Teladoc Health, Inc.

Hello and welcome to the Teladoc Health Q1 23 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 followed by one on your telephone keypad. If you'd like to withdraw your question, you may press star followed by two. I'll now hand over to your host, Patrick Feely, Head of Investor Relations to begin. Please go ahead.

Thank you and good afternoon. Today, after the market closed, we issued a press release announcing our first quarter 2023 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 discuss our second quarter and full year 2023 outlook, and our prepared remarks will be followed by a question and answer session. Please note that we'll be discussing certain non-GAAP financial measures that we believe are important in evaluating Teladoc Health's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and 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 in our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Jason.

Thank you, Patrick. Good afternoon, and thanks for joining us. I'm pleased to report a strong start to the year across the business. meeting or exceeding all our key financial and operating guidance in the first quarter. Today, we're raising the low end of our revenue and adjusted EBITDA guidance, a reflection of the quarter's strong results, and we'll speak to some of the key progress we've made in the first few months of the year. First, let's start with a brief recap of the quarter. Consolidated revenue in Q1 grew by 11% year over year to $629 million. which was above the high end of our guidance range. Our consolidated adjusted EBITDA was $52.8 million, also exceeding the high end of our guidance. Our BetterHelp segment continued to see strong demand in the first quarter as the quality, convenience, and affordability offered by our direct-to-consumer mental health service resonates in the marketplace. Segment revenue grew 21% year-over-year in Q1. driven by new member growth and outperforming our expectations. Customer acquisition trends have remained stable year-to-date, resulting in solid margin pull-through in what is typically our seasonally weakest quarter. Mala will discuss guidance in more detail shortly, but we feel confident in our expectation for a strong and consistent sequential margin improvement in our BetterHelp business throughout the course of 2023. In the integrated care segment, revenue grew 5% to $350 million, again, at the high end of our expectations. Integrated care growth was relatively balanced across our B2B portfolio, and we're pleased to see continued strong interest in our whole person care suite of products. In particular, chronic care enrollment is off to a solid start to the year, with new member recruitment ramping up ahead of schedule. This also helped drive its strong segment margin expansion in the quarter. Year-to-date trends have increased our level of confidence in the outlook for the rest of the year in both the BetterHelp and integrated care segments. During the quarter, we've remained focused on expanding our leadership position in whole person virtual care, including advancing Primary 360, our virtual primary care offering. And I'm pleased with the significant progress we've made. Allow me to highlight three key examples. First, we began rolling out our new integrated app during the quarter. This has been a considerable effort, and I'm pleased that we're already seeing significant positive results for migrated populations, including higher engagement and multi-product utilization. While it's still very early, we're optimistic about the potential impact of this fully integrated experience in helping our members better manage their health across our whole person suite of programs, from primary care to chronic care. As the healthcare landscape continues to evolve, we remain committed to investing in innovation and leveraging technology to better drive outcomes for our members. The early results demonstrating engagement with our new app are a testament to our ongoing efforts to improve the quality and accessibility of care for our members. Next, we announced the results of a new clinical study proving the benefits of whole person chronic care. The study shows that individuals who are initially enrolled in one of our standalone diabetes, hypertension, or weight management programs experienced a significant improvement in those underlying conditions when they added one or more of our other chronic care programs. These data points represent another reminder of why we're investing in our whole person offering. And they come at a time when the marketplace is increasingly focused on demonstrated outcomes. For employers and health plans, these results validate the benefit of expanded access from standalone chronic condition programs to whole person programs. Finally, last week we took another step forward in our efforts to provide integrated whole person care solutions to our clients and members with the introduction of our new provider-based care programs for weight management and prediabetes. Distinct from our existing digital programs, enrollees will have access to personalized care plans developed in collaboration with a Teladoc physician who will leverage our broad-based tools and capabilities such as nutrition counseling, mental health care, behavioral science, health coaching, and prescription drug management. These programs will help members with complications related to uncontrolled chronic conditions get back on track, improving outcomes and reducing downstream costs. This includes the ability for physicians to prescribe medications such as GLP-1s when clinically appropriate. We believe that access to key new developments is important for members. However, providing access to medication alone is not enough when it comes to patient outcomes and safety. It's also critical that these therapies are provided as part of a broader care model that includes a longitudinal provider relationship and a customized care plan built in conjunction with a care team to help manage the patient through their health journey. Teladoc Health's provider-based programs build on the success of our existing digital weight management and prediabetes programs and will be offered to clients in our employer and health plan channels starting later this year. These programs follow the launch of integrated provider-based digital programs in mental health, diabetes, and hypertension. With the addition of these programs for weight management and prediabetes, we're now offering integrated virtual and digital programs across all our key chronic condition programs, ensuring that our members receive the comprehensive support that addresses the full scope of their needs. We understand the importance of delivering high-quality care while reducing costs for our clients, and we're proud to be at the forefront of innovation in this space. Our provider-based care programs are a testament to our commitment to improving the health of our members and exploring new ways to leverage technology and innovation to achieve better outcomes. Let me end by saying that the importance of a strong financial position has never been more evident than over the past few months. The disruption in the banking system, combined with a strained funding environment, has created a lot of uncertainty in the venture-backed digital healthcare space. resulting in many companies facing significant financial constraints. In contrast, at Teladoc Health, we're continuing to invest in innovation while providing high-quality healthcare solutions, all while generating positive free cash flow. Over the last 12 months, we've generated over $230 million in operating cash flow and nearly $50 million in free cash flow. We have nearly $900 million of cash on the balance sheet and expect to deliver over $100 million of free cash flow in 2023. Financial strength is emerging as another important advantage as clients are seeking quality in times of uncertainty. In conclusion, we remain focused on expanding our competitive advantage while creating efficiencies in the business to drive margins and generate value. We're confident that our strategy and execution will enable us to advance our leadership position while delivering strong results. With that, I'll turn the call over to Mala for a review of the first quarter and our forward guidance.

