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

Good afternoon, and thank you for joining us for our next presentation. We're very pleased to have with us Teladoc Health. And presenting for the company is CEO, Jason Gorevic; and CFO, Mala Murthy. And we're going to have a fireside chat here. If you have any questions, please use the webcast function at the box in the bottom of the webcast, and then we'll try to fit those in as we can. So I guess we'll jump right in, guys. Thanks for joining us today.

Thanks for having us, Charles. Next time in-person, right?

Yes, definitely. Look forward to that.

So I want to jump in, obviously, I think last week on -- when you reported earnings, there was a lot of focus on membership growth, particularly the guidance for '21, which I think for some came in a little bit lower than expected, which does seem natural given the tremendous growth you've seen over the last couple of years, particularly last year. You noted the pipeline opportunity in terms of membership being significant. I think it was 50% greater than last year in the device space just within your existing clients was also significant around 65 million individuals. Can you talk about where you see opportunities for membership growth that might not be reflected in the current guidance? And just maybe give a little bit more details around that?

Yes, sure. And thanks for pointing it out. We appreciate the opportunity to address it because I think that there was some maybe misconceptions around it. I think your initial point is a really important one. We added 15 million members last year and 25 million members just in the last 18 months. That is astronomical growth. And yet, we're seeing a situation where our pipeline today in terms of gross new membership opportunities is about 50% larger than it was at this time last year. And remember, at this time last year, we were guiding to 6 million to 8 million members of membership growth. We actually doubled that, of course, given the strength of the demand through the pandemic. And we said, at that time, that we expected about 1.5 million of those new members to roll off because they were temporary members where we stepped up for our clients and said, "Yes, we want to be there for you." So obviously, that has happened now as we went into the first quarter. So that's considered in our outlook. The thing about the pipeline today is that it's just earlier stage than what we've seen in the past. So while on a gross basis, it's 50% more. We don't really give it the same kind of credit when we do our forecasts and our guidance. And we take a very disciplined and consistent approach to how we do that. That served us really well thus far. I mean we've consistently met or exceeded our expectations, both in terms of operating metrics and/or financials. And that's based on that forecasting. And I think the other things that are important to mention are some that you alluded to, Charles, which is we do see 65 million members of new opportunity just in existing clients as we continue our process of land and expand. Those tend to be in the larger health plans, where we continue to add more value. And we have so many more levers for growth. On the call, we talked about for the first time total chronic members or members with chronic conditions who were helping being almost 600,000. And so I think, while that's not a huge contributor given the scale of our membership, it's a tremendous contributor financially and in terms of our PMPM. So I think it's important to take that number in the context of overall all the levers we have for growth.

Yes. And then to that point, right, we -- membership doesn't even really factor into when we think about international growth, right, particularly as we think about InTouch and Livongo into that. Maybe touch on that? The way you've been reporting it, you don't include membership. How should we think about the international opportunity?

Yes. We're really excited about the international opportunity. We don't include international membership in our numbers. We do report international revenues separately, and we'll continue to do that. And I think you'll see that reflect the success of our cross-selling and the synergies that we deliver as we bring both the InTouch technology and the Livongo capabilities internationally. And so I break out our international growth in a few different components. One is just continued expansion in the existing markets that we serve as well as entry into new markets. Two is significant partnerships. And so we talked about the Telefónica relationship. That's a great opportunity in Spain to leverage them as a distribution channel to their 14 million subscribers in Spain. And we see that as a model that we think we can replicate in other geographies. And then the other areas are really around the expansion of the InTouch technology into health systems around the world. We talked about the successful sale into a German critical care system of the InTouch technology. And we're now starting to see very large opportunities for the Livongo capabilities, both for private as well as for some of the public health systems outside the U.S.

I mean is there any kind of sense you can give us where you think that could be? Right now, it's not a very large part of total revenue. In the next few years, do you see this becoming a bigger piece of overall contribution to top line?

Yes. I mean I have every expectation that the growth will continue to accelerate in the international markets as we activate that channel for some of these other products, which really didn't have much in the way. I mean Livongo had almost no international distribution, and InTouch very little. So I think that there is substantial opportunity. And my expectation is that growth will accelerate in the international markets.

Okay. That's helpful. I want to switch over to a little -- talking a little bit about utilization and revenue per member. I think there have been some attempts to kind of parse out the different parts of your business to look at like, call it, "underlying growth rates." I think maybe in part because you did highlight the behavioral health business, in particular, last week, is this a useful way to look at the business? Because it seemed it wouldn't capture the sort of the synergistic impact your various business lines have. Maybe kind of walk us through that a little bit?

