Q4 2023 Teladoc Inc Earnings Call
All lines will be muted during the presentation a question of the call with an opportunity for questions and answers at the end.
If you would like to ask a question. Please press star one on your telephone keypad.
Also please limit your questions to one question and one follow up.
I would now like to pass the call over to Patrick Feeley head of Investor Relations. Please proceed.
Thank you and good afternoon today after the market closed we issued a press release announcing our fourth quarter and full year 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 forward 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 for teladoc health to differ materially from those expressed or implied on this call for additional information.
<unk>, please refer to our cautionary statements in our press release and our filings with the SEC all of which are available on our website I would now like to turn the call over to Jason.
Thank you Patrick and thanks, everyone for joining us as we start 2024, we're very much in a time of transition as an economy and industry and our company.
Teladoc health has made significant strides in our increased focus on bottom line performance realizing more benefits of scale over the past several quarters. This.
This year, we will continue to accelerate that progress.
Our success is evident in our most profitable year to date, delivering 33% growth in adjusted EBITDA and free cash flow of $194 million in 2023.
We also closed out 2023 with a strong selling season.
The double digit bookings growth over the prior year.
The breadth of our product portfolio continues to drive cross selling as approximately 75% of our bookings were upsells or expansions with existing clients.
This is representative of our success driving increased product penetration through our large installed base of nearly $90 million virtual care members.
This year, we will grow our adjusted EBITDA margins and free cash flow, while making continued investments in innovation.
We will do this by both growing our revenue and removing more than $85 million in expenses through efficiencies and restructuring.
We're targeting 50 to 100 basis points of annual margin expansion over the next three years and have line of sight to at least $425 million of adjusted EBITDA in 2025.
This puts us in a strong financial position as others in this space struggle.
And it provides us the flexibility to have all options on the table.
<unk> continued investments in organic innovation tuck in M&A, retiring debt and giving back money to our investors through share repurchase.
At the same time, we will continue to grow our top line.
With approximately 90 million members and thousands of clients around the world. We continue to be the leader in whole person virtual care.
We're excited to bring to market a broader range of services in areas like weight management and pediatrics this year.
Even as we work to achieve profitability.
And our productivity initiatives, we will continue to invest in our leading technology and engagement capabilities.
With that framing for where we are and where we're going.
Like to quickly walk you through our Q4 results our 2020 for guidance and our ongoing organizational review as key milestones in this journey.
First fourth quarter results.
On the top line, our consolidated revenue grew 4% on a year over year basis in the fourth quarter to $661 million.
Consolidated adjusted EBITDA of $114 million grew 22% year over year, representing 260 basis points of year over year margin expansion to 17, 3%.
Revenue from our integrated care segment was in line with our expectations growing 8% year over year to $384 million.
Segment margins expanded 230 basis points over the prior year's fourth quarter to 14, 6%.
Benefit of operating leverage and improved efficiency.
Including the strong fourth quarter margin results. The integrated care segment delivered over 320 basis points of margin expansion and 42% growth in adjusted EBITDA for the full year.
Turning to the better health segment revenue was $276 million in the fourth quarter, while adjusted EBITDA was $58 million.
Better help margins expanded 210 basis points over the prior year's fourth quarter, which helped drive year over year adjusted EBITDA growth of 11% despite lower revenue.
While we're pleased to deliver double digit adjusted EBITDA growth at better help both for the quarter and the full year.
Revenue and margins were below our expectations in the quarter as we saw lower yields on marketing spend.
Specifically, we experienced returns on our social media advertising spend that were below target in the second half of the year.
Which was a departure relative to the first half.
We will speak to guidance in a moment, but our better health outlook assumes the lower yields experienced in certain channels in the second half of 2023 will persist and as a result will impact our year over year growth rates in the first half of 2024.
I'd like to take a step back and spend a few minutes, providing a higher level framework for how we're thinking about our long term outlook.
I'll begin with the integrated care segment.
At a high level roughly half of our integrated care segment revenue is derived from our U S based virtual care business, including what you may think of as our traditional Teladoc General medical business.
From a business model perspective, the beauty of our virtual care business is that it's a very stable asset that provides a steady source of revenue and a large client base with approximately 90 million members into which we sell additional products and services.
At the same time, it's important to remember that most U S health care consumers have access to virtual urgent care today. So it's largely a replacement market at this point.
We've consistently taken share in this market and we expect to continue to do so.
But it's fairly well penetrated and accordingly, we anticipate revenue growth from our U S. Virtual care products will be in the low single digits going forward.
So I think of roughly half of the integrated care segment as stable, but lower growth.
The remaining half of integrated care segment revenue is primarily comprised of our chronic care suite of products and our international virtual care doses.
Our general medical virtual urgent care book of business, including our 90 million members represent a long runway for continued cross selling of our chronic care products as we execute against our land and expand strategy.
And when I look at our suite of chronic care products only about 16% of our general medical client base has access to one or more of our chronic care products today.
That's up from just 12% two years ago.
While we've made a lot of progress over the last two years with 16% penetration there is still a long runway for chronic care growth within our existing virtual care about.
So we've been successful in selling our chronic care products through our existing client book and that gives us a lot of confidence that we can deliver mid to high single digit average chronic care revenue growth over the next few years.
Our international <unk> business continues to be a steady contributor to revenue growth and our expanded presence in Canada. This year gives us good visibility into 2020 for revenue growth.
So combined we have a reliably stable asset and our virtual care book of business and a chronic care suite of products and an international channel each growing at a higher rate.
All together, we expect mid single digit annual revenue growth for the integrated care segment over the next three years.
Over the last two years with 16% penetration there is still a long runway for chronic care growth within our existing virtual care about.
We also see significant opportunities for margin expansion in the integrated care segment from both operating leverage and productivity improvements all while maintaining robust capacity for sustained strong investment in long term innovation and growth.
So we've been successful in selling our chronic care products through our existing client book and that gives us a lot of confidence that we can deliver mid to high single digit average chronic care revenue growth over the next few years.
We expect this segment will drive the majority of consolidated margin growth over the next three years.
Our international <unk> business continues to be a steady contributor to revenue growth and our expanded presence in Canada. This year gives us good visibility into 2020 for revenue growth.
Turning now to our outlook for better health.
As we step back and think about the better health segment going forward I think of three broad growth drivers first overall demand for mental health services continues to rise.
So combined we have a reliably stable asset and our virtual care book of business and a chronic care suite of products and an international channel each growing at a higher rate.
And with significant unmet need that demand is outpacing supply.
Altogether, we expect mid single digit annual revenue growth for the integrated care segment over the next three years.
Second consumer preference for mental health services continues to shift towards the virtual modality.
That continues to be a tailwind.
We also see significant opportunities for margin expansion in the integrated care segment from both operating leverage and productivity improvements all while maintaining robust capacity for sustained strong investment in long term innovation and growth.
At the same time with our increased focus on profitable growth as a direct to consumer business better helps new member acquisition is gated somewhat by the amount of capital we can deploy at an acceptable rate of return in any given time period.
We expect this segment will drive the majority of consolidated margin growth over the next three years.
This means better helps growth is in part dependent on our ability to efficiently reach new individuals to create awareness for better health services and convert them to members.
Turning now to our outlook for better health.
As we step back and think about the better health segment going forward I think of three broad growth drivers.
At its current size and scale, we believe better help is by far the largest direct to consumer virtual therapy provider in the market today.
First overall demand for mental health services continues to rise.
With significant unmet need that demand is outpacing supply.
Better help scale and experience affords us a unique advantage of deploying a large amount of capital efficiently each year, while driving strong free cash flow.
Second consumer preference for mental health services continues to shift toward the virtual modality.
That continues to be a tailwind.
The good news is given the continued runway for growth and our well established algorithm for deploying advertising dollars. We believe we can drive steady growth in this business at an attractive margin.
At the same time with our increased focus on profitable growth as a direct to consumer business better helps new member acquisition is gated somewhat by the amount of capital we can deploy at an acceptable rate of return in any given time period.
We're also increasing our focus on growing better health outside the U S.
Roughly 15% or better helps fiscal year 2023 revenue was generated in international markets, primarily in English speaking countries, such as Canada, and the U K and we're actively working to expand better helps presence internationally.
This means better helps growth is in part dependent on our ability to efficiently reach new individuals' to create awareness for better health services and convert them to members.
At its current size and scale, we believe better help is by far the largest direct to consumer virtual therapy provider in the market today.
To advance this goal and accelerate that or helps revenue growth internationally, we recently hired a new leader.