Thank you, Jason, and good afternoon, everyone. First quarter consolidated revenue increased 11% year-over-year to $629 million, while first quarter adjusted EBITDA was $52.8 million, representing a margin of 8.4%. The first quarter financial outperformance was driven primarily by stronger chronic care product revenue, better health membership growth, and improved expense control. Turning to segment results, integrated care segment revenue increased 5% year-over-year to $350 million in the quarter, with growth relatively balanced across the portfolio. First quarter integrated care adjusted EBITDA was $35.1 million, representing an over 300 basis point expansion in margins to 10%. The margin outperformance relative to guidance was largely driven by strong chronic care program enrollment during the first quarter, which helped drive stronger gross margins and bottom line results combined with better expense control. Total chronic care program enrollment was 1.03 million at the end of the first quarter, representing growth of 13% year-over-year. Total integrated care members grew 5.7 million over the prior year, representing 7% year-over-year growth, and 1.6 million sequentially to 84.9 million U.S. members. Average integrated care revenue per U.S. member of $1.39 was down two cents over the prior year's first quarter due to the mixed impact of large new telemedicine populations added over the last 12 months. Excluding the impact of new population onboardings over the course of the last 12 months, revenue per member would have increased on a year-over-year basis by low to mid-single-digit percentage. First quarter BetterHelp segment revenue increased 21% year-over-year to $279 million, driven by growth in membership and stable customer acquisition costs. First quarter BetterHelp adjusted EBITDA was $17.7 million, representing a margin of 6.3%. As discussed over the last several quarters, the first quarter is typically the seasonally weakest quarter as marketing expense ramps up following the fourth quarter holiday season. As such, We continue to expect the first quarter to be the low point of the year for better health segment margins. And as Jason mentioned, we expect consistent quarter of a quarter margin improvement progression throughout the course of 2023. Consolidated net loss per share in the first quarter was 42 cents compared to a net loss per share of $41.58 in the first quarter of 2022. Net loss per share in the first quarter includes restructuring charges of $8.1 million, or 5 cents per share, primarily related to severance, stock-based compensation expense of 28 cents per share, and amortization of acquired intangibles of 31 cents per share. During the first quarter, free cash flow was a net outflow of $32 million, compared to a net outflow of $63 million in the first quarter of 2022. As a reminder, the first quarter is our seasonally weakest cash flow quarter. We ended the quarter with $889 million in cash and short-term investments on the balance sheet. Now, turning to forward guidance, For the full year 2023, we now expect revenue to be in the range of $2.575 to $2.675 billion, an increase of $25 million at the low end, representing revenue growth of 7 to 11%. This outlook includes mid to high single-digit percentage growth in our integrated care segment and low double-digit to mid-teen percentage growth in our better health segment. There is no change to our full-year integrated care segment U.S. membership guidance of 84 to 86 million members. We expect consolidated justity bidet for the full year to be in the range of $285 to $325 million or growth of 16 to 32%. Consolidated guidance continues to assume year-over-year adjusted EBITDA margin of flat to up 50 basis points for the integrated care segment and an increase of 100 to 300 basis points for the better health segment. We expect full year free cash flow of at least $100 million driven by both the growth in adjusted EBITDA and an expected decline in capitalized software development costs. For the second quarter, we expect revenue of $635 to $660 million, representing growth of 7% to 11% year over year. We expect adjusted EBITDA of $60 to $68 million for the second quarter. Second quarter consolidated guidance contemplates low to mid single digit revenue growth for the integrated care segment and mid to high teams revenue growth for the better health segment. We expect total integrated care segment US membership of 84.5 to 85.5 million members. We expect better health segment margins to be slightly higher than integrates care segment margin in the second quarter. With that, I will turn the call back to Jason.

