Teladoc Health, Inc. ($TDOC)

All right. So to kick things off, thanks, everybody, for joining us today. We are hosting Teladoc and the CEO, Chuck Divita For those of you that don't know me, my name is Peter Warendorf. I cover Teladoc at Barclays as well as some other health care technology names. So yes, maybe a good place to start, Chuck. We're coming up on 2 years in your tenure at Teladoc. Is there anything -- can you take us through your time there? Maybe in your experience so far, is there anything that's gone better than you thought, and maybe anything that's been a little bit more challenging than what you were expecting?

Yes. I was a long-time customer of the company, actually was an executive at a large health plan, large Blue Plan for many years. And Teladoc was something I'd watch through the years. I remember when I took over responsibility for a big part of the payer in the commercial space, I remember being at a broker's office and talking about this Teladoc thing, this was in 2018 and why it was important to his customer base. But it was awkward, it was a buy up at the time. And I went back and talked to our team and I said, why aren't we doing this more broadly? And we talked about it. And I decided to roll it out to all of our commercial members, and we finished that in the fall of 2019. And of course, the pandemic hit and all of our members had access to virtual care. And we had expanded virtual care to all of our population in additional chronic care management programs. So I had a lot of good understanding at Teladoc when I came in. I came in from the perspective of how do we take this scale historically strong player to drive more value in the health care system. And so when it came in, I had some expectations I think what I found was probably maybe more acute on both ends of the spectrum, some strengths and assets and capabilities that I probably didn't appreciate fully and then some challenges that I probably wanted to address more significantly and we can go through those, if you'd like. So I think the course of my time as CEO has been trying to increase strategic focus, our operational rigor, our product innovation, which we needed to reinvigorate. And of course, I'm sure we'll talk about turning around BetterHelp, which was about 40% of the revenues of the company. So that's been quite the journey. So it's been a quick 2 years. I think we've got a much stronger footing heading into 2026. I'm happy to talk more about that with you.

Great. Yes. And then -- before we kick it off and start to jump in on the business, can maybe get an update on the CFO search and kind of the timeline for things there?

Yes. It's been going well. I mean, we hired a large search firm to go after that opportunity, it's an important position for us. I've interviewed many, many candidates really looking for the right combination of, of course, financial expertise, as you would expect. But operational rigor business background really to be a strong partner as we execute these various initiatives. And we've been very fortunate that we have a strong finance team that had been built. So we got a little bit of the luxury of making sure we get the right person in that seat. So it's progressing well, but nothing to report right now.

Perfect. On the Integrated Care side, maybe we start there. The business has been a low to mid-single-digit grower with low double to mid-teens EBITDA margins over the last few years with some margin expansion. I mean, what's your overall assessment of how that business has performed and kind of what the opportunity is there?

Yes. I think there's a few things I would highlight for those that are familiar with Teladoc really was a pioneer in the space. I've been around for about 20 years. And for a large part of its history was really predominantly a subscription-based model because the market wasn't quite sure how to think of this new space and companies like Teladoc needed some predictability in revenues and cash flows and things like that. So it was a subscription-based model within the pandemic, and obviously, broad adoption of virtual care and post-pandemic. We've been seeing a migration from those subscription models to like more the rest of the U.S. health care system works as a fee-for-service base, we call it business-based arrangements in Teladoc. And so inside of Integrated Care, we've had this mix shift that's going on, and I can add more color on that. But I think we're in the middle to later stages of that transition and had good underlying growth in visit revenues to offset that. And then the chronic care space, which we've had some good enrollment growth there. So I think the inside of Integrated Care, there's 2 or 3 big levers that are going on there, changes. And then the last thing is we've got a significant international position in Integrated Care. So I think as we look at the sort of growth algorithm going forward, you're going to see this visit-based growth, subsiding subscription mix headwind, growth and penetration in chronic care and continued grow internationally, and that should drive the revenue growth as well as the EBITDA margin expansion.

