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

Good morning. This is Lisa Gill, the health care technology and distribution analyst with JPMorgan. It is with great pleasure this morning that I have with me Teladoc Health. As you know, we named Teladoc Health our large-cap top pick for 2021. With us this morning, we have CEO, Jason Gorevic; as well as CFO, Mala Murthy. We will do a Q&A at the end, but I'm going to turn it over to Jason to kick things off. Thanks so much, Jason.

Thanks, Lisa, and we're really happy to be here virtually. It's a different experience. We're not there in the St. Francis, but we're happy to be able to get together with everyone and looking forward to an amazing 2021. As I move through the slides, I'll try to address the individual slide numbers so that you can follow along at home. I hope everyone is s well and wanted to start really on Slide 3 with our mission. This is something that we have continually focused on as a company. It is a unifying feature of Teladoc Health, our employee base and our culture. And as you see here, it's really to empower all people everywhere to live their healthiest lives by transforming the health care experience, and we feel like we are uniquely positioned to be able to do that and come out of 2020 in a situation globally with an environment that is embracing this mission and a company that is positioned like no one else to be able to deliver on that promise. As we move ahead, I just will briefly put the investment highlights up. I'm going to focus today primarily on the middle 3 highlights here. These really haven't changed. They've evolved and continued to develop over time, but they've been consistent since even before our IPO as we've consistently been focused on expanding the scope of our offerings to be able to deliver on the promise of whole-person care. So again, I'll focus on in this limited amount of time on the middle 3 of these investment highlights. As you move to the next slide, you can see some of our financial metrics. A couple of noteworthy items here, we are increasing our full year guidance by $7 million at the midpoint. Of course, that translates also to our fourth quarter revenue guidance to where we are now guiding full year revenue to $1.091 to $1.093 billion on the top line. We're also updating our estimate for full year visit volume to 10.6 billion -- sorry, 10.6 million visits someday, and we are leaving our adjusted EBITDA unchanged at this point as we're still closing the fourth quarter and full year. And of course, we did 2 large acquisitions. So it's not that we are leaving that unchanged indefinitely, but we're just not yet at the point where we can update those numbers. So as we move forward in the discussion and look at Slide 6, I think it's appropriate at this point to reflect on 2020 and what a transformative year it was for the role of virtual care in the health care system as really the global community, both on the consumer side and the provider side, embrace virtual care in its time of need. And we were happy to be able to be there for our clients, for our members, for our physicians and professionals around the world. And at the same time that the world was embracing virtual care like it never has before, we made 2 transformational acquisitions, putting together 3 leaders in the virtual care space to create an unmatched combination. And again, when you look at Teladoc Health and our 70-million-plus Americans who have access to our platform, delivering 10.6 million visits and another 3.5 million that we enabled for our provider clients, 11,000-plus care locations that are on the combined Teladoc Health/Intouch health platform and delivering technology to 600 health systems all across the country so that they can deliver virtual care to their populations and then expanding the scope of our offerings from episodic to acute and acute to chronic, delivering care and insights and technologies for over 540,000 people living with chronic conditions and sitting on a trove of data that includes over 1 billion data elements from our Livongo chronic care assets as well as the data that comes in with over 14 million visits that we either delivered or enabled for our clients, it really puts us in an unmatched position and a position that's stronger than we've ever been before to take care of our members and to adapt and deliver in this changing environment. As we move to Slide 7, this really positions us to be the only one who can deliver on the promise of whole-person health in a virtual environment. This has always been our vision. It's a vision that has been shared by Teladoc Health and Livongo and was part of the basis for the combination of these companies. It's the vision that no matter what the consumers' health care needs are, they can turn to Teladoc Health, and they know that we will be able to take care of them by delivering a wide array of services and capabilities and/or referring them into the physical delivery system. So as you move through this evolution to Slide 8, with the introduction and combination of Intouch Health, this enables us to deliver this full set of care, regardless of the consumers' need in any location, whether that's in a facility, whether that's a hospital setting, physician's office or into the home, all from a single platform, a single interface for the health care professional. And as you move forward to Slide 9, using an array of capabilities we call our step-care model. And at the top, you can see that these are digital capabilities that enable us to use data science to nudge the consumer to provide them with just-in-time information that is focused on tweaking their behaviors to improve their overall health care, delivering self-service applications and digital therapeutics. Now of course, that's the most efficient way to deliver care, but it's not sufficient in some cases. In some cases, we need to bring to bear our vast array and broad global network of health care professionals. Now those health care professionals could be physicians. They could be coaches, nurses, therapists, whether that's master's level social workers or PhD psychologists as well as very high-level expert specialists, depending on what the consumers' needs are. And then lastly, deeply integrating with the health care system so that we can make referrals into that health care professional who is most appropriate for the consumer. There's really nobody else who has this full array of capabilities and therefore can deliver on the promise of whole-person health. On Slide 10, you can see that we have made the sort of full scope of capabilities available where we deliver care with our network of physicians and health care professionals. We empower consumers with data and insights and the tools to better manage their own health care, and we enable physicians, hospitals, health systems to be able to use our technology platform and our advanced data science and analytics to be able to deliver better care for their patient populations. This positions