Teladoc Health (NYSE: TDOC) CEO Jason Gorevic: “Driving Better Outcomes and Lowering Costs for Chronic Care Populations.”


Teladoc Health (NYSE: TDOC) Earnings Call Q3 2022 Highlights

Teladoc Health reported strong third quarter results driven by solid execution across the business. Revenue grew 17% over the prior years to 611 million above the midpoint of our guidance range, and adjusted EBITDA of 51 million exceeded the high end of our expect.

While the broader operating environment remains challenging across the economy during the quarter, we made meaningful progress against our strategy, including four areas I want to briefly highlight first, driving better outcomes and lower costs for our chronic care populations. Second, continued momentum in our primary 360 product with clients and members.

Third, closing, meaningful new deal. And fourth, delivering strong performance at Better Health. Starting with chronic care, we’re encouraged to see a growing trend of clients looking for partners who can deliver proven cost savings and outcomes. Earlier this month, we held our client advisory panel with leaders from 30 health plans, large employers, and health systems and attendance.

It was universally clear that value-based care is high on the priority list for these organizations with strong interest in programs that manage chronic conditions and drive engagement with populations via virtual primary care relationships. Value-based arrangements are becoming even more important in the current macroeconomic environment, and as I look at the chronic care pipeline, we’re seeing a notable increase in deals with such feature.

We view this trend as very favorable for us since our proven outcomes present a tremendous value proposition for our clients and we’re well positioned in the market to capitalize on that dynamic. An example of our ability to drive outcomes and savings is evidenced by the results of one of our recent pilots in early 2021.

We launched a chronic care shared savings pilot with fully insured members at a large Blue Cross Blue Shield. Our team just concluded a study with this partner’s actuarial team who determined that we have exceeded our medical cost savings target by 60%. Not only did we drive better outcomes for our members and drive more savings for our client, but we were able to realize a, a small shared savings bonus.

We believe the outcome of this pilot and others like it validate our ability to move further toward value-based contracting over time. Ultimately, we believe the ability to leverage broad, integrated virtual and digital care models to drive measurable savings uniquely positions us to capitalize on market demand for these arrangements.

Turning to Primary 360 at the start of the year. We told you we would provide additional insight later in the year, and so today we’ll provide you with a first look at some of the encouraging results we’ve seen thus far. Primary 360 members are reporting high satisfaction with NPS scores currently in the seventies.

A strong vote of confidence. Members who have engaged with Primary 360 this year are connecting with care teams at a rate greater than once every three months, a result of the significant value we are delivering. We’re also finding that members with chronic conditions are significantly more likely to engage with Primary 360.

This year, we’re seeing those members as four times as likely to meet with their primary 360 Care. Meanwhile, one in every three of our primary 360 members is using two or more of our services demonstrating primary three sixty’s role, not just as virtual or primary care, but also as a front door to multi-specialty care.

So while we’re at the beginning stages of bringing integrated virtual primary care to the market, the strong member and client response to the service gives us a lot of confidence in the long-term opportunity. As I turn to commercial momentum, we’ve discussed throughout the first half of the year, our pipeline has developed more slowly than we expected coming into.

Year-to-date bookings, which represents the estimated incremental annual revenue contribution from deals signed during the year is roughly equivalent to the same period in the prior year. We are however encouraged by a number of new significant deals that we expect to contribute to our growth for the next few years.

First, you may have seen HCS E’S press release last. Announcing our partnership to make Primary 360, along with our general medical, mental health and nutrition services available to self-insured employer groups. This follows on the heels of our agreement last year to bring our full suite of chronic care products to H C S E employer clients.

The launch of this partnership is validation of our integrated whole person care strategy and another example of our ability to land and expand across products. And that deal represents just one example of the momentum we’re seeing with large health plans looking to partner with us to offer our products and services to their employer.

In addition to Primary 360, we’re also seeing this momentum in chronic care with multiple large health plans looking to partner. We expect these agreements will contribute to our pipeline over a multi-year period. Finally, while we typically close many new employer deals in any given quarter, I wanted to highlight one in particular as I think it underscores the value proposition of our broad integrated service.