Better help scale and experience affords us a unique advantage of deploying a large amount of capital efficiently each year, while driving strong free cash flow.
We think theres a lot of untapped potential outside the U S and expect to see these efforts begin to contributing to our financial results more meaningfully as we move through 2024, particularly in the second half of the year.
The good news is given the continued runway for growth and our well established algorithm for deploying advertising dollars. We believe we can drive steady growth in this business at an attractive margin.
We will continue to grow better help responsibly with an eye towards maintaining the attractive margin and free cash flow profile of the business with over $1 1 billion in revenue and our increased focus on bottom line performance. We believe we can efficiently deploy capital to drive new customer acquisition.
We're also increasing our focus on growing better health outside the U S.
Roughly 15% or better helps fiscal year 2023 revenue was generated in international markets, primarily in English speaking countries, such as Canada, and the U K and we're actively working to expand better helps presence internationally.
And revenue growth that better health in the low single digit range over the next three years with opportunities for modest margin expansion.
Before I update you on the results of our ongoing operational review I want to reinforce our commitment to investing in technology and the long term growth of our company.
To advance this goal and accelerate that or helps revenue growth internationally, we recently hired a new leader.
We think theres a lot of untapped potential outside the U S and expect to see these efforts begin to contributing to our financial results more meaningfully as we move through 2024, particularly in the second half of the year.
Our ability to effectively leverage data and technology to drive engagement and multi product utilization is fundamental to delivering better outcomes and lower costs for our clients.
We will continue to grow better help responsibly with an eye toward maintaining the attractive margin and free cash flow profile of the business.
Our engagement capabilities underpinned by the data and data science remain a key competitive advantage.
Therefore, it is important that we continue driving greater differentiation through investments in technologies, such as machine learning and AI, improving our ability to engage with members on a hyper personalized basis.
With over $1 1 billion in revenue and our increased focus on bottom line performance. We believe we can efficiently deploy capital to drive new customer acquisition and revenue growth that better health in the low single digit range over the next three years with opportunities for modest margin expansion.
While we continue to work hard to drive productivity and efficiency across the organization you should expect us to continue to make sizable targeted investments in product technology and data.
Before I update you on the results of our ongoing operational review I want to reinforce our commitment to investing in technology and the long term growth of our company.
At the same time, we have increased our focus on efficiency and bottom line performance.
Our ability to effectively leverage data and technology to drive engagement and multi product utilization is fundamental to delivering better outcomes and lower costs for our clients.
We're driving sustained margin improvement and increased cash flow generation, while continuing to make substantial investments in innovation.
To date, we have identified actions that we expect will result in approximately $85 million in total annual run rate operating expense savings by the end of 2024.
Our engagement capabilities underpinned by the data and data science remain a key competitive advantage.
Therefore, it's important that we continue driving greater differentiation through investments in technologies, such as machine learning and AI.
These savings build on the cost initiatives, we delivered upon in 2023 and are expected from productivity initiatives, including automation and internal process improvements.
Improving our ability to engage with members on a hyper personalized basis.
So while we continue to work hard to drive productivity and efficiency across the organization.
Organizational realignment and third party spend reduction.
You should expect us to continue to make sizable targeted investments in product technology and data.
We expect $35 million of these identified cost savings to benefit 2020 for adjusted EBITDA and $43 million in total impact to 2024, GAAP expenses inclusive of stock based compensation.
At the same time, we have increased our focus on efficiency and bottom line performance.
We're driving sustained margin improvement and increased cash flow generation, while continuing to make substantial investments in innovation.
Our efforts to unlock productivity improvements are ongoing and we will provide updates as appropriate.
These productivity and efficiency initiatives will allow us to drive near term growth and invest in future growth opportunities. While also continuing our path towards enhanced bottom line performance and free cash flow generation.
To date, we have identified actions that we expect will result in approximately $85 million in total annual run rate operating expense savings by the end of 2024.
These savings build on the cost initiatives, we delivered upon in 2023 and are expected from productivity initiatives, including automation and internal process improvements organs.
The long term fundamentals of our business are strong and we remain committed to expanding our leadership position in the industry.
With that I'll turn the call over to Molla to review, the fourth quarter and share our forward guidance.
Organizational realignment and third party spend reduction.
We expect $35 million of these identified cost savings to benefit 2020 for adjusted EBITDA and $43 million in total impact to 2024, GAAP expenses inclusive of stock based compensation.
Thank you, Jason and good afternoon, everyone.
Fourth quarter consolidated revenue of $661 million increased 4% year over year.
Fourth quarter, adjusted EBITDA was $114 million, an increase of 22% year over year, representing a margin of 17, 3%.
Our efforts to unlock productivity improvements are ongoing and we will provide updates as appropriate.
These productivity and efficiency initiatives will allow us to drive near term growth and invest in future growth opportunities. While also continuing our path toward enhanced bottom line performance and free cash flow generation.
Full year consolidated revenue of $2 $6 billion increased 8% over the prior year.
Full year consolidated adjusted EBITDA increased 33% to $328 million.
The long term fundamentals of our business are strong and we remain committed to expanding our leadership position in the industry.
Full year adjusted EBITDA margin increased 240 basis points to 12, 6%.
With that I'll turn the call over to Molla to review, the fourth quarter and share our forward guidance.
Consolidated net loss per share in the fourth quarter was 17.
Thank you, Jason and good afternoon, everyone.
Compared to a net loss per share of $23.49 in the fourth quarter of 2022.
Molla: Fourth quarter consolidated revenue of $661 million increased 4% year over year.
Net loss per share in the fourth quarter included amortization of acquired intangibles was 43 per share.
Molla: Fourth quarter, adjusted EBITDA was $114 million, an increase of 22% year over year, representing a margin of 17, 3%.
And stock based compensation expense of <unk> 20 per share.
Fourth quarter free cash flow was $93 $6 million.
Molla: Full year consolidated revenue of $2 $6 billion increased 8% over the prior year.
<unk> to $11 7 million in the fourth quarter of 2022.
Molla: I was fully consolidated adjusted EBITDA increased 33% to $328 million.
Full year free cash flow was $193 $7 million compared to $65 million in the prior year.
Molla: Full year adjusted EBITDA margin increased 240 basis points to 12, 6%.
We ended the year with over one $1 billion in cash and cash equivalents on the balance sheet.
Molla: Consolidated net loss per share in the fourth quarter was 17 <unk>.
Molla: Compared to a net loss per share of $23.49 in the fourth quarter of 2022.
Turning to segment results.
Integrated care segment revenue increased 8% year over year to $384 million in the fourth quarter.
Molla: Net loss per share in the fourth quarter included amortization of acquired intangibles of 43 per share.
Growing 3% sequentially.
For the full year integrated care segment revenue increased 7% to one $5 million.
Molla: Stock based compensation expense of <unk> 20 per share.
Molla: Fourth quarter free cash flow was $93 $6 million.
The largest contributor to 2023 integrated can growth with chronic care revenue.
Molla: <unk> to $11 $7 million in the fourth quarter of 2022.
Fourth quarter anticipates, adjusted EBITDA was $56 million, an increase of 28% over the prior year's fourth quarter.
Molla: Full year free cash flow was $193 $7 million compared to $65 million in the prior year.
Representing a 230 basis point margin expansion.
Molla: We ended the year with over one $1 billion in cash and cash equivalents on the balance sheet.
During the fourth quarter member enrollment and chronic care program grew by 36000.
Speaker Change: Turning to segment results.
Full year net enrollment growth to 139000.
Speaker Change: Integrated care segment revenue increased 8% year over year to $384 million in the fourth quarter.
We ended the fourth quarter with chronic care enrollment of 1.16 million.
Speaker Change: Growing 3% sequentially.
An increase of 14% year over year and 3% sequentially.
Speaker Change: Full year integrated care segment revenue increased 7% to one 5 billion.
The biggest drivers of new chronic care enrollment in fiscal year, 2023, where hypertension, followed by our diabetes prevention and weight management program.
Speaker Change: The largest contributor to 2023 integrated can growth with chronic care revenue growth.
Speaker Change: Fourth quarter integration.
As of year end diabetes management comprised approximately half of chronic care program enrollment.
Speaker Change: Adjusted EBITDA was $56 million, an increase of 28% over the prior year's fourth quarter.
Followed by hypertension at 30% and diabetes prevention and weight management, both approximately 10% of total program enrollment.
Speaker Change: Representing a 230 basis point margin expansion.