us as the full credit answer across the entire spectrum of care, regardless of where the consumer looks for their health care services. On Slide 11, these sets of capabilities form the foundation of really our competitive advantage. Our ability to deliver on technology and data at unmatched scale in the marketplace delivers actionable insights and better outcomes for our consumers who turn to us. Our incredible distribution footprint that's really a global distribution capability across all channels of the health care system and our advanced data science that delivers greater engagement and therefore higher utilization of our platform drives greater value for our clients across the entire spectrum. And our clinical expertise delivers better experiences and superior outcomes and therefore lower cost of overall health care. This is really the value equation for our clients, for our members, for our physicians all across the board, not only in the U.S., but globally. As I move on to Slide 12, it also is what enables us to cover the entire spectrum of care, ranging from wellness and prevention, all the way to care coordination for those who are living with chronic conditions who are going through critical illnesses, who are looking to have their health care sort of managed, but not just managed, assisted with greater insights and technology assets that deliver better care than has ever been able to be delivered before. And again, that is founded on a set of capabilities that are both digital assets as well as the best insights and expertise from the provider market, again, physicians and/or mid-level professionals, and deeply integrates with the health care system. I want to focus for just a minute on our data science and the engine that drives better insights. Now it sits on a foundation of really unmatched data at scale and uses a capability set that aggregates that data, interprets the data, applies the data against those rules and learnings that come out of an iterative process and then cycles through that again. So it is a consistently improving set of capabilities that delivers for consumers better insights so that they're empowered with better data, better opportunity to manage their own health care, and that drives satisfaction rates with NPS scores across our entire portfolio of services of over 60. Now those are unheard of in the health care system. It also delivers better insights, such that health care providers can deliver better care because they're being delivered, not just data, but real insights just in time so that they can help the consumer to manage their care better, and they can make better clinical decisions by having that vast array of clinical data distilled down for them into really meaningful insights and actionable items that they can help improve the consumers' care. And for our consumers, that delivers more value. It delivers more value in terms of greater utilization of our platform, greater engagement of their populations, better health outcomes and therefore better productivity of employee workforces and lower cost of care. And that lower cost of care has been demonstrated time and time again across the entire portfolio of services, whether those are for people living with chronic physical conditions like diabetes or hypertension, whether it's for people living with situations that require advanced insights through our expert medical services and whether it's physical or mental health care that someone is turning to Teladoc Health for in their times of need. And these could be episodic or they can be -- I should say and they can be longitudinal where there's an ongoing relationship and an ongoing interaction. And of course, those things result in not only better outcomes for the consumer but better outcomes for Teladoc Health. As I move to Slide 14, I talked about our unmatched global distribution channel. And I think this is really important because not only have we methodically, over the years, increased the scope of our clinical services, the technologies that we use, the depth of our data science, but we've also consistently expanded the scope of our distribution channels to where we are the clear leader in delivering virtual care and virtual care technologies across all channels globally. We're approaching now 50% of the Fortune 500 employers using our capabilities; over 50 health plans across the U.S., including some of the largest health care companies in the world, global insurers with significant footprint across really all continents, maybe save for Antarctica; and delivering for consumers directly, both with our mental health care services as well as our general medical services, which we saw more adoption over the course of 2020 as consumers really became aware, and we broke through the awareness barrier in virtual care; and finally but certainly very importantly, delivering technologies, clinical services, data science and capabilities for hospitals and health systems who are looking to virtualize the delivery of care at a rate that we've never seen before. And that really goes from delivering on acute, very critical situations like telestroke or telepsych or TeleICU, all the way to delivering on the promise of hospital in the home. And so when you think about combining the capabilities of Intouch Health, the capabilities of Teladoc Health, the capabilities of Livongo, the ability to discharge a consumer from the hospital with devices that are connected to our platform and deliver real insights to the hospital health system and their providers, such that they can intervene as necessary, that is really the promise of hospital in the home that will transform how care is delivered and how care is experienced by the consumer. And so as we move ahead, you can see how that really uniquely positions us in the competitive landscape, right? As we think of a competitive landscape that ranges from sort of software and technology on one end to the delivery of clinical services on the other from the acute all the way to the chronic, Teladoc Health is really uniquely positioned, spanning the entire scope of these services, capabilities and consumer and client needs, and that's in stark contrast to a sea of point solutions that really only take care of 1 or 2 of the clients' needs, the consumers' needs and therefore fall short of that promise of whole-person health. And this has been a consistent effort and really a march on our strategic plan since before we went public. And you go back to our road show deck from 5.5, 6 years ago, it really sets the stage for this. And it's gratifying to be able to see the market come to realization of the need for these capabilities and this market positioning at the same time that Teladoc Health is emerging and separating from the pack in delivering these capabilities uniquely and at scale. Our growth opportunities are a multitude, and we're fortunate to have many, many growth levers. We talk about our business as a portfolio of opportunities. We talk about our growth levers as a