solutions and across verticals as well. We signed significant customers across a broad swath of industries including retail, telco, financial services, higher ed, natural resources, technology, manufacturing and so on.

Customers who purchased multiple solutions included a well-known digital finance company, national gas and convenience store operator and a multibillion-dollar industrial manufacturer. Notably, many existing Accolade Advocacy customers added Accolade Expert MD and Accolade Care including a Fortune 100 insurance company, and we’re seeing more existing Accolade Expert MD customers evaluate and select our traditional advocacy solutions, including a Fortune 100 financial services company. While I’ll talk about our health plan distribution relationships in a moment, I also want to note that several health plans are now offering Accolade solutions to their own employees.

We see this as a tremendous validation of our solutions and believe that internal use of Accolade will help drive success in our distribution relationships as these health plan partners experience the value we deliver firsthand. Now let’s turn to the health plan market. As we noted last quarter, the health plan partnership channel has become an increasingly material part of our business over the last two years. Starting with our expert medical opinion relationships with key national and regional plans like UHG Optum, Aetna, and BCBS Michigan, advocacy relationships with Humana and Blue Shield of California and now into multiproduct relationships with carriers like Priority Health in Michigan.

We expect more relationships to materialize in the quarters ahead and also expect existing relationships to continue to expand as we continue to demonstrate our value to them and their members. Our partnerships with health plans, much like our relationships with our trusted partner ecosystem reflect our long-held belief that fixing health care for people in this country is a team sport, and that we have to partner with like-minded companies to make it work for as many people as possible. From a growth perspective, the health plan channel is adding new marquee logos to our roster.

In the last quarter alone, we added a number of Fortune 500 companies through these partnerships, including a retail and apparel fitness leader, one of the leading providers of scientific equipment and instruments, several large banks and a well-known motorcycle manufacturer. Turning our attention to our relationship with the Defense Health Agency, we continue to await a decision on their T-5 RFP, which we expect to come soon. Our success with our pilot populations, along with our carrier partner strategy with those bidding the business have us well-positioned for the opportunities that may present themselves.

Keep in mind that the T-5 contract is set for a January 1, 2024 phase implementation so this doesn’t materially impact our outlook for the current or next fiscal year. We also continue to work closely with TRICARE on our autism care demonstration and have been very encouraged by the results we’ve been able to deliver thus far. Next, I’d like to provide a broader update on our direct-to-consumer primary care business. It’s been just over a year since we closed the PlushCare acquisition and our consumer primary care growth has continued to be strong.

At a time when other telehealth vendors have seen growth rates contract, our consumer subscriber base has grown more than 30% since the acquisition. We believe the reason for this performance is very simple. While others have focused on virtual primary care as a replacement for urgent care, PlushCare was built from day one as a true primary care solution. The impact on growth is substantial. We see more repeat visits during the year than traditional telehealth vendors, which provides better predictability and sustainability for the membership base. As an aside, a direct-to-consumer position platform that supports the growth of PlushCare is the very same platform that supports our enterprise Accolade Care business.

As we roll more customers onto Accolade Care, we already have the capacity to support the growth in that business. One other note on the growth drivers in our primary care business. We’ve been able to drive this membership growth without seeing a material increase in customer acquisition costs, reflecting both the efficacy of our demand generation efforts as well as what we see as the notable difference between our virtual primary care platform and traditional telehealth and stand-alone mental health offerings.

We remain firmly convinced that our vision for bringing these companies together was both the right choice and will be a key driver behind Accolade’s long-term success. Before I turn the call to Steve, I’d like to offer a couple of quick thoughts that are key to our current and future success. First, we’ve already added more than 100 customers this year and now have more than 700 total customers. You’ll remember that we had 54 customers when we filed our IPO S-1. That growth delivers more than just diversification of revenues. It delivers clear validation that personalized health care, which combines the capabilities of advocacy, primary care and behavioral health and expert medical opinion, is a category that meets a profound need for health care buyers.

Second, our new customer growth also points to the operational scale enabled by our open technology platform. Our incredible care teams, powered by a data set and a platform built for this purpose are proving that they can deploy hundreds of customers and support millions of members through new deployments, plan design changes, and open enrollment, demonstrating this scale as we grow revenues while improving profitability each year, bodes well for our future and our competitive prospects. With that, I’ll turn the call over to Steve.