Speaker Change: During the fourth quarter member enrollment and chronic care program grew by 36000.
Program enrolment growth continues to benefit from our success in selling bundled chronic care management solutions.
Speaker Change: Full year net enrollment growth to 139000.
Integrated care segment membership ended the year at 89 6 million members.
Speaker Change: We ended the fourth quarter with chronic care enrollment of 1.1 dollars 6 million.
Average integrated care revenue per U S member of a dollar and 42 <unk>.
Speaker Change: An increase of 14% year over year and 3% sequentially.
Speaker Change: The biggest drivers of new chronic care enrollment in fiscal year, 2023, or hypertension, followed by our diabetes prevention and weight management program.
Decreased <unk> over the prior year's fourth quarter.
Excluding the impact of new virtual care members added during the year.
Revenue per member increased six cents.
Speaker Change: As of yearend diabetes management comprised approximately half of chronic care program enrollments.
Turning to better help.
Revenue was $276 million in the fourth quarter.
Speaker Change: Followed by hypertension at 30% and diabetes prevention and weight management, both approximately 10% of total program enrollment.
Roughly flat versus the prior year and down 3% sequentially.
Fourth quarter better help adjusted EBITDA was $58 million representing growth of 11% over the prior year's fourth quarter.
Program enrolment growth continues to benefit from our success in selling bundled chronic care management solutions.
Adjusted EBITDA margin of 21, 2% increased 210 basis points over last year's fourth quarter.
Speaker Change: Totally integrated care segment membership ended the year at $89 6 million members.
Speaker Change: Average integrated care revenue per U S member of a dollar and 42 decreased <unk> over the prior year's fourth quarter.
That'll help revenue for the full year was $1 $1 billion, an increase of 11% over the prior year.
Full year adjusted EBITDA grew 19% over the prior year to $136 million, representing a margin of 12% compared to 11, 2% in the prior year.
Speaker Change: Excluding the impact of new virtual care members added during the year.
Speaker Change: Revenue per member increased six cents.
Turning to better help.
Speaker Change: Revenue was $276 million in the fourth quarter, roughly flat versus the prior year and down 3% sequentially.
Now turning to forward guidance.
We expect full year 2020 for revenue to be in the range of 2635 to $2 73 $5 billion.
Speaker Change: Fourth quarter better help adjusted EBITDA was $58 million representing growth of 11% over the prior year's fourth quarter.
Which represents year over year growth of approximately one 5% to 5%.
Speaker Change: Adjusted EBITDA margin of 21, 2% increased 210 basis points over last year's fourth quarter.
The 2020 for revenue outlook includes low to mid single digit growth in our integrated care segment.
Speaker Change: That'll help revenue for the full year was $1 $1 billion, an increase of 11% over the prior year.
Flat to low single digit growth in our better health segment.
We expect full year 2020 for consolidated adjusted EBITDA to be in the range of $350 million to $390 million.
Speaker Change: Full year adjusted EBITDA grew 19% over the prior year to $136 million.
Speaker Change: Resenting, a margin of 12% compared to 11, 2% in the prior year.
Representing year over year growth between $6, seven and 18, 9%.
Consolidated guidance includes a year over year increase to adjusted EBITDA margin of 150 to 250 basis points for the integrated care segment.
Speaker Change: Now turning to forward guidance.
Speaker Change: We expect full year 2020 for revenue to be in the range of 2635 to $2 73 $5 billion.
And margin for the <unk> segment of flat plus or minus 50 basis points.
Speaker Change: Which represents year over year growth of approximately one 5% to 5%.
We expect full year free cash flow of $210 million to $240 million.
Speaker Change: The 2020 for revenue outlook includes low to mid single digit growth in our integrated care segment.
Representing year over year growth of 8% to 24%.
Speaker Change: And flat to low single digit growth in our <unk> segment.
Full year stock based compensation is expected to be approximately $180 million, representing a decline of approximately $20 million.
Speaker Change: We expect full year 2020 for consolidated adjusted EBITDA to be in the range of $350 million to $390 million.
For the first quarter, we expect revenue to be in the range of $630 million to $645 million.
Speaker Change: Representing year over year growth between $6, seven and 18, 9%.
First quarter integrated care segment year over year revenue growth is expected to be in the range of 5% to 7%.
Speaker Change: Consolidated guidance includes a year over year increase to adjusted EBITDA margin of 150 to 250 basis points for the integrated care segment.
While better help segment revenue growth is expected to be down six two down 3% compared to the first quarter of last year.
Speaker Change: And margin for the better help segment of flat plus or minus 50 basis points.
First quarter consolidated adjusted EBITDA is expected to be in the range of $52 million to $62 million.
Speaker Change: We expect full year free cash flow of $210 million to $240 million.
First quarter adjusted EBITDA guidance includes integrated care segment, adjusted EBITDA margins in the range of 10, 5% to 12%.
Speaker Change: Representing year over year growth of 8% to 24%.
Speaker Change: Full year stock based compensation is expected to be approximately $180 million, representing a decline of approximately $20 million.
Better help adjusted EBITDA margin between five five and six 5%.
One thing I want to call out related to our 2020 for guidance is that we did experience a delay in launching our <unk> consumer engagement efforts during the first quarter.
Speaker Change: For the first quarter, we expect revenue to be in the range of $630 million to $645 million.
Speaker Change: First quarter integrated care segment year over year revenue growth is expected to be in the range of 5% to 7%.
Due to a technical issue in mapping new client populations.
While we have fixed the issue and relaunched our marketing campaigns.
Speaker Change: While better help segment revenue growth is expected to be down six two down 3% compared to the first quarter of last year.
We expect the cumulative effect of this one time delay to have an impact on 2020 for revenue of approximately $20 million.
Speaker Change: First quarter consolidated adjusted EBITDA is expected to be in the range of $52 million to $62 million.
This $20 million impact represents approximately 140 basis points of year over year integrated care segment growth, which is reflected in our 2024 integrated care segment outlook.
Speaker Change: First quarter adjusted EBITDA guidance includes integrated care segment, adjusted EBITDA margins in the range of 10, 5% to 12%.
Speaker Change: And better help adjusted EBITDA margin between five five and six 5%.
Looking beyond 2024.
As reflected in todays press release, we are also providing a long term outlook as follows.
Speaker Change: One thing I want to call out related to our 2020 for guidance is that we did experience a delay in launching our b to b consumer engagement efforts during the first quarter.
We expect consolidated annual revenue growth over the next three years in the low to mid single digits.
Speaker Change: Due to a technical issue in mapping new client populations.
Which includes annual growth of mid single digits for the integrated care segment.
Speaker Change: While we have fixed the issue and relaunched our marketing campaigns.
And low single digits for the bed helps Edmond.
Speaker Change: We expect the cumulative effect of this one time delay to.
We are targeting 50 to 100 basis points of margin expansion annually over the next three years.
Speaker Change: Do you have an impact on 2020 for revenue of approximately $20 million.
Speaker Change: This $20 million impact represents approximately 140 basis points of year over your integrated care segment growth.
$425 million of adjusted EBITDA in 2025 inclusive of the identified cost actions discussed earlier.
Speaker Change: Which is reflected in our 2024 integrated care segment outlook.
We anticipate margin expansion to be driven in large part by operating leverage over our technology and development and G&A line items.
Speaker Change: Looking beyond 2024.
Speaker Change: As reflected in todays press release, we are also providing a long term outlook as follows.
We expect annual declines in stock based compensation over the next three years.
Speaker Change: We expect consolidated annual revenue growth over the next three years in the low to mid single digits.
As we manage our compensation expense and March towards GAAP profitability.
Including an approximate $20 million year over year decline in.
Which includes annual growth of mid single digits for the integrated care segment.
In 2024.
Finally.
With $1 $1 billion in cash on our balance sheet, and our business generating strong and increasing amounts of free cash flow.
Speaker Change: And low single digits for that helps edmunds.
Speaker Change: We are targeting.
Speaker Change: 50 to 100 basis points of margin expansion annually over the next three years and at least $425 million of adjusted EBITDA in 2025 inclusive of the identified cost actions discussed earlier.
Thought it would be helpful to remind you of our capital allocation priorities going forward.
One tuck in M&A.
We believe our large base of clients with 90 million members gives us a unique ability to bring new products to our existing book of business.
Speaker Change: We anticipate margin expansion to be driven in large part by operating leverage over our technology and development and G&A line items.
We will therefore continue to look for opportunities to expand our capabilities.
To debt pay down.