portfolio of growth levers. Of course, we want to drive more members and continue to sign new clients. We have consistently, both through organic development through partnership and through acquisition, expanded the scope of our products and services which drives greater utilization of our platform and therefore delivers on the opportunity to not only increase our revenue per consumer but also deliver on new revenue opportunities and new revenue models. And you'll see that come to light in some of the capabilities and opportunities we have in the next few slides. It wouldn't be a JPMorgan presentation if I didn't talk a little bit, and I know Lisa would never let me hear the end of it if I didn't talk a little bit about our selling season. We're coming off of a record selling season in 2020 with bookings up over 35% over the prior year. Our multiproduct bookings continue to expand. In 2019, they represented about half of our bookings. In 2020, 2/3 of our new deals were multiproduct deals. We continue to increase our average deal size. You'll recall that, in 2019, we had record average deal size. That has continued on its trend, and we've expanded that in 2020. And we are now a well-oiled machine when it comes to cross-sell. Our Livongo cross-sell opportunities now number over 40 opportunities. We talked about the GuideWell and Tyson Foods cross-sells early wins with the Livongo capabilities being sold into both a large leading health plan as well as a very large employer. Hot off the press, I just got something last week a notification from our team at the end of the week that said that we're successful in having closed another cross-sell of Livongo capabilities into one of the Teladoc Health clients. It's a regional Midwest health plan, and we're very excited to continue to add to the successful cross-sells. And of course, we are well on our way and are, I would say, into full swing with respect to cross-selling the InTouch capabilities into clients like Geisinger as well as Stony Brook and other clients. And of course, as you've heard me say, we've been successful with selling InTouch, not only into our U.S. clients, but also internationally. As I move to Slide 18, I get asked a lot. "Jason, you've grown so much. You now serve over 70 million members in the U.S. Do you still have enough running room?" And I think, to be honest, we're just scratching the surface. So as you'll see in the next 2 slides, we not only have tremendous opportunity to expand our membership, and we can grow over 65 million members, almost doubling our U.S. membership, just within our existing clients without even adding a new logo. And of course, the opportunity as we continue to sell new clients is a multiple of that. But also on the chronic care side, we're really just scratching the surface, where we serve over 0.5 million members now. But even just in the Teladoc Health population that we serve today, there are another 18 million eligible members who we could deliver our chronic care capabilities to just for diabetes and hypertension. And of course, that pales in comparison to the rest of the market opportunity. So the new membership opportunity continues to be extremely attractive for us, and we've very successfully demonstrated our ability to cross-sell and upsell for multiproduct. So what you see here is the 3-year growth trajectory for multiproduct, both for Teladoc Health, where we've gone from 9% to 43% penetration of multiproduct, and of course, that's just 2 or 3 products, not the full suite of our capabilities; and Livongo over those 3 years having gone from really being entirely a single product, single clinical condition to where 27% of their population has access to more than one of their capabilities. Now this delivers on the bottom here some really important value for us: stickier clients with over 5 points increase in Net Promoter Score when you have multiple products, 60% higher utilization when we have multiple products and a 10% CAGR on our PMPM growth. So this delivers not only better client experiences but better economics. I also get asked, "Well, Jason, you've seen incredible growth in 2020. How do you know that this is going to be sustainable over the longer term?" And I'd really point to 3 things here. One, our new member registration was more than double the rate of growth of our membership in 2020. And new member registration is great because it not only drives a first visit, but as you see in the second chart here, it drives repeat utilization with over 80% year-over-year growth in repeat users using our capabilities. And finally, over the last several years, we've seen a consistent diversification of the reasons that people come to us. As we've continued to see people come to us, not only for what used to be the preponderance of our visits with colds and flus and sore throats to those infectious diseases, but also now increasingly, and this has been a multiyear trend coming to us for noninfectious diseases and coming again for repeat utilization. These are all incredibly sustainable trends that give us confidence as we look into the future. And lastly, all of these things come together. All of these capabilities, all of these usage trends, our market positioning come together as we position Teladoc Primary360, our virtual primary care offering, and position it for success. We've talked about the pilot that we launched in 2019 where we had an incredibly successful pilot with over 70 distinct diagnoses, 90-plus NPS. The top 5 people that -- or top 5 reasons that people come to us are all straight in the sweet spot of what Teladoc Health delivers, an incredibly strong early detection of chronic conditions. All of that came together into a very successful pilot in 2019, and we've launched pilots, both domestically and internationally, January 1, 2021, with multiple partners. Our pipeline is incredibly rich with over 100 Primary360 opportunities in our pipeline, and we expect to continue to expand the penetration, the rollout of that product into more commercial populations over the course of '21 and beyond. And this is what opens up opportunities for new revenue models where we get to really share in the savings, the better outcomes and the value that we generate for our consumers and for our clients. So as we wrap up, I guess I'd just summarize by saying, 2020, as we reflect on the last year, was a monumental year. It was a year where many, many people all around the world saw hardship. It was a year in which people sought new delivery mechanisms and turned to Teladoc Health in their times of need. I'm thankful for all of our team who stepped up to deliver for our clients, for our members, for our physicians. And I'm incredibly proud of the steps we've taken on achieving our strategic mission and delivering on that mission of whole-person care and enabling and empowering consumers to get better health care. And so with that, I'll turn it back to Lisa. I think she has a few follow-up questions. I hope I didn't take up too much of your time, Lisa.