I think you're -- like that last phrase, the synergistic impact is exactly right. More and more we're selling bundles of products and services, right? We're selling Whole Person health care that's delivered in a virtual manner. And I think that's really evident by the fact that we're now at the point where about 43% of our membership has access to more than one product. If you look back just a few years, that was 9%. 2/3 of our bookings last year were multiproduct bookings as opposed to 50% the year before, right? So that trajectory, I think, is continuing and more and more, the buyers are looking for that. And look, that's been our strategy all along as we've continued to add clinical capabilities as well as new markets that we serve in order to achieve that vision of Whole Person health care. And so I understand the interest in trying to pull apart the components. But it's difficult to get a picture of the entire business when you just look at sort of the sum of the parts, right? I mean, yes, we're seeing great growth in our mental health business, both on a DTC basis, which we talked about, expecting to grow over 50% this year. But also in a B2B market where we saw mental health visits grow over 500% last year. So I think, yes, there's great growth there, and we're very excited about the prospects of growth in mental health. But we see that as just a component of the overall strategy.

That's helpful. And obviously, everyone's kind of focused on membership and we think about these levers for growth. Maybe kind of talk about sort of what are the key drivers of revenue growth that investors then should focus on?

Yes. So for me, the best sort of leading indicator is how we're doing on those multiproduct sales because multiproduct sales means that we're delivering on our objective of sort of Whole Person health care and that which differentiates us in the market. There are lots of small point solutions. We don't really see much in the -- in our pipeline in terms of just sort of a single product, general medical only telehealth because that's sort of the solution from 4 or 5 years ago, and that's not what the buyer wants and it's not what the consumer wants. I think it's important to understand we went through this massive acceleration through the awareness curve all the way through the acceptance curve to now where the consumer expects to get the full credit answer when they're looking for virtual care on their terms and the buyer understands that. And so that's why we're being successful there. I would look for continued growth in visit volume. I've always said visit volume is really important. And in spite of seeing a historically low cold and flu season this year, we continue to see incremental additions in our visit volume. I think it's really important to continue to look to how are we doing on that chronic membership number because that's a great driver of revenue and success and an indicator of the value that we're bringing for our clients. And ultimately, all that sort of shakes out in utilization rate, right? So we continue to see very, very high levels. And I think it's important to acknowledge that the noninfectious disease component of that continues to expand, right? In the fourth quarter, 75% of our visits were not from infectious diseases, which is up from 50% a year ago. So I think that's a great sort of proof point for the expansion of our capabilities and the fact that consumers are turning to us for a much, much broader set of needs.

And when you say this, when we talk about grade utilization, since you're only counting your members once, regardless, in a sense, we're looking at increasing revenue per member, is it fair to think that, that's a more sustainable driver of growth longer term than just trying to get the incremental member necessarily?

Yes. Mala, do you want to talk a little bit about how sort of some of the things I talked about contribute to greater PMPM as well as to higher visit fees?

Yes. So Charles, it's a great question. And here's what I would say. Jason talked about the success we are having in selling through multiple products and services, right? We've talked about how 2/3 of our bookings has multiproduct. Jason just talked about how -- if you look at our U.S. membership base, 43% of our members now have multiple products and services, that was 9% 3 years ago. What we also have shown in a demonstrated way is when we sell multiple products and services, we see a very visible increase in our PMPM, right? So one of the case studies we showed is if you do a pre-post analysis, we have said -- we've seen something like a 30% increase in PMPM. If you think about -- so that's if you think about legacy Teladoc. In Livongo, likewise, as you think about their full bundle of products and services, they are also having success in increasing multiple products and services, right? It was diabetes, now you're adding hypertension, et cetera. So they are seeing progress there as well. And then the third thing I would say is what's important to recognize is when we sell in multiple products and services, not only does that allow to expand PMPM, but it actually has a demonstrated increase in utilization. One of the stats we have is there is 60% greater utilization when our members have 3 or more products. Why does that matter? Because greater utilization means 2 things, right? One is greater stickiness, and it drives greater visit revenue. So you're exactly right. The way we think about it is looking at an increase in an expansion and overall revenue per member that includes PMPM and that includes more utilization.

And that point about greater utilization when people have more products, it's an interesting point. And in our recent survey last quarter here, we noticed a big jump in the number of people who used telehealth multiple times. And with the number of uses per person also increasing like a bit of jump, but people have used it 3x, 4x. A lot of the visit growth in the quarter, the full year, you noted came from new registrants. Do you have a sense for the time between when the user -- somebody uses for the telehealth for the first time? And when they come back the second time to use it?

Jason, you're on mute.