Speaker Change: We expect annual declines in stock based compensation over the next three years.
We have a convertible bond due in 2025 and the cash on our balance sheet allows us the flexibility to retire that issuance if we choose.
Speaker Change: As we manage our compensation expense and March towards GAAP profitability.
Speaker Change: Crude at an approximate $20 million year over year decline in.
Three share buybacks.
The level of annual free cash flow, we are generating will increasingly provide us the flexibility to do strategic share buybacks as well as minimize potential dilution from employee stock grants.
Speaker Change: In 2024.
Speaker Change: Finally.
Speaker Change: With $1 $1 billion in cash on our balance sheet, and our business generating strong and increasing amounts of free cash flow.
Speaker Change: I thought it would be helpful to remind you of our capital allocation priorities going forward.
With that I will turn the call back to Jason.
Thanks, Mala with that I think we'll open it up for questions operator.
Speaker Change: One tuck in M&A.
We believe our large base of clients with 90 million members gives us a unique ability to bring new products to our existing book of business.
We will now begin the Q&A session. If you would like to ask a question. Please press star followed by one or you touched on key pad.
Speaker Change: We will therefore continue to look for opportunities to expand our capabilities.
If for any reason you would like to remove that question. Please press star followed by two.
Speaker Change: To debt Paydown.
Again to ask a question press star one.
We have a convertible bond due in 2025 and the cash on our balance sheet allows us the flexibility to retire that issuance if we choose.
Please limit your.
Question and a follow up.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Speaker Change: Three share buybacks.
We'll pause here briefly to allow questions to generate in Q.
Speaker Change: The level of annual free cash flow, we are generating will increasingly provide us the flexibility to do strategic share buybacks as well as minimize potential dilution from employee stock grants.
The first question comes from the line of Lisa Gill with J P. Morgan. Please proceed.
Thanks, very much and thanks for all the detail.
Jason I just want to go back and talk for a minute about the about the selling season and then try to square just a couple of numbers that you gave in Mali gave so mala talked about chronic members being up 14% you talked about double digit booking growth and that the selling season.
Speaker Change: With that I will turn the call back to Jason.
Jason: Thanks, Mala with that I think we'll open it up for questions operator.
Speaker Change: We will now begin the Q&A session.
Speaker Change: If you would like to ask a question. Please press star followed by one or you touched on keep at.
But yet when you talked about the integrated business and talked about the chronic component of that you talked about mid to high single digit growth can you help me to understand like is it that you're doing more bundled programs and therefore the growth isn't as high and then secondly, as we think about this going forward you talked about 16% of the <unk>.
Speaker Change: If for any reason you would like to remove that question. Please press star followed by two.
Speaker Change: Again to ask a question press star one.
Please limit your.
Speaker Change: A question and a follow up.
Speaker Change: As a reminder, if you are using a speakerphone closer to my roots or pick up your handset before asking your question.
Having access is this an opportunity where 100% of your base can have access or is it some smaller number.
Speaker Change: I'll pause here briefly to allow questions to generate and Kim.
The first question comes from the line of Lisa Gill with J P. Morgan. Please proceed.
Think about that.
What would be my question.
Yes, Thanks, Lisa I appreciate the question.
Lisa Gill: Thanks, very much and thanks for all the detail I just wanted to go back and talk for a minute about about the selling season, and then try to square just a couple of numbers that you gave in Mali gave so Paula talked about chronic members being up 14% you talked about double digit booking growth and that the selling season.
As we think about our longer term outlook. We do think that will continue to penetrate our book of business with our chronic care programs.
And as we've said about 75% of our sales came from selling to existing clients and so that's as we make progress and we've made progress over the last two years from 12% to 16% penetration. We think that we will continue that progress.
Lisa Gill: But yet when you talk about the integrated business and talked about the chronic component of that you talked about mid to high single digit growth can you help me to understand like is it that you're doing more bundled programs and therefore the growth isn't as high and then secondly, as we think about this going forward you talked about 16% of the Bay.
As I as I went through the bookings last year, and then think about that versus this year as we discussed in the prepared remarks.
Lisa Gill: Having access is this an opportunity where 100% of your base can have access or is it some smaller number as I think about that would be my question.
We had this temporary mapping issue with new member on boarding and that caused us to pause marketing for about three weeks that has an impact of about $20 million or about 140 basis points of integrated care growth almost all of which is centered on our chronic care pro.
Lisa Gill: Yeah.
Speaker Change: Yes, Thanks, Lisa I appreciate the question.
Speaker Change: As we think about our longer term outlook. We do think that will continue to penetrate our book of business with our chronic care programs and as we've said about 75% of our sales came from selling to existing clients and so that's as we make progress and we've made progress over the last two years.
Grams, and so as you think about growth in chronic care this year.
The majority the vast majority of that impact is on our chronic care programs.
The second thing to think about for this year is as we launched as we booked business in sales last year. There's always a timing question of when those sales go live and produce revenue.
Speaker Change: From 12% to 16% penetration, we think that we will continue that progress.
Speaker Change: As I as I went through the bookings last year, and then think about that versus this year.
Speaker Change: We discussed in the prepared remarks.
Did have a meaningful amount that came through of in year revenue with starts last year and we do have some that is going to start not in January but actually starts.
Speaker Change: We had this temporary mapping issue with new member on boarding.
Speaker Change: And that caused us to pause marketing for about three weeks that has an impact of about $20 million or about 140 basis points of integrated care growth almost all of which is centered on our chronic care programs and so you know as you think about growth in chronic care.
And.
<unk> first beginning of second quarter, and so that's factored into the full year revenue outlook and therefore, the growth that comes along with that we.
We do think that chronic care revenue will continue to be a driver of higher levels of growth in integrated care.
Speaker Change: This year the.
Speaker Change: The majority the vast majority of that impact is on our chronic care programs.
Especially as you consider it relative to that very stable book.
Speaker Change: The second thing to think about for this year is as we launched as we booked business and sales last year. There's always a timing question of when those sales go live and produce revenue.
Virtual care revenue.
The good news about that is it provides us the base into which we sell.
And as you as you pointed out we.
We do see more and more bundled programs being sold as we talked about at your conference actually when we sell a bundle of services, we tend to get higher revenue, but lower revenue per member than.
Speaker Change: We did have a meaningful amount that came through or in your revenue would start to last year and we do have some that is going to start now.
In January but actually starts.
Speaker Change: And late first beginning of second quarter, and so that's factored into the full year revenue outlook and therefore, the growth that comes along with that.
And then when we sell individual products. So we get higher revenue per client for the entire population.
But lower revenue per member than when we sell on sort of an Ala carte basis. So to speak when you put all of that together.
Speaker Change: We do think that chronic care revenue will continue to be a driver of higher levels of growth in integrated care.
Still good about the multi year outlook of <unk>.
Product care and international for that matter being drivers of our integrated care revenue growth.
Speaker Change: Especially as you consider it relative to that very stable book, a virtual care revenue.
Speaker Change: The good news about that is it provides us the base into which we sell.
Speaker Change: And as you as you pointed out.
Thank you.
The next question comes from the line of Stephanie Davis with Barclays. Please proceed.
Speaker Change: We do see more and more bundled programs being sold as we talked about at your conference actually when we sell a bundle of services, we tend to get higher revenue, but lower revenue per member I than when we sell individual products or we get higher revenue per client.
Hey, guys. Thank you for taking my question and apologies for any background noise.
Bart.
I was hoping you could talk me through some of your assumptions games with a better outlook.
Right.
And the underlying assumptions to get to the back half ramp is there any color you can provide about the that you're getting yield benefits through and just in general how much risk is baked into the outlook for jazz macro assumptions.
Speaker Change: For the entire population.
Speaker Change: But lower revenue per member.
Speaker Change: When we sell on sort of a la carte basis, so to speak when you put all of that together, we feel good about the multi year outlook of.
Yeah.
Yeah, Stephanie I'll start and then and then Mala can go deeper.
Speaker Change: Chronic care and international for that matter being drivers of our integrated care revenue growth.
Better health, if you think back to our third quarter earnings call, we talked about how customer acquisition cost trends in the direct to consumer market.
Speaker Change: Okay.
Speaker Change: Thank you.
Would result in better help growth in the lower half of our guidance range. Our original 23 outlook called for double digit mid teens growth for better help that range assumed some deterioration.
Speaker Change: The next question comes from the line of Stephanie Davis with Barclays. Please proceed.
Stephanie J. Demko: Hey, guys. Thank you for taking my question and apologies my background noise that airport.
