Q2 2022 Teladoc Health Inc Earnings Call
Yeah.
Yeah.
Hello, and welcome to today's Telecom Health Q2 earnings call.
My name is <unk> and I'll be coordinating your cold spring.
I'd like to register a question during your presentation you may do so by pressing star followed by one on your telephone keypad.
I would now like to hand over to Patrick Feeley, Vice President and Investor Relations. The floor is yours. Please go ahead. Thank you and good afternoon today. After the market closed we issued a press release announcing our second 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 this call. We will also provide our third quarter and full year 2022 outlook and our prepared remarks will be followed by a question and answer session.
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 reconciliations 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 to 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.
Thank you Patrick good afternoon, and thank you for joining us.
After the close today Teladoc health reported strong second quarter results with both revenue and adjusted EBITDA coming in above the midpoint of our guidance range.
We enter the second half of the year positioned to expand our market leadership by delivering innovative solutions that transform the way consumers interact with the health care system.
We do this through a relentless focus on clinical quality that enables us to deliver value to as many people as possible through an integrated whole person care offering underpinned by technology and data.
This is made possible by our broad set of capabilities and a model that allows us to integrate with all parts of the health care system without misaligned incentives inherent in other parts of the delivery system.
Our second quarter outperformance as compared to guidance was primarily driven by chronic care revenue where enrollment came in ahead of our expectations.
As discussed earlier in the year, we expected chronic care enrollment growth to be weighted toward the back half of 2022.
However, our team has worked tirelessly during the second quarter to onboard new populations at several clients ahead of schedule fast tracking new program enrollment and driving over 90000 net new enrollments during the second quarter alone.
That enrollment growth came from both new and existing clients.
And importantly, we continue to drive multi program enrollment with roughly 30% of our chronic care members now utilizing multiple chronic care programs.
This is significant not only from a member penetration standpoint, but also serves to improve retention as our members report higher satisfaction with access to more solutions.
We found for example that member retention after one year is 10% higher for members enrolled in our diabetes program plus at least one other program as compared to those enrolled only in the diabetes program.
We're also finding that clinical outcomes improve for members enrolled in multiple programs.
For example, a one <unk> reduction improves as our diabetes management members go from our Standalone solution to adding two three and four programs.
All of this combines to help us deliver more value to our clients and members while driving greater revenue per member.
While we were pleased to exceed our member enrollment targets during the quarter. We are continuing to see our pipeline of chronic care deals developed more slowly than we anticipated at the start of the year as we discussed in our first quarter call.
It remains early in the selling season, but deals continue to progress at a slower pace. We believe at least in part due to competitive noise as the market transitions from Standalone point solutions to integrated whole person virtual care.
Based on what we're currently seeing in the marketplace. We also believe heightened economic uncertainty over the past several months is increasingly playing a part in delaying the decision making process in the employer market.
More and more we're seeing our chronic care clients recognize the value of combining those products with primary care adopting our whole person approach.
And so primary 360 <unk> continues to be a significant bright spot in terms of commercial momentum.
While the market remains in the early part of the adoption curve for virtual primary care, we continue to see indications of strong demand.
Our clients are finding their primary $3 60 is expanding access to care as two thirds of engaged members had not seen a doctor in the last two years prior to primary 360, and nearly one third say that they would not have seen a doctor at all if not for access to primary $3 60.
Patients who are reporting high satisfaction and our members are telling us. This is the result of our providers actually taking the time to listen because our doctors are able to spend time delivering care rather than checking boxes on a chart and dealing with administrative overhead.
As a result of the positive experience our clients are having with primary 360, we now expect to expand our relationship with one of our larger health plan partners to offer primary $3 60 to more of its populations.
This is a strong validation of the value primary 360 is delivering and we're expanding our support of virtual first health plans for this client to several additional states starting next year.
During the second quarter, we also signed a new agreement to expand our relationship with one of our larger health plan partners in the Midwest.
This expansion is building upon our existing chronic care partnership and will enable the plants clients to benefit from our comprehensive suite of integrated primary care and chronic care solutions.
The agreement represents another example of our ability not only to land and expand horizontally into new client populations, but to expand vertically with new products.
And another example of our whole person strategy paying dividends, we recently announced an expanded relationship with priority health and integrated health plan that will bring our primary 360 product bundled together with our suite of chronic care solutions as part of one holistic comprehensive integrated solution.