Thanks, Mala. In closing, I'm very pleased with the strong start to 2023, and we look forward to providing continued updates on our progress throughout the year. With that, we'll open it up for questions. Operator?

Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to withdraw your question, you may press star two. Please ensure you're unmuted locally when asking your question. Please limit yourselves to one question only. Thank you. Our first question for today comes from Lisa Gill of JP Morgan. Lisa, your line is now open. Please go ahead.

Great. Thanks very much. Jason, is it too early to start asking about the selling season? So just really two things I just want to understand. One, how you're thinking about the selling season. And two, the recent announcement that you made around the weight loss programs and GLP-1s starting in the back half of the year. Can you maybe just talk about what you're seeing for early sign-ups? And you talked about the integration with other chronic programs. Maybe just what the initial... expectation is as we start to think about things for the back half of 23 and going into 24.

Lisa, it's never too soon to start asking about the selling season. I appreciate the question. I'll give you at least the early indications. First quarter was strong and we're running in line to slightly ahead of our expectations so far for the year. I think a highlight is that multi-product sales represent over 80% of the bookings in the first quarter. And I think that's really a testament to the value of the breadth of our product portfolio, as well as a continued trend in the market to vendor consolidation and looking for integrated whole person solutions and our position really at the lead of that market. If I think about the pipeline, we're in a good position relative to late-stage pipeline. We frequently talk about how big is the late-stage pipeline, because obviously those are the most developed deals, and that's up materially versus the same stage last year or the same time of year last year. So overall we feel good about the selling season, although of course I'll make the caveat that it is early in the season. With respect to the weight management program, We're excited about the continued development of provider-based care. And of course, this is an example of us really continuing on the path that we've been on, which started with mental health, where we brought provider-based care together with our digital assets, and then to our diabetes and hypertension programs, and now with our weight management and pre-diabetes programs. featuring provider-based care that sort of rounds out the portfolio of cardiometabolic solutions all integrated with our provider-based care and a full care team. So we're actively now in the market selling that for 1-1-23. Certainly we will include it in the back half of this year as we're taking care of our members. but we haven't really gotten into the market or really it's only been a week or two that we've been in the market talking about it. So it's too soon to tell what kind of an impact that will have on the selling season in the back half of the year. What I will say is we don't expect it to have a material impact on revenue for this year in 2023. Thank you. Thank you.

Our next question comes from Sandy Draper of Guggenheim. Sandy, your line is now open. Please go ahead.

Thanks very much. Mala, probably just a financial question here. Appreciate the reiteration of the free cash flow guidance this year. Looking at the capitalized software that was greater in the first quarter, When I think about that, because you're obviously for free cash flow, it doesn't matter if it's on the income statement or the cash flow statement, does that mean you're going to end up spending less on R&D? And I'm thinking maybe that's coming from you've gotten the integrated platform. I'm just trying to think about the mechanics of what's going on operationally that's going to allow the R&D dollars to come back to start generating that leverage. Thanks very much.

