Q1 2022 Teladoc Health Inc Earnings Call
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Good afternoon. Thank you for attending today's Cologuard 2022 first quarter earnings Conference call.
My name is Nathan I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
I'd like to ask a question. Please press star one on your children.
I would like to now pass the call inventory you Patrick Lee with Telecom Patrick. Please go ahead.
Thank you and good afternoon today after the market closed we issued a press release announcing our first quarter 2022 financial results. This press release and the accompanying slide presentation are available on the Investor Relations section of the Teladoc health Dot Com website on this call to discuss the results are Jason <unk>, Chief Executive Officer, and Mala Murthy Chief.
Financial officer during.
During this call. We will also provide our second quarter and full year 2022 outlook and our prepared remarks will be followed by a question and answer session. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating teladoc health's performance details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation.
Thereof 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 of 1095, such forward looking statements are subject to risks uncertainties and other factors that could cause the actual results for teladoc health to differ materially from those expressed or implied on this call for additional information. Please refer.
Our cautionary statement in our press release, and our filings with the SEC all of which are available on our website I would now like to turn the call over to Jason.
Thanks, Patrick Good afternoon, and thank you for joining us.
Well I'm pleased to report that we met our guidance for Q1 revenue and adjusted EBITDA as you saw in our earnings release. This afternoon, we have revised down our revenue and adjusted EBITDA outlook for the full year, although I'll spend most of my prepared comments discussing how the market dynamics. We are currently seeing in the direct to consumer mental health.
And chronic care markets have influenced our revised outlook for 2022 I do think it's important to do so in the context of our broader business.
Coming out of the first quarter kilowatt continues to be the leading brand in the digital health space.
Our unmatched scale solid fundamentals and strong balance sheet with over $830 million in cash leaves us well positioned to build upon our market leadership by delivering innovative new solutions to transform the way consumers interact with the health care system, we remain confident in <unk>.
And committed to our whole person care strategy.
And our interactions with clients and prospects confirm that it is the future of digital health.
As the industry matures, we're seeing our most progressive clients embracing our integrated approach for their health care needs.
I'll speak to that momentum later in my remarks, but what's notable is that we continue to see growth across all our services.
Even if the level of growth in some areas is lower than our prior expectations.
As you think about the road ahead for Teladoc health, we remain committed to making necessary ongoing investments and delivering on innovation because the market is moving fast.
Achieving full integration of our member experience and delivering several last mile enhancements to our primary 360, <unk> spring remain high on that list.
We're certainly disappointed to lower guidance today.
However, we continue to believe we're the best positioned company in health care and technology to transform the health care experience.
With that let me spend some time walking through what led us to reassess our outlook for the balance of 2022, starting with our direct to consumer mental health service better health over the past several weeks, we've seen lower than expected yield on marketing spend for better health, which is a reversal of the trends we experienced exiting <unk>.
<unk> thousand 21 and in the early part of 2022.
One example of this is paid search advertising, where we've seen a notable increase in rates for keywords associated with online therapy.
We believe the biggest driver of this dynamic as smaller private competitors pursuing what we think are low or no return customer acquisition strategies in an attempt to establish market share.
Some of those same providers are also exploiting the temporary suspension of certain regulations associated with the national health emergency concerning the prescription of controlled substances.
We believe these strategies are unsustainable in the long term. This dynamic is likely to persist at least throughout the remainder of this year, however, resulting in growth and margin contribution from better health that is below our expectation in February .
The good news is that unlike smaller market participants we operated at a scale that allows us to continue investing in the direct to consumer market to drive both strong growth and returns.
And we can drive growth, while remaining disciplined in our member acquisition strategy.
Furthermore, our push to diversify customer acquisition channels in recent years has left us better positioned to operate within this environment No single channel accounts for more than 25% of newly acquired members for better health.
So for example, we are less reliant on paid search as a source of new members than in the past.
While the dynamics in the direct to consumer market, where only a modest drag on our first quarter revenue given the persistency of these trends over the past several weeks and the broader economic backdrop. We've incorporated this updated view into our forward outlook, including an assumed 10% lower revenue.
Yield per dollar of AD spend for the full year.
To be clear, we continue to expect strong growth and margin contribution from better help, albeit below our prior expectations.
Our revised revenue guidance range for 2022 assumes better help will grow in the upper half of our long term target range for mental health revenue growth of 30% to 40% per year.
Chronic care, we have more clarity on the cadence of Onboarding <unk> from the large health plan client that we discussed last quarter.
We remain on track for population launches with this client and other recently signed deals over the course of 2022 <unk>.
However, we're also seeing our chronic care sales pipeline develop more slowly than anticipated.
Last October we discussed two trends in the marketplace that we saw leading to an elongated selling cycle.
