Good afternoon. My name is Connor and I will be your conference operator today. At this time, I would like to welcome everyone to the Teladoc First Quarter 2016 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Adam Vandervoort. You may begin your conference.

Thank you and good afternoon. I’m Adam Vandervoort, Teladoc's Chief Legal Officer. Teladoc intends to avail itself of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Certain statements made during this call will be forward-looking statements, within the meaning of that law. These forward-looking statements are subject to risks, uncertainties and other factors that could cause Teladoc's actual results to differ materially from those expressed or implied by the forward-looking statements. For additional information on the risks facing Teladoc, please refer to our filings with the SEC. I’ll now turn the call over to Jason Gorevic, President and Chief Executive Officer of Teladoc. Jason?

Thanks Adam. Welcome everyone on the call and thank you for joining us this afternoon to review our first quarter 2016 results. Teladoc kicked off the year with a very solid quarter. As we continue to add new members and drive utilization rates. Further more revenue, membership, and visits all met or exceeded the top end of our guidance ranges. Revenue of $26.9 million increased 63% from the first quarter of 2015. Membership increased by nearly $3 million members from year end to just over $15 million members. And visits increased 61% this quarter over the first quarter of 2015. As I’ve done on previous calls. I’d like to breakout my comments today into three topics. First, our strong visit volume in the first quarter. Second, the improving regulatory landscape in the telehealth industry. And third, the exceptional operational performance and scalability of the Teladoc platform. The solid platform we’ve build allowed for another strong quarter of growth and operational success. We added $2.9 million new members and conducted a record number of visits all well executing flawlessly in the first quarter. To dig down a bit deeper into our visit volume in early April we announced that we had exceeded our visit guidance for the first quarter. While the flu season usually brings in a large number of telehealth visits. This season was particularly light yet despite that we were still able to reach a record 240,000 visits in the quarter. We attribute this increased utilization to the awareness campaigns that we began in late 2015 and to our highly effective new member welcome kits. I also want to note that the first quarter represented the 13th quarter in a row, where we saw visits increased at a faster clip than our membership base. This consistent performance quantifiably demonstrates…

Thank you, Jason. On the call today, I’ll review our first quarter financial results in greater detail. And then I’ll provide an update on our outlook for the remainder of the year. Revenue in the quarter was $26.9 million, an increase of 63% year-over-year. Subscription access fees accounted for $20.7 million or 77% of total revenues. The 57% year-over-year increase in subscription access fees was driven by a 42% increase in our membership base, which stood at 15.1 million members at the end of Q1 of 2016 compared to 10.6 million members in Q1 of 2015. I also want to note that over 99% of our membership growth and 98% of our revenue growth was organic in 2015. We also experienced increases in our average PEPM fees on a year-over-year basis. Our average subscription revenue per member per month was $0.47 in the first quarter of 2016, which compares favorably to $0.42 per member per month in the first quarter of 2015. PEPM was down $0.01 sequentially in the quarter due to member mix. And I want to take a moment to elaborate on that. Aetna and other health plans fully insured members represented a meaningful portion of our incremental members in the first quarter. In fact over the past year, we have doubled the number of Aetna lives to nearly 6 million members. Aetna continues to enjoy our most competitive rates. Consistent with previous years the bulk of our new membership adds are on January 1. Today we have in-hand executed contracts from employers that will commence at the beginning of Q3 and we also have good visibility into additional health plan lives that we would expect to go live over the remainder of the year. The majority of our new membership adds projected for the remainder of the…

Thanks Mark. The first quarter is always an important quarter for us as we add a large bolus of new membership. We saw excellent results and remain excited about several things. The Teladoc platform is strong, scalable and every quarter we are extending our lead on the competition. Our engagement campaigns continue to be highly effective and are driving utilization. And regulatory changes are occurring in line with or faster than our expectations. And we anticipate significant new business opportunities over the next several years. The Teladoc team deserves tremendous credit for all of our success. I want to thank everyone for their efforts in helping to deliver outstanding healthcare to our clients and members. With that, we will now open the line for questions. Operator?