Jason, thank you as always, and thank you for talking about the selling season. You know I was going to ask about that. I really just -- we only have about 10 minutes left in the session. And I really want to try to discuss 2 bigger items that you brought up today, and the first being hospital in the home. And I know you've been talking about that for some period of time, and I just want to understand that a little bit better when we think about it from a financial perspective. So when we think about now working with that discharge planner, getting the person to the home, hooking them up to the Livongo devices and the Teladoc devices, so can you just walk us through -- pick any kind of patient, I don't know, maybe it's a cardiac patient that now gets to go home, who also has diabetes, can you just walk us through kind of the financial aspect of what that patient would look like?

Absolutely. And one of our hypotheses going into the Livongo acquisition was that we would open up the hospital channel and health system channel for that set of capabilities, and that's really borne out. We've seen incredible interest from our hospital and health system clients to be able to take advantage of those capabilities. So think about now the opportunity for that discharge planner to activate a full suite of Livongo capabilities for that patient who's being discharged. Maybe they have diabetes and CHF, right? That's a great example. But they're going to be discharged and either sent home with or we will deliver to their home the Livongo blood glucose monitor, a blood pressure cuff and a scale, all of which are connected devices that are connected to our data platform, and we are going to deliver to the consumer those health nudges and insights. We're going to have a coach who's there -- able to reach out to the consumer if they're not taking their blood glucose often enough or taking their blood pressure often enough, and we're going to be able to activate the resources at the hospital in the event that the consumer needs a higher level of care. So think about this as an integrated model where it's our technology, and it can be either our resources and/or the hospital's resources, whether those are their coaches, their physicians and potentially their own home health organization to be able to really deliver the next level of care to the consumer. Now financially, how does that operate? We'll get paid for the services that we deliver, for the devices that we deliver, for delivering on the data science and for activating the right professionals. And we really see the opportunity to be able to share in the risk and the savings. So as we look to -- at value-based reimbursement, those episodes of care and bundled payments for populations, we see the opportunity to be able to share in that opportunity with the hospital and in a way that delivers better outcomes, lower cost and uses the resources most efficiently.

