Q3 2019 Earnings Call
Welcome to Teladoc third quarter 2019 earnings conference call and webcast. At this time spent seven placed in listen only mode and the floor will be open for your question. Following management's prepared remarks, if you like that's a question at that time. Please press star one layer Touchtone phone if at any point. Your question has been answered your <unk> you waiver move here.
From the Q by pressing the pelkey.
Yeah. So you please pick up your hand, several notable sound quality lastly, if you sure requires operator systems. Please press star zero, it's not my pleasure turn the floor over to Adam Vandervoort, Chief Legal Officer, you may begin.
Thank you and good afternoon today after the market closed we issued a press release announcing our third quarter 2019 financial results. This press releases available in the Investor Relations section of the Teladoc health the Dot Com website.
On this call to discuss the results are Jason Gorevic, our Chief Executive Officer, and Molla Murphy, our Chief Financial Officer.
During this call we will provide our fourth quarter and full year outlook in our prepared remarks will be followed by question answer session.
Please note we will be discussing certain non-GAAP financial measures that we believe are important in evaluating teladoc helps performance.
Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations there Rob can be found in the press release that is posted on our website also please note that certain statements made during this call will be forward looking statements as defined by the private Securities Litigation Reform Act.
Act of 1995.
Such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results for teladoc help to differ materially from those expressed or implied on this call.
Additional information please refer to our cautionary statement in our press release and our filings with the FCC all of which are available on our website I now turn the call over to Jason.
Thanks, Adam and thank you everyone for joining us this afternoon.
Through the market close today Teladoc helped reported another strong quarter.
I'm very pleased with our results across the full breadth of our business delivering at the high end of our expectations showing progress on several of our strategic initiatives and making strides on our path to profitability.
Positive momentum coming out of the third quarter and good visibility into the fourth quarter, we're raising our revenue and does the guidance for the full year 29.
Well Malo will delve into the specifics or the quarter. Shortly I wanted to spend a few minutes highlighting the strong execution that underscores the quarters momentum and serves as a foundation for long term growth.
In the third quarter, we saw the greatest population expansion in the company's history has more than 17 million people gained access to teladoc.
This significant increase was driven by our in trench distribution footprint across channels in particular, the accelerated momentum and health plans.
The largest population Onboarded whats was Unitedhealthcares 15 million commercial members. This marks the first and only fully integrated virtual care offering within the U.H.C. experience as highlighted by their recent press release.
The initial launch went very smoothly full engagement efforts are progressing on schedule and we're pleased with the early results.
Extremely proud of our team and appreciative of the collaboration from the United team members to together brought this deeply integrated solution and seamless consumer experience to life.
On the visits front, we continue to see the acceleration of growth across our total book of business globally with visits up 45% in the quarter.
Digging into the favorable growth, we continued to see accelerating adoption across all our clinical specialties. In fact, we're seeing the strongest visit growth amongst our largest populations with multiple clinical specialties, which experienced a 59% increase in visit volume over the same quarter last year.
As we continue to realize the benefits from our sustained data driven member engagement capabilities combined with the breadth of our clinical services were uniquely equipped to take advantage of the growing macro consumer adoption tailwinds.
Mental health continues to be an area, where we're seeing accelerated adoption. In Q3, we were pleased to celebrate our better help channel passing the 15 million message milestone and continued strong utilization growth within our U.S. distribution channels.
Internationally, we launched the UK markets first and only virtual mental health service, we're navigating complex conditions with AI Jie life, followed by this month's announcement of the expansion of our great West life partnership to include the mental health Navigator service in Canada.
On the heels of World Mental Health day, However, it's clear to me that we need to do more.
The multinational study we released earlier this month reveals the intense need for greater access to mental health care, which pervades across borders and it's growing at an alarming rate as younger people are demonstrating poor mental health than previous generations.
This study found that 61% of 18 to 25 year olds report that mental health symptoms have affected their job performance compared to 38% of all age groups.
This is truly a global challenge and Teladoc helps holistic portfolio of mental health offerings is optimally designed to meet the escalating demand our portfolio span services for those with needs ranging from texting are having a video visit with a therapist for conditions, such as anxiety and depression to psychiatric treatment.
Medication management to those needing a full expert review and navigation of the health care system to get them back on their feet.
The level of conversation amongst buyers and consumers alike has never been higher or with a greater sense of urgency and I remain confident we will continue to see strong growth for the foreseeable future.
Continuing on the topic of clinical specialty innovation in the third quarter, we launched Teladoc medical experts in the U.S. Marcon onboarding more than 100000 employees from U.P.S. and nationwide insurance.
Leveraging the best of breed insights and capabilities from our advanced medical and best doctors acquisitions into one single experience.
The Teladoc medical experts service creates a virtual center of excellence for individuals grappling with the challenges of complex physical and mental conditions.
With this unique service a doctor works with individuals right from the start to get timely answers regarding accurate diagnosis and treatment plans regardless of their geographic location.
The Teladoc physicians are also equipped to help people navigate seamlessly across both the virtual and in person healthcare landscape based on their individual needs and preferences, leveraging teladoc health proprietary analytics, driven physician database to make smart referrals into preferred health plan.
Center of excellence networks.
Turning to the selling season, we see continued strong momentum both in terms of net new clients and expansion of existing relationships.
As we close the year and enter 2020, our deal flow or peas, and pipeline all remained strong across the full breadth of our diversified distribution channels.
One highlight this quarter is our momentum in the UK.
Our relationship with they I GE life is a great example of successfully leveraging our comprehensive integrated portfolio to realize three of our core growth pillars, driving new innovation across the market selling our integrated suite of services and expanding the population.
Foundational to AI Jie expansion was Teladoc health successful registration with the care quality Commission, the independent regulator of health and social care in England.
