Teladoc Health, Inc.

Hello and welcome to the Teladoc Health third quarter 2022 earnings conference call. My name is Alex and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may now press star two. I'll hand over to your host, Patrick Feely, head of investor relations. Patrick, please go ahead.

Thank you and good afternoon. Today, after the market closed, we issued a press release announcing our third quarter 2022 financial results. This press release and the accompanying slide presentation are available in the investor relations section of the TeladocHealth.com website. On this call to discuss the results are Jason Gorovic, Chief Executive Officer, and Mala Murthy, Chief Financial Officer. During this call, we will also provide our fourth quarter and full year 2022 outlook, and our prepared remarks will be followed by a question and answer session. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating Teladoc Health's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and 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 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the actual results for Teladoc Health to differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary statement and our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Jason.

Thank you, Patrick. Good afternoon and thanks for joining us. After the close today, Teladoc Health reported strong third quarter results driven by solid execution across the business. Revenue grew 17% over the prior year to $611 million, above the midpoint of our guidance range, and adjusted EBITDA of $51 million exceeded the high end of our expectations. While the broader operating environment remains challenging across the economy, during the quarter we made meaningful progress against our strategy, including four areas I want to briefly highlight. First, driving better outcomes and lower costs for our chronic care populations. Second, continued momentum in our primary 360 product with clients and members. Third, closing meaningful new deals. And fourth, delivering strong performance at BetterHelp. Starting with chronic care, we're encouraged to see a growing trend of clients looking for partners who can deliver proven cost savings and outcomes. Earlier this month, we held our client advisory panel with leaders from 30 health plans, large employers, and health systems in attendance. It was universally clear that value-based care is high on the priority list for these organizations, with strong interest in programs that manage chronic conditions and drive engagement with populations via virtual primary care relationships. Value-based arrangements are becoming even more important in the current macroeconomic environment, and as I look at the chronic care pipeline, we're seeing a notable increase in deals with such features. We view this trend as very favorable for us, since our proven outcomes present a tremendous value proposition for our clients, and we're well positioned in the market to capitalize on that dynamic. An example of our ability to drive outcomes and savings is evidenced by the results of one of our recent pilots. In early 2021, we launched a chronic care shared savings pilot with fully insured members at a large Blue Cross Blue Shield plan. Our team just concluded a study with this partner's actuarial team who determined that we have exceeded our medical cost savings target by 60%. Not only do we drive better outcomes for our members and drive more savings for our client, but we are able to realize a small shared savings bonus. We believe the outcome of this pilot and others like it validate our ability to move further toward value-based contracting over time. Ultimately, we believe the ability to leverage broad integrated virtual and digital care models to drive measurable savings uniquely positions us to capitalize on market demand for these arrangements. Turning to Primary 360, at the start of the year, we told you we would provide additional insight later in the year. And so today, we'll provide you with a first look at some of the encouraging results we've seen thus far. Primary 360 members are reporting high satisfaction, with NPS scores currently in the 70s, a strong vote of confidence. Members who have engaged with Primary 360 this year are connecting with care teams at a rate greater than once every three months, a result of the significant value we are delivering. We're also finding that members with chronic conditions are significantly more likely to engage with Primary 360. This year, we're seeing those members as four times as likely to meet with their Primary 360 care team. Meanwhile, one in every three of our Primary 360 members is using two or more of our services, demonstrating Primary 360's role not just as virtual primary care, but also as a front door to multi-specialty care. So while we're at the beginning stages of bringing integrated virtual primary care to the market, the strong member and client response to the service gives us a lot of confidence in the long-term opportunity. As I turn to commercial momentum, we've discussed throughout the first half of the year, our pipeline has developed more slowly than we expected coming into the year. Year-to-date bookings, which represents the estimated incremental annual revenue contribution from deals signed during the year, is roughly equivalent to the same period in the prior year. We are, however, encouraged by a number of new significant deals that we expect to contribute to our growth for the next few years. First, you may have seen HCSE's press release last month announcing our partnership to make Primary 360, along with our general medical, mental health, and nutrition services, available to self-insured employer groups. This follows on the heels of our agreement last year to bring our full suite of chronic care products to HCSE employer clients. The launch of this partnership is validation of our integrated whole person care strategy and another example of our ability to land and expand across products. And that deal represents just one example of the momentum we're seeing with large health plans looking to partner with us to offer our products and services to their employer clients. In addition to Primary 360, we're also seeing this momentum in chronic care, with multiple large health plans looking to partner. We expect these agreements will contribute to our pipeline over a multi-year period. Finally, while we typically close many new employer deals in any given quarter, I wanted to highlight one in particular, as I think it underscores the value proposition of our broad integrated service offering. We're replacing three different competitors all at once across chronic care, telemedicine, and our My Strength mental health solutions at one of the largest providers of care to correctional facilities and other government-run institutions. We believe the market is shifting away from disparate point solutions and toward integrated offerings, a trend that we believe strongly favors Teladoc Health. Turning to BetterHelp, the team continued to drive impressive top-line growth, particularly in this time of increased macroeconomic uncertainty, while addressing the tremendous unmet need for global mental health services. While yield on advertising spend remains below where we expected it to be at the beginning of the year, we've seen it stabilize as anticipated. BetterHelp remains on track to deliver strong revenue and margin contribution. We expect to continue building upon BetterHelp's significant leadership position in the direct-to-consumer mental health market while driving both growth and margin. With that, I'll turn the call over to Mala for a review of the third quarter and our forward guidance.

