Teladoc Health, Inc.

Good afternoon. Thank you for attending the Teladoc Health Third Quarter Earnings Call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I now have to pass the conference over to our host, Patrick Feeley, Head of Investor Relations. Patrick, please go ahead. Thank you, and good afternoon.

Today, after the market closed, we issued a press release announcing our third quarter 2023 financial results. This press release and the accompanying slide presentation are available 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 fourth quarter and full year 2023 outlook, and our prepared remarks will be followed by a question and answer session. Please note, I 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 in this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Jason.

Thank you, Patrick, and thanks, everyone, for joining us. This afternoon, we're pleased to report a strong third quarter with results that met or exceeded our key financial and operating guidance. Our performance reflects the fundamental strength of our business, and our continued success in making better health available to our more than 90 million members. In my prepared comments this afternoon, I want to focus on three key themes that reflect the value that we're delivering today and poised to deliver in the years ahead. First, our third quarter results met or exceeded our key financial and operating guidance, strengthening a solid balance sheet that distinguishes us across our industry. Second, the demand for our products and services remains strong, with the largest payers and partners globally viewing Teladoc Health's whole person care as the prescription for point solution fatigue and a disconnected healthcare system. And third, we are taking additional concrete steps to further accelerate our business on bottom line performance. This includes a comprehensive operational review of our business. I'll talk more about what that means in a moment. Let's begin with Q3 results. On the top line, our consolidated revenue grew 8% on a year-over-year basis in the third quarter to $660 million. And as a result of our continued efforts to drive margin improvements this year, our consolidated adjusted EBITDA of $89 million exceeded the high end of our expectations. We were pleased to see revenue from our integrated care segment grow 9% year over year to $374 million. Compared to the second quarter, revenue grew 4% sequentially, driven in large part by higher enrollment in our chronic care programs, where enrollment now exceeds 1.1 million active users. Driven by a combination of strong leverage over the cost structure, improving efficiency, and a contribution from performance-based payments earned during the quarter, the integrated care segment delivered $63 million of adjusted EBITDA, or a margin of 16.8%, which we believe demonstrates the leverage that's inherent in the integrated care business model. Turning to BetterHelp, we recorded $286 million of revenue in the quarter, up 8% year-over-year and within the guidance range provided last quarter. Third quarter margins for BetterHelp improved nearly 500 basis points over the prior year's third quarter, and we're on track to deliver material EBITDA growth again in the fourth quarter, which is typically BetterHelp's seasonally strongest quarter for margin. After scaling rapidly to surpass a billion dollars of revenue last year, we have since taken a more balanced approach to growth and margin at BetterHelp. This means we'll continue to prioritize profitable growth that meets or exceeds our return requirements. Customer acquisition costs remain near the midpoint of our outlook range. Combined with stable gross margin trends, that means we anticipate landing near the midpoint of our prior full year segment revenue and margin guidance for BetterHelp. The second theme I want to cover is client demand. where the environment remains strong for our whole person care solution. In thinking about the selling season so far, I'd call out three key trends. First, while there are still over two months left to go in the year, we're pleased that year to date our bookings are tracking in line to moderately ahead of the same point last year. We're seeing strength across all key products and channels. Through the end of the third quarter, chronic care sales represent just over half of our total bookings in the US, up incrementally from the same point last year. Next, we've seen particular success in pulling through chronic care sales and enrollment via our whole person bundled solutions. We're increasingly selling access to multiple chronic care programs at a single bundled price point. For example, Clients purchasing our Diabetes Plus Bundle enable access to multiple chronic care programs, diabetes management, hypertension, and weight management. This has the benefit of removing friction by creating a simpler contracting path, opening access to all programs from day one, and driving better engagement and outcomes for our clients. It also meets the member where they are. with more than one quarter of Americans diagnosed with multiple chronic conditions. And by delivering more value to the client, it enables us to unlock better economics. Over the past 12 months, more than two thirds of our chronic care deals included our whole person bundled solutions. That's helped drive faster program adoption, resulting in total chronic care program enrollment growth of 13% year over year. Finally, not only are we seeing growth within our existing client base, but we're also seeing significant competitive takeaways. This is a direct result of other players struggling to deliver for their clients and, in some cases, fall out from unprofitable business models with weak balance sheets. During the third quarter, we added nearly 4 million lives to our virtual care programs in competitive takeaways. While our Q3 results and selling season validate the value that we're delivering for our clients and members, we also recognize that there is still even greater potential to unlock business performance. We have built a strong and durable foundation for efficient growth, increasing profitability, and generating cash flow. You've heard us talk about a more balanced approach to growth and margin. In 2023, we're demonstrating that we can drive material EBITDA and free cash flow growth, despite a lower rate of top line growth. We will continue to focus on improving bottom line performance, and we're confident that we can continue to deliver significant EBITDA margin expansion, particularly within the integrated care segment. There are a few things that give us a high level of confidence in our ability to deliver EBITDA and free cash flow growth well in excess of revenue growth over the next few years. First, we are exiting a period of elevated investment following the Livongo transaction. As many projects wrap up, like our integrated app that launched this year, we expect moderating costs will allow us to drive material operating leverage over the cost structure as we grow our top line. Second, over the past 12 months, we have broadly sharpened our focus on improving efficiency across the organization. You've seen those efforts begin to bear fruit this year as EBITDA and free cash flow have consistently exceeded our own expectations. Which leads me to three. We're disappointed with the valuation of the stock today, which we don't believe adequately reflects the value we are driving today and will continue to drive in the future. At the same time, we also know there are significant opportunities to add value through improved business performance. To that end, we recently kicked off a comprehensive operational review of the business. This review includes two broad components. First, we have undertaken a portfolio assessment to identify any opportunities to sharpen the focus across our portfolio of products and services and ensure our investments remain highly selective and prioritized in the direction of our integrated whole person care strategy. Second, we are pursuing a comprehensive review of our cost structure. Following our cost reduction efforts earlier this year, we are confident that we have the right operating structure in place to support the next phase of our growth. Meanwhile, we are actively working to identify opportunities to improve upon this operating efficiency. For example, as a part of that exercise, we have begun standing up centers of excellence that will leverage shared services across the business to enable a more efficient operating structure. We are committed to a thorough review and analysis, and we are working with a third party to bring an independent perspective. In short, we are accelerating our efforts to ensure that our business is operating as efficiently as possible in order to drive profit growth at a level that is meaningfully higher than our revenue growth over the next few years. We will do this by fully tapping the operating leverage that is a market differentiator for Teladoc Health as the leader in digital health at scale. And we will do this while ensuring that our business remains centered on our mission and that no efficiencies are taken at the expense of keeping our promises to our clients or caring for our members. We look forward to sharing more details on these efforts in the coming quarters. And with that, I'll turn the call over to Mala to review the third quarter and share our forward guidance.