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Accolade, Inc. (NASDAQ:ACCD)
Q4 2021 Earnings Call
May 05, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and thank you for standing by. Welcome to the Accolade 4Q '21 earnings results conference call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to hand the conference over to your host, Todd Friedman with IR.

Thank you. You may begin.

Todd Friedman -- Investor Relations

Thanks, operator. Welcome, everyone, to our fiscal fourth-quarter and year-end earnings call. With me today are our CEO, Rajeev Singh; and our CFO, Steve Barnes. Shantanu Nundy, our chief medical officer, will join us for the question-and-answer portion of the call.

Let me first start by saying I apologize, we actually omitted the Q4 table, although it has the summary numbers and the rest of the tables are correct in the release. So we'll issue an amended release shortly with the full table details for you. Before turning the call over to Rajeev, please note that we'll be discussing certain non-GAAP financial measures that we believe are important in evaluating Accolade's performance. Details on the 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 for 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.

Rajeev Singh -- Chief Executive Officer

Thank you, Todd, and thank you all for joining us here today. Fiscal 2021 was a year of transformation for Accolade. We were extremely well-positioned at the outset of a global pandemic to be a source of help and guidance for our customers and for our members. And that led to opportunities for us to grow and to innovate.

We took advantage of those opportunities. Among the highlights for the year were a consistent investment in innovation, which yet again yielded incredible value for our customers and our members. We delivered new offerings like Accolade COVID Response Care, Intelligent Provider Matching. and a suite of integrated care offerings with partners that started with mental health with Ginger.

Additionally, it was our first full year deploying Accolade Total Care and Total Benefits. Combined, these offerings dramatically expanded our solution footprint. We can meet customers wherever they are, and we can grow with them as they evolve. That innovation paid off with a strong organic growth rate across all market segments, strategic, enterprise and middle market, which led to strong financial performance.

We doubled our customer base again to more than 100 logos covering more than 2.1 million members. And annual contract value increased 31%. Additionally, we launched our pilot program with the Defense Health Agency this past year. And very recently, we learned that we have received approval for the second year of our pilot.

This renewal is obviously a positive signal. Accolade will now have a chance to continue demonstrating value in order to expand our presence with the TRICARE Select population. We thank you for your support in our capital-raising initiatives this year as well, from our IPO in July to our follow-on offering in October to our convertible note offering in March. We were able to leverage that stronger balance sheet to close our acquisition of 2nd.MD in March and to announce our intention to acquire PlushCare in April.

2nd.MD doubled our addressable market and added approximately 300 customers and 7 million members to our base. We've quickly moved to a more integrated model where expert medical opinion is now being sold together as a part of Accolade Total Care and in add-on conversations with existing customers, we're seeing great traction with our customers for cross-sell and upsell opportunities. We're in the early days of integration and the acquisition is going as well as planned. Upon closure of the PlushCare transaction, we'll have grown our addressable market yet again to between $200 billion and $300 billion, more than 10 times our opportunity from the beginning of fiscal '21.

Accolade today is an even stronger company than the one that went public in July. We're bigger in our size, broader in our footprint and attacking a materially larger addressable market, and most importantly, we're deeper with our customers and our members than we've ever been. And that's reflected in our record fiscal '21 financial performance. Steve will, of course, give you far more details on the results, but a quick recap shows we came in ahead of our preannouncement on both the top and bottom lines.

For the year, revenue of $170.4 million grew 29% year over year and adjusted EBITDA was a loss of $27 million compared to a loss of $33 million in fiscal '20. While we're pleased with fiscal '21, we see even more opportunity in growth in fiscal '22 and beyond. Our vision is clear. We build long-term high-trust longitudinal relationships with members and their families, and we improve clinical outcomes and we lower healthcare costs.

Those relationships are powered by our frontline care teams and an extraordinarily differentiated data set. Aon has now independently validated twice in the last four years that we deliver on that vision with demonstrated results. As we add more value to those relationships via our own innovation, via partnership and via M&A, we further improve outcomes, and we drive better financial performance for our customers. It's as simple as that.

Yet perhaps it's simpler for Accolade rather than for others because our foundation is built on advocacy and navigation, a space that we pioneered and have led for years. Advocacy and navigation are the building block services that create engagement and trust between our members and our frontline care teams. Everything we do, whether it's in our core offerings or new areas like expert medical opinion and primary care, is made better by that trust. Since our founding, we've invested significantly in building long-term relationships with a significant percentage of the members we serve, not just the high-cost ones.

When a member suffers an acute event or experiences some condition-focused inflection point in her healthcare journey, our success is rooted in the fact that we were already building a relationship with that member long before that event. It's an approach that differentiates Accolade and is the bedrock of the results we deliver. Our mission is for every person to live their healthiest life. Our vision is to achieve the quadruple aim: better outcomes, lower costs, and delighted members and care teams.

Our strategy for achieving that objective is innovation, partnership and M&A. Looking at the year ahead, we see great opportunities on each of those vectors. Our innovation road map will now include new clinical programs delivered both via partnership and internally. Additionally, we'll be adding electronic medical record data case notes and test results to our already differentiated data set, further powering our artificial intelligence-driven Next Best Action capabilities.

From a partnership and collaboration perspective, we expect our existing relationships with companies like Ginger and Virta, among others, to continue to thrive as we grow. And while we're at it, let's talk about collaboration with the ecosystem more broadly. Healthcare is a $3 trillion ecosystem. No single vendor is going to solve the entire problem.