Thank you, Jason, and good afternoon, everyone. During the third quarter, total revenue increased 17% year-over-year to $611 million. The biggest driver of that growth was BetterHelp, our direct-to-consumer mental health brand, which grew over 35% as compared to the prior year's quarter or approximately 7% sequentially over the second quarter and in line with our expectations. We continue to expect the typical seasonal slowdown in advertising spending during the holiday season in the direct-to-consumer market and therefore expect to see material acceleration in consolidated adjusted EBITDA margin in the fourth quarter. Turning to chronic care, the total number of our members enrolled in one or more of our chronic care programs was 791,000 at the end of the third quarter, an increase of 66,000 or 9% over the prior year's quarter. and a sequential decline of 7,000 enrollees as compared to the second quarter. The decline in enrollment was driven by the loss of one government sector client, which due to changes in leadership has chosen to cease offering chronic care management programs to its populations. If not for the loss of this client, chronic care member enrollment would have increased by 15,000 lives over the second quarter. I would also add that while the client's decision resulted in a higher than expected attrition rate in the third quarter, even including this loss, our full-year member churn is still trending in line to slightly better than the past two years, a testament to our efforts to drive better member engagement. We ended the quarter with total U.S. paid membership of 57.8 million members, an increase of 1.2 million members over the second quarter, driven by a combination of new virtual care client onboardings and population expansions within existing clients. Individuals with visit fee only access was 24.3 million at the end of the third quarter. Average US revenue per member per month was $2.61 in the third quarter, up 9% from $2.40 in the prior year's quarter. As compared to the second quarter, PMPM growth was driven by growth in better health revenue, although largely offset by membership mix, as we added 1.2 million net new telemedicine members in the quarter. Adjusted EBITDA was $51.2 million in the third quarter, compared to $67.4 million in the prior year's quarter, and above the high end of our guidance range. The third quarter adjusted EBITDA outperformance relative to our expectations was driven primarily by stronger cost control as we look to drive efficiency. Both technology and development expense and growth margin contributed to the upside. Net loss per share in the third quarter was 45 cents compared to a net loss per share of 53 cents in the third quarter of 2021. Net loss per share includes stock-based compensation expense of $0.34 per share, amortization of acquired intangibles of $0.30 per share, and $0.02 per share of lease abandonment costs associated with office space rationalization. During the third quarter, we generated free cash flow of $20 million and ended the quarter with $900 million in cash and short-term investments on the balance sheet. Now, turning to forward guidance. Last quarter, we noted that full year results were likely to be near the low end of our prior guidance range. Our updated guidance today is consistent with that expectation. For the full year 2022, we expect revenue to be in the range of $2.395 to $2.41 billion. We expect adjusted EBITDA for the full year to be in the range of $240 to $250 million. We expect total US paid membership of 57 to 58 million members and increase of 1.5 million members over our prior guidance. We expect total visits for the year to be between 18.4 and 18.6 million visits, representing growth of 19 to 21% over the prior year. For the fourth quarter of 2022, we expect revenue of 625 to $640 million, representing growth of 13 to 15% year over year. We expect fourth quarter adjusted EBITDA to be in the range of $88 to $98 million. Total fourth quarter visits are expected to be between 4.7 and 4.9 million visits. With that, I will turn the call back to Jason for closing remarks.