Sorry about that. So you're exactly right. New registrations grew twice as fast as membership, and we just -- we talked about how fast membership grew in 2020. So that's a sort of staggering metric. It's also a really good positive leading indicator for utilization for exactly the reason that you said. We see this great flywheel effect, where a member registers, they use the first time, they become a repeat user because we have very high Net Promoter scores, right? And so the first interaction is very positive. That creates brand loyalty and stickiness. But Charles, it's a little bit difficult to give a sort of generalized answer for that question because, as we mentioned, we're seeing a lot more utilization for things like mental health care, where there is a longitudinal relationship between the consumer and the provider that includes multiple visits, right? I mean you may have 4, 6, 8 visits over the course of therapy for someone who's seeking mental health care. That's multiple visits as far as the consumer looks for a course of treatment. It also provides, obviously, more revenue per user for us because we have multiple paid visits. And then the other thing is the infectious or the noninfectious diseases that could take all sorts of different forms, right, ranging from hypertension, where someone may have multiple check-ins as they go through sort of titrating their medication. The more that we bring our Teladoc network of physicians together with our technology-based monitoring around diabetes and hypertension that comes with Livongo, the more you're going to see those blend together for sort of the full spectrum of care, where we can not only intervene digitally or with a coach, but also with a physician. And so I think that will likely bring in the time between the first visit and a follow-up visit as well. And at the same time, like I said, we're in a historically low cold and flu season where in the fourth quarter, I think we saw 17% fewer visits than we saw the previous year for colds and flus and strep throats and things like that, which would have been high drivers of repeat utilization. Now we see that returning in the second half of '22, back to a more normal infectious disease situation. And what won't change is we're not going backwards in terms of consumer awareness and acceptance, right? Like all of that is here to stay. So we see the -- when I look at sort of the future outlook, because, obviously, I care about this year, but I care about continued growth into the future. I see a big tailwind coming as we get to the second half of '22, and we get into a more sort of normal cold and flu season.

Certainly. So then maybe moving on, I want to talk about Primary360. You highlighted that on the call. And you noted strong consumer engagement. And obviously, a lot of -- with the clinical diagnostics statistics you gave around the pilots, how many members currently have access to Primary360?

Yes. So we haven't disclosed the membership in our pilots. We did say that we've launched with multiple employers and some health plans, and we have a pipeline of over 100 opportunities that we're working on right now. The demand around this is very, very significant. I think this is the next wave in terms of that embracing of virtual care as not just an episodic point in time, but rather a longitudinal relationship. And I think we're uniquely positioned to be able to deliver across multiple specialties, across mental health care and physical health care, across chronic and acute and episodic and using both digital interactions as well as human interactions to really impact the consumers' care. So we're very, very excited about it. And you mentioned some of the data. The data is really, really powerful coming out of those pilots.

And just -- I actually have a question here around Primary360. The question is basically any kind of sense in terms of how Primary360 is being priced? And is this designed to save consumers' money? Or is it going to be competitive with the average health insurance plans of today?

So those are kind of 2 different questions, right? So when we price Primary360, I would say there's going to be an evolution of the economic model. So the first economic model you're going to see is a higher PMPM than we typically get, plus a variety of visit fees because, of course, if you're doing a 30-minute introductory visit with your new virtual primary care physician, that's worth more and it's going to be higher-priced, a higher sort of value visit than a 10-minute visit for strep throat or flu symptoms or something like that. I think that will evolve to include more value-based reimbursement, where we really get to benefit from the better outcomes and impact that we're having on things like preventative screenings, on things like, ultimately, cost of care, that probably moves along a continuum from sort of quality-oriented bonuses to share of savings that we generate to even potentially primary care capitation down the road. And so I think it's going to go through that evolution, and we'll probably have a mix of all of those. If you look out 3 or 4 years, we'll probably have a mix of all of those because we'll have different clients who are looking -- sort of interested in different models. When you're talking about the consumer, I think that really depends on whether this is a Virtual First plan design that really incents virtual care first with lower cost sharing or whether it's simply an option for the consumer to choose as part of, like, their networks that they're choosing when they're choosing a primary care physician normally. In a Virtual First plan design, there really is financial incentive for the consumer to go seek virtual care first and use that as the entry point over time into the health care system. And we've seen everything from zero co-pays for virtual visits to waived co-pays if you're referred into a specialist from a virtual care visit or if you're referred into a facility for urgent care or emergent care for our virtual visit. So I think it can have a significant impact on the consumers' cost sharing, but it's really -- that's really dependent on the payer or the employers to structuring the benefits.

And just to make a distinction, right, I think there's a difference, though, right, when we talk about Virtual First versus Primary360, right? Virtual First is more of a triage like kind of a gating mechanism to ensure people kind of get to the right care that they need versus Primary360, which sounds more like we want to be virtual primary care, a more longitudinal relationship over time. Is that is that fair or...?

