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

Hey, everybody. My name is Sean Wieland. Welcome to the Piper Sandler Healthcare Conference. My -- with me today, we have Teladoc Health. We have Jason Gorevic, the Chief Executive Officer. We have Mala Murthy, the Chief Financial Officer. Jason, Mala, thank you for joining us today. Welcome back to the Piper conference.

Thanks, Sean. Happy to be here. Thanks for having us.

Thank you.

Of course, of course. So we're going to -- I want to -- we have 25 minutes to chat about your business. And I wanted to take a little bit of a different approach today, make the assumption that everybody that's watching has been playing along at home on your story and understands your stock a little bit. And I want to spend our whole time today talking about synergies. One of the things that I think is really interesting about the setup of Teladoc right now is you're really in the middle of a 3-way merger. I mean if you pan out -- I mean, in 1 year, you've got -- you're bringing together InTouch, you're bringing together Livongo and you're bringing together Teladoc, 3 very different businesses, very interesting businesses in their own right. But here's how we're going to run this, is I want to take each business and pick it apart. And I want to start with InTouch. And I want to talk about why InTouch is a better business because of Teladoc Health and because of Livongo integration from a strategic, from an operational, from a financial perspective. And then I want to go to Livongo and talk about why Livongo is a better business because of the integration with InTouch and Teladoc from a strategic, operational and financial perspective. And then finally, we will get to Teladoc and talk about why Teladoc is a better business. And we're going to stick to that outline because that's going to make it a lot easier for me to write my note. And we'll go from there. How does that sound?

All good.

And for those dialing in, you know the road map for this morning when you're watching from home. So if you've got any questions, you can type them in the chat, and I think that they'll come right up to me so -- or send me nasty messages, whatever you'd like.

But let's start at the top. You acquired InTouch first quarter -- close in the first quarter. InTouch is, of course, very strong in telestroke and telepsych. Tell us why the InTouch business is going to be better off today because of the assets and capabilities it can leverage from both Teladoc and Livongo.

Sure. So I'll start with the framework because this is all about 3 complementary businesses that are stronger together than each one of them was separately. And I'd start by saying, just to make sure all the investors have their numbers right, we closed July 1. So think of it very beginning of the third quarter. So InTouch was already the leader in providing telemedicine technology to hospitals and health systems, especially for high acuity situations like telestroke, telepsych, but also for a whole series of other use cases, clinical use cases like NICU situations, things like telesurgery, post-discharge or bringing in a specialist into a clinical setting in the hospital. Now what do they get from Teladoc? Enterprises are looking for a single solution that can enable a physician to provide virtual care to the bedside in the hospital, but also the bedside in the home, all from a single interface from a single technology platform. And of course, Teladoc was already the leader in enabling physicians to connect to consumers in their homes, in their offices, in their communities. And so by bringing these 2 together, you provide a single solution enterprise-wide for the hospital or health system, such that they can deliver care regardless of the care location. The other thing that's really important is that both of them are purpose-built for the health care system as opposed to sort of a generic video module that doesn't integrate with their Epic system or their other clinical systems, their PACS systems, et cetera. So now bringing in Livongo. Well, Livongo, of course, is the leader in providing technology solutions -- sorry, Sean, you'll hear my dog in the background. Technology solutions for managing chronic conditions using data, longitudinal monitoring of the consumer that aggregates all of that data and provides a platform on which you can intervene to drive better outcomes, better behavior change. Now a lot of hospitals care about that because more and more, they're taking risk for populations. They're being reimbursed on a value basis, and so that becomes really important to them. So as soon as we announced the Livongo acquisition, our hospital and health system clients came to us saying, "When can we get access to that?" Such that we can discharge our patients with a blood pressure cuff with a blood glucose monitor with a connected scale, take advantage of the underlying data science and then intervene on the InTouch platform, the Teladoc InTouch platform, if we need to connect with the patient directly in their home. So really delivering on that promise of hospital in the home.