Thanks, Ma. This week, we were pleased to welcome Laser Kornwasser to the team as our new President of Enterprise Growth and Global Markets. Some of you may know Laser from his role as Chief Operating Officer of Carecentrics, where he was responsible for driving operational excellence and business strategy, growing EBITDA through product and client diversification, and leading the integration of the company's diabetes franchise to build a new suite of services. At Telenoc Health, Laser will help optimize company performance across all client channels and product lines, to further unlock the revenue and profit growth potential of our whole person care strategy. I look forward to working closely with him and know he will make an immediate impact on our commitment to empowering all people everywhere to live their healthiest lives. With that, we'll open the call for questions. Operator?

Thank you. As a reminder, if you'd like to ask a question, you can press star one on your telephone keypad. If you'd like to withdraw your question, you may press star two. Please limit yourself to one question only. Thank you. Our first question for today comes from Lisa Gill of JP Morgan. Lisa, your line is now open.

Thanks very much. Good afternoon, everyone. Jason, it's the third quarter, so you know I'm going to ask about the selling season. You talked a little bit about signing some incremental deals. You talked about where the pipeline is. But can you give us an idea of how to think about how the selling season is going to play into 2023? And as we think about some of the newer deals, are any of them with some of the new payment models you talked about? And are there anything from an implementation cost perspective or anything else to think about as we think about headwinds and tailwinds going into 2023?

Yeah, thanks, Lisa. I'd be disappointed if you didn't ask that now, so I appreciate the question. Let me start with sort of an overview of how to think about our revenue outlook going forward, and then I'll dig a little deeper into the bookings and what the pipeline looks like. So if I think about the overall outlook, obviously we won't give specific guidance until February, but I'll try to give you some of the dynamics going on. So if I think about the swing factors for next year, first BetterHelp, as I think about the direct to consumer business, you know, it's reasonable to expect BetterHelp to be more closely tied to the financial health of the consumer and therefore, you know, a little bit more sensitive to the macroeconomic outlook. we see a little bit of impact to BetterHelp growth from that macroeconomic dynamic this year, as we discussed in the July call. That, of course, can cut both ways, though. So, you know, if we see economic recovery next year and inflation coming down and the consumer feeling more confident, that could be helpful for us. If the consumer sees significantly more inflation and pressure, that could pressure the consumer, since BetterHelp is one of the more expensive things that the consumer buys online that doesn't come in a box. I think you should also just expect us to continue to take a more balanced approach to growth and margin in BetterHelp. That business has grown and scaled incredibly fast. It's at a run rate of a billion dollars. And I think it's fair to expect us to focus on driving both growth and efficiency. And you've started to see some of the benefits of that in the second half of this year. And some of our gross margin improvement comes from specifically BetterHelp. The second thing I'd look at is what you asked about specifically, the pipeline development. I would call the third quarter kind of a catch-up quarter when it comes to bookings. So you heard us talk about the first couple of quarters as the pipeline developing more slowly than it had in prior years or slower than our expectations. The third quarter saw a turnaround of that. And it was not only our biggest quarter of the year in terms of bookings, but it was significantly larger than our third quarter bookings last year. So it puts us at a place now where year to date through the third quarter, we're almost identical to the total sort of gross bookings that we saw through the third quarter last year. So just a reminder about how to think about that on the B2B side of our business. The B2B side of our business, if you look at revenue next year, it's essentially baseline revenue this year plus bookings minus churn. Our churn is in line to even slightly better than it was over the previous several years and in line with last year. So we don't see any significant changes there. And we still have two months left in the selling season. The fourth quarter is always really important for us. As I look at our pipeline, our pipeline is similar to what it was at this time last year. There are some good characteristics to the deals that we've closed. Our deals that we've closed are significantly larger than they have been in prior years. So our average deal size is 2x what it was in the third quarter, was 2x what it was in the first two quarters, and 50% larger than a year ago, period. We're continuing to see good cross-sells. That contributes, obviously, to the significantly larger deal size. And over three-quarters of our deals are multi-product sales. So I think that hopefully gives you some color. You asked a little bit about value-based deals. We do have some deals that we've signed this year that are more value-based deals and give us upside to share in the savings that we generate. And I'm excited by the results of the pilot that we talked about in our prepared remarks at that large blue plan. I think that portends well for us leaning further into more value-based arrangements.