I referenced these three deals not just because they're important new business signed in the past few months, but because they think they illustrate three different examples of how we drive growth one landing with a client and expanding to serve new populations within that client over time too.
<unk> cross selling new innovative products to existing clients and three bringing a new integrated whole person suite of services to bear for a client bundled together into one offering.
Finally, we continue to add new capabilities to our primary 360 offering that enhance value for our members and clients.
During the second quarter, we added multiple new last mile enhancements.
In home lab testing is now available at no additional cost to primary $3 60 members across the nation.
And free same day delivery of prescription medications is being rolled out in the second half of this year, which will increase both convenience and compliance.
So while it's still early relative to the ultimate opportunity in terms of adoption and penetration of virtual primary care. We continue to see many reasons to be excited about the momentum for our integrated primary $3 60 offering.
Turning to our direct to consumer business, we saw better help continue to deliver robust revenue growth of over 40% year over year as well as strong sequential growth.
At the same time better help performance did come in towards the lower end of our expectations. As we continued to experience the decline in yield on marketing spend that we discussed in April .
We still see smaller private competitors pursuing what we believe are low or no return customer acquisition strategies to establish market share.
Although we do not see this as a sustainable it's difficult to predict how long this dynamic may continue.
We also believe that the weakening economic environment and declining consumer sentiment is likely having an effect on better help performance.
Over the past few months, we've seen modest incremental decline in yield on advertising spend which we believe may be an indication of belt tightening among consumers.
With inflation on the rise consumer confidence has now dropped to multi decade lows.
Given our significant leadership position in the DTC marketplace and our substantial scale advantage. We remain confident that we can continue to outperform the industry and drive strong financial performance as we navigate this increased level of near term economic uncertainty.
These trends in both chronic care and better help into account as well as the impact of a stronger dollar on our international revenue.
We believe it's more likely that our overall financial performance will be towards the lower end of our consolidated revenue and adjusted EBITDA guidance ranges in the second half.
However, there are scenarios in which our results could be above or below this due to the increased uncertainty in the broader economic backdrop, particularly as it relates to trends in consumer spending and its impact on our DTC business.
We will continue to watch these near term evolving dynamics and provide updates as appropriate.
With that I will turn the call over to Mala for a review of the second quarter and our forward guidance.
Thank you, Jason and good afternoon, everyone.
During the second quarter total revenue increased 18% year over year to $592 million.
Revenue from better health, our direct to consumer mental health brand.
All of our 40% as compared to the prior years quarter or 7% sequentially over the first quarter, representing strong growth, albeit towards the lower end of our expectations as we continue to see lower yield on marketing spend as compared to the prior year.
We ended the quarter with U S paid membership of $56 6 million members, an increase of $2 4 million members over the first quarter driven by new virtual care client Onboarding.
Individuals with visit fee only access was $24 million at the end of the second quarter.
The total number of unique members enrolled in one or more of our chronic care program with 790000 as of the second quarter, an increase of 67000 enrollees over the first quarter.
30% of our chronic care members are now enrolled in more than one program up from 27% sequentially from the first quarter.
This helped to drive new chronic care program enrollment of 92000 in the quarter.
Total program enrollments to all of our per 1 million programs and an increase of 167000 or 20% over the prior year.
As Jason discussed the strong new enrollments and chronic care programs during the second quarter outpaced our expectations.
We have now added nearly 70000, new chronic care members and 127000, new program enrollments to date.
At the start of the year, we expect enrollment to be more back half weighted due to the cadence of the expected populations ducks. However.
However, due to our team's efforts to get new populations on boarded faster than anticipated in the second quarter.
We were able to drive more of that enrollment into the second quarter than expected.
As a result of the significant second quarter outperformance.
That could be pulled forward you enrolled and I'm sure in the second half.
As well as the slower pace of pipeline development, Jason mentioned.
We no longer expect enrollment gains to be weighted towards the second half of the year.
Average U S revenue per member per month was $2 60 in the second quarter.
13% from $2 31 in the prior year's quarter.
And up 3% sequentially from the first quarter.
The sequential growth in per member per month revenue was driven primarily by better health and chronic care program revenue Brad.
Adjusted EBITDA was $46 7 million.
<unk> quarter compared to $66 8 million in the prior year's quarter and at the high end of our guidance range.
As discussed earlier this year, we expect a more pronounced margin seasonality. This year as we return to a more normalized cadence of advertising spend.
It's difficult for us to see a lower AD spend and higher margin in the direct to consumer business in the fourth quarter.