[Operator Instructions] Your first question comes from the line of Ryan Daniels with William Blair. Your line is open.

Good afternoon guys, thanks for taking the questions. Jason, one for you, you didn’t mention this I believe in your prepared comments. But can you talk a little bit about your preferred relationships that you’ve renewed of late both the Towers Watson and Mercer kind of giving us a little detail on how meaningful that is from a competitive standpoint and then what review or analysis they went through to select Teladoc as their preferred vendor?

Sure. Ryan, thanks for listening and thanks for your question. As we announced over the last couple of weeks, we’ve recently signed our renewals with both Towers and Mercer as their preferred vendor in the telehealth space. Prior to doing that, they go through a significant review process of the company, because essentially they’re telling their clients that it’s not necessary to do full RFPs. From our perspective it saves significantly we’d go through our review process once rather than going through an RFP process for each individual client. Moreover it’s an endorsement of us as a preferred solution of theirs. There are people in both of those organizations either consultants or practice leaders who have told me specifically when it’s a large complex customer they’ll only look at us because they know that we are the ones who have the operational capability to go through a flawless implementation. But also to be able to engage their membership and drive return on investment for them. So that's – they’re both significant relationships as you know in the large national account space that consultants have a significant amount of influence over the decisions and the purchasing decisions at those large employers.

Okay, very helpful. And then hoping to get a bit of an update on some of the new service offering rollouts I guess specifically the store and forward dermatology and then the business-to-business behavioral, kind of how those are trending relative to expectations?

Yes, both of those are just about exactly where I would have expected them to be. We’re going through and we’re probably three quarters of the way through implementation with many of our health plan partners. And when I say implementation that’s generally claims integration. So that they are ready to handle claims processing for their clients as they roll on the additional services. We have a significant backlog of employer demand. We are also as I think I reported previously, having good inroads especially with behavioral health in the managed Medicaid space. So I would expect us to be right in line with the company’s expectations. I think I’d messaged pretty clearly to the Street that, we expect this to be the year where we build adoption but not – but we don’t expect it to be a significant contributor to our revenue this year, where as we do expect it to contribute materially to our revenue next year.

Okay, great. And then one final one, and I will hop off. Mark for you, on the legal fees was the bulk of the uptick both in the quarter and then the guidance related to Texas or are you also incurring a little bit more to drive the potential for telehealth availability in other states? Thanks.

Hi, Ryan. About 75% of that is specific to the Texas case which was affectively accelerated because of the court’s decision to not provide a delay to the state. Those are amounts that approximately a half of that $4 million was carried into 2016, which had been projected for all for 2017. So we’ll be in a little bit more of a comfortable position in 2017 on our path to breakeven.

And then Ryan, the other part of that – the other 25% as you say was – we saw an opportunity to materially move the needle with respect to legislation and regulation by educating a number of the regulators in the various states. And so we thought it was prudent to spend at this point against that opportunity. As I said in my prepared remarks we saw a significant improvement in the regulatory environment. So that was one of those that presented itself faster than we had expected it to, which really set the stage for our future growth.

Yes, it seems like a very good investment. All right, thanks for the color guys.

Your next question comes from the line of Lisa Gill from JP Morgan. Your line is open.

Hi, thanks for taking the question. It’s actually Mike Minchak in for Lisa. So based on the 2016 guidance for revenue it’s obviously a very strong outlook for the year ahead. One of the questions we continue to get on our end is – it’s around the sustainability of the accessing model and it seems like the guidance kind of speaks for itself there but can you talk a little bit about the broader competitive landscape and what are you hearing from current or perspective clients around the sustainability of that model?