And I know you've talked about pilots around this. But when do you think this becomes a reality for Teladoc, where Malos talking to us about this line of business and it actually impacts your financials?

Yes. I think we're going to see us in market with pilots with some of our large closed health systems, even this year in '21. Now I don't think it's going to have a material impact on our economics in '21. I think you'll start to see that in '22, but I think this will become a meaningful line of business for us and a meaningful growth driver for us as we continue to expand the scope of delivering on the full set of our capabilities across all of our customer channels, including those hospitals and health systems.

And then as we think about the second evolution that you've talked about, which is Primary Care 360 (sic) [ Primary360 ], right, and so really moving into that primary care channel and what has been the success. And I know you talked about a couple of data points here, really high NPS score, the ability to detect early chronic conditions, which is so incredibly important. Is it the health plans and players? I mean, who are the ones that are most excited about these opportunities right now?

Actually, the -- when I talk about a pipeline of over 100 opportunities for Teladoc Primary360, it's across both health plans, large Fortune 500 employers. It's domestic and international. We launched pilots, both domestically and internationally and both in concert with large employer health plan clients. So we see the interest really across the board. And I think people have really woken up over the course of 2020 to the power of virtual care and the scope of care that they can get from this. And I guess I really just want to stress the capabilities of delivering on digital capabilities, both mental and physical care, an entire care team that is made up of coaches, nurse practitioners, internists, specialists and delivers those data-driven insights, both directly to the consumer and to that care team, are -- is really an unbelievable and powerful set of capabilities that is enabled because we break down the walls, right? We break down the physical barriers of needing those people all to be located in the same place, and we can deliver it on the consumers' terms when it's most convenient, most effective for them.

Jason, how does this not become a commodity? I mean I'll just give you a personal example. One of my kids had to go to the dermatologist the other day. She went. And at the end of the visit, the woman said -- or the physicians said, try this for 6 weeks. And if it doesn't work, we'll get you a new regimen for her skin. But we're going to do -- our next visit is going to be virtual. I do virtual calls at 5:00, and here's your date and so very easily set up. I said to the -- when we checked out, I said what platform does she use? Well, no, she'll just FaceTime you. So does that change over time? Does this become more commoditized, so you need a better platform, you need something differentiated in the marketplace like Teladoc has versus this average physician that's just calling my daughter?