We’re replacing three different competitors all at once across chronic care, telemedicine, and our My Strength Mental Health Solutions. At one of the largest providers of care to correctional facilities and other government-run institutions, we believe the market is shifting away from disparate point solutions and toward integrated offerings, a trend that we believe strongly favors Teladoc.

Turning to better health. The team continued to drive impressive top line growth, particularly in this time of increased macroeconomic uncertainty while addressing the tremendous unmet need for global mental health services. While yield on advertising spend remains below where we expected it to be at the beginning of the year, we’ve seen it stabilize as anticip.

Better help remains on track to deliver strong revenue and margin contribution. We expect to continue building upon better help’s significant leadership position in the direct to consumer mental health market while driving both growth and margin. With that, I’ll turn the call over to Mala for a review of the third quarter and our forward guidance.

Thank you Jason, and good afternoon. During the third quarter, total revenue increased 17% year over year to $611 million. The biggest driver of that growth was better help our direct to consumer mental health brand, which grew over 35% as compared to the prior years quarter, or approximately 7% sequentially over the second quarter.

And in line with our expectations, we continue to expect the typical seasonal slowdown in advertising spending during the holiday. In the direct to consumer market, and therefore expect to see material acceleration in consolidated adjusted EBITDA margin in the fourth quarter. Turning to chronic care, the total number of our members enrolled in one or more of our chronic care programs was 791,000.

At the end of the third quarter, an increase of 66,000 or 9% over the prior years quarter, and a sequential decline of 7,000 enrollees as compared to the second. The decline in enrollment was driven by the loss of one government sector client, which due to changes in leadership, has chosen to seize offering chronic care management programs to its populations.

If not for the loss of this client, chronic care member enrollment would have increased by 15,000 lives over the second. I would also add that while the client’s decision resulted in a higher than expected attrition rate in the third quarter, even including this loss, our full year member churn is still trending in line to slightly better than the past two years, a testament to our efforts to drive better member engagement.

we ended the quarter with total US paid membership of 57.8 million members, an increase of 1.2 million members over the second quarter, driven by a combination of new virtual care client onboardings and population expansions within existing clients. Individuals with visit fee only access was 24.3 million.

At the end of the third quarter average US revenue per member per. Was $2 and 61 cents in the third quarter, up 9% from $2 and 40 cents in the prior quarter. As compared to the second quarter p pm Growth was driven by growth in better health revenue, although largely offset by membership mix as we added 1.2 million net new telemedicine members in the.

Adjusted EBITDA was 51.2 million in the third quarter compared to 67.4 million in the prior years quarter, and above the high end of our guidance range. The third quarter adjusted EBITDA outperformance relative to our expectations was driven primarily by stronger cost control. As we look to drive efficiency, both technology and development.

And growth margin contributed to the upside. Net loss per share in the third quarter was 45 cents compared to a net loss per share of 53 cents in the third quarter of 2021. Net loss per share includes stock based compensation expense of 34 cents per share. Amortization of acquired intangibles of 30 cents per.

And 2 cents per share of lease abandonment costs associated with office based rationalization. During the third quarter, we generated three cash flow of 20 million and ended the quarter with $900 million in cash and short term investments on the balance sheet. Now turning to forward guidance. Last quarter, we noted that full year results were likely to be near the low end of our prior guidance range.

Our updated guidance today is consistent with that expectation. For the full year 2022, we expect revenue to be in the range of 2.395 to $2.41 billion. We expect adjusted EBITDA for the full year to be in the range of 240 to 250 million. We expect total US paid membership of 57 to 58 million members, an increase of 1.5 million members over our prior guidance.

We expect total visits for the year to be between 18.4 and 18.6 million visits representing growth of 19 to 21% over the prior year. For the fourth quarter of 2022, we expect revenue of 625 to 640 million, representing growth of 13 to 15% year over. We expect fourth quarter adjusted EBITDA to be in the range of 88 to 98 million total.