Great. And maybe we'll start on the membership side within Integrated Care. I know you guys have right around 100 million lives, which is a pretty impressive membership base, but you're guiding to that being down kind of a low single-digit number this year. I know there's a little bit of nuance, can you maybe unpack that for us and what's happening there? Because I know that in Q1, maybe the membership guidance is a little bit higher than the expectation for the full year. So if you can unpack that as well as the timing of those customers?

Yes. We've grown membership pretty materially over the last several years, up about 40% since 2020 including adding some big clients last year. We've got good stability in the membership base, good stability retention with the clients. What we tried to factor into the guidance was there's a lot of things going on in health care, as you all know, that are tracking this, you've got Medicaid redeterminations. You've got the enhanced subsidies going away, some challenges in Medicare. So we just try to look at that and what do we think membership is going to look like for us in the year. And then we'll see how that unfolds. There's some indications that maybe the challenges in the Affordable Care Act in terms of retention may be better than some people think we just need to see how it plays out. I think that's different from what converts to revenues for us, though, because we've seen this migration I mentioned towards visit-based arrangements. And so it's really about not just the raw membership number, but the utilization of the services, which is why our guidance in 2026 shows revenue growth even with some headwind in the raw membership count, and we'll just see how that plays out.

Got it. And maybe touching on Chronic Care within the Integrated Care segment. I mean, enrollment has grown a little bit sequentially each of the last couple of quarters. How would you characterize the opportunity there? I mean -- and how much of that comes from upselling versus engaging new members? Are there any products that you guys get particularly excited about? I know we get a lot of options on weight loss more broadly. So if there's anything you would highlight within chronic care?

Yes. We've had sequential growth in enrollment, like you said. We do have a tough comp year-over-year because of last year in the second quarter, I mentioned the customer loss that we had, and that will comp out, if you will. And then we do expect to continue to see Chronic Care enrollment growth. We have a -- the way that, that business works is we sell the product, we can sell -- cross-sell multiple products in chronic care. And then we get what we call recruitables. There's -- it's the addressable lives that we can go after and then we activate them, enroll them and retain them. And we have many multiples of the 1.2 million that we have enrolled in Chronic Care as recruitable. So clearly, there's opportunity and penetration there, and we've continued to grow the recruitable base. There's penetration into that 100 million lives. We've made nice progress there. So there's upside there. I think within the portfolio, and I think maybe it distinguishes us a little bit in this area is at the end of the day, Teladoc is a provider. And we approach these populations more with that provider clinically-oriented lens. So the more services we can do for the population, the more they engage, the stickier they are, those kinds of things. And so within the product suite that's within chronic care to address more populations, we have seen more interest in weight management to your point. Obviously, there's been a lot of interest out there and a lot of outsized interest within our portfolio. But we're really trying to cross-sell multiple products so that we can have deeper penetration and sort of longer sustainability of population health. So that's kind of the way we approach it. I think it's a little bit different from others.

Okay. And then you mentioned earlier the visit based, the shift to visit based revenues within Integrated Care. Can you remind us, like who is pushing for those visit-based fees or visit-based revenues? Is that the customers pushing for that? Is that something that you're dictating? And which kind of contracting is maybe more beneficial to you guys?

Yes. It's more of a market environment. If you think about it, I mentioned a little bit earlier, but pre-pandemic, it was a subscription model for the reasons I mentioned. The customers wanted it. Teladoc wanted it for predictability purposes. And there's still a significant percentage of the -- of our customer base -- that sees the subscriptions as valuable, right, because it's predictable and you can plan for it. But as we've now had broad adoption of virtual care, the customer base is more like, well, I'd like to pay you like the rest of the U.S. health care system which is a fee-for-service environment. So the market is kind of evolving, I think, naturally and predictably towards these more visit-based arrangements. From a perspective, we can be, we're fine with either way. I think we have seen a headwind from the subscription to visit mix over the last few years that will subside. But ultimately, that visit is an opportunity for us to provide services, engage and connect them with other services we have. So we see those visits as beneficial beyond just what we saw in the subscription model.