As we pulled back on media spend during the more expensive holiday season.
As we talked about last quarter, it's important to note that in 'twenty 2020 'twenty. One this seasonality was less pronounced due to a weaker advertising market during the onset of the pandemic.
Net loss per share in the second quarter was $19 and 22.
Compared to a net loss per share of 86 cents in the second quarter of last year.
Net loss per share in the second quarter includes a noncash goodwill impairment charge of $18 78 per share.
Our $3 billion.
The goodwill impairment was triggered by the decline in Teladoc health share price the devaluation and size of the impairment charge, primarily driven by an increased discount rate and decreased market multiples.
A relevant peer group of high growth digital health care company.
Also included in net loss per share was stock based compensation expense of 32 per share and the amortization of acquired intangibles of <unk> 30 per share.
During the second quarter, we generated free cash flow of $47 $6 million and ended the quarter with $884 million in cash and short term investments on the balance sheet.
Now turning to forward guidance.
While we are maintaining our full year 2022, and revenue and adjusted EBITDA guidance provided in April .
The current trends in the direct to consumer and chronic care marketplaces as well as a headwind from the strengthening of dollar year to date.
At current exchange rate represents nearly a 20 million dollar drag to our full year outlook.
We believe it's more likely that our results will fall towards the lower end of that range.
As Jason noted.
There are scenarios in which our results could be above or below that.
Due to the increased uncertainty in the broader environment and we will continue to provide updates as appropriate.
We expect total U S paid membership of 55% to $56 5 million members, an increase of <unk> $5 to 1 million members over our prior guidance.
And represented growth of 6% to 8% year over year.
We expect total visits in 2022 to be between 18.
$19 3 million.
Representing growth of 22% to 25% over the prior year.
For the third quarter of 2022, we expect revenue of $600 million to $620 million.
Representing growth of 15% to 19% over the prior years third quarter.
We expect total U S paid membership in the third quarter.
55, 5% to $56 5 million.
Total third party visits are expected to be between $4 eight and 5 million visits.
We expect third quarter adjusted EBITDA to be in the range of $35 million to $45 million.
The lower expected sequential adjusted EBITDA in the third quarter.
Primarily a function of a lower contribution from direct to consumer mental health and increased engagement spending in support of recently launched chronic care populations.
With that I will turn the call back to Jason for closing remarks.
Yes.
Thanks Mala. This week, we were pleased to welcome Mike waters to the team as our new Chief operating officer.
Many of you know Mike from his work building and leading the ambulatory care business at Providence Health system, a leader and digitally enabled hybrid care.
Mike brings a proven track record of scaling complex care operations to serve more people more efficiently and I couldnt be more pleased to have him on the team.
Mike joins video Remand 10, Gela, our new Chief Medical Officer, who joined US in April from AWS as we continue to see market, leading talent choose Teladoc health is at a place where they can make a difference by transforming the health care experience.
And I am excited for where this team will take us.
With that we'll open the call for questions operator.
Thank you for our Q&A, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
If you change your mind, please catch thoughtful about too.
And one for trying to ask a question. Please ensure your phone is on mute locally.
Our first question today comes from Ryan Daniels from William Blair. Your line is open. Please go ahead.
Hey, guys. Thanks for taking the question I'm, assuming you anticipated. This one given the Q3 guidance.
Full year guidance, but it looks like a very material ramp in EBITDA kind of a more than doubling on an absolute dollar basis from Q3 to Q4 and I. Appreciate some of the commentary you had on DTC spending pullback, but what else is going to drive that pretty significant increase in sequential EBITDA Q3 to Q4.
Yes.
Yes, Brian .
So youre absolutely right, we have anticipated a material ramp.
In the guidance.
And if you think about what's driving the ramp.
Essentially the timing of our advertising and marketing spend.
In the in the better health business, we talked about it in our prepared remarks.
And.
If you think about the better health business and the dynamics that typical seasonality.
In spend is to see a ramp up in the early part of the year and a pullback in the in Q4 due to the extensive holiday season, that's not a new phenomenon, but it did spend significantly less pronounced during the COVID-19 period.
Muted the seasonality in AD spend in that business. It will be more pronounced this year. So you should expect to see and then spend come down materially in the fourth quarter, both on a dollar basis and as a percentage of revenue. So I would say that is primarily the reason for the significant.
Uptake in our margins and as I said.
One thing just to reinforce that.
This factor is not mute the overall adjusted EBITDA seasonality in our business is not new.