Sure. So we feel very good about the sustainability as I think Mark reported our PMPM fees were up year-over-year substantially, that’s a trend that we continue to forecast going into the future. We added almost 1,000 new clients in the first quarter, all of them paying a PMPM and what we continue to see quite frankly is that our competitors who when they don’t charge PMPM or if they’re coming in at a low price. They are having significant challenges operationally and with respect to driving utilization. You’ve seen, turnover in the management of some of those – some of those firms, specifically at the company who was – was out there with the free model. And so doctor on-demand was out there, crying about or screaming about the demise of the PMPM model, and as you probably saw on their recent announcement they replaced their leadership. So that’s consistent with the feedback that we’ve been getting about some of the challenges that those other companies are having. So the competitive landscape over the last four months is probably even better than it was last year and as you can tell from our membership growth in the first quarter, we had a very, very good selling season last year.

Great. And then maybe just one follow-up. Obviously one of the things that was always impressive in the quarter was the uptick in utilization rates despite what was a relatively weak flu season this year. Just wondering if you’re starting to see any impact from changes in plan designs and co-pay structures that where plan sponsors maybe incentivizing patients to use telehealth versus other more expensive care settings?

I think our mix is pretty similar to what it’s been over the course of the last year or maybe 18 months which is about 25% of our clients make the service essentially free to the consumer meaning at zero co-pay for a telehealth visit about a quarter of them hold the member responsible for the entire cost of the visit. And about 50% of them have some sort of a subsidized arrangement where there is a co-pay ranging from anywhere from $5 up to about $30. So I think that mix hasn’t changed that much, we certainly see that have an impact on the utilization, our highest utilizing clients make it a zero co-pay for their members. With that said, I think the significant utilization that we saw in the first quarter and the better utilization than we’ve ever seen before is I think due to the success – the sort of spillover from the success of our fourth quarter campaign where we did a communications campaign around the cold and flu season. And the success of our welcome kids which we continue to refine and learn each year from – what we can do to make those work harder for us. So I think the combination of those two things has been very successful. And then as I said in my prepared remarks we just are about three quarters of the way through the spring campaign which we do around allergy season that will be about 6.5 million communications.

Got it. Thanks for the comments.

Absolutely, thanks, Mike.

Your next question comes from the line of George Hill with Deutsche Bank. Your line is open.

Hey, good afternoon guys and I appreciate you taking the questions. Mark, I think I’ll start with you. If I look at the guidance for Q2 given that the full year has been maintained. I’m going to say it looks like Q2 is either looks conservative or – my question is something changing entry year with the pace of membership additions. Are you talking about new lives in the prepared comments you talked about new lives rolling on in Q3. So I’m just wondering if this year looks a little bit different than prior years from a modeling perspective or I’m going to call this trademark social and conservatism.

Thanks, George. On the membership side we had previously seen members rolling on at the beginning of the third quarter June 1, effective date July 1. We end up today just pushing forward a couple of those dates. While we had expected certain of these contracts to go live in the middle of the second quarter. We’re being a bit conservative with those and hedging our bets and suggesting that they land closer to top of the third quarter. On the visit side as well, same thing we’re coming off a light season and quite frankly this is our fourth public reported quarter and we’d either met or exceeded on revenue in both components each time.

That’s great color. I appreciate that. And then Jason maybe just one on the Healthx deal. You guys already have a lot of provider relationships I guess can you talk about what they bring to the table and why like is this – is this a change from the go direct to provider and idea and strategy or is it not maybe just a little more color around that be helpful?

Actually in this case Healthx is going to give us a little better channel into to the TPAs the third-party administrators, which still represents a substantial part of the self-insured market especially in that middle market. They provide a suite of services that are particularly effective there. And we’re going to be an integral part of that suite of services. So that gives us a good partnership, we’re constantly looking for the right distribution partnerships where its additive and it’s not simply a channel, but rather we’re built into an overall solution.

Okay. I appreciate the color. Thanks guys.

Thanks George.

Your next question comes from the line of Jamie Stockton with Wells Fargo. Your line is open.

