Q3 2023 Teladoc Health Inc Earnings Call

October 24, 2023

Good afternoon. Thank you for attending the Teladoc Health Dairy Quarter earnings call. My name is Matt and I'll be your moderator for today's call. All I'll be needed during the presentation, portion of the call for an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone key pet. I'll now have to pass the conference over to our host Patrick Feely, head of investor relations. Patrick, till we go ahead.

Thank you and good afternoon. Today after the market closed, we issued a press release announcing our third quarter 2023 financial results. This press release and the accompanying slide presentation are available in the Investor Relations section of the tell.calth.com website. On this call, discuss the results are Jason Gorevich, Chief Executive Officer and Mollum Earthy, Chief Financial Officer. During this call, we will also discuss our fourth quarter in full year 2023 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 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the actual results were tell that I'll count the different materially from those expressed or implied in 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 web.

I would now like to turn the call over to Jason. Thank you Patrick and thanks everyone for joining us.

This afternoon, we're pleased to report a strong third quarter with results that met or exceeded our key financial and operating guidance.

Our performance reflects the fundamental strength of our business and our continued success in making better health available to our more than 90 million members.

In my prepared comments this afternoon, I wanna focus on three key themes that reflect the value that we're delivering today and poised to deliver in the years ahead.

First, our third quarter results met or exceeded our key financial and operating guidance, strengthening a solid balance sheet that distinguishes us across our industry.

Second, the demand for our products and services remains strong, with the largest payers and partners globally viewing Teladoc Health's whole person care as the prescription for point solution fatigue and a disconnected healthcare system.

And third, we are taking additional concrete steps to further accelerate our business on bottom line performance.

This includes a comprehensive operational review of our business. I'll talk more about what that-

Let's begin with Q3 results. On the top line are consolidated revenue grew 8% on a year-over-year basis in the third quarter to $660 million.

And as a result of our continued efforts to drive margin improvements this year, our consolidated Adjusted E-Bada of $89 million exceeded the high end of our expectation.

We were pleased to see revenue from our integrated care segment grown 9% year over year to $374 million.

Compared to the second quarter, revenue grew 4% sequentially. Driven in large part by higher enrollment in our chronic care programs, where enrollment now exceeds 1.1 million active users.

Driven by a combination of strong leverage over the cost structure, improving efficiency, and a contribution from performance-based payments earned during the quarter, the integrated care segment delivered $63 million of adjusted EBITDA, or a margin of 16.8%.

which we believe demonstrates the leverage that's inherent in the integrated care business model.

Turning to better help, we recorded $286 million of revenue in the quarter, up 8% year over year, and within the guidance range provided last quarter.

Third quarter margins for better help improve nearly 500 basis points over the prior years third quarter. And we're on track to deliver material EBITDA growth again in the fourth quarter, which is typically better help seasonally strongest quarter for margins.

After scaling rapidly to surpass a billion dollars of revenue last year, we have since taken a more balanced approach to growth and margin at better health.

This means we'll continue to prioritize profitable growth that meets or exceeds our return requirements.

Customer acquisition costs remain near the midpoint of our Outlook range.

Combined with stable gross margin trends, that means we anticipate landing near the midpoint of our prior full year segment revenue and margin guidance for better health.

The second theme I want to cover is client demand, where the environment remains strong for our whole person care solution.

And thinking about the selling season so far, I'd call out three key trends.

First, while there are still over two months left to go in the year, we're pleased that your to date our bookings are tracking in line to moderately ahead of the same point last year.

We're seeing strength across all key products and channels.

Through the end of the third quarter, chronic care sales represent just over half of our total bookings in the US, up incrementally from the same point last year.

Next, we've seen particular success in pulling through chronic care sales and enrollment via our whole person bundled solution.

We're increasingly selling access to multiple chronic care programs at a single bundled price point.

For example, clients purchasing our diabetes plus bundle enable access to multiple chronic care programs.

Diabetes management, hypertension and weight management.

This has the benefit of removing friction by creating a simpler contracting path, opening access to all programs from day one, and driving better engagement and outcomes for our clients.

It also meets the member where they are, with more than one quarter of Americans diagnosed with multiple chronic conditions.

And by delivering more value to the client, it enables us to unlock better economic.

Over the past 12 months, more than two-thirds of our chronic care deals included our whole-person bundled solution.

That's helped drive faster program adoption, resulting in total chronic care program enrollment growth of 13% year over year.

Finally, not only are we seeing growth within our existing client base, but we're also seeing significant competitive takeaways.

This is a direct result of other players struggling to deliver for their clients and in some cases fall out from unprofitable business models with weak balance sheets.

During the third quarter, we added nearly four million lives to our virtual care programs in competitive takeaways.

While our Q3 results in selling season validate the value that we're delivering for our clients and members, we also recognize that there is still even greater potential to unlock business performance.

We have built a strong and durable foundation for efficient growth, increasing profitability, and generating cash flow.

You've heard us talk about a more balanced approach to growth in margin. In 2023, we're demonstrating that we can drive material, EBITDA, and free cash flow growth, despite a lower rate of top-line growth.

We will continue to focus on improving bottom line performance and we're confident that we can continue to deliver significant EBITDA margin expansion, particularly within the integrated care segment.

There are a few things that give us a high level of competence in our ability to deliver EBITDA and free cash flow growth, well and excessive revenue growth over the next few years.

First, we are exiting a period of elevated investment following the Livongo transaction.

As many projects wrap up like our integrated app that launch this year, we expect moderating costs will allow us to drive material operating leverage over the cost structure as we grow our top line.

Second, over the past 12 months, we have broadly sharpened our focus on improving efficiency across the organization.

You've seen those efforts begin to bear fruit this year, as EBITDA and free cash flow have consistently exceeded our own expectations.

We're disappointed with the valuation of the stock today, which we don't believe adequately reflects the value we are driving today and will continue to drive in the future.

At the same time, we also know there are significant opportunities to add value through improved business performance.

To that end, we recently kicked off a comprehensive operational review of the business. This review includes

First, we have undertaken a portfolio assessment to identify any opportunities to sharpen the focus across our portfolio of products and services, and ensure our investments remain highly selective and prioritized in the direction of our integrated whole-person care strand.

Second, we are pursuing a comprehensive review of our cost structure.

Following our cost reduction efforts earlier this year, we are confident that we have the right operating structure in place to support the next phase of our growth.

Meanwhile, we are actively working to identify opportunities to improve upon this operating efficient.

For example, as a part of that exercise, we have begun standing up centers of excellence that will leverage shared services across the business to enable a more efficient operating structure.

We are committed to a thorough review and analysis and we are working with a third party to bring an independent perspective.

In short, we are accelerating our efforts to ensure that our businesses operating as efficiently as possible in order to drive profit growth at a level that is meaningfully higher than our revenue growth over the next few years.

We will do this by fully tapping the operating leverage that is a market differentiator for Dalladoc Health as the leader in digital health at scale.

And we will do this while ensuring that our business remain centered on our mission and that no efficiencies are taken at the expense of keeping our promises to our clients or caring for our members.

We look forward to sharing more details on these efforts in the coming quarters.

And with that, I'll turn the call over to Mala to review the third quarter and share our four guidance. Thank you, Jason, and go to...

Third quarter consolidated revenue of $669.00 increased 8% year-over-year.

Third quarter, a just a debita was $8.8 million above the high end of our guidance range, representing a margin of 13.4%.

Consolidated net loss per share in the third quarter was 35 cents, compared to a net loss per share of 45 cents in the third quarter of 2022.

Net loss per share in the third quarter includes amortization of acquired intangible of 42 cents per share and stock based compensation expense of 32 cents per share.

Third quarter free cash low with $68 million, compared to $20 million in the third quarter of 2022.

We ended the quarter with over $1 billion in cash and equivalent on the balance sheet.

Integrated care segment revenue increased 9% year over year to $374 million in the third quarter, growing 4% sequentially.

The largest contributor to your over your integrated care revenue growth was chronic care, followed by primary 36.

On a sequential basis, the primary contributor to integrated pair segment growth was the ramp up of enrollment in chronic care programs.

During the quarter, we added 49,000 new enrollments in chronic care programs, bringing total year-to-date net enrollment growth to over 100,000.

We ended the third quarter with chronic hair enrollment of 1.12 million, an increase of 13% year-of-year and 5% sequenization.

The biggest drivers of new chronic error enrollment year to date have been hypertension, which is now approaching 30% of total program enrollment, followed by our diabetes prevention and weight management program, which have each crossed 100,000 enrollment mark this year.

Program enrollment growth has been bolstered by our success in selling our bundled chronic care management solution.

In total, the integrated care segment added over 4 million members during the third quarter, ending at 90.2 million.

The significant membership growth during the quarter was primarily a result of a large competitive take-away during the quarter.

Average integrated care revenue per US member of a dollar and 41 cents increased one cent or the previous quarter and was flat sequentially.

excluding the large new population added during the third quarter. Revenue per member increased 4 cents sequentially.

Third quarter integrated care, adjusted EBIDA, was $62.8 million. Representing a 540 basis point margin expansion over the prior year's third quarter.

That margin expansion was driven by higher gross margin due to an increased mix of subscription revenue, an increase in performance based revenue earned during the quarter, an improved operating efficiency, particularly on the GNA line.

The Marginot performance versus our third quarter guidance was primarily driven by lower expenses, again, most notably on the GNA line.

Revenue increased 8% year-over-year to $286 million in the third quarter. A decline of 2% sequentially in line with our guidance range.

average monthly users increased 5% over the prior year squads.

Third quarter better help adjusted Yvdell was $26 million, resulting in a margin of 9.1%.

This represents a 490 basis point increase over last year's third quarter.

A reflection of the more stable advertising environment compared to the prior year, as well as sustain growth margin improvement. of lunch.

We expect full year revenue to be in the range of 2.6 to 2.6 to $5 billion. Representing growth of approximately 8 to 9%.

We now expect fully consolidated Adjusted EBITDA to be in the range of $320 to $330 million dollars, representing year over year margin improvement of approximately $200 to $225 basis points.

We now expect fully or free cash flow of approximately $175 million up from our prior expectation of $150 million.

For the fourth quarter, we expect revenue to be in the range of $658 to $683 million.

Assumed in the fourth quarter revenue outlook is high single digit percent Euro for your growth in our integrated care segments.

and low to mid single digit Eurovoy of growth in our better health segment.

One thing I would remind you of, which we've discussed previously.

is that the cadence that has helped advertising spend in 2023 is more heavily weighted to the first half of the year than last.

This change in at spend cadence results in quarterly year-over-year comparisons that favor the first half of 2023 to the detriment of the second half of the year.

Therefore, we do not see the year of a year growth rate expected in the fourth quarter.

as reflective of the underlying growth in the better health.

Court Quater Consolidated Justice Bada is expected to be in the range of $107 to $117 million.

The Adjusted EBITDA Outlook for the fourth quarter assumes integrated pair segment margins between 11.5 and 12.5%.

and fourth part of better health segment margins between 22 and 23%.

As discussed throughout the year, our prior guidance assumed a modest deterioration in the cost of customer acquisition at the low end of the range and an improvement at the high end of the range.

Recent customer acquisition costs continue to trend within that initial outdoor range. I'll wait in the lower half of the range.

We believe trends are likely to persist in this range through your end, and you see that reflected in the revision of the high end of our revenue guidance. With that,

Thanks, Mala. Before we go to questions, I do want to share some work that we're particularly proud of in the wake of so much tragedy in recent days.

As you may have heard, better help is offering therapy to anyone impacted by the war in Israel and Gaza at no cost.

The support applies to anyone affected by the war anywhere.

As some of you know, better help frequently offers therapy at no cost to those in need through our social impact program.

In the past 18 months, we have responded to the Maui fires, Hurricane Ian, the war in Ukraine, the Rob Elementary U-Valdy shooting, and Midwest flooding, among other crises.

Well, no one has all the right answers right now. I'm pleased that BetterHelp and Teladoc Health can make a positive contribution to healing at a time of such great suffering. With that,

If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your hand said before asking your question. We ask that you please limit yourselves to one question and one follow up. We'll pause your brief.

The first question is from the line of Lisa Gill with J.K. Morgan. Your line is not open.

