© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by, and welcome to Dialogue Health Technologies web conference to discuss results for the third quarter of 2021. [Operator Instructions] Listeners are reminded that portions of today's call may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on dialogues risks and uncertainties related to these forward-looking statements, please refer to the company's MD&A dated November 8, 2021, and its final long-form prospectus dated March 23, 2021, both of which are posted on SEDAR. Our operating and financial results will be presented this morning by Cherif Habib, Co-Founder and Chief Executive Officer; and by Navaid Mansuri, Chief Financial Officer. Cherif, you may begin your presentation.
Thanks, [ Jean-Marc ], and good morning, everyone, and thank you for joining us today. We're very pleased to share our results for what was another record quarter with strong growth and positive underlying trends. We doubled our annual recurring and reoccurring revenue in Q3 compared to the same period last year and added more than $5 million in new commitments since last quarter. I will provide more color on our ARR on the next slide. Our revenue grew substantially by 120% year-over-year to $17.2 million as we added members at a rapid clip. At the end of the quarter, we had nearly 1.8 million members using our services, representing an impressive growth of 132% year-over-year and 21.5% since the end of Q2. Our average monthly retention rate was once again solid at 102%. In the quarter, and our attach rate rose to 1.11 on the strength of our integrated health platform, which, of course, we call the IHP. When it comes to unit economics, we saw a triple-digit increase in gross profit which was higher by 186% year-over-year to $7.3 million. We're also pleased to show an improvement in both the gross and adjusted EBITDA margins. Compared to Q2, our gross margin expanded by 110 basis points. Combined with a nice leverage at the OpEx level, this helped drive strong improvement in adjusted EBITDA margin of 540 basis points. When we look at our evolution through Q3, the quarter got off to a slower start in July and then got back on track swiftly thereafter as we saw every metric improved progressively through the quarter. This trend was especially true with Optima, our legacy EAP business, which Navaid will cover in more detail in the financial discussion. As I mentioned, our ARR nearly doubled year-over-year to $75.4 million at the end of Q3. The third quarter is typically a lower seasonality period for new signings as summer vacation schedules often cause many sales discussions to slow down. That's why we're very pleased to say that even in this context, we added $5.4 million in new contracts during this period. I'd like to personally give our team some major kudos for their hard work, which helped offset a softer July and take us into October with solid momentum. As you know, the third quarter marks a return to school for universities. As students head back to physical classrooms, we are seeing many schools reprioritize the health and wellness of their students, and Dialogue has been there to answer the call. Through our strategic partners, we signed several new universities to our primary care service and expanded an existing university customer to an additional 10,000 lives. Other than students, we added a meaningful number of new customers in other nontraditional segments, such as first responders, municipal employees and union members. We also expanded the coverage of several existing customers in those segments. We're happy to see traction there and even happier to know that our technology-enabled platform will be helping more people from all walks of life be proactive about their health in a way that's convenient and drives real health outcomes. Having launched our new iCBT program midway through the quarter, we're pleased to confirm that we already secured our first customers. Given the increasing focus on mental health, there's a lot of interest for iCBT both from employers as well as from insurance companies. We are working with our partners on the possibility of expanding existing distribution agreements, adding some of our services to their existing primary care offering. Keep an eye out for an important announcement before year-end that will be incremental to our ARR and very helpful to our customers and their members. I would also like to highlight a win that came subsequent to quarter end, and therefore, is not yet counted in our ARR. We successfully added one of the largest primary care customers in our history, positioned nicely in our all-time top 10. This big win shows the importance of building even greater awareness of Dialogue and helping employers understand the value we bring to the table. Looking forward, our pipeline of potential new business is at a record high, having grown 17% from the end of Q2, 58% since our IPO in March and more than 110% year-over-year. The interest for Dialogue's products and integrated health platform has never been stronger, and we're very proud of the brand and reputation we have built over such a short period of time. Of course, for these opportunities to count and to ensure that we maintain our robust conversion rates, our team must continue to execute like they have been. I'll now talk about some of our successes in Q3. We already spoke about the various nontraditional segment customers that came on board with Primary Care and we were certainly pleased with that achievement. But we're also pleased with trends that are starting to emerge more meaningfully. Number one, our IHP is really resonating with prospective customers. Mostly initially show interest in only one service, but come to realize that the part of having multiple programs available on one platform is something they need to consider more strongly. We often see our discussions ultimately extend to additional services. And in fact, 59% of our sign-ups in the quarter did so for 2 or more services, building on the 44% rate that we recorded in Q2. Number two, we're seeing an increasing number of customers changed to Dialogue from 1 or sometimes even 2 of their existing vendors. We love those rip and replace deals as there are a sure sign that our differentiators are strongly resonating in the market. Number three, our win rate keeps increasing. And in Q3, we won 87% of all competitive deals, we were involved in the 250-plus life segment. Number four, we're starting to see a more meaningful impact from word-of-mouth referrals and for members and partners testimonials. There is nothing better than a member who changes employers and advocates for Dialogue in their new company, and we're seeing more and more of that. Here are a few examples that touch on these instances. We were selected by a global testing and inspection company to provide our full suite of services for 1,900 employees. This new -- this now includes iCBT as a key component of our mental health offering in addition to our primary care and EAP services. In fact, both primary care and EAP surpassed those of 2 key competitors, and we saw the customer switch over to the Dialogue. This is a trend that reoccurred multiple times in the quarter. It highlights the solid inroads that our IHP is making with employers as they look for a platform that is simple to administer and where all the programs are consolidated in one place for their employees. We also signed our largest EAP deal to date with a leading network of dental practices under 7,000 members. This agreement is interesting as it is one of the first instances where we've launched such a larger relationship with our EAP product alone. This clears the path