Instead, our job is and always will be to do what's in the best interest of the people that we serve. That means we'll be collaborating with brick-and-mortar health systems, digital health providers and everything in between to get the best outcomes for our members. We will never stray from that principle. On the topic of collaboration continued, a brief aside here on carriers.

With the acquisition of 2nd.MD, our already fruitful partnerships with carriers like Humana and Blue Shield of California have now been joined by partners like Optum, Aetna, Cambia, and others. Increasingly, our capabilities are being viewed as opportunities for carriers to differentiate themselves, and we expect that trend to continue to play out in fiscal '22. And it is on the back of that success that we're taking the next step to realize our vision of reinventing healthcare with the addition of PlushCare. Our integrated care teams, now including primary care physicians with unprecedented data at their fingertips and proven support teams behind them, will be in a position to impact outcomes and deliver value for our members in a way that is unprecedented in the industry.

In the future, we expect to be able to reliably and measurably improve clinical outcomes for our customers while at the same time, delivering negative trend line, actually eating into the waste and misuse that plagues our system today. And we expect to share the value that we create for our customers when we do. Our first discussions with customers regarding this pending acquisition and our offering strategy have been extremely well received, and we look forward to updating you on these conversations after the transaction is approved and closed. To turn this vision into reality, we're focusing on integrating these capabilities tightly with our core services and on retaining the incredible people who have joined or will join Accolade as a part of these transactions.

Our mission is to achieve the quadruple aim, and we are on our path to doing so. Now I'll turn the call over to Steve Barnes, our CFO, to cover our results and forward outlook before returning for some closing remarks.

Steve Barnes -- Chief Financial Officer

Thanks, Raj. I'll start with a report on our results for the full year and fourth quarter of fiscal '21 and then provide a first look at our fiscal '22 guidance. We generated $59.2 million in revenue in the fourth fiscal quarter, representing 33% year-over-year growth, and $170.4 million for the full year or 29% growth over fiscal '20, both ahead of our initial and updated guidance ranges provided in January and March. As a reminder, we closed the 2nd.MD acquisition after the quarter and fiscal year ended, so all of the revenue and growth reported is from core Accolade performance.

Revenue outperformance and growth in the fourth quarter was largely attributable to better-than-forecasted achievement of performance-related revenue and customer membership headcounts, including the airlines. Fiscal Q4 adjusted gross margin of 53.8% compared favorably to 50.8% in the prior-year period. Remember that fiscal Q4 gross margin is positively impacted by the recognition of performance-related revenue. Overall, adjusted gross margin for the year was 45.6% compared to 44.6% last year.

Adjusted operating expenses increased slightly to 49% of revenues in Q4 of fiscal '21 versus 46% of revenues in the prior-year period. For the full year, adjusted operating expenses improved to 61% of revenues for fiscal '21 compared to 70% for fiscal year '20. With respect to future spending, fiscal '21 was an atypical year with lower-than-planned spending. In particular, we slowed down hiring at the start of COVID and T&E spend was virtually nonexistent, offset somewhat by the increase in G&A costs associated with becoming a public company.

Those areas will naturally revert back to normal in fiscal '22, including a bit higher on public company costs. Even before we account for the integration investments in our acquisitions, I would expect spending to be higher as we catch up with that underspend in fiscal year '21. Adjusted EBITDA in the fourth quarter of fiscal '21 was $2.7 million, which compares to $2.0 million in the fourth quarter of the prior year. This is a significant outperformance relative to our initial guidance provided in January and was significantly driven by the overperformance in PG-related revenue, which carries a high margin contribution.

And for the full year, adjusted EBITDA loss was $26.9 million or 16% of revenue, which compares to a loss of $33.1 million or 25% of revenue in fiscal '20. Turning to the balance sheet. Cash and cash equivalents at the end of the fiscal year totaled $434 million. After the quarter ended in March of 2021, we paid $236 million related to the 2nd.MD acquisition and received $245 million in proceeds after estimated expenses from our convertible notes offering.

So on a pro forma basis, cash and cash equivalents were approximately $443 million walking into the first fiscal quarter. Next, I'll update you on our accounts receivable balance. AR decreased from the end of the third quarter to $9.1 million at the end of Q4, representing about 14 days revenue outstanding for the quarter. This change primarily relates to a decrease in receivables from our airline customers.

And since the end of the fiscal year, the remainder of the airlines' AR balances have been collected in full. On a go-forward basis, we expect DSO to normalize in the 20 to 30 range. Finally, we had about 55.7 million shares of common stock outstanding as of the end of fiscal '21. And post the close of the 2nd.MD transaction, we have approximately 58.7 million shares outstanding.

Note that these do not include any shares related to the 2nd.MD earnout or the proposed acquisition of PlushCare. Turning to the metrics that we report on annually. While our business continues to grow and evolve, the key business measures that we use internally to track our business progress have not changed. Annual contract value or ACV and gross dollar retention, or GDR, continue to be critical items for understanding the foundation, growth and health of the business.

The acquisition of 2nd.MD and the proposed addition of virtual primary care will add new layers to the story, and we'll modify our ongoing disclosure as appropriate. And as always, our goal is to provide meaningful color that aligns our disclosures to the way we run the business as well as provide visibility into the foundation of our forecasting. One change that we will implement this year will be an update to ACV, customers and member counts that we'll provide on the Q3 earnings call after the primary selling season has concluded and we started the traditional January go-lives. And as of year-end fiscal 2021, stand-alone Accolade ACV was $211.5 million, 31% higher than a year ago.