I'm proud of our team in the UK for earning this important stamp of approval as it paves the way for accelerated growth in this key European market.
Turning to Medicare advantage client interest continues to grow with both existing and new health plan partners.
We're seeing early evidence of success with several wins, including an agreement with one of our largest and most significant blues partners for their full Medicare advantage population as well as what five other plans.
The pipeline of additional opportunities remains robust and I'm optimistic about the revenue impact to this initiative will have over the next 18 to 24 months and with that I'll turn the call ever Tamala for review of the third quarter financial results.
Thank you, Jason and good afternoon, everyone.
Good to be here today to talk about our third quarter results, which reflects the momentum we are seeing across numerous facets of our business and is a continuation of our track record of delivering strong performance unresolved.
As I go to the discussion of the quarter. It bears reminding that this is the first quarter this yard where our growth versus prior year is entirely organic but for the small impact of the medicine direct acquisition to our financial.
Total revenue increased 24% to $138 million for the third quarter as compared to a year ago.
As we continue to see a stronger us dollar relative to last year against most major currencies in which we operate.
Our FX adjusted revenue growth was approximately 80 basis points above our reported revenue growth now as you know FX rates tend to fluctuate overtime and we could see FX rates go in the other direction in future quarters.
Let's look at some details of this performance I will start at the U.S. paid membership and individuals with visit the only access.
Jason noted in his remarks U.S. paid membership grew this quarter to 35 million members up 55% compared to your though as we saw their scaled our member base by Onboarding, new clients and expanding existing clients on our platform.
Membership growth in the quarter included the continued onboarding of the large health plan as well as approximately one third of 15 million members in the commercial population of United Health care.
As a reminder, the U.S. paid membership does not include individuals with visit the only access.
Our U.S. paid membership has expanded sequentially in 14 of the last 15 quarters and reflects our entrench distribution across several channel.
Individuals with visit fee only access increased from 19 million at the end of the quarter.
Up from approximately 10 million from the previous quarter and reflecting approximately two thirds of the 15 million members in the commercial population of United Healthcare <unk>.
Turning to visit.
We had an excellent quarter with respect to visit volume with 928000 visits and increase of 45% compared to a year ago.
Our press release highlights the details of visit volume during the quarter.
Visit volume from paid members in the U.S. grew 42% to 622000.
Which represents an annualized utilization rate of 8%, a 17 basis point increase over last years third quarter.
The utilization rate in the quarter expanded even with the substantial increase in the population of U.S. paid members versus last year.
Our leadership in the area of mental health drove visit growth of over 50% in the quarter.
The final point I'd like to highlight is that the groping visits from new registrations is accelerating sequentially and year over year.
As we engage with members and drive adoption.
Driving our overall revenue growth in the quarter of 24% was revenue from global subscription access fees of $119.1 million.
Which accounted for 86 for Central Park total revenue in the quarter and increased 23% compared to a year ago.
Additionally, U.S. subscription access fee revenue of $92.1 million continues to represent about three quarters of global subscription revenue was international subscription revenue of $27 million accounts for the balance.
We thought it PMPM this quarter decrease as expected to 98 cents from a dollar Oh wait a year ago and from a dollar those six last quarter.
As we've previously indicated we typically experience a dampening effect on PMPM when we onboard large new health plan member population.
Visit fee revenue for the quarter increased to $18.8 million representing growth of 31 per cent compared to the prior year and constituted the remaining 14% of global revenue.
U.S. paid membership visits generated $14.1 million in the quarter.
25% increase over the third quarter Ftwenty team.
This line includes revenue from general medical visits as well as other specialty visit primarily comprised of export medical and commercial behavioral health services.
This is the only access revenue of $4.3 million comprised the remainder of visit be revenue.
Grew 72% in the quarter.
Gross margin percentage for the quarter was in line with our expectations at 69% and consistent when compared to 69.2% in the third quarter of last year.
The year over year consistency and gross margin percentage reflects brain.
Our diverse product portfolio as well as our disciplined predictable pricing approach.
As we continue to gain new clients and numbers.
In terms of gross margin dollars, we generated $95.2 million and a third quarter compared to $76.8 million a year ago.
Representing eattwenty, 4% increase.
And in line with the aforementioned revenue increase.
Turning to expenses.
Operating expense in the quarter totaled $115.1 million.
An increase of 24% from the $92.6 million in third quarter of last year.
When noncash charges, such a depreciation and amortization stock compensation as well as one time acquisition related costs are eliminated.
Adjusted operating expenses are 86.1 million or 62% of told her revenue.
Compared to 17.5 million or 64% of third quarter 2018 revenue.
The leverage in our adjusted operating expense includes Youre over your increases in advertising and marketing investments to support the onboarding off some of our recently added member population.
Well as engagement in acquisition activities.
Concluding my commentary all fee income statement, our net loss in the quarter was $20.3 million compared to a loss of 23.3 million last year.
The lower net loss included a one time non cash tax benefit.
Alex Mcleish $8.1 million or 11 cents per share, reflecting planning associated with our global tax strategy.
On a per share basis, our net loss was 28 cents for the third quarter of 2019.
Fair to 34 cents in the prior year.
Moving to be adjusted EBITDA and EBITDA.
Adjusted EBITDA increased to a positive $9 million for the quarter, which compares favorably to the adjusted EBITDA off $6.3 million from last years third quarter.
Reflecting our revenue growth gross margin performance and ability to generate improved operating leverage.
EBITDA was a loss of $10.3 million for the third quarter of 29 team as compared to a loss of 6 million for the same period last year.
Turning to the balance sheet, we ended the quarter with $490.9 million in cash cash equivalents and short term investments.
