Teladoc Health, Inc. (TDOC) Earnings Call Transcript
June 1, 2021
Earnings Call Speaker Segments
Good afternoon, everyone. Thank you for attending our 41st Annual William Blair & Company Growth Stock Conference virtually. For those of you whom I've not met, my name is Ryan Daniels, and I'm the co-group head of our health care team. I'm also the health care IT and health care service analyst here at William Blair. So my great pleasure to welcome all of you to today's fireside chat with the team from Teladoc Health. A couple of quick housekeeping items before we get started. We do have about 30 minutes here, and we'll do a fireside chat, starting with a little bit of background on the organization, and then go into some deeper, more detailed questions. But also, I'm happy to address any questions you might have using the Q&A function via Wall Street Webcast. So feel free to do that. Number two, I'm just required to inform everyone that all our disclosures can be found at our company's website at www.williamblair.com. And number three, I want to take this opportunity to introduce our speakers today. Starting at the left in the split screen is Mala Murthy, the company's Chief Financial Officer; in the middle is Jason Gorevic, the company's Chief Executive Officer; and joining us, I think, for the first time at our conference, the Chief Operating Officer, David Sides, who just jumped in the seat to become a presentation guest as well. So very pleased to have everyone here today, and I want to thank you all for your time and participation as well. So thanks, Teladoc Health team.
Ryan, thanks for having us. Always a pleasure, and looking forward to the discussion.
Absolutely. Jason, maybe I'll start with you. We've known each other for about a decade now, even prior to the company's initial public offering, and it's been fascinating to watch the organization's progress. I think when we first were on the road in Boston, you had a slide deck when it was just Teladoc doing virtual consultations for telehealth and kind of talking about that market. But you had a template for growth in moving into things like second opinion and home-based care and chronic care management and the acute care market. And it's pretty fascinating because the blueprint you laid out roughly a decade ago has actually come to fruition now with the acquisitions you've done and some of the organic investments, which is pretty remarkable, to see the growth and the path you've established and laid out. So maybe walk us through a little bit of background on the organization for those that are newer to the story or don't have as much history there. Just give an update on where you were, where you become, and then we can talk a little bit about where you're going in the future.
Yes. I know. Thanks, Ryan. I appreciate that. And I do remember back to those days, and people kind of looked at us like we had 3 heads when we talked about where we were going to go, given the business at that time, the state of virtual care or telehealth at the time and -- but what our vision was. And so I'm about to celebrate my 12th anniversary with the company. And I came here because I thought that there was a better way to deliver care in a virtual environment that leverages technology, that leverages data science, that leverages the distributed nature of both the demand and the supply side of the equation and ultimately matches those using technology. But most importantly is the consumers' destination for health care, their first stop in the health care system. And while we were fighting regulatory battles on a state and federal level and really limited to kind of virtual urgent care, it was always our ambition to be that first stop for the consumer. We believe that we could deliver better outcomes and lower cost of care across the entire spectrum of health care needs and do that in a way that's more consumer-friendly, that meets the consumer where they are and brings care to them rather than them having to sort of make a pilgrimage to the 4 walls of the health care system. And because you can use technology to break down those geographic barriers, you can bring the best care to the consumer regardless of what specialties they need or what conditions they have and regardless of whether it's physical or mental health care that they need. And so you have seen us be aggressive when it comes to developing new products, to making acquisitions, to expanding our footprint internationally, to expanding into the provider market, to delivering care on a direct-to-consumer basis as well as through B2B channels. And that is all sort of on that same pathway to achieve our mission of transforming care across the health care system. So I appreciate your pointing it out and -- that we did lay this out a long time ago, and we've been executing on it. And I think all of the things that we pointed to as competitive advantages then are only amplified now as we've continued to broaden the set of capabilities we have and the value proposition for both buyers as well as consumers.
That's a great introduction. It actually leads really nicely into probably what's the most popular question we're getting from investors today. And I doubt it's any different for you, and that is the competitive environment, both in regards to the moat you've developed with having an integrated kind of multipronged product that you can sell to employers or insurance plans, but also because of the entry of some big bellwethers in the space, especially the retail giants like Amazon and more recently, Walmart. So maybe you could dive a little bit deeper into the competitive moat that you have from your product offering and all your experience, number one, and then how that's impacting the sales environment. And number two, just any thoughts you might have on the entry of some of these retail bellwethers into the health care and virtual health space in particular?