2nd.MD has a slightly different model with the majority of the revenue in a PEPM model like Accolade and a smaller portion in a case rate model. We will report the amount of annualized PEPM revenue as ACV in order to align to our historical disclosure. On that basis, 2nd.MD adds approximately $36.3 million to yield a pro forma ACV of about $248 million, representing an increase of 54% over the year-ago number. And gross dollar retention was 99%, equal to a year ago and above the level we typically forecast, representing another year of incredibly strong customer retention.

Finally, we had 112 customers and more than 2.1 million members at the end of the year. And as we said before, 2nd.MD adds approximately 300 customers and 7 million members to our platform. Now turning to forward financial guidance. For fiscal '22, we expect revenue in the range of $260 million to $265 million, representing 54% growth over the prior year at the midpoint.

Breaking this down further, we've said that we forecast the core Accolade business at approximately 25% growth, and we expect 2nd.MD to grow faster than Accolade. So at the midpoint of this range, that represents approximately 35% to 40% growth for 2nd.MD over their calendar 2020 revenue of $35 million, which we've reported previously. Combining 2nd.MD's $35 million in calendar year '20 revenue with Accolade's $170 million in fiscal 2021 revenue, not a perfect science, but a good proxy would give you about 28% growth at the midpoint of the guidance range. I'll comment on PlushCare in a moment, but we believe the addition of virtual primary care will enable us to maintain this higher growth rate beyond fiscal '22.

Adjusted EBITDA loss for fiscal '22 is expected to be in the range of $38 million to $42 million, representing an adjusted EBITDA loss of approximately 15% of revenues at the midpoint. As we stated before, 2nd.MD has gross margins that are similar to Accolade and is not yet profitable on a stand-alone basis, and we are investing to accelerate and optimize the integration between our companies. For the first fiscal quarter ending in May, we expect revenue in the range of $54 million to $56 million, representing 53% growth over the prior year at the midpoint and adjusted EBITDA loss in the range of $16 million to $19 million. Now as you think about your models and our long-term targets, please always remember that maintaining a superlative member and customer experience is critical to our success.

When we make acquisitions, even as we invest in clinical process integration, distribution alignment and other operational needs, we will always have a primary focus on our frontline care teams, making sure they're equipped to serve members and customers at extraordinarily high satisfaction levels to drive favorable outcomes and cost savings. That means additional hiring, training, tools and technology to bring together multiple capabilities as we seek to reduce the complexity and cost of the healthcare system. These investments impact gross margins. So while our long-term gross margin target remains in the mid-50s, we expect to remain roughly flat in the mid-40% for the next year or two before progressing toward that higher target.

And I'll add one more comment about adjusted EBITDA loss and the path to breakeven. Adjusted EBITDA loss improved year over year to negative 16% in fiscal '21 from negative 25% of revenue in fiscal '20, largely on the strength of our revenue growth, but also positively impacted by lower spend related to COVID. With the addition of 2nd.MD and the pending acquisition of PlushCare, our TAM will increase to more than $200 billion, and we plan to invest significantly in realizing that massively expanded market opportunity. In pursuing this even larger opportunity, we remain consistent in our bias toward top-line growth with attractive unit economics and a demonstrable path toward breakeven.

On that note, while we're not providing guidance for PlushCare until our next earnings call after the transaction closes, we do understand that you're beginning to look at how this will impact the model. So let us provide a few comments. We've stated that PlushCare's unaudited calendar 2020 revenue was approximately $35 million, and the acquisition will be accretive to our revenue growth rate. So you can consider PlushCare about the same size and contribution as 2nd.MD on an annualized basis.

PlushCare's adjusted EBITDA margin is closer to negative 20%, and we have said that we intend to invest on top of that in order to build out an enterprise virtual primary care business. Prior to including PlushCare, our guidance for fiscal '22 is for an adjusted EBITDA loss of 15% of revenues, with a goal to improve that percentage each year to roughly negative 10% in fiscal '23 and then continuing to make consistent positive progress toward breakeven each year after that. So the addition of PlushCare will likely raise those percentages slightly while maintaining that same goal of achieving attractive unit economics and consistent progress toward breakeven every year. And as I mentioned earlier, we believe that the addition of PlushCare will enable us to maintain this higher revenue growth rate for the next few years at a minimum.

Hopefully, this gives you a sense of how we forecast the business, run it with discipline and also show that our balance sheet is more than substantial to support a path to breakeven on a purely operational basis. And now let me turn it back over to Raj for his concluding remarks.

Rajeev Singh -- Chief Executive Officer

Thank you, Steve. Fiscal '21 was an amazing year for Accolade, but we have even bigger aspirations for fiscal '22 and the years beyond it. I'll conclude by stating what is fairly obvious by now. The acquisition of PlushCare and the addition of virtual primary care materially changes the contours of our business.

Aside from opening a huge market opportunity, it opens the door for conversations with customers that will extend our relationships and deepen the value that we provide them. It creates a platform for us to lean hard on our track record of delivering value in the form of engagement, satisfaction and cost savings and change the way healthcare works in this country for our customers. As we've demonstrated with the innovation we've delivered this year with our fundraising activities and with two important acquisitions now, our aspiration is to play a material role in improving healthcare in this country for the people that we serve and to build a great and enduring business. We wake up every day and think about how to fix an industry that's responsible for half of all personal bankruptcies in the country, that represents 20% of the GDP and that grows at a rate that surpasses GDP, wage growth and most corporate profits.

