Good afternoon, ladies and gentlemen. Thank you for joining today's Teladoc Health Q4 Earnings Call. My name is Tia, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions] I'd now like to pass the call over to Patrick Feeley, Head of Investor Relations. Please proceed.

Thank you, and good afternoon. Today after the market closed, we issued a press release announcing our fourth quarter and full year 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 Gorevic, Chief Executive Officer; and Mala Murthy, Chief Financial Officer. During this call we will also discuss our forward 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 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 on 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. As we start 2024, we're very much in a time of transition as an economy, an industry, and a company. Teladoc Health has made significant strides in our increased focus on bottom-line performance, realizing more benefits of scale over the past several quarters. This year, we'll continue to accelerate that progress. Our success is evident in our most profitable year-to-date, delivering 33% growth and adjusted EBITDA and free cashflow of $194 million in 2023. We also closed out 2023 with a strong selling season that yielded double digit bookings growth over the prior year. The breadth of our product portfolio continue to drive cross-selling, as approximately 75% of our bookings were upsells or expansions with existing clients. This is representative of our success driving increased product penetration to our large installed base of nearly 90 million virtual care members. This year, we will grow our adjusted EBITDA margins and free cash flow, while making continued investments in innovation. We'll do this by both growing our revenue and removing more than $85 million in expenses through efficiencies and restructuring. We're targeting 50 basis points to 100 basis points of annual margin expansion over the next three years and have line of sight to at least $425 million of adjusted EBITDA in 2025. This puts us in a strong financial position as others in the space struggle, and it provides us the flexibility to have all options on the table, including continued investments in organic innovation, tuck-in M&A, retiring debt and giving back money to our investors through share repurchase. At the same time, we will continue to grow our top line. With approximately 90 million members and thousands of clients around the world, we continue to be the leader in whole person…

Thank you, Jason, and good afternoon, everyone. Fourth quarter consolidated revenue of $661 million increased 4% year-over-year. Fourth quarter adjusted EBITDA was $114 million, an increase of 22% year-over-year, representing a margin of 17.3%. Full year consolidated revenue of $2.6 billion increased 8% over the prior year, while full year consolidated adjusted EBITDA increased 33% to $328 million. Full year adjusted EBITDA margins increased 240 basis points to 12.6%. Consolidated net loss per share in the fourth quarter was $0.17, compared to a net loss per share of $23.49 in the fourth quarter of 2022. Net loss per share in the fourth quarter included amortization of acquired intangibles of $0.43 per share and stock-based compensation expense of $0.28 per share. Fourth quarter free cash flow was $93.6 million compared to $11.7 million in the fourth quarter of 2022. Full year free cash flow was $193.7 million, compared to $16.5 million in the prior year. We ended the year with over $1.1 billion in cash and cash equivalents on the balance sheet. Turning to segment results. Integrated Care segment revenue increased 8% year-over-year to $384 million in the fourth quarter, growing 3% sequentially. For the full year, Integrated Care segment revenue increased 7% to $1.5 billion. The largest contributor to 2023 Integrated Care growth was Chronic Care revenue growth. Fourth quarter Integrated Care adjusted EBITDA was $56 million, an increase of 28% over the prior year's fourth quarter, representing a 230 basis point margin expansion. During the fourth quarter, member enrollment in Chronic Care programs grew by 36,000, bringing full year net enrollment growth to 139,000. We ended the fourth quarter with Chronic Care enrollment of 1.16 million, an increase of 14% year-over-year and 3% sequentially. The biggest drivers of new Chronic Care enrollment in fiscal year 2023 were hypertension, followed…

Thanks, Mala. With that, I think we'll open it up for questions. Operator?

We will now begin the Q&A session. [Operator Instructions] The first question comes from the line of Lisa Gill with JP Morgan. Please proceed.

Thanks very much and thanks for all the detail. Jason, I just want to go back and talk for a minute about the selling season and try to square just a couple of numbers that you gave and Mala gave. So Mala talked about chronic members being up 14%. You talked about double-digit booking growth in the selling season. But yet, when you talked about the integrated business and talked about the chronic component of that, you talked about mid to high single digit growth. Can you help me to understand like, is it that you're doing more bundled programs and therefore the growth isn't as high? And then secondly, as we think about this going forward, you talked about 16% of the base having access. Is this an opportunity where 100% of your base can have access or is it some smaller number as I think about that would be my question.