Sequentially, our cash balances have improved by roughly $18 million, which is largely reflective of our year to date positive cash flows from operations of over $10 million and reinforces our confidence to deliver positive cash.
Though for the full year.
Our total debt as of September Thirtyth, 2019 was $562.5 million, which consists so far to convertible note issuances.
The $275 million, 3% convertible note that matures at the end of 2022, and a 287.5 million dollar one and three eight percentage note that matures during 2025.
In terms of our expectations for the full year and the fourth quarter.
Here are the guidance for the full year 2019.
We are increasing revenue guidance to be between 546 million and $550 million.
The increase in guidance is a reflection of our strong performance throughout the are both on subscription and visit revenue as well as better visibility into the ramp of recently Onboarded member population.
We are tightening the guidance for EBITDA and adjusted EBITDA as follows.
And EBITDA loss between $45 million and $41 million.
Adjusted EBITDA between positive $28 million and positive $32 million.
We expect total U.S. paid membership off approximately 35 million members.
And visit Fiona <unk> access to be available to approximately 19 million individuals.
We expect total visits between 3.9 million and 4.1 million visits.
Net loss per share to be between a negative dollar 49 to negative dollar 43 per share based on 71.9 million weighted average shares outstanding.
And as we've said before we expect to continue to be operating cash flow positive and have achieved that as of September thirtyth 2019.
For the fourth quarter of 29 team, we expect total revenue to be between $149 million to $153 million.
And EBITDA loss to be between negative 9 million negative $5 million.
Adjusted EBITDA to be between positive 11.5 million to positive $15.5 million.
Total U.S. paid membership to be approximately 35 million and visits the only access to be available to approximately 19 million individual.
We expect total visits to be between 1 million and 1.2 million.
Net loss per share to be between negative 37 cents and negative 31 cents per share.
Based on 72.5 million weighted average shares outstanding.
In conclusion in my remarks.
I'm pleased with our financial results and I'm confident in our future ability to deliver consistent revenue growth performance as we scale, while we continue to strategically invest in the business to enable our longer term success.
One final point, which relates to our Investor relations team here at Teladoc health.
I'd like to welcome our new Vice President of Investor Relations Patrick Sealy.
Patrick has a highly successful track record as an equity research analysts focused on health care services, which then at various thanks, most recently at Barclays.
He will start his role I Teladoc held on November 4th.
I know I speak for the entire Teladoc health team when I say, we're very pleased to have Patrick joined the company and I look forward to his leadership and contributions to our growth.
With that let me turn the call back to Jason for his closing remarks.
Thanks Mark.
I'm pleased with our momentum across the full breadth of our business and I'm deeply appreciative of the hard work and commitment from our team members, who underpinned our success.
I'm also pleased with how we have evolved our leadership team structure to support the growth scale and diversification of our business going forward.
With this new structure in place Peter Mclennan has decided to transition out of the company at the turn of the year.
Having drawing Teladoc health as the CEO of best doctors over the past two and a half years. Peter has played a pivotal role in shaping the integration of our offerings teams and go to market strategies.
I'd like to thank Peter personally and on behalf of the entire Teladoc health team for his contributions to the business and his passion for the mission.
I often speak about our many strategic differentiators scaled global distribution membership engagement clinical quality and our network effect.
We see these come to life as our clients increasingly embrace the growing strategic and economic value that teladoc helps unique offering can provide.
It's gratifying to know the consumers also know the difference ranking teladoc highest in overall satisfaction as well as first thing customer service. According to the first ever JD power Tele Health satisfaction study, which was released earlier this week.
Looking to the fourth quarter and the full year, we remain confident in our ability to deliver on our improved expectations as we lean on a broad based strength of the business.
We're also turning our attention to specific plans for the coming here.
We look forward to meeting with you at our 2020 Investor Day, which we are planning to host in March.
As always thank you all for your continued interest in the Teladoc Health story.
And with that we'll open the call for questions operator.
Thank you as a reminder, if you like to ask your question. Please press Star then one of your telephone keypad pause for just a moment to compile the acuity roster.
Your first question comes from Lisa Gill with JP Morgan Your line is open.
Thanks, very much good afternoon.
Jason you know I have to ask this question and I know you talked a little bit about this selling season in saying that both deal and RF piece were strong but can you just give us a little more color around two things. One you talked about expanding relationships you just give us any numbers around you know where people are expanding what they're adding to their relationship with it.
It's health plans and they're adding more lives is that you know employer customers that are adding more.
Cynical services across the platform I guess for either of the customer base and then as you think about that RFP activity as being strong how do we think about that year over year as we go into 2020.
[noise] no surprise, Lisa Hi, I'd be disappointed if you didnt ask.
Yeah. So theres no question. This selling season, it's been incredibly strong and it's been that that has been a case across multiple of our selling channels.
Bookings are up probably 30% over last year.
Ill size is up so both in terms of average deal size as well as median deal size, which of course, the median takes out the outliers on the large side.
And very importantly, and I think you. This is part of your question our multi product growth.
Has been a strong contributor to our bookings so when I talk about multi product that means we're selling multiple products into a new client or were selling additional products into an existing client and multi product bookings have represented about half of our you bookings year to date world.
Why so I think that's really a testament to the breadth of our product portfolio and our strategy of increasing our clinical services to become a holistic virtual care solution for our clients.
Yes, we think that the multi product booking like you just talked about about half of them. This year, just kinda to put that in perspective versus last year, I mean, where as as Melissa. This is the first quarter, where virtually everything is organic so you've had the product offering out there and now this is kind of the second year of having that full probably talk.
Offering.
How do we compare that year over year as far as what people are buying you know buying entail.
Yeah, it's up significantly relative to last year as a percentage of our bucking. So there as I said, it's about half of our bookings this year or multi product sales.
That's up significantly as a proportion of our bookings at this time last year.