Steve Barnes — Chief Financial Officer

Thank you, Raj. First, I’ll recap the results from the second quarter of fiscal 2023 and then provide some details on forward guidance. In the quarter, we generated $87.6 million in revenue representing 20% year-over-year growth on a GAAP basis over the prior year period. Revenue was higher than originally forecast due primarily to strength in our direct-to-consumer business as well as member counts for our commercial customers and approximately $1.5 million in performance guarantee revenue timing.

Fiscal Q2 adjusted gross margin was 44.7% compared to 40.9% in the prior year period, which reflects the positive revenue beat, including the performance guarantee revenue timing that benefited gross margin and adjusted EBITDA in addition to higher margin offering mix. Adjusted EBITDA in the second quarter of fiscal 2023 was a loss of $13.7 million, which compares to a loss of $19.4 million in the prior year’s second fiscal quarter. This is ahead of our guidance, primarily due to the revenue outperformance and lower spend than planned in the quarter in some areas such as hiring and personnel costs as well as reduced sales and marketing costs.

Note also that we took a $3.1 million charge for severance costs in the second fiscal quarter associated with the staff reductions we discussed in our first fiscal quarter earnings call. This amount is excluded from adjusted EBITDA given its nonrecurring nature. Turning to the balance sheet. Cash and cash equivalents totaled $331 million at the end of the fiscal second quarter and accounts receivable DSOs were in line with prior quarters at about 25 days revenues outstanding. Finally, we had approximately 71.5 million shares of common stock outstanding as of August 31, 2022.

This increase from Q1 reflects the distribution of the vast majority of the shares related to the earn-out provisions of the 2nd.MD and PlushCare acquisition. Now turning to guidance and how to think about our financial model progression towards breakeven. We are updating our guidance today for fiscal 2023 as follows. We’re now forecasting fiscal 2023 revenue will be in the range of $358 million to $365 million, representing growth of approximately 17% at the midpoint; and we are maintaining our adjusted EBITDA loss guidance between $35 million and $40 million.

As Raj outlined earlier, we’re having a strong selling season and feel confident in our business and our ability to achieve our growth targets. We are always mindful of the economic environment we are operating in, particularly the uncertain impact of inflation on overall health care spend, overall employment trends and company buying cycles. As such, we take the viewpoint that outperformance in a quarter in this environment particularly serves to derisk the lower end of our guidance, much as we did in the first quarter. And as Raj also noted earlier, our strong ARR bookings fiscal year-to-date gives us increased confidence in our outlook for fiscal ’24 revenue growth.

And with respect to the fiscal third quarter, we are providing guidance today of revenue in the range of $86 million to $88 million, and adjusted EBITDA loss in the range of $11 million to $13 million. And with that, we are reiterating our objective of positive adjusted EBITDA and cash flow in fiscal 2025, which aligns with calendar year 2024. As I noted last quarter, our convertible bonds are not due for approximately 3.5 years. And with $331 million 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, our revenue streams and our customer base, and we have an engine built for growth and sustainability, which will ultimately drive significant positive cash flow. And with that, we’ll open the call to questions.

Questions and Answers:

Operator

[Operator Instructions] First question is coming from Michael Cherny of Bank of America.

Michael Cherny — Bank of America — Analyst

Good afternoon. Congratulations on the nice quarter that you put up. Maybe if we can start on the selling season, certainly encouraging, given the broader macroeconomic worries about the performance that you put up so far year-to-date. Can you maybe just dive in a little bit closer in terms of relative to conversations, I guess, a couple of pieces of this question. One, have you seen any changes in either the timing of the specific sales cycle and/or the close timing? And then second, relative to what you’re leading with given that the product portfolio and service portfolio has expanded so drastically. Is there anything that’s really coming to the forefront in terms of — for the customers that especially have already signed up early, what are they most focused on that Accolade can provide for them?