Yeah. Sandy, thank you for the question. You know, what we have been talking about for the past few quarters is that we have been at an elevated level of spend on R&D. We have highlighted some of the important investments in R&D. You know, Jason talked last time about the launch of one app, which is the integrated app that brings together all of our programs so that the consumer can actually see all of the services that they have access to. And I would say we are very pleased with the early read on one app. But what I would say to you is as I look at our overall R&D spend and therefore CapEx spend for the year, we have said last time, Sandy, that we would expect to see absolute levels going down year over year this year. And the other thing I would point to is, you know, as we think about our efficiency programs, we are being judicious about our hiring both onshore and offshore. That is also something that is contributing to the efficiency of not just our R&D spend, our overall people spend, including R&D. So those are the drivers of the dynamics of CapEx within our free cash flow.

Great. Thank you very much. Thank you. Our next question comes from Ryan Daniels of William Blair. Your line is now open. Please go ahead.

Hey, guys. This is Jack for Ryan Daniels. Can you just remind us what you're seeing when it comes to the DTC marketing yield for BetterHelp and then kind of how that has trended as of late. And then just as a quick follow-up, do you have any update on the BetterHelp competitive environment? Just given the vast amount of new entrants in the space over the past year, both, you know, within the DTC side and the B2B side, I'm just curious, you know, if you're seeing any updates on the competitive environment front and, you know, if you've noticed any consolidation or kind of what dynamics you have experienced. Thanks.

Sure, I'll start and then Mala can add color if there's anything I missed. With respect to the advertising market and the customer acquisition environment, We're seeing stable trends that are in line with our expectations through the first quarter, and that enabled us to continue to lean in a little bit more in the first quarter with advertising spend. Of course, we will see the benefit of that over the course of the year. In terms of the competitive environment, We don't see a significant change in the competitive environment overall. We see some competitors sort of pulling back and other new entrants coming in. But I wouldn't say that it's a more competitive environment than it has been in the past. And, you know, I think you would, if it were, then you might see an impact on the yield to our advertising spend. and specifically in the cost of advertising and customer acquisition. So the fact that those trends and the data there is stable and in line with our expectations, I think supports our view of the competitive landscape.

Yeah, and the only other thing I would add, just to add a little bit of color, if you look at our 1Q dynamics and our revenue being ahead of expectations, Jack, You know, the stability, the cost of customer acquisitions remaining stable so far this year, that's actually allowed us to effectively deploy a little bit more capital over the course of the quarter, driving higher member acquisitions, as we pointed out, and driving better revenue. And, you know, we feel good about where we are ending the first quarter with a strong revenue base with that in BetterHelp. Now, of course, as we have pointed out before, If you think about the dynamics of the direct-to-consumer business, it is about the dynamics in the ad space, ad spend space. It is also about how consumers are feeling as we go through the year. And, you know, that will play out over the course of the year.

Awesome. Thanks, guys.

Thank you. Our next question comes from Stephanie Davis of SVB. Stephanie, your line is now open. Please go ahead.

Hey, guys. Congrats on the recording. Thanks for taking my question. So this one's mainly from Mala, but Jason, I'd love it if you wait in as well. The 2Q guidance reflects effectively stable to slower growth despite a meaningfully easier comp, especially on a two-year stack. Can you help us understand what's baked in the 2Q guidance and where you've maybe held off on making things in following this one cue upside. And then from a full year guidance perspective, are we thinking about any potential impact from this pre-diabetes weight loss product, or is that still all upside to the range?

Yeah, you know, as Jason pointed out a few minutes ago, Stephanie, you know, there is nothing, it's too, for 2023, we won't really expect any impact on the weight loss. We just came out with the announcement last week. It's very early in the selling season. It will play out over the course of the year, and we will update you guys at the right moments accordingly when it starts accruing to a material impact. But I would not expect any impact to that for 2023 revenue, to be clear. You know, in terms of the 2Q guidance and how we are thinking about it, you know, what I would say is if you think about the beat that we had in 1Q and I decompose it into the dynamics in the integrated care segment as well as in better health segment. The beat we had on the integrated care segment, think of it as a early start on chronic care enrollment. You know, we have seen some nice outperformance in chronic care enrollment. We've done a nice job of getting to the enrollment curves a little bit faster. We've talked about in the past how that ramps up over time, and we have gotten to a slightly faster start than expected in one queue. And so, you know, as I think about 2Q and the rest of the year, Our guidance assumes that that early start is essentially a little bit of a pull forward of enrollment than something that will result in higher ultimate enrollment rates in the rest of the quarters. So think of that as an early start. On BetterHelp, candidly, as I just pointed out, we are pleased with the Q1 performance. We are incrementally more comfortable with the achievability of our 2023 guidance. Remember, when we gave our 2023 guidance, we had talked about the impact, you know, the things that drive the bottom end of the guidance and the top end of the guidance. The bottom end of the guidance assumes unfavorability or a deterioration in yield. The top end assumes that there will be modest favorability in yield of ad spend. And so those dynamics continue. It just wouldn't be prudent for us to assume that we can continue to perform at this level throughout the rest of the year. So that sort of gives you a feel for what drove the 1Q beat and then how we are thinking about it in the context of 2Q and the rest of the year.