Sure. So starting with the moat. Certainly, the breadth of our product portfolio and the clinical capabilities that we have is absolutely #1. And we have always sought to stay ahead of the curve and stay ahead of the competitive pack when it comes to the breadth of the portfolio, in our value proposition to employers and health plans and providers, but even more importantly, to the consumer who knows that they can turn to us regardless of what their health care needs are. And so that breadth in the market is really unmatched. And it is significantly differentiated versus all the point solutions that are out there, and we win, in many cases, because of that breadth. The second one is the scale at which we operate. There are many companies out there, whether they're Fortune 500 employers, large health plans, government agencies, who need and want the certainty and reliability of Teladoc Health and the scale that we bring. But scale isn't just about reliability. It's about the ability to use data at unmatched scale to deliver more value, better health outcomes, deeper insights and ultimately, lower cost of care. And we can do that using technology in a stepped fashion, right, such that we deliver the right care, the most efficient mechanism to the consumer depending on what their individual needs are. And with over 12 million virtual visits and over 2 million blood glucose readings a week as well as all of the weight measurements and the blood pressure data that we're getting, we have an unmatched treasure trove of data that we can apply data science against in order to really move the needle in a way that nobody else has the scale to do. Our global reach is a significant competitive advantage. I mean, just right now, we're dealing with a situation where you have an asymmetrical pandemic, right, where we're seeing this incredible surge in India. And whether it's a global insurance company or a Fortune 500 multinational who has populations in India, they know that they can turn to us for solutions that help their populations there, where nobody else has that kind of global presence. And then all of that is then delivered in unmatched value and return on investment for our clients. And one of our key values is bringing value to all of those who we serve. And as we look forward, the depth of our financial resources and our data capabilities will enable us to be in a situation where we can take financial risk, where we can do population health management in a way that really nobody else has the ability to do. And then all of that comes together as we engage consumers to drive greater engagement utilization, repeat utilization of our products and services, again, based on that depth of data and the consumer engagement capabilities. So we look across the health care landscape, we serve providers, we serve payers, we serve consumers, and we do it on a global basis at a level that nobody else does. With respect to the competitive landscape, we weren't surprised by any of the moves that have been made. And hopefully, that was evident by our comments last summer when we did the Livongo transaction. We believed very strongly at that point and continue to believe that the market massively accelerated through the pandemic. And it was our opportunity to seize the moment and put together the leaders into a category-defining solution as opposed to following. And so we said, look, the chessboard is going to be in motion, and we can either be the aggressor or let somebody else dictate what it was going to look like. And I think we made the right decision. And again, none of these have been sort of surprises. The truth is that although large and sort of headline making, the ones that you mentioned, we really never bump into and mostly, it's because they're just in the very, very, very early days of sort of deciding even what they want to be, much less compete in the marketplace. And then you have a lot of smaller point solutions, and this really gets to -- and you and I have discussed before, we win because of our multiproduct breadth of solutions, and that's evident in our data about the sales that we booked as well as the revenue per member and things like that. And that's a significant competitive advantage. So we don't actually see much in the way of single product sales anymore because that's not what buyers are looking for.
Yes. Definitely, the comprehensive offering is in vogue today from the virtual care standpoint. And so safe to assume, for those online, that your win rate or turnover rate of customers in any of your different channels is no real different than it was a few years ago and maybe even improved as you've seen the multiproduct or multiservice sales. Is that fair?
Yes. I think it's improved. And look, we've seen competitors go to get acquired by health plans. And so that actually provides us with opportunity because other health plans don't necessarily want to outsource their virtual care to one of their competitors. So we see takeaway opportunities and improvements in our pipeline because of some of those competitive combinations that we've seen. There are others who -- quite frankly, the health plans don't like to work with those who they see as trying to disintermediate them. And so there have been other combinations in the market that work in our favor because the health plans want to work with someone they know as a partner, not someone who's looking to disintermediate. And we've always been neutral. We've always been sort of a partner-first company, and that's put us in a very strong position. And so I think the breadth of our solution and the dynamics of the market looking for those broad multiproduct solutions combined with some of the combinations we've seen has actually, in many ways, improved the competitive landscape for us.