If you look back prior to 2021.
Would find it was typical to see a significant ramp up in EBITDA from the first half into the second half of the year. In fact, if you look at our margin ramp from <unk> to <unk>. It hasnt been as much as approximately 700 to 800.
And that was been better health was a much smaller portion of our business right. So as we have given you more color and transparency into the size of the business and the growth of the business. It is more material and therefore, the b the dynamics.
Through the year in terms of the AD spend will have now a much more a perceptible impact on our overall margins.
Our next question comes from Lisa Gill from Jpmorgan. Your line is open.
Alright, thanks, very much and good afternoon.
I want to go back to your comments around competition and the direct to consumer area, we thought would happen with the repo and.
I'm just curious as to.
If you picked up from some market share from what happened with them and I know you talked about others trying to.
<unk>.
Lives at this point, but wondering if you could talk about the competitive environment, there and what you're seeing and then secondly.
To make sure that I understand that so youre, saying that or that big ramp between the third and the fourth quarter.
Really primarily advertising spend and you're still able to hold onto the revenue for direct to consumer better health side I just want to make sure I do remember that dynamic historically, but it's obviously a much bigger number than what is that.
Yes, Lisa I can take maybe I'll take both of those.
On the direct to consumer.
Advertising costs, we just haven't seen a significant change in the paid search costs over the last three months and Thats, what we baked into our revised guidance that we gave in April and we talked at length about the increased expense in that in that channel we are.
Seeing a modestly higher customer acquisition cost and a few channels and it's not any one channel to call out and we're really not seeing significantly higher pricing in these channels, but the revenue yield that we're seeing on the AD spend is just trending towards the lower end of where we expected back in April so.
What we're seeing is continued sort of consistent.
Expense.
But lower revenue yield and we believe that a fair amount of that is due to greater price sensitivity and the consumer because of the overall economic backdrop and the fact, they are seeing inflation in the rest of their lives. So we talked about revenue growth in the 30, 35% to 40% range.
Being baked into our outlook for better health. This year, we still expect that to be the case, but based on the current trends, we expect to be towards the lower end or really the bottom half of that range.
On the on the AD spend for better health.
And can we can we retain the revenue we're not shutting off advertising completely so youll see.
Not going to go to zero on the.
On the advertising spend.
In the fourth quarter, but it is a significant reduction because of the greater expense per advertising impression and therefore, we want to make sure we're making good economic decisions and therefore, we pulled back.
At sort of the higher end of the marginal return curve.
Our next question comes from Sandy Draper from Guggenheim. Your line is open. Please go ahead.
Okay.
Thanks very much.
And then try to frame this in a way that makes sense.
When I look at the outperformance of U S paid members and recognize that one that's stepping up sort of a pull forward and maybe a little bit of commentary would be helpful. About it seems to be the guidance does that May trail down, but you also had chronic care members growing faster both of those are higher <unk> pm.
It seems like pulling forward into recurring that would have flowed through for some better revenue. So I guess the question is basically is that accurate, but the offset is slower ramp up of additional new chronic care contract and better health I'm, just trying to understand the outperformance on those two metrics, which I would think.
Would be a positive impact on the second half of the year.
That would be great. If you could just quickly answer that question about the <unk> membership a trail off thanks.
Yes.
No.
Sandy.
Sure.
The division is right.
As we said we are really pleased with the hard work that our teams have done yeoman's work to be able to get the populations on boarded in the second quarter ahead of schedule that essentially resulted in really strong enrollment numbers.
Talked about the 67000 net new chronic care members in the second quarter alone and 92000 additional program enrollments.
Enrollment sequentially over the first quarter.
So this has started as we said is a pull forward of some of the enrollment that was previously expected to happen really primarily in the third quarter.
What's important to recognize is these new enrollees should contribute revenue to the rest of the year, but keep in mind that they were obviously already in our forecast right. So it's a little bit.
Uptake in revenue for the back half of the year because of the pull forward. However, what we've also said is given the pace of the deal closing we have also essentially removed our assumptions for India contribution revenue contribution in the back half of the year at this point from.
Additional chronic care sort of launches. So that's really what is driving our expectation in the in the back half of the year for chronic care. So essentially we had we did have kind of in your revenue.
In April as we talked about quite significantly, but we are also continuing to see some of the competitive dynamics in the chronic care space and we did from a forecast for me from a guidance perspective, we felt it was prudent at this point too.