How about from -- so what I'm hearing from you is that Livongo broadens the technology, the offering to their customers, and Teladoc broadens the offering. What about more from an operational perspective of improving efficiencies on the sales side? And then, Mala, I want to bring you into the conversation on the -- you've talked about revenue synergies for Livongo, we're going to get there. But what are the revenue synergies, if any, on -- from -- for InTouch?

Yes. So let me add maybe 2 things relative to operations and product for that matter, and then Mala can go into some of the synergy opportunities. So from a selling perspective, obviously, one sales force selling the full suite of all 3 companies' products is significantly more efficient. And it gives our sales force, quite frankly, the full credit answer for the hospital and health system buyer. It moves us up strategically in the organization because now it becomes an enterprise-wide strategic purchase as opposed to a pure technology purchase, which is what a lot of pure technology solutions get sort of buttonholed into. And then from a product perspective, it also brings our extensive network of physicians to supplement the hospital and health system providers who are -- those -- they have finite workforces, right? So they have scarce resources, and we bring our physicians to supplement their physician network for additional surge capacity, for after-hours coverage, for nights and weekends and for additional specialties.

Sean, one thing I would add to what Jason said. You talked about what does -- what do we bring to InTouch and what does Livongo bring to InTouch. One important thing that we bring to both is the opportunity to expand internationally, right? And we are already seeing the fruits of that. We've talked about the momentum and the excitement we are seeing with clients internationally for InTouch, and we absolutely expect to leverage our international capabilities, which, as you know, in our space, we are unique in our global footprint. We will absolutely leverage that as we think about the combination of InTouch and Livongo as well, okay? So in terms of synergies, we have talked about, obviously, we expect to get cost efficiencies, scale efficiencies through both the combination of InTouch and Livongo. I will add, we have made really nice progress already in terms of the cost synergies on the InTouch side and we have set expectations, as you know, on the cost synergies that we expect on the Livongo side. And I expect that we will make good progress on that. I'm pretty confident of that. On the revenue synergies, when it comes to InTouch, we haven't gone into a lot of detail on exactly where, which aspects of it we will get synergies from. But suffice it to say, I expect to see and we already are seeing examples of cross-sell opportunities, right? As you know, we have a large and growing client base, both in the U.S. and internationally. And we have a very, very high retention rate, and I expect to see vibrant cross-sell opportunities with our InTouch offerings, both in the U.S. and internationally. So those would be -- those are what drives our confidence in terms of both the cost synergies as well as the revenue synergies.

Excellent. All right. So let's move our attention then to Livongo. Let's start maybe -- and I wanted to frame it this way because just trying to get people to think about it in different ways. What are the benefits that Livongo gets from the addition of InTouch?

Yes. So interestingly, Livongo had a lot of hospital clients where they served their employee population, but weren't really activated for their patient population, right? And so the hospitals saw the value of this -- of chronic care management and ongoing data feed, the ability to use data science and intervene with the consumer, but they didn't really have a way to then activate it for their patient population in a mechanism that keeps the consumer connected like the InTouch Teladoc telehealth platform does, right? So the ability to discharge the patient with the blood glucose monitor or the blood pressure cuff, but then not only send them digital health nudges, which are appropriate for a moderate or minor or temporal blip in their readings, but also then enable the treating physician to connect to the patient via the InTouch telehealth platform, that really completes the last mile of delivering care to know whether that patient needs to have their medication titrated, their prescription modified or they need to be examined and then brought back into the facility. And so by doing that, it really activates the hospitals and health systems as a new distribution channel for Livongo to all of their thousands, hundreds of thousands of chronically ill consumers.

Awesome. And how about -- is there anything from a financial perspective that's worth calling out of any cost savings or revenue synergies that InTouch brings to Livongo?