Incredibly helpful. Thank you so much.

Thank you. Our next question comes from Jalindra Singh from Truist. Your line is now open. Please go ahead.

Thank you, and thanks for taking my questions. I actually want to follow up on your comment, Amal, about chronic care business enrollment, business coming in better than expectations. I know you're not disclosing unique chronic care enrollment anymore, but can you provide any qualitative color around in terms of new member enrollment versus further penetration into your existing membership base? And maybe I think we have talked about this figure in the past, like what percentage of chronic care members are utilizing multiple programs and any particular programs or offerings did you see favorable trends in the quarter?

Yeah, so if I think about the trends that we are seeing in chronic care, The percentage that are utilizing multiple chronic care programs is in the zip code, think of it as about 33% plus. And that is a significant improvement both year over year, Jalendra, as well as sequential improvement. And again, as we have said before, right, that is one of the proof points for the success we've been having for the many past quarters in multi-product bookings. We have consistently over the last many quarters trended over 70% in multi-product bookings, and as Jason just talked about, in 1Q it's over 80%. So, you know, it's a proof positive of the benefit of having multi-product bookings. In terms of the unique enrollees, obviously as we said last time, we won't get that out as a specific reported metric. What I will say is we are seeing growth in unique billables. That is something that we track internally. And that is definitely something that we are seeing growth in on a year-over-year basis I won't comment more than that. We've obviously given out the program enrollment increase of 13%, but I will say that we have been seeing some nice increase in unique billables as well.

Great. Thanks a lot.

Thank you. Our next question comes from Daniel Grossleid of Citi. Your line is now open. Please go ahead. Hi.

Thanks for taking the question. I want to stick with the outperformance and integrated care margin. I'm just curious why you're keeping the full year guidance for that segment relatively constant given the earlier than expected chronic care enrollment. I would assume that those members have relatively high contribution margin to the overall business. So an earlier than expected enrollment should flow through for the full year. Is it just conservatism or is there something else that I'm missing here?

Yeah, so if you look at the integrated care segment margins, let me give you a little bit of color. First, as I said a few minutes ago, think of it, the gains we are seeing in the enrollment in 1Q and the fact that it is an early start, so we are ramping up faster. Therefore, what it means is if you think about the expectations that we have for the rest of the year, We expect those expectations continue. So I would say our expectations for the remaining quarters in terms of enrollment curves are relatively unchanged. And again, I would say at this moment, given the fact that it is still early in the year, I do believe it is prudent for us to have those assumptions baked in for the rest of the year. So how does that translate into margins? If I think about integrated care margins in 1Q relative to the rest of the year, two comments. One, it is integrated care margins in 1Q, it has a relatively easy comp compared to 1Q 2022. And the reason for that is one, last year, We did have some significant amount of step up in R&D spend last year. And the second is we also did have some amount of elevated provider spend in terms of incentives because we did have a spike in respiratory volume in Q1 of last year. So we look at the 1Q margins this year. It's a relatively easy comp. compared to last year's one QN. So I would be really careful about how we think about that as we go through the rest of the year. Having said that, what I would remind you all is that if I think about how the margin for integrated care ramps through the year, what you should expect to see is second half is typically seasonally stronger in the year for integrated care margins. And that's, as we've talked about before, it's driven by spending ahead of new client onboarding enrollment and utilization. So think of it as having higher costs in engagement spend, marketing spend in the beginning of the year, in the first half of the year, but the revenue ramps up over the course of the year. And therefore, you should be looking at a margin progression as we go through the quarters of the year.

Makes sense. Thanks for the color.

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

Great. Thanks for the question. On the provider-based programs, I was wondering if you could talk a little bit how you think about is there a you know, notable revenue uplift in those programs compared to only digital? And how do we think about the margins of those programs?