The first was in the employer market, where we saw benefit managers focused on Covid and returned to work, which we felt was contributing to a longer decision making process. The second was a large pipeline of health plan deals that were simply harder to predict when it comes to timing given the size and complexity of those.
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At the beginning of this year, we were encouraged by very strong fourth quarter bookings and a robust late stage pipeline. However, as we've progressed through the first part of the year, we're seeing clear signs of the slower bookings pace continuing.
In addition to the factors we discussed last fall, we're seeing clients inundated with a number of new smaller point solutions, which has created noise in the marketplace.
While in the near term we expect this noise to persist we believe our broad integrated approach to virtual and digital care delivery is a competitive advantage that positions teladoc to be the long term winner in this space.
In the meantime, we are in the process of taking a closer look at some of these forces that are impacting the near term conversion of pipeline to revenue.
And we will continue to make adjustments as necessary to address them.
So while the pipeline as large and as of the end of the first quarter. The late stage pipeline has grown significantly as compared to the first quarter of last year, we're not seeing deals progressed at the pace that we expected.
It's still somewhat early in the selling season, but based on how the pipeline has developed over the first four months of the year. We felt it was prudent to update our forecast.
Our revised 2022 guidance assumes chronic care revenue growth on a percentage basis in the low to mid teens.
When comparing the impact to guidance from the items. We've just discussed approximately three quarters of the reduction to our 2022 revenue outlook is driven by lower expected growth at better help with the remainder primarily attributed to the lower expected revenue from our suite of chronic care products.
For adjusted EBITDA, approximately two thirds of the reduction is driven by lower yield on advertising spend from better health.
The remainder of the revision is driven primarily by our lower chronic care revenue outlook as well as a modest increase in our assumption for wage growth.
Due to higher inflation as we grow our head count in technology and development.
As a result of these updates we now expect revenue of $2 four to $2 5 billion and adjusted EBITDA of $240 million to $265 million for fiscal year 2022.
We believe these ranges appropriately capture the reasonable risks and potential upside.
We're not providing today any guidance with respect to periods. After 2022, and we're evaluating whether there will be effects to our long term revenue growth outlook.
As I said at the top of the call. Despite the change in our 2022 outlook, we remain confident in our position as the leader in the digital health space. Our key competitive advantage is our market, leading depth and breadth of capabilities.
And those capabilities underpin our strategy to bring broad integrated solutions to the market that meet the full set of needs for clients and members. During the first quarter, we continued to make progress against that whole person strategy.
A key lynchpin of our ability to deliver upon the promise of whole person virtual care is our market, leading virtual primary care product primary $3 60.
Primary 360 is designed to act as the front door to care for our members.
It opens pathways to teladoc own ecosystem of digital and virtual solutions and coordinates care with third party providers within a health plan or employers network when needed.
We continue to be excited about the momentum we're seeing in primary <unk> lash.
Last quarter, we talked about a growing pipeline of primary 360 deals and over the past two months, we've made important progress moving deals through the pipeline we.
We've seen particularly strong interest from our health plan clients, many of whom are looking to combined primary 360 with our whole person suite of telehealth mental health and chronic condition support to create virtual first care models for their members.
I expect to have additional notable primary 360 deals to announce as we progress through the rest of the year as health plans and employers look to provide their populations with innovative solutions that make primary care more convenient and accessible.
We also recently announced an important new partnership with northwest Health Unseating, an incumbent competitor and the process.
Many of you in the New York Metro area are familiar with north well as new York's largest health care provider.
With 22 hospitals and over 800 outpatient facilities.
North Wells virtual enterprise strategy will leverage our single integrated platform that spans consumer and provider to provider applications. Both within the four walls of north wells facilities for high acuity and emergency care.
And directly into the patient's home.
North level will also leverage our partnership with Microsoft to streamline clinical collaboration and communication among north well connect clinicians.
This deal underscores the value of our Microsoft relationship and demonstrates the power of our integrated platform, which allows clients to operate within one platform for all of their virtual care use cases.
With that I'll turn the call over to Mala for a review of the first quarter and our second quarter and full year 2022 guidance.
Thank you, Jason and good afternoon, everyone.
During the first quarter total revenue increased 25% year over year to $565 million.
Substantially all of that growth with organic we ended the quarter with U S paid membership of $54 3 million members an increase of 680000 members over the fourth quarter individuals with visit fee only access was $25 2 million at the end of the first quarter.
Representing an increase of 950000 individuals.
The total number of our unique members enrolled in one or more of our chronic care program was 731000 as of the first quarter.
An increase of 78000 enrollees over the prior year's quarter.
77% of our chronic care members are now enrolled in more than one program up from 15% in the first quarter of 2021.
This helped drive total chronic care program enrolment to over 900000, an increase of more than 140000 or 19% over the prior year.
Average U S revenue per member per month was $2.52 in the first quarter.