Thanks very much. And Dave and I have to say that that's a wonderful thing that you do. I know this is a really difficult time for a number of people. I really want to focus on a few things. I know I always asked about the selling season, but I want to focus on two areas. And that's really around integrated care. The margins we saw this quarter, how you're thinking about that business going forward.

The significant wins that you said competitively, you had four million lives that shifted over to your integrated offering. Can you maybe just talk to me about the competitiveness in the marketplace today, what you saw in the selling season? I'm sure you don't want to name who you took those four million lives from, but can you talk about where they single point solutions, where they, other, you know,

parties that you feel are fairly competitive to you. Just how do we think about how your position go on a go-forward basis, especially on the integrated side of the...

Yeah, no, thanks, please. I appreciate that and thanks for the comments on our work with BetterHelp.

If I think about the competitive landscape, I think the incidence of us selling bundled solutions.

really speak to the power of the breadth of our offering and how that is significantly differentiated from anyone else in the market. As we've talked about, the majority of our chronic care management programs make up the majority of our bookings and the majority of our chronic care management solutions are sold as bundles of services.

We're also seeing very significant wins where we sell additional products and services into existing clients. In many of those cases, we're replacing single point solution or more narrow solutions by adding our products into those clients.

And so I would say that the dimensions of our competitive wins come into really three categories.

One is where we replace a single point solution with either a bundle of solutions or by selling additional products into an existing client.

Two is where our competitors have failed operationally and or in terms of the value proposition for the client.

and our proven track record of success and value creation wins the day.

And three is where we're replacing someone who quite frankly is faltering in this current economic environment because they have a business model that an economic model that isn't sustainable. And we're seeing them struggle either to raise capital or quite frankly to exist at all as a going concern.

So we've seen all three of those. The biggest one, this quarter that represented the largest competitive win was the latter, where we saw a competitor.

fail and we were able to step in and replace them. And I think that really speaks to...

the strength of our balance sheet and the strength of our financials.

And I think we've said we said last quarter, Maul and I have never spoken to so many CFOs at clients and prospect.

who are really kicking the tires to make sure that the partners they engage with are going to be here not just today but into the future and be able to grow with them.

The second part of your question, or maybe the first part of your question, was about integrated care margins. Molly, do you want to speak to that? Yeah, I'll speak to that Lisa. So if I take a step back and look at our integrated care margin performance in the third quarter, and I look at it, these of the year over year, where, as we said, and I prepared them for marks, be expanded by 500 basis points.

Or even if you look at it sequentially, where we have had a pretty sizable improvement over 600 basis points in our integrated care margins, you know, there are a few factors and drivers across boats that stand.

First of all, it is the growth that we are seeing in our chronic care book, right? So as we've talked about, that has a nice pull through to gross margins and we are seeing leverage.

We've also talked about the fact that, you know, in the third quarter, we saw revenue growth in a more balanced way across both chronic care and primary 360. So, you know, we've seen the cultural of that revenue growth.

We are seeing the results of our cost controls and the cost efficiency programs that we have already put in place this year. We are seeing the benefit of that. And as Jason talked about in his prepared remarks, as we look at the do an operating review across our business, certainly we will look to additional areas where we can drive cost efficient fees. So that will be equal to our income requests. So that will be equal to our income requests.

Look, we also had, as we talked about our prepared marks, some amount of benefit. It's about $4 million from our performance guarantees that really was about, that we recognized because of the outcomes we have driven. You know, that was in, if you look at the overall contribution to our margin expansion, it was about a...

So if you really look at what's driving the margin expansion, it is the revenue mix.

And it is the cost efficiency programs that we have put in place and we will continue to focus on that.

Next question is from a line of Ryan Daniels with William Blair. He knows that.

Hey guys, thanks for taking the question. One for you on the chronic care book of business. I think you mentioned hypertension. It's about 30% and seeing strong growth and diabetes and weight management. So curious what your longer term thoughts are on the impact potentially to that business, either favorably or unfavorably, from all the GLP-1 data that's coming to market.

You know, as we said earlier in the year, we don't really anticipate any material financial impact from the new program that we launched.

and announced earlier in the year. This year, we think that that will have an impact for us in the future and we expect to participate in being able to take advantage of some of the benefits of GLP ones for people who are living with diabetes as well as for people who engage with our diabetes prevention and weight management programs. Each person preserves and takes favor, with the compliment of

So we see that as paying off for us in the future.

We also see, quite frankly, that the market is very engaged in this and our clients are looking to us for solutions.

especially because of the cost of those medications.

with respect to whether that's gonna be a headwind.

I would say probably the hype has gotten ahead of the reality with respect to the GLP ones.

I mean, I think I saw an analysis recently where some people said that the airlines were going to save on fuel costs when the country engages with GLP ones and collectively loses weight.

I think that gets to maybe a little bit of overhype at this point.

We've seen the prevalence of diabetes continually increase year over year and is expected to increase by over 25% in the next 10 years.

Well, I think that GLP1s can have an impact on maybe moderating that rate of growth. I really don't think, and I wish it weren't the case, but I don't think we're gonna suddenly see a massive decline in the need for people to engage in more comprehensive solutions.

that include behavior change with respect to activity, with respect to nutrition, with respect to mental health care. And so I think GLP1s, and really we view them as a tool to enhance those programs.

but don't really see them as a headwind. And I think we also, again, going back to my initial comments, you have to take it in the context of the cost of those medications.

and the need for our clients to engage in programs that help manage the overall cost of them.

Thank you for your question. The next question is from a line of gelindra's thing with true is, you know, I was open.

Thank you and thanks for taking my questions. I understand we need to wait for a detailed 2024 guidance until Q4 earnings call. But I was wondering if you could give any directional color or qualitative color on revenue and margin trends or any additional puts and takes we should keep in mind across those two segments as we think about 2024 next year.

Yeah, I guess I'd say a couple of things and then I'll hand it to Mala for some color.

I think what you heard us say today is that you can expect us, you can expect to see our EBITDA grow faster than our revenue for the next couple of years.

and that certainly will hold true or that's part of our expectations for 2024.

I think you heard us talk about the selling season today for integrated care.

being in line to modestly ahead of where we were last year at this time.

We have a couple of months still left in the selling season.

And we see our late stage pipeline pretty flat relative to where it was this year.

So that should give you at least a little bit of color relative to where our integrated care segment will be. And client retention there continues to be in the 90s. So no material change.

And then on the better help side, I think you heard Mollis say, that we continue to take a more balanced approach than we had historically.

to revenue and margin growth there.

and that you shouldn't view the fourth quarter as being indicative of the underlying growth of that business. So I think those are the, we're gonna stop short as you expected of giving 2024 guidance at this point. We expect we'll do that in the first quarter of next year. But I think those are the components and ingredients that should go into your outlook. Moa, did I miss anything now?

I would just add a little bit more color on better helps specifically.

Thinking about the starting point for 2024, Dylendra, I think about...

You know, we have said this several times up until now, the quarterly comms line up very differently this year, relative to last year.

And they, so I will think about, you know, if you think about the first quarter.

think of it as above run rates, the fourth quarter as lower than the true run rate due to the year of area comms. I mean I talk about year of area comms, it's about at spend as well as the revenue for the trial just as a reminder.

What we've been saying all year is the at spend cadence was going to be very different this year versus the last year, last year, over half of the at spend took place in the second half of that year.

This year it's the opposite, with half of these then taking place in the first half. So that's sort of the first So that's sort of the first.

The second thing I'd say is on a full-year basis, you know, if you think about Better Help Revenue, as per our guidance, has decelerated each year over the last two years, and that's happened for a few reasons, right? One is this business has scaled pretty rapidly over a short period of time.

It's just simply a much bigger business today. So, law's large numbers.

You're just not going to see it continue to grow at those hyper growth rates and

The second thing I'll say is, as Jason just talked about, we are managing the business differently. We are balancing top line growth, as well as bottom line growth and cash.

So certainly that balanced approach has an increasing focus on driving ROI and margin.

And that is in instances going to come at a lower overall rate of top line.

And then the last point is if you look at this business, which is the largest player in the DTC virtual mental health space by far.

You know, we are also the largest advertiser of our showmen.

And unlike many of our smaller peers, our scale enables us.

drive and earn strong returns on our spend. And that gives us a real advantage. We have talked about this before, but there's only so much incremental ad spend and customer acquisitions you can drive in any short period of time. There's just a natural growth to that every year as the market shifts more and more towards virtual and as the channels themselves.

So that does limit the amount of DPC business can proactively grow year after year. So all of this just to lend some color to the dynamics that we are certainly seeing in the better health business. So that does limit the amount of DPC business. So that does limit the amount of DPC business.

The next question is from Align of Richard Close with Canacorogeneuity. Heal on his nose.

Yeah, thanks for the questions. Jason, maybe more details on how you're thinking about investments going forward. You talked a little bit about it, but I just, you know, how big of a change is this compared to past years and it sounds like you're being more restrained. So I'm just curious examples of what maybe gets prioritized.

Yeah, a couple of thoughts there, Richard. I think first of all, it's important to put it in the context of where we've come from over the last couple of years. You know, we're merging from a significant investment cycle during which we've spent a lot of time and effort.

building and integrating post-Levongo acquisition. And so now I think it makes sense for us to look across the organization for further ways to enhance business performance. And part of that is focusing our investments on the areas where not only are we going to get the greatest return but also our closest to the center of the bull's eye of our strategy.

I think that also you'll see in the

continued progress we're making on capitalized software. You've seen that this year and I think you'll see that again next year as we move into more focused investments. And let's...

Quite frankly, foundational investments on big chunks that have helped to get us to this point, but also put the platform in place for us to move forward.

You've seen that with our integrated app.

that as we migrated some of our internal ERP and financial systems. You see that as we put in place some of the capabilities that enable us to deliver on a true integrated experience for primary 360.

And so we'll continue to focus on delivering that whole person care in a differentiated manner, but also making sure that we're judicious and making sure that we're delivering the return on capital spend.

Next question is for an align of Charles Rhee with TD Cowan. You know, I was not open. Hi, this is Lucas on the Charles. I want to ask a

Thanks for the question. You know, the way I would think about it is on a run rate basis, the amount of performance-based revenue tied to clinical outcomes would be in the single digits percentage of our total integrated care segment revenue. So just to give you some sort of dimensions on the size

And the other thing I would say is, we have a long history of performance against these clinical measures. We have a lot of data to support our analyses. We feel very comfortable in terms of our ability to perform against these outcome guarantees. Thank you.

As I just said, it's a relatively small percentage of our revenue today. And finally, we also believe that we take an appropriately conservative approach in recognizing performance-based revenue.

So all of that to say this is

work contracts that certainly we have been used to delivering against for some time supported by data. And it is a relatively small percentage of our overall revenue.

Thank you for your question. Next question is from Alain O'George Hill with Doysha Bank. You know I have been open.

Okay, good afternoon guys and Jason and mom. Thanks for taking the question. I guess I would have a question on better help in Mala. I recognize the guidance that you gave for Q4. My question is kind of now that we're about a month past the Q3 closed, I guess I was just asked.

Like is that business for a membership perspective basically tracking in line with expectations to where you guys have guided for the balance of the year? And then Jason, once you quickly would be, it sounds like the company wants to take a pretty broad approach to a cost-cutting program. I don't know if there's any way to kind of size or go magnitude in the way that you're thinking about what the opportunity looks like inside of the cost structure.

Yeah, so maybe I'll take that one first George and then Mala can talk about where we are. I think that actually I'll maybe I'll take it. The short answer is a month into the quarter we're right in line with where our guidance is. So, so I can take that from Mala.

I think with respect to our comprehensive operational review, we're really looking across the portfolio to ensure that everything we do is aligned with our strategic focus and maximizing our profitable growth opportunities. I think...

These efforts are really focused on operating efficiency.

I am, we've stood up now, centers of excellence.

for things like member operations, clinical operations, client operations, revenue cycle management, supply chain and purchasing.

all areas where we can leverage our scale and make sure that we're driving for greater efficiency and take advantage of the opportunity to drive cost out of the business such that we can operate more efficiently.

I mentioned before, we are emerging from a significant period of investment, and so it makes sense for us to really look at a more right-sized organization based on the

cost reduction effort that we took earlier this year and make sure that all parts of the business are contributing to our profitable growth.