Got it. And is there any difference in the operating expense line with that different -- that change in model? Like are you guys -- is there any difference in the cadence of maybe advertising costs throughout the year or anything like that?

There's a few differences in a fee-for-service environment versus the subscriptions. So there's a different gross margin profile. And I would say in the visit-based arrangements, the gross margin moves with the visit, if you will, as opposed to if you think about a subscription model, visits may be a bad thing to gross margin or lack of visits may be a good thing to gross margin but at the end of the day, you want people utilizing your services. So I think we see a little bit of a difference there. The advertising and marketing, we've actually been able to bring that expenditure down as a percentage of revenue in Integrated Care over the last few years. And we've always been a B2B2C kind of business. So I think we're going to be able to manage that as a percentage of revenues and then the OpEx is just the same level of complexity that we've had in subscriptions versus visits, installing the client's eligibility, the systems we use and all that. So I think when we're towards the tail end of that migration, we're going to see that settle out. But we've been able to deliver a strong line results through operational expense savings and other things. So I think we've been able to manage.

All right. That all makes sense. Maybe we'll move over to BetterHelp now where I would say maybe that business has been a little bit more volatile. You've seen some of the membership numbers have moved lower. It feels like we're maybe getting to a place now where that's starting to stabilize. I guess what's your assessment of that business? And where are you at kind of in the turnaround of the overall business.

Yes. I mean that's one of the business when I joined the company, obviously, and when I was interviewing for the role, I learned more about BetterHelp. I was not as familiar with BetterHelp before that, it was more focused on the payer side and Integrated Care. And what I found was one, I had been a big proponent of us in my payer life, adding more access to mental health. And I'm glad to see post-pandemic, there's much more appreciation for the mental health challenges out there and BetterHelp had really build a lead position in the consumer-oriented space the largest, by far, in what it did, but had run into some challenges because direct-to-consumer cash pay model and you're basically asking somebody to pay the equivalent of a car payment every month for therapy out of pocket. So I looked at that when I came in and said, we really need to pivot this asset more towards where the rest of the U.S. system is, which is insurance coverage. And we did an acquisition, and we've been executing that, and we're going to see nice growth this year. So to me, BetterHelp is, I think it's a story, chapters are still being written, amazing consumer experience, by far the strongest brand awareness, 30,000-plus therapist network, huge scale business, and its customer base needs to be able to access their insurance, and we should be able to see significant growth in insurance in 2026 and then ultimately, the stabilization and growth outlook for that business.

Great. Yes, that makes complete sense. And I mean, if we're trying to think about maybe it was a mid -- membership being a mid-single-digit headwind in 2025, is there a point in '26 where you can kind of see that trajectory start to move upward and maybe bottom out? Like is there a sequential step-up at some point in '26? Do you think?

Look, I think we're going to see -- there's 2 main parts of BetterHelp. Obviously, we have the U.S. business, which I'll touch on, which is really at the heart of your question. And we have a non-U.S. business. BetterHelp is actually in several countries and represents about 24% of revenues in this segment at this point, and that continues to grow. So we expect to see continued growth internationally because of the access concerns in other countries, and mental health is not just a U.S. phenomenon. There's challenges globally. In the U.S. business, because of the size of BetterHelp's consumer business, again, the largest by far in that direct-to-consumer channel. We have seen that user growth be negative for a little bit. As we grow insurance. We expect to cross that at some point where we see the overall users, whether they're consumer or insurance to stabilize and grow and we need to see more results from what we're doing, but we like what we're seeing so far.

And is that an area as they move -- as customers come on the insurance product? Is there some natural cannibalization of the consumer or the DTC product where those customers say, hey, look, I can see -- get this for cheaper using my insurance, the cash outlay for them is lower, so that they naturally move to that insured product?

