Teladoc Health, Inc. (TDOC) Earnings Call Transcript & Summary

All right. I think there might be a little more pre-roll than that, but it doesn't sound like maybe it's going to play. So how about we go and get started. For those of you who don't know me, my name is Jamie Stockton. I'm the digital health analyst at Wells Fargo. I'd like to welcome you to the second day of our virtual health care conference this year. It's very fitting that we're starting out this virtual health care conference on the second day with a presentation -- or actually, a fireside chat with the management teams of Teladoc and Livongo since these companies are coming together to create what is the leader in virtual care, in health care globally really but definitely in the United States. We are very pleased to have with us this morning Teladoc's CEO, Jason Gorevic; the company's CFO, Mala Murthy; as well as Livongo's CEO, Glen Tullman; and President of Livongo, Jenny Schneider. We're going to do a fireside chat format here.

And I thought since the Livongo-Teladoc merger, I'm sure, is on the top of everyone's mind, we might get started with some questions about that transaction and also about the Livongo business. It's something that I'm sure a lot of Teladoc investors are very familiar with at this point, but still very interesting. They announced this deal early last month. And I guess maybe my first question is, as far as the strategic sense of putting these businesses together, should investors mostly think about this, and maybe this is for Jason initially, as a transaction that is intended to give Teladoc the ability to cross-sell the Livongo platform into Teladoc's member base, which is much larger? If maybe we could start there, that would be great.

Yes. Jamie, first, thanks for having us. We really appreciate it and all excited to be here. I think what you described, the opportunity to cross-sell the Livongo products into the Teladoc customer base, is one of many dimensions that's really exciting about this opportunity. Obviously, with 70 million members, that's a tremendous footprint and gives us a huge opportunity to cross-sell, but it also opens up new dimensions, new product opportunities, new markets to enter and really, I think if you step all the way back, the opportunity to provide whole-person care for the consumer, a single place for the consumer to go for all of their health care needs and really reimagine how health care is delivered, bringing together the chronic care capabilities that Livongo has, the acute and complex care capabilities that Teladoc has and the sort of deep understanding and combination of data that can enable better care delivery, both from the consumer experience and also from the provider experience. If you think about the combination of the data set from the tremendous vital-sign data that Livongo has, from hypertension to blood glucose levels to weight measures, and combine that with the data from 10 million visits this year that Teladoc will do, that presents an unprecedented set of data that we can apply the Livongo really advanced data science to create a whole new care experience. And that opens up opportunities for new payment models, new population health models and fundamentally better outcomes for the consumer.

Okay. That's great. I guess the next logical question that I will typically get from investors is from a timing standpoint, is this something -- you guys have talked about $100 million, I think, of expected revenue synergies maybe by the end of year 2 and $500 million by the end of year 5. Is this a situation where people should expect, okay, this transaction is going to close relatively late this year, the selling season, Q2, Q3 next year might be the first point where you're really able to go out with this combined platform and then we see the real inflection from a revenue standpoint, maybe in 2022 from a synergy standpoint? Does that sound reasonable?

So I'll start with sort of our approach. And maybe, Mala, you can talk a little bit about the timing of realizing those revenue opportunities. First of all, I'd just underscore that those are just the quantified synergies. There are a lot of unquantified synergies that we're still working together on, and I think that will be layered on top of what you just described. Second, we're really fortunate that the teams are very aligned. In fact, our commercial organizations were ecstatic when we announced the agreement. And we've already signed a commercial agreement such that we can resell each other's products essentially as if we had a partnership in the market. So our teams are working very closely together, and we've seen tremendous client demand. Certainly, we will see the biggest part of the impact coming in '22 as we go to market through the '21 selling season, but we do expect to see some benefit from it in '21. And that will increase over time. We're activating both our domestic and international channels because we really see international market as just another new frontier for the Livongo products and services. Mala, do you want to add anything to that?