Yes. Thanks, Lisa. I appreciate the question. As we think about our longer term outlook, we do think that we'll continue to penetrate our book of business with our chronic care programs. And as we've said, about 75% of our sales came from selling to existing clients. And so, that's as we make progress, and we made progress over the last two years from 12% to 16% penetration, we think that we will continue that progress. As I went through the bookings last year and then think about that versus this year, as we discussed in the prepared remarks, we had this temporary mapping issue with new member onboardings, and that caused us to pause marketing for about three weeks, that has an impact of about $20 million or about 140 basis points of Integrated Care growth, almost all of which is centered on our chronic care programs. And so, as you think about growth in chronic care this year, the majority -- the vast majority of that impact is on our chronic care programs. The second thing to think about for this year is, as we launched -- as we booked business in sales last year, there's always a timing question of when those sales go live and produce revenue. We did have a meaningful amount that came through of in-year revenue with starts last year, and we do have some that is going to start not in January, but actually starts in the late first beginning of second quarter. And so that's factored into the full year revenue outlook and therefore the growth that comes along with it. We do think that chronic care revenue will continue to be the driver of higher levels of growth in Integrated Care, especially as you consider it relative to that very stable book of virtual care revenue. The good news about that is, it provides us the base into which we sell. And as you pointed out, we do see more and more bundled programs being sold. As we talked about at your conference, actually, when we sell a bundle of services, we tend to get higher revenue but lower revenue per member than when we sell individual products. So we get higher revenue per client for the entire population, but lower revenue per member than when we sell on sort of an [indiscernible] basis, so to speak. When you put all of that together, we feel good about the multi-year outlook of chronic care and international for that matter being drivers of our Integrated Care revenue growth.

Thank you. The next question comes from the line Stephanie Davis with Barclays. Please proceed.

Hey guys, thank you for taking my question. Apologies for my background noise, I'm in airport. I was hoping you could talk me through some of your assumptions getting to the BetterHelp outlook. What improved in the underlying assumptions to get to the back half ramp? Is there any color you can provided about the deteriorating yields and if it's improved? And just in general, how much risk is taken to the outlook, such as macro assumptions?

Yes, so Stephanie, I'll start and then Mala can go deeper. On BetterHelp, if you think back to our third quarter earnings call, we talked about how customer acquisition cost trends in the direct-to-consumer market would result in BetterHelp growth in the lower half of our guidance range. Our original 2023 outlook called for double-digit to mid-teens growth for BetterHelp. That range assumed some deterioration at the low end of the range and some improvement at the high end of the range. BetterHelp ended up growing just over 11% for the full year. So it was in the lower part of our guidance range. What drove that was weaker customer acquisition trends in the second half of the year. There are a bunch of factors that go into that. In particular, we saw pressure on our customer acquisition costs in social media channels. We're fortunate, I guess the good part is we have a diversified set of channels and the higher overall spend levels as we get to higher levels, the more we press on sort of across all of those channels. So we felt the impact of that in the second half of the year. As we made our outlook for this year in 2024, the assumption is that, those higher levels of customer acquisition costs persist. We do think that we'll start to get a benefit in the back half of the year from some of our international markets as we shift dollars into those international markets which we've seen good results, but at a limited scale thus far. The customer acquisition costs tend to be lower in the international markets. Although the gross -- the cost of goods sold tends to be slightly higher. And if you balance those two things, they end up at roughly the same net margin as our domestic business. So when we look at the range for our outlook, it sort of brackets that current outlook, meaning, if you extend the current situation forward, the lower end of the guidance assumes that there is some deterioration. The higher end of the guidance assumes some improvement.

Yes. I think you've covered most of it, Jason. What I would say, Stephanie, is we believe we have taken a measured approach to our guidance by assuming that the levels of cost per acquisition trends continue as we saw in the back half. And frankly, as we are continuing to see in the first quarter of this year. So as Jason said, if you think about the range we have provided. At the high end of the guidance range, we assume some improvement in customer acquisition trends in the second half and at the low end of the range, we assume some deterioration in those trends. And as we said in our prepared remarks, if you sort of take a step back and just think about BetterHelp business. What I would also say is, with our increased focus of -- on profitable growth, our -- the BetterHelp businesses member acquisition is somewhat gated by the amount of capital we can deploy at what we would consider to be acceptable rates of return during any given period. So what that means is that, the growth in BetterHelp is in part dependent on our ability to efficiently reach new individuals to create awareness for BetterHelp products and services. So it is both, I would say, the cost per acquisition trends that we are seeing that we have factored into our business -- into our guidance and a continuing theme of how we are balancing top line growth with profitability in this business.