Remove the recipe most of the in your revenue assumptions for chronic care.
Our next question comes from Richard close from Canaccord Genuity. Your line is open. Please go ahead.
Yes. Thank you for the question.
On the employer side of the business and economic uncertainty I was just curious.
Our employers still poking around but just don't want to pull the trigger because of the uncertainty or.
Has the pipeline essentially dried up on new potential deals just any thoughts in and around that would be helpful.
Yes, Richard Thanks for the question I appreciate it let me give you a little bit of color on the pipeline and then I'll try to characterize how buyers are acting.
The good news for US is that our current pipeline.
And the late stage pipeline, which you've heard me talk about the last couple of quarters are both up year over year to the tune of about 20% relative to where they were at this time last year.
We also have twice as many multimillion dollar deals in the pipeline as we did.
We entered the third quarter last year. So the pipeline I would say is very healthy and has improved since where we were at this time last year.
The challenge that we're seeing is in these times of economic uncertainty all purchases are just getting a significantly higher level of scrutiny.
I think we're also facing a situation where a lot of HR leaders within organizations are dealing with a very challenging time as you've heard and read.
And all of the news about companies reducing workforces.
Having to control costs and so I think there is a level of distraction at the same time, so while we had historically seen more midyear launches for our for our chronic care solutions, we're really not seeing many of them this year, which is why.
<unk> commented about.
Our outlook for in year revenue, which means deals that we sell this year and launch this year.
We've taken down our outlook for the back half of this year.
I do feel still good about where the pipeline is and about our prospects for this selling season.
We're entering sort of the critical three month period of the selling season, and so we'll know a lot more as we come back to you with our third quarter results.
But the pipeline is certainly healthy.
And we're seeing significant interest we're just finding it significantly delayed for.
Purchasing decisions to be made within those organizations.
Okay.
Our next question comes from Stephanie Davis from SPP Securities. Your line is open.
Hey, guys. Thank you for taking my question I was hoping you could touch on some of the macro environment just given some of the macro softness in cross meat Packers.
Could you tell us more about what's baked into 2022 long term guidance and as a follow up to that just given how different the macro today you can compare your analyst day or are we still on track for that 25% to 30% growth target.
So Stephanie.
I just want to be clear, we're not giving multi.
Our multi year outlook at this point and I think we mentioned that last quarter on our call. So we're not going to comment on the multi year outlook with respect to the current year in R 22 outlook.
We've assumed essentially status quo through the rest of the year, if theres significant deterioration in the market.
In terms of consumer sentiment.
<unk> the macroeconomic environment that there could be downside, particularly to the better health business.
If the environment improves then we see upside opportunity in.
In the back half of the year so.
No.
Specifically.
The reason for our commentary about.
Indicating that we expect to be toward the lower end of our guidance of our guidance.
And that there is upside and downside around that depending on how the economic scenarios play out yes, Anthony just to add to that.
If you think about.
The macros that are that may have an impact on our business.
Three of them come to mind right. One is as Jason talked about the consumer sentiment.
And how that impacts EBIT positively or negatively as the months go on on our direct to consumer business.
It is as we just talked about in our prepared remarks, the direction of the euro and the possible headwinds we face on our international revenue we've quantified it as we know.
It is now.
And we'll see how those progress through the year.
Obviously, we've also talked about the employer market and the impact that.
The the thoughts of possibly looming economic slowdown is having on sentiment in the employer market.
Last is wage inflation and what we are seeing is the.
The impact on our business as of now is relatively modest it's not something that we would launch too that it's not material enough for us to comment John but again those are.
As we refine our view for this year and then as we go on to next year to the extent that they are important enough we will absolutely provide trends.
Well.
Our next question comes from Sean Dodge from RBC. Your line is open.
Thanks, Good afternoon.
On better health, Jason you mentioned the impact the economy likely having non subscribers.
No.
Past talked about experimented with different pricing and utilization model to give people more options to stay on the service.
Have you rolled those out and maybe give us an idea of some.
The other tools you have.
At your disposal to help manage a better health through what could be a.
Pretty tough period for.
Consumers.
Yes, Sean we're always.
<unk> with new pricing models.
And when we do that we do that in a multi faceted test and control environment.
Sometimes we do it in a different geographies, sometimes we do it through different channels.
And we're always innovating around various product features and capabilities.
So what we've seen is.
Pretty interesting in that we're not really seeing a change in our retention rates were not really seeing a change.
And the LTV.
