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

Yes. So actually, a shockingly small number need to be referred out at this point. We see over 90% of our users have their needs met by their Teladoc visit and don't need a referral anyway -- anywhere. The last data I saw was only about 6% need to be referred. Frequently, if we're referring, we're referring into an urgent care center or an emergency room because they really need to be seen in a more urgent setting, where someone can suture a laceration or set a broken bone, or we do have situations where we identify someone who's in the early stages of a stroke or early stages of a heart attack. And so we're happy to be able to intervene and bring the right authorities, even dispatch an ambulance for the consumer in the event that they need it. I think one of the things that's important to understand is we don't get paid to refer to anyone. We're not incented to refer to any specific provider, right? I think that provides -- I think that is a clarity of mission for us, right? We want to make sure we're doing the best thing for the consumer and the best thing for our paying client, which is usually a health plan or an employer. And we're not beholden to any given health system who's paying us for a referral. I think that's really important because it enables us to have sort of purity of mission and focus on the best clinical care. The only time where we do work with a provider is when they're our client, right? So in the event that we stand up a private labeled telehealth solution for one of our providers, like we just announced Johns Hopkins, for example. And so in the event that Hopkins were to ask us to use some of our physicians to supplement their own workforce, and that person needed to be referred, we would obviously refer them into a Hopkins facility or a Hopkins provider because that's a white-labeled Hopkins brand and service.

That's great. The -- one of the other bright spot in the quarter -- last quarter was strong pricing trends. Can you discuss the drivers there? How should we think about the long-term pricing increases going forward? And what are the key drivers there as well?

Yes. You think about -- when you talk about pricing, I'm assuming you're referencing PMPM. What I would say is, if you think about our pricing trends, number one, remember, when we were talking last year about the onboarding of large health -- the large populations onto a platform, we were always talking about as we anniversary out, you should be able to get out of the artificial depression, if you will, and start seeing the expansion. Well, you are seeing it now in what as we promised, you are seeing that in our numbers. The second thing I would say is, again, going back to specialty and as we look at the strength in our multi-product bookings, that translates into specialty business, and that has a positive impact on our pricing. And I would say the last is, as we have talked about the strong momentum in visits and in some of our visits included contracts, there is a natural escalating and re-rating mechanism that we have also talked about. So if you combine all of this, Jailendra, it is not surprising at all that you're seeing the pricing capability that we are seeing. And talking about the long term, here is what I would say. Whether it comes -- whether it is about the access revenue or whether it is about visit revenue, what we have been able to demonstrate in our results is the fact that we are actually able to price pretty nimbly and dynamically. We have different types of pricing models, and we continue to look at ways that we can price, frankly for a combination of things: what is the value we bring to the customer or the consumer, and what is our cost structure, right? So we have to be realistic and pragmatic about both, and that is what informs our overall pricing architecture. So I would expect us to continue to focus on pricing as we think about our gross margins and manage that.

Right. Here's one more e-mail question. Given the strong momentum in BetterHelp, could you try to get a sense from them on how big this has become as a percentage of visits or in terms of revenue? Is BetterHelp an EBITDA contributor right now? Do you plan -- do they have plans to introduce chat-based Behavioral Health into the B2B product?

Yes. So I'll take that. The BetterHelp business has been growing at a really, really strong rate. We don't break it out, so I won't get too specific. What we've said previously way back in the beginning of March, the last sort of large in-person meeting I can remember being at, which was our Investor Day, we said that it was over $100 million last year, and we expected it to grow over 50% this year. We've absolutely delivered on that, and the growth continues to be very strong. I think one of the key points there is that our marketing spend has continued to get more efficient. So we continue to get greater yield out of every dollar we spend on customer acquisition. And so our customer acquisition versus revenue ratio has continued to get significantly more favorable. And as a result, it is a contributor to our adjusted EBITDA. It's been a contributor to our sort of overperformance there. And we're really happy about that. That's a business that scale really matters, and we're seeing the benefits of scale in that part of the business, just like the rest of our business.