And it's probably evident from our comments, but it's worth calling out that pressure on customer acquisition costs in the back half of 2023, the second half of 2024 will be comped against that. And so, actually has a -- the first half has a more challenging comp. The back half has a lower bar.

Thank you. The next question comes from Jailendra Singh with Truist Securities. Please proceed.

Hi. This is Jailendra Singh from Truist. Thanks for taking my questions. So just wanted to follow up on the question on the efficiency program, like $35 million benefit in EBITDA, it seems more than half of that is coming in Q4. Can you help us better understand why benefit from this program is more second half loaded? Are you expecting any benefit in Q1? And how is this benefit spread across two segments?

Yes. So I would say on your second question, Jailendra, most of the benefit of these cost efficiency and cost takeout programs is really on the Integrated Care side. As we said in our prepared remarks, the Integrated Care side is where we will see more of margin expansion as we go through the year. We can drive more operating expense leverage on the Integrated Care side of the house. And I would say in terms of the -- how the $35 million of benefit accrue this year on an adjusted EBITDA basis of $43 million, obviously, on a GAAP basis. Look, we are taking -- we are doing initiatives across a number of different areas, whether it be organizational improvements, including things like offshoring, whether it be productivity initiatives, including automation or whether it be third-party supplier spend. So I wouldn't say that these benefits are back-end loaded into one particular quarter, we will see them ramp through the year.

Thank you. The next question comes from the line of Richard Close with Canaccord Genuity. Please proceed.

Yes. Thanks for the questions. I appreciate the details on the delayed enrollment engagement or marketing on the Chronic Care that you talked about and the financial impact there. But can you provide more details exactly what that was? Was that on the customer side or your side? And if it was on your side, how do you get comfortable that that's not going to happen again?

Yes, Richard, thanks for the question. We had record client implementations for January 2024. And like all health care companies who deal with eligibility files, these implementations come with just an inherent amount of complexity. In January, we discovered an issue in mapping data for some of these implementations. The number of affected members turned out to actually very small. But with a record number of implementations happening at the same time, out of abundance of caution, we halted member communications while we diagnosed and resolved the issue. The delayed consumer -- this delayed our consumer engagement marketing by about three to four weeks and pushing out the enrollment curve for primarily our chronic care programs. And so, as we said, we anticipate that, that delay ends up sort of rippling through by shifting out the curve to the tune of about $20 million for the full year. We've restarted the marketing engine, and we've seen absolutely no new issues. So we're confident that the issue is completely behind us. What I would say is that, it was our caution in making sure that we had the full diagnosis and scope of the issue and the affected population identified before we turned our marketing campaigns back on. And as it turns out, the scale of the affected members was actually very small. So we're confident that we have it behind us. We have clearly identified the source of the issue and actually the scale of the issue was very, very small.

Thank you. The next question comes from the line of Jessica Tassan with Piper Sandler. Please proceed.

Hi, guys. Thank you so much for taking the questions and thank you for the detail on the report and guide. I guess maybe just in terms of ad yield on BetterHelp, I'm curious to understand maybe when you all first observe the declining ad yield in BetterHelp and just kind of whether it got worse over the course of 2023? And any update on what you've observed on year-to-date in 2024?

Yes. Thanks, Jess. We had actually started observing the yields coming in lower than we had expected in the back half of the year. We actually had talked about it in the October 3rd quarter earnings call, right? We had talked about the fact that last year, when we had initially given the range, we were talking about coming in at the low end of the range if we see the yields start deteriorating, being at the high end of the range if we saw improvement, and we had talked about the fact that we -- the yields are starting to come are lower in the back half of the year. So as we said a few minutes ago, we have sort of kept watch over those trends. They have persisted through the back half of the year. They are still persisting, and that is the reason why we have factored that into the guidance. And as Jason said, we expect to comp that in the second half of the year, the comps get easier in the second half of the year. Having said that, that's the reason we are providing the range that we are providing. Again, similar to last year, what we would say is, the high end of the range assumes improvement. The low end of the range assumes a deterioration.

