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

Good morning. Thank you, everyone, for joining us for our next session, and we're very pleased to have with us presenting Teladoc. And presenting for the company is Chief Executive Officer, Jason Gorevic; and Chief Financial Officer, Mala Murthy. It's going to be a fireside chat format. If you have any questions, you can put them in the chat window at the bottom of your screen. We'll try to get to them if there's time. So Jason and Mala, thanks for joining us this morning.

Thank you.

Charles, thanks for having us. Great to see you.

Great to see you both.

Jason, maybe you can start off here. I think a lot of people are very familiar with telehealth in general. But I think sometimes, we -- there's still a perception that it's this one-off kind of urgent care, simple kind of video visit with a random doctor. But it's really -- this space has really evolved a lot since then and so has Teladoc. So maybe to start, maybe talk about what Teladoc is today and talk about sort of the full suite of offerings that you do provide.

Yes. Thanks for pointing that out. So it's really true. We have, by far, the broadest suite of products and services in the market. And clients are looking for partners who can deliver the full scope of clinical services in a virtual environment. And payers are offering parts of that, and there are lots of point solutions out there, but we really view ourselves uniquely positioned to deliver on the promise of whole-person care with a wide array of products and services ranging from what you described, which is what we went public with in 2015, which was really virtual urgent care, but it's so much more than that. It includes other virtual health care services like dermatology and nutrition and virtual primary care and then mental health services, like our myStrength Complete product, which includes both digital as well as therapy, coaching and psychiatry services; and then, of course, our full suite of chronic care programs, things for diabetes and weight management and prediabetes and hypertension and all of those wrapped together within our Chronic Care Complete program with our network of physicians. So now someone can come to us for a whole-person care, have a longitudinal relationship with a care team that takes care of the whole person, refers them to a virtual specialist visit; if it's something that we can do virtually, refers them into the physical delivery system, if that's appropriate, but always provides a grounded care team that's based on data and technology to deliver a better care experience and better outcomes. So you're exactly right. I mean what we went public with in 2015 is a long way from where we are today.

Yes. And you guys continued to look for new ways to kind of expand your reach out there. And I think one of the more interesting things that occurred recently was the announcement with Amazon to be available through the Alexa device and be directly routed to Teladoc. Maybe talk about how that relationship -- how that partnership works. If I'm not mistaken, someone is -- it's kind of exclusive. If you ask for a physician on Alexa, you are going to Teladoc here. Maybe talk about -- just remind people how that -- how this relationship works there.

Yes. I think the Amazon relationship really demonstrates our ability to partner with the overall technology, health care and consumer ecosystem in a way that very few can because of the requirements, both for technical integration but even more so for scale and delivery. And you're exactly right. So Teladoc is the default provider in the event that someone says to Alexa, "Hey, Alexa, I want to talk to a doctor." It automatically goes to our service. We take care of checking their insurance and their eligibility and therefore, what is appropriate to charge them, whether it's a full freight of retail at $75 or whether we can access their benefits and do it under a co-pay structure, that could be as little as 0 co-pay for the consumer. So we take care of all that connectivity as well as claims submission and everything else. So we see the partnership as really a distribution partnership, where the Amazon gets offer more and more seamless services to their members. And of course, for us, it's an efficient distribution and customer acquisition channel.

And I'd also say, Charles, sorry, one add is definitely this partnership does point to the scale that we have, right? So we've often talked about our scale in different ways, the scale of our technology and data, and Jason talked about it, as we look at the connectedness of the broad suite of products and services that we have today. Also our geographic scale, so that is something that underpins the partnership that we have with Amazon and Alexa.

I mean maybe it's not something easy to speak to, but does it say something about where Amazon is on their own? Because obviously, they've talked about Amazon Care and getting into the telehealth business, yet they are partnering with Teladoc to provide those capabilities. I don't know if you're able to comment much on it, but curious if you have any thoughts.

Yes. I mean, Charles, I won't comment on their own internal decision-making. What I will say is that when they approached us, it was clear that they needed someone who could, as Mala said, really deliver at scale across geographies and do it in a way that really, I think, meets the Amazon expectations for user experience.

Okay. That's helpful. And sticking -- you mentioned before, right, we've gone from urgent care to now virtual primary care and building longitudinal relationships with our patients. You highlighted some strong engagement enrollment data for Primary360 on your earnings call just recently. If I recall correctly, it doesn't really take a lot of members in Primary360 to have a meaningful impact to the financials. Can you remind us a little bit what the revenue model looks like in Primary360 compared to sort of the traditional business?

Sure. Mala, do you want to take that one?