Rajeev Singh — Chief Executive Officer

Thanks for the question, Mike. Great to hear from you. This is Raj. I’ll jump in, and Steve and Todd can add anything you want to add or Shantanu. Quickly, First, you’re exactly right. The demand environment continues to be strong for the offering. One of the things we really like about our business in 2022 is the diversification of the channels that we’re actually delivering through as well as the diversification of the product offerings. And so what we’re seeing is really strong demand across each of those channels and across each of those offerings. Maybe the best part of the story from my perspective, Mike, to answer your question directly, is the customers are increasingly looking at two things: one, the complexity of their ecosystem and the desire to find a way to get the maximum leverage they can from a purchase that will drive value to the rest of their ecosystem; and two, an acknowledgment that health care costs continue to go up and the desire to lower costs. And all of that’s yielding value for us. And I think specifically, the data point I’d call out that we talked to in our prepared remarks, the idea that customers when buying advocacy are — a majority of them today are buying not just advocacy, but also buying our primary care service and our expert medical opinion service, which indicates to us a validation of the personalized health care suite that we released last year. And so I think it’s about the complexity of their ecosystem. I think it’s about lowering cost and we feel fortunate that we’ve got offerings that all both of those problems.

Operator

Next question will be coming from Glen Santangelo of Jefferies.

Glen Santangelo — Jefferies — Analyst

Raj, I just missed your prepared remarks, how many customers you said you have now? And I was wondering if you could just sort of give us a sense for how many of those customers that you’ve been signing up this selling season are slated for a January 1 start because I think I heard you correctly that you said even customers are signing up now, you think you can squeeze in for January 1. And the reason I ask is because it sounds like things are going well, but I’m trying to tie that back, Steve, to the full year guidance because it looks like based on your 3Q guidance, you guided $101 million or a little bit better than that in the fourth quarter, which would only be about 8% up over the fourth quarter last year if I’m doing that math right. And so I’m just wondering if you could just sort of flesh that out a little bit for me. Thanks.

Rajeev Singh — Chief Executive Officer

Yes. We’ll break that down. First, great to talk to you, Glen, thanks for the question. We’ll break it down into two parts. I’ll answer the first part. Steve can tackle the second. As it relates to new customers, we talked in the prepared remarks about the idea that we have now more than 700 customers. We’ve signed more than 100 this year. Again, going back to the point that we answered in Mike’s question, one of the things we love is the diversification of the revenue streams and in the context of this answer, speaking to that across product lines, we’re signing customers with primary care and behavioral health for expert medical opinion and for advocacy. Clearly, the preponderance of our customers in the past have always gone live on January 1.

That changes a bit now that we’ve got expert medical opinion customers and advocacy customers who might go live or, excuse me, care customers who might go live after January 1, given that they don’t necessarily have to see the carve-out from their plans that the advocacy business has traditionally been known for. And so we’ll see a percentage of those customers, our advocacy customers go live, most of them on January 1, but many others will go live potentially later than that or earlier than that, depending upon their needs. Steve, anything you want to add to that?

Steve Barnes — Chief Financial Officer

Just a bit. Hi, Glen, on the guide for the year, first of all, really pleased with a strong quarter. The strength in the quarter really came across all aspects of the business. We saw strength in advocacy and expert medical opinion as well as the virtual primary care business, particularly on the direct side with PlushCare. We also did have some timing of revenue there, $1.5 million that got pulled forward from the fourth quarter, Glen. So what you’re hearing from us is a strong outlook for the year, mostly January 1 starts, but not all of them. And in this current economic environment, we have a really strong confidence in that range that we’re providing today for the full year.

Operator

One moment for the next question. The next question is coming from Jonathan Yong of Credit Suisse. Please go ahead with your question.

Jonathan Yong — Credit Suisse — Analyst

Hi. Thanks for taking my question. I was just curious on PlushCare on the strength you’re seeing there. I was wondering if you could expand on that. And are you guys seeing higher levels of utilization just from the population base and it’s just remaining elevated? Or is it actually accelerated? And then given some of the shake up in the tele-health entities in recent months, do you see yourself taking share from them? Or is it just core growth of the market and you’re just exceeding the market? Thanks.