Hey, good evening and thanks for taking my questions. I guess maybe first the strong utilization during the quarter. Jason was there any difference in what you saw with the self-insured employers whether you got the relationship directly or through health plan versus the fully insured lives that the health plan that are on your network?

I would say, we continue to see that the direct employers continue to have a slightly higher utilization rate than those in the self-insured employers that we sell through our health plan partners. With that said, all of the segments ticked up in terms of utilization including and importantly the fully insured populations where we are continuing to do a better job of working with our health plan partners to communicate to those fully ensured populations. And I think there is a significant amount of opportunity in that population for us to really move the needle and of course those are big populations. So if we can move the needle on utilization in a big population like that it has a big impact on our overall volume.

Okay, that’s great. And then maybe just staying on that line of thought, the split that you gave earlier, the 25%, of your member base that can access the benefit for free, 25% are paying full freight and then 50% are subsidized. I want to say that I read an article the other day from maybe Towers are one of the big benefits consultants that they were really pushing employers to make telehealth visits totally free that they felt like there was a really compelling ROI there. Are you seeing an effort like that help push more into that totally free bucket incrementally or do you feel like the mix that we see today is going to be relatively consistent?

Yes, we are seeing that, it was Towers who published that and to be honest Jamie, we provided – we work very closely with them and provided them with quite a bit of data that helped them, come to that conclusion and informed their ultimate decision. So we do see that having an impact and we see more and more large employers going in – at least considering that direction or going in that direction. The one caveat that I’d make to that is with the HSA based plans there are some limitations on the employer’s ability to do that. Right, so when there’s an HSA they can provide an incentive for the consumer to register with us, which because their registration with us is similar to a health risk appraisal. So they can provide an incentive but they can’t make it free for all visits to the consumer and still qualify for the HSA.

Okay. That’s great, thank you.

Your next question comes from the line of Sandy Draper with SunTrust. Your line is open.

Thanks very much, appreciate it. Most of my questions actually been asked, maybe just I know you guys are starting to look at doing some direct-to-consumer and sort of just you know telling how far along are you there and what are your thoughts on, you have been incredibly successful on the business market and going through the plans, is this really just a testing, is this something you think is a big opportunity and just sort of a lessen thoughts on that side of the business.

Yes, thanks Sandy. Couple of things, I’ll start it on the DTC side we’re learning an awful lot about the DTC market with our successful behavioral health efforts in that space and I think we have said before that represented 7% of our revenue last year, it will be over 10% of our revenue this year. So that’s been a successful endeavor for us. We are continuing to pursue pilots and partnerships in the direct-to-consumer space on our medical side. The first was obviously the CBS relationship, that’s still very early days and we are learning as we go in partnership with CBS. We are also working on some much larger partnerships that are more direct-to-consumer oriented with some national brands that we just aren’t yet at liberty to announce. But I think you’ll definitely see us continue to pursue opportunities in the DTC space because directly to your question, I do think over the long-term there is a big opportunity there. Nobody is yet cracked the code on that market, we want to make sure that we are as educated and as well partnered as we could be so that we are prepared as that market develops. I don’t think that’s going to be a huge market for a couple of years to come. But, we are going to continue to stay close to it as it develops.

And Sandy I would just add to that, as Jason noted our behavioral product which is 100% DTC that is 7.5% of total revenue last year, we are already on a run rate to exceed 10% of revenue this year. So that is going to easily double. This year and we would expect to exit the year in excess of 15% run rate for 2017. So that’s going to put us clearly in the $12 million plus range and again this was a company that was generating $100,000 a month in January of last year, exit the year at around 500,000 a month, now is an excess of $1 million a month. So we are seeing great tracks in there.

That’s really helpful. And then maybe one for you Mark, in terms of the incremental investments you guys talked about last quarter, sort of are those going as planned and just remind me, are you expecting that to impact revenue this year or are those were investments that are really for sales this year that are driving revenue growth in 2017 and 2018. Just any update on those investments would be great. Thanks.