Fourth quarter visits are expected to be between 4.7 and 4.9 million visits. With that, I will turn the call back to Jason for closing Remark. Thanks, Mala. This week we are pleased to welcome Laser Corn Wasser to the team as our new president of Enterprise Growth and Global Markets. Some of you may know laser from his role as Chief operating officer of CareCentric, where he was responsible for driving operational excellence in business strategy, growing EBITDA through product and client diversification, and leading the integration of the company’s diabetes franchise to build a new suite of service.

At TE Health Laser will help optimize company performance across all client channels and product lines to further unlock the revenue and profit growth potential of our whole person care strategy. I look forward to working closely with him and know he will make an immediate impact on our commitment to empowering all people everywhere to live their healthiest lives.

With that, we’ll open the call for questions Operator. Thank you. As a reminder, if you’d like to ask a question, you can press star one on your telephone keypad. If you’d like to withdraw your question, you may press star two. Please limit yourself to one question only. Thank you. Our first question for today comes from Lisa Gill of JP Morgan.

Lisa, your line is now.

Thanks very much. Good afternoon everyone. Um, Jason, it’s the third quarter, so you know, I’m gonna ask about the selling season. Um, you talked a little bit about signing some incremental deals. You talked about where the pipeline is, but it can you give us an idea of how to think about how the selling season is going to play into 2023?

And as we think about, you know, some of the newer deals, , are any of them with some of the new payment models you talked about? And are there, you know, anything from an implementation cost perspective or anything else to think about? You know, as we think about headwinds and tailwinds going into 23, Yeah, thanks Lisa.

I’d be disappointed if you didn’t ask that now. So, uh, appreciate the question. Let me, let, let me start with sort of an overview of how to think about, uh, our revenue outlook going forward, and then I’ll dig a little deeper into the bookings and what the pipeline looks like. So if, if I think about the overall outlook, obviously we won’t give specific guidance until February, but, um, I’ll, I’ll try to give you some of the dynamics going on.

So, um, if I think about the swing factors for next year, first, better help, uh, as I think about the direct to consumer business. You know, it’s reasonable to expect better help to be more closely tied to the financial health of the consumer and therefore, you know, a little bit more sensitive to the macroeconomic outlook.

We, we see a little bit of impact to better health growth from that macroeconomic dynamic this year, as we discussed in the July call. That, of course, can cut both ways though, so you know, if we see economic recovery next year, and inflation coming down and the consumer feeling more confident. That could be helpful for us if, if the consumer sees significantly more inflation and pressure, that could pressure the consumer since better help is, you know, one of the more expensive things that, uh, that the consumer buys online that doesn’t come in a box.

I think you should also just expect us to continue to take a more balanced approach to growth and margin, uh, in better help. You know, that business has grown and scaled incredibly fast. Uh, it’s at a run rate of, uh, a billion dollars. Uh, and I think it’s fair to expect us to focus on driving both growth and efficiency, and you’ve started to see some of the benefits of that in the second half of this year.

Uh, and some of our gross margin improvement comes from, uh, specifically better health. The second thing I’d look at is, is what you asked about specifically the pipeline development. I would call the third quarter, kind of a catch up quarter. When it comes to bookings, so, you know, you heard us talk about the first couple of quarters as the pipeline developing more slowly than it had I in in prior years or slower than our expectations.

The, the third quarter, uh, saw a turnaround of that and it was not only our biggest quarter of the year in terms of bookings, but it was significantly larger than our third quarter bookings last year. So it puts us at a place now where year. Through the third quarter, we’re almost identical to the total sort of gross bookings, uh, that we saw through the third quarter last year.

So just a reminder about how to think about that on the B2B side of our business, the B2B side of our business. You know, if you, if you look at revenue next year, uh, it’s essentially baseline revenue this year. Plus bookings minus churn. Um, our churn is in line to even slightly better than it was, uh, over the previous several years, uh, and in line with last year.