Rajeev Singh — Chief Executive Officer

Thanks for the question, Jonathan. It’s very early days in the idea of virtual primary care and behavioral health. 2020 with COVID and the pandemic really saw an explosion in urgent care utilization, as you might expect — in telemedicine for urgent care, as you might expect. PlushCare, and one of the reasons we like that business so much is that PlushCare even in that environment was extraordinarily focused on building from the ground up a primary care offering that focused on being able to deliver primary care and hold on to your primary care position over the long term as you would in — as you had in the brick-and-mortar world. So we believe that, first of all, to answer the first part of your question, these are early days, and so this isn’t about taking share from other telemedicine players, instead, it’s about creating a brand-new market space and being the leader in that brand new market space.

The second part of your question in terms of perhaps extrapolating the question a bit and speaking to our growth rate versus the growth rate of other players in the space. Not knowing their businesses exceptionally well, what we can say is this, we are unique and differentiated because we’re a primary care player with behavioral health embedded in that primary care, different than the urgent care offering that most of our competitors are talking to. Our capacity to have a primary care physician stay with the patient on the long term leads to better long-term retention rates and therefore, leads to — it leads to better growth rates than other players are seeing. We’re also seeing that while at the same time seeing customer acquisition costs come in at better-than-expected levels, which is something that we’re really excited about as well.

Operator

Thank you. While we prepare for next question. Next question, it’s coming from Jailendra Singh of Truist. Please go ahead.

Jailendra Singh — Truist Securities — Analyst

Yes. Thank you. And thanks, Raj and Steve, for all the color on all the contract wins. I was wondering if you could share us some color around the trends you saw around the pricing or even contract structures for next fiscal year. For example, you guys have talked about a shift to more risk-based revenue in the past. Did you see that accelerating for next year? And is that varying by products and solutions? And how is that shift impacting employees’ willingness to work with the vendors in the space?

Rajeev Singh — Chief Executive Officer

Thanks for the question, Jailendra, great to talk with you. When we think about the makeup of the deals that we’re closing, as we talked about during the prepared remarks, we’re excited about the demand environment. We spoke even last quarter to the idea that in a strong demand environment, as a leader in the space, we expect to win more than our fair share of those transactions that actually occurred in Q2. And one of the other things we’re excited about is that those things are — that those deals are pricing at historic levels, meaning that we’re seeing that customers are willing to pay for value. At Accolade, we do price a premium offering, and we’re seeing customers willing to pay that premium. Maybe the last part of the question associated with fees at risk. By and large, our customer contract look very much like they have looked historically. I do believe over time, a couple of things will be true breaking out your question into more detail, Jailendra. First, when you look at advocacy, primary care and expert medical opinion, and expert medical opinion in primary care because we drive such high utilization, we’re quite happy whether a customer wants to pay us on a PEPM basis or on a case rate or utilization basis. That makes us unique from the rest of the industry because we know we can drive utilization in the right way. And I think that’s something that we’ll continue to keep an eye on moving forward. Steve, anything to add there?

Steve Barnes — Chief Financial Officer

I think you got it. I think that last part about case rate is something in a trend we’re seeing and plays well into the model.

Operator

Thank you. Our next question will come from Cindy Motz of Golden Sachs. You may go ahead please.

Cindy Motz — Golden Sachs — Analyst

Can you hear me?

Rajeev Singh — Chief Executive Officer

Yes, we can hear you great, Cindy.

Cindy Motz — Golden Sachs — Analyst

Great. Well, congratulations. Thanks for taking my questions and congratulations on a really good quarter. So I just wanted to follow up on PlushCare but also some of the segment detail. So it looks like is advocacy still running around 2/3 or is it more like 64%, 65% of your revenues. And then it looks like, PlushCare is definitely growing maybe a little faster than you expected. And certainly, that’s anecdotally what seems is some of the app data. I’m curious how much of it is mental health? And then do you feel like some of these point solutions, I know you’ve done — you’ve given us some good commentary here, but have you seen sort of a decline in some of these point solutions with mental health sort of falling off? And again, is that maybe why you’re accelerating? Thanks.

Steve Barnes — Chief Financial Officer

Hi, Cindy, it’s Steve. So let me take the first part of your question, and I think Raj and I will tag team on the second part. But you’re right in terms of the splits of the business, the advocacy portion of the business runs in the range of low 60s percent of the total revenues with the balance being made up of expert medical opinion and virtual primary care. And you’re right, the PlushCare side of the business is growing a bit faster. And we commented last quarter that the business is growing on a 30% or so annualized growth rate year-over-year, and that’s maintaining through the second quarter as well. So positive performance there. With respect to where that’s coming from and what we’re seeing in terms of primary care, mental health, I’ll start by saying, remember that PlushCare leads with a virtual primary care offering and then has that capability to get that person efficiently to a behavioral health specialist our team as needed. Let me hand it to Raj, if he has any comments on some trends there.