And I think that that is really the fundamentals of it.

We don't have anything to announce today regarding what the magnitude of the performance improvements that we expect.

And as we're in the middle of that assessment right now, I think you can expect us to give you more color on that in the quarters to come as we quantify the opportunities.

I and then help you to tie those opportunities to what we described earlier, which is EBITDA growing at a faster rate than revenue over the next couple of years.

The one last thing I would add is, you know, we have talked about all of the operating expense initiatives and things we would look at. I would also say if I think about gross margin and the gross margin improvement, which has been

You know, a strong contributor to our margin expansion. Think about better help and the growth margins that we are seeing there. You know, we are taking steps to, and initiatives to improve their...

Productivity, whether it be group therapy, more digital interaction.

So I would say both the cross-grove margin as well as ob...

Thank you for your question. Next question is from a line of Jessica Tess and with Piper Samar, your line is not open.

Thank you guys for taking the question. So I'm curious as you think about the kind of new guidance that Yvonne free cash flows should grow faster than revenue over the next couple of years, did we still be thinking about those long-term revenue growth targets, the mid single digit to high single digit for integrated care and low double to mid teens for better health as being valid.

against that new guidance or should we think about sort of a different revenue growth rate on a consolidated basis? Thanks.

Yeah, Jeff, so we haven't given longer term guidance for the businesses the whole or the segment.

I think you'll see us come out in the first quarter of 24 with an outlook for 24. I think quite frankly are the indications that we've given today about expecting to see Bidah growing faster than revenue for the next couple of years is probably the longest outlook that we've given in the last several quarters.

I think as we solidify what the findings are and results from this operational review, that will feed into a more multi-year outlook.

and will endeavor to give you more of a longer-term view when we're ready to, but I don't want to...

I don't want to acknowledge or validate those numbers because I don't recall us giving a longer term view.

Thank you for your question. The next question is from the line of Daniel Gross-Light with City, can I ask that open?

Hi guys, thanks for taking the question. I just have a couple on integrated care margins and that look for the remainder of the year. So if I heard you correctly at the midpoint, you expect around 12% margin for integrated care, which would be around 477 basis points of degradation, lot, lot, lot of 100 basis points for the performance for you. So I'll talk to around 375 basis points of degradation sequentially. I'm curious what's driving that.

And then I guess if I look at the full year, what's implied by that 4Q guide and it's around 250 basis points of margin expansion versus when we started the year, I think you thought it would be kind of flat up 50 and then you have changed that 75 to 125 basis points and now it's significantly outperforming there. So maybe if you could just put a finer point on that and the outperformance there. But we should expect going forward in fiscal 24.

Thanks, Annie, for the question. So if you think about the 4Q, it's outguide that we have given for integrated care, I'd say. You know, there are a few factors driving exactly as you said, the decrease in margins. So what are those? First.

The fourth quarter is always the cold and flu season and that, as you know, drives growth margin compression, right? As visit volumes increase.

We are also spending a head of member onboarding, right? As you know, we have, we've talked about the Franklin Bookings. We have several member onboarding starting Jan 1. You know, we are spending a head of those client launches.

I would also say we continue to grow our class off W2 physician hires. And we will do so in the fourth quarter. We will increase our W2 flow.

So that certainly is a small drag to margins during the quarter.

And the last thing I would say is, as you mentioned, as you noted, the performance guarantees contributed about 100 basses.

to the third quarter margins, and that certainly has an impact.

On your second question around fully performance on the margins and why are we seeing the expansion and the strength that we have seen, it really comes down to two big scenes. Number one is...

We are seeing strength in chronic hair revenue growth. That has been a consistent theme over the past few quarters.

And certainly that has exceeded our expectations when we gave

And the second thing is all of the cost efficiency programs that we are seeing the fruits of as we have rolled through the year. And Jason and I have talked about it in the last few minutes around what those are. So it's really those two things that have allowed us to outpace the margin expectations. Me. I am shaking my weight, and we were really focused on it not only. So I am granted for you that our cavalry was definitive and I have been back feeling this way. So I am granted for you that our cavalry was definitive and I have been back feeling this way.

And then maybe just a follow up. I'll pick a shot at fiscal 24 as well. You know, it seems like if anything, you're going to get more margin expansion in 24 versus which you are going to achieve in 23, which is around 200, 230 basis points.

that might fall through and it's a mother less spend on the integrative care app. So I'm just curious, you know, should we think about 200, 200, 50 basis points of margin expansion going forward as kind of the floor for you guys?

We're going to stop short of giving a magnitude of the margin expansion, but I think by definition the fact that we expect to be about to grow faster than revenue, you can take away from that that we are targeting margin expansion again in 24 and we'll give you more insight into the magnitude of that as we get into 24 gods.

Thank you for your question. The next question is from the line of the list that I'm understand with every core ISI, your line is not open.

Hi guys, thanks so much for your question. I had a question about how to think about pricing and sort of as if you think about the average revenue per US integrated care member, and then on the better health side as well. Like obviously you've had a bunch of new integrated care members roll on. So I just wanted to just say, and is that something we should think of as kind of ramping as those members sort of come and get geared up? And so that's something that we should think about maybe over the next couple of quarters, is that ramp, or is that not the right way to think about it? And then obviously you had a nice inflection in better health therapy revenue per user per month as well. So just how to think about the cadence of that as we kind of move forward.

Yeah, I would describe Elizabeth, thanks for the question. I would describe the pricing environment as stable.

with respect to the members that we just onboarded in integrated care.

It's really more of a revenue per member than a pricing question.

I because you know we have to activate those members to drive visit revenue. The subscription revenue says stable over time, but visit revenue tends to ramp.

That's not really a pricing question. It's more of an activation and engagement question. And then of course, we always look for land and expand opportunities.

so that we can increase our revenue per member. So when I think about pricing, I think of it as an Apple to Apple's basis for either a single product or a bundle of products.

from one year to the next and we're seeing it pretty stable.

With respect to better help, we're always experimenting with pricing across markets.

But overall pricing hasn't changed in a notable way. I think if you're looking at revenue divided by user count, any small change you're seeing period to period is primarily a reflection of MIX.

including the growth of the other line item, which is mostly a DTC sleep asset that's small but growing faster. And really importantly, when you're looking at revenue in a quarter versus membership.

There's quite a bit of impact or there's impact within a quarter of the timing of when members come on and then start paying for the program and or roll off of the program. So overall I would say pricing has remained pretty stable in that market.

Thank you for your question. The next question is from the line of Sean Dodge with RBC Capital, you're allowed to open.

Thanks, Dr. Newton. Jason, you kind of alluded to it a bit in earlier response, but just on better health, with the resumption of student loan payments on October 1st, there are any updates you can provide on what you're seeing, you know, the at least thus far into October . Any potential impact that's having a new ads or churn or any kind of discernible change and customer behavior, I mean, you just, I guess, in general, around better health.

You know, we haven't seen anything in the data that suggests that that's had an impact. Turn has been stable. We haven't seen significant notable change, nor are we assuming any significant change in turn in our guidance. So I would say no, we haven't seen really any impact.

Thank you for your question. That will conclude the conference call. Thank you for your participation. You may now disconnect your line.

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Okay.

Good afternoon, and thank you for attending the Teladoc Health third quarter earnings call. My name is Matt and I'll be your moderator for today's call I'll always be need it during the presentation portion of the call if an opportunity for questions and answers at the end if you like to ask a question. Please press star one on your telephone keypad I'll now pass the conference over to our host Patrick.

<unk> head of Investor Relations Patrick Please go ahead.

Thank you and good afternoon today after the market closed we issued a press release announcing our third quarter 2023 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 discuss our fourth quarter and full year 2023 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 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 were teladoc health to differ materially from those expressed or implied in this call for <unk>.

Actual 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.

Now I'd like to turn the call over to Jason.

Patrick and thanks, everyone for joining us.

This afternoon, we are pleased to report a strong third quarter with results that met or exceeded our key financial and operating guidance.

Our performance reflects the fundamental strength of our business and our continued success in making better health available to our more than 90 million members.

In my prepared comments. This afternoon I want to focus on three key themes that reflect the value that we're delivering today and poised to deliver in the years ahead.

First our third quarter results met or exceeded our key financial and operating guidance strengthening our solid balance sheet that distinguishes us across our industry.

Second the demand for our products and services remains strong with the largest payers and partners globally viewing teladoc health's whole person care as the prescription for point solution fatigue, and a disconnected health care system.

And third we're taking additional concrete steps to further accelerate our business on bottom line performance.

This includes a comprehensive operational review of our business I'll talk more about what that means in a moment.

Let's begin with Q3 results on the top line, our consolidated revenue grew 8% on a year over year basis in the third quarter to $660 million.

Matt: Good afternoon. Thank you for attending the Teladoc Health Theory Quarter earnings call. My name is Matt, and I'll be your moderator for today's call.

And as a result of our continued efforts to drive margin improvements. This year, our consolidated adjusted EBITDA of $89 million exceeded the high end of our expectations.

Unknown Executive: All long to be needed during the presentation, portion of the call for an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone key pet.

We were pleased to see revenue from our integrated care segment grew 9% year over year to $374 million.

Patrick Feeley: I'll now have to pass the conference over to our host Patrick Feeley, head of investor relations. Patrick, we've go ahead. Thank you and good afternoon.

Compared to the second quarter revenue grew 4% sequentially driven in large part by higher enrollment in our chronic care programs, where enrollment now exceeds $1 1 million active users driven by a combination of strong leverage over the cost structure, improving efficiency and a contribution from <unk>.

Patrick Feeley: Today after the market closed, we issued a press release announcing our third quarter 2023 financial results. This press release in the accompanying slide presentation are available in the investor relations section of the Teladoc Health.com website. On this call, discuss the results are Jason Gorevic, Chief Executive Officer, and Mala Murthy, Chief Financial Officer. During this call, we will also discuss our fourth quarter in full year 2023 outlook, and our prepared remarks will be followed by a question and answer session.

Performance based payments earned during the quarter the integrated care segment delivered $63 million of adjusted EBITDA or a margin of 16, 8%.

Patrick Feeley: Please note that we'll 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 1995. 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 are implied in this call.

Which we believe demonstrates the leverage that's inherent in the integrated care business model.

Turning to better help we recorded $286 million of revenue in the quarter up 8% year over year and within the guidance range provided last quarter.

Third quarter margins for better help improved nearly 500 basis points over the prior year's third quarter and we're on track to deliver material EBITDA growth again in the fourth quarter, which is typically better help seasonally strongest quarter for margin.

Patrick Feeley: 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.

After scaling rapidly to surpass $1 billion of revenue last year, we have since taken a more balanced approach to growth and margin at better health.

Jason Gorevic: I would now like to turn the call over to Jason. Thank you, Patrick, and thanks everyone for joining us. This afternoon, we're pleased to report a strong third quarter with results that met or exceeded our key financial and operating guidance. Our performance reflects the fundamental strength of our business and our continued success in making better health available to our more than 90 million members. In my prepared comments, this after noon, I want to focus on three key themes that reflect the value that we're delivering today and poised to deliver in the years ahead.

Jason Gorevic: First, our third quarter results met or exceeded our key financial and operating guidance, strengthening a solid balance sheet that distinguishes us across our industry. Second, the demand for our products and services remains strong. With the largest payers and partners globally, viewing Teladoc Health's whole person care as the prescription for point solution fatigue and a disconnected health care system. And third, we are taking additional concrete steps to further accelerate our business on bottom line performance. This includes a comprehensive operational review of our business. I'll talk more about what that means in a moment.

This means we will continue to prioritize profitable growth that meets or exceeds our return requirements.

Customer acquisition costs remained near the midpoint of our outlook range.

Combined with stable gross margin trends that means we anticipate landing near the midpoint of our prior full year segment revenue and margin guidance for better health.

The second theme I want to cover is client demand, where the environment remains strong for our whole person care solution.

And thinking about the selling season, so far I'd call out three key trends.

First while there are still over two months left to go in the year. We're pleased that year to date, our bookings are tracking in line to moderately ahead of the same point last year.

We're seeing strength across all key products and channels.

Through the end of the third quarter chronic care sales represent just over half of our total bookings in the U S up incrementally from the same point last year.