Yes. Good memory. We talked about increasing our investment in the provider market and the broker market. Those are both investments ahead of revenue. So while the broker market as we’ve said is a very important market to us and one where we see a lot of opportunity. So we have added to that market, especially in sales and marketing side of the business. And then in the provider space, that is a lot of product development as well as quite frankly market development and marketing in addition to adding to our sales force. So we expect both of those to pay significant dividends in 2017.

Great. Thanks Jason. Thanks Mark

Sure

[Operator Instructions] Your next question comes from the line of Mohan Naidu with Oppenheimer. Your line is open.

Thanks for taking my question. Jason, maybe on the patent that you talked about in the call earlier, can you talk to us about what the pattern is about and how does it give you advantages in the marketplace?

The line just broke up can you repeat the question, Mohan?

Yes, the patent that was got ruled in favor of you guys that you talked briefly but can you expand a little bit more on what does it limit the competition on or what is the advantage that you are going to get with the newly issued patent?

Sure, the patents that we’ve challenged are quite frankly things that should never, patents that should never have been issued in the first place. There are things like using a computer to connect a physician and a doctor or using a computer to enable a member to choose their doctor. So those are examples of things that quite frankly there is a lot of prior art, people have been doing it for years and years before the patents were issued but also there is a lot of recent case law and in fact the Supreme Court decision that makes it very clear that patents shouldn’t be issued for standard processes that are simply using a computer to act as an intermediary or to process. So, our view is that this should be an area that the patent landscape should be one that promotes competition and innovation. And so, we were not in violation of any of the patents that were issued, but we saw these as items that we could bump up against in the future. So we took a proactive approach to clearing the path. And as I said, we have now had three inter partes reviews approved for review by the USPTO. So that’s a significant step forward for us. The other thing I guess I would say is that as I think – as we reported, Amwell filed suit against us, we filed a motion to dismiss, Amwell actually tried to stay the case in court, and the judge denied their request. So our motion to dismiss was heard earlier this year in court, we will get a decision on that sometime in the months to come. But, our first challenge in the USPTO – the first inter partes review we will get a decision from the USPTO later this year.

Okay, that’s great color. And Mark, maybe one quick question. I think you talked about this last quarter but I don’t have that notes with me. What percentage of your members got the price hike in the PMPM this year and what is left into 2017?

Yes, Mohan, we discussed that price was coming in throughout 2016 and that none of those members were affected by that price increase. So, effectively half of our membership is having that price rolling over 2016 and it will be effective to the entire membership in January of 2017. So, it is interesting to note that as of the first quarter when you look at quarter-over-quarter, we had an increase in visit fees of average revenue per visit of approximately 16% we went from $22.18 average revenue per visit in Q1 of 2015 up to $25 and 65% in Q1 of 2016. So we would expect that trend to continue. Our increase in per member per month went from $0.42 up to $0.47. So we had a 14% year-over-year increase there as well.

Good, perfect. Thank you very much for talking my questions.

Sure.

Your next question comes from the line of Steve Halper with FBR. Your line is open.

Yes, hi. Just to clarify, so when you think about the PMPM going up in 2016 and fully effective for 2017, does that include the Aetna base in 2017?

Yes. Steve it’s the – visit fees that goes up effective January 1. So that will – that should take care of all the Aetna population in all of the visits requests on January 1. So that’s $45 base.

Okay. And then in your prepared remarks you indicated that I just want to clarify this information, 99% of the visits in the quarter were organic and 98% of the revenue growth was organic is that correct?

Membership and revenue organic, yes.

Okay.

Not really it’s a membership and revenue.

Membership. Okay and then while we are on that track in terms of organic, you've done some tuck-in acquisitions in the past, what sort of the environment like and how active are you in that area?