I was hoping you could talk me through some of your assumptions games with a better outlook what improves the underlying assumptions to get to the back half ramp is there any color you can provide about the that you're getting yields grew.
Cheery ration at the low end of the range and some improvement at the high end of the range that are help ended up growing just over 11% for the full year. So it was in the lower part of our guidance range.
Stephanie J. Demko: And just in general how much risk is baked into the outlook for jazz macro assumptions.
What drove that was weaker customer acquisition trends in the second half of the year. There are a bunch of factors that go into that in particularly in particular, we saw pressure on our customer acquisition costs in social media channels.
Stephanie J. Demko: Yeah.
Speaker Change: Yeah, Stephanie I'll start and then.
Speaker Change: Then mala can go deeper.
Speaker Change: On better health.
We're fortunate I guess the good part is we have a diversified set of channels.
Speaker Change: Back to our third quarter earnings call, we talked about how customer acquisition cost trends in the direct to consumer market.
And the higher our overall spend levels.
Speaker Change: Would result in better health growth in the lower half of our guidance range. Our original 23 outlook called for double digit mid teens growth for better help that range assumed.
As we get to higher levels. The more we press on on sort of across all of those channels. So we felt the impact of that in the second half of the year as we made our outlook for this year and 2024, the assumption is that those higher levels of customer acquisition.
Speaker Change: Had some deterioration at the low end of the range and some improvement at the high end of the range that are help ended up growing just over 11% for the full year. So it was in the lower part of our guidance range.
Costs persist.
We do think that we'll start to get a benefit in the back half of the year from some of our international markets.
Speaker Change: What drove that was weaker customer acquisition trends in the second half of the year. There are a bunch of factors that go into that in particularly in particular, we saw pressure on our customer acquisition costs in social media channels.
As we shift dollars into those international markets, which we have seen good results, but at a limited scale thus far.
The customer acquisition costs tend to be lower.
Speaker Change: We're fortunate I guess the good part is we have a diversified set of channels.
In the international markets, although the gross cost of goods sold tends to be slightly higher.
Speaker Change: The higher our overall spend levels as we get to higher levels. The more we press on on sort of across all of those channels. So we felt the impact of that in the second half of the year.
If you balance those two things they end up at roughly the same net margin.
As our domestic business.
So when we look at the range for our outlook, it's sort of brackets that current outlook, meaning if you extend the current situation forward. The lower end of the guidance assumes that there's a there's some deterioration the higher end of the guidance assumes some <unk>.
Speaker Change: As we made our outlook for this year and 2024, the assumption is that those higher levels of customer acquisition costs persist right. We do think that we'll start to get a benefit in the back half of the year from some of our international markets.
Speaker Change: As we shift dollars into those international markets, which we've seen good results, but at a limited scale thus far.
Improvement Yeah, I think you've covered most of it Jason what I would say Stephanie is we believe we have taken a measured approach to our guidance by assuming that the levels of cost per acquisition trends continue as we saw in the back half and frankly as we are.
Speaker Change: The customer acquisition costs tend to be lower.
Speaker Change: In the international markets, although the the gross cost of goods sold tends to be slightly higher.
And to see in the first quarter of this year.
So as Jason said, if you think about the range we have provided at.
Speaker Change: And if you balance those two things they end up at roughly the same net margin.
At the high end of the guidance range, we assumed some improvement in customer acquisition trends in the second half and at the low end of the range, we assume some deterioration.
Speaker Change: As our domestic business.
Speaker Change: So when we look at the.
Speaker Change: Range for our outlook, it's sort of brackets that current outlook, meaning if you extend the current situation forward. The lower end of the guidance assumes that there's a there's some deterioration the higher end of the guidance assumes some improvement.
And those trends.
And as we said in our prepared remarks, if you sort of take a step back and just think about the federal health business.
What I would also say is you know.
With our <unk>.
Increased focus on profitable growth.
Speaker Change: Yeah, I think you've covered most of the Jason what I would say Stephanie is we believe we have taken a measured approach strong items by assuming that the level.
Our the better help businesses New member acquisition is somewhat gated by the amount of capital we can deploy at what we would consider to be acceptable rates of return during any given period. So.
Speaker Change: Off cost per acquisition trends continue as we saw in the back half and frankly as we are continuing to see in the first quarter of this year.
What that means is that the growth in better health is in part dependent on our ability to efficiently reach new individuals to create awareness for better helps products and surfaces.
Speaker Change: So as Jason said, if you think about the range we have provided at.
At the high end of the guidance range, we assumed some improvement in customer acquisition trends.
In the second half and at the low end of the range, we assume some deterioration.
It's.
It is both I would say the cost per acquisition trends that we're seeing that we have factored into our business.
And those trends.
Speaker Change: And as we said in our prepared remarks, if you sort of take a step back and just think about the better health business.
Into our guidance and a continuing theme of how we are balancing topline growth with profitability in this business and its probably evident from from our comments, but it's worth calling out that with pressure on customer acquisition costs in the back half of 'twenty three.
What I would also say is you know with our.
Speaker Change: Increased focus on profitable growth.
Speaker Change: Our the better health businesses, New member acquisition is somewhat gated by the amount of capital we can deploy at what we would consider to be acceptable rates of return during any given period. So.
Second half of 'twenty, four will be comped against that and so actually has the first half has a more challenging comp to the back half has.
Speaker Change: What that means is that the growth in better health is in part dependent on our ability to efficiently reach new individuals to create awareness what kind of helps products and services.
A lower bar.
Thank you.
The next question comes from the line of how long dressing what true Securities. Please proceed.
Speaker Change: So it's you know it.
Hi, This is Dylan dusting from tourists thanks for taking my questions.
Speaker Change: It is both I would say the cost per acquisition trends that we're seeing that we have factored into our business.
So just wanted to follow up on the question on the on the efficiency program like 35 million benefit in.
Speaker Change: Into our guidance and a continuing theme of how we are balancing topline growth with profitability in this business and its probably evident from from our comments, but it's worth calling out that with pressure on customer acquisition costs in the back half of 'twenty three.
EBITDA at.
It seems more than half of that is coming in Q4 can you help us better understand why benefit from this program is more second half loaded are you expecting any benefit in Q1 and how has this benefited split across two segments.
Speaker Change: The second half of 'twenty, four will be comped against that and so actually has a the first half has a more challenging comp in the back half has Ah Ah Ah.
Yeah, So I would say on your second question Julien.
Most of the benefit of these cost efficiency and cost takeout programs is really on the integrated care side.
Speaker Change: A lower bar.
As we said in our prepared remarks.
Integrated care side is where we will see more of margin expansion as we go through the year.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of how long dressing what true Securities. Please proceed.
We can drive more operator operating expense leverage on the integrated care side of the house.
Dylan Dusting: Hi, This is Dylan dusting from choice Thanks for taking my questions.
Dylan Dusting: So just wanted to follow up on the question on the on the efficiency program like 35 million benefit in the <unk>.
And I would say in terms of the how the $35 million of benefit accrue this year on an adjusted EBITDA basis.
Dylan Dusting: EBITDA at <unk>.
Dylan Dusting: Seems more than half of that is coming in Q4.
Dylan Dusting: But understand why a benefit from this program is more second half loaded are you expecting any benefit in Q1, and how does this benefit to split across the two segments.
$43 million, obviously on a GAAP basis.
We are taking.
Initiatives, we are doing initiatives across a number of different areas, whether it be organizational improvements, including things like offshoring, whether it would be productivity initiatives, including automation.
Speaker Change: Yeah, So I would say on your second question Julien.
Most of the benefit of these cost efficiency and cost takeout programs is really on the integrated care side.
It would be third party supplier spend so I wouldn't say that these benefits are back end loaded into one particular quarter, we will see them ramp through the year.
Speaker Change: As we said in our prepared remarks.
Speaker Change: The integrated care side is where we will see more of margin expansion as we go through the year, we can drive more opt for operating expense leverage on the integrated care side of the house.
Thank you.
The next question comes from the line of Richard close with Canaccord Genuity. Please proceed.
Speaker Change: And I would say in terms of the how the $35 million of benefit accrue this year on an adjusted EBITDA basis.
Yes, thanks for the questions.
I appreciate the details on the delayed enrollment engagement, our marketing on the chronic care.
Speaker Change: $43 million, obviously on a GAAP basis, we are taking initiative, we are doing initiatives across a number of different areas, whether it be organizational improvements, including things like offshoring, whether it be productivity initiatives, including automation or.