Yes. So during the pandemic, certainly, a lot of physicians embraced what we would call light solutions, widgets that are video enabled to enable them in their time of crisis to be able to connect to their patient populations. What we've seen is this incredible snapback over the course of the last few months as they've realized how sort of insufficient those capabilities are. They're not integrated with their systems. They're not integrated with their EMRs. They're not integrated with their workflows. They're not purpose-built for clinical use cases. And as a result, we are finding that many, many of those providers who, early on, said, "I want to use Zoom. I'm going to use Facetime. I need to do whatever I can to keep my doors open," are coming back to us and saying, "We really need your purpose-built set of capabilities that are not just HIPAA compliant but high-trust certified." The suspension of HIPAA is a temporary one. That's going to go back to being enforced. And in fact, I think we're going to see even tighter constraints on privacy and security, and so we really think that we have a competitive advantage there. And a lot of our provider clients not only want our video capabilities, but they also want our data science. They want our clinical insights, and they want the backup of our network of physicians and therapists and coaches.

And then what's your thoughts around the new administration coming in? I think the telehealth bill that was in Congress back in June, we're surprised it hasn't passed, seems something that's very bipartisan. Anything that you anticipate changing like with the Biden administration versus what we're seeing today?

I don't think so. I don't think relative to telehealth. I think maybe, if anything, it gets accelerated. There's bipartisan support for the expansion of access to telehealth for the continued and expanded reimbursement for telehealth among Medicare fee-for-service members. I think you'll see the expansion continuing for access to mental health virtually. And then I think you'll also see the sort of return to normal, as I said, for HIPAA enforcement. I think the other dynamics you'll see, of course, are the Democrats pushing for the expansion of ACA, reducing the cost for the consumer of ACA plans on the exchanges, and that means more coverage for more people.

Just lastly, one of the themes for this conference is, obviously, the vaccine. And hopefully, we'll get more wide-scale rollout as we move throughout this year. And a lot of questions that we get from investors are, "Well, once we have the vaccine, people will just go back to their doctor, et cetera." I've heard you talk about the bookings rate being stabilized, even post kind of the initial wave of the pandemic. What are your thoughts going forward? How do you think about some -- think about a healthy person, right, so not young, right? So I'm not talking about the 25 year old that never uses the health care system. But somewhat like myself, I go to my annual check up every year. How do you view someone like me or my family utilizing virtual health care going forward?

Yes. So first of all, I would say 50% of the population doesn't have a primary care physician, right? So that population is going to turn to that which delivers the most convenience, the greatest efficacy, the best experience and the broadest array of clinical capabilities because they want to go to one place, not try to figure out where across the health care system is the right place for me. So I think we win in that population. So that takes up half of the population. As we look at the rest of the population, our ability to deliver on truly the promise of whole-person care and do it in a way that is there for the consumer when they need it, 24 hours a day, 7 days a week, I don't know how long it took you to get your appointment for your daughter with your dermatologist. But generally, that's a 6- to 8-week process. We turn around dermatology visits in less than 24 hours. And right now, we're running about 2 to 4 hours. So that is just a fundamentally better experience that is enabled through technology and only can be delivered through a platform like ours at scale. So I think you're going to see those Net Promoter Scores turn -- and the increase in the diversification of the reasons that people come to us, whether that's mental health or dermatology or other specialties, continue to drive the long-term adoption of health care delivered in a virtual manner and from the best, most comprehensive source, which is Teladoc Health.

And I think that that's a really good point because, to be honest with you, when I thought about the dermatology needs of my daughter, she asked a friend, and we went to that doctor, and it did take 4 weeks to get the appointment. I did not think about utilizing my Teladoc benefit, and that's on my side. So we'll make sure that, that change is going forward. Thank you so much, Jason, for your time today, for all the details, especially around the selling season, the increase in the revenue, and I wish you the very best. Thanks, everybody, for tuning in today.

Thank you, Lisa.