Rajeev Singh — Chief Executive Officer

I think what we’re seeing, Cindy, across the board is that customers are interested in all of the offerings knowing that they need an advocacy foundation or a personalized health care platform foundation by which we can drive not only utilization for primary care behavioral health and expert medical opinion, but also the rest of their digital health care solutions. And so maybe tying out your question around, are they seeing decreased utilization in those other things or potentially moving away from them? In fact, quite the contrary, we continue to see customers looking at other digital solutions. I think what they’re really focused on now is the return on investment from those solutions. And we think we have a platform and our customers believe we have a platform to deliver that on every app.

Operator

Thank you. The next question is coming from Craig Hettenbach of Morgan Stanley.

Craig Hettenbach — Morgan Stanley — Analyst

Thank you. Just a question, Raj, more broadly on the macro uncertainty and really what’s changing with customer conversations or discussions. And I think you touched on some of it in terms of the broad offering is helping you in this type of backdrop. But anything else kind of from maybe the beginning of the year of how conversations have evolved and the anecdotes you can share in terms of what’s underpinning some of your relative strength near term?

Rajeev Singh — Chief Executive Officer

I think there’s some consistency, Craig. First, it’s great to talk to you again. Thanks for the question. I think there is a level of consistency over the course of the last year associated with the conversations. The reality is even in a macroeconomic environment that has some uncertainty, we’re continuing to see job growth. We’re continuing to see a relatively full employment environment, at least for the time being. Employers, therefore, are very focused on retaining their employees and attracting new employees. At the same time, there’s an acknowledgment that cost reduction from a healthcare perspective is perhaps even more important in the year or two years ahead than it was in the years past. Accolade has always been very good at being the only proven vendor in the space with independently validated data that speaks to our cost reduction capability. And then finally, this — and it’s a question that came earlier in a couple of the questions earlier today, the acknowledgment that the digital landscape of carve-out solutions is so complex at this point given the profound amount of innovation happening in the space that customers need platforms by which they can weave all that together and manage those — that complexity. Those three themes are consistent with almost every employer/payer we talk to. And that’s why we think we’re well-positioned.

Operator

Thank you for your question. The next question is coming from Stephanie Davis of SVB Securities.

Stephanie Davis — SVB Securities — Analyst

Hi. Thank you for taking my question. You touched on this a bit with some of your new wins commentary, but I was hoping we could just kind of fully clarify this. From the new logos in the prepared remarks, although it adds still predominantly ones and twos like expert second opinion takeaways or PlushCare wins? Or should we think of these wins as more on the larger bundled platform plus category? And to that same token, how is that looking at that mix in your pipeline? Thank you guys.

Rajeev Singh — Chief Executive Officer

Thanks for the question, Stephanie, great chat. Think about it in terms of quantity and then think about it in terms of annual recurring revenue contribution. In terms of annual recurring revenue contribution, I think it’s fair to say that more than a plurality of those deals are coming from multi-platform deals where they’re buying advocacy, expert medical opinion and care in aggregate. I think in terms of quantity of transactions, the “N”[phonetic] number of transactions, you’re going to see a greater distribution across some of the smaller deals, potentially expert medical opinion and care being drivers of those smaller transactions facets[phonetic].

Operator

Thank you. The next question will be coming from Ryan Daniels of William Blair.

Ryan Daniels — William Blair — Analyst

Guys, thanks for taking the question. Congrats on another strong quarter. I wanted to ask about the three themes you just mentioned. So the complexity of the ecosystem, the need to drive lower cost and your proven ROI. How does that in a positive environment, kind of work into your current thoughts on investing in sales and marketing and R&D. So just kind of the desire to ramp towards EBITDA breakeven through 2025, but also what might be a more appealing market for you to continue to gain share and land and expand? How do you balance those two as an organization? Thanks.