Great. That's very helpful. And then as a driver of that, you can see your membership growth, obviously, has been exceptionally strong. I think in the year ago period in Q1, you were probably hovering in the low 40s, 43 million members. That's up to almost 52 million paid U.S. members today. So I'd love to hear a little bit more about that as well. That's probably the #2 question you get that we get from investors. You saw this bolus of growth with the pandemic. And I think your guidance for 1 to 3 membership -- 1% to 3% membership growth this year. So talk a little bit about the spike you saw with COVID and what we might see going forward. Is this the new norm to see, 1% to 3% growth, now that you penetrated? And maybe it's going to be more PMPM driven, and we can get into that a little bit in the next topic, but talk about the membership growth.
Yes. So we added -- as you said, we've added 15 million members last year. There's no question that some of those would have been January 1, 2021, adds, but they needed the service immediately. And so we accelerated the launch of a lot of those populations. And at that point, we then had to refill the pipeline with new opportunities. And we've given, I think, a fair amount of data relative to the size of the pipeline and the membership opportunity. And on the last quarterly call, we mentioned a large East Coast Blue plan. That was a win that will result in some membership additions. And as we look at our pipeline today for what we expect to add in the first half of '22, we feel very good about sort of reaccelerating membership growth. But membership growth is just one part of the overall story. And so if you recall back to beginning of March 2020 when we had our last Investor Day, it feels like so long ago. We talked about 4 levers for growth, right? We talked about membership growth, visit volume growth, more products and new payment models, right? So if I look at the first 2 of those, those are volume metrics, right? That's membership growth and visit volume. Those are just sort of volume drivers that we're going to get more revenue because we get more volume. The other 2 really go to what your point was there about revenue per member. And we are seeing significant increases in revenue per member, up from about $0.85 a year ago to about $2.25 in the first quarter of this year. And that really goes to more products, more multiproduct sales, more usage across those products by the members that we serve and then, as we look into the future, more payment models that enable us to benefit from the savings that we generate and the value that we deliver. Really has significant opportunity when you put those 2 things together to continue that trajectory of revenue per member growth. And so I just encourage -- it's important to look across all of those drivers to think about the health of our business and the outlook for that growth. And then maybe lastly, the membership number we gave doesn't include the chronic care members that we serve. And so we added about 62,000 new chronic care members under management. And even that one is sort of -- you have to -- you should look a little deeper to that because we only count unique individuals, and we've actually accelerated those individuals who benefit from more than one of our chronic conditions, went from about 5% of the population that we serve to about 15% of the population in just a year. So we've increased the multiproduct penetration into that population by threefold over just the course of 1 year.
I'll also add, Ryan, one other point. To your point around getting a lot of questions on membership growth, when we provided an outlook back in September, we -- all of these were factors that have been well considered into the outlook that we provided. And as you can see from the results and the revenue growth we are delivering, it's exactly in line with the outlook we had given at that point. And we have raised our revenue guidance for the year, as you saw, relatively early and unusually early, if you will. That speaks to the confidence we have in the different levers for revenue growth that we have, to what Jason just talked about. Yes, membership will be important, but it is one of several levers that we have to use.
Yes. I think people miss the fact that it was such a strong performance. Your sales were up over 150% year-over-year. Your margins went from less than 6% to over 12.5%, which drove your EBITDA, I think, around 430%. So tremendous financial performance, but we still tend to get questions on the growth outlook nonetheless, as you do, I'm sure. So what -- Mala, if we think of that PMPM fee Jason just mentioned, it was, I think, $2.25, $2.24 exactly last quarter. What's the runway for that as you consider kind of multiple product offerings or clients who use the maximum level of services? How high can we see that grow over time to give us a proxy for that element or driver of growth?
