Earnings call transcript: Teladoc Inc reports Q1 2025 loss, stock dips

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call presents mixed signals: while revenue and EBITDA are at the high end of guidance, net losses increased and BetterHelp's revenue declined. The Q&A reveals concerns about high churn rates and unclear management responses regarding BetterHelp's payer coverage and Uplift integration. Despite positive growth in Integrated Care membership and stable CAC trends, the lack of clarity and lower BetterHelp margins balance out the positive aspects. Given the mid-sized market cap, the stock is likely to remain stable, with a neutral prediction of -2% to 2% movement.

Key Financial Performance

Consolidated Revenue $629,400,000, down 3% year over year; at the high end of guidance range.

Adjusted EBITDA $58,100,000, margin of 9.2%; near the high end of guidance range.

Net Loss per Share $0.53, compared to $0.49 in Q1 2024; included a non-cash goodwill impairment charge of $0.34 per share.

Integrated Care Segment Revenue $389,500,000, increased 3.3% year over year; exceeded guidance due to favorable performance on risk-based deals and FX.

Integrated Care Segment Membership 102,500,000 members, up 12% year over year; significant growth in virtual visit volumes and Chronic Care enrollment.

Integrated Care Adjusted EBITDA $50,400,000, a 6% increase year over year; margin of 12.9%, driven by revenue upside from risk-based deals.

BetterHelp Revenue $239,900,000, down 11% year over year; improved stability in average paying users.

BetterHelp Adjusted EBITDA $7,700,000, down from $15,500,000 in the prior year; margin of 3.2% compared to 5.7% in the prior year.

Free Cash Flow Net outflow of $16,000,000, an improvement of $11,000,000 versus the prior year period.

Cash and Cash Equivalents Nearly $1,200,000,000 on the balance sheet.

Uplift Acquisition Cost $30,000,000 in cash with up to $15,000,000 in contingent earn-out based on performance.

Uplift Revenue Generated approximately $15,000,000 in revenue in 2024.

Uplift Adjusted EBITDA Loss of roughly $6,000,000 reflecting investments in operating infrastructure.

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Operating Highlights

Acquisition of Uplift: Teladoc Health announced the acquisition of Uplift, a virtual mental health company, for $30 million in cash, with up to $15 million in contingent earn-out based on performance milestones. This acquisition aims to enhance Teladoc's BetterHelp segment by providing access to insurance benefits for mental health services.

BetterHelp Segment Growth: BetterHelp served over 1 million unique users globally in 2024, with 40% being new to therapy. The segment aims to leverage Uplift's capabilities to provide more options for consumers seeking mental health care.

New Pricing Models: Teladoc is advancing new pricing models in the BetterHelp segment, including a weekly billing option that has shown stronger conversion rates despite a slight increase in churn.

Integrated Care Membership Growth: Teladoc surpassed 100 million members in the Integrated Care segment, growing by 8.7 million members sequentially, with a 12% year-over-year increase.

International Revenue Growth: The Integrated Care segment reported mid-teens revenue growth on a constant currency basis, indicating strong performance in international markets.

Operational Efficiencies: Teladoc is focused on cost savings and productivity initiatives, achieving modestly higher targets for 2025, including reductions in technology and development costs.

Streamlined Cost Base: The company has streamlined its cost base, with a focus on reducing administrative costs and stock-based compensation.

Strategic Focus on Mental Health: Teladoc is prioritizing its position in virtual mental health through the integration of Uplift, aiming to enhance access to mental health services and improve performance in the BetterHelp segment.

Investment in Technology: The company is investing in technology enhancements, including AI-enabled clinical documentation tools and new functionalities in the Teladoc Health Prism care delivery platform.

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Risk or Challenges

Regulatory Issues: The company is facing uncertainties related to tariffs and trade negotiations, which could impact the broader economy and their business operations. They are implementing mitigation strategies to offset potential impacts.

Supply Chain Challenges: The company sources certain equipment from global markets, and the fluid tariff situation poses risks to their supply chain. They are pursuing exemptions and alternative sourcing to mitigate these risks.

Economic Factors: Recent macroeconomic data indicates weakening business and consumer sentiment, which could affect the company's performance. They are closely monitoring these economic conditions.

Competitive Pressures: The healthcare industry is experiencing pressures from medical cost trends, disease prevalence, and mental health challenges, which could impact the markets they serve.

Financial Performance Risks: The Integrated Care segment's fair value was below its carrying value, which could lead to goodwill impairment. Additionally, the BetterHelp segment is experiencing a decline in revenue and adjusted EBITDA.

Churn Rates: There has been a slight uptick in churn rates for BetterHelp, which the company is monitoring closely as it could impact future revenue.

Investment Risks: The company is making significant investments in acquisitions (Uplift and Catapult) and technology, which could lead to increased operational costs and impact profitability in the short term.

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Guidance & Outlook

Acquisition of Uplift: Teladoc Health announced the acquisition of Uplift, a virtual mental health company, to enhance its BetterHelp segment and expand access to mental health services.

BetterHelp Segment Growth: Teladoc aims to leverage BetterHelp’s expertise to provide more options for mental health care, including access to covered benefits.