Yes. So if you think about the economic model that we have for Primary360, Charles, we -- it is important to start with the fact that it is going to evolve over time. What we see right now is essentially 2 basic models, right? One is on a per enrollee basis, and the other is the traditional sort of PMPM plus visit fee model. We do start out with we see higher PMPM higher per visits fees, just given the fact that you see a longer visit and the broader care team that we are embedding in the offering. And we expect, over time, it will move towards shared savings arrangements, where we are getting paid for the value that we are delivering. And what I would also remind you is on Investor Day, when we talked about the average revenue per member growth and how we expect to see it expand, remember, we talked about average revenue per month from a member actively enrolled in Primary360 of about $25 to $40 per month. And what that translates to is for every 100,000 new active enrollees in 360, you -- we'll see approximately $0.07 of accretion to our consolidated revenue per member. And then I would also say, if I think about our path to growth for revenue per member, it is based on us penetrating deeper and deeper into the over 90 million lives we have with our products, including 360, which is very clearly in the very early innings of penetrating into our member base, right? So less than 1%. So there is a significant opportunity for us to drive accretive revenue for member growth through Primary360, and the addressable market is massive, tens of billions.

Yes. No, that's helpful. And moving -- before we move on to sort of next topic, there is a question in the audience related to Amazon. Just simply asking, does Teladoc have to share some revenue with Amazon since it's a partnership? Is there any type of revenue share arrangement here?

No, Charles. There's no revenue share.

Okay. All right. If we move on to -- I want to move on to behavioral health here. This has been, obviously, an area of real strength for you guys, both in the D2C and now increasingly in the B2B side of it. We've seen others struggle in this space a bit. What would you say has really enabled better help to outperform relative to others in the market?

I think there are several things here, Charles, which really differentiate better health from anyone else in the market. Number one, I think, is scale. We're more than 10x larger than the next closest competitor, and scale really matters. Scale matters in terms of taking advantage of multiple customer acquisition channels and diversifying the sources of customer acquisition. It matters in terms of using data to optimize the product such that we're constantly testing and learning on a large population with multiple tests such that we can improve the customer retention rate, lifetime value, pricing models, testing new features that add more value, reduce, essentially churn and increase conversion of new subscribers who come and test the platform into paying subscribers. The more scale you have, the more opportunity you have to test and learn and optimize the overall product and improve performance. I think the third thing is really use of data science in order to improve things like the matching algorithm for a consumer coming to us with a therapist and optimizing for what is going to be most effective for the consumer and also the best experience for the therapist. Because people -- therapists want to treat people who they have a good fit with and can, therefore, be most helpful. It also gives us the ability, because we have so much volume, to continue to attract more and more therapists to the platform. And the more therapists we have, the more refined that matching algorithm can be. Certainly, as the largest player in the market, we have the best brand awareness. And increasingly, our organic customer acquisition is becoming a larger and larger portion of our customer acquisition. And of course, Charles, that's the most efficient, financially, mechanism for retaining clients. And so all of it is, I think, a combination of scale, technology and, really, just superior execution based on our track record of being in this market for many, many years.

Yes. And I'd also add, Charles, we should not underestimate the amount of innovation that we are driving in our -- in that business, right? So we -- that is one of the other ways that we continue to drive value. So for example, we recently launched group therapy service. So if you think about what that is, right, so unlike individual one-to-one therapy, this is a one-to-many model. And it results in better provider utilization and efficiency. That's one example of other -- several other innovations that we have driven in this space, which also is part of the point that Jason made around superior execution. This is a business that is executing across the board in a very strong way. And it is the reason why, if you think about our customer acquisition costs, as we talked about in our earnings call, we are managing it very, very well, unlike others in the marketplace.

Yes. That's helpful. I do have a question here from the audience that is kind of related to behavioral health asking, can you ask about what you are seeing on wage inflation in the behavioral health business? I guess, maybe for therapists is probably what it's referring to.

Jason, do you want to take it?

Sure. I'll take it. Charles, we're not seeing pressure on the wage side for behavioral health. And the reason, I think, is because we have so much demand on the consumer side that it really is the preferred place for a therapist to come if they want to deliver virtual care and get -- and increase the size of their patient panel. We onboarded over 1,200 therapists last month. I just spent time with the team yesterday, talking about the success that we're having, and we really don't see any end in sight to that trend. So, so far so good on that front.

Yes. One thing I'll generally say around inflation -- around providers is what we are finding is when it comes to providers overall, and this is also for therapists, not only -- if you think about the 2-sided marketplace and the volume that we are able to offer to providers and therapists, they know that there is demand for their services, right? So it sort of becomes an efficient [ tool ] inside the marketplace. The other thing we have been seeing is, if you think about providers operating in the hospital systems, et cetera, it is not -- it's commonly sort of recognized that there is a burnout factor. And Charles, what we are finding is that our modality actually offers almost, if you will, a bit of a refuge from that type of a PT-intensive, physically demanding intensive environment. So that is also the other interesting trend that we are finding that we are becoming an attractive destination for providers overall.