Right. Here's the next one, I'm sure you just love to talk about this. How would Teladoc look like in 3 to 5 years from now? Will you look at more acquisitions in the future? Or do you think you are pretty much covered for like 3, 4 or 5 years with Livongo?

I think the exciting thing to talk about is what role will we play, right, and what will the consumer experience be? Because I think if you really sort of get into what's the possibility for virtual primary care and reimagining the care experience and you think about all of our -- both technology, digital, data and human clinical expertise and capabilities, the opportunity is really to be the front door to the health care system for the consumer and be able to sort of meet them where they are for all clinical needs across the board. Will that mean clinical expansion? Sure. Absolutely. We'll continue to expand the clinical services that we offer. You probably saw that Livongo announced a partnership with Fresenius. So there's a good example of leaning into chronic kidney disease. And I think that's a natural next step when you think about cardiometabolic conditions and the opportunity to have an impact there. You'll undoubtedly see us do the same kinds of things with CHF. And then there's certainly opportunity to expand outside of that, whether it's musculoskeletal or other conditions. And it all works very well when you think about the full scope of our services, including the expert second opinion services and our 50,000 experts in 450 different specialties we rely on for that. So we can go all the way from an expert second opinion, where we're collecting the information and providing real deep insight into the best -- the diagnosis and the best care plan, all the way through taking care of someone with a chronic condition on a longitudinal basis and delivering the mental health care for them. If you think about the impact of mental health challenges of just anxiety and depression, that narrow scope of conditions and the impact that has on someone with hypertension or with diabetes, it's very significant, right, because those things -- those conditions drive behaviors that are risk factors for diabetes and hypertension, things like binge-eating or difficulty sleeping, or lack of motivation to exercise. Those are all risk factors that exacerbate hypertension and diabetes. And so the opportunity to take care of the entire person mind and body is really substantial. Will we do more acquisitions? We always look at build, buy and partner strategically to determine where the most efficient and effective way for us to keep expanding is, and do it in a way that meets the market demands rapidly.

Yes. What I would also add to that is one of the synergy sources that we've talked about is cross-referral. And we have talked about how, in order to drive that, we really have to integrate the data that we both have, right? We do -- we extract data from the 10 million or so visits that we do per year, Livongo has over 750 million data points that they have been able to aggregate. And so if you think about, Jailendra, it is not only the fact that as we bring these 2 companies and the data together and -- which allows us to effectively refer and cross-refer the -- it's about integrating all of those clinical offerings and the products and services that, I think, makes us truly, truly differentiated and unique. So when we think about either built by partner for the next condition or the next offering, it is the integration of that into our full suite that I think is as important as what is that next condition because that will what -- that is what will differentiate us.

That's a fair point. I feel like with the Livongo transaction, your other deal sometimes gets less focused in discussion, InTouch Health, and I was very excited about that transaction as well. When you think about it now InTouch Health, Teladoc, Livongo combination, and actually, just to share with you, we had a telehealth expert -- Telehealth Director panel yesterday where guys from Geisinger, SSM Health and there was one more health system, we did a chat. And they talked about how -- I mean, they actually talked about InTouch Health and Livongo combination. So help us understand the company's positioning in the provider marketplace with these 2 transactions, like how well are you placed? And what are the opportunities there?

Yes, you're exactly right. I think people have quickly forgotten how strategic the InTouch acquisition is. And to be able to bring the #1 class-rated telemedicine technology provider for hospitals into our fold and deliver that, combined with our physician workforce and now the Livongo chronic care management and data science is a really, really powerful combination. And I think that's what has enabled us to win the Hopkins business and continue to expand our footprint there. That business is growing very, very well. And I think we're just still scratching the surface. Our average deal size is increasing. The usage, as we said on the last quarterly call, through the first quarters -- through the -- the third quarter, we had delivered 3 million visits on our platform, sort of enabling those visits on behalf of our clients in the hospital and health system market. And that's just going to increase, right? And so I think the ability for us to make hospital in the home come to life for a provider is exactly the intersection of the Livongo and the InTouch technology that opens up those possibilities and maximizes the impact that the hospital or health system can have.