21% from $2 and nine in the prior year's quarter.
Visit fee revenue for the first quarter of $68 million increased 12% year over year.
During the first quarter, we provided $4 5 million visits through our network of clinicians.
35% over the prior year's quarter.
The biggest contributor to this growth with strength in mental health utilization.
Adjusted EBITDA was $54 $5 million in the first quarter compared to $56 $6 million in the prior year's first quarter and at the high end of our guidance range. As a reminder, our first quarter 2021, adjusted EBITDA included a $6 nine.
Benefit related to purchase accounting adjustments.
As discussed on last quarter's call. It's typical for us to see a ramp up in advertising spend and a lower margin in the first quarter as we take advantage of lower media pricing. Following the conclusion of the more expensive holiday season, and that was the case this year important to note that in <unk>.
21, this seasonality was less pronounced due to a weaker advertising market during the onset of the pandemic.
Net loss per share in the first quarter was $41 58 compared to a net loss per share of dollar and 31 cents in the first quarter of last year.
Net loss per share in the first quarter includes a non cash goodwill impairment charge of $41.11 per share or $6 6 billion.
Yeah.
The goodwill impairment, which triggered by the sustained decline in Teladoc health share price with evaluation and size of the impairment charge driven by a combination of recent market based factors.
Such as an increased discount rate decreased market multiples.
A relevant peer group of high growth digital health care companies.
As well as updates to our forecasted cash flows consistent with our revised guidance disclosed today.
Included in net loss per share was stock based compensation expense of 38 cents per share in amortization of acquired intangibles of 31 cents per share.
We ended the quarter with $839 million in cash and short term investments on the balance sheet.
Now turning to forward guidance.
For the full year 2022 we expect revenue to be in the range of 2.42, $2 5 billion.
Representing growth of 18% to 23% over the prior year.
We expect total U S paid membership of 54 to 56 million members.
Representing growth of 125% year over year with the remainder of revenue growth driven by expanding revenue per member.
We expect total visits in 2022 to be between 18, five and $19 5 million visits representing growth of 20% to 27% over the prior year.
We expect adjusted EBITDA in 2022 to be in the range of $240 million to $265 million, representing an adjusted EBITDA margin of 10, two to 10, 6% compared to a 12% margin in 2021 .
Normalizing for last year's purchase price accounting benefit.
As discussed the decline in consolidated margin is primarily a function of lower expected results from better health and our suite of chronic care product and a modest increase in expected wage rate inflation.
For the second quarter of 2022 we expect revenue of $580 million to $600 million.
Representing growth of 15% to 19% over the prior year's quarter.
As discussed on our last earnings call. In contrast to prior years, we continue to expect the cadence of new chronic care enrollees to be more heavily weighted to the back half of the year.
We expect total U S paid membership in the second quarter of 54 to 55 million.
Total second quarter visits are expected to be between four four and $4 6 million visits.
Representing year over year growth of 20% to 26%.
We expect second quarter adjusted EBITDA to be in the range of 39% to $49 million.
The lower expected sequential adjusted EBITDA in the second quarter is primarily a function of a lower contribution from direct to consumer mental health and increased engagement spending in support of new chronic care population lunches.
With that I will turn the call back to Jason for closing remarks. Thanks.
Thanks, Marla, we hold ourselves to a high standard and there is no question, we are disappointed with our revised outlook today.
However, as I mentioned earlier, we remain highly confident that our whole person integrated approach is the right one.
The depth and breadth of our integrated product offering is unmatched.
As the clear leader in the industry, we believe that only comprehensive integrated solutions like ours can truly deliver upon the promise of better outcomes are better experience and more efficient care for clients and consumers.
Basically built the broadest set of virtual and digital health capabilities available in the market today, and we will continue to innovate and build upon those capabilities to expand our lead and execute against the tremendous opportunity ahead.
With that we'll open the call for questions operator.
Absolutely.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
For any reason you would like to move next question. Please press star followed by two again to ask a question Press Star one as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question and please note that will be the questioners to one question per participant.
We will talk to you briefly it's questions you registered.
Our first question is to Lisa Gill with J P. Morgan Lisa Your line is open you can go ahead. Thanks.
Thanks, very much and.
Thanks for the detail I'll I'll keep my question to just one area, Jason but I might have multiple parts here I, just really wanted to understand a little bit better on what's happening in the mental health area you talked about the last few weeks where.
Customer acquisition costs paid searches being much higher.
Is this all one driven based on competition to you talked a little bit about higher wages, but what are we seeing as far as demand and competition for clinicians and then thirdly, if I look at the revised EBITDA and the margins being down roughly 300 basis points.
Versus what your expectations were before.
Are you spending even more incrementally when we think about that customer acquisition cost on the mental health side as I I know you in my life called out that two thirds of the impact is coming from better help.
Yes, so ill.
