Teladoc Health, Inc.

Ladies and gentlemen, thank you for joining us and welcome to the Teladoc Health Q326 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Michael Minchak. Michael, please go ahead.

Thank you and good afternoon. Today, after the market close, We issued a press release announcing our third quarter 2026 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 will be Chuck DeVita, Chief Executive Officer, and Mike Grasher, Chief Financial Officer. During this call, we will also discuss our 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 our 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. During this call, we will make forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, without limitation, statements regarding our financial and operational outlook, the timing, availability, market response, and performance of new products, including Teladoc One, expected BetterHelp insurance revenue and exit run rate, expected cash pay trends, provider network capacity, advertising and marketing spending and efficiency, the timing and impact of our BetterHelp insurance rollout, and the expected benefits of the actions we are taking. Such statements are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary statement in today's earnings release and the risk factors in our most recent Form 10-K and Form 10-Q, including risks relating specifically to each of our reporting segments. I would now like to turn the call over to Chuck.

Thanks, Mike. This quarter reflected solid execution across the business and underlying traction on initiatives supporting our strategic priorities. There's more work ahead, but we're encouraged by the progress made in the quarter. Before I get started, I would like to welcome Mike Rasher, our new Chief Financial Officer, to the call. Mike joined in late August and brings over 12 years of CFO experience at both publicly traded and privately held companies. We're excited to have him on board and you'll hear from Mike in a moment when he covers our third quarter results in more detail and our outlook. So as we look at the business today, we remain highly focused on advancing the priorities we believe are most important to the long-term success of the company. With respect to the third quarter results, consolidated revenue came in near the upper end of our guidance range and adjusted EBITDA above guidance, with both segments contributing to the quarter's performance. Integrated care delivered revenue near the high end of the guidance range and adjusted EBITDA margin above guidance. Better Health's revenue was also in the upper end of the guidance range, driven by strong insurance revenue growth and better than anticipated cash pay performance. We do continue to expect ongoing challenges in cash pay going forward for the reasons we've spoken about previously. As we consider the market more broadly as a company, we continue to see opportunities for virtual care to play an increasing role in addressing key challenges in healthcare. By helping address rising healthcare costs and affordability challenges through solutions designed to lower costs, increase access, and deliver outcomes. By leveraging our services, clinical breadth, and technology, to improve the health and well-being of people, including those impacted by chronic disease, by championing the importance of mental health to overall health and creating access to services at scale through both of our segments, and by helping alleviate pressure on the healthcare delivery system, extending provider capacity, and deploying purpose-built technology to support virtual care. We believe we are well positioned against this backdrop, and these themes underscore our organizational focus and the four key strategic priorities we are advancing to drive market differentiation and performance. I'll touch on each priority and provide an update on progress since our last earnings call. Our first priority is enhancing our integrated care solutions for the U.S. market to deliver greater value and impact for clients and the people we serve. This has been a key driver of our innovation agenda and in July we announced Teladoc One, a first-of-its-kind offering and comprehensive care model that goes beyond condition-specific programs to help detect health risk earlier, engage individuals more comprehensively, and scale outcomes across populations. The underlying care model is delivered through a multidisciplinary care team complemented by adaptive AI-driven insights from our Pulse Intelligence Engine and uniquely leverages our clinical breadth, technology, engagement, and support capabilities. During the quarter, We moved from announcement towards execution, including activating initial launch partners, beginning to engage patients in the new care model, and preparing for broader market availability in 2027. As with any new offering, we expect the pipeline and commercial momentum to build over time. We are encouraged by the level of client engagement and member feedback on Teladoc One at this point, reinforcing our view that clients are looking for solutions that can deliver a more connected experience, address more care needs and demonstrate greater accountability for outcomes and impact. We also continue to advance initiatives to increase consumer awareness of our services and make it easier for people to access them. This includes enhancements to our Teladoc Health app and digital experience, sunsetting legacy platforms, and expanding our presence with other consumer-facing organizations. The overarching goal is to broaden our reach and further support the ability for people to benefit from our services. Taken together, we believe these and other initiatives will further our ability to create greater value for clients and members and serve to further strengthen our competitive differentiation. Another key priority is to build on our global position to serve unique market needs, including through our hybrid care models within integrated care that I've spoken about before. Hybrid care which has been an important source of growth outside the U.S., supports local care delivery organizations by bringing virtual clinical services to physical care settings through our technology. We believe the market dynamics supporting the adoption of our hybrid care models in other countries are also increasingly prevalent with hospitals and health systems in the U.S., including healthcare workforce and capacity challenges, financial pressures, and the need to improve access for underserved and rural communities. As a result, we see an opportunity to leverage our experience in hybrid care within the U.S. to support future growth. To advance our position, last week we completed the acquisition of Teledyne Health, which provides virtual clinical services to U.S. hospitals and health systems, including leveraging Teledoc's technology to deliver virtual services in physical settings. This acquisition