Next we've seen particular success in pulling through chronic care sales and enrollment via our whole person bundled solutions.

Jason Gorevic: Let's begin with Q3 results. On the top line, our consolidated revenue grew 8% on a year-over-year basis in the third quarter to $660 million. And as a result of our continued efforts to drive margin improvements this year, our consolidated adjustity of $89 million exceeded the high end of our expectations. We were pleased to see revenue from our integrated care segment grown 9% year-over-year to $374 million.

We're increasingly selling access to multiple chronic care programs at a single bundled price point.

For example, clients purchasing our diabetes plus bundle enable access to multiple chronic care programs diabetes management hypertension and weight management.

This has the benefit of removing friction by creating a simpler contracting path opening access to all programs from day, one and driving better engagement and outcomes for our clients.

Jason Gorevic: Partners. Compared to the second quarter, revenue grew 4 percent sequentially, driven in large part by higher enrollment in our chronic care programs, where enrollment now exceeds 1.1 million active users, driven by a combination of strong leverage over the cost structure, improving efficiency, and a contribution from performance-based payments earned during the quarter. The integrated care segment delivered $63 million of adjusted divida, or a margin of 16.8 percent, which we believe demonstrates the leverage that's inherent in the integrated care business model.

It also meets the member where they are with more than one quarter of Americans diagnosed with multiple chronic conditions.

And by delivering more value to the client it enables us to unlock better economics.

Over the past 12 months more than two thirds of our chronic care deals included our whole person bundled solutions.

That's helps drive faster program adoption, resulting in total chronic care program enrollment growth of 13% year over year.

Finally, not only are we seeing growth within our existing client base, but we're also seeing significant competitive takeaways.

Jason Gorevic: Turning to better help, we recorded $286 million of revenue in the quarter, up 8 percent year over year, and within the guidance range provided last quarter. Third quarter margins for better help improved nearly 500 basis points over the prior year's third quarter, and were on track to deliver material divida growth again in the fourth quarter, which is typically better help seasonally strongest quarter for margin. After scaling rapidly to surpass a billion dollars of revenue last year, we have since taken a more balanced approach to growth and margin at better health.

This is a direct result of other players struggling to deliver for their clients and in some cases fallout from unprofitable business models with weak balance sheets.

During the third quarter, we added nearly 4 million lives to our virtual care programs in competitive takeaways.

While our Q3 results in selling season validate the value that we're delivering for our clients and members. We also recognize that there is still even greater potential to unlock business performance.

Jason Gorevic: This means we'll continue to prioritize profitable growth that meets or exceeds our return requirements. Customer acquisition costs remain near the midpoint of our outlook range. Combined with stable gross margin trends, that means we anticipate landing near the midpoint of our prior full year segment revenue and margin guidance for better help.

We have built a strong and durable foundation for efficient growth, increasing profitability and generating cash flow.

You've heard us talk about a more balanced approach to growth and margin.

In 2023, we're demonstrating that we can drive material EBITDA and free cash flow growth. Despite a lower rate of top line growth.

Jason Gorevic: The second theme I want to cover is client demand, where the environment remains strong for our whole-person care solution. In thinking about the selling season so far, I'd call out three key trends. First, while there are still over two months left to go in the year, we're pleased that year to date our bookings are tracking in line to moderately ahead of the same point last year. We're seeing strength across all key products and channels.

There are few things that give us a high level of confidence in our ability to deliver EBITDA and free cash flow growth well in excess of revenue growth over the next few years.

First we are exiting a period of elevated investment following the <unk> transaction.

Jason Gorevic: Through the end of the third quarter, chronic care sales represent just over half of our total bookings in the US, up incrementally from the same point last year. Next, we've seen particular success in pulling through chronic care sales and enrollment via our whole-person bundled solutions. We're increasingly selling access to multiple chronic care programs at a single bundled price point. For example, clients purchasing our diabetes plus bundle enable access to multiple chronic care programs, diabetes management, hypertension, and weight management.

As many projects wrap up like our integrated App that launched this year, we expect moderating costs will allow us to drive material operating leverage over the cost structure as we grow our top line.

Second over the past 12 months, we are broadly sharpened our focus on improving efficiency across the organization.

<unk> seen those efforts begin to bear fruit this year as EBITDA and free cash flow have consistently exceeded our own expectations.

Which leads me to three.

We're disappointed with the valuation of the stock today, which we don't believe adequately reflects the value. We are driving today and we will continue to drive in the future.

Jason Gorevic: This has the benefit of removing friction by creating a simpler contracting path, opening access to all programs from day one and driving better engagement and outcomes for our clients. It also meets the member where they are, with more than one quarter of Americans diagnosed with multiple chronic conditions. And by delivering more value to the client, it enables us to unlock better economics. Over the past 12 months, more than two-thirds of our chronic care deals included our whole-person bundled solution.

At the same time, we also know there are significant opportunities to add value through improved business performance.

To that end, we recently kicked off a comprehensive operational review of the business.

This review includes two broad components.

First we have undertaken a portfolio assessment to identify any opportunities to sharpen the focus across our portfolio of products and services and ensure our investments remain highly selective and prioritized in the direction of our integrated whole person care strategy.

Jason Gorevic: That helps drive faster program adoption, resulting in total chronic care program enrollment growth of 13% year over year. Finally, not only are we seeing growth within our existing client base, but we're also seeing significant competitive takeaways. This is a direct result of other players struggling to deliver for their clients, and in some cases fall out from unprofitable business models, with weak balance sheets. During the third quarter, we added nearly four million lives to our virtual care programs in competitive takeaways.

Second we are pursuing a comprehensive review of our cost structure.

Following our cost reduction efforts earlier. This year, we are confident that we have the right operating structure in place to support the next phase of our growth.

Meanwhile, we are actively working to identify opportunities to improve upon this operating efficiency.

For example, as a part of that exercise, we have begun standing up centers of excellence that will leverage shared services across the business to enable a more efficient operating structure.

Jason Gorevic: While our Q3 results in selling season, validate the value that we're delivering for our clients and members, we also recognize that there is still even greater potential to unlock business performance. We have built a strong and durable foundation for efficient growth with increasing profitability and generating cash flow. You've heard us talk about a more balanced approach to growth in margin. In 2023, we're demonstrating that we can drive material EBITDA and free cash flow growth, despite a lower rate of top line growth.

We are committed to a thorough review and analysis and we are working with a third party to bring an independent perspective.

In short we are accelerating our efforts to ensure that our business is operating as efficiently as possible in order to drive profit growth at a level that is meaningfully higher than our revenue growth over the next few years.

We will do this by fully tapping the operating leverage that as a market differentiator for Teladoc health as the leader in digital health at scale.

Jason Gorevic: We will continue to focus on improving bottom line performance, and we're confident that we can continue to deliver significant EBITDA margin expansion, particularly within the integrated care segment. There are a few things that give us a high level of confidence in our ability to deliver EBITDA and free cash flow growth well and excessive revenue growth over the next few years. First, we are exiting a period of elevated investment following the Lavango transaction.

And we will do this while ensuring that our business remains centered on our mission and that no efficiencies are taken at the expense of keeping our promises to our clients we're caring for our members.

We look forward to sharing more details on these efforts in the coming quarters.

And with that I'll turn the call over to <unk> to review the third quarter and share our forward guidance. Thank you, Jason and good afternoon, everyone.

Jason Gorevic: As many projects wrap up like our integrated app that launched this year, we expect moderating costs will allow us to drive material operating leverage over the cost structure as we grow our top line. Second, over the past 12 months, we have broadly sharpened our focus on improving efficiency across the organization. You've seen those efforts begin to bear fruit this year, as EBITDA and free cash flow have consistently exceeded our own expectations.

Third quarter consolidated revenue of $660 million increased 8% year over year.

Third quarter, adjusted EBITDA was $8 $8 million above the high end of our guidance range, representing a margin of 13, 4%.

Consolidated net loss per share in the third quarter with 35.

Compared to a net loss per share of 45.

The third quarter of 2022.

Jason Gorevic: Which leads me to three. We're disappointed with the valuation of the stock today, which we don't believe adequately reflects the value we are driving today and will continue to drive in the future. At the same time, we also know there are significant opportunities to add value through improved business performance. To that end, we recently kicked off a comprehensive operational review of the business. This review includes two broad components. First, we have undertaken a portfolio assessment to identify any opportunities to sharpen the focus across our portfolio of products and services and ensure our investments remain highly selective and prioritized in the direction of our integrated whole-person care strategy.

Net loss per share in the third quarter include amortization of acquired intangibles of 42 per share and stock based compensation expense of 32 cents per share.

Sure.

Third quarter free cash flow was $68 million.

<unk> to $20 million in the third quarter of 2022.

We ended the quarter with over $1 billion in cash and equivalents on the balance sheet.

Turning to segment results.

Integrated care segment revenue increased 9% year over year to $374 million in the third quarter growing 4% sequentially.

The largest contributor to year over year integrated care revenue growth with chronic care followed by primary 360.

Jason Gorevic: Second, we are pursuing a comprehensive review of our cost structure. Following our cost reduction efforts earlier this year, we are confident that we have the right operating structure in place to support the next phase of our growth. Meanwhile, we are actively working to identify opportunities to improve upon this operating efficiency. For example, as a part of that exercise, we have begun standing up centers of excellence that will leverage shared services across the business to enable a more efficient operating structure.

On a sequential basis the primary contributor to integrated care segment growth was the ramp up with enrollment and chronic care programs.

During the quarter, we added 49000, new enrollments and chronic care program, bringing total year to date net enrollment growth to over 100000.

We ended the third quarter with chronic care enrollment of one point to $1 2 million, an increase of 13% year over year and 5% sequentially.

Jason Gorevic: We are committed to a thorough review and analysis, and we are working with a third party to bring an independent perspective. In short, we are accelerating our efforts to ensure that our businesses operating as efficiently as possible in order to drive profit growth at a level that is meaningfully higher than our revenue growth over the next few years. We will do this by fully tapping the operating leverage that is a market differentiator for Daladoc health as the leader in digital help at scale. And we will do this while ensuring that our business remains centered on our mission and that no efficiencies are taken at the expense of keeping our promises to our clients or caring for our members.

The biggest drivers of new chronic care enrollment year to date have been hypertension, which is now approaching 30% of total program enrollment.

Follow by our diabetes prevention and weight management program.

Each crossed the 100000 enrollment Mark this year.

Program enrollment growth has been bolstered by our success in selling our bundle of chronic care management solution.

In total the integrated care segment added over 4 million members during the third quarter ending at $90 2 million.

The significant membership growth during the quarter was primarily a result of a large competitive takeaway during the quarter.

Jason Gorevic: We look forward to sharing more details on these efforts in the coming quarters. Thank you for that.

Average integrated care revenue per U S member of a dollar and 41.

Mala Murthy: I will turn the call over to Mala to review the third quarter and share our forward guidance. Thank you, Jason, and good afternoon, everyone. Third quarter consolidated revenue of $660 million increased 8% year over year. Third quarter adjusted EBITDA was $8.8 million above the high end of our guidance range, representing a margin of 13.4%. Consolidated net loss per share in the third quarter was 35 cents compared to a net loss per share of 45 cents in the third quarter of 2022.

Increased 1% over the prior year's quarter and was flat sequentially.

Excluding the large new population added during the third quarter.

Revenue per member increased four.

Sequentially.

Third quarter integrated care, adjusted EBITDA was $62 8 million representing.

Representing a 540 basis point margin expansion over the prior year third quarter.

That margin expansion was driven by higher gross margin due to an increased mix of subscription revenue.

An increase in performance based revenue earned during the quarter and improved operating efficiency, particularly on the G&A line.

Mala Murthy: Net loss per share in the third quarter includes amortization of acquired intangible of 42 cents per share and stock based compensation expense of 32 cents per share. Third quarter free cash flow was $68 million compared to $20 million in the third quarter of 2022. We ended the quarter with over $1 billion in cash and equivalence on the balance sheet.

The margin performance versus our third quarter guidance was primarily driven by lower expenses again, most notably on the G&A line.

Turning to better help <unk>.

<unk> revenue increased 8% year over year to $286 million in the third quarter.

A decline of 2% sequentially in line with our guidance range.