I mean generally [Multiple Speakers] in January -- just -- we generally see improvement in January. And so, we monitored closely as we were going through the January time frame. And we saw them stubbornly especially in those channels, stubbornly higher. And so, we're using that as the basis for our guidance going forward.

Thank you. The next question comes from the line of Charles Rhyee with TD Cowen. Please proceed.

Yes. Thanks for taking the question. Jason, I want to go back to Integrated Care real quick. And you made mention that 16% of the general medical base has -- is one or more of the chronic care products, and that's up from 12%. I think you said over the last few years. You also may mention that 75% of your sales are from existing clients. Can you talk a little bit about what that -- what the sales pipeline looks like? And like how often are these clients coming up for potential cross-sell? And I guess the question is, how often is it that people are just choosing not to make a decision? Because it seems like you would have a large base to be selling into, but given sort of the growth rates you're talking about, it's sort of a slow gradual improvement over time. Just trying to understand the dynamic of decision-making among clients to add chronic care if they don't have it already.

Yes. Thanks, Charles. I'll try to answer as many of the dimensions of that question as I can. With respect to the pipeline, we we're really early in the year. And generally, what happens is we sell through the pipeline toward the end of the year. And at this point of the year, we're refreshing it. That's exactly what's happening now. So I'll reserve commentary on sort of what the pipeline looks like until later in the year when it refills and we're looking at our significant selling season sort of bolus. With respect to the dynamics of our client base, our sales force is broken into, split into essentially new business reps who are out trying to sign new clients who don't have a relationship with Teladoc Health and account managers and essentially upsellers whose job is to go build our base with our existing customers. When we think about selling into new clients, there are essentially two dimensions of that. One is selling more products into the same population. The second is selling products into new populations with that client. That tends to happen mostly within health plans as we go into new geographies, new lines of business, such as managed Medicaid or Medicare Advantage, and we expand the population that we serve. So you're really asking, I think, mostly about that first one of selling into new clients or into existing clients, which is upselling additional products. We're constantly working through that and I would say the adoption for chronic care programs goes through an evolution. Some of those clients have other solutions that they bought previously, and it's a replacement business for us. Equally as frequently, we're going in with our suite of chronic care solutions where they don't have one in place. And so that is an evolutionary sale. It certainly doesn't happen all at once. So I wouldn't expect us to all of a sudden go from 16% to 30% or 40% penetration. We are working on solutions like our bundling structures in order to accelerate the penetration. But right now, we guide based on what we know and what our existing trends are. So as we see breakthroughs to the degree that we see breakthroughs in our ability to more rapidly penetrate our book of business, we'll update our guidance. But our guidance right now is based on the progress that we're making and our outlook based on what we know, not based on any breakthroughs that we haven't yet identified.

The next question comes from the line of George Hill with Deutsche Bank. Please proceed.

Yes, good evening, Jason and Mala. I'll try to be efficient with my questions here. And I guess my first one, Mala, is on the cost savings program, which is you guys are targeting 50 basis points to 100 basis points of margin expansion per year, but the cost savings programs alone should give you almost 150 basis points margin expansion in 2024 and over $325 million. So I guess I'd ask you what are the offsets in the underlying business through eroding where the cost savings programs don't give you more margin expansion?

Yes. Thanks, George. So if you just think about 2024 as we have said, we've talked about our guidance of $350 million to $390 million in adjusted EBITDA. That includes the $35 million of cost savings that we have talked about. The reality is, if you think about the way the margins we expect in 2024, the margins to play out, we are seeing some modest pressure on our gross margin line from higher clinical costs, and that's primarily associated with the expected ramping up in Primary360 volumes. We added about $30 million in Primary360 revenue over the course of 2023, and that was a very, very significant increase in revenue for P360 and we expect visit volume from those members to continue to ramp up through 2024. And so that ramp will create some modest pressure on gross margins this year relative to 2023. Now that variance, that delta is being offset by leverage from operating expenses and in particular, as we said in our prepared remarks, technology and development and G&A. So that's sort of the way the sort of the margin structure is feathering through the whole P&L.

Thank you. The next question comes from the line of Sean Dodge with RBC Capital Markets. Please proceed.

Yes. Thanks. Last quarter, along with the operational review, you also talked about undertaking a portfolio assessment. Is there any update you can share on that? Are there any portfolio actions in the savings you laid out from the efficiency program? Or would those be incremental? And then maybe if you could give us some sense of what a portfolio assessment may involve? Are there particular geographies, markets, books of businesses that just don't make sense to be in anymore?