Thank you. Our next question comes from Richard Close of Canaccord. Richard, your line is now open.

Yeah, thanks for the questions. I had two, if I could flip those in. But Jason, you talked a little bit about balancing the growth and margins on BetterHelp. Just curious if you could go in maybe a little bit more detail on that. And then can you talk about market share? Obviously, with the tough economy, I suspect some of your competitors and the noise you talked about earlier in the year. you know, maybe have pulled back some. So just talk about the competitive environment in that as well.

Yeah, I think, Richard, there's not a whole lot more to say with BetterHelp about focusing on the combination of growth and margin. We always try to optimize that business. I will say, for example, I'll point out a couple of things that have yielded improvements in the margin, especially the gross margin on that business. We're leaning more into digital interactions with consumers as well as virtual group therapy sessions, which is a more efficient way of interacting with the consumer, improves the gross margins. It actually has the other effect of actually depressing our visit volume. So we actually see fewer visits. Fewer visits in the BetterHelp business is actually good because it improves our gross margin and enables us to serve more people with fewer professional resources. So that's an example of some things that are good for lifetime value of a consumer, good for member retention, and also good for margin. When I think about market share, Richard, I'll just give a couple of comments relative to what we're seeing in the overall landscape. I've spent a fair amount of time recently with a number of our clients, both some of our largest clients as well as, as I mentioned, at our client advisory group, and then also with other CEOs in the healthcare industry. And we're definitely seeing an impact from a tightening economic environment and a higher cost of capital impacting some of the smaller companies. In fact, I was with a very large client yesterday, and the challenge of them, quite frankly, questioning whether some of those smaller companies are going to be able to survive is definitely top of mind for them. You know, I'm not sure that I would say that we've seen a massive shakeout yet, but I'm hearing quite a bit among both clients as well as other healthcare companies that is very much attuned to that.

Thank you. Our next question comes from Jalindra Singh from Troia Securities. Jalindra, your line is now open.

Thank you, and thanks for taking my questions. Jason, I was wondering if you could spend a little bit more time on the BCBS pilot program you called out, just in general, trying to understand the role Teladoc is expected to play in the shift to value-based care. Clearly, the outcomes are pretty encouraging, but I'd like to understand if Teladoc's role is going to evolve in this shift. Should we think about the company more as a VBC enabler, or should we think about them as the company taking more risk at some point in the future? And if you can quantify how much of a benefit in the quarter from this shared savings?

Yeah. So, Jaylandra, welcome back. It's nice to hear from you. I'll talk about that specific shared savings pilot and maybe a little bit of the downstream impact that we are seeing from that. I'll probably defer. It's a small shared savings bonus, so I'm not going to quantify what that is. It's immaterial to the quarter. But what I will say is we signed up for a program specifically focused on chronic conditions. In this case, it was diabetes management. We had a base PMPM and the opportunity to share in the savings that we generated. We significantly outpaced the savings that was expected. As I said in my prepared remarks, we beat it by 60% relative to the target. The way that that deal was structured, we had a risk corridor where we had shared savings, where we share in the savings with the health plan. in that risk corridor, and that worked out great for us. I think one of the downstream impacts that maybe isn't quite as obvious is that that client, as a result of our significant success, has accelerated the expansion both in terms of the population that we serve and also the number of products and services that we bring to their populations. We got the benefit of a little economic boost from the shared savings bonus that inured to us. The bigger impact, quite frankly, is acceleration of the expansion of both our products and the population that we serve within that client. It also sets us up for great learning as we lean into more of those value-based arrangements. where we're very happy to put our fees on the line to guarantee both clinical and economic impact. And we can do that because of the underlying data science and our significant track record and scale of making that impact.