Mala Murthy: Turning to segment results. Integrated care segment revenue increased 9% year over year to $374 million in the third quarter, growing 4% sequentially. The largest contributor to year over year integrated care revenue growth was chronic care, followed by primary 360. On a sequential basis, the primary contributor to integrated care segment growth was the ramp up of enrollment in chronic care programs. During the quarter we added 49,000 new enrollments in chronic care programs, bringing total year to date net enrollment growth to over 100,000.

Average monthly users increased 5% over the prior year's quarter.

Third quarter better health adjusted EBITDA was $26 million, resulting in a margin of nine 1%.

This represents a 490 basis point increase over last year's third quarter.

A reflection of the more stable advertising environment compared with the prior year as well as sustained gross margin improvement.

Now turning to forward guidance.

We expect full year revenue to be in the range of 2.62 to 625 billion.

Representing growth of approximately 8% to 9%.

Mala Murthy: We ended the third quarter with chronic care enrollment of 1.12 million, an increase of 13% year over year and 5% sequentially. The biggest drivers of new chronic care enrollment year to date have been hypertension, which is now approaching 30% of total program enrollment, followed by our diabetes prevention and weight management program, which have each crossed 100,000 enrollment mark this year. Their segment added over 4 million members during the third quarter, ending at 90.2 million.

We now expect full year consolidated adjusted EBITDA to be in the range of $320 million to $330 million representing year over year margin improvement of approximately 200 to 225 basis points.

We now expect full year free cash flow of approximately $175 million up from our prior expectation of $150 million.

For the fourth quarter, we expect revenue to be in the range of $658 million to $683 million.

Assumed in the fourth quarter revenue outlook is high single digit percent year over year growth in our integrated care segment.

Mala Murthy: The significant membership growth during the quarter was primarily a result of a large competitive takeaway during the quarter. Average integrated care revenue per U.S, member of a dollar and 41 cents increased 1 cent or the previous quarter and was flat sequentially. Excluding the large new population added during the third quarter, revenue per member increased 4 cents sequentially. Third quarter integrated care adjusted divida with $62.8 million, representing a 540 basis point margin expansion over the prior year's third quarter.

And low to mid single digit year over year growth in our better health segment.

One thing I would remind you of which we've discussed previously.

Is that the cadence of better help advertising spend in 2023 is more heavily weighted to the first half of the year than last year.

This change in AD spend cadence results in quarterly year over year comparisons that favored the first half of 2023 to the detriment of the second half of the year.

Therefore, we do not see the year over year growth rate expected in the fourth quarter.

Mala Murthy: That margin expansion was driven by higher gross margin due to an increased mix of subscription revenue and increase in performance based revenue earned during the quarter and improved operating efficiency. The margin arc performance versus our third quarter guidance was primarily driven by lower expenses, again, most notably on the GNA line.

As reflective of the underlying growth and the better health business.

Fourth quarter consolidated adjusted EBITDA is expected to be in the range of $107 million to $117 million.

The adjusted EBITDA outlook for the fourth quarter.

<unk> integrated care segment margins between 11, five and 12, 5%.

And fourth quarter, better help segment margins between 22 and 23%.

Mala Murthy: Turning to better health, revenue increased 8 per cent year over year to $286 million in the third quarter, a decline of 2 per cent sequentially in line with our guidance range. Average monthly users increased 5 per cent over the prior year's quarter. Third quarter better health adjusted divida was $26 million, resulting in a margin of 9.1%. This represents a 490 basis point increase over last year's third quarter, a reflection of the more stable advertising environment compared to the prior year, as well as sustained gross margin improvement.

As discussed throughout the year, our prior guidance assumed a modest deterioration in the cost of customer acquisition at the low end of the range and an improvement at the high end of the range.

Recent customer acquisition costs continue to trend within that initial outlook range.

Late in the lower half of the range.

We believe trends are likely to persist in this range through year end and you see that reflected in the revision of the high end of our revenue guidance.

With that I will turn the call back to Jason.

Thanks, Mala before we go to questions I do want to share some work that we're particularly proud of in the wake of so much tragedy in recent days.

Mala Murthy: Now, turning to forward guidance. We expect full year revenue to be in the range of 2.6 to 2.6 to $5 billion, representing growth of approximately 8 to 9%. We now expect full year consolidated adjusted divida to be in the range of 320 to $330 million, representing year over year margin improvement of approximately 200 to 225 basis points. We now expect full year free cashflow of approximately $175 million, up from our prior expectation of $150 million.

As you may have heard better help us offering therapy to anyone impacted by the war in Israel and Gaza at no cost.

The support applies to anyone affected by the war anywhere.

Some of you know better helped frequently offers therapy at no cost to those in need through our social impact program.

In the past 18 months, we have responded to the Maui fires Hurricanes in the war in Ukraine. The Robb elementary you Valdez shooting and Midwest flooding among other crises.

While no one has all the right answers right now.

I am pleased that better health and Teladoc health can make a positive contribution to healing at a time of such great suffering.

Mala Murthy: For the fourth quarter, we expect revenue to be in the range of $658 to $683 million. Assumed in the fourth quarter Revenue Outlook is high single-digit percent Eurovio growth in our Integrated Care segment, and low to mid-single-digit Eurovio growth in our Better Health segment. One thing I would remind you of, which we've discussed previously, is that the cadence of Better Health advertising spend in 2023 is more heavily weighted to the first half of the year than last year.

With that we'll open it up for questions operator.

If you'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove a question. Please press star followed by two again to ask a question press Star one as a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking a question. We ask that you. Please limit yourself to one question.

Mala Murthy: This change in at spend cadence resolves in quarterly Eurovio comparisons that favor the first half of 2023 to the detriment of the second half of the year. Therefore, we do not see the Eurovio growth rate expected in the fourth quarter, as reflective of the underlying growth in the Better Health business. Fourth quarter Consolidate of Justity Bada is expected to be in the range of $107 to $17 million. The Adjustity Bada Outlook for the fourth quarter, assumed Integrated Care segment margins between 11.5 and 12.5 percent, and fourth quarter Better Health segment margins between 22 and 23 percent.

And one follow up.

We will pause briefly as questions registered.

The first question is from the line of Lisa Gill with Jpmorgan. Your line is now open.

Hi, Thanks, very much and Jason I will just have to say that that's a wonderful thing that you do I know this is a really difficult time for a number of people.

I really want to focus on a few things I know I always asked about the selling season, but I want to focus on two areas and that's really around integrated care. The margins. We saw this quarter, how youre thinking about that business going forward. The significant wins that you said competitively you had 4 million lives that that shifted over to to your integrated offer.

Can you maybe just talk to me about the competitiveness in the marketplace today, what you saw in the selling season.

I am sure you don't want to name who you took those 4 million lives from but Ken can you talk about what are they single point solutions or are they.

Other.

Part of that you feel are fairly competitive to you just how do we think about how you are positioned on a go forward basis, especially on the integrated side of your business.

Mala Murthy: As discussed throughout the year, our prior guidance assumed a modest deterioration in the cost of customer acquisition at the low end of the range and an improvement at the high end of the range. Recent customer acquisition costs continue to trend within that initial Outlook range, albeit in the lower half of the range. We believe trends are likely to persist in this range through your end, and you see that reflected in the revision of the high end of our revenue guidance.

Yes, no. Thanks, Chris I appreciate that and thanks for the comments on our work with better health.

If I if I think about the competitive landscape I think the incidents of us selling bundled solutions.

Really speaks to the power of the breadth of our offering and how that is significantly differentiated from anyone else in the market.

Mala Murthy: With that, I will turn the call back to Jason. Thanks, Mala.

Jason Gorevic: Before we go to questions, I do want to share some work that we are particularly proud of in the wake of so much tragedy and recent days. As you may have heard, Better Health is offering therapy to anyone impacted by the war in Israel and Gaza at no cost. The support applies to anyone affected by the war anywhere. As some of you know, Better Health frequently offers therapy at no cost to those in need through our social impact program.

As we as we've talked about.

The majority of our chronic care chronic care management programs make up the majority of our bookings and the majority of our chronic care management solutions are sold as bundles of services. We're also seeing very significant.

Wind, where we sell additional products and services into existing clients and many of those cases, we're replacing single point solution or a more narrow solutions by adding our products into those clients and so I would say that the dimensions of our.

Jason Gorevic: In the past 18 months, we have responded to the Maui fires, Hurricane Ian, the war in Ukraine, the Rob Elementary Uvaldi shooting, and Midwest flooding among other crises. Well, no one has all the right answers right now.

Our competitive wins come into really three categories.

One is where we replace a single point solution with either a bundle of solutions or by selling additional products into an existing client.

Jason Gorevic: I'm pleased that Better Health and Teladok Health can make a positive contribution to healing at a time of such great suffering.

Two is where our clients have sorry, our competitors have failed operationally <unk> in terms of the value proposition for the clients and our proven track record of success and value creation wins, the day and three as well.

Unknown Executive: With that, we'll open it up for questions operator. If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speaker phone, please remember to pick up your headset before asking your question. We ask that you please limit yourselves to one question and one follow-up. We'll pause your briefly as questions are registered.

There were replacing someone who quite frankly is faltering.

In this current economic environment, because they have a business model that in an economic model that isn't sustainable and were seeing them struggle either to raise capital or quite frankly to exist.

Lisa Gill: The first question is from a line of Lisa Gill with J.P. Morgan. Your line is not open. Thanks very much. And Jason, I have to say that that's a wonderful thing that you do. I know this is a really difficult time for a number of people. I really want to focus on a few things. I know I always asked about the selling season, but I want to focus on two areas. And that's really around integrated care.

At all as a going concern.

So we've seen all three of those.

The biggest one this quarter that represented the largest competitive win was the latter where we saw a competitor fail.

And we were able to step in and replace them and I think that really speaks to the strength of our balance sheet and the strength of our financials.

Lisa Gill: The margins we saw this quarter, how you're thinking about that business going forward, the significant wins that you said competitively, you had 4 million lives that shifted over to your integrated offering. Can you maybe just talk to me about the competitiveness in the marketplace today, what you saw in the selling season. I'm sure you don't want to name who you took those 4 million lives from, but can you talk about where they single point solutions, where they other parties that you feel are fair.

I think we've said, we said last quarter Marlin I have never spoken to so many cfos at clients and prospects, who are really kicking the tires to make sure that the partners. They engage with are going to be here, not just today, but into the future and be able to grow with them.

The second part of your question or maybe the first part of your question was about integrated care margins Molly do you want to speak to that.

Lisa Gill: Are you really competitive to you, just how do we think about how your position go on a go forward basis, especially on the integrated side of your business. Yeah, no, thanks, Lisa. I appreciate that. And thanks for the comments on our work with better help. If I think about the competitive landscape, I think the incidence of us selling bundled solutions really speaks to the power of the breadth of our offering and how that is significantly differentiated from anyone else in the market.

I'll speak to that Lisa So if I take a step back and look at our integrated care margin performance in the third quarter and I look at it vis vis Euro where you are aware as we said in our prepared remarks be expanded by 500 basis points.

R&D, even if you look at it sequentially, where we have had a pretty sizable improvement over 600 basis points in our integrated care margins.

Lisa Gill: As we've talked about, the majority of our chronic care management programs make up the majority of our bookings and the majority of our chronic care management solutions are sold as bundles of services. We're also seeing very significant wins where we sell additional products and services into existing clients. In many of those cases, we're replacing single point solution or more narrow solutions by adding our products into those clients. And so I would say that the dimensions of our competitive wins come into really three categories.

There are a few factors and drivers across boats that stand out first of all it is the growth that we're seeing in our chronic care book right. So as we've talked about that has a nice pull through to gross margins and we are seeing.

Average from that.

We've also talked about the fact that.

In the third quarter, we saw.

Revenue growth in a more balanced way across both chronic care and primary 360. So we've seen we are seeing the pull through of that revenue growth in the integrated care side.

We are seeing the results of our cost controls and the cost efficiency programs that we have already put in place this year.

Lisa Gill: One is where we replace a single point solution with either a bundle of solutions or by selling additional products into an existing client. Two is where our competitors have failed operationally and or in terms of the value proposition for the clients and our proven track record of success and value creation wins the day. And three is where we're replacing someone who quite frankly is faltering in this current economic environment because they have a business model that and an economic model that isn't sustainable and we're seeing them struggle either to raise capital or quite frankly do exist at all as a going concern.