Okay, Great and then just my last question and I know, it's early to think about 2020, but when we were together in September you talked about your confidence in the longer term revenue growth of this company being between 20 and 30% is that still a number that that you feel confident based on a you know what you've seen to date for <unk>.
New business wins is as well as expansion going into 2020.
Absolutely I still feel very good about 20% to 30%.
For the foreseeable future as our topline growth small I don't know if there's anything you want to add to that I'd say, a I'd echo that I'd also remind you Ah you know the base is getting bigger every year, we feel pretty confident about would be initiatives. We have in place you know you've seen the unprecedented membership expansion that we had the CR.
Obviously, you know we will work to activate that and that will have an impact on not just 2020, but our growth beyond that so I would say Lisa we have all of the right initiatives and the right plans to invest to drive that growth.
Okay. That's helpful. Thank you very much.
Thanks Lisa.
Your next question comes from Jamie Stockton with Wells Fargo.
<unk>.
Hi, good evening, Thanks for taking my questions I guess, maybe the first one just on the sales and marketing spend I you know I think maybe molla mentioned that.
You guys, obviously onboard a lot of lives the United and you had another big I think health plan. The onboarded during the quarter, if I remember correctly from your comments last quarter, you know specifically with United.
Should we think about this.
Big spend this quarter is being kind of the expense of getting those lives on onboard or or will there probably be another kind of round of incremental spending that it's in Q1.
You know more kind of inline with the normal benefits cycle for those individuals.
Yeah, Jamie Great question, I'd say, if it's both a I'd say, we as you can see from our.
Financial results, we did invest in marketing spend this quarter.
I'd say it for couple of reasons. One is you know as you noted we have a huge membership expansion. We did invest a ahead of that so that we can put the right plans in place to activate those members.
And we continue to invest efficiently in driving customer acquisition. So I would say that's the second and third I would say is we are leaning in to the cold and flu season that as you know that is upon us.
I would say, though you should expect to see additional marketing spend as we go into next year as we will continue to activate a the new members.
Okay, that's great and then maybe just one more.
It's got a lot of attention on the call last quarter, but from a timing standpoint, I think it might be.
More relevant now the ethanol renewal just any color on what's going on there or how that relationships that's would be great.
[noise] I I would say no change to my comments from last quarter feel very very good about our relationship with that night and both sides of the house there at and then CBS CBS continues to roll out to more states. We're now at 39 States plus the district of Columbia with the CBS video vis.
Its.
Rollout and very strong relationships with my expectation for continued product expansion.
The out in a population so.
I I continue to expect at noted it'd be by a strong and great client for many years to come.
Okay, great. Thank you.
Thanks, Jamie.
Question comes through Stephanie Demko with Citi. Your line is open.
Hey, guys. Thank you for taking my question Patrick Welcome team.
So when I think about the levers to accelerate your revenue utilization is always my biggest question Mark and with that in mind I side very healthy jump in your advertising expense this quarter.
Could you tell me a bit more about the drivers in any advertising there should be could be seeing soon teladoc.
[noise] yeah. So thanks for the questions Stephanie I think advertising spend falls into two main buckets for US one is driving utilization guy as you indicate and of course as we onboarded large populations, we spend to activate that population dry.
Five utilization drive first registrations, and then a utilization and visits.
No that increases as we onboard large populations I think you see that reflected a in the quarter. The other part of it is in our direct to consumer business, where we're spending against customer acquisition, we continue to get more efficient on both of those so we are relentless.
It's about measuring the yield.
That we get out of the spend on both of those channels.
And we continue to see improvement in the yield that we get out of those so reducing our customer acquisition cost on the direct to consumer side, increasing our yield the visits per dollar spend on the.
On the utilization side, Yeah, and Stephanie let me add a little bit of color.
Jason talked about the direct to consumer we are always looking at our channel mix. We are looking at where we spend our marketing spend across the different channels.
Different times of the Youre, because as you probably know different channels costs differently. So you know we are continuously sort of tweaking changing and managing our channel mix.
Then the second thing I would say is to the point that Jason talked about activating the members, we do measure and have metrics internally, where we are looking at our cost of acquisition cost.
For visits et cetera. So we are measuring up through the year on how we're doing against those.
And is there anyway to quantify kind of how you are looking in the direct consumer market if their advertising channels, you exited or would night.
He was going forward given the Oh.
The ROI.
Just separately, we can we're constantly rebalancing the mix depending on the campaigns that we have in the market the yield that we get out of each one of the channels. So it may have been flow among various channels, sometimes we light up new channels, and we find that they're particularly productive for us.
And we certainly have some of those but those are all pretty closely guarded.
Components of how we manage the business.
Thank you guys quick modeling one when you guys bought advanced medical.
There's a lot of secondly, but the gross margins, becoming down pretty meaningful manner. We haven't really seen that as much is there anything to call out that you've been able to improve upon that model.
Yeah, we're consistently working and we have been since the acquisition on improving their gross margins of the advanced medical business, we've seen progress on that and we still see significant opportunity and I think you see that very well in the strong gross margins that we've been able.
So to post this quarter in the past several quarters. So you know the the gross margin continues to fluctuate a little bit with seasonality should continue to expect that but we're proud of what we've done so far and we still see significant opportunity going forward.
It's safe to say this is no longer a 65% margin mix that we were originally guided you.
Well I think we're not saying that we're never going to get to the mid Sixtys, which is where are we sort of guided over the longer term. We're just moderating the glide path to that.
Understood. Thank you very much.
Thanks, Stephanie.
Your next question goes from Richard close with Canaccord Genuity.
<unk>.
Great International related questions here so.
The paid visits revenue internationally declined 30% just curious what happened there was that just the FX. Maybe you were talking about and then I guess bigger picture, how do you see the global opportunity developing you obviously highlighted some things here with AI Jie I know last year on the third quarter.
