Credit Suisse https://www.credit-suisse.com hosted Accolade (ACCD) management https://www.accolade.com for investor meetings at their European virtual HC Conference. As highlighted in Credit Suisse’s 2022 outlook, ACCD fits in their “Easy Name to Own—Crisis in Shares but NOT at the Company” bucket.
Credit Suisse’s analysts think ACCD is one of the more defensible names in their coverage across digital health, has an impressive management team, offers a clear value proposition to consumers/employers/health plans in the form of cost-savings, benefits navigation, care delivery, and with solid strategic positioning,
Further, ACCD has consistently generated impressive results with a clear path to profitability. However, shares have nevertheless performed much worse relative to fundamentals, LT targets, and attractive TAM.
The analysts reiterate ACCD as their top pick in HCIT. However, the analysts adjusted their TP multiple to~5x (7x prev) to reflect a recent re-rating for the group, yielding a TP of $33 ($43 prev). Risks include membership losses, pricing pressure, and deal integrations.
While the selling season for 2023 is just getting started, ACCD notes that it has been seen that more and more customers and prospective customers are looking to sell ACCD as a benefit to employees in light of the “great resignation” and elevated competition in the U.S. labor market.
Employers are looking at ACCD as unique to attract and retain talent, in addition to the cost savings and ROI benefits, ACCD offers—a trend that has been exacerbated by COVID & the work from home environment.
Management sees ACCD being in a strong financial position with ~$370 min of cash on the balance sheet. Additionally, ACCD expects an adjusted EBITDA loss of ~$40 min for FY23, roughly half that in FY 24 before breakeven in FY25.
Management notes that it will take~$75-$100 min of cash in order to get to breakeven, which depends on the desire to grow faster and working capital needs. As a result, ACCD has significant excess cash and does not expect to tap capital markets to achieve profitability or execute against their strategic plan.
While M&A is not required to achieve their profitability target, there is an array of interesting assets that may have a hard time operating as a standalone company over ~18-24 months where ACCD can further differentiate their platform.
For prior notes on the company, ask questions, provide feedback, or news, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.