Not necessarily. Virtual First is a benefit design, right? Fundamentally, it's a benefit design that incents virtual care as your first stop. Now it can also be primary -- virtual primary care. So you can have that be a longitudinal relationship with a primary -- a virtual primary care system or provider. Virtual primary care is really that design of how we're taking care of you with a longitudinal relationship with an individual physician who's available to you virtually, but also wrapped with a whole team of other providers. That could be a nurse practitioner, a health coach, a registered dietitian, a therapist for mental health care, a psychiatrist and potentially a whole team of specialists sort of depending on what you're getting. And then also with all of the digital assets that we bring, such as digital mental health care resources, all the Livongo capabilities, integration with your Apple Health kit, with your Fitbit data, with your OURA sleep tracking information, right, because all of that is really, really valuable data that we want to compile, apply our data science to such that every interaction is more valuable and delivers better outcomes and lower costs.

And that actually ties into another question we got here about data. Since data is the new oil, what are opportunities out there for Teladoc to monetize the data you're getting?

Yes. So I appreciate that characterization. The big thing for us is to understand the scale of data that we have and the competitive advantage it gives us and the ability to turn that into meaningfully better care, right? So we're now collecting 2 million blood glucose readings a week, right? And we're going to do 12 million to 13 million virtual visits this year. You combine that kind of data, again, with things like your Apple Health care data and your steps and your sleep and your weight, that is a set of data that when you apply the data science against that will deliver much, much better care. And the reason for that is because we can really personalize health nudges and the information going back to you about how to optimize your health and just-in-time information about what to do, whether that's because you've had a day of high blood pressure readings or a week of high blood pressure readings or a month of high blood pressure readings because those are different interactions, right? Those are different interventions that we want to come to you with, and they may or may not require a coach or a physician to bring into the equation. And so when you look at all of that, we see that as the biggest power in making sure that we can sort of capitalize on the data that's there to: number one, deliver better care; number two, realize the sort of cross referral synergies that we talked about when we made the Livongo acquisition; and number three, deliver lower costs to our clients. We see that as sort of jobs number 1, 2 and 3, much more so than packaging up the data and trying to figure out who's going to pay for it or who's going to find greater value that we can package up into a separate product. And we're very, very focused on maintaining the consumer's trust because we understand the value and the sensitivity of that data and the importance of that trust.

Yes, that makes sense. Another question here, a little bit going back to some of the stuff we were talking about, asking about reimbursement and sort of your expectations for future payments post-COVID.

Yes. So I think reimbursement at the federal level is going to continue to progress. I think the horse is out of the barn with respect to Medicare fee-for-service reimbursing for virtual care. We spend a lot of time talking to the regulators about this. I think that will be a tailwind primarily for our hospital and health systems business, where the hospitals and health systems are making -- want to make sure that they can get reimbursed by the federal government for those Medicare members. And once they know that's the case, then they want to use our technology to deliver those virtual visits. I think that will also be the case as we look to take our Livongo capabilities through hospitals and health systems as a distribution channel to their patient population. And that's, again, an opportunity for them to be reimbursed for that. With respect to the evolution of reimbursement from private payers, I think that will continue to move along sort of a similar line that I talked about with respect to virtual primary care, although it will be heterogeneous. We're going to always have multiple payment models depending on who the client is and what their interest is in value-based reimbursement.

That's great. I want to go back to what we were talking about a little bit earlier in terms of risk sharing. And you kind of mentioned that you think there's a whole spectrum that you could be participating in. And in that sense, when you're talking about the big interest by a lot of your clients for this Primary360, it's fair to think of -- maybe is it right to think of Primary360 as a provider group not so much is -- don't think of it as this is a virtual care offering, it's a primary care offering to be in network at a health plan, but happens to be delivering it virtually? Is that maybe a way to characterize it?

Yes. I guess, I think of it as reimagining primary care, right? I mean I really think about it as the opportunity to -- if we could reinvent primary care on consumers' terms, this is how you would do it, right? You do it in a way that is always accessible to them, that is, you can get an appointment in short order with your physician, but also is wrapped with a whole network of other physicians who are available either on demand when you have an urgent care issue or available for more specialty orientation and brings together all of these digital assets that your primary care provider isn't bringing and breaks down all the like barriers to going from one doctor to another, one provider to another and all the additional forms that you always have to fill out when you do that, right? Like it's how the ultimate multi-specialty group really should work in a virtual manner that comes to you on your terms, right, as opposed to sort of -- I almost want to not call it primary care because that tethers us to this sort of broken model that has been proliferating over the last, I don't know, 10 or 15 years. And remember, 50% of the population doesn't have a primary care physician. So like the value that this can bring to those who have really been disenfranchised by the current health care system is very powerful.

That's great. That's great. And I think we'll leave it there because we're out of time, but that's a great way to end it. So Jason, Mala, thanks very much -- thanks so much for joining us, and thanks, everyone, for listening in. And stay tuned for your next presentation.

Thank you.

Thanks, Charles.

Great. Thank you.