Order call I think you talked about Axa global care and just curious how the international or global opportunity is playing out.
Yeah. So Richard let me address the first question as you can see from the numbers you're right. It is a declining 30% age is literally the result off one particular client in Canada.
Where the case rate has gone down and we are working very actively with the client to solve it.
It's off a very small base. So as you can tell it is not really overly impacting our overall growth.
And then Jason the second question, Yeah, I'm really excited Richard about the global opportunity I think AI Jie is the perfect example of what we're likely to see I across our international markets, where we bring the full breadth of our clinical capabilities in order to increase.
A set of services, we bring the revenue.
And the population that we serve and we're running that play in multiple markets I think AI jie as the first of what I expect to be many to come.
Alright, thank you.
Thanks Richard.
Your next question comes from Matthew Gilmore Baird. Your line is open.
Hey, Thanks for the question I wanted to hit on the revenue guidance for 2019, you know what looks like Threeq you came in about a million or to above Street and you raised the full year 19 revenue by more like five to 6 million. So I wanted to understand sort of what drove that increase and how that curious into 2020, it was that sort of membership with new or existing.
Clients or or something else.
Yeah. So you know the way to think about that is I'd characterize it in sort of three different ways. The first is as you saw we essentially delivered at the high end off our guidance for Q3.
So we are reflecting the flow through of that to the full year.
And then the second thing I would say is as Jason referenced in his remarks, you know we are seeing greater momentum across many facets of the business.
And he particularly highlighted mental health you.
You know, we could be a calling it mental health, we've called and behavioral health and the pass on past calls.
So you know we are reflecting the momentum off that that part of the business.
Then I would say more broadly we are seeing as you can see from our momentum you're seeing we strong momentum on visits.
So we are essentially factoring all of those into the guidance take up this time and that I guess I would just add that the third quarter results reflected some mid quarter ads.
You know we were pretty public about the launch of United on September 1st. So we only got one month of that a in the third quarter, but obviously, we get a full three months of that in the for it. So the run rate coming out of September is bigger than the they average over the quarter yeah.
Got it that's helpful and then Jason I'd Wanna get an update on Medicare advantage. It sounds like the momentum there is really good can you share with us how about you know that mark has developed or they contracting in a similar way to the traditional business and Howard Medicare advantage plans. These initial ones that are using tele health.
Looking to use it for their members.
Yeah, very similar structure I, you know <unk> to our commercial membership, we're seeing P.M.P. Oems plus visit fees and we've already rolled out some M.A. populations over the course of this year.
As weve expanded with some of our large clients and as I pointed out we have right six already under contract and a robust pipeline.
Still to come so I would expect that market to develop.
As I've always said I expect that to be sort of a three year development.
For that tag to fully flows through the entire M. A population.
Health plans never uniformly move on mass the first year that something's available and to be honest, you know, where we're still seeing some of the M&A plans, who are processing, the new rules and figuring out exactly how they're going to put it into their plans. So we're actively engaged.
With our clients and prospects around how to do that in some cases, where you know sort of educating them on the rules because we can be specialists in that part of the rule.
Got it thank you.
Thanks, Matt.
Your next question comes and Sam with Piper Jaffray. Your line is open.
Hi, Thanks, It's Sean I think you're the the grill.
<unk> is probably masking the underlying trend utilization.
I was wondering if you could speak to that help us understand what the what's a true growth of utilization as maybe in terms of the members were.
Paid members of last year. This time, what does that yeah utilization.
Yeah. So the way I would think about of Sean as you know we talked about.
About us being at an 8% utilization rate for the quarter. If we work to quote unquote normalize that if you well for you don't the extra population that we added on its you know cinco fit or about 50 basis points.
Yeah, our approximately four they'll quarter.
So that's 50 basis points, that's not an annualized 50 basis points that's for the quarter.
No no sorry, if I think of it on an annualized basis to be 50 basis points higher within the quarter within the quarter.
Within the quarter, Okay got it and then that's helpful. Thank you and then in terms of your guidance.
Bump up on revenue tightening the range on EBITDA. What is this trying to communicate to us in terms of the incremental profitability of these new ads.
No no. It's a great question so.
You know here's what I would say first of all just for contacts and a reminder.
If you look at the midpoint, however, EBITDA of the range that we have given its more than doubling the adjusted EBITDA from last year.
It's also in Q4, we are calling on a delivery.
For the fourth quarter that is roughly about equal to what we have delivered from an adjusted EBITDA through Q3.
We feel very confident that we are able to you know that we see a clear line of sites to delivering that.
And it is based on all of the same levers that we talked about in Q3 revenue growth.
The gross margin delivery that we expect in Q4 and now I will remind you. The gross margin in Q4 is typically more muted from a seasonal perspective relative to the other partners and then you know the operating leverage that we hope to drive.
In Q4, so I would not say that we are trying to communicate anything different.
From what we have said before and from what our levers are to drive EBITDA adjusted EBITDA Youre today.
Okay. Thank you very much.
Your next question comes from David with Jefferies. Your line is open.
Hello, that's perfect beside a follow up question. The Sam's question, he only seem like a Sam to me.
The question Sean's question. Obviously the question I have is around utilization and if <unk>. If you could share with us the range of utilization from Youre, obviously very low for the most recently Onboarded I'm I'm presuming.
What kind of levels are you achieving and what is characteristic of the highest achievement I think there were some mentioned in the prepared remarks about multi product clients.
Additionally, ones that have been on your platform for longer but kind of interested in the profile of those and then you've talked about advertising.
What type of how important is it and what type of initiatives are you taking on to drive utilization toward those highest levels.
Sure. Thanks, David you know.