Steve Barnes — Chief Financial Officer

Ryan, this is Steve. Thanks for the question. So really important point you’re raising here because we see this very large market opportunity, strong growth and with an eye towards this plan to get the profitability over the next two years. So you see this balance where we’re investing around innovation, in terms of R&D and the platform and the two acquisitions that we did over the past year and integrating those together. And we’re seeing the real fruits of that to Raj’s point, that many of the deals we’re selling today are really validating the purpose and strategic element of those acquisitions, selling multiple offerings into that end customer. In terms of sales and marketing spend, one of the pieces — big elements of leverage we’re seeing now is having brought the three companies together, we have a strong efficiency out of the direct sales forces that we brought together. And very importantly, the channels that we have to access customers are providing a lot of leverage. The health plan channel in particular, where we’re selling expert medical opinion, both on its own and in some cases, together with other offerings is providing leverage. So we’re looking at the unit economics, which are quite attractive in balance with that goal to get to profitability about two years out from now. One of the reasons we often get the question, “Hey, guys you beat the top end? Are you bringing up the bottom end of the EBITDA number?” We’re actually very comfortable with the current EBITDA projections while we grow the topline because of the size of the opportunity and the strength of our balance sheet. So we look at all of that taken together and the big — the size of the opportunity in front of us is balancing all of that out together.

Operator

Thank you. The next question is coming from Richard Close of Canaccord Genuity.

Richard Close — Canaccord Genuity — Analyst

Congratulations. Maybe a follow-up to the conversation question earlier. Raj, have you had any customers just shut down conversations with you guys because of the economic outlook? Or would you characterize the level of conversations increasing due to the — that the expectation health care costs that you cited in the surveys?

Rajeev Singh — Chief Executive Officer

Thanks for the question, Richard. I think the — a couple of ways to think about the answer to your question. First, no. We always have customers as they go through the process, a certain percentage of them go through the process and choose to buy. We win more than our fair share of those transactions. And there’s always customers as well in any given selling season, regardless of environment who kick the tires and choose to wait until next year. I think those ratios have been fairly constant, although the total number of RFPs/evaluations has grown on a year-over-year basis, and grew materially this year. So we haven’t seen any sort of push in that regard. I think to think about it in context of what the environment looks like this year. Increasingly, customers looking at those three themes that I’ve talked about in the past are looking and saying — where perhaps in years past, they might be just buying digital point solutions for a particular carve-out categories are beginning to grasp perhaps more so this year than in years past that those things by themselves will not drive the trend line improvement that they might otherwise be seeking. And that they — what they need is a woven together platform that ties all those solutions together. And I think that certainly may be driving increased focus on personalized health care suites like ours.

Richard Close — Canaccord Genuity — Analyst

Great. Thanks.

Operator

Next question is coming from Stan Berenshteyn of Wells Fargo.

Stan Berenshteyn — Wells Fargo — Analyst

Hi. Thanks for taking my questions. First, some comments you made earlier about — the strength in the quarter was partially driven by an upside surprise in member growth. I guess excluding any impact from client churn that you’re anticipating, how much of the growth expectations for this year are coming purely from member growth?

Steve Barnes — Chief Financial Officer

Hi, Stan, this is Steve. Thanks for the question. We’ve had over the past couple of years, we’ve seen modest year-over-year growth. If you think back to the time we came public during the pandemic, we’ve never had a “normal” year yet. So employee counts have grown within the book over the past couple of years. We don’t assume a whole lot of that given the backdrop, the macroeconomic backdrop, in our guidance. We did see some upside surprise for that through the second quarter. So when you step back, I think the heart of your question is probably around the guidance for the full year. We’ve got good confidence in the range we’re providing today and also providing a certain level of caution and pragmatism around employee counts given the macro environment.

Operator

The next question is coming from Dev Weerasuriya of Berenberg. Go ahead please.

Dev Weerasuriya — Berenberg — Analyst

Hi, can you guys hear me?

Rajeev Singh — Chief Executive Officer

We got you.

Dev Weerasuriya — Berenberg — Analyst

Thanks for taking my question and good quarter here, looking towards the end of the year. I wanted to talk a little bit about the performance-guaranteed revenue. Accolade One was kind of more of a conversation, I think, last year and has been kind of less so this year. But how are clients thinking about the performance guaranteed portion of revenue within contracts? Is that an important selling point? And then what percentage as a percentage of contract value, is the performance guaranteed portion higher in these new contracts that you’re signing? Or similar to last year? Any color on that would be helpful. Thank you.