expands our ability to provide services to this part of the healthcare market in addition to the technology products we are offering them today. We are excited to work with the Teledyne team in this more strategic manner as we build our hybrid care business in the U.S. We also continue to innovate the underlying technology utilized in this area. For example, earlier this month, we introduced new AI power capabilities integrated within our solo platform that bring contact-free vital sign measurement and ambient clinical documentation directly into clinical workflows. These capabilities are designed to help reduce administrative burden, improve efficiency, and support patient care. Our third priority is leveraging our skilled position in mental health and integrated care and BetterHelp to address the unmet need and underlying demand for these services. With respect to BetterHelp, the business continues to undergo an important pivot towards more of an in-network model in the U.S. given ongoing pressure in the cash pay market. and we believe expanding insurance access can help create a more durable position for BetterHelp over time. As discussed in the second quarter earnings call, we are executing important actions to lean into this insurance opportunity and scale that part of the business, including building on the national footprint we established during the second quarter. These include initiatives to expand network capacity, evolve BetterHelp's advertising and marketing approach to increasingly reflect insurance objectives, and reduce near-term emphasis on non-US markets to realign resources. While there is considerable work ahead, we are seeing constructive initial traction from these initiatives in terms of their intended impact. Insurance revenue for the quarter was $32 million, which exceeded the high end of the range of our expectations. Weekly insurance coverage sessions have continued to grow and recently achieved 27,000 sessions per week, representing an annualized insurance revenue run rate of over $140 million on that basis. This compares to the $110 million annualized revenue run rate from weekly sessions referenced in our second quarter earnings call. We also continue to see the scaling of insurance reflected in overall business metrics, including 36% of acquired US users in the third quarter coming from insurance, up approximately eight percentage points from the second quarter. From a capacity perspective, Over 3,000 therapists were added to the network during the quarter, bringing the aggregate number that had been credentialed to over 11,000. And while early, other metrics reflecting available capacity have generally trended positively since the second quarter, including levels of capacity on a market and payer basis, as well as therapists active on the platform and those accepting new patients. We are also making improvements to our platform, including scheduling and matching capabilities, streamlining provider workflows, and new technology and AI enabled tools to reduce administrative burden. In addition, local market dynamics are being continuously assessed and targeted adjustments made to support long-term network capacity and expansion, including respective therapist compensation models. As we saw in the third quarter, BetterHelp continues to adapt its advertising and marketing approach to reflect insurance priorities. And although cash pay performance was better than anticipated for the quarter, We expect ongoing pressure in the cash pay market, including as we further evolve BetterHelp's approach to advertising and marketing and continuing to lower overall spending levels going forward. This includes a further reduction in the fourth quarter. While we typically see reduced spending due to holiday advertising dynamics, we expect a more meaningful sequential quarterly reduction compared to prior years for the reasons I mentioned. And finally, our fourth strategic priority is driving operational excellence to more consistently deliver results, strengthen performance, and improve efficiency. We've made considerable progress on this priority over time, including streamlining the organization, managing our cost structure, improving the efficiency of our operations, and advancing technological capabilities. For example, we've seen a 30% increase in member self-service interactions over the last year in the U.S. for integrated care through AI-enabled digital experiences and other enhancements. and we are also leveraging AI-assisted quality assurance and operational controls to achieve high levels of accuracy for client configuration and onboarding, improving both efficiency and implementation quality. These and other initiatives are helping us deliver strong adjusted EBITDA margin despite the gross margin pressure we've seen over recent years. And we've also made progress in areas such as stock-based compensation, rationalizing CapEx and improving other measures. As such, operational excellence will continue to be an area of focus for us. As we look towards the remainder of 2026 and into next year, we see the healthcare environment remaining dynamic as health plans adjust to business uncertainties, regulatory changes, and medical cost drivers, employers grapple with rising healthcare costs and priorities to support their business objectives, and care delivery organizations address workforce needs, technology advancements, and other factors. and we continue to see these areas reflected in the current operating environment, the selling season and conversations with clients and how we are advancing our value proposition. And while decisions are still being made, overall bookings through the third quarter have generally progressed in line with our expectations. We will continue to focus on pursuing the business opportunities ahead of us and navigating challenges to drive performance of the company. In integrated care, these include factors such as broader macroeconomic conditions Healthcare Market Trends, and the Competitive Environment. And we believe our innovation agenda, including new offerings such as Teladoc One, our comprehensive approach to virtual care, the expansion of hybrid care models, and increasing the awareness, access, and usage of our services will contribute to our long-term market position. Within BetterHelp, we also continue to see opportunities in mental health given the unmet need and demand for these services. Growing in-network access remains our top priority in this segment, and we believe the initiatives we are advancing will support continued growth of the insurance business. And over time, BetterHelp's ability to offer consumers a choice of both insurance and cash pay in the U.S., together with the longer-term potential we see in non-U.S. markets, will support our commitment to improving the durability of the business. With that overview, let me turn it over to Mike Grasher to go over our financial results.