Yes. I wouldn't get into the exact details of exactly putting numbers around it, but let me just sort of frame how we are thinking about the multiple ways to drive that PMPM expansion, as you said, Ryan. And Jason talked to a few of them. So the first is we have talked about multiproduct expansion, right, from a bookings perspective. And we have also, on the earnings call, talked about how the percentage of our members who have access to more than one product has gone from 9% to over 40%. So you can see the success that we are actually driving in terms of the expansion in multiple products, right? So that is one lever as we think about the expansion of PMPM. And we've talked about the fact that 2/3 of our bookings is multiple products, right? So that's sort of one set of factors. We've talked about the fact that we're seeing outsized growth in mental health, right? And whether it be on the B2B side or the DTC side, when we talk about mental health and we see multiservice utilization being as strong as it is, and the revenue that we get from specialty visits is at a higher price point than we see in, let's say, GMS, right? So that is a second driver for our confidence in driving revenue expansion per member per user. The third thing I'd say is if you look at sort of base Livongo, very similar to the dynamic that we are seeing in multiproduct usage and acceptance. We've talked about how the members, their users who have access and use multiple products as support. So again, if you think about the Livongo business where it's not so much about increasing the number of members or users, it's more about driving greater revenue per member because if you look at it from a -- it's an enrollment-based business, right? So you can see the opportunity we have for driving revenue expansion there. Again, to be clear, we will always continue to drive and focus on volume expansion, as Jason talked about, whether it be members or utilization. And it is things such as: chronic care; as we look forward, we look at myStrength Complete that we are just about to launch, our mental health offering that has sort of integrated for us digital assets as well as provider assets; or Primary360, right, if you think about the huge opportunity we have to drive PMPM. So look at what we have today, look at the fact that we have 70 million people that we can penetrate with multiple products and services. Think about the kinds of bets that we are making from a product perspective and how they will drive revenue from member expansion. It's the collection of all of those things that is driving our confidence.
Great. I appreciate that. That's very helpful color. I think sometimes, as investors or analysts, we get myopic on one topic. We're used to tracking like membership growth without realizing how advanced the organization has become and there's so many different drivers of revenue that can move the needle. And same thing on the competitive front, you think of the business that an Amazon might be in today versus the plethora of offerings you have and it's so nuanced when you dive into those details. So I appreciate that. We've got about 7 or 8 minutes left. So I do want to jump into a few things you just mentioned, though, that I think are other big questions. And let me start with mental health. Obviously, a huge topic post-pandemic. We're seeing more prevalence of conditions. We're seeing more use of telehealth, in particular. I think that's the one area that spiked up along with everywhere else, but not only has stayed where it was, but maybe even trended up and people are showing a preference for that. So talk a little bit about what you're seeing, I guess, either or maybe both in the direct-to-consumer and the enterprise level and what you're doing to make it less of a consumer-driven sale where it might be on demand and moving more to an enterprise sale where there's a longer-term relationship like some of the others in the marketplace that we see.
Yes. So look, there was already unmet pent-up demand for mental health care services before the pandemic, and this last 16 months has exacerbated that situation to where we're -- I think it's well acknowledged that the post-pandemic pandemic is going to be the mental health crisis that comes out of it. And I think the positive associated with that is that people have realized that virtual mental health care is more consumer-friendly, actually gets greater compliance because there's a lower barrier to going and seeking the care and to going back for repeat care even in times of low motivation. And it can leverage a stepped care model that takes advantage of technology assets as well as therapy capabilities and psychiatry and medication management, all sort of seamlessly woven together. We've seen tremendous growth across our mental health business, both on a direct-to-consumer and a B2B basis. We mentioned that last year, we saw a 500% increase in our mental health B2B volume. And this year, we've already seen another 100% increase year-over-year even off of those elevated levels. I don't expect that to slow down anytime soon. There is a massive amount of demand there. The other thing about that business is that it is inherently repeat, right? So whereas for an acute episodic situation, you may have a single visit. For a course of treatment for someone who's engaging in mental health care, they may have 4, 8, 12, 20 visits over the course of their treatment. You know that our direct-to-consumer services are sold on a sort of weekly, monthly or even annual basis with a subscription fee. And we continue to see the duration -- the average duration of those members, the lifetime value of those members continue to increase as they stay engaged with the therapist who they've created a relationship with. And they continue to sort of, over time, go through peaks and valleys of their own needs and their own engagement with that therapist. So I don't see any end in sight. And then maybe the last thing, just sort of looping back to the discussion we had earlier about the breadth of our portfolio. People are not just experiencing mental health care or physical health care needs. They have both of those very well intertwined. And the benefit of being able to take care of someone, the whole person, both mental and physical, is really differentiated in the market. And so to have someone who is dealing with diabetes or hypertension and going through potentially weight management issues but has untreated depression, anxiety, stress, you're just not going to get the same physical outcomes and improvement if those are untreated. And so our ability to bring all of those resources together for the consumer just makes for a better consumer experience and a higher impact treatment, which results in lower costs and better outcomes.