Talk about the competitive landscape and the environment and what we're seeing in the better help a bit.
This has mala can talk to the overall margin outlook and I and our outlook for 'twenty two adjusted EBITDA.
When I look at the direct to consumer mental health business.
We are seeing lower than expected yield on marketing spend over the past several weeks, it's really as.
As I look at <unk>.
January and February we saw the cost per new acquired member trending in line with our prior expectations, which is a decline from December but that turned around against us in March and we began to see increases in cost per acquisition and a corresponding decline.
And revenue yield on our advertising.
There were two primary channels that drove that.
One is paid search and number two is paid social media.
I would say that we strongly attribute that to smaller private competitors, who have been recently well funded.
With a rash of a venture capital money flowing into that space and making what we would consider to be economically irrational decisions.
The good news for US is that we're able to pull back on that without decimating the business and as you heard from my comments, we still expect.
Sort of at the high end of our range in terms of our growth for better health.
And I'll give you an example in paid search.
Our CPA was up 20% in March versus January and February and paid search represents somewhere between 20 and 25% of our newly acquired members in the first quarter.
So the second part that I referenced in our in my prepared remarks actually Ironically relates to an article I saw in the journal today that you may have seen.
About Cvs and Walgreens, refusing to fill prescriptions for adderall and other controlled substances from some direct to consumer telehealth, specifically mental telehealth companies, obviously, we don't do that.
And we believe we know that some companies are exploiting the temporary suspension of the regulations that prohibit the prescription of controlled substances during the national health emergency.
For better for worse that puts us at a bit of a competitive disadvantage relative to those who do we don't think either of those practices either bidding up the search.
I the search auctions for prescribing controlled substances is a sustainable practice.
And we're going to continue to focus on running a long term profitable growth business.
And maybe just one more comment on better health and then while I can talk about overall outlook on adjusted EBITDA. Lisa you asked about wage inflation and an access or or availability of clinicians were better help neither one of those is a constraint.
On our growth.
That led to our change in the outlook for the rest of this year.
Really it's those two things it's the increase in customer acquisition.
And are they facing competitors, you're exploiting those suspensions in the the regulations, yeah and Lisa to your question, Let me address the profit question overall and.
As it relates to better help as well.
So as we talked about in our prepared remarks, approximately two thirds of the revision in the guidance. We've made to adjusted EBITDA is driven by better help me.
The one third is driven by chronic care as well as a modest increase in wage inflation.
And so far better help the reduction is really about in margin is about lower than expected yields we talked about the CPE increase of 10%. So that is driving the reduced margin.
To be clear as we said.
The margins for better health are still attractive.
As you know vis VB enterprise margins.
The one thing I would say directly to the question you asked if you think about better help ad spend and marketing spend.
And you think about the increase in CPA, what it means for me, how it's flowing through our financials as its similar in M spend.
It just means less revenue because of the lower yield.
Thank you Linda.
Our next question goes to Ryan Daniels with William Blair. Ryan. Your line is open you can go ahead.
Yeah, guys. Thanks for taking the question.
I guess my follow up would be regarding to the other form of weakness in the chronic care management I hope that you can dive into that a little bit more.
Julia.
Similar to the funding we've seen in that space with a lot more on site health care providers. It also offer telehealth some of the navigation companies.
By adding resources to provide telehealth with their solutions is it becoming a more competitive market as well is that part of the noise or is it really more difficulty in getting the attention of larger employers as they deal with return to work such that you think this is truly more of a transitory headwind for that segment.
Thanks.
Yeah. Thanks, Ryan I appreciate the question.
I will go through the various dynamics that we're seeing in the chronic care market that we believe are elongated sales cycle.
And.
I'll just reiterate what I said before and we continue to see a larger pipeline of later stage deals.
That are unfortunately for us taking long to get to close so back in October we talked about a few trends.
Certainly benefit managers distracted by Covid and return to work, we believe that that is continuing.
Also on the positive side for US, we exited 2021 with a record quarter of bookings in the fourth quarter and a very strong late stage pipeline that persisted into the first quarter.
As we move through the first few months of the year, we're just not seeing those deals get to closure.
As the sales process continues to elongate there is some of that that is competitive noise because of.
More competitors.
At our essentially.
<unk>.
I would say, giving the buyer more things to think about and consider I also believe very strongly that if I step back we're a little bit caught in the middle in terms of the timeline.
So I think we are in a transition phase from buyers buying individual point solutions to buying true integrated whole person multi condition offerings.
We also historically as organizations as our legacy organizations Levonne go competed head to head with single point solutions against various point solutions in the market, but not really on the basis of multi condition full whole person care solutions.
And over the last.
12, plus months, we've been working on integrating the lavage go products into our whole person care experience.
And admittedly, we're not done with that yet we are deep into that process.