You talked about and the financial impact there, but can you provide more details to exactly what that was was that on the customer side or your side and.
If it was on your side, how do you get comfortable that that's not going to happen again.
Speaker Change: Whether it would be third party supplier spend so I wouldn't say that these benefits are backend loaded into one particular quarter, we will see them ramp through the year.
Yes, Richard Thanks for the question, we had record client implementations for January 2024.
Speaker Change: Yeah.
And like all health care companies, who deal with eligibility files. These implementations come with just an inherent amount of complexity.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Richard close with Canaccord Genuity. Please proceed.
In January we discovered an issue and mapping data for some of these implementations.
Richard Close: Yes, thanks for the questions.
The number of affected members turned out to be actually very small.
Richard Close: I appreciate the details on the delayed enrollment and engagement our marketing on the chronic care that you talked about and the financial impact there, but can you provide more details to exactly what that was was that on the customer side or your side and if it was.
But with a record number of implementations happening at the same time out of abundance of caution we halted member communications, while we diagnose and resolve the issue.
The delayed consumer this delayed our consumer.
Richard Close: On your side, how do you get comfortable that that's not going to happen again.
Engagement marketing by about three to four weeks and pushes out the enrollment curve for primarily our chronic care programs.
Speaker Change: Yes, Richard Thanks for the question, we had record client implementations for January 2024, and like all health care companies, who deal with eligibility files. These implementations come with just an inherent amount of complexity.
And so as we said we anticipate that that delay is ends up sort of rippling through by shifting out the curve.
To the tune of about $20 million for the full year.
We've restarted the marketing engine and we've seen absolutely no new issues. So we're confident that the issue is completely behind us.
Speaker Change: In January we discovered an issue and mapping data for some of these implementations.
Speaker Change: The number of affected members turned out to be actually very small.
What I would say is that it was our caution and making sure that.
Speaker Change: But with a record number of implementations happening at the same time out of abundance of caution we halted member communications, while we diagnose and resolve the issue.
That we had.
A full diagnosis and scope of the issue in the affected population.
Identified.
Before we turned our marketing campaigns back on.
Speaker Change: The delayed consumer this delayed our consumer engagement marketing by about three to four weeks and pushes out the enrollment curve for primarily our chronic care programs.
And as it turns out.
The scale of the affected members was actually very small so we're confident that we have it behind us.
Speaker Change: And so as we said we anticipate that that delay is ends up sort of rippling through by shifting out the curve.
We have clearly identified the source of the issue.
And actually the scale of the issue was very very small.
Speaker Change: To the tune of about $20 million for the full year.
Speaker Change: We've restarted the marketing engine and we've seen absolutely no new issues. So we're confident that the issue is completely behind us.
Yeah.
The next question comes from the line of Jessica Tucson with Piper Sandler. Please proceed.
Speaker Change: What I would say is that it was our caution and making sure that.
Hi, guys. Thank you so much for taking the questions and thank you for the detail in the report and guide I guess, maybe just in terms of AD yield on better help I'm curious to understand and maybe when you. All first observed the declining AD yield and better help and just kind of whether it got worse over the course of 2023.
Speaker Change: That we had the full diagnosis and scope of the issue in the affected population identified.
Before we turn our marketing campaigns back on air.
Speaker Change: And.
Any update on what you've observed year to date in 2024.
Speaker Change: As it turns out the scale of the affected members was actually very small so we're confident that we have it behind us we have clearly identified the source of the issue.
Yeah. Thanks, Jess we have actually started observing them.
The yields coming in lower than we had expected.
Speaker Change: And actually the scale of the issue was very very small.
In the back half the year, we actually had talked about it in the October 3rd quarter earnings call right. We had talked about the fact that last year. When we had initially given the range we were talking about coming in at the low end of the range. If we see the yields start deteriorating being at the high end of the range if we.
Speaker Change: Yeah.
Speaker Change: The next question comes from the line of Jessica Tucson with Piper Sandler. Please proceed.
Jessica Tucson: Hi, guys. Thank you so much for taking the questions and thank you for the detail on the report and guide I guess, maybe just in terms of AD yield on better health I'm curious to understand and maybe when you all first observed the declining AD yield and better health and just kind of whether it got worse over the course of 2023.
Some improvement and we had talked about the fact that the.
The the yields are starting to come.
Lower in the back half a day or so.
As we said a few minutes ago.
We have sort of kept watch over those trends they have persisted through the back half of the year.
Jessica Tucson: Any update on what you've observed on year to date in 2024.
They are still persisting and that is the reason why we have factored that into the guidance.
Speaker Change: Yeah. Thanks, Yes, we have actually started observing the yields coming in lower than we had expected.
And as Jason said.
We expect to comp that in the second half of the year the comps get easier in the second half of the year, having said that that's the reason we are providing the range that we're providing again similar to last year. What we would say is the high end of the range assumes improvement to the low end of the range.
Speaker Change: In the back half the year, we actually had talked about it in the October our third quarter earnings call right. We had talked about the fact that last year. When we had initially given the range we were talking about coming in at the low end of the range. If we see the yields start deteriorating being at the high end of the range if we.
The deterioration.
And we generally okay.
Speaker Change: <unk> improvement and we had talked about the fact that we the the the yields are starting to come.
In January.
Yes.
Jess we generally see improvement in January and so we monitor closely as we were going through the January timeframe.
Speaker Change: <unk> in the back half of the or so as we said a few minutes ago, we have sort of kept watch over those trends they have persisted through the back half of the year. They are still persisting and that is the reason why we have factored that into the guidance.
And we saw them stubbornly.
Especially in those channels stubbornly higher and so we're using that as the basis for our guidance going forward.
Speaker Change: And as Jason said.
Speaker Change: We expect to comp that in the second half of the year the comps get easier in the second half of the year, having said that that's the reason we are providing the range that we are providing again similar to last year. What we would say is the high end of the range assumes improvement to the low end of the range.
Thank you.
The next question comes from the line of Charles where I would see D. Cowen. Please proceed.
Yeah. Thanks for taking the questions just wanted to go back to I don't really care real quick and then you made mentioned that 16%.
<unk>.
The general Medical base has actually is one of more of a chronic care products and that's up from 12% I think you said over the last few years.
Speaker Change: <unk> assumes no deterioration.
Speaker Change: And we generally okay.
Speaker Change: In January.
You also may mentioned that 75% of your sales are from existing clients can you talk a little bit about what that's what the sales pipeline looks like.
Speaker Change: Yeah.
Speaker Change: Jeff.
Speaker Change: Generally see improvement in January and so we monitor closely as we were going through the January timeframe.
And like how often are these clients.
Speaker Change: And and we saw them stubbornly, especially in those channels.
Coming up for potential cross sell.
And I guess the question is how often is it that people.
Speaker Change: Stubbornly higher and so we're using that as the basis for our guidance going forward.
I'm, just choosing not to make a decision because it seemed like you would have a large base to be selling into but given sort of the growth rates you're talking about it it's sort of a slow gradual improvement over time, just so I understand the dynamics of decision, making among clients due to add chronic care if they don't have it already.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Charles where I wouldn't see any Cowen. Please proceed.
Charles: Yeah. Thanks for taking the question just wanted to go back to I don't really care real quick and then you made mentioned that 16%.
Charles: <unk>.
Charles: The general Medical base has actually has one or more of the chronic care products and that's up from 12% I think you said.
Yes, Thanks, Charles I'll try to answer as many of the dimensions of that question as I can.
Charles: Over the last few years you also may mentioned that 75% of your sales are from existing clients can you talk a little bit about what that's what the sales pipeline looks like.
With respect to the pipeline.
We're really early in the year and generally what happens is we sell through the pipeline towards the end of the year and at this point of the year, we're refreshing it that's exactly what's happening now.
Charles: And like how often are these clients.
Charles: Coming up for potential cross sell.
So I saw.
I'll reserve commentary on sort of what the pipeline looks like until later in the year when it refills in and we're looking at.
Charles: And I guess the question is how often is it that people.
Charles: I'm, just choosing not to make a decision because it seem like you would have a large base to be selling into but given sort of the growth rates you're talking about it it's sort of a slow gradual improvement over time.
At our significant selling season.
You know sort of bolus.
With respect to the dynamics of our client base.
Our salesforce is.
Charles: Understand the dynamics of decision, making among clients due to add chronic care if they don't have already.
Broken into is split into essentially new business reps, who are out trying to sign new clients, who don't have a relationship with Teladoc health.