That's helpful. And it sounds like, Jason, to your point about some of the advantages that you have, particularly with scale, can you talk about how that -- you see that translating as you launch into the B2B side with myStrength Complete?

Yes. I mean there's no question, myStrength Complete is a product that has a tremendous amount of potential. We shared at our Investor Day, penetration for our legacy virtual mental health services is about 35%, 22% for legacy myStrength. And then when you put those together into myStrength Complete, we're really only at less than 1% penetration. There's a huge amount of opportunity on the sort of financial contribution, like Mala talked about, relative to our overall per member, per month on a consolidated basis. If you add another 100,000 new myStrength Complete members, it adds about $0.04 to our average revenue per member. So when you put those together, plus the unique sort of capabilities of the step-care model in myStrength Complete that uses digital assets for modules around CBT and BBT and mindfulness and stress management, and then you combine those with our team of coaches and therapists and psychiatrists, to be able to deliver the full range of virtual mental health care, it really is unique in the market. And we do leverage a lot of our experience with the direct-to-consumer better health product in order to accelerate the, not only adoption, but performance of that product.

That's -- so then maybe we can just jump over to chronic care then, because particularly I want to touch a little bit about Chronic Care Complete and go into a little bit of this, right? So obviously, this is an area with the acquisition and as you integrate it into your other offerings, talk about a little bit how you see this business model evolving from where it is. And about -- and in reaching sort of your 25% to 35% revenue CAGR for this business.

Yes. So I think Chronic Care Complete is now truly a unique offering in the market. It wraps together multiple chronic conditions that we can treat or take care of for a consumer. And it ranges everything from digital assets that are device oriented, all the way to physician intervention, such that a physician can either change a care plan or titrate or change medication. And so it really delivers on the full scope of both management and treatment for the first time in a virtual environment. It's really -- it's never been done before. All of the historical programs have all been coach-oriented, but stopped at the point of, actually, medical treatment. And so that does a couple of things. One is it enables us to have a bigger impact on outcomes. Two, it enables us to continue to reduce the cost of care by keeping people out of the emergency room or specialist offices where, obviously, that's a much more expensive part of the health care system. And then three, it becomes an integrated part of the whole-person care strategy that I talked about. And of course, there's no place that, that is more relevant than with our rollout of Primary360. So to me, this is just another step in our process of delivering on the vision of whole-person care and delivering solutions for consumers that enable us to be their virtual front door to the health care system for all of their health care needs, not just for one sliver of it, which is generally what you get with all the other players in the market.

And I would also say, Charles, that if you look at myStrength Complete, if you now look at Chronic Care Complete, this, to me, is us delivering on the proof points of what we had talked about when we merged with Livongo, right? It is about the full continuum of the capabilities, all the way from digital to coaches to now providers at the top of their license. And importantly, we are the only ones who do it. And part of why we are the only ones who can do it is because of the underlying technology and data we have that connects it to all. So it's about using the data science investments we have made and the insights from the data we have at scale. Think about the amount of data we have, billions of data points from, for example, the device readings we have. All of these will -- we leverage all of this -- all of these assets as we look at myStrength Complete and Chronic Care Complete. So as Jason said, this truly, it hasn't been done before in a virtual care setting. This is truly new.

And as this product launches into the market, is this something where existing chronic care clients can just add on at any time in the year? Or is this something that we'll probably see more of in the traditional selling season kind of cycle?

They can add them throughout the year. Because it's not benefit specific, you can add these programs at any time during the year.

And maybe just a sense on what the receptivity from clients has been so far.

Yes. So obviously, we just launched Chronic Care Complete and just announced it. So I won't give any metrics on the pipeline for Chronic Care Complete specifically. What I will say is the pipeline, overall for our services ,is very strong. As we looked at the pipeline, at this time last year, you remember us saying that the pipeline was larger than the previous year, in fact, twice as large, but it was really early stage, right? So this year, as I look in a comparison to last year, the pipeline is again larger than it was last year, but twice as much of the pipeline is in later-stage deals. And so that demonstrates the sort of maturation of that pipeline, which, of course, we had to rebuild coming out of 2020 into '21. And we demonstrated that with increased bookings every quarter over the course of '21. And again, at this point, we're seeing relative -- roughly twice as much in the late-stage pipeline as we did last year.

And that's probably a good segue as we think about the outlook here. You just introduced first quarter 2022 guidance in first quarter as well. I think as people look at it, right, the guidance does imply a step-up in EBITDA margins, particularly as we exit the first quarter, particularly into the back half of the year. Can you remind us about the visibility that you have into revenues and expenses as we think about that margin ramp?