We are seeing the benefit of that Jason talked about in his prepared remarks as we look at the July operating review across our business.

We will look to additional areas, where we can.

Drive cost efficiencies, so that will be a continuing theme.

Look we also had as we talked about our prepared remarks, some amount of benefit it's about $4 million from our performance guarantees that really was about that would be recognized because of the outcomes we have driven.

That was in if you look at the overall contribution to our margin expansion. It was about 100 basis points.

So if you really look at what's driving the <unk>.

Margin expansion it is the revenue mix.

Lisa Gill: The biggest one in this quarter that represented the largest competitive win was the ladder where we saw a competitor fail and we were able to step in and replace them. And I think that really speaks to the strength of our balance sheet and the strength of our financials. And you know, I think we said we said last quarter, Maul and I have never spoken to so many CFOs at clients and and prospects who are really kicking the tires to make sure that the partners they engage with are going to be here not just today but into the future and be able to grow with them.

And it is the cost efficiency programs that we have put in place and we will continue to focus on that.

Thank you.

Thank you for your question.

Next question is from the line of Ryan Daniels with William Blair. Your line is now open.

Hey, guys. Thanks for taking the question one for you on the chronic care book of business. I think you mentioned hypertension, it's about 30% and seeing strong growth in diabetes and weight management. So curious what your longer term thoughts on the impact potentially to that business either favorably or unfavorably from all the <unk> data that's coming in.

Market.

Jason Gorevic: The second part of your question, or maybe the first part of your question, was about Integrated Care Margins.

Yes, Thanks Ryan.

As we said earlier in the year, we don't really anticipate any material financial impact from the new program that we launched.

Mala Murthy: Mala, do you want to speak to that? Yeah, I'll speak to that Lisa. So if I take a step back and look at our Integrated Care Margins performance in the third quarter, and I look at it, these are the year-over-year where, as we said, I'm not prepared for marks, be expanded by 500 basis points. Or even if you look at it sequentially, where we have had a pretty sizable improvement over 600 basis points in our Integrated Care Margins, you know, there are a few factors and drivers across both that stand out.

And announced earlier in the year.

This year, we think that that will have an impact for us in the future and we expect to participate in being able to take advantage of some of the benefits of <unk> ones for people, who are living with diabetes as well as for people, who engage with our diabetes prevention and weight management program.

<unk>, so we see that as paying off for us in the future.

We also see quite frankly that.

Mala Murthy: First of all, it is the growth that we are seeing in our chronic care book, right? So as we've talked about, that has a nice pull through to Gross Margins, and we are seeing leverage from that. We've also talked about the fact that, you know, in the third quarter, we saw revenue growth in a more balanced way across both chronic care and primary 360, so, you know, we've seen the pull through of that revenue growth in the Integrated Care side.

The market is very engaged in this and our clients are looking to us for solutions, especially because of the cost of those medications.

With respect to whether that's going to be a headwind.

I would say probably.

The hype has gotten.

Head of the reality.

With respect to.

The <unk> ones.

Mala Murthy: We are seeing the results of our cost controls and the cost efficiency programs that we have already put in place this year. We are seeing the benefit of that, and as Jason talked about in his prepared remarks, as we look at the June operating review across our business, certainly we will look to additional areas where we can drive cost-efficiency. So that will be a continuing theme. Look, we also had, as we talked about in our prepared remarks, some amount of benefit.

I think I saw an analysis recently, where some people said that the airlines were going to save on fuel costs when.

The country engages with <unk> ones and collectively loses way.

That gets to maybe a little bit of over hype at this point.

We've seen the prevalence of diabetes continually increase year over year.

And is expected to increase by over 25% in the next 10 years.

Well I think that <unk> can have an impact on maybe moderating that rate of growth.

Mala Murthy: It's about $4 million from our performance guarantees that really was about, that we recognized because of the outcomes we have driven. You know, that was, if you look at the overall contribution to our margin expansion, it was about 100 basis points. So, if you really look at what's driving the margin expansion, it is the revenue mix, and it is the cost-efficiency programs that we have put in place, and we will continue to focus on that. Thank you.

I really don't bank.

I wish it werent the case, but I don't think we're going to suddenly see a massive decline in the need for people to engage in more comprehensive solutions that include behavior change.

Unknown Executive: Thank you for your question.

With respect to activity with respect to nutrition with respect to mental health care, and so I think <unk> ones.

And really we view them as a tool to enhance those programs.

But don't really see them as as a headwind and I think he also again going back to my initial comments you have to take it in the context of the cost of those medications and the need for our clients to engage in programs that help manage the overall cost of them.

Ryan Daniels: Next question is from a line of Ryan Daniels with William Blair. Thanks for taking the question. One for you on the chronic carebook of business. I think you mentioned hypertension. It's about 30% and seeing strong growth in diabetes and weight management. So, curious what your longer-term thoughts are on the impact potentially to that business, either favorably or unfavorably, from all the GLP1 data that's coming to market. Yeah, thanks, Ryan.

Okay. That's super helpful. I'll hop back in the queue. Thanks, so much.

Thanks Ryan.

Thank you for your question.

The next question is from the line of Joe inducing with <unk>. Your line is now open.

Thank you and thanks for taking my questions.

Understand we need to wait for a detailed 2020 guidance until Q4 earnings call, but I was wondering if you could give any debt excellent color qualitative color on revenue and margin trends. So any additional puts and takes we should keep in mind across those two segments as we think about 2020 for nexium.

Jason Gorevic: You know, as we said earlier in the year, we don't really anticipate any material financial impact from the new program that we launched and announced earlier in the year. This year, we think that that will have an impact for us in the future, and we expect to participate in being able to take advantage of some of the benefits of GLP1s for people who are living with diabetes, as well as for people who engage with our diabetes prevention and weight management programs.

Jason Gorevic: So, we see that as paying off for us in the future. We also see, quite frankly, that the market is very engaged in this, and our clients are looking to us for solutions, especially because of the cost of those medications. Williams. With respect to whether that's going to be a headwind, I would say probably the hype has gotten a head of the reality with respect to the GLP ones. I think I saw an analysis recently where some people said that the airlines were going to save on fuel costs when the country engages with GLP ones and collectively loses.

Yeah, I guess I'd say, a couple of things and then I'll hand, it to Molla for some color I think what you heard US say today is that you can expect US you can expect to see our EBITDA grow faster than our revenue.

For the next couple of years.

That certainly will hold true whether that's part of our expectations for 2024.

I think you've heard us talk about the selling season today for integrated care being in line to modestly ahead of where we were last year at this time we have.

A couple of months still left in the selling season, and we see our late stage pipeline pretty flat relative to where it was this year. So.

That should give you at least a little bit of color relative to where.

Our integrated care segment will be and client retention there continues to be in the nineties.

So no material change there and then on the better health side I think you heard policy.

Jason Gorevic: I think that gets to maybe a little bit of overhype at this point. You know, we've seen the prevalence of diabetes continually increase year over year and is expected to increase by over 25% in the next 10 years. Well, I think that GLP ones can have an impact on maybe moderating that rate of growth. I really don't think and I wish it weren't the case, but I don't think we're going to suddenly see a massive decline in the need for people to engage in more comprehensive solutions that include behavior change with respect to activity, with respect to nutrition, with respect to mental health care.

That we continue to take a more balanced approach than we had historically.

To revenue and margin growth there.

And that you Shouldnt view, the fourth quarter as being indicative of the underlying growth of.

That business. So I think those are the.

We're going to stop short as you are.

<unk> of giving 2020 for guidance at this point, we expect we will do that in the first quarter of next year.

But I think those are the components and ingredients that should go into your outlook Marlin did I Miss anything.

I would just add a little bit more color on better health specifically.

Jason Gorevic: And so I think GLP ones and really we view them as a tool to enhance those programs, but don't really see them as a headwind. And I think we also, again, going back to my initial comments, you have to take it in the context of the cost of those medications and the need for our clients to engage in programs that help manage the overall cost of them. Okay, that's super helpful. I'll hop back in the queue. Thanks so much. Thanks, Ryan.

Thinking about the starting point for 2020 for Gilenya I think about two things.

We've said this several times.

Up until now the quarterly com.

Unknown Executive: Thank you for your question.

<unk> very differently this year realm.

Relative to last year.

And so I would think about if you think about the first quarter.

Think of it as above run rate the fourth quarter as lower than the true run rate due to the euro very calm.

Talk about year over year comps, it's about AD spend as well as the revenue just as a reminder, what we've been saying all year is.

Jailendra Singh: The next question is from a line of gelindrucing with truest killer open. Thank you and thanks for taking my questions. I understand we need to wait for a detailed 2024 guidance until Q4 earnings call, but I was wondering if you could give any directional color or qualitative color. But on revenue and margin trends, the additional puts and takes we should keep in mind across those two segments as you think about 2024 next year.

The AD spend cadence was going to be very different this year versus the last year last year over half of the AD spend took place in the second half of that year. This year, it's the opposite with half of the spend taking place in the first half.

That's sort of the first thing to keep in mind.

The second thing I'd say is on a full year basis.

Jailendra Singh: Yeah, I guess I'd say a couple of things and then I'll hand it to Mala for some color. I think what you heard us say today is that you can expect us, you can expect to see our EBITDA grow faster than our revenue for the next couple of years. And that certainly will hold true or that's part of our expectations for 2024. I think you heard us talk about the selling season today for integrated care being in line to modestly ahead of where we were last year at this time.

You think about better help revenue as part of our guidance has decelerated.

Each year over the last two years and that has happened for a few reasons right. One is this business has scaled pretty rapidly over a short period of time.

It's just simply a much bigger business today.

The law of large numbers youre, just not going to see it continuing to grow at those hyper growth rates annually.

The second thing I'll say is <unk>.

Jason just talked about we are managing the business differently, we are balancing topline growth as well as bottom line growth and cash flow.

Jailendra Singh: We have a couple of months still left in the selling season and we see our late stage pipeline pretty flat relative to where it was this year. So that should give you at least a little bit of color relative to where our integrated care segment will be and client retention there continues to be in the 90s. So no material change there. And then on the better help side, I think you heard Mala say that we continue to take a more balanced approach than we had historically to revenue and margin growth there and that you shouldn't view the fourth quarter as being indicative of the underlying growth of that business.

So certainly that balanced approach has an increasing focus on driving ROI on margin.

And that is in instances going to come out.

At a lower overall rate of top line growth.

And then the last point is if you look at this business, which is the largest player in the DTC virtual mental health space by far.

We are also the largest advertiser a virtual mental health.

And unlike many of our smaller peers, our scale enables us to drive strong returns on our spend and that gives us a real advantage. We have talked about this before but there is only so much incremental AD spend and customer acquisitions, you can drive in any short period.

Jailendra Singh: So I think those are the, we're going to stop short as you expected of giving 2024 guidance at this point. We expect we'll do that in the first quarter of next year. But I think those are the components and ingredients that should go into your outlook. Mala, did I miss anything there?

At a time there is just a natural growth to that every year as the market shifts more and more towards virtual and ask the channels themselves grow.

So that does limit the amount of DTC business can profitably grow year. After year. So all of this just to lend some color to the dynamics that we are suddenly seeing in the in the mental health business.

Mala Murthy: I would just add a little bit more color on better health specifically. You know, thinking about the starting point for 2024, Jillandra, think about to Singh. You know, we have said this several times, up until now, the quarterly comms line up very differently this year, relative to last year. And they, so I will think about, you know, if you think about the first quarter, think of it as above run rates, the fourth quarter as lower than the true run rate, due to the year where you're comms, when I talk about year where it comes, it's about at spend as well as the revenue.

Great helpful. Thank you.

Thank you for your question.

The next question is from the line of Richard close with Canaccord Genuity. Your line is now open.

Yes, thanks for the questions, Jason maybe more details on how youre thinking about investments going forward, you talked a little bit about it but just how big of a change as compared to past years and it sounds like you are being more risk.

Restrained so I'm just curious examples of what maybe gets prioritized.