I think you've captured most of the highlights, Jason. I think the one thing I would remind people is we've talked about the fact that as a business, we are diversified and no longer concentrated on an early bolus, if you will, for the year. And so that's even more reason why, as we think about the synergies, think of it more as a ramp towards '22 and then on to '25.

That's great. One of the things that I thought about as you guys put these 2 businesses together, especially with an emphasis on helping to manage patients with chronic conditions, is the whole component of the model around whether or not you employ providers. And Jason, you guys at Teladoc can talk about virtual primary care as something that you're increasingly focused on as well and maybe kind of a new offering that you would be going to employers with. As you move into a more, let's say, durable relationship with patients, does that change the dynamic around whether or not you would want to ultimately employ some of the providers that are interacting with the patients on your network?

Yes. Maybe I'll start with the sort of provider network model. And then, Jenny, maybe you can bring to life a little bit of what that looks like for the consumer and the new opportunities for providers to interact and deliver better care. The -- from a provider network perspective, we have a network of independent contractors for a lot of our business. Certainly, the opportunity to take a more longitudinal role when the consumer opens up new employment models that are efficient and can deliver better care, one of the big opportunities, of course, is sort of cross-referral into all of our different products and services that could be beneficial for the consumer as well as taking on population risk as we step into virtual primary care. And finally, we see it as our role not only to deliver the care with our network but also to enable providers in the community, hospitals, health systems to deliver better care using our technology platform. Jenny, you want to...

Yes. Yes, I was going to -- thank you, Jason. I was going to add. And I think the big thing to remember is that the underlying data is truly the equalizer. And so what that does is you're now empowering physicians, any physician, with an accurate look, real time data around how a patient is actually doing. That doesn't happen today until you actually step foot in the doctor's office. And so what that does is it allows acceleration from the member experience because we can provide information recommendations directly back to them off of that data. Flip that around and you've now created with -- this electronic health record, if you will, that's actually useful to providers because you're giving them real time data about that member. The models, I think, really coalesce around the data as the equalizer to allow a variety of different models moving forward.

Okay. Jason, you touched on data. Jenny just talked about data. I think an interesting component of the Livongo story has been how they have kind of built the ingestion of data into the way that they operate. And so maybe I'd love to hear, Glen or Jenny, whoever wants to take it. As far as integrating, let's say, third-party devices or thinking about situations where maybe you wanted to put your own brand on some of the devices that are gathering some of that data, like how does that journey evolve? Like if I get on your website, I see a lot of devices with Livongo brands on them. I think your platform has also relatively adopted incorporating data from other devices. In my view, as telehealth becomes more ubiquitous, at some point, I'm going to have a Bluetooth thermometer and a Bluetooth otoscope at home if my kid has an ear infection. And I'd love to hear how you decided whether you wanted to just rely on third-party devices or brand your own devices?

Maybe I'll start and turn it over to Dr. Schneider. When we started, Jamie, there wasn't a cellular-connected glucose meter that effectively did what we needed to do on the market. So we had to essentially create one, and that was where the company started. As we continued to develop, you mentioned Bluetooth, we felt that it was much easier for people to use cellular-connected devices because we made it easier for them to stay healthy. So for example, Jason mentioned stepping on a scale in the morning. You step on a scale, you don't have to sync anything, information just comes to us automagically. And similarly, on a blood pressure cuff, again, there's nothing to link, you don't lose the link, it's all cellular connected. That said, as we've evolved, we want to meet the member, meet the health consumer wherever they are. So if you're using Alexa, you can talk to it and get information about your blood pressure or your blood sugar. If you're wearing an Apple watch, you can connect to that. If you're wearing a Fitbit -- so whatever device you have, we're happy to talk to it. And then what we're doing is we're aggregating that data, and we're actually looking at the data to personalize it. Maybe that's a good transition to Dr. Schneider, who can talk about how we serve it back to the members.