If you're an investor in Accolade, I think it's because you believe we have a chance to be that great and enduring company, and we truly appreciate the confidence you've shown in us. The past year has presented challenges that none of us ever thought we'd face, but we remain focused on our mission and on our vision to help every person live their healthiest life, and we're more motivated than ever to reach that goal. So thank you very much for being here. With that, operator, I'd like to open the call up to questions.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Michael Cherny from Bank of America.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Congratulations on a strong end to your fiscal year. I want to dive in a little bit on some of that spend dynamic. I guess for a company that continues to expand its TAM, seeing a spend to grow mentality is not surprising at all. But Steve, you had some comments about remaining disciplined.

And so as you think about that spend, can you just walk us through again some of the metrics that you hold yourself against and making sure that the spend that you're pursuing, the investments you're pursuing are paying off in terms of growth and returns?

Steve Barnes -- Chief Financial Officer

Sure. And thanks for the question, Mike. A couple of things. Here's how we think about it.

If you think even going back to a year ago, when we laid out the company's plan going forward, we talked about believe -- a strong belief that we could grow the Accolade core business 25% or more each year, and we've done that over the past several years; that we could take gross margins from the low-30s three years ago into the 40s through investments in innovation and technology; and consistently improve our adjusted EBITDA loss, which was three years ago in the 40s and then progressed into the 41% and then to 25% and then this year at 16%, as we just ended. And now as we look in front of us and see a very large 10 times size of TAM, we say to ourselves, all right, we believe we can grow, as we said in here, not only at that 25% core growth rate with Accolade, but even faster with the addition of 2nd.MD and with PlushCare. And we do that with an eye toward, if we can continue to do so at attractive gross margins, which today in the mid-40s are attractive, we can -- we believe we can go higher, but we're going to make some smart investments here as we add these capabilities. And then that adjusted EBITDA loss, we can take it -- it will remain roughly flat in fiscal '22 in that 15% or a bit higher range.

And then in the year after chunks down. What we're seeing there, Mike, are the following: Very strong attractive return rates on sales and marketing spend, which you see in terms of the ACV growth rate and extremely high customer retention. And when you weave that together with the results from the Aon study, the performance guarantees and the fact that we know we're saving money for customers and this larger TAM, that tells us that we're doing the right things, and we're getting the right returns. And we believe strongly that doing so with that continued discipline and chunking down toward breakeven over the next couple of years as we grow at that kind of rate is how we think about that overall P&L discipline while we attack in the very early stages an extremely large market with a differentiated approach.

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Got it. And as you think about the expansion of the market, you still also do have a core business that's performing fairly well with strong customer adds. How do you see the competitive dynamics playing out there in a market that a lot of companies coming at some different angles, but appears to becoming increasingly competitive.

Rajeev Singh -- Chief Executive Officer

Hey, Mike, this is Raj. Thanks for the question, and thanks for being here. Here's the way we think about the competitive dynamics and always have. We're in a category that we think that we largely invented 10 years ago.

And in that category, we've seen a number of companies over the last four or five years pivot into the space, looking at the value that's being delivered in the space. Ultimately, our view is that in order to really deliver high-quality advocacy and navigation services and then weave in the incremental capabilities like second opinions and primary care that we're talking about today, you need to be able to invest in building long-term relationships on a longitudinal basis with individuals with a wide majority of that population. By and large, we think we're unique in our capacity to do that reliably with high percentage of the population, leveraging a differentiated data set that we've pulled together over the years. And then in turn, reliably prove the cost savings via things like the Aon study that Steve referenced.

You know, we put a percentage of our fees at risk with every customer that we serve. It's because we know we can deliver cost savings on an ongoing basis. There will always be -- particularly, anytime the leader in the space is growing at attractive rates, there'll always be new competitors in the market. Our job is to continue to set the pace as it relates to the value that we deliver to our members and our customers.

And we think we've been pretty active in doing so over the last year.

Operator

Your next question is from the line of Robert Jones of Goldman Sachs.

Robert Jones -- Goldman Sachs -- Analyst

Great. Thanks for taking the question. Yeah. I guess just looking at the revenue guide and the disclosure about, you know, more than doubling the customer base, and appreciate the insight on how to think about 2nd.MD, it does look like revenue per customer in the legacy Accolade businesses is down a bit.

I was just hoping maybe you could share a little bit more insight into size of customer mix, you know, average PMPMs, what type of offerings the newer customers might be turning on versus maybe like the legacy customer base? Just anything around kind of bridging that gap between, you know, the overall revenue and the number of customers would be helpful.

Steve Barnes -- Chief Financial Officer

Sure, Bob. Thanks for the question. Steve. Yes, as we've grown the business over the past couple of years, and you've seen our customer number accelerate, You've seen that happen across all of the segments, and we've talked a lot about how we segment the market into strategic customers, middle market and then enterprise in the middle.

Much of the growth has happened on a pure logo count basis in the mid-market, which we consider to be customers with employees of about 500 up to about 5,000 as we've built out those distribution capabilities, formed partnerships with companies like Humana and others to reach customers of all sizes. So you will see a bit of revenue per customer compression there by design. It's our job and our intention to be able to reach a broader set of the market. We also, from -- over the past couple of years, have introduced this multiproduct suite that has different price points.