Look, we expect to see some cannibalization. But I think stepping back on BetterHelp, just as a few data points. We have millions of people every year that start the registration process at BetterHelp, give us their e-mail. They have a need and they express the interest. Over 80% drop off in the cash pay model because, again, we're asking for a credit card, we're asking them to pay out of pocket. So the insurance scaling is about taking that funnel and by having affordability be less of an issue for them, less of a barrier, if they have an interest and a need to convert to users. So there'll be some cannibalization, but I would argue that a lot of the cannibalization we're seeing in BetterHelp was already occurring because those people were choosing not to use BetterHelp and perhaps use their insurance because we've seen growth in insurance coverage in our Integrated Care as well as with competitors. So there'll be some of that. But I do think that more of the funnel being converted to users of BetterHelp is the play. And again, with millions of people starting the process and less than 20% converting, we've got a lot of upside as we roll out insurance. And I think that will overcome cannibalization at some point.

Yes. And with those insurance customers, have you seen anything with the initial ones like in terms of duration that they stay on the platform or any different ways that they use it that you think are worth mentioning?

Well I'll tell you what we're expecting to see, and I would say that the information is early, so I want to caveat that. We want to see more progress before we say something too definitive. However, as we've seen our Integrated Care side, and we've seen with competitors with insurance coverage, the -- there is an opportunity for greater lifetime value of a member, of a user as well as a more efficient use of the acquisition cost, the advertising customer acquisition costs. And so we do expect and believe that we will see more sessions per user because we're taking the cost issue, the cost barrier down with insurance coverage and a more efficient use of advertising spend because we won't have to necessarily reacquire that member over and over again or that patient over and over again. But early on, we like what we're seeing in the data as we continue to scale it, but I don't want to get too far ahead of that other than we are expecting to see that, but I want to see more results first.

Great. And obviously, there was some news in the space, on the behavioral health space, I'd be remiss, if I didn't that. Do you have any initial reactions to the M&A news that came out yesterday with one of your competitors?

Look, I think it's a validation of what we're looking to do with BetterHelp. The unmet mental health need is very real. There's strong demand out there and taking BetterHelp, which has the predominant known brand in that space into insurance coverage, we can see the potential of what that could look like. And I think that transaction is something to look at and say, there's a validation of the value of virtual mental health which, post-pandemic, has been one of the modalities that's been most widely adopted and sustained is virtual care and mental health because you don't necessarily need to be seen in-person for that, and that's continued on. So again, I think it's a validation of what we're trying to do.

Great. Moving over to maybe the financial and kind of guidance kind of things. So obviously, with 1Q, you guided 1Q, you guided fiscal '26 that implies a reasonable ramp throughout the year in terms of revenue growth and margins, I would say. Can you maybe help us think about some of the underlying assumptions there? And what gets you to that revenue and EBITDA ramp and how that split between maybe operational execution or any macro improvement that you guys are assuming?

Yes. I think for Integrated Care, what we've really got is -- and I would say, overall, when you look at it, the first half, second half look at Integrated Care is going to be pretty consistent with what we've seen in prior years. As I mentioned, the more we've migrated to visit-based arrangements, you see visits and therefore, volumes of visits be more of a factor in that equation. We saw that in the fourth quarter where we had -- we exceeded our midpoint and we're at the upper end of the guidance. And one of the drivers was visits from the flu season. And in the first quarter, we brought that down a bit because of the timing of that flu season. So you've got volume going on through the year, including in the fourth quarter and how we see the first quarter. So that's in there. Chronic Care enrollment builds through the year. So we expect to see that. So I think in Integrated Care, that coupled with our international growth, explains the ramp and we've got continued cost management efforts underway. We've done pretty well on that, I believe, and we continue to focus on costs that help -- will drive some of the EBITDA results. In BetterHelp it's really all about insurance scaling and our international growth, and we did guide. We had a modest amount of insurance in 2025. We guided to $75 million to $90 million of insurance revenues in 2026 and that's going to ramp pretty notably each quarter. The last thing I would say about BetterHelp, and this is a little bit on the Integrated Care side, too, is you've got more days after the first quarter, there's another day in the second quarter and 2 more days in the -- and other ones and on a volume-based business, that could be a needle mover also.