For consumers, who we have on the platform. We're just seeing a slight degradation of the yields per AD spend which would indicate slightly higher price sensitivity to make that first purchase decision.
Once they once they are on the platform, we actually haven't seen change behavior.
And so we think that that is directly related to the consumer sentiment and the current economic environment.
Difficult to be precise about that.
But we know exactly what the change in yield is it's modest but obviously at a large scale.
It can have an impact.
We are consistently refining the channels that we use and I think thats one of the critical advantages that we have at our scale, we have the ability to continually optimize and so we're going to keep doing that throughout this period of time.
And I would just sort of remind that we did see 40% growth.
The year over year in the last quarter. So.
And sequential growth from the first quarter to second quarter. So.
We're seeing benefit of those efforts.
I would say, we're taking a slightly more cautious outlook and we continue to balance between the.
The growth because Jason talked about 40% growth.
Well, let margins in that business so.
And we will continue to sort of balance and optimize between those.
Our next question comes from Charles <unk> from Cowen. Your line is open. Please go ahead.
Yes, thanks for taking the question I wanted to follow up on <unk> question.
Just the comments about.
On the revenue side as we had greater enrollment didn't expect to really hit in the second quarter.
Just wanted to get a sense on the.
The adjusted EBITDA side, given that it's all recurring.
We've signed up more than we expected.
I would think that we would get more of that benefit in the back half of the year, particularly as we're looking at the third quarter guidance, just curious what else I understand you're talking about a little bit of a bit of help but just help us maybe understand maybe if we're not going to see.
Some sequential benefit from the pull forward enrollment and then secondly on the when you talked about advertising spend.
In the quarter on a non-GAAP basis, there was a $161 million for advertising and marketing can you give us a rough.
Or any kind of breakdown between how much of that goes to direct to consumer versus just sort of the rest of the business. Thanks.
Yeah.
So.
I don't want to go into specifics at this point in time on further breaking down our AD spend between our direct to consumer business and the rest of our business. The thing I would say is.
If you if you look at the various pieces of data and information we have given about our federal health business our revenue per pack.
Tetra from Investor day until now.
One can actually fairly easily back into what the overall P&L is for our better health business, we've actually given enough information to you ought to be able to do that so I don't want to go into more detail on that.
But.
For your first question.
It is a good question and what we are essentially seeing is we've talked about.
The fact that we are seeing the sort of intra year dynamics on that business.
The other thing that we have been steadily saying all along is that this is an important year for us in terms of our R&D investments, we talked about it in Investor day, we've talked about investing in our integrated platform and new capabilities and new products such as midstream complete primary.
<unk> hundred 60, chronic cant complete continued integration of our data that underpins, bringing together all of our.
Suite of products.
That still continues so.
The step up.
We have.
Made a very deliberate.
<unk> to invest in R&D. This year is a heightened level of investment relative to last year.
And we are for now staying the course on that because we do expect this to result in sustained revenue growth for us in the longer term that these R&D investments are essentially underpinning our whole person care strategy. So we do expect to continue to.
Steve of course on that.
I will say, having said that we are always responsibly looking for ways to optimize our cost structure.
And we will be taking an even closer look at our cost structure as we head into 2023.
And we'll be very thoughtful in the way that the balance our need to maintain our near term profitability, while continuing to meet all these necessary investments to drive our longer term growth that is something we always do and we will continue to do that.
Our next question comes from Daniel <unk> from Citi. Your line is open.
Hi, Thanks for taking the question.
There seems to be more intense scrutiny now on that hill regarding the utilization of healthcare data, even if being used in accordance with I believe a few senators sent better help in one of your competitors.
Letter regarding this a few weeks back I'm curious if you could just spell out for us how you how better help is using member data for marketing and targeting and if this increased scrutiny.
On health care data and data utilization will change.
How you market into the DTC channel.
Yes of course, we we received the letter and we're providing all of the relevant information about our services.
Dan are we conduct all of our operations in compliance with state Federal and international privacy laws.
We also take consumer transparency transparency extremely seriously and we operate in compliance with all of the consumer protection laws.
We hold ourselves to HIPAA compliance standards.
And we believe very strongly in the privacy.
<unk> of our members and we continue to work with all the relevant parties to make sure that we are compliant so.
I'm not going to go into the more detailed.
Specifics.
Given any particular AD channel, but.
I think.
I think it's been clear.
From our track record.
In our history that we take this extremely seriously.