Speaker Change: Yeah. Thanks, Charles I'll try to answer as many of the dimensions of that question as I can.
And account managers and essentially up sellers.
Speaker Change: With respect to the pipeline.
His job is to go.
Speaker Change: We're really early in the year and generally what happens is we sell through the pipeline towards the end of the year and at this point of the year, we're refreshing it that's exactly what's happening now.
Build our base with our existing customers.
When when we think about selling into new clients. There are essentially two dimensions of that one is selling more products into the same population. The second is.
Speaker Change: So I'll.
Speaker Change: I'll reserve commentary on sort of what the pipeline looks like until later in the year when it refills in EM, we're looking at them at our significant selling season.
Selling and selling products into new populations within that client and that.
That tends to happen, mostly within health plans as we go into new geographies new lines of business.
Speaker Change: You know sort of bolus.
With respect to the dynamics of our client base.
Such as managed Medicaid or Medicare advantage.
Speaker Change: Our salesforce is.
And we expand the population that we serve so so you're really asking I think mostly about that.
Speaker Change: Broken and just split into essentially new business reps, who are out trying to sign new clients, who don't have a relationship with Teladoc health.
That first one of selling into new clients or into existing clients, which is upselling additional products, we're constantly working through that.
Speaker Change: And account managers and essentially up sellers.
And I would say the adoption.
Speaker Change: His job is to go.
For chronic care programs goes through an evolution.
Build our base with our existing customers.
When when we think about selling into new clients. There are essentially two dimensions of that one is selling more products into the same population. The second is selling.
Some of those clients have other solutions that they bought previously.
It's a replacement business for us.
At equally as frequently we're going in with our suite of chronic care solutions, where they don't have one in place and so that is an evolutionary sale.
Speaker Change: Selling and selling products into new populations within that client.
Speaker Change: That tends to happen, mostly within health plans as we go into new geographies new lines of business.
Certainly it doesn't happen all at once so I wouldn't expect us to you know.
Speaker Change: Such as managed Medicaid or Medicare advantage.
All of a sudden go from 16 to 30 or 40% penetration. We are working on solutions like our bundling structures in order to accelerate the penetration, but right now we guide based on what we know and what our existing trends are.
Speaker Change: And we expand the population that we serve so so you're really asking I think mostly about that.
Speaker Change: That first one of selling into new clients or into existing clients, which is upselling additional products, we're constantly working through that.
Speaker Change: And I would say the adoption.
So as we see breakthroughs to the degree that we see breakthroughs in our.
Speaker Change: For chronic care programs goes through an evolution.
Our ability to more rapidly penetrate our book of business, we'll update our guidance, but our guidance right. Now is based on the progress that we're making in our outlook based on what we know.
Speaker Change: Some of those clients have other solutions that they bought previously I and it's a replacement business for us.
Speaker Change: And equally as frequently we're going in with our suite of chronic care solutions, where they don't have one in place and so that is an evolutionary sale. It certainly doesn't happen all at once so I wouldn't expect us to.
Not based on any breakthroughs that we havent yet identified.
Yeah.
The next question comes from the line of George Hill with Deutsche Bank. Please proceed.
Speaker Change: All of a sudden go from 16 to 30 or 40%.
Yeah, Good evening, Jason and I'll try to be efficient with my questions here and I guess my first one molla is on the cost savings program, which as you guys are targeting 50 to 100 basis points of margin expansion per year, but the cost savings programs alone should give you almost a 150 basis points of margin expansion in <unk>.
Speaker Change: Penetration, we are working on solutions like our bundling structures in order to accelerate the penetration, but right now we guide based on what we know and what our existing trends are.
Speaker Change: So as we see breakthroughs to the degree that we see breakthroughs.
Four and over 325, so I guess I'd ask you what are the offsets in the underlying business through eroding.
Speaker Change: And our ability to more rapidly penetrate our book of business, we'll update our guidance, but our guidance right. Now is based on the progress that we're making in our outlook based on what we know not based on any breakthroughs that we havent yet identified.
The cost savings programs don't give you more margin expansion.
Yeah.
Thanks, Josh.
So if you just think about 'twenty 'twenty four as we have said, we've talked about our guidance of $350 million to $390 million and adjusted EBITDA that includes the 35 million of cost savings that we have talked about.
Speaker Change: Yeah.
Speaker Change: The next question comes from the line of George Hill with Deutsche Bank. Please proceed.
The reality is if you think about the way the margins we expect in 2020 for the margins to play out we are seeing some modest pressure on our gross margin line from higher clinical costs.
George Hill: Yes, good evening, Jason and I'll try to be efficient with my questions here and I guess my first one molla is on the cost savings program.
George Hill: Which is you guys are targeting 50 to 100 basis points of margin expansion per year, but the cost savings programs alone should give you almost a 150 basis points of margin expansion in 'twenty four and.
And that's primarily associated with the expected ramping up in primary 360 volumes.
George Hill: Over 325, so I guess I'd ask you what are the offsets in the underlying business through eroding.
We added about $30 million in primary 360 revenue or.
Over the course of 'twenty, three and that was a very very significant increase in a in a in revenue for <unk> 360.
Speaker Change: Cost savings programs don't give you more margin expansion.
Speaker Change: Yeah. Thanks George.
Speaker Change: So if you just think about 'twenty 'twenty four as we have said, we've talked about our guidance of $350 million to $390 million and adjusted EBITDA that includes the 35 million of cost savings that we have talked about.
And we expect visit volume from those members to continue to ramp up through 2024, and so that ramp will create some modest pressure on gross margins this year relative to 2023.
Now that variance that delta is being offset by leverage from operating expenses.
Speaker Change: But the reality is if you think about the way the margins we expect in 2020 for the margins to play out.
And in particular, as we said in our prepared remarks technology and development and G&A.
Speaker Change: We are seeing some modest pressure on our gross margin line from higher clinical costs.
That's sort of the way.
Speaker Change: And that's primarily associated with the expected ramping up in primary 360 volumes.
The sort of the margin structure is feathering through the the whole P&L.
Speaker Change: We added about $30 million in primary 360 revenue over the course of 'twenty three and that was a very very significant increase in a in a in revenue for <unk> 360.
Thank you.
The next question comes from the line of Sean Dodge with RBC capital markets. Please proceed.
Yeah. Thanks.
Speaker Change: And we expect visit volume from those members to continue to ramp up through 2024, and so that ramp will create some modest pressure on gross margins this year relative to 2023.
Last quarter, along with the operational review you also talked about undertaking a portfolio assessment.
Is there any update you can share on that or are there any portfolio actions in the savings you laid out from the efficiency program or would those be incremental and then maybe if you could give us some sense of.
Now that variance that delta is being offset by leverage from operating expenses and in particular as we said in our prepared remarks technology and development and G&A.
What a portfolio assessment may involve or are there particular geographies markets books of businesses.
That just don't make sense to be in anymore.
Speaker Change: So that's sort of the way.
Speaker Change: The sort of the margin structure is feathering through the the the whole P&L.
Yeah, So I'll start by saying there are no.
Significant portfolio changes contemplated in our guidance.
Anything that we would do would be incremental to that.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Sean Dodge with RBC capital markets. Please proceed.
When we talk about doing a portfolio assessment. It really is looking at across the business for two dimensions, one what's the profitability and growth outlook for the various.
Sean Dodge: Yeah, Thanks last quarter, along with the operational review you also talked about undertaking a portfolio assessment.
Customer channels and segments products within our portfolio.
Sean Dodge: Is there any update you can share on that or are there any portfolio actions in the savings you laid out from the efficiency program or would those be incremental and then maybe if you could give us some sense of.
<unk> et cetera.
And then and then second is where do we place investments so.
Sean Dodge: What a portfolio assessment may involve or are there particular geographies market mix of businesses.
Where do we get the greatest yield on investing our dollars, especially in technology and development.
Sean Dodge: That just don't make sense to be in anymore.
And advertising and marketing so.
Speaker Change: Yeah, So I'll start by saying there are no.
So I think that's what's involved in it.
If we have any significant actions, obviously, we'll announce at a lot of it quite frankly is fine tuning.
Speaker Change: Significant portfolio changes contemplated in our guidance.
Speaker Change: Anything that we would do would be incremental to that.
Sometimes it's fine tuning pricing, sometimes it's fine tuning and go to market strategy, sometimes it's fine tuning.
Speaker Change: When we talked about doing a portfolio assessment. It really is looking at across the business for two dimensions, one what's the profitability and growth outlook for the various.