And I would add that it sort of generates the return on the investments that we have been saying we are making in all of our data infrastructure over the past 18 months to two years. So this is an example of the return on investment such as that.

Thank you. Our next question comes from Ryan Daniels of William Blair. Ryan, your line is now open.

Yeah, guys. Thanks for taking the questions. Jason, I wanted to go back to Primary 360. It's interesting that you're seeing you know, higher utilization, high NPS. So I'm curious if there's an opportunity to move into value-based contracting with that as well so that you might be able to garner shared savings as the better utilization with your clinicians drives better outcomes over time. Thanks.

Yeah, Ryan, I appreciate that. I'll go through just a couple of other stats that I didn't include in my prepared remarks. We're very, very pleased with the progress in Primary 360. As I sat down with some of our largest employer clients, some of the things that they were most moved by was not just the things that I talked about, the data points that I talked about relative to treating members with chronic illnesses, but especially the fact that what we're seeing is 60% of our primary 360 members who engage with a virtual primary care relationship haven't seen a physician in at least two years. And almost 30% of them say that they wouldn't have seen a provider if they didn't have access to primary 360. And so those are some of the things that when I talk to the largest employers who are interested in the long-term health of their employees are really focused on because we know if we can't engage consumers and they're disenfranchised from the healthcare system, they're never going to do early identification of chronic conditions. or take the necessary steps relative to appropriate screenings. When we talk to large health plans, they're very focused, as you might imagine right now, on star ratings and closing and HEDIS measures and closing gaps in care. And because of all those reasons, Ryan, you're exactly right, we are starting to lean into value-based arrangements with some of our health plan partners and to a lesser degree with our employer partners for primary 360. And I think you'll see that continue to evolve over time.

Thank you. Our next question comes from Sean Dodge of RBC. Sean, your line is now open.

Yep, thanks. Good afternoon. Maybe going back to the gross margins for a moment. So on a consolidated basis, consolidated basis has stepped up pretty considerably the last couple of quarters now. Jason, you mentioned the BetterHelp example. You know, I guess beyond that, is there any more detail you can give us on drivers there? Are there any one-time items in that? And so with you closing in on, you know, gross margin 70%, 69.6% adjusted for this last quarter, how sustainable should we think about that being going forward?

Yeah, Sean. You know, if you think about the performance we've had in our gross margin, and you're exactly right, we have been seeing the uptick in our gross margins as we have gone through the year. You know, the biggest increase is coming from improved efficiencies in BetterHelp, as we talked about in our prepared remarks. You know, specifically, the driver of that that is helping in our gross margin is really around the utilization dynamics of the membership base. As we talked about, you know, we are seeing members engaging a little bit more digitally, and we are also seeing members utilizing things like group therapy more. And it's those kinds of things that lead to greater efficiency and therefore are improving our gross margin as we go through the year. The other thing to also note, and we have talked about this, if you think about our provider model, we are certainly advancing from what a few years ago was a purely 1099 model to a bit more of a hybrid model. And that is also going really well in terms of gaining more productivity and efficiency. We are really pleased with the productivity metrics that we are seeing on the part of the providers who are now our full-time employees. And we'll continue, obviously, to monitor that and optimize that. But it is things, initiatives like that, that are driving the more sustained impact on our gross margins.

Our next question comes from Jessica Tassan from Piper Sadler. Jessica, your line is now open.

Hi, thanks so much for taking the questions, and congrats on the good quarter. We were hoping you could maybe give us some color just on how pricing within chronic care is trending, especially as you continue to see multi-solution kind of adoption and bookings, and then just how should we think about the growth rate of the chronic care business exiting 22 and into 2023? Thank you.