And we have line of sight to the finish line, but we don't have proof points behind it because we're not finished with it we're getting great feedback and what we're seeing and I think as evidenced by the fact that in the first quarter, 78% of our sales were multi product sales the markets.
Responding really well to it and I think the other evidence of that is the strength of our primary 360 product and the reception we're getting to that.
But but we're still early in that process. So we're convinced that that's the right strategy and.
And we're committed to completing the integration.
Really delivering a unified multi dimensional multi condition solution to the market.
Again, we're going to continue to invest in that so while in the near term, we're disappointed with our performance and the outlook for the rest of this year, we do remain confident in our strategy and our position in the market.
In the meantime, we are taking a closer look at some of the dynamics that are impacting the conversion of our pipeline and we're going to continue to make adjustments as necessary to address them.
Okay.
Thank you Ryan our next question goes to Sandy Draper with Guggenheim Cindy. Your line is open you can go ahead.
Thanks very much.
Jason just sort of a related question too.
To Ryan's one of the things I've been trying to think through is in this.
Wage inflation environment is that think about human resources people trying to attract talent.
They may be having to pay higher wages higher bonuses, signing bonuses et cetera.
Do you have any sense is that impacting maybe people's willingness to as you said the long term it may make a lot of sense to do these larger bundled buys but theres a dollar cost upfront.
I think there is a sense of in this environment people not wanting to add on additional services because they are saying, we're going to have to pay out cash to people in order to get them on board or higher I'm just trying to understand if you think that's a dynamic that's happening out there in the marketplace.
Yeah. Thanks, Andy I understand the question I don't think that's a primary driver of people, making of employers not making a decision. It is possible that that will drive employers to make more purchase decisions through their health plans.
One of the areas that I think we're seeing is that HR departments are getting squeezed because theres. So much going on with respect to return to office.
Dealing with the great resignation at all of the hiring and allocating resources to talent acquisition and retention.
And that we may end up seeing more.
Employers buying these solutions through their health plan I do think that that is overall beneficial for us because we are seeing significant traction for these products with the health plans, who then we have to make a second sale through that health plan into their self insured.
Employers. So we're early in the year to see that pipeline develop.
So it's a little too soon for me to say that that's to say that with certainty, but if I'm reading the tea leaves so that would be my my bias.
Thank you Sandy.
Our next question goes to Sean Dodge with RBC capital markets. Sean. Your line is open you can go ahead.
Yes, thanks, good afternoon.
Going back to better help.
Jason I know you all have been talking about.
We experimented with some different models. They are designed to help improve retention or longevity on the platform. Thank you you've talked before about flexible models you use where.
People can ramp up and down based on how much they want to use without having to turn off or are there any updates you can provide around those and as you test the.
How effective are you finding them to be and then maybe when do you expect to launch them in these kind of more marder scale.
Okay.
Yeah. Thanks, Sean we do see a consistent improvement in the better help metrics I and better health business.
Unfortunately in the last six weeks with the exception of customer acquisition cost.
The the.
So specifically I would say L.
LTV is up modestly.
Retention has been stable to improving over the last couple of years conversion rates on leads and visits to our registration pages have been stable.
Brand awareness is strong and we really have the leading brand in the space.
And we do continue to innovate around things like group therapy.
Which enable a one to many relationship between therapist I and consumers.
And you know every quarter, we test literally dozens of of.
New tactics are product features pricing structures and I think that's one of the things that has continued to help drive that business forward with the tremendous growth that it's had we also do continue to expect significantly significant growth out of that business right. We're still.
Were projecting.
Growth in that business in the high 30.
Percentage wise so I.
I do feel like we're getting a good yield out of our efforts to continue to refine the product and optimize it.
Unfortunately in this circumstance it doesn't overcome the change.
Change in the environment.
For consumer advertising.
And we continue to take a disciplined approach to that so we are not going to overspend, our way through that I and followed the lead of.
Irrational competition, Yeah, I would also add.
No the scale that we operate and the scale at which to better help business operates and you know that continues to grow and.
We continue to expand on the diversity of the acquisition channels, we have so.
The operating metrics that Jason talked about the diversity of the channels. We have all of those are still very much intact as.
As we said in our prepared remarks. This is a business that's growing in the high 30, so again very robust growth.
There are the the the the trends that we're seeing over the last few weeks since February that is certainly making us.
You know come to you with revised guidance relative to the early expectations of growth.
Thank you Sean.
Our next question goes to Richard close with Canaccord Genuity.
Your line is open you can go ahead.
Yes, thanks for the questions may be the dive into.
Brian's question, a little bit more on the chronic side.
Was there any impact with respect to Oh, MADA, becoming the preferred vendor of express scripts.
With respect to the lowered guidance on the chronic side and also on the chronic.
You mentioned point solutions is it something where since you don't have the full integration of all of the solutions on chronic with the whole person health that that's definitely.