Mala Murthy: Try just as a reminder, what we've been saying all year is, the at spend cadence was going to be very different this year versus the last year, last year over half of the at spend took place in the second half of that year. This year, it's the opposite, but half of the spend taking place in the first half. So that's sort of the first thing to keep in mind. The second thing I'd say is on a full year basis, you know, if you think about better helper revenue, as per our guidance, has decelerated each year over the last two years, and that's happened for a few reasons, right.

Yes, a couple of thoughts there Richard.

First of all it's important to put it in the context of where we've come from over the last couple of years, we are emerging from our significant investment cycle during which we've spent a lot of time and effort building and integrating <unk>.

<unk> acquisition, and so now I think it makes sense for us to look across the organization for further ways to enhance business performance and part of that is focusing our investments on the areas where not only are we going to get the greatest return, but also are closest to the center of the <unk>.

Mala Murthy: One is, this business has scaled pretty rapidly over a short period of time. It's just simply a much bigger business today. So, law of large numbers, you're just not going to see it continue to grow at those hyper growth rates annually. The second thing I'll say is, as Jason just talked about, we are managing the business differently. We are balancing top line growth as well as bottom line growth and cash flow.

<unk> of our strategy.

That also.

Youll see in.

<unk>.

Continued progress we're making on capitalized software you have seen that this year and I think youll see that again next year.

As we move into more focused investments and less quite frankly foundational.

Investments on big chunks that.

That has helped too.

Mala Murthy: So, certainly that balanced approach has an increasing focus on driving ROI and margin. And that is, in instances, going to come at a lower overall rate of top line growth. And then the last point is, if you look at this business, which is the largest player in the DTC virtual mental health space by far, you know, we are also the largest advertiser of virtual mental health. And unlike many of our smaller peers, our scale enables us to drive and earn strong returns on our spin.

Get us to this point, but also put the platform in place for us to move forward.

You've seen that with our integrated App you have seen that as we've migrated some of our internal ERP and financial systems.

You see that as we put in place some of the capabilities that enable us to deliver on.

A true integrated experience for primary $3 60.

And so we'll continue to focus.

On delivering that whole person care in a differentiated manner, but also making sure that we are.

Mala Murthy: And that gives us a real advantage. We have talked about this before, but there's only so much incremental at spend and customer acquisitions you can drive in any short period of time. There's just a natural growth to that every year as the market shifts more and more towards virtual and as the channels themselves grow. So, that does limit the amount of DTC business can possibly grow year after year. So, all of this just to lend some color to the dynamics that we are suddenly seeing in the better health business.

Judicious in making sure that we're delivering the return on capital spend.

Unknown Executive: Very helpful. Thank you.

Okay. Thank you.

Unknown Executive: Thank you for your question.

Thank you for your question.

The next question is from the line of Charles <unk> with TD Cowen. Your line is now open.

Hi, This is Lucas on for Charles I wanted to ask about the performance guarantees that you recognize from generating positive outcomes I'm, assuming this is related to value based arrangements.

What portion of your Guys's integrated care segment is derived from these sorts of.

Value based arrangements or at least engagements that enable you to recognize.

Richard Close: The next question is from a line over at your close with can a core genuity. You always know. Yeah, thanks for the questions.

Performance payments.

And then can you give us as to how these are structured.

Jason Gorevic: Jason, maybe more details on how you're thinking about investments going forward. You talked a little bit about it, but I just, you know, how big of a change is this compared to past years. And it sounds like you're being more restrained. So, I'm just curious examples of what maybe gets prioritized. Yeah, a couple of thoughts there, Richard. I think first of all, it's important to put it in the context of where we've come from over the last couple of years.

You can learn from them.

Yeah.

Thanks for the question.

The way I would think about it is on a run rate basis, the amount of performance based revenue.

Tied to clinical outcomes would be in the single digits percentage of our total integrated care.

<unk> revenue so just to give you some sort of dimensions on on the size of that.

And the other thing I would say is.

Jason Gorevic: You know, we're merging from a significant investment cycle during which we've spent a lot of time and effort building and integrating post-Lavongo acquisition. And so now, I think it makes sense for us to look across the organization for further ways to enhance business performance. And part of that is focusing our investments on the areas where not only are we going to get the greatest return, but also our closest to the center of the bulls eye of our strategy.

We have a long history of.

Our performance against these clinical measures.

We have a lot of data to support our analyses, we feel very comfortable in terms of our ability to perform against these outcome guarantees.

<unk>.

As I just said, it's a relatively small percentage of our revenue today and finally, we also believe that we take an appropriately conservative.

Jason Gorevic: I think that that also, you'll see in the continued progress we're making on capitalized software. You've seen that this year, and I think you'll see that again next year. As we move into more focused investments, and less, quite frankly, foundational investments on big chunks that have helped to get us to this point, but also put the platform in place for us to move forward. You've seen that with our integrated app. You've seen that as we've migrated some of our internal ERP and financial systems.

<unk> recognizing performance based revenue.

So all of it to say this is.

Work contracts that.

Certainly we have been used to delivering against for some time supported by data.

And it is.

A relatively small percentage of our overall.

Revenue book today.

Yeah.

Jason Gorevic: You see that as we put in place some of the capabilities that enable us to deliver on a true integrated experience for primary 360. And so we'll continue to focus on delivering that whole person care in a differentiated manner, but also making sure that we're judicious in making sure that we're delivering the return on capital spend.

Thank you for your question next question is from the line of George Hill with Deutsche Bank. Your line is now open.

Hey, good afternoon, guys and Jason Thanks for taking the question I guess I would have a question on better helping and Mala I recognize the guidance that you gave for Q4. My question is kind of now that we're about a month past. The Q3 close I guess I would just ask.

Unknown Executive: Okay, thank you.

When it is that business from a membership perspective basically tracking in line with expectations, where you guys had guided for the balance of the year.

And then Jason one for you quickly maybe it sounds like the company wants to.

Take a pretty pretty broad approach to a cost cutting program I don't know if theres any way to kind of size of order of magnitude in the way that youre thinking about what the opportunity looks like inside of the cost structure.

Charles Rhyee: Thank you for your question.

Jason Gorevic: Next question is from the line of Charles Reed with TD Cowan. You know, I was not open. Hi, this is Lucas from the Charles. I want to ask about the performance guarantees that you recognize from generating positive outcomes. I'm assuming this is related to value based arrangements. What portion of your guys is integrated care segment is derived from these sorts of value based arrangements or at least engagements that enable you to recognize performance payments.

Yes, so maybe I'll take that one first George and then Mala can talk about where we are I think actually I'll, maybe I'll take it. The short answer is a month into the quarter were right in line with where our guidance is.

So.

I can take that for Molla.

I think with respect to our comprehensive operational review.

We're really looking across the portfolio to ensure that everything we do is aligned with our strategic focus and maximizing our profitable growth gross opportunities.

Jason Gorevic: Yeah, how these are structured and how you can earn from them. Yeah, thanks for the question. You know, the way I would think about it is on a run rate basis, the amount of performance based revenue tied to clinical outcomes would be in the single digits percentage off our total integrated care segment revenue. So just to give you some sort of dimensions on on the size of that. And the other thing I would say is, you know, we have a long history of performance against these clinical measures.

And I think.

These efforts are really focused on operating efficiency.

And we've stood up now centers of excellence for things like member operations clinical operations client operations revenue cycle management supply chain and purchasing.

All areas, where we can leverage our scale.

And make sure that we're driving for greater efficiency.

And take advantage of the opportunity to.

To drive cost out of the business such that we can operate more efficiently.

Jason Gorevic: We have a lot of data to support our analyses. We feel very comfortable in terms of our ability to perform against these outcome guarantees. As I just said, it's a relatively small percentage of our revenue today. And finally, we also believe that we take an appropriately conservative approach in recognizing performance based revenue. So all of it to say, this is work contracts that certainly we have been used to delivering against for some time. Supported by data. And it is a relatively small percentage off our overall revenue book today.

I mentioned before.

We are emerging from a significant period of investment and so it makes sense for us to.

Really look at.

A more right sized the organization based on the cost reduction efforts that we took earlier this year.

Make sure that all parts of the business are contributing to our profitable growth.

And I think that that.

Is is really the fundamentals of it.

Don't have anything to announce today regarding.

What the magnitude.

Of the performance improvements that we expect.

And as we're in the middle of that assessment right. Now I think you can expect us to give you more color on that in the quarters to come as we quantify the opportunities.

And then help you to tie those opportunities to what we described earlier, which is EBITDA growing at a faster rate than revenue over the next couple of years.

Unknown Executive: Thank you for your question.

George Hill: Next question is from the line of George Hill with Deutsche Bank. You know, I've been open.

George Hill: Hi, good afternoon, guys, and Jason and mom. Thanks for taking the question. I guess I would have a question on better health and Mala, I recognize the guidance that you gave for Q4. My question is kind of now that we're about a month past the Q3 closed, I guess I was just asked, like, is that business for a membership perspective, basically tracking in line with expectations to where you guys have guided for the balance of the year.

The one last thing I would add is we've talked about.

All of the operating expense.

Initiatives and things we would look at.

I would also say if I think about gross margin and the gross margin improvement which has been.

George Hill: And then Jason, one for you quickly would be as it sounds like the company wants to take a pretty broad approach to a cost cutting program. I don't know if there's any way to kind of size or magnitude in the way that you're thinking about what the opportunity looks like inside of the cost structure. Yeah, so maybe I'll take that one first George and then Mala can talk about where we are.

A strong contributor to our margin expansion think about.

That will help on the gross margins that we're seeing there.

We are taking steps to and initiatives to improve therapist productivity, whether it be group therapy more digital interactions. So it's I would say both across gross margin as well as operating expense.

George Hill: I think that actually maybe I'll take it. The short answer is a month into the quarter. We're right in line with where our guidance is. So, so I can take that for Mala. I think with respect to our comprehensive operational review, we're really looking across the portfolio to ensure that everything we do is aligned with our strategic focus and maximizing our profitable growth, growth opportunities. I think these efforts are really focused on operating efficiency.

Thank you. Thank you for your question.

Next question is from the line of Jessica testing with Piper Sandler Your line is now open.

George Hill: And we've stood up now, centers of excellence for things like member operations, clinical operations, client operations, revenue cycle management, supply chain and purchasing all areas where we can leverage our scale. And make sure that we're driving for greater efficiency and take advantage of the opportunity to drive cost out of the business, such that we can operate more efficiently. I mentioned before, we are emerging from a significant period of investment. And so it makes sense for us to really look at a more right-sized organization based on the cost reduction effort that we took earlier this year.

Thank you guys for taking the question. So I'm curious as you think about the kind of new guidance that EBITDA and free cash flow should grow faster than revenue over the next couple of years should we still.

There'll be thinking about and the long term revenue growth target the mid single digit to high single digit for integrated care in low double to mid teens or better health as being.

Valid.

Against that new guidance or should we think about sort of a different revenue growth rate on a consolidated basis.

Yes, Jeff So we haven't given longer term guidance.

For the business as a whole or the.

Segments.

I think you'll you'll see us come out.

In the first quarter of 'twenty, four with an outlook for 'twenty four.

Didn't quite frankly are the indications that we've given today about expecting to see EBITDA growing faster than revenue for the next couple of years is probably the longest outlook that we've given in the last several quarters.

I think as we.

Solidify what the findings are in results from this operational review that will feed into a more multi year outlook.

George Hill: And make sure that all parts of the business are contributing to our profitable growth. And I think that that is really the fundamentals of it. We don't have anything to announce today regarding what the magnitude of the performance improvements that we expect. And as we're in the middle of that assessment right now, I think you can expect us to give you more color on that in the quarters to come as we quantify the opportunities and then help you to tie those opportunities to what we described earlier, which is EBITDA growing at a faster rate than revenue over the next couple of years.

And we will endeavor to give you more of a longer term view.

When we are ready to but but.

I don't want to.

I don't want to acknowledge or validate those numbers because I don't.

Recall us.

Giving a longer term view.

Got it thank you.

Thank you for your question.

Next question is from the line of Daniel gross light with Citi. Your line is now open.

Hi, guys. Thanks for taking the question I just have a couple on integrated care margins and the outlook for the remainder of the year. So if I heard you correctly at the midpoint you expect around 12% margin for integrated care, which would be around 477 basis points of degradation lop off a 100 basis points for the performance fee so still talking.