Yeah, I think, Richard, thanks for the question. I think the answer is yes to the revenue increase for two reasons. The richer the program clinically, the more engagement it's going to drive with consumers. And as a result, the greater the clinical outcomes that we can drive for our clients and therefore savings. So all of that comes together to translate to greater revenue opportunity for us. What I just want to be clear is that unlike some other companies in the market, we're not looking at economics out of the pharmaceuticals. So, you know, for example, if we prescribe or if one of our physicians prescribes GLP-1 for a member in our pre-diabetes program, we're not taking revenue from the actual prescription or the medication itself. Rather, we're driving our revenue from greater engagement among the consumers and greater clinical outcomes and therefore greater savings for the member.

And margins of those offerings compared to only digital?

I would say, Richard, it's a little too soon for us to talk about margins. As we sell into the market and we go through the pricing across the different conversations we have, Listen, as I have said before, we are very disciplined as we think about the pricing. As you can tell from the way our gross margins have held up over the past year and even into 1Q, you can see the discipline that we are demonstrating in the way we hold our gross margins. It's a little early for us to talk about gross margins as we sell in market and as we launch. We will definitely provide updates as meaningfully relevant.

I think the best proof point behind our confidence in the longer term margins is We launched provider-based care in mental health last year, middle of last year. We haven't seen any degradation there, for example. So we continue to believe that we'll be able to drive continued strong margins along with the rollout of additional provider-based care.

Okay, thank you very much.

Thank you. Our next question comes from Jessica Tassand from Piper Sandler. Jessica, your line is now open. Please go ahead.

Hi. Thank you guys for taking the question, and congrats on the good results. So I just wanted to clarify, Mala, I think you said consistent quarter-over-quarter margin improvement throughout the course of 2023. So does that mean that we're not expecting to see that fourth-quarter marketing pullback and the kind of large growth margin ramp in the fourth quarter? And then I was just hoping you might talk a little bit about retention rates in the BetterHelp business. Did they improve markedly relative to the second half of 22? And if so, what did you guys do to improve those retention levels? Thanks.

Yeah, so we are seeing retention levels stable. So I would say if you think about the overall operating metrics for the BetterHelp business, Jess, I would say the word that comes to mind is stable, whether it be the dynamics we are seeing in terms of ad pricing and that is allowing us to essentially deploy our capital more effectively and efficiently towards member acquisitions. The fact that member churn is stable, so there is nothing notable that we are seeing in terms of the dynamics of the business that would suggest a departure from prior quarters. Just to be very clear, what we said in our prepared remarks is we do expect to see improving margins for better health as we go through the year, sequentially as we go through the year every quarter. And the reason that we have confidence in that is, as we have talked about before, the issues that developed in the first quarter of last year are clearly behind us. We've been seeing more stable trends. in ad pricing since I would say the back half of last year. And so we are also making a choice. So there's that. We are also making a choice this year in terms of balancing revenue growth with profitability. And frankly, at the scale that we operate in the BetterHelp business, it's over a billion in revenue last year. And with the channel diversity we have, we do have the ability to pull on more than a few levers in response to what we are seeing in the market. So to be very clear, what we did say in our remarks is we do expect to see improvement in our margins through the year, and that includes, by the way, how we deploy our A&M, the dollars we deploy quarter by quarter, and what we are seeing in the dynamics of the market.

To answer the last part of your question, we would expect to see a lower ad spend in the fourth quarter reflecting the more expensive advertising market at that time of year. I think as we said last year, The seasonality last year was more typical relative to the fourth quarter spend.

Thank you.

Thank you. Our next question comes from Sean Dodge of RBC Capital Markets. Your line is now open. Please go ahead.

Yep, thanks. Maybe just staying on BetterHelp. You said you spent a little bit more on marketing Q1 than planned. As we think about the growth gains for BetterHelp over the remainder of the year, typically how long is the lead time there between when you spend and when you begin to see some pull through in revenue? I guess did you already begin to capture some of the benefits from this extra spending in Q1? And then if we look at a quarter, BetterHelp, again, sequentially, users there grew faster than revenue. And I was just curious, are there some like seasonal factors at play there? Or are you starting to see some kind of gravitating around some of the kind of the more, I don't know, lower monthly cost options out there?