The way I would think about it from a financial perspective is, as you know, when we think about our acquisitions, it's really all about looking at the accretion of the assets that we get on a combined basis. And so if you think about what we got with the assets and capabilities of both InTouch and Livongo, we're looking at strong gross margin, right? So in the case of InTouch, we talked about mid-60s. And as you know, for Livongo, it's in the mid-70s and expanding. So what we are really looking at if you think about the combination, Sean, is strong gross margins, and we all have a track record of strong operating expense leverage. And so our goal, our hope, our expectation is that we will continue to drive strong gross margins, and we will continue to extract operating expense leverage such that we get to the adjusted EBITDA margin progression of 200 to 300 basis points annually on average that we have talked about. So it's really, I would say, the complementarity and the combination of all of the assets and capabilities that actually allows us to drive revenue scale, attractive gross margins and the combination of those 2 that -- with the operating expense leverage that gets us to the margin progression.

All right. And at Livongo, you've -- a couple of -- a few of the leaders on the team are no longer there anymore. Is that something we should be worried about?

No. We've been happy to be able to retain the key leaders in product and technology and data science and clinical innovation. And we've formed a new sort of joint R&D organization that takes advantage of the combined assets of the companies. Yulun Wang, who was the founder of InTouch, actually has taken the lead of that on an interim basis. And that team is going through integration right now and moving at an incredible pace. And there were no surprises there, Sean. So we feel good about that.

All right. And so let's move on to the benefits of Teladoc -- to Teladoc starting with InTouch. What does InTouch bring to the table for Teladoc to improve the business strategically, operationally, financially?

Well, the hospital and health system market is an incredibly strategic market channel for us. As you see payers and providers converging into these pay-viders, it's important to have solutions that cut across the entirety of that. You saw our win recently with Johns Hopkins. Hopkins is purchasing our products for their hospital and health system for their payer, if you will, their at-risk population and managed care population as well as for their employees, right? So that really demonstrates an example of how all of these channels are sort of converging in their needs. And by bringing these together, we're the only ones who have the full set of solutions. And you see that across large payers, who own provider assets who are being able to bring our technology into their owned physician practices, surgical practices to activate the sort of power of telemedicine for their populations as well as using our solutions for their managed care populations. So the combination of those 2 and being a leader in both of those is really critical.

One of the things that intrigued me about InTouch is, at least my understanding of it, is it's a powerful network of health systems. It's not just a list of clients. And maybe if we could just tap on that a little bit because I don't think that that's really well understood. Joe has explained to me the first time they did a surgery over this network kind of thing. And what is the strategic value of that to your business? Because I think that that's pretty unique.

It is. It's really impressive that with thousands of care locations, any physician who has registered on the InTouch network and is in one of those care locations can deliver care to any other location and now as you bring together the Teladoc platform with them into the home of any one of our millions of users, right? And so the network effect that unlocks the sort of capacity of that physician network is really, really powerful. And you can manage it all sort of remotely, right? So you can remotely provide permission essentially for any physician to any other facility without any hardware uploads, without any new software that's downloaded to a physician's desktop.

No downloading of device drivers.

From a -- no, no device drivers. From a single sort of control panel, you can unlock that potential instantly, which I think, as you see the moving tectonic plates relative to M&A, relative to partnerships in the market, is something that's really valuable because you're constantly seeing new relationships pop up and new opportunities to take advantage of that.

Yes. And it's not only that. It's -- from my understanding is it's a 0 latency, a near 0 latency network because it tunnels past the firewall of these health systems, which is something that's unique. I mean we're not running this over the Internet that we're doing these Zoom calls on. It's like a virtual private network of health systems.

Well, that's right. And I think that was really evident in the sort of early days of the pandemic when we stood up instances for hospital systems in a matter of days. This wasn't some big giant tech install where it took months to bring it up. Rather, we were able to unlock the power of that in just a matter of days for our hospital clients.

All right. And then...

Now the thing I would add -- sorry, the thing I would add, Sean, is, to add to what Jason said, if I step back and think about the engineering talent, the R&D talent that we now have resident between the InTouch organization and the Livongo organization, right, that is very unique and it's very deep. So if you think about the intellectual property that we have and the R&D talent that we have, and we've talked about from an integration standpoint how that is a real focus for us, just integrating the R&D capabilities and the organization, that is something I think that the combination really brings to Teladoc.