George Hill: The one last thing I would add is we have talked about all of the operating expense initiatives and things we would look at. I would also say, if I think about Gross margin and the Gross margin improvement, which has been a strong contributor to our margin expansion, think about better help and the gross margins that we are seeing. There, you know, we are taking steps to and initiatives to improve therapist productivity, whether it be group therapy, more digital interactions. So it's, I would say, both across gross margin as well as operating expense.

Around 375 basis points of degradation sequentially I'm curious, what's what's driving that.

Unknown Executive: Thank you.

And then I guess, if I look at the full year, what's implied by by that <unk> guidance, it's around 250 basis points of.

Margin expansion versus when we started the year I think you thought it would be kind of flat to up 50, and then you change that.

75 to 125 basis points of doubt it significantly outperforming there. So maybe if you could just put a finer point on that.

Unknown Executive: Thank you for your question.

The outperformance there.

You should expect going forward in fiscal 'twenty four.

Yeah.

Thanks, Danielle for the question. So if you think about the four Q.

And our guide that we have given for integrated care I would say.

Jessica Tassan: Next question is from a line of Jessica Tassan with Piper Sandler.

There are a few factors driving exactly as you said the decrease in margins. So what are those first.

Unknown Executive: Your line is not open. Thank you, guys, for taking the question. So I'm curious as you think about the kind of new guidance that even on free cash flow should grow faster than revenue over the next couple of years. Did we still be thinking about those long term revenue growth targets, the mid single digit to high single digit for integrated care and low double to mid teens for better help as being. You know, valid against that new guidance or should we think about sort of a different revenue growth rate on a consolidated basis?

The fourth quarter is always the cold and flu season and that as you know drives gross margin compression right as visit volumes increase.

So that's always a factor.

We are also spending ahead of member on boarding bright as you know we have.

We've talked about the strength in bookings, we have several member Onboarding starting Jan one.

Jason Gorevic: Thanks. Yeah, just so we haven't given longer term guidance for the businesses a whole or the segments. I think you'll, you'll see us come out in the first quarter of 24 with an outlook for 24. I think quite frankly are the indications that we've given today about expecting to see but not growing faster than revenue for the next couple of years is probably the longest outlook that we've given in the last several quarters.

We are spending ahead of those client launches.

I would also say we continue to grow our class of W. Two physician hires.

And we will do so in the fourth quarter, we will increase our W. Two.

<unk>.

So that certainly is a small drag to margins during the quarter.

And.

The last thing I would say is as you mentioned as you noted the certainly the performance guarantees contributed about 100 basis points to the third quarter margins and that certainly has an impact sequentially.

Jason Gorevic: I think as we solidify what the findings are and results from this operational review that will feed into a more multi year outlook and will endeavor to give you more of a longer term view when we're ready to. But I don't I don't want to I don't want to acknowledge or validate those numbers because I don't I don't recall us giving a longer term view.

On your second question around full year.

Unknown Executive: Got it.

Performance on the margins and why are we seeing the expansion the strength that we have seen.

It really comes down to two big themes number one is we are seeing strength in chronic care revenue growth that has been a consistent theme over the past few quarters.

Unknown Executive: Thank you. Thank you for your question.

Daniel Grosslight: The next question is from the line of Daniel Grosslight with city. Hi guys, thanks for taking the question. I just have a couple on integrated care margins and that look for the remainder of the year. So if I heard you correctly at the midpoint, you expect around 12% margin for integrated care, which would be around 477 basis points of degradation. A lot of 100 basis points for the performance fee. So still talking around 375 basis points of degradation sequentially.

And certainly that has exceeded our expectations. When we gave the initial guide.

Yes.

And the second thing is all of the cost efficiency programs that we are seeing the fruits off as we have rolled through the year.

And <unk>.

Mala Murthy: I'm curious what's what's driving that. And then I guess if I look at the full year, what's implied by that 4Q guidance, it's around 250 basis points of margin expansion versus when we started the year, I think you thought it would be kind of flat top 50 and then you change that 75 to 125 basis points. And so now it's significantly outperforming there. So maybe if you could just put a finer point on that and the performance there. But we should expect going forward in fiscal 24. Yeah.

Jason and I have talked about it in the last few minutes around what those are so it's really those two things that have allowed us to outpace the margin expectations.

As we have rolled through the year.

Makes sense and then maybe just a follow up.

I'll take a shot at fiscal 'twenty four it as well it seems like if anything youre going to get more margin expansion in 'twenty four versus what you are going to achieve in 'twenty, three which is around 200 230 basis points, you got that operating efficiencies that might flow through and in some other less spend on the integrated care apps. So I'm just.

Mala Murthy: Thanks, Annie, for the question. So, if you think about the 4Q out guide that we have given for integrated care, I'd say, you know, there are a few factors driving exactly as you said, the decrease in margins, so what are those? First, the fourth quarter is always the cold and flu season, and that, as you know, drives gross margin compression, as visit volumes increase, so that's always a factor. We are also spending a head off member onboarding, as you know, we have, we've talked about the strength and bookings, we have several member onboarding starting Jan 1, we are spending ahead of those client launches.

Should we think about 200 250 basis points of margin expansion going forward as kind of a floor for you guys.

We're going to we're going to stop short of giving a magnitude of the margin expansion.

But I think by definition, the fact that we expect EBITDA to grow faster than revenue.

Can take away from that that we are targeting margin expansion again in 'twenty four.

And we'll give you more insight into the magnitude of that as we are.

As we get into 'twenty for guidance.

Thank you for your question next question is from the line of Elizabeth Anderson with Evercore ISI. Your line is now open.

Hi, guys. Thanks, so much maybe a question.

Mala Murthy: I would also say we continue to grow our class off W2 physician hires, and we will do so in the fourth quarter. We will increase our W2 growth, so that certainly is a small drag to margins during the quarter. And the last thing I would say is, as you mentioned, as you noted, the performance guarantees contributed about 100 basis points to the third quarter margins, and that certainly has an impact sequentially.

A question about how to think about pricing answered about do we think about the average revenue per U S integrated care member.

Then on the better health health side as well.

You've had a bunch of new integrated care macros roll on.

So I just wanted to understand is that something we should think of it as kind of ramping as those members sort of come in and get geared up and so that's something that we should think about maybe over the next couple of quarters is that ramp or is that not the right way to think about it and then obviously you had a nice inflection in better health therapy revenue for us.

There for a month as well so just how to think about the cadence of that as we kind of move forward. Thank you.

Mala Murthy: On your second question around full your performance on the margins, and why are we seeing the expansion and the strength that we have seen, it really comes down to two big scenes. Number one is, we are seeing strength in chronic care revenue growth that has been a consistent theme over the past few quarters, and certainly that has exceeded our expectations when we gave the initial guide. And the second thing is all of the cost efficiency programs that we are seeing the fruits off as we have rolled through the year.

Yes.

Describe Elizabeth Thanks for the question I would describe the pricing environment is stable.

With respect to the members that we just on boarded and integrated care.

It's really more of a revenue per member than a pricing question.

Because we have to activate those members to drive visit revenue the subscription revenue stays stable overtime, but visit revenue tends to ramp.

That's not really a pricing question, it's more of an activation.

And engagement question and then of course, we always look for land and expand opportunities.

So that we can increase our revenue per member so when I think about pricing I think of it as an apples to apples basis for us either a single product or a bundle of products from one year to the next and we're seeing a pretty stable.

Mala Murthy: Jason and I have talked about it in the last few minutes around what those are. It is really those two things that have allowed us to outpace the margin expectations as we have rolled through the year.

With respect to.

To better help.

We're always experimenting with pricing across markets.

Jason Gorevic: Make sense, and then maybe just to follow up, I will take a shot at fiscal 24 as well. It seems like if anything, you are going to get more margin expansion in 24 verses, which are going to achieve in 23, which is around 220 basis points. You get that operating efficiencies that might fall through, and some other less spend on the integrated care app. So I am just curious, you know, should we think about 200, 250 basis points of margin expansion going forward as kind of the floor for you guys?

Overall pricing Hasnt changed.

Notable way.

I think if youre looking at revenue divided by user count any small change youre seeing period to period is primarily a reflection of mix.

<unk> the growth of the other line item, which is mostly a DTC sleep asset that's small, but growing faster and really importantly, when youre looking at revenue in a quarter versus membership.

Jason Gorevic: We are going to stop short of giving a magnitude of the margin expansion, but I think by definition, the fact that we expect a bit out of growth faster than revenue, you can take away from that that we are targeting margin expansion again in 24, and we will give you more insight into the magnitude of that as we get into 24 gods.

There is there is quite a bit of impact or there's there's impact within a quarter of the timing of when members come on and then start paying for the program and or roll off of the program. So.

Overall, I would say pricing has remained pretty stable in that market.

Thank you for your question. The next question is from the line of Sean Dodge with RBC Capital. Your line is now open.

Unknown Executive: Thank you for your question.

Yes.

Elizabeth Amner Sandler: The next question is from the line of Elizabeth Amner Sandler with Evercore ISO, your line is now open. Hi guys, thanks so much for the question. I had a question about how to think about pricing and sort of as if you think about the average revenue per US integrated care member and then on the better health side as well.

Hi, good afternoon.

You kind of alluded to it a bit in earlier response, but just on better help with the resumption of student loan payments and October 1st are there any updates you can provide on what youre seeing.

Our.

October.

Any potential impact that's having on new adds or churn or any any kind of discernible change in customer behavior.

Jason Gorevic: Like obviously you've had a bunch of new integrated care members roll on so I just wanted to understand is that something we should think of as kind of ramping as those members sort of come you know and get geared up and so that's something that we should think about maybe over the next couple of quarters is that ramp or is that not the right way to think about it and then obviously you had a nice inflection in better health therapy revenue per user per month as well and so just how to think about the key into that as we kind of move forward. Thank you.

Yeah.

I guess in general around better health.

We haven't seen anything in the data that suggests that that's had an impact.

Churn has been stable, we haven't seen significant notable change.

Nor are we assuming any significant change in churn.

Our guidance.

So I would say no we haven't seen really any impact of that.

Thank you for your question.

Jason Gorevic: Yeah, I would describe Elizabeth thanks for the question. I would describe the pricing environment as stable with respect to the members that we just onboarded in integrated care. It's really more of a revenue per member than a pricing question because you know we have to activate those members to drive visit revenue. The subscription revenue says stable over time but visit revenue tends to ramp. That's not really a pricing question. It's more of an activation and engagement question and then of course we always look for land and expand opportunities so that we can increase our revenue per member.

That will conclude the conference call. Thank you for your participation you may now disconnect your lines.

Jason Gorevic: So when I think about pricing I think of it as an apples to apples basis for us either a single product or a bundle of products from one year to the next and we're seeing it pretty stable. With respect to better help you know we're always experimenting with pricing across markets but overall pricing hasn't changed in a notable way. I think if you're looking at revenue divided by user count any small change you're seeing period to period is primarily a reflection of mix including the growth of the other line item which is mostly a DTC sleep asset that's small but growing faster and really importantly when you're looking at revenue in a quarter versus membership there's quite a bit of impact or there's impact within a quarter of the timing of when members come on and then start paying for the program and or roll off of the program. So overall I would say pricing has remained pretty stable in that market. Thank you for your question.

Sean Dodge: The next question is from the line of Sean Dodge with RBC capital he lies now open. Yep thanks.

Jason Gorevic: Good afternoon. Jason you kind of alluded to it a bit in earlier response but just on better health with the resumption of student loan payments on October 1st. There are any updates you can provide and what you're seeing you know at least thus far into October. Any potential impact that's having a new ads or churn or any kind of change in customer behavior you just I guess in general around better health.

Jason Gorevic: You know, we haven't seen anything in the data that suggests that that's had an impact. Turn has been stable. We haven't seen significant notable change, nor are we assuming any significant change in turn in our guidance. So I would say no, we haven't seen really any impact of that.

Unknown Executive: Thank you for your question.

Unknown Executive: That will conclude the conference call.

Unknown Executive: Thank you for your participation.

Unknown Executive: You may now disconnect your line.

Q3 2023 Teladoc Health Inc Earnings Call

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