Yeah, Jess, I'll take the pricing question, and Mala can comment on growth rates We're seeing pricing hold in the CCM market, I think, for probably two, maybe three reasons. One, as you mentioned, most of our sales now are multi-product sales. And so the truth is there aren't many out there who can match even a portion of the full portfolio that we have, much less the entirety of it. And so there is less apples to apples in buying the entire bundle of services. So it gives us the opportunity to be a little bit more clear about defining the price rather than having to react to a head to head single point solution competitive bid. The second reason I would say is because of what we talked about before. we are willing to put our fees at risk for the clinical outcomes that we drive. And because of that, it kind of de-risks the offering for the clients who are buying it. You know, when we are willing to put ourselves at risk and our fees at risk for those clinical measures, and in some cases for guaranteed ROIs, that enables us to keep pricing solid. And even in many cases, as you heard with that pilot with the Blue Cross Blue Shield plan, have upside opportunity relative to shared savings. And then the third reason, I think, is just because of our track record and our stability. What I mentioned earlier about fear among buyers, about whether some of those smaller players are going to be able to continue to exist in a more difficult cost of capital environment, that does play in our favor relative to our scale, stability, and longevity. So I think generally what we're seeing is that it's staying stable.

And then, Jess, in terms of your question around chronic care growth, revenue growth, you know, we expect high single-digit chronic care revenue growth this year. And that's what I would expect to have exiting through the end of this year into next year.

Our next question comes from Stephanie Davis of SVB Securities. Stephanie, your line is now open.

Thank you. Thank you for taking my question, guys, and congrats on a solid quarter. Could you walk us through some of the granularity on the EBITDA beat and the upside surprises, such as greater sales efficiency or any benefits from the Blue Cross Blue Shield savings relationship? And given that upside, are you still considering a similar magnitude of DTC ad cuts to fuel the 4Q ramp? Or could you moderate this a bit more to focus on growth, especially when you think about January and February and its impact on that?

Yeah, yeah. Thanks, Stephanie. So in terms of the drivers of the beat, the majority of the upside came on the cost side of the equation. So given the revenue performance this year, and obviously in light of the macroeconomic environment, we are looking more closely at efficiency, like many other companies. And all those efforts, I mentioned some of those efforts resulted in just better margin pull through in the quarter. Relative to our internal expectations, the biggest driver of our margin beat was on the technology and development line, okay? The second driver was the gross margin performance, and I just walked through the drivers of the gross margin performance, especially and largely at BetterHelp, as we are seeing improve utilization dynamics. In terms of your question around what does this mean for the full year adjusted EBITDA and the RAMP for Q4. You know, the way I'm thinking about it is the following. We have, you know, when we talked about our full year adjusted EBITDA expectations last quarter, we expect it to be near the low end of our prior guidance range. Our updated guidance assumes that we can deliver our adjusted EBITDA solidly in the range that we have just talked about, the $250 to $250 million range. But if I just take a step back and think about the Q4 adjusted EBITDA performance and therefore the full year, It still calls for the sequential ramp that will be largely driven by the seasonal lower advertising expense in the fourth quarter. Again, I would remind you what we have said before. This is not new. If you think about the ad spend dynamics that we have had pre-COVID, The pullback in Q4 of our ad spend is something that we were doing in the BetterHelp business every single year. Just because we optimize for pricing, we optimize that business for returns. And therefore, as ad spending becomes much more expensive in the holiday season, we sort of manage our ad spend around that. It happened through COVID that those dynamics changed, became far more muted, and we're just now going back to what was pre-COVID dynamics. Of course, BetterHelp, as you know, is just a more scaled business now than it was pre-COVID, so it is a bit more visible in terms of those dynamics. And then the other thing I would say is just in terms of Q4 adjusted EBITDA, we do anticipate a sequential step up in technology and development spend in the fourth quarter as we continue to invest in the business. That is included in the guidance that we have given out for Q4 adjusted EBITDA.

Our next question comes from Charles Rhee of Cohen. Charles, your line is now open.

Yeah, thanks for taking the question. Jason, you know, you gave us some metrics around Primary 360, and I think you characterized it as for members who have engaged with it. Can you give us a sense for, you know, for those members who it's available for, what the actual uptake has been in terms of members selecting a virtual primary care team? And then secondly, what are your expectations then as we think about for HCSE next year? If it's available to their self-insured clients, is the selling efforts really driven by you or is that something that's driven by HCS in terms of pushing the product? Thanks.