Integrated Care Segment Growth: The Integrated Care segment surpassed 100 million members, with a focus on growing customer base and service usage.

International Expansion: Teladoc is advancing its international market growth and exploring new pricing models and product enhancements.

Chronic Care Management: Teladoc is enhancing its chronic care management programs to drive better patient outcomes.

Technology Investments: Investments in technology and capabilities are being made to support patient care and improve operational efficiency.

2025 Revenue Guidance: Teladoc expects consolidated revenue for 2025 to be between $2.47 billion and $2.58 billion.

Adjusted EBITDA Guidance: Adjusted EBITDA for 2025 is projected to be between $263 million and $304 million.

Free Cash Flow Guidance: Full year free cash flow is expected to be between $170 million and $200 million.

Integrated Care Revenue Growth: Integrated Care segment revenue is expected to be flat to up 3% year over year.

BetterHelp Revenue Decline: BetterHelp segment revenue is expected to decline between 3.75% and 9.75% compared to 2024.

Impact of Tariffs: Potential headwind of $5 million to $10 million to adjusted EBITDA in 2025 due to tariffs.

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Shareholder Return Plan

Uplift Acquisition Cost: Teladoc Health acquired Uplift for $30,000,000 in cash with up to $15,000,000 in additional contingent earn-out consideration based on performance-related milestones.

Expected Revenue Contribution from Uplift: Teladoc anticipates approximately $10,000,000 of incremental benefits coverage related revenue in 2025 from the Uplift acquisition.

Stock Buyback Discussion: Management is actively discussing capital deployment strategies, including share buybacks, but currently prioritizes investments in capabilities to drive sustained top and bottom line growth.

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Key Q&A

Q:Can you talk a little bit about the shorter duration contracts that were made available in BetterHelp, specifically their impact on churn and expectations for the next three quarters?

A:We started the weekly offer in September, priced at a fourth of the monthly subscription price. We are seeing stronger conversion rates but also higher churn. However, net of the two, it is still positive. We are continuing to evaluate how the LTV plays out over time.

Q:Have you done any evaluation or assessment as to why the core BetterHelp network was not able to ultimately get payer coverage?

A:We applied to over a dozen payers for network coverage but paused when the Uplift transaction gained momentum to avoid mixed signals. We believe there are extensive therapists in our network that meet payer requirements.

Q:Can you help us understand the declines in revenue per member for both Integrated Care and BetterHelp?

A:The decline in Integrated Care revenue per member is due to onboarding a large cohort of new members who initially use core telehealth services. For BetterHelp, the revenue per user is lower due to acquiring users at a lower price point with the weekly offer.

Q:How do you ensure you're extracting value from the growth in members while still focusing on profitability?

A:The growth in members will translate into growth in service usage. We are focusing on making visits more valuable and driving more outcomes with our chronic care management programs.

Q:Can you provide more detail on the cadence of BetterHelp margin improvement in the back half of the year?

A:The second half ramp will be driven by revenue growth from international efforts and insurance efforts. We expect to pull back on ad spend in the fourth quarter.

Q:What are the trends in customer acquisition costs (CAC) in the BetterHelp business?

A:CAC trends are stable and favorable due to better conversion rates from the weekly offer. There are no significant differences between U.S. and international CAC.

Q:Can you share more color on how you’re thinking about additional opportunities in tech and G&A costs?

A:We are continuously looking at our cost base and streamlining it. Technology and development spend is down year over year, and we expect to maintain control over our overall cost base.

Q:Can you talk about your capital deployment strategy and why share buyback is not a bigger part of that?

A:We are focused on deploying capital to amass capabilities for sustained top line growth. Share buybacks are on the table, but we prioritize investments that drive growth.

Q:Can you talk about the capacity internally at the management level to handle the distinct challenges of BetterHelp and Integrated Care?

A:We have streamlined the organization to improve agility and focus on markets. We believe we have the capacity to drive both strategies forward.

Q:Review of Unclear Management Responses

A:Management avoided giving a direct answer regarding the specific reasons why the core BetterHelp network was not able to get payer coverage, instead focusing on the operational pause due to the Uplift transaction. Additionally, there was a lack of clarity on the exact impact of the Uplift acquisition on BetterHelp's future performance and how it would integrate with existing services.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary shows strong financial metrics with optimistic guidance, particularly in Integrated Care revenue growth. While BetterHelp faces a revenue decline, new initiatives like insurance could offset this. The Q&A session indicates positive analyst sentiment, with management addressing concerns about customer acquisition and integration strategies. Announcements of strategic priorities and operational excellence further bolster confidence. Given the market cap, the stock is likely to see a positive movement of 2% to 8%.

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The earnings call presents a mixed picture: while there are headwinds in the BetterHelp segment and uncertainty in margins, there are positive developments such as international growth and strategic partnerships. The Q&A section reveals analysts' concerns about competitive pressures and unclear management responses, particularly in the insurance rollout and growth trajectory. The overall sentiment is balanced by strategic initiatives and the potential for future growth, leading to a neutral stock price prediction.

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