Great. A quick one we'll touch on the balance sheet. I know we're coming up on time here. You guys have $1 billion of debt coming due in the middle of next year, current interest rates are pretty low on that one. I mean can you give us an update on the timeline there? And then similarly, I know M&A has been part of the business in the past, like what's your appetite for additional M&A? And what might that look like over the next couple of years?

Yes. I'll hit the debt first. We had $550 million of converts due at the middle of 2025. We paid those off with existing cash. We ended the year with $780 million in cash on the balance sheet and we have these $1 billion or so converts to middle next year. So absent other needs or demands or changes in market conditions, what I said on the earnings call was we're assuming we're going to pay down a material portion of that outstanding debt, maybe potentially before the end of the year, we'll see how that goes through a combination of more traditional term debt as well as the cash that we have available. And then the remainder, we will pay down at the -- at maturity, ultimately have a lower gross leverage position than we have today. And I think that's just a prudent place for us to be as a company. So we've got a lot of cash, a lot of good cash flow and options with respect to the debt. In terms of M&A, we have done some M&A since I joined, as you know, I think it's been really more strategic. We bought a company called Catapult Health to deepen our penetration in our Integrated Care side in the U.S., really exciting capability we bought there. We bought UpLift right to get us into the insurance market in BetterHelp. That was our accelerant. And we bought a company in Australia to deepen our position there. So we're going to look at our strategic priorities. We're going to focus where we can accelerate our progress. But I would say predominantly where you're going to see our focus is in the U.S. market. We think we have tremendous opportunity with this scale position we have, 12,000-plus clients, 100 million lives. Our customers have more challenges, not less challenges in health care. So we think we can lean into that more, and I think M&A will play a part of that.

Great. And I know we're coming up on time now so maybe to wrap it up, a lot of ACIT has been hit by some of these AI concerns. So I'm just curious like how defensible do you see your business is? Like what kind of moats do you think Teladoc has? And then any other thoughts you have on the business or what you think investors might be missing before we wrap it up?

Yes. I mean it's an exciting time with the advancements in AI. And I think health care is going to benefit from AI materially in terms of engagement, awareness, access, support, those kinds of things. Teladoc has been an active user of AI in its history, mostly in the machine learning area and some of the things we do. But last year, we saw this coming, and we made some significant investments in what we call our Pulse data and AI platform. We have a lot of data, 20 years of history across conditions, across a number of things. We're unifying that data, putting intelligence on that data. And then most importantly, you got to activate that data into where there's a clinical intervention. Otherwise, it's just an insight. Well, we are a virtually-native company. All of our processes, our workflows, everything is built virtually. So we believe strongly that we're going to have ability to deploy AI and already are across the things we do. But we're going to do it in a responsible way because we want to make sure that clinician-patient relationship remains at the forefront and it's strong and it's complementary. In terms of our moats, as I mentioned, we're deeply embedded in the U.S. health care system. 12,000-plus clients across health plans and employers used to operating in those types of environments. Two, we have tremendous data and data fuels AI and that's important. Third is the breadth of our clinical position. We provide services in a variety of ways across mental health, chronic care, primary care, 24/7 care. So that we're going to continue to expand. And then the last part which I think is very important. We've got deep expertise in health care. And health care is a highly regulated industry. And I think the ability to deploy these tools in a way all of those things, I think, create moats for us.

Great. And if there's anything else you think investors are missing before we wrap up?

I think we've covered it. I just think that keep an eye on us. We've been executing. We've laid out our priorities. We're giving the proof points. I think we've got a lot of opportunities ahead of us.

All right. Thanks. Chuck Divita, Teladoc, CEO.