We've talked about multiple times. The fact that we have clients up in the 80% to 100% utilization range in fact, our own employee population as north of that.
You know those tend to be employers, where we have very close relationships and we can do direct communications and we work hand in hand with the employer.
To promote the services. It also tends to be where we have a broad scope of our products and services in the population those multi product.
Hey, a implementations.
I can give me a couple of stats that sort of a help to set the tone around.
Why we feel confident about the continued growth of utilization.
First I would say, 50% of our of the growth in visits year over year are coming from new registrations. So that's very very strong for us because it keeps the flywheel moving right. We continue to add more people into the mix and and having said that.
Hey, about 60% of our total visits come from at least in the general medical population come from existing.
Users. So you know, we're adding more people in and we get repeat utilization and so we're seeing increase.
Visits per user and then lastly, as you think about those new products and services that we bring to market. They frequently are stickier or create more visits per user so in our mental health population.
Almost 80% of our mental health visits are from repeat users, meaning it's not there first visit but rather it's a second or third or fourth or fifth visits and visit in the cycle of their treatment.
And so you you put all that together, we feel really good about the underlying.
Model and then layering on top of it is our surround sound engagement model, where we have a very very strong data underpinning.
We apply data science against it to target, where we're going to communicate in digital channels and worksite channels in partnership with our clients in the home and increasingly on a more generalized basis, because now with over 50 million.
People, who have access to the Teladoc platform those more generalized a lower cost channels can be really effective for us.
I appreciate that thanks for that complete answer my follow up question is around.
Trends in PMPM versus visit fees, only you mentioned and I may and the answer on M&A that you're seeing similar pursuit from the health plans with PMPM plus.
The and and the U.N.H. was a third PMPM of the total 15 million I believe.
I guess I'm I'm curious what your dialogue with health plans sounds like in terms of the interest in pursuing continuing to pursue PMPM models that I believe also helped to fund and contribute to your ability to grow that utilization.
Yeah. So that's exactly right. Okay. The your your last phrases is exactly the right lever and we've proven our ability to drive higher utilization levels and that is in the best interest of our clients and.
They come to us and we model out what we can drive for them than what we can save for them and they get a a very very strong ROI on the total spend which includes both to visit fee and the subscription fee.
No.
Well, we only have a handful of very very large clients in that bucket a visit fee only.
And so I would call those the exception not the rule and really not a trend. So you know it's interesting I was looking back.
At what our P. M. P M and membership was four years ago. The first quarter. After we went public and we had 12.6 million members and a 45 cents PMPM. So you know people have been asking whether the P. M. P. M is sustainable and can continue to grow over time since we went public.
Again, we've more than double that while we've gotten to the point of being now more than 50 million people that have access to the platform.
So sorry, if I could if I could turn that question around on drop off I promise, but.
So maybe to come out at the other way.
What's the logic behind United not putting all 15 million members in PMPM.
Yeah, so I'm not going to comment on that specific negotiations and discussions with an individual client or put words in their mouth that would that would put me over my skis. So with due respect I'm probably going to pass okay, [laughter] alright, that's fine.
Most of them. Thank you.
Okay.
Your next question comes from Ryan Daniels with William Blair. Your line is open.
Hey, guys. This is Nick speak out in for Ryan I guess on this new product offering with the mental health combination I was wondering why only limit that to.
100000 members I think it was a man who exactly is receiving that benefit.
Yeah, So you're talking about Teladoc medical experts thanks for the question.
Right.
Yeah. So we <unk>, we just sold it to our first 200000.
Employee client or two clients with 100000 employees that was U P. S. A nationwide insurance and this is our really an enhanced combination of the expert medical services that were offered by best doctors are the extra medical services that were offered by advanced medical and.
Mental health navigator right there that we stood up sort of at the roughly at the same time that we're doing the best doctors acquisition and putting them all together into a physician led by expert medical service, that's really holistic and spans across.
Medical and mental health and.
And also spans across virtual care and physical work the physical delivery system. We're really excited about the prospects here. We think this is not only going to be a.
A very attractive product for clients, but also make a big impact on the health of our members.
And we see this as just the beginning of the big trend.
And was this something that they came to you looking for or was that something that you offered to them kind of like on your own side.
It was a little bit of a combination of both.
You know nationwide was an existing client and we transition them onto.
This product and are we added to Dan really a and U.P.S. was going to market looking for a solution kind of like this and we were able to meet their needs by pulling together all of our several of our of our assets into a single solution. We were already moving down this path and.
The way so it was I sort of a convergence of those.
Got you, thanks, Len or kind of shifting gears, a little bit I have seen quite a bit of data regarding flu season.
How it's supposed to be a pretty bad one here I was wondering if that's reflected at all.
In your guidance and then if not like would that represent.
Upside I guess to where we're guiding yet.
Yeah. So right now you know the early indications that we are seeing beer, obviously monitoring at all the time you know, it's very very early for us to take a call on you know how much worse or not it is relative to last year. So at this point in time, we have not made those specific assumptions of it.
Being much worse than last year, it's too early to tell.
Got you that makes sense. Thanks, you think so I'll hop off every night.
Thanks, Nick.
Next question comes from Daniel Brims with that's Phebe.
Hey, guys. Thanks for taking the question I just got a couple of four.
Outside of the equation.
Last quarter you noted.
You expect to see around 50%.
Yes.
Outside.
Thanks.
Revenue for this year.
Wondering how you're tracking.
And then you also noted.
Our fees.
200%.
Last quarter.
<unk>.
When rates you're seeing on those Rcs.
We can expect for growth rates in 2020.
So let me address the first part and then I'll turn it over to Jason We what we specifically said is that we expect the mental health business to grow over 50% north of 50% this year and so far we feel pretty good about the momentum that we are seeing coming out of the business I've talked about a Jason talked about it et cetera.