forward with this client, potentially adding our flagship primary care service in the future as opposed to the other way around. And on the expansion front, we saw a large customer at both EAP and mental health for 5,000 employees to its already existing subscription of primary care. After closing a large acquisition, that customer added an additional 3,000 lives to the 3 services in now has. And finally, on the partnership front, we added several large customers to Lumino Health and [ consult plus ] platforms. Our collaboration with Sun Life and Canada Life, respectively, continue to yield benefits for all parties involved, especially for members who gain access to an employer-sponsored health care option for free to to-date. Our attach rate continued to improve, moving higher to 1.11 in Q3 compared to 1.10 in Q2 and 1.06 in the third quarter of last year. We now have 17% of our direct members subscribed to 2 or more services compared to 12% in the same period last year. I want to reiterate the following point. Our rapid member growth we are seeing is a testament to the power and convenience of the dialogue IHP. It's an important competitive advantage for us, and it's helping us stick up from the ground, stick out from the crowd, grow our moat and drive customer stickiness. As a reminder, we launched our IHP last January and haven't even completed a full year with a yet. In time and with new services being added to the platform, we're very confident that many of our KPIs will inflect. And Navaid will talk about a new metric we added that does not -- that does an even better job at demonstrating the success. I'd like to now touch on a few of the many improvements we brought to our platform during the quarter. In addition to excessively focusing on the security, privacy and confidentiality of our members, we also made a number of notable changes to our product. These changes helped improve such thing as speed, automation and access administration. We also added a feature content module to our web and mobile apps with the goal of delivering content that will keep members engaged in our platform. The first such piece of content was an exclusive talk and astronaut guide to uncertainty by Chris Hadfield whose life journey is an incredible inspiration to our members. He shared the many helpful tips to deal with anxiety and stress gained from his experience of aboard the international space shuttle. Our goal is to ultimately help our users to be more proactive about their health and wellness. We believe exclusive high-quality content like that will help us get there in a very scalable way. Lastly, we built on our iCBT product launch by developing self-care toolkits that members can consult at their own pace. We also recently launched an enhanced iCBT option. This allows members to seek guidance from a coach and to effectively address the level of support and autonomy they received from the treatment. Now one of the most frequently asked questions we encounter in our discussions with investors is whether we are seeing hesitancy from our customers with regards to invest in virtual care, now that we are hopefully in the tail end of the pandemic. We know that the pandemic accelerated awareness for virtual care by several years. Adoption rates increase, and we don't see them return to the pre-pandemic state. We think employers also have come to similar conclusions during the past year. To illustrate the type of discussions we have with existing and prospective customers, we have put together a case study of PSP investment experience with Dialogue. As you know, PSP is one of Canada's largest pension investment managers. As an organization with a very fast-paced work environment and with a desire to continue to deliver a best-in-class employee experience, PSP wanted to make sure that their employees and their dependents could have quick and trusted access to the professional health support whenever necessary. It was important to provide them with tools that offered faster and more cater responses for their health and wellness needs, as well, one of PSP's guiding principles is to ensure that their benefits plans are integrated -- as integrated as possible and that the data is kept completely confidential. They were looking for a health care provider who would align with their company vision. Following a successful trial run of Dialogue's primary care program in 2019, PSP rolled out the service to their entire workforce in April 2020. There's a broader rollout of all PSP employees have been planned well in advance and happened to coincide with the emergence of the COVID-19 pandemic in Canada. Dialogue's entire medical team is available to help treat PSP employees and support a wide range of health concerns through our virtual platform, saving them a trip to the walking clinic. We played a crucial role in the well-being of many of their employees during this unexpected time only further validating PSP's decision to launch Dialogue in the first place. With the primary care program proving to be such a huge success, PSP decided to offer other programs from Dialogue's IHP and launch our mental health program in October 2020, followed by dialogues that digital EAP in March of 2021. Having all these 3 programs centralized in one place for employees, emphasize one main benefit in particular prevention. And the modular nature of adding Dialogue's Integrated Health platform made administration and onboarding easier for HR, which also simplify communications of new programs to employees. Dialogue's transparent reporting of program success also happened to be perfectly aligned with PSP's goal to becoming a more data-driven, fully integrated organization. Being able to track and record metrics of Dialogue's programs, offered PSP new ways to measure employee well-being and determine just how well Dialogue is performing amongst staff. Since implementing our services, we're very proud to say that there's been a 60% utilization rate among employees. This high level of utilization has also led to 35% improvement in anxiety scores, 40% improvement in depression scores and a whopping 91% of all-time average satisfaction score. PSP's experience is a perfect illustration of why our customers love Dialogue and how it helps them achieve their talent objectives. We are seeing our IHP gain traction with employers as it provides them with a convenient and efficient tool to eliminate a number of pain points for their employees. Finally, before turning the discussion over to Navaid to provide our financials, I'd like to give some insight on how our iCBT service has been integrated into the IHP. Over the last few months, we received a lot of interest from our customers with regards to this new service. Mental health is obviously a growing area of focus for employers and our IHP is providing many efficient ways to address the associated challenges. Rather than looking at iCBT as a stand-alone product, we're viewing it as an addition to our already robust mental health offering, further bolstering our value proposition. Releasing self-care toolkits in addition to the recently launched guided iCBT module with synchronous weekly sessions has provided members with a suite of options. These cover a wide spectrum of therapies, both self-led and traditional leads. Said another way, our different mental health options are strong on their own, but even stronger together. They are also highly synergistic with the mental health component of our EAP. The feedback from existing and prospective customers has been very positive so far, and we're already seeing great adoption at such an early stage. I will now pass it on to Navaid to discuss our financials in more detail.