So oftentimes, but not always, when we're reaching some of those smaller customers, we might start with a Total Benefits or a Total Care that's at that lower price point. The part that gives us great confidence, Bob, about what we're doing there and the take rates is, we see consistent renewals, the very high retention rates that we talked about, and the wins that we're having in the market that's showing up in terms of the growth in this year's revenue, this past year revenue and the ACV number headed into fiscal '22.

Operator

Your next question is from the line of Ricky Goldwasser from Morgan Stanley. You may ask your question.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Yeah. Hi, good afternoon. So a couple of questions here. First of all, on 2nd.MD, I think you're talking about growth of 35% to 40%.

It's a little bit higher than what we were modeling. So does this 35% to 40% includes cross-selling benefit? Or is it the stand-alone growth profile of 2nd.MD? And then my second question related to behavioral health. I mean, our channel checks and what we're hearing from payers and employers, there is real strong, especially post COVID, demand for behavioral health. So one, what kind of demand are you seeing for your offering with the employer base? Is it helping you win new clients? And then do you have any data points maybe to share with us around how behavioral health helps lower medical expense because I think you're always focused on, we really have to kind of like quantify it and do the study.

So if you can share any of those, that would be great.

Rajeev Singh -- Chief Executive Officer

Sure. Let me jump in on this one first, Ricky. First of all, thank you for being here, and thanks for the question. This is Raj.

And Steve, maybe you can jump in if you've got anything to throw on top. The -- first of all, as it relates to your question regarding 2nd.MD, I think, positively, 2nd.MD is a -- demonstrated an attractive growth rate in its core business, in large part because of its differentiated service it's delivered. And those capabilities are what attracted us to the company, the capacity to deliver a consult within three to five days, make it a live consult with an expert as opposed to a written consultation like the rest of the market. It has given the 2nd.MD team a capacity to deliver great differentiation and competitive win-loss.

Incrementally to that 35% to 40% growth rate, certainly, there's a little bit of cross-selling or there is a modest amount of cross-selling or upselling factored into that number. But -- and no doubt, we expect that over the years to continue to grow. As it relates to the BH question, first, let me jump in and give you a little color commentary on why we think it's so powerful within the context of what we do. And then I'll turn it over to Shantanu to speak a little bit to the value that it delivers from a clinical perspective.

In our view, BH has long been wrapped into everything that we do. We've -- Accolade's core advocacy and navigation services have always included behavioral health specialists as a part of our process. One of the reasons PlushCare was so attractive to us was that it embedded a behavioral health element or a mental health element into the way primary care physicians were practicing, all of which is geared around the idea that higher-risk populations have a higher propensity to deal with behavioral health issues. And if you can deal with both the physical health issue and the mental health issue in tandem, you have an opportunity to materially improve outcomes.

Shantanu, let me turn it over to you to talk a little bit about our clinical philosophy there.

Shantanu Nundy -- Chief Medical Officer

Yeah, absolutely, and I love the question. You know, a core part of the strategy, clinically speaking, was, you know, we wanted to get to the right members, right? We know that with mental health, one of the big challenges is that oftentimes those conditions go unrecognized and underdiagnosed. And that there's significant signal with them. So getting to the right member was a core part of it.

The second was, was that right decision, right? That – you know, our perspective is that we just want to get people to the best possible provider for them. And so with mental health, you know, that might be a virtual provider, that might be a brick-and-mortar provider, that might require medication therapy, that might not. And so really getting to that best decision was critical. And then finally, the right path, that we know that often these folks don't necessarily follow up on the next steps, that sometimes that longitudinal support that they need to really be able to get through the entire recovery process is lacking.

And so we wanted to make sure that we're with the member every step of the way, ensuring that things don't fall through the cracks. And so what we're seeing in the very early data is, you know, this is a new solution that's been out for us less than a year, is that we're starting to see real traction among -- along those dimensions that we're pretty excited about.

Steve Barnes -- Chief Financial Officer

And Ricky, this is Steve. I just want to circle back to close the loop on your question about 2nd.MD and their growth rate. And I think your point was cross-selling. You're right, 2nd.MD is a rapidly growing business as well on its own.

We are very deep in the integration of combining the capabilities and Accolade's capabilities into an offering that is receiving early strong feedback from the market. But it is early, and there's a relatively modest amount of assumed cross-selling in the numbers that we provided about guidance for this year.

Operator

Your next question comes from Jailendra Singh of Credit Suisse. You may ask your question.

Jailendra Singh -- Credit Suisse -- Analyst

Yeah. Thank you, and thanks for all the color on ACV on stand-alone Accolade and 2nd.MD. I know you have shared in the past how on stand-alone Accolade side, you have captured ACV across various quarters and how that is split across various buckets of fixed and operational performance and savings. Can you provide similar split for 2nd.MD ACV, how should we think about the quarter capture there and the split across various buckets?

Steve Barnes -- Chief Financial Officer

Sure. Jailendra, it's Steve. With -- as we mentioned in the comments, 2nd.MD's model is a bit different. They don't have the same types of PGs as Accolade.

It's typically either a PMPM or in some cases, case rate. So the PEPM model or that $37 million that I spoke about in 2nd.MD's ACV number is similar to Accolade in the sense that it's a number that we would expect to earn. It's roughly members times a PEPM rate on the books at the end of the year. And most of their revenue is generated -- 2nd.MD's revenue is generated from that model.

