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

Welcome, everyone, and thank you for your time today and joining us. I'm Richard Close from Canaccord Genuity Research. I cover digital and tech-enabled health care. We're pleased to have the leader in virtual health with us today. Last year, right before our conference, Teladoc and Livongo announced a transformational merger. Now a year later, the operational performance has been solid, yet the stock has not necessarily responded to those impressive results. And we're going to dig into the story here today. We're excited to have David Sides, Chief Operator -- Operating Officer from the company; and Mala Murthy, Chief Financial Officer. We apologize, Mala's camera is acting up. So just FYI there. There is the opportunity to enter questions into the dashboard, and we'll try to get to those as many as possible.

So I have a long list of topics here, but just really to set the table, David and Mala, I guess, Mala, this would be for you. You did report an excellent second quarter. What would you really point investors to as the main takeaway from the quarter? And what we should be looking for here in the second half of 2021?

Yes. Thank you, Richard, for having us. Good to be here. If I step back and think about what we have delivered in the first half of the year and then as I look at what we have guided you all on the full year and therefore, the second half, what I would say the main takeaways are the following: Number one, just as we sort of set outlook in the fall of last year and as we guided earlier this year, we are delivering on the promises we made, right? We reported in the latest quarter $503 million consolidated revenue. That's a 41% organic growth. We had said we would deliver over 40% revenue growth for this year. As you know, we raised our full year revenue guidance twice in a row. And now it is at $2 billion to $2.025 billion. And I think what belies that is the confidence in the momentum that we are seeing across the business. The confidence in our momentum is engendered by the fact that you see the strong visit volume momentum we are seeing, and that's showing up in -- on a year-on-year basis. For the first half, we have delivered about 25% -- 45% growth rather in our visit volumes. And by the way, that's on top of a pretty high comp. So you all were asking, is this sustainable? And what we are saying is, what we're showing is proof points that our utilization momentum is sustainable. We are making nice progress in terms of our enrollee growth from quarter-over-quarter. And you can see when we look at our chronic care members, it grew 45% year-on-year. But what's more important is, as we have talked about on the call, we are actually seeing very nice expansion of members who have access to multiple conditions. It's grown from about 6% a year ago to over 20%. And that is something that is important as we think about our revenue per member growth this year and in the years ahead as an important growth driver. So coming back to your question in terms of the second half, as I think about the underpinnings of our revenue growth, it is going to continue to be our visit volume momentum. We have been asked, what about membership, and do we see membership and enrollment can grow. And what we have said is I would expect for there to be some amount of membership growth, as we've talked about. We have given guidance on it. And from an enrollment perspective, for chronic care, we've talked about the fact that it is very largely front half loaded, front half weighted from an enrollment perspective. And I would expect us to continue to make progress and making gains on that. And from a visit volume momentum perspective, listen, we are seeing strong momentum. We are seeing growth in specialty visits. We are seeing noninfectious disease volumes continue to be very strong. And I would expect all of those dynamics to continue. On noninfectious disease, Richard, just one important sort of interesting factoid. 80% of our visit volumes was noninfectious diseases versus 50% pre-COVID. So it talks to the fact that we are seeing strength in our visit volumes for a lot more than infectious diseases, right? And that points to the underpinnings, the confidence that we have in our utilization expansion. So those are the kinds of dynamics I would -- I am seeing as I think about the second half and the full year revenue growth.

That's really helpful. And I think that knocked out a lot of my questions in that one there. I do want to spend a little time on the membership growth. It came up in the fourth quarter conference call. And then there was a lot of talk on the second quarter conference call a couple of weeks ago. Sometimes us as analysts or investors, we latch on to a single metric maybe too much to form an investment thesis, whatnot. And going back several years ago, Teladoc, when it first emerged as a public company, there was a lot of membership growth. Obviously, last year, a lot was probably pulled forward. But it's been relatively muted compared to previous years. So I'm curious how you guys think about membership growth internally. How important is that? Just a thought process there?

Yes. I'll say a couple of things, and then I'm going to hand it over to David. If we step back and think about membership, the question you're asking is what are the underpinnings of our growth drivers -- of our growth algorithm, right? What are our growth drivers? And what I would say, Richard, is absolutely membership and enrollee growth is an opportunity for us. We will continue to focus on it. We have a strong client retention rate. We've talked in the past that if you look at our business within our existing clients, there's runway and room for us to get 65 million additional members. We've talked about that. And we will continue to go leverage our sales force to go get that. But I do think, with the assets and capabilities that we have, with the breadth of our products and services that we have, with the whole person care that we are leading that as we talk to our clients, it -- there is an incredible opportunity for us to go increase and grow our revenue per member. And you're already seeing that play out in our PMPM expansion. We will continue to focus on that. And I do believe that it is an important driver of our growth as well as we think about our future growth. David, do you want to comment a little bit on what do you think is underpinning our confidence in expanding our revenue per member?