Thanks, Cherif. Good morning, everyone. Thank you for joining us today. We continue to see very robust trends in Q3, and our member growth reflects that. We ended the quarter with nearly 1.8 million members, up 132% year-over-year and well ahead of our plan. To make sure this registers fully with our investors, I want to reiterate that we added more than one million members in the last 12 months. This is a massive accomplishment that all our teams can be proud of. Compared to the second quarter, we saw an increase of 21% for more than 300,000 members. As was the case in past quarters, incremental memberships came from both the direct channel and from our strategic distribution partnerships. I'd like to highlight; however, that our direct member growth was exceptionally strong this quarter, increasing 32% from last quarter and demonstrating the continued demand for our services and the heightened awareness of the Dialogue brand in the marketplace. That said, we continued to collaborate closely with our largest insurance partners to further promote our virtual care services and have been ecstatic with the evolution of those relationships. First of all, this large and growing installed base provides us with a fantastic opportunity to roll out additional services in the future. Cherif spoke to you earlier about our attach rate and the percentage of members with multiple services. And while we stand by those metrics to gauge the strength of our operations, we think that they do not tell the whole story without more context. The attach rate, while trending in the right direction, can move at a slower pace during a period of high growth in new members. And the percentage of new members with multiple services can actually fluctuate downward in the short term when many large customers are added with only one service, as was the case in Q3 in nontraditional segments like unions, student associations and other nonprofit organizations. On this slide, we would like to demonstrate these points by showing an extreme example where in a single quarter we can add 500,000 members with just one service while changing nothing else in the business. We can see through the numbers that both KPIs drop from one period to another despite having grown our installed base by 50%. To be clear, we will continue to report these 2 metrics. However, we will also start reporting a metric that provides another angle from which to evaluate the traction of our IHP. This calculated metric, which we call member service units or MSUs, is simply the total unique member count, which we provide multiplied by the attach rate, which we also provide. Its advantage is that it can be compared directly with member growth and will rise faster as customers sign up for multiple services. In Q3, MSUs grew by 143% year-over-year to just under $2 million compared to the 132% growth in members, and we expect this difference to expand over time. Beyond the growth in member count, we were also -- we also continued to experience a consistent expansion in direct customer spend as well as tremendous stickiness. We had an average dollar-based monthly net retention rate of 102% in Q3, maintaining once again a level above 100%. We are clearly seeing the compounding effect of the adoption of our IHP by our customers. Furthermore, we are particularly proud of the strong relationships we have built with them. Since Dialogue's creation, churn in our mid-market and enterprise direct customers has been practically nonexistent at less than 4,500 members over our 5-year history. For the third quarter, our revenue grew by 120% year-over-year to $17.2 million, driven by our land and expand strategy, the addition of new services and the acquisition of Optima. We also launched iCBT in Q3. And while it generated only a small amount of revenue this quarter, we are very happy with the early traction and have been extremely busy in introducing our broader mental house service to existing and prospective customers as well as to our distribution partners. On a more granular basis, primary care and mental health continued to experience strong growth with revenue increasing by 54% year-over-year. Utilization has been resilient relative to prior periods and demonstrate that the use case for Dialogue remains strong for employers and for members even as we progressively come out of the pandemic. The EAP segment, which consists of Optima as well as our Dialogue virtual EAP generated revenues of $4.8 million in Q3 compared to $5.6 million in the previous quarter. I want to take a moment to provide more context on the performance of this segment. In Q3, we marked the completion of a full year since our acquisition of Optima, and we now have a much clearer view of the business cycle than we did earlier in the year. Given Optima's pay per use nature rather than a steady per member per month stream of revenues, we saw some seasonality in Q3 as many of our practitioners took time off during the summer. We understand now that this is typical at Optima, but was amplified this year because our practitioners took a much needed break following 15 months of social distancing and travel restrictions. I do want to note that the quarter-over-quarter decline that we experienced in Q3 for this business does not put Optima's ARR at risk. It is only a reflection of the seasonality throughout the year. In fact, the temporary contraction in Q3 has fully reversed course. This had already begun by the end of Q3 as case counts in September were 35% higher than in August. The trend continued into October as case counts were 60% higher than August and call volumes were 3x higher compared to the summer months. While we expect continued seasonality at Optima in 2022, we note that the impact will lessen progressively as we migrate its customers and add new ones to our virtual EAP. Speaking of our virtual EAP, we saw great traction with Q3 revenues almost doubling compared to Q2. Lastly, on the segment breakdown, our OHS business in Germany progressed