There's certainly an additional part that is case rate and variable, price times quantity. That would be on top of that. And so that's included in the guidance, the revenue guidance, that is P&L guidance for fiscal '22, but that case rate portion would not be in the ACV number.

Operator

Your next question comes from Jeff Garro of Piper Sandler. You may ask your question.

Jeff Garro -- Piper Sandler -- Analyst

Good afternoon. Congrats on the results. I want to ask about your go-to-market approach. With the new acquisitions and the cross-selling opportunity that you've spoken about, just curious how you expect to balance the full vision you have for navigation plus expert medical opinion, plus virtual primary care while making sure your salespeople don't get too far ahead of themselves on the timeline for the step-by-step operational and technology work to achieve that vision.

Rajeev Singh -- Chief Executive Officer

Thanks for the question, Jeff. This is Raj. And I appreciate you being here. And I appreciate the question very much.

At the core of the value we deliver to our customers, and we -- and I talked a little bit about this in my prepared remarks, is the foundational element of building a relationship, a trust-based relationship with a huge preponderance of the population powered by a data set that we think is extraordinarily differentiated. Everything we add from there, whether that's second opinions, primary care, our own clinical programs, are all geared around adding incremental value to those populations by improving their outcomes and lowering cost. And so what you'll see in our integration strategy is, first and foremost, we're investing in integration. We want there to be seamless workflows, and we want the process to mirror the needs of the consumer as opposed to the silos that exist in healthcare today.

Secondly, you'll see us embedding primary care and expert medical opinions in each of the core platforms that are a part of Accolade's -- that are how Accolade lands with customers today because we fundamentally believe both expert medical opinion and primary care add value to any member that we're serving regardless of the platform they're working with us on. And third, We're -- one of the things we really looked at in both of the acquisitions that we've taken part in, in the last couple -- in the last year, are technology stacks that allow integration to occur at pace. Meaning, we talked at length about the idea that we wanted teams that were culturally aligned, services that were built around longitudinal relationships and tech stacks that allowed us to integrate at pace at scale. We expect that, that's true on both of the companies that -- one that we've already closed and the other that we expect to close next month.

And so we expect to be able to deliver these integrations at pace. And obviously, our sales teams are anxious for us to do so.

Operator

Your next question is from the line of Ryan Daniels of William Blair. You may ask your question.

Jared Haase -- William Blair & Company -- Analyst

Hey, good afternoon. This is Jared Haase in for Ryan. Thanks for taking the questions. Raj, maybe for you, I was hoping to just, if you could talk a little bit about just generally the key themes that are coming up in discussions with the client base.

So curious if that's still largely kind of focused on sort of the return to work, getting people back into the office post-COVID? Or if you're starting to really see kind of a shift toward more of the clinical offerings, obviously, that you've added through M&A and things like that. Just any thoughts there around the themes that you're hearing in the pipeline from clients.

Rajeev Singh -- Chief Executive Officer

Yeah, of course, happy to. Very clearly, more and more of our clients are returning to work right now to be sure. But I agree with the premise of your question or the sort of the direction you were leading me with your question around where the conversations are. Healthcare spend is returning at some level across the country.

Our customers are seeing that spend return. There's an acknowledgment that healthcare trend line in 2021 is going to be higher than the trend line that we saw in 2020. How customers are budgeting for that and how they're dealing with what we think are a profound set of needs in undertreated chronic conditions or in terms of behavioral health, are opportunities for our clinical programs, for our enhanced clinical programs to drive material value. It's a good opportunity for me, if you don't mind, to kick it over to Shantanu Nundy as well, our chief medical officer.

Shantanu actually just published a book yesterday that's written about COVID called Care After COVID, that's really about how we're actually dealing with a new wave of needs in the healthcare system post the pandemic. Shantanu, do you want to talk about the clinical needs that our customers are facing that might be a little different than they were just a year ago.

Shantanu Nundy -- Chief Medical Officer

Yeah. Happy to, Raj. And I absolutely love the question because I think you're right. I think, you know, for a little while earlier in the year, employers were largely focused on the pandemic, right, and just managing the uncertainty of that.

I think we're definitely seeing a turn in the conversations where our customers are increasingly sort of, you know, getting ready to get back to normal, which means they're concerned about those postponed elective care. And so that's where they're interested in, in second opinion. I think they're interested in getting -- get a handle of chronic diseases, you know, which many things sort of fell off during the pandemic. But I think the way that they're coming at those conversations is different, right? I think that during the past year, what they've seen is that health isn't just an HR benefits issue, it's also a business continuity one.

And that it's sort of magnified for them that the core challenges we have on the supply chain of healthcare are far more stark than they had imagined even before this. So issues like the access to primary care, the fact that 20% to 40% of Americans don't have it, and that the reimbursement model for primary care makes it very fragile, right? The fact that mental health is core to what they need to be able to provide their employees, I think the opportunity that virtual provides. So I think what we're seeing, you know, early evidence of in the customers is a real change in mindset and sort of a larger aperture for getting even more involved in care delivery and for really connecting all the different pieces of the healthcare equation for their members.

Operator

Your next question comes from the line of Hannah Baade of D.A. Davidson.

Hannah Baade -- D.A. Davidson -- Analyst

Just a quick question on your growth in your customer base. I saw on the deck that Accolade increased the target customer base from 21,500 to 30,000 for self and fully insured employers. Can you unpack the delta between these? And maybe what portion is attributable to 2nd.MD? Thanks.