We have a very, very busy business development team is constantly looking at the market and opportunity that we – as we said before, we will be opportunistic about finding companies that are synergistic with our business that either improve our product portfolio or take us into or improve our position in market segments where we stand to expand our penetration. So we will continue to look at those, and if we find the right fit, then obviously we will move forward. We have been very successful and have had four very successful acquisitions in the company’s history so we feel confident about our abilities to identify and then execute on those acquisitions.

Great. Thanks for the thoughts.

Your next question comes from the line of Charles Rhyee with Cowen and Company. Your line is open.

Yes, thanks. Particular questions, so Mark just go back and clarify, Jason, as well, in terms of the inter partes review, then – does this mean you have prevailed in the patent challenge itself or we’re still waiting to find out that you prevailed not in the patent challenge?

Yes, Charles, the first step here is for the PTO to recognize the validity of our review by granting that review. So had they decided not to grant that review than of course we’ve got another venue which is the federal courts. But in all three cases, they have granted the review and we will see the outcome of that initial review in September for the first one that we filed last year in March. And obviously, we are extremely pleased that they granted review of the following, second and third IPRs that we filed.

Okay. And then if you – in the opportunity you were to not – if you not to prevail in the patent review, then the path is to file in court?

Yes, and it’s already filed in court, because quite frankly…

Pending the review.

Yes, that’s how Amwell responded by filing.

Okay. My other question touch a different area, I think in April there was launched the comprehensive primary care plus model for advanced medical homes that they has a section for telemedicine, I’m just curious as to what level that you kind of looked into this area and what kind of impact that you think it could have for your business – any type of analysis that you guys been able to do looking at it so far.

So we’re still finding the right approach to that specific set of guidance. I would say it opens up just like all of the other things that are coming out of CMS, the chronic care management codes, the guidance to the state Medicaid agencies, are all part of a general trend in favor of telehealth. And as we look at our portfolio of opportunities we decide which ones we are going to go after. To-date all of our business comes from payers other than the federal government. Now, there is certainly opportunity in Medicare fee per service. But we don’t exactly have to try to thread the needle on new opportunities there given the amount of opportunity we have other places. So we stay closely at tuned we are very, very much encouraged by the positive outlook relative to CMS' view of telemedicine. But we're going to take each one of those as an individual opportunity.

Okay, great. Thanks.

Thanks Charles.

Your next question comes from the line of Steve Wardell with Leerink Partners. Your line is open.

Hi, guys, it’s actually Matt Dellelo in for Steve. Thanks for the question. Just one to clarify the lowered EBITDA guidance is that entirely due to the additional $5 million in legal expense one in for this quarter and the next three or is there…

Yes, that’s correct. It is really the pull forward of those legal expenses from again half of it from 2017 all of which we believe will be affecting us in the remaining three quarters of 2016.

Okay, great. Can you tell us about how the Q2 benefit selling season is going so far versus last year you’re seeing any earlier sign up some telehealth more mainstream that kind of thing?

Yes. Actually, this is the most – this is the highest volume of sales and commitments than we have ever had this early in the year. So, as I said in my prepared remarks we have over a million committed members for the second through the fourth quarters of this year. We have even more of that – more than that already committed for 2017. So we feel and we have never seen this much early commitment, this early in the year. So I would say at this point in the year it looks like an even stronger selling season than we had last year.

That’s great. And then earlier you mentioned over 1,000 – implementing over 1,000 new clients in the quarter, are those all enterprise or is there any detail you can provide us on the mix of that?

Yes, so I think I said just around 1,000 I don’t I think said over 1,000 but you’re…

Okay.

You are right around there. It’s a wide mix of clients ranging from health plans to the largest – large national employers to small and mid-sized employers all across the board. In order to do that at that kind of scale and make sure that you have operational excellence, it takes a very, very sophisticated and technology platform and disciplined operation. And so I’m very, very proud of the team here for having gotten through a very, very busy implementation season with absolutely top marks.

Okay, great. Thanks very much.

There are no further questions at this time. This does conclude today’s conference call. You may now disconnect.