Yeah, it's always a team approach. We work with our partners to engage their self-insured clients. Their self-insured clients have to make the decision that they want to go with Primary 360 or any of our chronic care management programs. And so that's a team sell. Our team is deeply engaged with theirs. And as we've said, that's a multi-year approach. So we expect to see the benefit of that over the course of multiple years as we penetrate that book of business and the other health plan partners that we work with. With respect to... Patrick O' The overall population, we now have several hundred thousand members who are eligible for primary 360 through their insurance coverage. Patrick O' We have tens of thousands of members who have enrolled in plans that that are that have primary 360 as an integral part of them. We've done thousands of primary care visits this year, and it's growing rapidly. So remember, this is really the first year that we're in the market with that product, and we saw a significant step up in volume in the third quarter versus the first half of the year, but we haven't quantified it at this point. We haven't given a a direct number on either the penetration of the population that's eligible or the total number. I think you'll see us continue to expand the clarity on that as we get through the end of this year and into next year and, quite frankly, through this open enrollment season.

Our next question comes from Daniel Grossleit of CIFI. Daniel, your line is now open.

Hi, thanks for taking the question. Just a quick clarification before I get into my actual question. Did you say the Blue Cross Blue Shield bonus contributed to this quarter and are you able to quantify that? And then my question is on 2023 revenue. Oh, sorry, go ahead, go ahead.

So Daniel, it it was immaterial to this quarter.

OK, is it going to hit next quarter or it's immaterial to? It's your revenue guide.

It's immaterial. It's immaterial.

Okay. Got it. Okay. And then as I think about revenue growth for 2023, Jason, you mentioned your pipeline is similar to where you were last year. Attrition is a bit better. You're likely to see a step down in better health growth. next year, assuming a softening economy. Should we think about growth rates for 2023 at slightly below where you are based on your 22 guidance, which is around 18% year over year?

So we're not going to give guidance today. We'll do that in February. What we tried to do is give you sort of the components of how to think about that and how to start modeling that. And so, you know, I'm going to stop short of going further than that. I think I've given quite a bit relative to the bookings thus far, the pipeline thus far, and how we're thinking about better help. And obviously, at a billion dollars, you know, that's a big business, and it takes a lot to continue to drive those very impressive growth rates.

Our next question comes from Elizabeth Anderson from Evercore. Elizabeth, your line is now open.

Hi, this is Samir Patel speaking on behalf of Elizabeth Anderson. Thanks, guys, for taking my question. I was just wondering, what are you guys seeing in the market in terms of the pricing on virtual first plans? Is it coming up cheaper or not so much? Any light would be great.

You mean in terms, I assume, of the pricing, the premiums to the end consumer or the end buyer. We actually have seen, what I can tell you is what we've seen last year. I don't think everything's fully baked yet and in the market relative to the exchanges and things like that. What I can tell you is that the exchange, the virtual first exchange products that we were part of for this year were not the least expensive priced on the exchange. And I think that actually is really positive. I think it's a demonstration of the value that consumers are seeing in those virtual first plan designs. Because all in, the premium may be a little bit more, but ultimately the benefits are richer because the cost sharing is less. And it's a plan that meets them on their terms. And so we're actually very pleased with what that looks like for this past year for pricing for 22 plans. And we'll see what happens as we head into 23. But so far, the experience has been very good.

Our next question comes from Steve Valiquette from Barclays. Steve, your line is now open.

Hi, everyone. This is Tiffany on for Steve. Thanks for the question. I think you talked about the macro impact on the DTC side. I was wondering if you could give a bit more color on maybe what you're seeing on the B2B side in terms of macro environment and employer sentiment. Thanks.