Great. That's very helpful color. And then we've only got a few minutes left, but I want to make sure to sneak in one final question here, and that's around virtual primary care. Obviously, you mentioned that earlier, Mala, I'm talking about the opportunity to drive growth. It's also something you've talked a lot about telehealth first, Virtual First, now Primary360 offering. Can you just talk about the organization's strategy for virtual primary care, where you are in that life cycle? And can that have the opportunity to move the needle materially on the membership or PMPM growth? And then we'll make that our last question.
Yes. So I'll just -- I'll do a very quick sort of enterprise strategy, and then maybe David can talk about what we're seeing in the pipeline for growth on that. So our opportunity is to truly reimagine primary care the way it should be, where it delivers a fully integrated solution of mental and physical health capabilities, leveraging technology and the data science to its full extent and bringing together a full care team virtually for the consumer and then finally, integrating appropriately into the physical delivery system, whether that means dispatching someone to the home or getting that person to the most efficient provider in the market using the best data science and an untethered referral mechanism, right, that can really send -- make the referral to the best provider for that condition. And that is getting significant traction. And so David, do you want to talk a little bit about what we're seeing in terms of pipeline and growth outlook there?
Yes. So the pipeline is really strong. We've seen ASO clients actually take an opt-out version, which means that their employers get the service and have to opt out. So a real big endorsement to go straight to scale with some of those. And you'll see some, hopefully, with the end of Q2, some good announcements come out from some of those clients, about some of those larger deals starting in 2022. And we're offering services nationwide. So we've expanded the network to be able to handle even larger -- kind of one of the things we talked about is it's hard to do scale. We'll do scale at 50 states right from the start next year, which brings in larger both employers and health plans for us to be able to service.
That's a great update. We appreciate all that. And it looks like we're not quite over yet, so I'm going to try to sneak in one very quick question that we've gotten from the audience here. Jason, you just discussed the ability to serve clients internationally and mentioned India, in particular. So we had a question, if you are currently servicing that market and if that's a big opportunity for you given everything we're seeing there with the big outbreak in India with COVID-19 at the current time.
We are -- we've had multiple large multinational employers come to us for assistance in India as well as large multinational international insurance companies. And then lastly, we're doing some work on a philanthropic basis to stand up some technology to help bring U.S. physicians virtually on our technology into some of the hospitals in and around Mumbai to help bring the expertise and their professional capabilities to assist the physicians and nurses on the ground in India dealing with just overwhelming demand. And so we're happy to be able to be assistants for both our clients as well as just the population there. And I think my hope is that this is an example of what we can do on a larger scale, to be able to help in circumstances where it's really needed. And also, we see it, certainly, that the global opportunity commercially is a very significant opportunity. You probably recall, Ryan, that we announced that we had made a meaningful sale of our InTouch technology solutions into the Indian market just a couple of quarters ago.
Great. We appreciate all the updates. I know we went a little bit over. So appreciate you hanging with us. I know it's an interesting story, and there's a lot of interest in it. So good luck for the next decade. I look forward to seeing the Investor Day blueprint of where we're going to head over the next 10 years and what is to come. So thank you for everything, and thank you for everyone for sticking with us a little over today. Cheers.
Thank you.
Thanks, Ryan.
Thanks, everyone.
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