further with revenues of approximately $940,000, up from nearly $800,000 in Q2 and higher by 146% year-over-year. Our gross margin for Q3 came in at 42.6% compared to 32.7% in the same period last year. The lower margin profile at Optima was more than offset by improvements in our virtual business and due to greater scale year-over-year in both our mental health service as well as our EAP. Additionally, our gross margin last year had been negatively impacted by a meaningful ramp-up in staffing and member onboarding. When compared with the first 2 quarters of 2021, the gross margin improved by 110 basis points, mainly due to lower seasonal utilization and to the continued migration of Optima customers to our virtual EAP. On the latter point, our migration of small accounts has been steady, and we continued to expect larger accounts to migrate in 2022. As with past quarters, the gross margin in our primary care segment remains well above 50%. While we are excited to see our overall gross margin expanding, we will maintain our investments in service levels in order to ensure high satisfaction scores with our members. As we mentioned in Q2, we believe that our business has reached a high point with regards to operating expenses as a percentage of revenue. While our expenses increased 56% year-over-year as we invest to grow our operations, we recorded operating leverage of 430 basis points compared to Q2 and anticipate that this trend will continue. We remain on track towards our stated path to profitability. Moving on to adjusted EBITDA. We recorded a loss of $4.9 million in Q3 compared to a loss of $5.3 million in the same period last year. We continued to pursue a disciplined growth strategy and are very happy with the results achieved so far in 2021 despite the added public company costs that we have incurred since our IPO in March. Before closing, I want to add a quick note on our cash balance, which stands at just under $111 million. Our financial profile remains healthy and positions us very well to execute on the M&A portion of our growth strategy. On that point, we have been very active over the last few months and have had more serious discussions with several potential targets. As mentioned in prior discussions, we are on the lookout for quality businesses whose product offering would fit nicely within our IHP and whose geographic coverage would be complementary to ours and allow us to expand our footprint. We are pleased to say that we have submitted several LOIs and hope to advance these discussions further in the coming weeks and months. I want to reiterate how excited we are with the underlying trends we are seeing in our business and the strong momentum that we took into Q4. Our long-term plan remains on track, and we look forward to sharing more with you as things progress. Thank you again. I'll now turn the call back to Cherif.
Thank you. And before moving into Q&A, I want to update everyone on something I'm personally very excited about. To support our go-to-market strategy and the efforts deployed by our teams, we launched in October a broad scale marketing campaign across multiple media channels. The principal aim of this campaign is to develop the Dialogue brand further, especially in markets where our products are not as well known. The campaign doubles down on our premium positioning and our goal to humanizing health care for all. Keep your eyes open for key messaging, which you may already have seen on popular social media and relevant industry sites. I also want to speak about the incredible success of our second annual flagship conference. The half-day virtual humanizing health care conference conducted in both English and French is an important initiative created to strengthen Dialogue brand and for leadership. It's also meant to reach hundreds of HR and organizational leaders interested in learning more about employee well-being. Keynote speakers this year included a renowned experts like Astronaut, Chris Hadfield, a personal here of mine, while the topics covered a broad range of issues that are top of mind for Canadian organizations. Panels and guest speakers from various industries joined forces to discuss mental health, diversity and inclusion, trends in employee benefits and much more. We thank all our sponsors, guests and attendees who made it possible to exceed our established objectives. I also want to personally thank our teams for putting this together and for helping shine a light on many of the great things we're doing in Dialogue. With that, we'll open the floor for questions.
[Operator Instructions] The first question comes from the line of Scott Fletcher at CIBC.
We seem to be at the stage where virtual care is pretty widely accepted as an option, as you mentioned in your remarks. I'm wondering if that validation is having an impact on PMPM rates in either direction, either as willingness to pay goes up or if competition is pushing prices down?
Thanks for the question. You are absolutely right. We are at a stage where virtual care is widely accepted. We've seen a really encouraging acceleration through the last few quarters, and these are really promising trends. In terms of ARPU, we have not seen any material changes in the last quarter, nothing to report from the last time we spoke. We think we're now at a point of maturity where things have stabilized. And what we are seeing is companies like ours and others offering multiple product tiers to better answer the demand of the market. So that is something that is a really good sign of maturity in the market where people are starting to be more discerning. There are low-end products or high premium products like ours. So we haven't seen any important pressures there. And I would add to that, Scott, is that with IHP, so obviously, as we sell multiple products at once in a bundle, it is harder and harder to tease out the specific kind of ARPU pressure on each program because the bundled product offers so much value. So nothing to report there.