Yeah, I think the only thing we're seeing directly is a little bit of distraction among HR executives who are responsible for both managing the benefits and health of their employee base, and in many cases are facing a difficult inflationary environment where they have to think about managing their workforce in a different way. And of course, we're all dealing with workforces that are now remote more than in physical locations and office buildings. So I think there's just a little bit more distraction in the current environment. But what we haven't seen is – and, you know, again, I think in the first two quarters I would have said that caused a little bit of slowdown in decision-making among employer benefits leaders. We saw that – like I said, I described the third quarter as a bit of a catch-up quarter with respect to bookings. And so I think that the employer – greater focus in the third quarter led in part to that and enabled us to break through some of that. So I don't yet see a significant impact on employer buying patterns.

The thing that's also hard to sort of pinpoint is, to the extent that there is a potential recession, what is the impact to our business? Virtual care was not really around in the last recession. So we don't exactly have a lot of history to lean on.

Our next question comes from George Hill of Deutsche Bank. George, your line is now open.

Good evening, guys, and thanks for taking the question. I guess I've got one for Jason and one for Mala. Jason, you talked a lot about kind of the margin opportunity and looking into 23 focused on cost opportunities. as opposed to kind of outsized revenue growth. I guess my big picture question would be, do you feel like the company is right-sized from a cost perspective, and kind of how aggressive do you feel like you could be there to attack costs? And then, Mala, just kind of a housekeeping question on gross margins. You talked about the gross margin expansion being attributed to the growth in BetterHelp. If we see some of that consumer weakness that a lot of people are talking about for 23, would we expect to see gross margins revert a little bit?

Yeah, so I'll take both, George. So in terms of sort of the cost control, here's what I would say. You know, we are always conscious of managing our costs. That is not a new thing. And, you know, if you look at the current macroeconomic environment, as I said a few minutes ago, it does require all companies to be more focused on managing costs, and we are no exception to that. We've certainly increased our efforts to control expenses. We've talked about that as we talked about the adjusted EBITDA beat for the quarter. And so we are pleased with seeing the results of those efforts. We are being intentional in terms of multiple initiatives to date that are focused on driving the cost side of the equation. So I'll give you an example. We have had a project underway for several months now where we are seeking to make several of our financial systems more efficient and streamlined. As we talked about, we are consolidating our real estate footprint. In a world where a large number of our colleagues are working remotely, we have assessed, evaluated, and we have begun to reduce the amount of office space that we need to maintain. That's just two small examples of many of the initiatives that we have underway. So I would say, We did not, to be clear, say anything really about revenue growth rate for 2023. We will, as always, provide more specific outlook, more specific guidance when we do our Q4 call in February. But we are looking for ways, as always, to optimize our cost structure, and we will take an even closer look at that as we head into 2023. I will say, though, in conclusion, We will look at it and we will be thoughtful about how we balance efficiency with the need to make the right investments to continue to drive our top line revenue growth. As we have said before, there is still an enormous runway for top line growth in this space. And it would be a shame for us to not make those right investments to continue to capture that growth. And we are really well positioned based on all of the things we have said on the call until now to go do that. So as always, we will look for both looking at our cost structure, optimizing it, and making the right investments towards longer-term revenue growth.

Our next question comes from Cindy Motes of Goldman Sachs. Cindy, your line is now open.

Hi. Hi, thanks for taking my question. I just wanted to go back to chronic care a little bit. So in the quarter, you lost a client and you're down a little bit. But judging by the enthusiasm and the bookings, it feels like that we can assume maybe that's going to go up next quarter with the guidance. And then with the PMPM as well, you said it's sort of stable. So I would think the overall PMPM we could assume then is going to rise. Is that correct?

I mean, we're not giving specific outlook on CCM, on chronic care revenue or membership in Q4, but you're exactly right. We feel good about where the overall CCM product portfolio is and the receptivity in the market. You know, Malik called out what the growth would have been absent this one client loss. We would have Justin Cappos- Added 16,000 enrollment members of an enrollment and 26,000 in total program enrollment. So, you know, we feel good about that, especially in the fourth quarter or sorry in the third quarter of the year. Justin Cappos- So you know will will continue to feel good, especially as we look at the bookings for the year. and heading into next year. And then Malik, I think, gave the sort of general outlook as far as CCM growth as we look forward.

Thank you. That was the final question for today. So that concludes today's conference call. Thank you for joining. You may now disconnect.