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

Good afternoon. My name is Lisa Gill, and I head healthcare services here at JPMorgan. Thanks for joining us. With me this afternoon, I have Teladoc Health. For Teladoc Health, we have CEO, Chuck Divita. This is Chuck's first JPMorgan Healthcare Conference. So welcome, Chuck. And then Mala Murthy will join us for the Q&A portion, the CFO of the call -- of the call of the company. I don't know where my brain is. Anyway, let me turn it over to you, Chuck.

Okay. Great. Thanks, Lisa. Hope you can hear me okay. Good afternoon, everyone. I appreciate you attending. Again, Chuck Divita, I'm the Chief Executive Officer of Teladoc Health. I joined the company in June of 2024. So about 7 months ago. And Mala is here, our Chief Financial Officer. We are a global virtual care organization. I believe we are well positioned today, but we also have an opportunity to drive innovation and impact in this sector going forward. We'll report our fourth quarter results at the end of February. So we'll provide an update on our business as well as our outlook. So I certainly don't want to get ahead of that. But I did want to take this opportunity to share some perspectives on the business now being in the role for several months, talk about our priorities and where we're headed and how we see that setting a foundation for growth and value creation going forward. I'm not going to read you the safe harbor, although I could, I guess, with glasses. Well, Teladoc, I'm sure you know, has played an important role really in the adoption of virtual care. Been around for about 20 years, and really, in many respects, a pioneering role. Certainly, when the COVID-19 pandemic hit, the company was in a position to scale and meet needs during an important time period. I was able to see that firsthand as a customer before I joined the company. Had accountability at a health plan for a book of business of just over $20 billion, individual business through large self-funded business. I had brand, marketing, product, sales, those kinds of things as well as actuarial provider network and our operations, member contact center claims, enrollment, those kinds of things. And we had made the decision to expand virtual care at that time and do it through Teladoc Health. We completed that in the fall of 2019, and of course, the pandemic hit the first quarter of 2020. So whether that was fortuitous or luck, but I was able to see the company's ability to scale and serve our members in a really important time period. So through those efforts and through the years, the company has developed a leading position in the U.S. as well as a growing international position. And we do a range of services, but I would really summarize those in 3 areas. First, we efficiently connect patients and providers. And we do that at significant scale through technology and workflow and services. Second, we both enable and deliver care to patients through our services. And third, we provide ongoing support to people for their physical health and mental well-being. And so we really have a broad reach in terms of what we do. And that's important because we are serving a large and sustained market need. Now everyone here at the conference, obviously, well aware of the complexities in the health care system and how dynamic it is, certainly the U.S. and globally as well. When you think about access to care challenges, certainly the cost of health care. We're up to -- close to 18% of GDP now spent on health care, close to $5 trillion. I remember talking about this not too long ago, and it was 15%. And it was $2.5 trillion, $3 trillion. So it's done nothing but grow through the years as a percentage of GDP on a dollar basis. And that creates significant challenges at a federal level, at a state level with employers and certainly with individuals and families. When you look at disease prevalence and you look at chronic condition prevalence and the burden that places obviously on the individual as well as the implication to the health care system and mental health challenges. One of the byproducts coming out of the pandemic was, I believe, a greater acknowledgment and recognition of the needs around mental health. And virtual care actually has been an important avenue in the mental health area. And you think about mental health. We used to, in the industry, think about it as a separate thing. It was behavioral health, and there was physical health. And now there's a greater recognition of the importance that you can't have total health without mental health. And then you look at the pressure on providers, whether that be cost or labor challenges, not being able to meet the demand with the supply. And those kinds of macro forces is really what drew me to health care many, many years ago. And it's why I'm so excited to be at Teladoc Health, because to be able to leverage the strengths that we have, to help people, to further this virtual care journey that we're on, I think it's very important. And then to bring my personal experiences around the health plan, seeing how coverage works and how markets work, what are the drivers of cost. Before I had the responsibility I mentioned, I was the Chief Financial Officer of the health plan. So been able to see where the money is spent and what works in terms of population health strategies to lean in against that. That's where Teladoc can be positioned to play in, and I'm excited about that. So to do that, though, it's important to take a comprehensive approach when you start to tackle some of those more complex challenges. And we really do have a comprehensive approach at Teladoc Health; comprehensive in terms of the range of services we provide, from virtual care, mental health, chronic condition management; comprehensive in how we go to market through our business segments, both in the U.S. and globally; and importantly, comprehensively in terms of how we approach the market. We have relationships and distribution with health systems, with health plans, with employers, with institutions and with consumers. And that gives us an opportunity to reach a lot of people in terms of our approach. Now since joining the company, been doing a pretty extensive review of the business in terms of ways that we can drive performance currently, obviously, but also how do we position the company for long-term success. And we've been going through an extensive review, as I mentioned, things such as what is our -- how do we streamline the organization, how do we make decisions, how do we align teams differently to go after these market opportunities. And we've made a number of actions, pretty swift actions to take out some layers of management, to organize teams differently in terms of looking at end-to-end solutions so we can activate against these strategies. And that's been important. Certainly, it's taking costs out of the company, but it's also been done to speed up and enhance our ability to drive innovation and activate in a really competitive marketplace. We've also taken a hard look at our capital expenditures and how we're making investment. We've been successful over the last couple of years, bringing down the total amount of CapEx. We should be able to continue to do that, but do it in a way where we continue to invest in the priorities and the things that are important. So significant progress there. We've also been looking at ways that we can drive greater sort of impact in the fundamentals. We have over 10,000 customers. We do a lot of services. And you think about the complexities of doing that. We want to make sure we've got a really good eye on all the different levers that drive performance for our customers but also drive performance for our shareholders. And we're also looking for ways to really enable a high-performance culture. These things really come down to people at the end of the day, and so we have very talented and committed employees, committed to the mission. And we want to make sure we have the right culture to drive us forward. And all of that really being done to make sure we've got a passion for