Steve Barnes -- Chief Financial Officer

Sure. It's just an additional data source on the number of target companies in the U.S., Hannah, as opposed to a reflection on 2nd.MD per se. It's more about the sizing of the mid-market of target customers, which as the level at which you can self-insure given the availability of stop-loss insurance at affordable rates even for small companies, has grown that market. So today, we're sizing it a bit larger than we were back at the time of the IPO in the range of 30,000 available companies.

Operator

Your next question comes from Richard Close of Canaccord Genuity.

Richard Close -- Canaccord Genuity -- Analyst

So, I'm still in. Great. Thanks. A couple of questions on competition and collaboration.

Raj, I just wonder if you could address the view that employers are overwhelmed with all these different offerings, definitely referring to this week's journal article. Are you guys hearing stuff like that from your customers in your discussions? And is that something that could impact the signing of new customers, especially, you know, as we think about large enterprises?

Rajeev Singh -- Chief Executive Officer

Richard, I appreciate the question very much. And I think, you know, there's certainly been a lot of conversation about the journal article. I'll say this. When we read the headline of that article, which spoke to benefits buyers being overwhelmed by the number of solutions that are being presented to them every day, it was as if they've been pulled off of our website or out of our presentation.

Ultimately, the value proposition we deliver for our customers and for their employees and their families is to give them a single place to go. So if they're unsure of what benefit they should use or how to go about leveraging their benefits, all they have to do is ask Accolade. Our Trusted Supplier Program is built around the idea of pulling all of their disparate programs together in a way that actually leverages our engagement engine, drives engagement and adoption up, and improves outcomes by getting people to leverage their benefits programs as well. And so do we agree? Yes, we fundamentally agree with the headline of that article.

Benefits buyers are overwhelmed. They would like to go to a single place to be able to manage their vendor relationships. And to the degree, they can reduce their vendor relationships by finding more value, and value is the critical term here that I'll expand on in just a moment, with a single vendor, they'd like to do so. But that value isn't about per se the right cost price per unit PEPM or PMPM.

That value is about clinical value and about driving cost down. It's about improving member satisfaction. And if you can do those three things by weaving offerings together in the nature that we are, we think you have a winning proposition for the customer, reducing the number of vendors that they're dealing with, building longitudinal relationships with their people to make them happier, improving clinical outcomes and lowering cost. That is fundamentally aligned with the value proposition Accolade has been talking about for 10 years.

Operator

Your next question is from the line of David Grossman of Stifel. Your line is open.

David Grossman -- Stifel Financial Corp. -- Analyst

Great. Thank you. I'm wondering if you could just remind us of how the integration of 2nd.MD and PlushCare get factored into the risk element of your revenue model. Should we assume that once the integrations are fully completed that in fact, you can guarantee a higher level of savings post integration?

Rajeev Singh -- Chief Executive Officer

First of all, thank you for the question. I think when we think about adding capabilities to our platform, like expert medical opinion, like primary care and specifically, with things like primary care, where we think we're adding value to a wide variety of our longitudinal relationships, we absolutely assess every one of those incremental capabilities with an eye toward, will it improve clinical outcomes, will it reduce cost and will it improve member satisfaction. We believe that's true for both of these capabilities. And we believe when embedded with -- in our platform, we can drive engagement for those solutions up in a way that improves our capacity to deliver incremental cost or value.

In my prepared remarks, I talked about the idea of driving negative trend line. We do fundamentally believe we can eat into the waste that exists in the system by delivering an integrated experience in a longitudinal form like the one we have today. How will that manifest for our customers? Well, we've been putting our fees at risk since the beginning of the business, meaning we've been putting a percentage of our fees at risk since the company was founded. And today, for preponderance of our customers, a percentage of our fees are at risk associated with the savings we deliver.

We'd expect that to continue into the future, and we expect that we can yield more value from those relationships as we drive more cost savings for our customers.

Operator

Your next question comes from Stephanie Davis of SVB Leerink. You may ask your question.

Stephanie Davis -- SVB Leerink -- Analyst

Thank you for taking my question. With the addition of the second opinion solutions and the virtual primary care announcement, I'd be curious if you're seeing any change in market perception from your employer clients. So two parts. One, are you seeing employers open to contracting directly with you for care? Or is the market perception still leaning toward Accolade as a third-party navigator that has value via its independence? And secondly, are you seeing customers open to shutting off their third-party virtual care in favor of yours? Or is it more of an additive component to their overall care suite?

Rajeev Singh -- Chief Executive Officer

I'm going to let Shantanu jump in here because I know he's got five things that he wants to add to whatever answer I give you, so Shantanu get ready. Our strategy fundamentally is, and this has been true in terms of our customers' perception of us since the beginning, has been about improving clinical outcomes, reducing costs, and making people -- and driving engaged members who are happy with the service we deliver. And so in answering your question around customer perception, customers expect us to continue to deliver new value to them and are quite, in fact, excited about the new capabilities we've been bringing to their doorstep over the course of the last six months. Second point I'd make there is, as it relates to our care delivery vehicles and how we collaborate with the marketplace, and this is where I'll turn it to Shantanu, our strategy is fundamentally about improving outcomes for the people we serve.

And that means we will collaborate where that's appropriate. We're always going to get the people -- our members to the right place at the right time, including to our partners or to the brick-and-mortar healthcare system that exists. And so we're not really talking about replacing things. We're talking about enhancing a system that already exists in order to drive to better outcomes.