Yes. So I'll start by saying there are no significant portfolio changes contemplated in our guidance anything that we would do would be incremental to that. When we talk about doing a portfolio assessment, it really is looking across the business for two dimensions. One, the profitability and growth outlook for the various customer, channels and segments, products within our portfolio, geographies, et cetera. And then second is, where do we place investments. So where do we get the greatest yield on investing our dollars, especially in technology and development and advertising and marketing. So I think that's what's involved in it. If we have any significant actions, obviously, we'll announce it. A lot of it, quite frankly, is fine-tuning. Sometimes it's fine-tuning pricing. Sometimes it's fine-tuning go-to-market strategy. Sometimes it's fine-tuning service model and service intensity to make sure that we are optimizing our resource allocation versus the profitability of a given customer segment or products.

Yes, I would say -- I would add, Sean, look, as we look at our both top line growth as well as bottom line profitability, we have set expectations for the next few years, we'll continue to look at the various pieces of our business, how they contribute to both top line growth as well as bottom line profitability. And so that's a review that is ongoing. We will continue to look at that. And as Jason said, we are judicious in the investments we make. We have talked about getting leverage from technology and development and G&A. That said, we are also going to continue to invest robustly in the business, whether it be in terms of product, data, data science. And so in order for us to fuel those investments and the investment capacity, the responsible thing for us to do is to just continue to look at all parts of our business in terms of how they are contributing to both top line as well as bottom line.

Thank you. The next question comes from the line of Ryan Daniels with William Blair. Please proceed.

Thanks for taking my question and thanks for all the detailed commentary thus far. Maybe a little bit of a different line of questioning. I'm just curious in regards to capital deployment. You clearly have a lot of cash. You mentioned maybe a repo, but more curious about the overall capital structure and how you view it. I know you have some of the [indiscernible] converts of about $550 million that will be concurrent in June and then a bigger convert a couple of years after that. So how are you thinking about potential refi or use of cash to pay that down over the coming quarters? Thanks.

Yes. Thanks for that question. Listen, as I step back and take a look at our capital structure, we are -- we have the flexibility with the $1.8 billion cash that we have on our balance sheet and the fact that we generated strong free cash flow last year. We expect to continue to generate strong free cash flow this year. So that will certainly strengthen our balance sheet even more. If I think about the uses of cash, I would say the way I would prioritize it is, as we said, first, what are the interesting M&A opportunities that are out there that we could use our balance sheet for. Obviously, as always, those M&A opportunities need to meet the criteria that we set for ourselves, right? Whether they make strategic sense for us or whether they are financially attractive. But I would expect to use the strength of our balance sheet towards the right M&A opportunities. And then I would use our cash to pay down to retire the debt specifically, you mentioned the [indiscernible] convert, which is due in the middle of 2025. I would look to pay that convert down. We still have some time and flexibility for the $1 billion convert that is maturing in 2027. And then last is, as we said, to the extent that we have even more flexibility on the balance sheet, opportunistically, strategically think about share buybacks. Share buybacks in general and to think about over the longer term to offset the potential dilution from employee stock grants. So I would think about it in those -- sort of in those different ways.

Thank you. The next question comes from the line of Daniel Grosslight with Citi. Please proceed.

I want to go back to the BetterHelp marketing yield here. I was wondering if you could provide a little more detail on why those marketing yields remain depressed? Are consumers being a little more discerning? Are you seeing more competition from other DTC vendors? Is there another big vendor out there that's spending like you saw 2022. Any additional detail there would be very helpful.

Yes. So it's -- the answer to the second part of the question is we don't see a significant competitor driving up the rates. We do see a lot of advertisers in general going after a similar population. So I wouldn't say that it's a single competitor as opposed to the overall traffic in the ad space, so to speak. And then maybe the last thing I'll say is that, we do see it certainly more as we spend more, right? So as we increase our ad spend, we're constantly looking at the marginal return on the -- on each incremental dollar. And so, we work hard to make sure that each incremental dollar is productive for us. And to the degree that we see the curve get to an inflection where we run out of room on where we can spend that money productively then we pull back rather than chasing growth at the expense of profitability. So I think those are the major contributors to it.

Thank you. There are no additional questions left at this time. That concludes today's conference call. Thank you. You may now disconnect your lines.