Accolade: Leveraging Tech To Deliver Accessible Healthcare

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Thesis

Accolade, Inc. (NASDAQ:ACCD) is simply a fast-growing colonisation wellness absorption solution supplier successful the US. The institution helps its members navigate the healthcare strategy by addressing some outgo and attraction transportation aspects and has a divers squad of wellness assistants who supply consultations, referrals to experts, and assistance members recognize their copay and diligent expenses. Accolade is known for redeeming its customers astir 4-10% oregon much connected aesculapian expenses, boasting precocious retention rates, and having a highly scalable SAAS concern model. With rising healthcare costs, self-insured employers are actively seeking ways to trim expenses and amended worker satisfaction, putting Accolade's services successful precocious demand. I presumption the banal arsenic a bargain and person an end-of-year terms people of $18 connected the stock.

Company Description

Accolade is simply a starring supplier of benefits and wellness navigation and utilization software. Accolade's level helps customers little wellness costs and amended wellness outcomes for their employees. The level acts arsenic a azygous root for each of an employee's wellness and benefits accusation and options. In summation to offering its platform, the institution provides a dedicated attraction squad of Health Assistants and clinicians to reply immoderate questions and beforehand value-based usage of worker healthcare and benefits. Heightened engagement with employees leads to greater wellness and payment utilization, which successful crook leads to little healthcare costs for the customer. Accolade provides entree to its level and its capabilities done its flagship offering, Accolade Total Health and Benefits, which is sold to customers connected a recurring per-member-per-month (PMPM) basis. Additional capabilities and functionality are besides disposable done the Accolade Boost, Trusted Supplier Program, and Accolade COVID Response Care add-on offerings.

Q1 Review & Outlook

Accolade experienced a beardown year-over-year maturation successful full gross successful Q1, which increased by 9.0%. This maturation was chiefly driven by the continued spot of some endeavor and user markets, on with important maturation successful adept aesculapian sentiment services and the aboriginal designation of show guarantees. Accolade's pipeline showed year-over-year growth, with a bulk of deals involving aggregate products.

The rising concerns astir accrued outgo trends successful CY24 are driving request among employers, which is expected to lend to pipeline maturation successful Q2. ACCD's adept aesculapian sentiment services performed amended than expected, with 30% maturation successful the quarter. The spot successful this country is attributed to caller lawsuit acquisitions and cross-selling to existing customers. In my view, it suggests that the accrued surgical volumes successful the healthcare assemblage whitethorn pb to higher lawsuit complaint volumes successful Accolade's lawsuit base, providing a way for further outperformance successful FY24. Additionally, determination is beardown request for superior attraction services related to GLP-1 drugs, which absorption believes volition lend to sustainable growth. The absorption has reiterated its targets for FY25, expressing assurance that changes successful the outgo operation volition positively interaction semipermanent profitability. This reduces the hazard associated with FY25 targets and perchance opens up opportunities for exceeding expectations.

Robust Demand for Cost-Saving Healthcare Solutions

According to estimates, astir one-half of the U.S. gets their wellness security done their employer, and the costs of wellness security are continuing to emergence astatine a complaint of approx. 6% per year. Depending connected which root you use, the mean deductible for individuals and families is besides increasing. Since astir of employers with much than 500 employees are self-insured these costs trends, and burdens being enactment connected unit are a challenge. Hence, determination is simply a beardown request for solutions that assistance employers negociate and mitigate escalating healthcare costs of employees. Accolade is well-positioned to payment from this situation, arsenic the institution has a proven way grounds of delivering yearly outgo savings ranging from 4% to 10%. Accolade tin assistance companies amended their wide aesculapian spend, portion astatine the aforesaid clip improving the wide subordinate acquisition arsenic they navigate practically each aspects of the healthcare ecosystem.

Accolade's unsocial worth proposition lies successful the operation of its proprietary exertion level and the expertise of its wellness assistants, which thrust precocious levels of engagement. The company's exertion platform, InView, provides actionable insights to wellness assistants and clinicians arsenic they interact with members. InView, an AI motor and subordinate CRM tool, consolidates and links assorted information points to supply a broad presumption of each member. With InView, Accolade's wellness assistants tin present personalized benefits, wellness support, and find if further assistance from a clinician is required. This technology-enabled work allows Accolade to prosecute efficiently with an employer's full subordinate population, not conscionable those with high-cost claims. Accolade consistently achieves yearly engagement rates of implicit 50% among its subordinate populations, starring to important outgo savings for its customers. A study by Aon analyzed six Accolade customers and recovered that subordinate costs were little compared to a power group. Furthermore, each six Accolade customers experienced outgo reductions aft implementing the platform.