The next question comes from David Newman at Desjardins.
First of all, congratulations on improving the resilience of the model. So it's good to see. I'm glad to see this because, obviously, the stock market is not reflecting that. So good to see that. You've got this constant flow of -- from Sun Life and Canada Life overall. But obviously, they're doing their own things here, Canada Life with their claims secure and other potential 1.25 million members. And then Sun Life with our new platform on mental health, including Lumino, so maybe it's early days, but what sort of traction are you seeing with those accounts, how many more members will flow in from the existing partnership and the incremental -- I mean that could obviously pay dividends heading into 2022. So maybe just some thoughts around those 2 partners in particular.
Yes. You're absolutely right, David. So the way to think about this is thinking about the penetration in the member base at both of these strategic partners and then thinking about it in terms of number of services. So, so far with both Sun Life and Canada Life, we sell a primary care service. In Sun Life's case without disclosing anything confidential. They probably have 6 million or 7 million members or lives under their care, and we are only in a small portion of these lives. And of course, with Sun Life, we're in constant dialogue and working together to find ways to go after all of that block that we don't already have. We're also in -- we've also had a very promising discussions to sell or distribute through them or other products. And the same story is consistent at Canada Life. Again, we are only in a small portion of their overall lives and we're increasing quarter by quarter, really nice clip. And there are interesting discussions to add the number of members and add the number of programs. As you mentioned, Canada Life bought claim secure, I think you or others on the call have asked as this an opportunity or a threat. And we ask very candidly, our partner that Canada Life is an opportunity or a threat. And the answer was a resounding, this is a great opportunity. So we look forward to getting a better relationship with claims secure over time and hopefully announcing something exciting in near future.
So you mentioned Sun Life being 6 million to 7 million members. I mean if you look at all your partners taken together, what is the -- what do you think the addressable market in terms of potential layering on additional services just through your partners?
Yes. I mean, I would say that there's a couple of different layers to this answer. Most Canadian -- most Canadians that are employed will be employed by a company that has a group benefits provider like Sun Life or Canada Life. And as you know, we have partnerships with 4 of the top 5 largest insurers in the country. We have another one on the list of the top 10. So that is a pretty big TAM. But I would say that sometimes customers want to go direct with us, and that is especially true in the enterprise segment. And the reason for that is some of these enterprise clients want to have a direct relationship, sometimes they will use different carriers for different things, and they don't want to be too attached to one of them. So I would say that in the enterprise segments, we've been seeing more direct action. And in the kind of SMB and mid-market, we've been seeing really good traction to the carriers.
Okay. And last one, if I can squeeze one in. You've got $111 million in cash. Stock market or the health care has obviously been under a lot of pressure here, silver lining is maybe potentially the widening your pipeline of potential acquisitions here. Is that what you're seeing, where you're seeing assets come back to you in terms of valuations that's going to widen your funnel?
Yes. We spoke a lot about discipline on M&A in the last couple of calls, and it's a message we want to reiterate again. I mean we have a very exciting pipeline of opportunities. We have several LOIs in flight. We had a Board meeting yesterday where we approved a couple of more. So there's really interesting developments there. But it's really important to stay disciplined. One of the biggest challenges, and I think we've touched upon it in the past is kind of the dislocation between private and public market multiples. I'll just give you an example, just as one anecdote. I mean we were speaking to a company 2 weeks ago in the U.S. in an exciting mental health segment. They're doing $6 million of ARR and they're raising a private round almost at $100 million valuation. So obviously, that's not a multiple that works for us. And that kind of the delta between private and public markets is something that you see kind of at the end of sometimes of the cycle. So we're hoping that -- we're hoping that these 2 converge so that we can make acquisitions that are accretive to our investors.
The next question is from Endri leno at National Bank Financial.
Yes. Good quarter, by the way, obviously. I'll just have a quick question here. Navaid, you talked about cost plateauing. Does this imply that you're well-staffed at this point? And further to that, can you talk about labor tightness in general and employee retention and whether you've seen any impact on that aspect?
Yes. I mean we're -- as you know, it's going on in the industry in terms of the tightness of the labor market. I'm happy to say we've seen our -- a little bit of it, but nothing too dramatic on our side. I would say we're continuing to grow and adding employees as we continue to invest in growth areas. But it's not something that is having a significant impact at Dialogue. I mean we try to open -- we try to maintain open communication channels and provide employees with opportunities and making them feel challenged. As a health care company, we offer mental health days. We are in growth mode. We crossed 1,000 employee mark during Q3 and still have a wait list of health practitioners looking to join Dialogue across various roles. So it's not something that has had a great impact at Dialogue, but we are keeping a close eye on it and making sure that we continue to invest in the areas that's going to support our growth.
Great. I may squeeze a quick one on the cost side as well. The stock comp in the quarter in Q3 was a little bit higher. Like how do you see it trending in the next few quarters?
Sorry, what specific line items?
Stock-based comp.