Leading the people not.
Are you not being able to close those deals.
Yeah. So Richard Thanks for the question with respect to Armada and express we really don't see a significant impact from that at all.
I would say no to the question is that the source of our of the challenge there.
With respect to our outlook.
As is typically the case our guidance incorporates a little bit of in year revenue right. It was a modest amount of in year revenue contribution from deals that we expect to sign and launched within the current year.
Our prior guidance assumed.
They are low single digit percentage point contribution from in year revenue, meaning deals that we signed and launched within the same year.
We felt that that guidance range adequately captured the downside risk from a relatively modest contribution to the overall revenue.
But we're seeing that pipeline just move more slowly than anticipated. So we've removed the significant majority of that from our outlook.
As I think about that in a sort of Grand scheme as I said it represents about a quarter of the overall reduction in our outlook for revenue.
I'm honestly not sure if we would have even.
If we if we would've made any reduction or or modification to our outlook if it werent caught.
Consequent or ER or.
Or commensurate with the change in our outlook for better health.
Yeah, I mean, I would also add from a profit perspective as you see it has a slightly carries punches more weight from a profit perspective.
If it were only that we have cost levers expense control levers that we would still have managed within and.
Within the original guidance we gave.
Richard with respect to the.
The maturity or where we are in terms of the integration of the chronic care solutions into our whole person strategy, where we are seeing incredibly strong we do a lot of market research and we are in the middle of another study.
We're seeing very very strong response to that whole person approach, but like I said, because it's it's still sort of on the verge of being finished.
With the integration, we don't have the proof points behind it so people are waiting and anxious to see and are.
The early adopters are buying but we haven't yet hit the bulk of the market I in terms of those who are waiting to see the impact that it will have and I'm very very confident in that impact.
And we're starting to see it like I said with large health plans, who are buying in order to offer it to their large self insured clients.
Thank you Richard.
Our next question goes to Stephanie Davis with SBB Securities. Stephanie. Your line is open you can go ahead.
Hey, guys. Thank you for taking my question.
Nathan I know you've been asked a bunch, but I loved your strategic thoughts on the DTC cost arc, the two quarters, you've ever missed both large DTC drove it.
Is this dilution going to be anything DTC strategy related like the extra channels are waiting on the private side funding.
Or is it going to be less of DTC entirely and warranting salary and a mix shift towards the b to b business and with that in mind, what kind of levers could you pull to accelerate that.
Levers to accelerate the <unk> business, Yeah, I know I think I like that.
I think as you've seen from us the.
A significant majority of our investment.
In terms of R&D is going into our whole person approach of integrating the products and services as well as where we've focused our M&A dollars and put our balance sheet to work is on the <unk> side of the business.
We love the better health business and the growth that it generates and we also know that over the long term the gross margins on the <unk> business tend to be higher and I and that is a long term sticky business. So.
There's no question that we expect to see the fruits of our investment in the whole person approach any integration.
And the <unk>.
The data platform work that we're doing yield benefits in the <unk> market and I have very I have a lot of confidence in that based on the feedback that we get from our clients and prospects.
We're just again, we're we're sort of on their journey to get there and this is a big year of integration.
And I expect to come out the other side of it with a significant opportunity based on <unk>.
Unmatched set of products in the market, Yeah, and I would add Stephanie.
The the dynamics in terms of the size of the opportunity the addressable market.
That's still unchanged right, whether it'd be in any of the different.
Conditions that'd be plan primary 360, where we are seeing strong resonance.
We go out and sell to clients all of that is unchanged.
What we what.
What we are doing is as we've talked about the different.
Areas that we are spending.
Investing in from an R&D perspective from a T&D perspective, it's important that we actually continue to stay focused on it and we've always said those are going to drive long term sustainable revenue growth and I do think it's important that we continue to execute on that focus on it and.
As we always have done we will continue to drive operating leverage in terms of expense controls and discipline in the business as we have always done.
Thank you Stephanie.
Our next question goes to Daniel gross night with Citi.
Your line is open you can go ahead.
Hi, guys. Thanks for taking the question.
It seems the better help in chronic care pressures will persist for the remainder of the year I'm curious, how you're thinking about the.
The quarterly cadence of margin expansion in the latter half of the year I just looked at the midpoint of guidance it implies that.
The second half EBITDA margins will increase from around seven 5% in <unk> to around 12% for that second half can you.
Yeah.
Yeah, It's a great question Danielle.
The way we are thinking about the progression of the margins is again, while we have taken down our overall revenue guidance for the year, we still do expect the revenue to ramp through the year right. So that is one of the drivers of margin expansion.
Second thing is as we've talked about on the last earnings call on the DTC side of the business and better health.
We did a as is normal for US we are having up on the AD spend early in the year in Q1 and and in the first part of the year and the benefit of that is.