Yeah, with respect to Sorry, the first part of your question relative to BetterHelp and the lag between ad spend and revenue, it's 30 to 60 days. And so we did see some of the benefit of that in the tail end of Q1. So that's certainly true. Do you want to take the second half of that question?

The dynamic you're seeing is essentially a result of the way we have talked about the spending of our marketing. You saw in 4Q we pulled back on ad spend quite significantly because that is typically the less efficient time for us to essentially spend. Consumers are distracted by other things, and ad pricing is typically more expensive. What we also said when we gave guidance, if you recall, is that we are ramping our ad spend in 1Q, and we also therefore expected 1Q to be seasonally the lowest point from a margin perspective in the year for BetterHelp because of that. So as we have ramped up ad spend through the quarter, what you are seeing is essentially consumers, members coming onto the platform through the quarter, including right until the end of the quarter. And so if you think about the revenue capture from them, that will continue as we go through Q2 and the rest of the year, which is why I made the comment a few minutes ago that the exit point for 1Q and the member acquisitions that we have had in the quarter that has performed above our expectations gives us incremental confidence about revenue as we go through Q2, etc.

Okay, that's great. Thanks again.

Thank you. Our next question comes from Alan Lutz of Bank of America. Your line is now open. Please go ahead.

Thanks for taking the questions. I guess one for Mala. On BetterHelp, does the guidance assume that acquisition costs remain unchanged for the rest of the year? And then I guess one for Jason, just more broadly, you know, the consumer's been through a lot over the past year or so, inflation, there's been job cuts sort of around the board. Just curious, are you seeing any changes with the consumer today versus three months ago, six months ago? Because you've been able to grow nicely through it. I'm just curious if anything has changed over that time period. Thanks.

Yeah. Thanks, Alan. We'll take it in order. You know, in terms of what we are assuming for AdSense, the range that we have for growth, for revenue growth for the full year, as we have talked about, it's low to mid-teens. essentially assumes at the low end that we will see some deterioration in yields and at the high end that we will see some modest improvement in yields. That's the reason we have given you the range we have. Jason, you want to take the second part?

We haven't seen a significant change in consumer behavior. We've talked to Alan previously about the fact that I think there are maybe competing forces with respect to the consumer. On the one hand, certainly if the consumer is feeling pinched due to job cuts or inflation, then a $300 roughly monthly subscription can be a significant expense. On the other hand, Those kinds of situations increase the need for therapy and mental health care. And BetterHelp is, in many cases, a less expensive alternative. Historically, 50% of mental health care has been paid out of pocket by the consumer for all kinds of reasons in the mental health market. And so the fact that BetterHelp at $300 a month is significantly less expensive than paying out of pocket for traditional therapy actually makes that offering more attractive. So I think those are netting out as essentially neutral. And as a result, we haven't seen significant change in the consumer behavior.

Got it. Thank you very much.

Thank you. Our next question comes from Charles Rhee from TD Cohen. Charles, your line is now open. Please go ahead.

Hi, this is Lucas on for Charles. On your provider-based care program, can you give us a sense of what the PMPM increase would be versus the chronic care enrollment product? And then also, can you give us any way to think about primary 360 contribution currently? Thanks.

Yeah, so we're not looking at significant increases in PMPMs for the provider-based care program with respect to weight management and prediabetes. We're early in the market, and so we're certainly testing that. But we feel very strongly that increased engagement and better results across our entire cardiometabolic suite drives more value for the buyer and better clinical outcomes for the consumer and then ultimately we'll be able to share in the improvement of that sorry what was the second part of the question just on primary 360 contribution today and how that

Is expected to go you talked about it tripling last quarter just kind of want to get an update on that Yeah, we're very pleased with the progress.

We're making with primary 360 In fact we're seeing our clients who have primary 360 at the core of their products and outperforming the market in the open enrollment periods. And that's a great sign and a great demonstration of our partnership with those clients. We're also pleased to see the revenue increase this year from P360. Obviously, it's off of a small base, but it's a meaningful step up relative to what we saw in 22. and we're also seeing great satisfaction from consumers as well as we continue to see that about 60% of the visits from P360 members are from members who haven't seen a provider in the past two years. So again, we feel very good about the contribution and as we look out into 24 and beyond, we expect that to continue to be a more and more meaningful part of our revenue.

Thank you. Due to time, we will take no further questions for today. So that concludes today's conference call. Thank you all for joining. You may now disconnect your lines.