Company Presentation

Trusted Partner Ecosystem Creating Unique Value Proposition

I spot Accolade's trusted spouse ecosystem (TPE) arsenic a invaluable facet of the company, particularly arsenic the integer wellness ecosystem continues to evolve. In today's competitory landscape, organizations are seeking assistance to measure the expanding fig of integer wellness solutions disposable and heighten its benefits offerings. Accolade has taken a strategical attack to its TPE, prioritizing prime implicit quantity by partnering with 1 oregon 2 starring vendors successful each category. This attack has been well-received by customers who admit a streamlined procurement and implementation process. Likewise, the constituent solution partners payment from improved distribution, accrued purchaser attention, and enhanced subordinate consciousness and utilization.

Accolade's committedness to its TPE is yielding affirmative results, arsenic evidenced by the occurrence of highlighted partners similar Virta and Folx. Accolade customers are experiencing double-digit improvements successful engagement and utilization compared to non-Accolade customers. These encouraging attachment rates and utilization rates are not lone beneficial for the spouse companies but besides lend to Accolade's discussions with clients. The absorption has observed that TPE discussions are present taking spot with caller customers, whereas previously, they were chiefly focused connected expanding services with existing customers. This enlargement of TPE engagements is expected to thrust maturation for Accolade successful the coming years, arsenic it brings margin-accretive opportunities to the company's portfolio.

Company Presentation

Valuation

Since ACCD is inactive precise overmuch into its maturation signifier and not yet profitable, continuing to station operating losses, I person utilized an EV/Sales valuation method to worth the company. I judge this method allows for much accordant comparisons crossed high-growth companies. SaaS companies similar Accolade person historically traded astatine 2-12x forward-year gross multiples, but definite companies person traded supra the precocious extremity of the range, astir precocious owed to maturation becoming much durable astatine higher levels of scale. I judge Accolade's targeted ~20% top-line maturation appears achievable arsenic a concern that offers high-touch services that transportation a ~50% gross margin. While the macro situation remains volatile, I americium affirmative connected ACCD's commentary related to the request situation and the longer-term way towards margin-accretive rev. streams, which successful my view, could beryllium bolstered successful the interim by cross-sell of borderline accretive TPE apps. As such, I stay bullish connected the upside opportunity, fixed my assurance that ACCD tin deed its FY25 targets. During the past 6 years, Accolade has traded astatine a median EV/Sales aggregate of 4.32x. The institution banal is trading astatine an EV/Sales aggregate of 2.7x, and I expect the aggregate to re-rate upwards arsenic the absorption continues to present connected targets. My terms people of $18 is derived from a guardant EV/Sales aggregate of 3x applied to the FY24 gross estimate of $494 million. I judge a higher aggregate is warranted fixed Accolade’s ample marketplace opportunity, quality to accelerate gross maturation and grow margins. As specified I judge ACCD should enactment a valuation towards the precocious extremity of the company's humanities range.

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Risks to Target

Accolade competes successful the highly fragmented and competitory payment and healthcare navigation marketplace with players similar UnitedHealth Group Incorporated (UNH), Cigna Health, Quantum Health, and Castlight. The contention is expanding successful ACCD's people market, with competitors offering competitory pricing. ACCD's competitors mostly see ample wellness plans, accepted navigation companies, and newer, integer -health navigation companies. My presumption is that ample wellness plans bash not person the extent of services that Accolade does, and determination typically is not a "relationship" built with a wellness adjunct oregon wellness manager astatine plans. Accolade wants to service the members and enactment with them connected their wellness journey. Plans usually attraction astir each assertion and transaction, and members are typically treated similar "numbers." I mostly similar the standard that Accolade has, the exertion level seems precise robust, starring to my affirmative stance connected ACCD. However, the expanding contention presents risks specified arsenic lawsuit churn, unit connected pricing during renewals, and a imaginable alteration successful nett margins. Accolade indispensable efficaciously showcase the unsocial worth and instrumentality connected concern of its offerings to mitigate these risks. Moreover, the concern is reasonably young and has not yet reached adjusted EBITDA break-even. Furthermore, cash-flow-from operations has been consistently antagonistic for years. Over time, Accolade volition request to turn gross and net successful bid to go currency travel positive.

Conclusion

Accolade is simply a supplier of technology-driven services that combines its proprietary level with wellness assistants to connection enhanced subordinate benefits engagement and outgo simplification successful the healthcare sector. The company's unsocial vantage lies successful its AI-driven level that combines exertion and wellness assistants to present personalized engagement and outgo savings for members. Accolade differentiates itself done a almighty operation of its proprietary exertion level and the expertise of its wellness assistants. I presumption the banal arsenic a buy, and my end-of-year $18 terms people is derived from a projected endeavor worth adjacent to 3x to the FY24 gross estimation of $494 million.

MBA Student with 3 years of acquisition successful sell-side. I absorption connected worth opportunities successful the marketplace that supply a heavy borderline of safety.