driving value for customers, that we're leveraging technology in terms of making sure we've got quality care, that we're being innovative and focusing on clinical excellence and that we're unlocking the synergies that sit within Teladoc with all the different things that we do. With that as a backdrop, let me just talk about our 2 business segments briefly. And then I'll wrap with some closing comments, and we can move to Q&A. Watching the time here. Integrated Care is our largest segment. This is where you would see the broadest array of our products and services and the enabling technology. It's primarily a B2B business, and it operates both in the U.S. and internationally. What -- we reported $1.5 billion in revenues over trailing 12 months. Adjusted EBITDA margin is over 15%. So strong results there. But I wanted to show some data to show sort of the underlying momentum that we have in Integrated Care. So on the left-hand side, it's a chart showing our visit volume. And so you can see those have grown well over the past several years. And that's important not just because of taking care of that particular need when someone comes to us, but those are engagement points. And one of the biggest challenges in health care, particularly from my prior life in the health plan world, was around engagement. And so we want to make sure that those visits, we obviously take care of the need at hand. But critical to our strategy is how else can we activate that visit to support more care and integrate with other things that we're doing. So good momentum there. In terms of momentum around cross-selling and penetration of our products, the middle chart is -- it takes our general medicine membership, which is our largest membership base, and then illustrates the ability to cross-sell into that population. And you can see in both mental health services as well as chronic care, good penetration and growing penetration. And then on the right-hand side, the chart is really an illustration of that with one product or more than one product, and you can see we've grown that penetration over time. And that really speaks to the value proposition and the strength of our customer relationships. In terms of priorities, Integrated Care, it's really around enhancing our current position and pursuing growth vectors. And what do I mean by enhancing our current position? We operate in competitive markets, and we need to make sure that we have a good handle on our customers' needs, and we are continuing to differentiate what we do in the marketplace and a number of things underway there. And we also need to leverage that to pursue additional growth for us. And really, we have 4 priorities in the Integrated Care that we're pursuing. First of all, just underlying growth in our membership, customer growth, membership, usage of our services. And we see opportunities to drive revenue growth there. Second, and importantly, is leveraging our clinical strength and the breadth of our product portfolio to both meet the needs today but where is the next area where we can drive value for our customers. And if we drive value for our customers and outcomes for our customers, we will participate in those values. So we want to -- the value we're creating. So we want to make sure we're leaning into that. Third, significant growth we're seeing internationally. We've been achieving double-digit growth internationally. So we've got a number of initiatives to expand internationally, whether it be new markets or deepening our penetration there. And last but not least is advancing our scaled mental health position. Inside Integrated Care, we have a very scaled mental health offering. We provide digital content. We conduct 1 million visits a year inside Integrated Care in mental health. We've embedded it in our chronic condition management program. So we've got a significant business in Integrated Care and with the sort of secular tailwinds around mental health need, and we think this is an important position for us to continue to invest in. Our second segment is BetterHelp. This is the largest direct-to-consumer virtual therapy business there is. It's a very consumer-focused business, so a direct-to-consumer model primarily at this point. I've put some data on the slide to just illustrate not just the scale of BetterHelp but the -- how it's resonating with consumers. In BetterHelp, we generated $1.1 billion of revenues over the last 12 months, solid adjusted EBITDA margins. BetterHelp is #1 in brand awareness in the category. We have 35,000-plus therapists. Right now, we have over 1 million people active on our platform. And those people on our platform consistently rate us with a Net Promoter Score of 70 plus, which is very strong. We use AI-driven matching engines to match patients with therapists. We do that at a remarkable pace. 95% of the time, that's in 48 hours or less compared against the rest of virtual care. I know you know that that's a great outcome. 80% of people rate our -- would recommend their therapists to someone else. We have very low switching of therapists, and over 70% of people report improvement in symptoms of anxiety and depression. So we've got significant strengths at BetterHelp. Now we've also had headwinds at BetterHelp. We've had an escalation in customer acquisition costs on a consumer business. Obviously, it's important to reach the consumer and activate them on your product. And so we do that through advertising and other channels. And the acquisition costs have been higher, and that's put some headwinds on the business as we balance the top line and bottom line. And so we've got a number of things underway to sort of make sure we improve performance with this asset, but we think it's important to the company given the mental health issues that I mentioned before. In terms of priorities, it's really around balancing that top and bottom line picture and focusing on 4 areas: first, stabilizing the U.S., and stabilizing means ultimately returning to growth and underlying user base and how we navigate those higher acquisition costs. Second, advancing our value proposition. It's important for any business, but in the consumer business, always looking at new features and enhancements, ways to get people to activate on what we do. International expansion, we've had double-digit growth and BetterHelp as well internationally. We see that continuing, and the team through the course of 2025 is going to be rolling out more localized models, localized in terms of language, content, the therapists. We're excited to see where that goes. And fourth, we are pursuing a path of seeing how can we provide benefit coverage with BetterHelp. We have a lot of people that come to the BetterHelp and want to use it. But when it comes to affordability and some other challenges and they want to activate their benefits, we'd like to be in a position to do that. Benefits through their employer, maybe through an employee assistance program that they could have access or through health plan coverage. So we've been working on that for the last several months. But we think given the -- again, the secular trends around mental health, our scaled position in Integrated Care and mental health and the largest by far direct-to-consumer business in mental health that there's an opportunity for us to continue to progress forward. And that's why we think that's the right place for us to be at this point in time with BetterHelp. We're able to pursue those priorities from a position of strength. We have solid financial strength when you look at revenue scale, look at our margin profile, our cash flow generation. And we see an opportunity with these priorities to drive profitable growth as well as ensure ongoing financial strength. And let me just close, and then we'll get to Q&A. Just highlighting, again, we have unmatched global reach. Our segments are market leaders. We're taking a comprehensive approach to virtual care, which we think is important. And we have a durable business model and a large market opportunity in front of us. So with that, I'll close, and then we'll move to Q&A.