Rajeev Singh — Chief Executive Officer

Hi, Dev, thanks for the question. This is Raj. I’m going to take the first part of your question, Steve will take the second part of your question. As it relates to Accolade One, think about Accolade One as an offering that ultimately was where customers take advantage of all of our capabilities plus a select few partner capabilities that when we think embedded with the offering can drive even better savings and clinical outcomes. What we’re seeing this year, which we’re really excited about is the preponderance of customers who are buying from us are buying our three core offerings, advocacy, expert medical opinion and virtual primary care and behavioral health at the first shop when they’re contracting with us. We expect a number of them to come back and actually procure those partner solutions downstream over time as our customer selling organization goes back into those organizations after they’ve gone live. And so we’re still really excited about the prospects for Accolade One and the opportunity to see that full suite of offerings take place across the preponderance of our customers. I’ll let Steve answer the performance guarantee question.

Steve Barnes — Chief Financial Officer

Sure. And so to your point, clearly, the willingness to put part of our fees at risk is a really key selling point. And the ROI that we provide that’s validated for the customer each year through claims, evidence of claim savings continues to be a key selling point. In large part, the ratios of PG or fees at risk, the base fees is roughly the same as you’ve heard from us in the past on [technical issue] typical advocacy contract. It might be something like 2/3 fix fee and about 1/3 at risk. And again, that’s at risk for things like cost savings, but also other elements that are important to customers, for example, engagement rates, adoption of trusted partner, ecosystem partners and Net Promoter Score or some measurement of customer satisfaction. In large part, that ratio has remained the same. And then to Raj’s point, we’re quite enthused that new sales are having often multiple offerings sold on to the advocacy offering and those demonstrate an attractive ROI for customers.

Operator

The next question will be coming from Ryan MacDonald of Needham.

Ryan MacDonald — Needham — Analyst

Thanks for taking my question. Congratulations on a nice quarter. I wanted to understand the health partner channel and the impact we could see moving forward. First, on the 100 customers you’ve added this year, love to understand sort of what the mix of where that came from either direct sources or the partner channel. And then as we look out into the pipeline for the remainder of the year into next year, what sort of magnitude of impact could we see from that, both on a sort of total number of deals, but then also sort of dollar value number of deals as those relationships mature?

Rajeev Singh — Chief Executive Officer

We haven’t really broken out customer numbers between health plan and direct. But let me give you some color on a broader basis. But if you wouldn’t mind, I’ll first step back and speak to why we’re so excited about the opportunity. The health plan channel really began for us with Humana about four years ago, taking advantage of our advocacy solutions and delivering it to their self-insured book. Post the second MD acquisition, we actually entered the health plan channel in a more pronounced way with an expert medical opinion business that was selling through UnitedHealthcare Optum, Aetna, as well as Blue Cross Blue Shield in Michigan and other plans.

We’ve had the opportunity to continue to expand those relationships, while more recently signing Blue Shield of California as well as Priority Health. What’s great about what’s happened over the last several years is not just that the channel has expanded in terms of number of partners, but that they are also now beginning to look at all of our solutions, not just expert medical opinion, not just advocacy, but also, as in the case of Priority Health, where we’re actually seeing our virtual primary care and behavioral health solutions being used to power a virtual-first plan design for Priority Health. And so we believe over time that we have an opportunity to expand that channel not just by signing new partners, but also by growing the product portfolio within those existing partners. Today, we’re generating, call it, a double-digit percentage of new ARR coming out of that health plan channel. And we expect that it has an — could have an opportunity to continue to grow as an overall percentage of total ARR delivered in any given year.

Operator

Thank you. Our next question will be coming from Sandy Draper of Guggenheim.