Super. All right. Now let's move our attention to -- unless -- one more thing, Mala, is there anything you want to call out from a financial perspective of what InTouch does to Teladoc?

We've talked about it. We've talked about the gross margin and we've talked about the scale driving operating expense leverage. And again, I would expect those to translate into our profit progression.

All right. And then so finally, Livongo to Teladoc. What does Livongo do for Teladoc from a strategic, operational and financial perspective?

It really brings whole-person care to life, right? So we've always talked, Sean -- we've had the discussion many times about the progression from our early days, where it was sort of virtual urgent care with the goal always being that we could take care of the whole person regardless of what their clinical needs are and do it in a virtual manner that brings the care to them on their terms, really delivering on the promise of digital care and doing it in a way that takes advantage of the right resources in a stepped care model, right? If a digital interaction and a technology-oriented interaction like a digital health nudge or like an online CBT module or mindfulness module is appropriate for the consumer, great. If it requires a coach or a registered dietitian, fantastic. If it requires a therapist or a psychiatrist or a physician to take care of them, we have that full scope of services and capabilities and we can really deliver on that promise of whole-person care on the consumers' terms and unlock what we've talked about many times, virtual primary care, virtual specialty care, which moves us then to be able to get into true value-based reimbursement, take risk on populations and share in the impact we have on outcomes and health care costs. I think that just opens up an entirely new set of capabilities and financial opportunities for the company, and it does it both on a domestic basis as well as internationally, right, because, of course, Livongo's -- the need for Livongo's chronic care solutions is a global need that's not just a domestic U.S. need.

And then, Mala, from a revenue synergy perspective, I want to hit you specifically on this cross-sell because I know you've said $100 million of revenue synergies and then $500 million a year out. I got to say, behind your back, I've been saying, I think that that's absurdly low that if roughly 10% of your base has diabetes and you're getting $1 per member per month, but you can get -- you can sell them, diabetes and hypertension or weight management for pushing $100 per member per month, it just seems to me like a $100 million revenue synergy is setting the bar, shall we say, quite conservatively from a cross-sell perspective. So if you feel like I put you on the spot, that's because I did. Wanted you -- to get your reaction.

So I love being put on the spot, and you won't get me to say anything different from what we have said before also. But what I would say, Sean, is, listen, we have taken a very clear-eyed look at what the market opportunity is, right? We know we can -- we have our approximately 70 million member population that we can drive our cross-sell into, and that will expand over time as we naturally organically expect it to. And we have sort of gone through very carefully the detailed set of assumptions that, by the way, we've been very transparent about in terms of how -- what exactly our expectations in terms of incremental members that we will get from a diabetes, et cetera, perspective between 2022 and 2025. And I am confident that in terms of the assumptions, the drivers that we have put out, we have thought through it very carefully. And right now, we are heads deep, neck deep, if you will, in terms of integrating and already starting to work against those revenue synergies. We've talked about the cross-sell opportunities that we have already sort of shown as proof points, and our goal at this point in time is just execution, heads down on execution. So -- and we will continue to update you all on progress as we go through the next several months and years. So that is sort of how we are approaching the revenue synergies. It's really all about execution.

All right. We have maybe 1 minute left. And just a quick theme that we've gotten from some questions, and I apologize to the viewers that we weren't able to get to all the questions. But one common theme is how do you bring this all into one unified experience? You can't afford to deliver everything to everyone in this virtual care world. How do you deliver that seamless experience? Jason, you got 1 minute.

Yes. So we're looking at integration. First, from a commercial organization perspective, we want to be one face to the client. Second, from a data platform perspective, unifying the data so that we can unlock the power of that with data science. Third, from a consumer experience, unifying the consumer experience so that they can have access to all of the capabilities through sort of one front door, if you will. And then lastly, the physician experience so that the physician can bring to bear the full scope of our clinical capabilities and assets for the consumer.

Super. Thank you, Jason, thank you, Mala, for your time this morning. And congratulations on all your success, and good luck closing out the rest of your selling season.

Thank you.

Thanks, Sean.

Thanks. Bye-bye.