Thanks very much for the comments, Chuck. And again, welcome to your first JPMorgan Healthcare Conference. I just really wanted to start with bigger picture. And just as you came to this role, you came from the managed care side of the business, really understanding this. You've been in the seat now for roughly 6 months-ish, right?

Almost 7 months.

Almost 7 months. What's been a pleasant surprise? And what do you think is going to be your biggest challenge or hurdle in this role?

Look, I knew a lot about the company from outside, as I mentioned. I think the pleasant surprise was just the breadth of talent we have, which is very clear, the scale of our market position. I probably didn't appreciate that fully. As well as some of the assets inside the company that I wasn't even aware of, the fact that we have technology sitting in health systems, in acute care setting and other care settings to enable their strategies and what's possible with that kind of asset inside the company. So there were a lot of those pleasant surprises.

And the challenge?

The challenges, look, I think there's 2 things. One, we operate a complex business. I mentioned before, over 10,000 clients, a lot of different services, scaled through the years through organic means as well as acquisitions. To be able to operate at that level, it takes a certain level of rigor. I think my operational background, that was an area of focus early on. I think the other one is while there are tremendous opportunities for us to leverage what we do, it's going to take time. When you start taking on these more complex situations in health care, our customers need it. Our customers want it. And when you have the conversation strategically, those challenges that I mentioned on the one slide, they haven't gone away. So it's just going to take time for us to unpack that, and I think that's my answer.