Yeah on the RFP side, we don't generally release when rates within any part of our business.
Mental health falls into in many cases, the multi specialty or multi product.
RFP is we're it's only it's rare that we're seeing just mental health RFP isolated more often we're seeing a multi product RFP that includes mental health and we tend to have a very good win rate in those RFP is because of the breadth of our product portfolio.
Got it and just in terms of growth, obviously, you're working off of the bigger base.
But how should we think about growth rate.
But.
The business.
[noise]. So we won't comment on specific growth rates for parts of the business specific parts of the business I think that is something based on the color be provided and the comments. We've made that is just something that you will have to sort of just factoring and reflect.
And your model.
Understood. Thank you.
Your next question goes from Matt Hewitt with Craig Hallum Capital. Your line is open.
Hi, guys things for taking my questions. Please just lukas spare no ski on for Matt Hewitt I guess my first one here you've talked in the past about how your first to go live date in Canada was scheduled for Q3 and it sounds like that occurred. So maybe you could just tell us what kind of traction a years.
<unk>, Canada generally.
Yeah, Great receptivity in Canada to our new Tele medicine, offering there which of course is in addition to our <unk> extra medical services, which were there already and our mental health navigator. So I. That's another example of us continuing to expand the product portfolio.
So receptivity has been really good Oh, we launched with a a client the Johnson group.
As a as our first client and we're already seeing additional interest and we're seeing good trashing traction with that client.
Okay, that's great to hear and then I guess, just with some of the noise around potential competition. I guess, we were just wondering what levers could you pull to maintain your margin profile you know us competition comes in and decides to compete on price.
Well I think there are few things one is we have unmatched scale right and so scale gives us a competitive advantage with respect to cost.
Okay and enables us to protect our margins.
Two is the <unk> the the nature of our broad product portfolio enables us to not compete on a single product, but rather to compete as a full holistic virtual care solution.
And that is really a different offering it's incredibly difficult to replicate the entire breadth of our product portfolio and as a result, we're in talking about an entirely different strategy than anyone else can in the market or new entrants into the market.
And the other thing I would also add as you know we are really the only one who draw activates and rights membership engagement and that really helps the returns for our clients and all of that allows us to not only drive to further scale, but also from a pricing perspective no as.
We talk about extending relationship. So it's all of the things that Jason talked about in his closing remarks on what our strategic Differentiators.
Okay. Thank you very much that's helpful.
Thanks Lucas.
The question comes from Charles <unk> with Cowen Your line is open.
Hi, Thanks for squeezing me in here.
One of the Jason if I could just jump back to some of the only comment when we were talking about activating and engaging obviously the United population is coming on how are you able to bring all your engagement tools to better when trying to reach out to this population and is there any differences between how you can activate these numbers whether.
Okay.
Between this is there any differences it there because it only member Bush's a you was paid member.
So I won't get into the details of all the tools that were going to use but what I will say is it's extraordinarily collaborative with the U H C team.
Our marketing teams have been working together for months and launch planning.
Communications collaboration.
Using joint capabilities between the two organizations and so I feel really good about both the collaboration between the two organizations and I'd say the yield that we're going to get out of that that those efforts.
Okay, and maybe just on the visit fuel emo it'd be thing what the modeling.
For this if you only visits when we think about the way we should model or should we think about sort of the revenue per visit similar to more like the no contract or at least the numbers that we were kind of told a few years back regarding that or.
Oh, how should we think about that as we build out our models.
Yeah. So we have always said that our visit fees only population is not just that no. It is a mix of customers and you know, we obviously have been fairly public with the pricing we have but that's no but we have more than at night in our visit fees.
Only population so what I would say to you as I just think about that broader mix look at our results from a visit revenue perspective, and the visit counting growth that we have for via phone and you will be able to come to from a modeling perspective.
More off a weighted mix.
Okay.
Okay, I think the everything and I don't just saying here.
Okay. Just squeeze one more you know about CBS , you talked about how thats ramping up and we're now in 39 stage.
Can you you know can you talk about how this rambled works as well since it I would imagine you don't really reached this population directly is this really more encumber them on CBS to drive.
Members that access there apple or the website to the two this or the virtual service and and can you remind us.
Oh, that's captured maybe in your budget numbers or is it or is it separate thank you.
So the answer to the first part of the question is yes right.
This is a private labeled service, where we power it.
Hey, with our technology.
We provide the the clinical services, although the agreement as we've discussed before does provide for the opportunity for their providers also to provide the clinical services again using our technology.
They are responsible for the marketing and engagement of their customers.
And then with the second part of the question we capture any visits that are on our platform a in our visit volume.
And doubling the U.S. paid member volume or is that because if you only volume.
No there by definition there is not a membership and so it's in visit feeling like I said to visit the only.
Okay perfect. Thank you.
Thanks Charles.
Your next question.
Bank of America.
<unk>.
Thanks for taking the question the Fourq EBITDA range is pretty wide.
Can you talk about what gets you to both the top and bottom into that range.
[noise] so the way I would think about it is as follows you are oh God the revenue growth rates and I'd look at it both sequentially from Q3 and I would also look at it from a year over year.
Perspective for Q4, so that's number one.
The second thing I would say as.
You know we have definitely always in Q4 lower gross margin typically because of the you know greater mix off.
Visits envisage revenue, but again like I said, we are very early in the flu season, you know at this point in time I would stay with the midpoint, but depending on that that could change whether you are at the bottom and all the top end. So that's the second thing.
And then the the last thing I would say is we are definitely going to drive more leverage in the fourth quarter from a opex in a spending perspective, you know we will typically as we've talked about marketing spend in Q3, we are pretty Judy.