Okay. I want to take this one e-mail question quickly, which I just got in. How should we think about operating expense growth over the medium term? What are the key buckets within OpEx you still expect to grow? For example, are we approaching critical mass in total G&A or R&D cost?

That's a great question. So as you all know, we have really very successfully demonstrated a track record of delivering OpEx leverage, right, whether it be on a cash basis, whether it be on a GAAP basis. And if you think about the nuances within the operating expense, I'll characterize it as follows: the first is we will continue to fuel marketing, as we just talked about, right? I do expect to continue to invest in marketing, keeping about a pace with revenue growth, whether it be through the combination of the DTC side as well as the B2B side. We actually have gotten great selling expense productivity. And I would frankly expect to. As we have increased our average deal size, as Jason just talked about, as we are selling more multi-product bookings, et cetera, I would expect to continue to see selling expense productivity and efficiency. G&A absolutely is an area of opportunity for us. And the way we will get at it is through more automation, right, whether more use of AI, more use of smarter technology to drive productivity in G&A. And the last area and the very important area that Jason alluded to a little while ago is R&D, especially in the combination as we bring together us, HHS and Livongo. I think investing in R&D judiciously is absolutely the right way to go. So Jason talked about build/buy partner, and building will require investments and R&D investments. And I'm actually quite excited by that. So we have still things to do in terms of building out our offerings portfolio, integrating all of the data. All of that is work that is well underway as part of our overall integration playbook and math. We are going about it in a very disciplined and structured way as we think about what is the vision for a totally integrated data strategy? What is the vision for a totally integrated product strategy, consumer experience? That will require R&D investments. Absolutely, it will. And we'll do it smartly and judiciously. And I will expect the right returns from it.

That's a fair point. And just to wrap up, can you guys give any update on the rollout of your virtual primary care product? I know you guys have talked about that, some pilots you've been working on. When can we expect a full rollout? And how could the revenue model look like? Any early preview you can provide here?

Yes. I'm incredibly excited and really pleased with the results of the pilot. I think some interesting learnings, really diverse set of diagnoses, over 70 diagnoses. Many first diagnoses of things like hypertension, prehypertension, diabetes, prediabetes, I think 43% of the hypertension or prehypertension diagnosis were first-time diagnosis. So the opportunity for us to really make a difference and catch something early and then bring to bear those Livongo capabilities is really powerful. A lot of overlap of mental health and physical health, where the virtual PCP, if you will, has referred into some of our behavioral health offerings and gotten the consumer started on a course of therapy and maybe brought in a psychiatrist as well to assist with medication management. So there are really powerful results there. From a satisfaction perspective -- member satisfaction perspective, it's off the charts. I mean literally over 90 Net Promoter Score, which is almost unheard of anywhere. And then the other thing that's interesting is the diversity and the breadth of the demographics of the population who has leaned in and embraced this virtual primary care model. It's not the young invincibles, right. This is a very representative cross-section of the population. It tends to be a lot of people who didn't necessarily have a primary care relationship previously, which is roughly 50% of the population. So there's a tremendous addressable market there. And when you talk about the economics, the economic opportunity is massive. So I think it will start with a higher PMPM than we've gotten before, plus visit fees, and the visit fees will be a diverse set of visit fees depending on what services we're bringing to bear for the consumer. And I think over time it will morph to something that's a little more value-based reimbursement, where we get to share in the upside that we create and the savings that we create. And ultimately potentially take population risk and/or primary care capitation or something like that because the breadth of services that we have now and will continue to build out, can have a massive impact on a broad swath of the population.

All right. This is a great conversation, but I guess we are out of time. So we will leave it there. Thanks a lot for participating at our conference, and have a nice rest of the day.

Jailendra, thank you.

Thanks so much.

Thanks, Jason. Thanks, Mala. Take care.