Shantanu, do you want to jump in and speak a little to that model?

Shantanu Nundy -- Chief Medical Officer

Yeah, absolutely. I think as you said, I mean, I think fundamentally, our sort of philosophy, right, is that we want to get our members to the right doctors and help them empower that patient, empower that doctor to get to the right decisions for them. And I think sometimes that may be providers that we have, that might be providers in brick-and-mortar, that might be through our partners. But ultimately, our North Star is really making -- helping members make the best decisions so that we can get them to the best outcomes.

And I think where will you see second opinion, you see primary care is if you look at the healthcare system and you look at where are the places that often sort of fail patients the most, right, those are the places where we see an opportunity for us to connect the dots and ultimately help drive those better decisions, right? When you look at how many people that have cancer or that have surgeries that don't even have the right diagnosis or don't have the right treatment plan and how often when we get a second opinion that, that diagnosis or treatment meaningfully changes, right, that's a place where we see immense leverage for us to be more part of that solution. Same thing for primary care, right? The statistics show, right, that 20% to 40% of the Americans don't have a primary care physician. But if you dig deeper into what percent of patients don't have a strong primary care relationship and then if you go on the other side, I still get a chance to practice medicine and primary care every week, the challenges that I, as a primary care physician, have being able to provide the care that my patients need, right, simple things like I don't know what medications they've actually filled, I don't know if they were in the hospital recently, I -- when I prescribe a medication, I can't tell them how much that medication costs before they leave my clinic, those are the places where we see a tremendous opportunity for us to leverage the navigation service that we have, the data that we've built, the relationship we've built to really empower those physicians and, again, take a part of the healthcare journey that just is simply not working for enough people. And again, sometimes that might be our own and sometimes that might be brick-and-mortar doctors and really augmenting and supporting them in getting to those better decisions.

Operator

Your next question comes from the line of David Larsen of BTIG. You may ask your question.

David Larsen -- BTIG -- Analyst

Hi. Can you talk a little bit about your relationship with TRICARE? It's my understanding that TRICARE has about 9 million lives in total. You've a pilot program going on with about 100,000 lives. And I was hoping to hear about sort of more in-sell potential with that particular client.

Just any thoughts there around timing would be very helpful. Thanks a lot.

Rajeev Singh -- Chief Executive Officer

Hey, David, thanks for the question. We are in now entering the second year of our TRICARE pilot. You may recall that last year, we announced we signed a three-year pilot with TRICARE that needed to renew at the end of each year. That renewal process has taken place, and we are now into our second year serving members and continuing to see great early indicators of the value we can provide, extraordinary satisfaction, and an opportunity to guide people to the right outcomes.

Our belief is, to your point, that we have an opportunity to extend that value to more of the TRICARE population with the success of the pilot. And obviously, the extension of the pilot for another year is a great indicator of the opportunity to extend the relationship. And we don't have a lot to tell you today around incremental opportunities or the size of the incremental opportunity beyond the fact that we have 100,000 members today. And there's 9 million members in the broader population.

But we do like the leading indicators associated with the service we're delivering.

Operator

Your next question is from the line of Ryan MacDonald of Needham.

Ryan MacDonald -- Needham & Company -- Analyst

Hi. Great. Thanks for taking my questions. In regards to 2nd.MD, you obviously talked about the mix of revenue being a combination of PEPM, but then there's also sort of price times quantity case rate component as well.

As you look at the outlook that you've provided for 2nd.MD, how should we think about the mix of revenue contribution between those two? And is there any potential tailwind to the case quantity amount as we look at a return of potential elective procedures throughout the year? Thanks.

Steve Barnes -- Chief Financial Officer

Ryan, thanks for your question. It's Steve. Yes, the case rate component is outside of that ACV, number one, while the majority of the revenue that 2nd.MD generates is on a PEPM basis. You could think of it as a quarter to a 30%, a third, something like that of potential around case rate.

And as people are coming back into the healthcare system and more cases, there's potential tailwinds there. So we've included it in the guidance what we think is an achievable number, but there certainly could be that opportunity for upside. As we all know, we're all trying to figure out exactly how quickly people come back into the healthcare system. So we're taking -- we think it's a very prudent approach there, but certainly could be some upside on volumes as we move through the year.

Operator

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Singh. You may proceed.

Rajeev Singh -- Chief Executive Officer

Thank you very much, operator. And to all of our investors and analysts who joined us today, we appreciate you making the time. We're excited about the future. We look forward to catching up with you in July for our Q2 earnings call -- Q1 earnings call, excuse me.

Thanks, everyone. Bye now.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Todd Friedman -- Investor Relations

Rajeev Singh -- Chief Executive Officer

Steve Barnes -- Chief Financial Officer

Michael Cherny -- Bank of America Merrill Lynch -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Ricky Goldwasser -- Morgan Stanley -- Analyst

Shantanu Nundy -- Chief Medical Officer

Jailendra Singh -- Credit Suisse -- Analyst

Jeff Garro -- Piper Sandler -- Analyst

Jared Haase -- William Blair & Company -- Analyst

Hannah Baade -- D.A. Davidson -- Analyst

Richard Close -- Canaccord Genuity -- Analyst

David Grossman -- Stifel Financial Corp. -- Analyst

Stephanie Davis -- SVB Leerink -- Analyst

David Larsen -- BTIG -- Analyst

Ryan MacDonald -- Needham & Company -- Analyst

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