She was about when we buy how much we spend from a marketing perspective, so I do expect to drive leverage on that so I would say you know those are typically those factors that will drive on the bottom end on the top end of the range, but you know that I I at this point in time I wouldn't say, there's any other xtremio central factor.
Other than those.
That's helpful. And then on better help is revenue growing faster than advertising or are you viewing this as more of a land grab and you're willing to spend up to get an incremental member. Thanks.
So we haven't broken out either the revenue or the or the advertising spend for better help or our DTC channel.
What we have said and what we continue to find is that our customer acquisition costs continue to come down so we're getting leverage out of that.
Our pricing continues to be strong.
And our lifetime value of the member continues to increase so you can you can sort of derived the answer from those factors.
And we feel good about the direction all those are heading and I would also say you know are the the data. We track shows our membership chart is also improving so it's all of those different factors that essentially will allow us to get to a greater lifetime value and the ROI.
Great. Thank you both.
Again, if you like sound question. Please press Star One. Your next question comes from George Hill with Deutsche Bank. Your line is open.
Hey, good evening, guys and thanks for squeezing me in at the end Oh, I think I'm near the end adjacent I've a question I guess, the little bit about the competitive environment and how you talked about this holistic virtual care solution Oh, we're seeing a lot of planned sponsors, particularly on the employer side sort to bring in what I would call like these niche.
They're not perfect telemedicine comp but.
Mr companies that do Lucky and integrating tech stack in services around things like backing muscular skeletal obesity diabetes and I guess, just how do you think about whether those things I guess compete for wallet share with Teladoc.
Or whether there are complimentary opportunities for teladoc or is that likes your wallet that you guys try to take in the future and I'm just kind of I guess, how you're seeing that edge of the marketable.
Yeah, it's interesting we're seeing.
<unk> quite frankly quite a bit of vendor fatigue, among a especially employer clients who have.
You know one of each of the things that you just described and their uncoordinated and they have to deal with each one of those vendors and so they prefer to come to us for a holistic solutions. So you know you're talking about muscular skeletal we have a partnership with tell a spine, which gets delivered through our interface.
In a seamless experience we also bring the expert medical services around muscular skeletal so that we can do treatment decision support before someone has a back surgery or something like that.
Our partnership with Vito, where we're going to bring a seamless program to market through our interface I is really resonating with with our clients and prospects because it has the promise of being a virtual multispecialty practice combined with a virtual San.
Center of excellence, all wrapped into one and kind of obviates the need for all of those individual point solutions. So we're going to continue to focus on that holistic solution and you know we've been pretty methodical about building out all the various components of that or partnering or acquiring for them, where we see.
That it's appropriate.
Okay. That's helpful. Thank you.
Thanks George.
Next question comes from Glenn St. Joe from Guggenheim. Your line is open.
Oh, yes, thanks for taking the question Jason I just wanted to follow up on some of the comments you made earlier with respect to PMPM pricing.
I appreciate the fact that the company has done a great job over the last four years sort of grow in that number but I'm just kind of what a tie that back to some comments you you've made more recently that the company's goal remains to be the soared to grow that PMPM pricing by five to 10 cents a year and I'm trying to reconcile that with some of the comments you made with respect to.
So having a strong health plan pipeline and I appreciate the dilutive impact of bringing on those big populations and so given the comments you made about your pipeline like how should we think about that number on a go forward basis at least in the near term and then Mel I'm not sure kind of whats implied in the fourth Q number in how we should maybe.
We think about.
2020 in that regard.
Yeah. So you know what I would guide you to as we have always said that when we onboard large populations there will be temporary dampening impact on the PMPM.
You know what I would expect as you should actually remember that we launched United only in the last month of the quarter. So you know if you think about the PMPM in Q4, you will continue to see a depression in the a dampening in the PMPM for Q4.
But what you should all ne is what you should also see is over time.
You will see be PMPM, reassert and grow and the thing I would say why because again you know we are today, a diverse set of businesses and channels right all the way from.
The health plans that you've talked about where yes, you know the the PMPM is one thing for health plan, but when but when we sell to the broker channel. For example, you know the PMPM that we have there is multiples off what you see in the health plan. That's a channel for us. So I would say thing go fast as.
Diverse portfolio of channels with different PMPM, and what you are seeing us deliver and demonstrate because of that diversity of channels is a growth in PMPM absent the temporary impact off off the you know when be onboard large popular.
Patients on the one other thing I will tell you as if we want to again normalize for our you know though.
Expansion that we had in the quarter, our PMPM would really be added about 107.
HM Okay, sorry, it doesn't.
So you shouldn't you will see so that's that's the point on making about you know the dampening and then you should see a growing back.
Okay. That's helpful. Maybe I could just follow up one question on the selling season I think you touched on this a little bit but it sounds like with the RFP volume up 25%. Jason are you seeing any increased interest in one of the revenue models, whether it be PMPM or.
Shared services or visit fee only you're seeing more interest in one way or another and does the company have a strong preference one where another can you you prefer PMPM because you can increase.
The membership engagement, what's the company's preference and what are you seeing from the customers at this point in time.
Yeah, the RFP volume, a or content is pretty consistent with what we've seen historically, we're not seeing any major shifts in that and you know what we've always said is that we have enough data and F experience and the sort of underlying analytics to.
These successful regardless of what the economic model is and we know how to price the business. According to the expenditure and the costs that were going to lay out in order to deliver it. So you know we we have target gross margins that we work too high and were able.
Well to dial and regardless of what the economic model us.
Okay helpful. Thank you.
Thanks Glenn.
There are no further questions Tom I turn the call back to presenters for any closing remarks.
Thanks very much appreciate it we're excited about what was another great quarter and.
Thank you for joining us.
This concludes today's conference call.
Correct.
[noise].