This afternoon, you made an announcement around a relationship with Amazon. Can you maybe go into a little more detail, help us to understand what this new, I guess, in essence, partnership is? Or is it more of a contractual relationship?

Yes. Well, Amazon finally came around. But this is around finding new and different ways to engage people in our products and services. We offer chronic condition management programs extensively. And so we have a lot of people out there that we can recruit and enroll, and it's another avenue for us for it to have an enrollment point. We're not sure where it's going to go. But given -- obviously, it's Amazon. They've got a great consumer experience. So we're happy to be on the platform and see where it goes.

Yes. One thing I would add, Lisa, is chronic care management is going to continue to be an important growth driver for us. Chuck talked about it. So this is an exciting avenue for us to continue to find new ways for access of our chronic care programs. It's a distribution angle that I think is -- it's interesting. To the point Chuck made, we'll see how this plays out in terms of actual growth. So I wouldn't count on it bringing revenue for us very quickly, but it is certainly something that we will continue to pursue in terms of growing our chronic care program.

So if I am a consumer and I'm looking for a program, perhaps around management, is it that I would go on to the Amazon platform and then they would then link me to someone?

Yes. If you are eligible for Teladoc Health chronic care programs, you will go on the Amazon Health Benefits Connector. And then you will essentially -- we will -- the access -- the eligibility will be checked, and then you will apply to our chronic care programs.

And as a consumer, how will I know about that Amazon Connector? Is it just simply going into the search bar and searching that I need weight management?

Yes, yes.

And then if my -- I'm going to fill in my information and it's going to match me to...

Correct.

So how many other providers will there be on that platform?

So there are a few other participants in that program. It is -- certainly, that program has evolved in the last year or so. I would say the user experience of that program has also evolved. And we'll see how the actual program does in terms of driving access and then ultimately enrollment into our chronic care programs.

So we look forward to guidance in February. I know that we haven't seen guidance, for example, on BetterHelp in a little bit of time. It sounds like you're committed to keeping the BetterHelp business at this time. What do you think are the biggest things that investors are really missing around the story? I mean the stock has kind of bounced around in the last several months. But I think if you just looked at the financials and some of the things you talked about between the growth -- you talked about margins. I mean Mala, I remember when you weren't making any money. So the fact that you are profitable, cash flow, et cetera, what do you think are the big things that investors are missing today?

I would point to 2 things. I think, first of all, clearly, we are a show-me story at this point, and I think it's going to come down to execution and our ability to articulate what we're doing in terms of our priorities and then showing success against that. So we recognize that. I think the thing that probably is -- I'm not sure it's underappreciated. I wouldn't speak for the investment community. But certainly, I think it's maybe underappreciated, is just the scale and breadth of what this company has been able to commercialize. There's not many things in health care that can tout 93 million lives of anything. So the fact that we've done that, and I would just say, we -- I wasn't here, but the fact that the team has done that and also cross-sold into that and the ability to have access from health plans, employers, health systems, institutions, consumers, when you think about casting a net to go after some of the things, so I think that is -- I don't know if it's underappreciated, but it gives an opportunity for us to drive value. And I think with BetterHelp, look, no doubt it's been under a lot of pressure. There's been a lot of focus on BetterHelp. Totally understand that, understand what we've got to deliver there. But it also is really helping a lot of people. And I think if we're going to lean into mental health to have the scaled business on both sides, I think that's an opportunity and an asset for our shareholders that we certainly wouldn't want to make hasty decisions on.

Yes. Can I just add a couple of other things? Everything that Chuck said is really important. And just a few other things. How many other companies in our space have 90-plus million, 94 million members? How many have the kind of client stickiness we have, over 90% retention? The other thing I would highlight is if you look at our underlying metrics momentum in many ways, whether you look at our visits momentum, our membership growth, our international business, our chronic care enrollment gains that we are making, there is strength in those underlying metrics, Lisa, that I think oftentimes, we are continuing to have to repeat, reinforce all the time. The other thing I would say is just the strength of our balance sheet, the breadth of our product offerings, those are the things, when we do large client presentations, really serve as a differentiation for us. It's an advantage for us. And I would say we continue to make progress on our cost initiatives. We are serious about, to the point Chuck made -- has said in his presentation, balancing top line with bottom line, continuing to make on that and our cash flow generation. So those are the additional things I would emphasize in terms of reminding investors what our points of strengths are.

And I know you're not prepared to give guidance at this point. We're going to get that in February. But is there anything else you want investors to keep in mind as we think about guidance coming in February?