The service model and service intensity to make sure that we're optimizing our resource allocation versus the profitability of a given customer segment or product, yeah, I would say I would add Sean.
Speaker Change: Customer channels and segments products within our portfolio gene.
Speaker Change: Geographies et cetera.
Look as we look at our both topline growth as well as bottom line profitability.
Speaker Change: And then and then second is where do we place investments so.
Speaker Change: Where do we get the greatest yield on investing our dollars, especially in technology and development.
We have.
Set expectations for the next few years, we'll continue to look at the various pieces of our business you know how they contribute to both top line growth as well as bottom line profitability.
Speaker Change: Advertising and marketing so.
Speaker Change: So I think that's what's involved in it.
Speaker Change: If we have any significant actions, obviously, we'll announce at a lot of it quite frankly is fine tuning.
And so that's a that's a review that is ongoing we will continue to look at that and as Jason said.
Speaker Change: Sometimes it's fine tuning pricing, sometimes it's fine tuning and go to market strategy, sometimes it's fine tuning.
We are judicious in the investments we make we have talked about getting leverage from technology and development and G&A.
Speaker Change: The service model and service intensity to make sure that we're optimizing our resource allocation versus the profitability of a given a customer segment or product, yeah, I would say I would add Shaun.
That said, we are also going to continue to invest robustly in the business whether it be in terms of product data data science.
And so in order for us to fuel those investments in the investment capacity. The responsible thing for us to do is to just continue to look at all parts of our business in terms of how they are contributing to both topline as well as bottom line.
Speaker Change: Look as we look at our both topline growth as well as bottom line profitability.
Speaker Change: We have.
Speaker Change: Set expectations for the next few years, we'll continue to look at the various pieces of our business you know how they contribute to both top line growth as well as bottom line profitability.
Okay.
Yes.
Thank you.
The next question comes from the line of Ryan Daniels with William Blair. Please proceed.
So that's a that's a review that is ongoing we will continue to look at that and as Jason said.
Question and thanks for all the detailed commentary, thus far maybe a little bit of a different.
Speaker Change: You know we are judicious in the investments we make we have talked about getting leverage from technology and development and G&A.
Line of question I'm, just curious in regards to capital deployment, you clearly have a lot of cash you mentioned, maybe a repo, but more curious about the overall capital structure and how you view. It I know you have some <unk>.
Speaker Change: That said, we are also going to continue to invest robustly in the business whether it be in terms of product data data science.
<unk> converted about $550 million it'll become current.
In June and then a bigger convert a couple of years. After that so how are you thinking about potential refi or use of cash to pay that.
And so in in order for us to fuel those investments in the investment capacity. The responsible thing for us to do is to just continue to look at all parts of our business in terms of how they are contributing to both topline as well as bottom line.
Over the coming quarters. Thanks.
Okay.
Yeah. Thanks for that question, you know listen as I step back and take a look at our capital structure.
Speaker Change: Yeah.
We are we have the flexibility with the billion one cash that we have on our balance sheet and the fact that we are.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Ryan Daniels with William Blair. Please proceed.
Generated strong free cash flow last year, we expect to continue to generate strong free cash flow. This year, so that will certainly strengthen our balance sheet even more.
Ryan Daniels: Question and thanks for all the detailed commentary thus far maybe a little bit of a different line of question I'm just curious in regards to capital deployment.
Ryan Daniels: We have a lot of cash you mentioned, maybe a repo, but more curious about the overall capital structure and how you view. It I know you have some of that long ago converge of about $550 million it'll become current.
If I think about the uses of cash.
I would say you know the way I would prioritize it is as we said first.
What are the interesting M&A opportunities that are out there that we could use our balance sheet for.
Ryan Daniels: June and then a bigger convert a couple of years after that so how are you thinking about potential refi or use of cash to pay that down over the coming quarters. Thanks.
Obviously as always those M&A opportunity opportunities needs to meet the criteria that we set for ourselves right, whether they make strategic sense for us.
Ryan Daniels: Okay.
Speaker Change: Yeah. Thanks for that question, you know listen as I step back and take a look at our capital structure.
Or whether they are financially attractive.
Speaker Change: We are we have the flexibility with the billion one cash that we have on our balance sheet and the fact that we are.
But I would expect to use the strength of our balance sheet towards.
The right M&A opportunities and then I would use our cash to pay down to retire the debt specifically you mentioned the Longbow.
Speaker Change: Generating strong free cash flow last year, we expect to continue to generate strong free cash flow. This year, so that will certainly strengthen our balance sheet even more.
<unk>, which is due in the middle of 2025, I would look to pay that converts down we still have some time and flexibility for the $1 billion convert that is maturing in 2027, and then last is as we said to the extent that we have.
Speaker Change: If I think about the uses of cash.
Speaker Change: I would say you know the way I would prioritize it is as we said first.
Speaker Change: What are the interesting M&A opportunities that are out there that we could use our balance sheet for them, obviously as always those M&A opportunity opportunities needs to meet the criteria that we set for ourselves right, whether they make strategic sense for us.
Even more flexibility on the balance sheet Opportunistically strategically think about share buybacks.
Share buybacks in general and to think about over the longer term to offset the potential dilution from employee stock grants. So I would think about it in those sort of in those different ways.
Speaker Change: Or whether they are financially attractive.
Speaker Change: But I would expect to use the strength of our balance sheet towards the right M&A opportunities and then I would use our cash to pay down to retire the debt specifically you mentioned the Longbow.
Thank you.
The next question comes from the line of Daniel <unk> with Citi. Please proceed.
Speaker Change: <unk>, which is due in the middle of 2025, I would look to pay that converge down we still have some time and flexibility for the $1 billion convert that is maturing in 2027, and then last is as we said to the extent that we have.
Dan I want to go back to the better our marketing yield here I was wondering if you could provide a little more detail.
On why those marketing yields remained depressed our consumers being a little more discerning or are you seeing more competition from other DTC vendors is there another big vendor out there that spending like you saw in 'twenty two.
Even more flexibility on the balance sheet Opportunistically strategically think about share buybacks.
Any additional detail there would be it would be very helpful.
Speaker Change: Our share buybacks in general and to think about over the longer term to offset the potential dilution from employee stock grants. So I would think about it in those sort of in those different ways.
Yes, so it's the the answer to the second part of the question is we don't see a significant competitor and driving up the rates we.
We do see.
A lot of advertisers in general going after a similar population.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Daniel <unk> with Citi. Please proceed.
So I wouldn't say that it's a single competitor as opposed to.
Daniel: Ken Let me go back to the better our marketing yield here I was wondering if you could provide a little more detail on why those marketing yields remained depressed our consumers being a little more discerning are you seeing more competition from other UTC vendors is there another big vendor out there that spend.
The overall traffic in the AD space so to speak.
And then maybe the last thing I'll say is that.
We do see a certainly more as we spend more right. So as we increase our ad spend.
Daniel: <unk> like you saw in 'twenty two.
Daniel: Any additional detail there would be.
We're constantly looking at the marginal return on the on each incremental dollar.
Daniel: Helpful.
Speaker Change: So it's.
Speaker Change: It's the the answer to the second part of the question is we don't see a significant competitor driving up the rates we.
And so we work hard to make sure that each incremental dollar is productive for us and to the degree that we see the curve.
Speaker Change: We do see.
Speaker Change: A lot of advertisers in general going after a similar population.
Get to an inflection where we run out of room on where we can spend that money productively, then we pull back rather than chasing growth at the expense of profitability. So so I think those are the major contributors to it.
Speaker Change: So I wouldn't say that it's a single competitor as opposed to the.
Speaker Change: The.
Speaker Change: The overall traffic in the AD space so to speak.
Speaker Change: Then maybe the last thing I'll say is that.
Speaker Change: We do see it certainly more as we spend more right. So as we increase our ad spend.
Thank you.
There are no additional questions at this time.
That concludes today's conference call. Thank you you may now disconnect your line.
We're constantly looking at the marginal return on the on each incremental dollar.
Speaker Change: And so we work hard to make sure that each incremental dollar is productive for us and to the degree that we see the curve.
Speaker Change: Get it to an inflection where we run out of room on where we can spend that money productively, then we pulled back rather than chasing growth at the expense of profitability. So so I think those are the major contributors to it.
Speaker Change: Thank you.
Speaker Change: There are no additional questions at this time.
That concludes today's conference call. Thank you you may now disconnect your line.
Speaker Change: Yes.