Yes. So the first thing I would say is the revenue guidance that we have provided, as we think about the full year, it's in the 25% to 30% range, consistent with the outlook that we gave on Investor Day, right? So that's the first thing. And you're right, as we talked about on the earnings call, we do expect a meaningful ramp in revenue over the course of the year. We expect $40 million to $50 million of sequential growth in the second quarter, and then we set a further ramp in there. We have high visibility, I would say, into this ramp, Charles. As we talked about on the call, if you think about the strength of the bookings as we went through 2021 and the sequential strength as we went through the year, it's not surprising that you will see a lot of the health plan clients onboard in the second half. So that is one of the drivers of the ramp. And then we also talked about one significant client that had originally planned to launch earlier in the year, where that has now moved to the second half. So we are talking about high visibility when it comes to revenue. From a profit perspective, what we have said is we do expect margin progression, expansion progression through the course of 2022. And that, by the way, is also related to the timing of the revenue ramp as we just talked about. And I would also say it is the timing of our A&M spend. So we are taking advantage of efficiencies in terms of media buy, marketing buys, and that will sort of bear fruit as we go through the year. What's important is, when it comes to revenue, everything that we are talking about is under contract. So when I say we have high visibility, it is because of that. It's already contracted.

And Charles, I might just add. You've followed us for a really long time. We've known each other for many years now. With the exception of the '20 to '21, transition from Q4 '20 to Q1 '21, we've always seen a step down in margin in the first quarter from the fourth quarter and then build over the course of the year. And that's just part of our normal seasonality about how we do advertising and consumer engagement spend relative to the growth of revenue over the course of the year.

Yes. '21 was just an outlier, just given the fact that we had a different marketplace in the fall of 2020 when it came to media buy. So it's sort of changed the timing a little bit. But exactly, as Jason said, what we are seeing this year in terms of the A&M spend is what normally happens and has happened in our business over years.

And I guess similar on the assumptions on the revenue visibility, right? It kind of reminds me of -- was it 2019 going to 2020, you knew you had onboarding in the back half.

Yes.

Which kind of came through as well. Mala, just talking about maybe chronic care a little bit, too. I think on the call, you kind of gave confidence that we'll exit the year at that enrollment growth targets. It's a fair thing that, that really kind of gives you pretty good visibility as we go then into '23, really, from a chronic care standpoint, as we exit this year then?

That's exactly right, Charles. So if you again think about the back half ramp and as I said on the call, we expect to exit the year or this year strong, you're exactly right. That gives us entry momentum and as we go into 2023 from a revenue perspective.

Great. In the last couple of minutes that we have, I just wanted to -- there's a couple of more questions here. First, someone's asking, just to clarify between -- with myStrength Complete and Chronic Care Complete, these are opportunities for Teladoc to go. And is this opportunities for Teladoc to go and try to get people within a plan or employee group to sign in for the service? Is this -- so -- or are these -- so when you talk about the contract, are these guarantees of revenue? Or do you still have to kind of hunt and get people to sign up?

Yes, so thanks for asking. The Chronic Care Complete model and myStrength Complete model are a two-step sale, right? So it's one, going and selling to the plan sponsor, whether that's a large employer or a health plan. And then we go out and engage the population. We have a lot of history, quite frankly, and data underlying our projections. So our projections tend to be accurate and slightly conservative in terms of what we expect from each of the populations. We know what data we're going to get in terms of being able to target the populations and then engage them. And this is an area where I think the combination of Teladoc and Livongo is improving our consumer engagement results. And we're still in the early innings of bringing the Teladoc consumer engagement strategies to those chronic care programs. So we continue to see improvement in the conversion rates there. I think what is bigger -- a bigger part of the Chronic Care Complete is that it continues the trend of multiproduct purchasing. Last year, 80% of our sales were multiproduct sales. And we're seeing now with our Primary360 product, 50% of the consumers are using more than one of our products. So these are areas where as we would bring more products to a population, they get more value. The consumer gets more value, planned sponsor gets more value, and of course, it translates to more revenue for us.

Great. And I know we're just on time, and just -- there's one last question here. Maybe, Mala, just -- the question is basically asking, will you have to re-ramp media marketing spend once new customers come online in the second half to drive their utilization? So basically, it does -- do you expect to see an increase in spend in the back half of the year related to this?

Yes. So as we have contemplated our margin progression for the year with the factors I've talked about, we have absolutely included the spend that we would have through the different quarters already in our guidance and our outlook that we've provided, Charles. So I don't see the need for anything additional over it.

Great. And with that, we're out of time here. Jason and Mala, it's always great to see you guys, and thank you for joining us today. Thank you, everyone, for the questions that you sent in, and certainly thanks for everyone for joining us today, and enjoy the rest of your conference.

Thank you.

Thanks, Charles.