Thanks, Mala, and thanks, Richard, for having me here as well. Some of the things that are increasing the revenue per member are multiproduct sales and the whole person sales. And if you look at our go forward, it's about 75% or we've talked about 75% of our bookings include multiple products now. And our chronic care has gone up from a year ago, 6% have multiple products to 20%. Those numbers move pretty well then into our revenue and what that looks like. Another thing that will drive growth next year is our P360 product, which we announced with CVS, Aetna yesterday, an expansion of our services. There's no additional members there, but those members are accessing really high-value, high-quality services with us that will drive revenue in next year primarily because there's not as much time left in this year. And so I think that underpins our growth thesis for 2022 and beyond is here are these new products that then also can envelop existing products. So if one of our primary care physicians has someone who is diagnosed with diabetes, we can then offer them our diabetes management program. And so they're self-reinforcing and increasing the revenue per member. Another piece would be on the visit side even, we've seen a move to more expensive visits like mental health. Mental health growth has been fairly substantial over the past year, and we see that continuing into the future.

Okay. That's really helpful. Just to clarify, like you obviously had really impressive growth on the Livongo side, well ahead of what our estimates were for the second quarter. Are those -- are the people on the platform, are they in the membership number, the overall membership number that you guys guide to?

Yes, they are. And again, remember, what we are showing in our -- in that -- in the Livongo enrollees is its unique chronic care enrollees, right? So the reason I sort of reinforce that, Richard, is, again, to the point that David made, we only count them once, but the fact is as we expand into multiple -- into them accessing multiple programs, it matters from growing and expanding our revenue per enrollee. So they count once, but there is a real opportunity for us to grow revenue per enrollee.

Yes. And then do you have a sense in terms of those members that are enrolled in the chronic programs, a really big increase from, I think it was 5% or 6% to the 20%, I think, number that you reported here in the second quarter. Do you guys have sort of a feel for those members in terms of what that 20% number could go to potentially?

Yes. I think you are asking us, what do we think is our growth algorithm as we think about our growth in the years ahead. And I understand the question, Richard. What I would say to you is when we do our Investor Day later this fall, we will actually give you all some, I would say, corridors of how we are thinking about our growth, whether it be from membership and enrollees and whether it is from expanding our revenue per member and enrollee. We will give you how we are thinking about our corridors for growth as we head into Investor Day. We want to give you -- we will want to set that in the context of our strategic road map because they both matter, and we'll talk more about them then.

All right. David, you brought up the CVS, Aetna news yesterday. And on my question dashboard here, we're getting a bunch of inbounds. So I do want to talk a little bit about that. Can you go over the announcement you referenced and maybe exactly what it is, how we should think about economics of that contract?

As for the -- we've been a partner of Aetna and CVS for some time now, and this has been an evolution of that partnership. So really, the vision from CVS, Aetna is virtual-first plan design, right? So they're actually trying to bend the cost curve of the plan design by incenting people to have -- and a lot of this is about access to -- for people who don't have a primary care physician, to get a primary care physician because it's always shown that, that reduces the cost of health care for that person. If you don't have one, you'll spend more over time. So it's about access of a primary care physician. And then we will -- in a health virtual first plan. And then one of the other things that's really interesting that I think only our partnership and the combined scale can bring then is we can then refer where needed. So if somebody needs to go to bricks-and-mortar for a surgery, for example, we can use the Aetna network to select the highest outcome per price, so the highest outcome per value physician or surgery center or hospital for that person to then be treated in and then come back. Other more simplistic examples like vaccination, it could be referred for no co-pay, no charge to a MinuteClinic or to a CVS health hub. So it's really combining those assets and then allowing a greater access to care so that for the populations they serve, you can lower the cost of health care. How I think about it from a modeling perspective is there'll be some PMPM component and some visit component as we move forward with the relationship. But I'm optimistic over time that there are other models that could be even more attractive of how we could do shared savings, et cetera, that may be interesting. And we'll learn over the next year, 1.5 years and get that data and start to be able to work on what does an even better share management and care of treatment from our provider perspective look like? How can we interact with each other better? How can we be sure we're always selecting the highest value provider? And what does that data tell us its impact to cost and ROI? And I'm optimistic that over time, this can be a really good partnership for both of us.

Yes. And just one last point to the point David made around virtual-first plan design. The fact that this program includes a $0 co-pay, I think the incentives are aligned between us partners for us to encourage utilization of the Primary360 service. So it is an important step forward for us.