Yes. Thank you, Glen. I think there's 2 key components here. One is, as Glen mentioned, we'll take data from the devices that our individual members are using because it's easier for them. Again, the guiding principle here is to build something that's incredibly simple for our users, our members. The inverse is that we'll also rely and give personalized data back to the devices that they use. We did that through Alexa, through Fitbit, through our 2-way cellular connectivity, through the phone, through text-based messages. We've built that robust system, and I think that's really fundamental. The personalization takes the data that comes in and looks at it from a health standpoint, but it does something far more interesting than that, which is we understand, Jamie, what motivates you is different from what motivates Jason, different from what motivates Mala. So we use the context around what motivates you. We start to understand your daily patterns and then deliver that health context in that setting. So I always say this is our smarty pants part of the operation, where we have our clinicians next to our data scientists, next to our behavioral economist and they're coming up with that really deep personalization. The same way when I log on to Amazon now. From all home schooling, I'm now prompted to the sixth grade geometry workbook, right, because they've seen where my style of purchasing is. So we're doing that similarly within health care.

She's not using the sixth grade workbooks, by the way. It's for one of her children.

I'm learning, I'm learning.

I guess the logical follow-up to that, in my mind, and I already touched on this a little bit, but maybe, Jason, do you think we'll get to the point where an employer signs up for the Teladoc platform and instead of just sending that employee maybe a welcoming packet, the employer incrementally says, "Hey, we'll put up the $50 to $100 to send them a kit so that they would have some devices that would make it even easier for them to go ahead and use telehealth as opposed to some other more expensive setting of care?"

Yes, absolutely. We've been talking for some time about the welcome kit of the future being something that every household can use and have it be personalized for the consumer depending on what their family situation is. Do they have sixth graders who are likely to bring home a strep throat? Or are they boomers who could benefit from some other devices? There are certainly opportunities for us to do that and as both Jenny and Glen said, to tap into the devices that they're already using, whether that's the Apple HealthKit or a Fitbit or something like that. The power here is the collection of data and then the use of that data, as Jenny said, in order to provide really personalized and high-impact interventions, whether that's coming through a device or it's coming through a provider that they're interacting with, whether that's a dietitian or a health coach or a physician or a therapist.

But Jamie, just to pile on there, don't think of, you mentioned, Teladoc in telehealth. Think of Teladoc now as a complete virtual care experience that is very focused on what an individual consumer needs or what her or his family needs. And so it's one place to go that the entire range of what they're doing in health care, they can now take care of. And that's the magic of this because as the market tried to understand what we had put together, the people who clearly understood it were our clients and our members. And from day 1, they were saying, "This is what we've been waiting for." And the idea was we had people call us to say, "Can we now get Teladoc through you?" And Teladoc have people call them and say, "Can we now get Livongo through you?" So we don't have to try to string together this experience our people are having. Finally, you have one experience. And the physicians feel the same way, which is they can look at a screen and they can essentially see what's now going to be a virtual electronic health record of, "Here's the person I'm talking to, and here's what's happening in their body right now through a continuous glucose monitor. And here's what they did yesterday. And here's their trend, whether they're gaining weight." And that's all right there so they can deliver much better care. So this is really a reimagining of health care. That's what -- it's not just about being the largest and global, and it's not just about delivering this very consumer-centric care. This is about reimagining care the way we all thought it could happen, and I think that's what Jason's vision was when we put this together.

That's great. All right. So we've spent a little more than half of the presentation talking about the merger. I'd like to spend a little bit of time talking about maybe a little bit more of the legacy Teladoc business. And I guess maybe my first question, this is a very common one I get from investors, is around membership level. Teladoc's got about 50 million people who are paying a subscription, their employer typically or the health plan is, to be on the platform. You've got about 20 million individuals where you're only getting a visit fee, but it tends to be enhanced. How much runway is left for member growth? That is a very common question that I get from here.