Yes. So on that point, I mean, we introduced a new stock-based comp plan in Q2, and we rolled it out to our new and existing employees. So what you're seeing is sort of the impact of rolling out that plan and maintaining it on a go-forward basis. So it's -- prior to our IPO, we had an employee stock option plan. And then post IPO, we have a new equity-based compensation plan. So you're seeing the impact of that. So what you're seeing this quarter is more indicative of what you'll see in the future.
The next question is from David Kwan at TD Securities.
I think you're on mute, David.
No, I think he dropped.
Can you guys hear me now?
Yes.
Sorry. I know you owned Optima, I guess, in Q3 last year. But do you know what the revenue was in Q3 of last year, maybe in 2019, which may have been, I guess, a better comp?
Yes. So you're right. We closed the acquisition of Optima on October 1st of last year. So this is our fourth full quarter reporting to it. The revenues at Optima on a quarterly basis. I mean, they didn't -- it was a private company, they didn't necessarily recognize revenue the same way that we do. But when you sort of normalize for that, it's consistent with what we reported this year.
Okay. And how should we be kind of thinking about the EAP revenue for Q4? And maybe just looking at it on a full year basis, like do you expect the business to grow from, I think, it was roughly a $20 million run rate that it was doing preacquisition.
Yes. So on the Optima side, I mean, as you know, when we made the acquisition, our plan was to migrate those customers to the virtual EAP. And over time, Optima revenues will shrink. But the entire -- the overall EAP segment that we're reporting is a combination of Optima and our virtual EAP. So on a combined basis, we expect the segment to grow. Optima on its own will continue to shrink as we migrate those customers over to Dialogue, but the net impact of the EAP segment you will continue to see growth in that. So the dip in Q3 that you saw is normal seasonality at Optima because it has a pay-per-use model. And once the migration is complete over the next several quarters, then because of the PMPM model, we will no longer see that seasonality.
Okay. And maybe just one last question on Optima as well. Can you talk about where you guys are migrating those customers from kind of the more fee-for-service type revenue model to the PMPM model? And how you expect that migration played over the next 1 to 2 years? I know you've talked about your insurance carriers, in particular, it will take longer to convert those customers.
Yes. So no change on that, David, since the last time we spoke. As I said, I think we had talked about some of the smaller customers, I would say, below 500 employees. Our goal is to migrate them by the end of this year, and we're continuing to make steady progress on that. And as you pointed out, some of the larger customers as well as some of the insurance partners, we're working with them and progressing well to migrate them over the next several quarters through 2022. So nothing has changed in terms of our plan and our execution of that strategy. We continue to make progress based on what we've previously communicated.
The next question is from Chelsea Stellick at IA Capital.
My main question is just about the university contracts. And just so just kind of how they compare against some of your employer contracts? Is it the same PMPM? And just to think about when it comes to universities, I mean, there's like 30,000 students at one university. So these could be rather large contracts and wanting to understand the metrics behind them as well.
Yes. So the vast majority of our student business is through a partner who sells to student associations. So it is an indirect contract and like all in direct contracts or PMPM is lower to allow for our partner to make a healthy margin. And in terms of ARPUs, I mean these are segments that are, as you can imagine, healthier and use less resources than our -- kind of our average user. And for the -- for that reason, that lower utilization translates into lower price. So you are absolutely right that in terms of volumes, the student segment brings us a lot of members, but it's a relatively lower weight in terms of revenue just because of the characteristics of these contracts, a, being indirect and, b, being low realization or sometimes even lower feature custom products that we design for these segments.
Interesting, you say healthier, but I mean, obviously, they're younger, healthier in that respect, maybe, but in terms of maybe the mental health aspect of things, maybe not, not as much being the university [indiscernible]. Yes. Anyway, thanks for answering my question. Great quarter.
The next question comes from Nick Agostino at Laurentian Bank.
Yes. I guess just 2 questions. First, geographically speaking. I'm not sure if I heard much commentary on the Q3 results. Can you maybe talk about your progress within Germany from a growth perspective? And also, I know you talked about geographic expansion through M&A, maybe some of the success that you've had geographically speaking into the U.S. market in Q3.
Yes. So I think Navaid broke down the kind of the Germany growth numbers, it is still a small segment for us, but one that we're excited about because the TAM in Germany in that business is very, very large, and we are seeing a very fragmented industry with no clear leader and very low satisfaction rates for OHS services. So that's why Germany for us remains a strategic part of the business that we're looking forward to continue growing over the next quarters and years. Obviously, this is a part of the business that was very negatively impacted by the pandemic. And now we're seeing a breadth of fresh air kind of coming out of the pandemic and being able to meet more clients and increasing our pipeline. In terms of other international opportunities, this is something that we're looking. Some of our M&A opportunities in the pipeline have diversified international revenues. But our focus remains Canada, there's just so much more TAM to get here in the country that we don't want to lose focus. And I think we've talked about our focus quite often in our conversations, and this is going to remain a really important thing for us.
I guess just a follow-up, because I think you alluded to you were looking at an opportunity within the U.S. market for M&A. Are you trying to penetrate the U.S. market using direct needs right now? Or are you looking at U.S. market solely on the back of M&A?