Sandy Draper — Guggenheim — Analyst

Thanks very much and congrats, you guys are doing a nice job of proving me wrong so far. And my question is maybe on PlushCare, the direct-to-consumer. I know generally, you guys view yourselves as a premium priced product and selling the value. But if I just sort of look at an unnamed primary care model that charges $119 a person, or another one that telehealth is $300 a month. One of the things I was really surprised when I was going through PlushCare, from my family of five, I can get all of it for just $99 as the consumer, not through my employer, then pay out. If I did a similar thing in a lot of primary care models, it will cost me $1,000. I mean, do you think — I don’t know how much you survey, but do you think, given the macro environment of the consumer, one of the reasons the DTC side of PlushCare is you deliver a tremendous amount of value but your entry point, there’s not a big sticker shock. If someone says it’s $99 for my family, that’s — it’s not insignificant, but that’s a lot less than other areas, and you’re still getting tremendous value. I don’t know if that’s something you guys are tracking, focused on and you think that’s something that’s just driving the business?

Rajeev Singh — Chief Executive Officer

Thanks for the question, Sandy. And I appreciate you digging in on the offering and appreciate all the feedback/insight. First of all, we — I do agree with you. We do believe that we’ve presented a really compelling capability to the market. We’ve done so at a price point that actually compels people to try the service. And when they try the service, we deliver a 90-plus NPS. That means they stay with the service. They stay with the service, they stay with their primary care physician, they do multiple repeat visits and we retain that customer on a long-term basis, better than most urgent care/telemedicine solutions on the market today. We’re constantly looking at innovating on both price points and potential new models by which we’re servicing families or elements of families. And so I’d just ask you to stay tuned on that one as we continue to explore how we can grow. We do believe, for sure, that the opportunity for services like that one to expand into that family’s life with other capabilities in the consumer business is a future part of the growth model.

Operator

Thank you. The next question is coming from Jessica Tassan of Piper Sandler.

Jessica Tassan — Piper Sandler — Analyst

I’m hoping can you guys just maybe frame what the impact of the primary care and expert medical opinion buy-ups within core advocacy look like? And then I think you’d recognize that revenue for both commercial primary care and expert over the — ratably over the course of the year based on estimated utilization. But can you just confirm again that that’s the correct way to think about it? Thanks.

Rajeev Singh — Chief Executive Officer

Hi, Jess, thanks for the question. I think, yes, that’s the correct way to think about it. What’s important maybe for me to point out before we speak to the pricing on either offering is, one of the things that makes Accolade really unique is that we encourage our customers to do what they think is best for them, to meet our customers where they want to be met. If they’re looking for a PEPM price for care and expert medical opinion or Accolade Care and Accolade Expert MD, you should think about that in the low single-digit PEPM for those offerings, depending upon utilization expectation. But we’re also quite happy to have those customers take advantage of the service on a case rate billing or per visit basis because we can drive extraordinary utilization based off of our personalized health care platform and the engagement levels we drive for all of our customers. And so there are two different ways to buy and customers are choosing both right now. And it’s too early to say which of those will be the preponderance of the model. On the care side, on the Expert MD side, we’re seeing more and more customers choose the case rate billing model.

Steve Barnes — Chief Financial Officer

And Jess, I would just add to your question about timing of earning that revenue. If it’s the PEPM, obviously, that’s monthly. And then to the extent it’s a case rate or visit base, we’re recording that revenue as that happens. The only other thing I’d add to Raj’s comments is, to the extent a customer chooses a PEPM model, we’re oftentimes having some kinds of tiers around utilization rates to sort of protect the margin profile of the company while we meet the customer where they want to be in terms of how to budget for the service and see the utilization and ROI show up for that.

Operator

Thank you. The last question is coming from Robert Simmons of D.A. Davidson. Please go ahead.

Robert Simmons — D.A. Davidson — Analyst

Hi. Thanks for taking the question. So you’ve talked in the past of seeing customers who left you start to look at coming back. Can you talk to that trend? Are you actually seeing them re-sign with you? Or what’s kind of the situation there?

Rajeev Singh — Chief Executive Officer

Thanks for the question. And I think maybe the biggest point there might be, if we were to take a giant step back and look at the customer retention levels of the company over the last five years, we retain about 95% of our customers on a year-over-year basis. We’ve actually had years in the last three or four where we retained 100% of our customers in any given year. And so it’s a relatively small end in terms of the number of customers who’ve left us. We have seen customers actually step away from the service and come back, but it’s — from an impact on the P&L perspective, it’s not a material number nor a material impact on the topline.

Operator

[Operator Closing Remarks]