That is sort of a gift that keeps giving through the year as we get members and B keep those members we retain those members and Azbine. Please the LTV of those members. So that's sort of think of it as an increasing impact financially as we go through the year and then the last thing I would say is the fact that we are expanding margin.
<unk> as we go from the beginning of the year towards the end of the year is something that is entirely consistent with what we've done every year.
And as we think about the enrollment ramp and the fact that we are bringing on in royalties on the chronic care side as we go through the year that is also something that is going to contribute to the expansion in adjusted EBITDA margins as we go through the year. So what I would say to you is the way we had thought.
What about and the drivers of our margin progression as we go through the year those.
When we came out in February with our earlier guidance and the way we're thinking about it now very much the same drive ours, albeit the reduction in the revenue guidance.
Thank you Daniel.
Our next question goes to Charles <unk> with.
With Cowen Charles Your line is open go ahead.
Yes, thanks for taking the question maybe to follow up on that Molla.
You talked about the components and I know you don't want to talk past really 2022, but it sounds like what youre, saying is that.
Other than maybe a lower starting point here the components for margin expansion is still largely intact can you remind us maybe from the analyst day. When you guys gave the source.
100, 150 basis points of margin expansion sort of long term.
The components were perhaps what were you expecting from chronic care.
Versus better help within those so as we think about the revised outlook here and we kind of take out for higher DTC costs.
Is is this kind of range that you were projecting beforehand still sort of in the ballpark, maybe help us out because it sounds like what you're saying is the long term.
This is in terms of margin levers are still there. Thanks.
Yeah Charles Thanks.
We are not in a position to provide an outlook beyond the guidance that we just gave just given the rapidly evolving environment for virtual care right. We've talked about the dynamics of.
That has emerged over the last several weeks.
And so we.
We are in the process of reevaluating how these various dynamics discussed in the remarks that we just gave and we've addressed in our Q&A, how they affect our longer term growth outlook.
And we will give you all an update after we have completed our evaluation.
What I will say is.
With all of that said, we are confident from a long term perspective in our strategy and positioning in the market.
Okay.
Similar to what consistent with Bunge, Jason said, a few minutes ago.
I don't want to go into more detail than that at this moment, just given how much things have evolved.
Thank you Charles our.
Our next question goes to Jessica <unk> with Piper Sandler Jessica Your line is open you can go ahead.
Hi, Thanks, so much for taking my question.
So just as we think about the 30% to 40% growth in behavioral and can you help us understand how much of that anticipated growth is membership driven and how much it pricing driven.
We typically do not go into the details you are talking about better health.
She's right.
We typically will not go into the details of how much of it is membership driven versus pricing driven and that's a level of detail that we have enough in the past.
Thank you Jessica.
Our next question goes to Allen Lutz with Bank of America Alan.
Alan Your line is open you can go ahead.
Hey, Thanks for taking the question I guess to go back to better help again as you think about the advertising that you spent in the first quarter and you think about advertising as a percent of revenue how should we think about that trending in the second quarter and then over the course of the year is that something that's going to kind of continue to creep up or.
Is <unk> kind of a peak level there based on what's embedded in the guide thanks.
So what we are.
What we had embedded in our full year forecast Alan as we've talked about is a 10% increase.
In our cost of acquisition for the year.
You know I would say I don't want to go into a more detailed phasing of that as we go through the year. The only thing I would remind you off is you know things are.
The market is evolving.
Is there a various dynamics as we talked about but typically.
What we would say is you.
You know we.
Heavy up on advertising as we in the.
Early part of the year.
And would be if <unk> said in the past is if you think about for Q and be go into the holiday season in a typical year 'twenty 'twenty was a non normal year, but in an average typically are we.
We do tend to see much higher advertising costs, and we sort of pulled back because again.
We run the better health business in a highly ROI driven way. So you should expect to see similar type of dynamics playing out as we go through the year.
Thank you Alan.
Our next question instant towards Hill Deutsche Bank.
Your line is open you can go ahead.
Yes, good evening, guys and thanks for taking the question I guess, Jason I want to come back to the market dynamics that you talked about.
About the employer market seemingly taking a pause and looking for somebody who can bring to bear kind of an entire suite solutions I think you called it the whole person solution and I guess my question is <unk>.
Two parts. One is do you feel like that this is enough of a hiccup in the market that could impact the selling season for new business into 2023, and competitively are you seeing a different group of competitors, whether whether it's one off solutions that are trying to compete with you guys on the telemedicine basis or are you seeing the M C o's.
And somebody else referenced ever knows earlier trying to cobble together their own suite of third party solutions to compete against you guys. So I'm trying to understand like is the competitive dynamic shifting in a different way. So I guess, it's kinda fill season your breath competitive dynamics. Thank you.