Only through M&A and only when it complements our IHP strategy, right? So this specific acquisition was a strategic acquisition that would bolster a new segment in our IHP, and it happened to have some U.S. revenue, but the U.S. revenue was kind of not the main reason we were attracted to this opportunity.
Okay. And then just one follow-up on the student business. Is there any -- I know it's PMPM is what you just alluded to, but is there any seasonality that we should look as far as that contract when it comes to schools, university schools out.
Yes. In terms of signings, in terms of signatures, Q3 was probably a relatively stronger month in the student segment because that's the back-to-school season. So we can expect Q3 of next year to behave in the same way. But in terms of seasonality of revenue because we're a PMPM model, there is no seasonality on the non-Optima side of the business, but there is seasonality on the Optima side of the business because it's really a function of when people call in and our ability to serve those folks, so matching a patient with a provider for a consultation and getting paid fee for service. So on the PMPM side of the business, there is no revenue seasonality, but there is new signed ARR seasonality in the summer for the employer market and the opposite of that for the student market.
The next question comes from Adam Buckham at Scotiabank.
So I guess more strategically, thinking about M&A opportunities in front of you. Something that was highlighted as part of your IPO was potentially expanding your clinical specialties with things such as chronic care. I was just wondering if those are still on your radar or if you're maybe looking more to mental health or expanding services such as EAPs as more of the near-term opportunity?
Yes, absolutely. When we look at the pipeline today, many of the opportunities are to expand the clinical footprint. So again, the idea is to have this IHP and this IHP is designed to answer the needs of employer and their members. And today, a large employer, such as your bank, for example, will be contracting with 20 different organizations for different services. And that is obviously a pain for the HR department, but it's also a pain for the employees that kind of have to go and find different log-ins and try to get help in different places. And more and more our message of centralizing everything in one place is really resonating. So -- and again, if the log-in expand, so often we lead with one product and then we sell them more of our services with time. And today, we have those 3 segments in Canada. But as you look forward in the future, of course, on our road map is to launch more of these clinical specialties. Now you've asked about mental health and EAP, some M&A opportunities will just give us a distribution for our existing products, in new segments or markets. And sometimes, these will give us new product capabilities that we can distribute in our existing customer base, and we're looking at both of these kind of umbrella groups of M&A opportunities.
The next question is from Douglas Miehm at RBC.
Yes. A couple of questions with respect to the M&A strategy. Number one, the LOIs that you have out there, are they part of competitive bids?
Let me just think. I would say that in a couple of -- so -- let me first say that we really try to not be in competitive bids. We really try to source and have our own proprietary deal flow and find companies partner with them and show them that they're better off a part of the big dialogue family than on their own. So I would say that, that is our preferred means in M&A. But thinking about our pipeline right now, there's a couple of situations where actually, it started off not being a competitive situation, but then the target hires a banker and kind of runs an accelerated process because their Board tells them, hey, let's see what else is out there, which I respect, I would do the same. But I would say like our overwhelming preference is not to participate in auctions. We just don't think that's the right thing for Dialogue. So we try to source our own opportunities.
Okay. Great answer. So with respect to being disciplined about the approach to these acquisitions. When you think about multiples that you'd be willing to pay Cherif and you look at your current multiple relative to revenues today. Are there instances where you're going to be willing to pay a lot more that example, you talked about the $6 million versus $100 million. I know it's a little bit extreme, but are there going to be situations where you're willing to pay considerably more than your multiple?
Yes. First, I would say that when using cash versus stock, I think we can be a little bit more flexible. And as you know, we have a very strong balance sheet, and we really want to use that cash. We don't want it sitting there. So I think when we use cash, we can be a little bit more flexible. To answer your question directly, look, I mean, there are some cases where paying a bit of a premium on our own multiple is justified. I mean sometimes we look at businesses with 90% gross margin, growing faster than we are. And I think in those exceptional situations, we will be ready to pay up because it is justified. But when we look at a business that has similar metrics as ours or less good metrics than ours. And of course, it doesn't mean -- it doesn't make any sense to pay a premium. So we're going to be, again, disciplined. We're going to be careful. We understand that M&A is going to be a big part of our story going forward, and we will be ready to pay a bit of a premium when using cash or when the target metrics are really justified because they will really increase or improve our own metrics.
Okay. Perfect. And then just to wrap up, I know there is seasonality with respect to your margins, and we saw you benefit from that seasonality in this latest quarter. As we look into Q4, normally, they'd be a little bit lower because of usage. Is there something that's going to change that this year? Or would you expect them to be marginally lower for the next quarter?
Yes, you're absolutely right, Doug. I mean there is seasonality in the gross margin on the virtual side of the business because of utilization profiling. And historically, we've seen a slightly higher utilization in Q4 compared to the summer months. So you're absolutely right. At the same time, I mean, we've got a couple of things that are going in the opposite direction. So as we continue to migrate Optima that's going to continue to improve our margins, and we continue to invest in automation and technology to drive efficiency. So there's complementary things we're doing to offset those pressures. But yes, generally, speaking, we do see higher utilization in the fourth quarter.