Our next question comes from George Hill from Deutsche Bank. Your line is open. Please go ahead.
Yes, good evening, guys and thanks for taking the question I guess I have kind of a numbers question digging in that.
The kind of the implied Q4 guidance and I guess my first one is just is there anything is there going to be anything in the adjustments reconciliation that might stand out from the prior quarters, because what I'm trying to do is kind of bridge the gap between the EBITDA run rate in the first three quarters and what we're expecting in Q4.
And if the implication is that the marketing spend needs to be reined in.
Talking about cutting the marketing spend so I can have that kind of goes back to Lisa's point around how do we retain the revenue on that.
<unk>.
Yes.
We seem to have lost connection with Georgetown.
George we've moved out at the end of that.
We move on to Jessica touched on from Piper Sandler. Your line is open. Please go ahead.
Thanks for taking my question so.
The revised commentary just on the longer membership seasonality was helpful.
Can you just confirm if your expectation is still that chronic care revenue growth low to mid teens in 2022, and maybe if you could comment a little bit just on average chronic condition P. M. P M.
Given that 30% of members are now using multiple condition, how is pricing trending relative to the kind of.
75.
<unk> per member per month that we used to see with <unk>.
Standalone mofongo. Thanks.
Yeah Jessica.
Jessica So to your first question, yes, we still expect to be in the low to mid teens as we've talked about.
On the last call.
Just given what we said in terms of the dynamics that we're seeing on chronic care and given the fact that we talked about in the back half.
There is pressure on India revenue from additional deals that we were expecting I would expect chronic care revenue growth to be towards the low end of the low to mid teens.
And then the second question is from a pricing perspective, we are really seeing no change in pricing. It still continues to be robust healthy.
So I don't see much of a change in pressure on from a pricing standpoint.
Our next question comes from a J Rice from credit Suisse. Your line is open.
Thanks, Hi, everybody.
Two quick things to your prepared comments and in the press release.
Our utilization performance continues to step up 24% this quarter, that's a step up from last quarter and up from 19, a year ago with less COVID-19 and a lot of mixed commentary in the market around the utilization what are you seeing that's continuing to drive that uptick is that primary 360 or is it some other dining.
And then maybe just to the comments that Jason made about the new wins, you have with health plans.
Virtual one relatively new product offering can you just comment how is that.
Are these structured at a high level are you the exclusive vendor for these health plans or are you the preferred vendor is.
Steerage toward just the first visit or is there multiple visits that would come to you how are these being structured.
Sure I can comment on the utilization the growth in the first half of the year has been a combination of better health and our general medical volume we've continued to see good.
Increases in both of those areas.
Mostly for better help its new membership coming on as we've continued to see growth there when it comes to our general medical it continues to be strong trends in terms of consumer engagement.
It's not really do at this point to our primary $3 60, which is still small this year, but.
But you do indicate appropriately that we're seeing very good results in terms of new sales as we look into 'twenty three for our primary $3 60.
Primary 360 has a number of different I.
I would say access vehicles for different plans. If you think about some of the exchange based virtual first health plan designs primary 360 as the default virtual primary care for those plans in other areas like you probably saw we just announced or emblem.
And Connecticut are just now.
<unk> primary 360 is now available to all individual and small group members in their fully insured plans in Connecticut, starting July one of this year, that's an opt in for a consumer to select.
That that as a primary care provider.
Not necessarily in a virtual first plan design, but just like they would select any other primary care provider.
When we talk about priority health, we're bundling our primary 360 together with our chronic care programs into a virtual first plan design. That's a fully insured plan that employers can can choose as they're making their plan design choices for two.
<unk> three so it's a variety of access vehicles, depending on plan design.
Depending on the.
Health plans.
Virtual care strategy, what we see though is really tremendous results in terms of improving access to care as I as I indicated in the prepared remarks.
Two thirds of the people who are engaging with primary 360, <unk> haven't seen a doctor in at least two years and so these are really the disenfranchised from the health care system and we're finding that those people were having a tremendous impact relative to their overall care as we ended up.
A lot of additional services to bear for them, including both mental health as well as other chronic care solutions.
Our next question comes from Stan Bernstein from Wells Fargo. Your line is open. Please go ahead.
Hi, Thanks for taking my questions.
I guess sticking with butter help do you still expect better EBITDA margin to remain accretive.
Two company level margins for this year and then maybe I missed this but can you comment on what drove the sequential decline.
Visit fee members in the quarter. Thanks.