Yeah, George I think it's too soon to tell what the impact will be on this selling season for 2023 business. What I can tell you is that we've seen a lot of very strong managed care opportunities move through our pipeline and to the very.
The late stages of that.
The Big Health plans are embracing our services.
For multiple services.
And where we are we're contracting with them.
<unk> to be available for their buy.
Large self insured clients, which is a pipeline that will begin to develop now and then mature over the course of the summer into the really early fourth quarter.
I think the other part that is very encouraging to me is the reception that we're getting two primary 360 primary $3 60.
And I have always said was going to be a very modest contributor to 2022, but then would ramp in 'twenty three and 24 two becomes much more significant I would say that it's progressing.
With our sales faster than both mall and I had expected.
We're seeing good traction with very large opportunities.
Who are embracing that solution and that we believe very strongly that that's going to be an on ramp as we talked about in November for our chronic care solution. So.
When we talk about 78% of our sales being multi product sales, that's a self reinforcing phenomenon, where we get to multiple products and therefore, a multiple on ramps to our to the full suite.
Thank you George.
Our next question goes to Stan Bernstein with Wells Fargo. Andrew Your line is open you can go ahead.
Thanks for taking my questions I.
I guess on the direct to consumer mental health side, Jason just to understand the comments you are making so.
Your business is being adversely impacted because you aren't getting patients that potentially seem to be seeking controlled substances. When they are initiating a web search and I understand that your business Youre not prescribing. These medicine. So I guess my question is why would someone who is suitable for better help instead ended up signing.
For these other competitors that you are discussing.
Because they provide both.
Online therapy and controlled substances. So it's a broader net and it just provides access to a population.
Who may make may be making decisions between multiple options again, we believe that that's a temporary issue.
Because I believe that the prohibition will be reinstated.
Prescribing controlled substances is likely to be reinstated.
Or it would take.
An actual change in the regulations.
And again I think that is a.
Companion issue, where the bigger issue for US is the increase in the price of advertising.
And paid search and social.
Thank you Stan.
Our next question goes to Elizabeth Anderson with Evercore.
Your line is open you can go ahead.
Yeah.
Elizabeth Your line is open.
We're not getting any audio from Elizabeth.
The next question.
Our next question from Cindy Motz with Goldman Sachs.
Cindy you line is open you can go ahead.
Hi, Thanks for taking my question.
I was just wanted to get back to I think it was sandy's question. Just if maybe some of this is not overwriting like you know recessionary fears from some of your clients maybe in the kind of care segment. You know, maybe you know watching wage inflation in different things pulling back a little and then even with better healthy.
Think about it maybe you know people are looking for a way to get you know whatever they can for cheaper price at this point. So you know whether it is those macro situations just because you know I guess the customer acquisition costs were supposedly coming down with better health you know I know everything sounded very strong six weeks ago and then here we are.
And so just you know also too if there's any way you could help us think about the margins segment margins at all in relation to each other you said Michael is that the margins were still attractive you know with like better help so I assume they are in chronic.
You know, but that would help US you know just to have sort of a long term view about whether this is something macro driven.
Larry Thanks.
Yeah Sandy.
It is it is certainly possible that there are macro effects. We don't have evidence of it and so you know we're not going to sit here and tell you that that is definitely the source.
Slowdown in the cadence of opportunities moving through our pipeline and getting to close on the better help side again, we don't have a clear evidence that a recession or inflation or consumer sensitivity to pricing.
<unk> is the driver we do have evidence of.
Increasing ad costs that really change between.
January and February and then as we moved into March increased significantly and it's been that way on a sustained basis since the beginning of March so yes.
We can only point to the things that we have clear evidence of high end state with confidence and and I wouldn't disagree that that's a that is a hypothesis and quite frankly, we're working on trying to figure out how we test that hypothesis among others.
And Cindy on you know the old margin question, just a couple of comments.
If I think about <unk> gross margin and how that trended on a year on year basis.
If you were to normalize for the purchase price accounting benefits. Our gross margins were essentially flat year over year, and so I would say if I think about our margin progression as I said I will not go beyond 2022 for all the reasons I mentioned, we are reevaluating.
Across the board, but I will say that.
We will as I have said this war.
We will.
Look to maintain.
Expense controls will make the right investments that get us to long term sustainable growth from a revenue standpoint, and I've always said that revenue scaling ultimately is the thing that will.
Drive our long term margin expansion and.
As we increasingly go into value based care arrangements et cetera. We will also look to increase our gross profit dollars and our adjusted EBITDA profit dollars not all of that thinking is is still still holds.
We don't we do not break out.
Do you know the margins for different parts of our business since we reported.
Yes.
Thank you Cindy.
This concludes today's telephone 2020 Q1 earnings conference call.
Moving patients now disconnect Goodbye.
Okay.
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Yes.
Yes.
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