The next question comes from Endri Leno at National Bank Financial.
Just another one, I was wondering if you guys can comment a little bit on Ontario in October, they urged physicians to reduce virtual care appointments and the Quebec came with a similar thing earlier in the year, the beginning of summer, so I was wondering if you have seen any kind of pickup in demand, be it from employees or employers rather or even from the provider on the physician and the nurse side to join more in the virtual care.
Endri, I'm not sure if I'm the only one having trouble hearing you, but I didn't understand the first part of your question.
What I was saying is that Ontario, they came in October, they advised physicians to reduce virtual care appointments, which is broadly in line, I guess, with what Quebec did earlier in the year. So I was wondering if you've seen any pickup in demand from employers following this or even from physicians and nurses who might not wish to return to in-person appointments?
Yes. You are right that the several provincial governments issued these guidelines, but they have not had an effect, positive or negative on our business, nothing that we could see from where we're sitting.
We have another follow-up question from David Kwan at TD Securities.
One question just on the utilization rate. We've seen, I guess, with Teladoc, for example, we've seen their utilization rate trend up over the last year. I think it was just under 24% last quarter, up from, I think, 15.5% a year ago. You guys talked about an improved utilization rate. So I was wondering if you can provide some specific kind of on what it was this quarter and how it's trended over the last year?
Yes, I'll start and then Cherif, please jump in. So what we're seeing, David, is consistent utilization this quarter versus what we saw last year. Now what you -- I mean, as we've talked about before, I mean, are different segments or whether it's a direct customer, whether it's coming from our distribution channel or otherwise, there's different utilization profiles of each of those segments. So because our mix is changing, that's changing our overall utilization, but the utilization profile within each segment is relatively consistent in Q3 as it was in Q3 of last year. The mix of those relative -- the segments is what's changed.
Okay. And one last question. You guys talked about, I guess, the strong growth in, I guess, the direct members, at least on a sequential basis, I think Navaid you mentioned, I think, 32%. I guess we're looking at the north of 300,000 net members that you added this quarter, was the mix those deals skewed towards the embedded channel versus the direct?
No. So as we talked about, a significant portion of our new member adds this quarter were -- came from our direct channels. And within that direct channel, 59% signed up for 2 or more services. So we did see continued growth in our insurance distribution partners, both at Canada Life and at Sun Life. But a significant portion of our growth this year came from direct and came from multiple services.
More than half of the 312,000 added this quarter coming from the direct channel?
Yes, I would say it's more than half. But also keep in mind, like Cherif talked about in his opening remarks, we also signed up a lot from nontraditional channels like -- nontraditional segments like universities, student associations. And yes, those are all direct.
We'll take one final question from David Newman at Desjardins.
Last one on M&A, guys, but just not to beat a dead horse, but I did notice that you had in your deck that you enabled feature content module and web and mobile apps. And I'm just thinking here in terms of building a library of content which is generally viewed as kind of a front door before actually talking to a physician or a mental health practitioner. Is that something that you will look to forward integrate into and kind of build a library of video content, podcasts, curated video sort of thing. Is that something you might look at? Because it seems to me when I look at enterprises that many of them through the pandemic, want to highlight that they're doing the best that they can for their employees. And that's a kind of a cheap low-cost way to actually get into more accounts by hitting singles.
Yes. So great that as always, you picked up on something important. So congrats on that. Like obviously, this is going to be a big part of our strategy going forward. Good content has shown to be very effective in prevention at scaling solutions across a large number of people. The problem with content is that there's a lot of content out there. Like if you want content on any topic, you can go on YouTube and find plenty of free content, like there is no -- like nobody ever told me I can't find content in a topic.
Maybe not the best advice story, Cherif?
Exactly. Exactly. So what we need to focus on is very high-quality content that is clinically validated because that is our brand, that is our positioning as we're a tech-enabled health care company. We're not a content form. So what we need to do is find this, again, amazing exclusive content that our members will benefit from and then they can't find anywhere else. And that's why we kind of talked a lot about the Chris Hadfield content, this is something that he recorded exclusively and specifically for us. It was extremely high-quality content that, again, you couldn't find anywhere else. I mean people pay a lot of money for -- to see him in events. So we're going to try to do more of this kind of high-end exclusive master class content versus low-quality content that, frankly, you could find anywhere else. So stay tuned. It's something that we're excited about. And we think we'll have something pretty interesting to announce in the future.
Organic growth or M&A.?
A little bit of both.
So these are all the questions we have for today. Before passing it back to Cherif, I just want to let investors know that if anyone would like to meet with our team, we'll be hosting meetings at TD's Virtual Technology Conference on November 16 as well as Desjardins Digital Healthcare Conference on November 30. As always, you can also reach us by e-mail at investors@dialogue.co and it will be our pleasure to answer any questions you may have. Cherif, the floor is yours again to conclude today's call.
Thanks, everyone. It was great to see you. Thanks for participating on the call, and thanks for all the good questions, and we look forward to speaking to you again during our Q4 and year-end call in March. Have a great day, everyone. Bye-bye.
Thank you.