Yes, so the answer to your first question is yes.
Still expect that'll help margins to be accretive this year to the overall enterprise margins.
As we talked about a few minutes ago.
We are very thoughtful about that.
Same revenue growth and margins.
Talking about the 40% margin growth balancing that with our margin. So yes. It is accretive.
And in the case of wardrobe.
In answer to your second question.
There was a change in our reporting that we got in terms of the members on the vehicle side and so we essentially are just adjusting that.
Our next question comes from Steven Valiquette from Barclays. Your line is open.
Hi, This is Tiffany honestly, Steve just on the chronic care sales given.
Given that you guys mentioned that we've seen early signs of slower progression in closing deals in.
And that we're still pretty early in the selling season are you, making it immediately maneuvers actually from the sales approach.
I understand part of it may also be macro trends such as that.
Any color you can out there.
The answer is yes, we are constantly refining our approach, especially as we move more and more into a whole person care sales, where we're bundling together multiple of our chronic care solutions.
And some of the data that I pointed to is relatively new data. So we're able to demonstrate greater success and deliver proof points to our clients relative to the benefit of buying a bundle of services. So for example.
And mental health services are integrated into chronic care members seeing an average of an additional half a percent.
Reduction.
Almost 10 millimeters reduction in systolic blood pressure and about a 2% additional weight loss and so those are relatively new we haven't been we haven't been bundling together. These services for that long and so we're really focused on outcomes.
And quite frankly stepping up and.
And putting our money where our mouth is.
To guarantee the outcomes from the programs.
And I guess I just wanted to say.
What we're seeing in terms of slowness in.
Pipeline turning into bookings.
Affecting our in year revenue, but we haven't yet seen it push beyond.
Well, we're not going to make a decision this year at all and therefore affect 'twenty three.
Yes.
Okay.
Our next question comes from David Larsen from <unk>. Your line is open.
Hi, can you talk a little bit about the competitive dynamics in the market overall like Jason when you think about the platform that you have now are there certain.
Assets are products certain gaps that you want to scale.
Like for example.
Accolade, obviously has benefits navigation solution other platforms have something called advocacy, where it's sort of a concierge type of medicine, where you have a health coach.
So to show you, which docs to go to if you if you need to.
Other platforms that are actually bearing some risk on PMT and basis like when you think about your platform are you just any holes.
I see thanks.
Sure David actually we do all of the things that you just mentioned.
We're more and more entering into value based arrangements with our clients.
In some cases those are for.
Sure.
Clinical outcomes and others, it's for financial cost savings and putting a portion of our fees at risk relative to those savings and sharing in the upside.
We also as you know have a care team model that includes coaches.
And a big part of our primary 360 program is making sure that we can get care to you in your home or refer you to the right physician. The first time in the event that you need to be seen in person I think that the rollout and we recently announced the expansion of home lab testing, where we can dispatch.
Someone to the home.
To perform phlebotomy.
Or take urine samples.
That's a great partnership with Scarlett, which is owned by by a reference.
We also announced a home delivery of <unk>.
Medications and our partnership with capsule.
And so I really see that we are primary 360, combined with our suite of chronic care and mental health solutions and of course, leveraging our expert medical services are truly differentiated in the market as the only full really full credit answer.
For the consumer now that doesn't mean that we're done of course, we're always looking to expand the scope of our offerings and so that's why we've developed over the course of the last year things like a program focused on CHF.
Program focused on CK and Youll see us continue to expand the scope of our offerings.
Before we go to the next question George If you are hopefully still on the line I wanted to just answer your question.
So.
<unk>.
The dynamic for Q4 is as you mentioned, it's really around better health advertising.
We are.
Looking to pull back in Q4 on AD spend we've talked about the pricing dynamics in the holiday season. It is something that we typically do every year. So this is not a new dynamic.
So that is the reason for the margin progression as it did in the fourth quarter.
And I just also wanted to.
Reiterate at this point from a revenue perspective.
Are seeing some modest incremental pressure on our yield on advertising spend in the better health business.
And so but that could be.
Look forward to the next few months as Jason talked about a few minutes ago from a revenue standpoint, those those dynamics could change and it could change to the positive or it could change further to the negative we'll just have to go through the year and see how the consumer dynamics play out and weather.
The consumer sentiment improves or.
It continues to be more towards the belt tightening.
This concludes our Q&A Com today's conference call. Thank you for your participation you may now disconnect your lines.
Okay.