So we don’t see any significant, uh, changes there. Um, And we still have two months left in the selling season. The fourth quarter’s always really important for us. As I look at our pipeline, our pipeline is similar to what it was at this time last year. There are some good characteristics to the deals that we’ve closed.

Our, our deals that we’ve closed are significantly larger than they have been in prior years, so our average deal. , uh, is, uh, is two x what it was, uh, in the third quarter was two x what it was in, in the first two quarters and 50% larger than a year ago period. Um, we’re continuing to see good cross sales that contributes obviously to the, uh, significantly larger deal size and over three quarters of our deal.

Uh, our, our multiple, uh, multi-product, uh, sales. So, you know, I think that that hopefully gives you some color. You asked a little bit about, um, value-based deals. We do have some, uh, deals that we’ve signed this year. That are more value-based deals and give us upside, uh, to share in the savings that we generate.

And I’m, I’m excited by the results of the, the pilot, uh, that we talked about in our prepared remarks at that large blue plan. And I think that pretends well for us leaning further into more value-based arrange.

Thank you. Our next question comes from Richard, close of Canor. Richard, your line is now open.

Thanks for the questions. Um, I had two, if I could flip those in, but, uh, Jason, you talked a little bit about balancing, uh, the growth and margins on better help. Um, just curious if you could go in. Maybe a little bit more detail on that. And then can you talk about market share? Obviously with the tough economy, I suspect some of your competitors, uh, and the noise you talked about earlier in the year, you know, maybe have pulled back some.

So just talk about the competitive environment in that as well. Yeah, I think Richard, there’s not a whole lot more to say. Uh, with better help, uh, about focusing on the combination of growth and margin. We, we always try to optimize that business. Um, I, I will say, for example, I, I’ll, I’ll point out a couple of things that have yielded improvements in the margin, especially the gross margin on that business.

Um, we’re, we’re leaning more into, uh, digital interactions with consumer. As well as, um, group virtual group therapy sessions, which is a more efficient way of interacting with the consumer, improves the gross margins. It actually has the, um, sort of, uh, the, the, um, Other effect of actually depressing our visit volume.

Uh, so that’s, you know, we, we actually see fewer visits, fewer visits in the better health business is actually good because it improves our gross margin and enables us to serve more people with fewer professional resources. So that’s an example of some things that are good for lifetime value of a consumer, good for member retention, and also good for margin.

When, when I think about margin or market share, Richard, uh, I’ll, I’ll just give a, a couple of comments relative to what we’re seeing in the overall landscape. I, I’ve spent a fair amount of time recently, um, with a number of our clients, both some of our largest clients as well as, as, as I mentioned at our client advisory group, and then also with other, um, CEOs in the healthcare industry.

And we’re definitely seeing a, an impact from a tightening economic environment and a higher cost of capital impacting some of the smaller companies. Uh, in fact, I was with a very large client yesterday and. You know, the, the challenge of, uh, of, of them, quite frankly, questioning whether some of those, uh, smaller companies are gonna be able to survive is definitely top of mind for them.

So, you know, I, I’m not sure that I would say that we’ve seen a, a massive shakeout yet, but I’m hearing quite a bit among both clients as well as other healthcare companies, uh, that is very much attuned to that.

Thank you. Our next question comes from Jalin Singh from Tri Securities Jalin. Your line is now open.

Thank you and thanks for taking my questions. Um, Jason, I was wondering if you could spend a little bit more time on the BBC Bs pilot program. You called out just in general trying to understand the role Teladoc is expected to play in the shift to value-based care. Clearly the outcomes are pretty encouraging, but I’d like to understand if Teladocs role is going to evolve in the shift.

Should we think about the company more as a, as a VBC enabler, or should we think about them as, uh, the company taking more risk at some point in future? . And if you can quantify, uh, how much would the benefit in the quarter from this, uh, shared saving? Yeah, sir Giro, welcome back. It’s nice to hear from you.

Uh, I’ll, I’ll talk about that specific shared savings pilot, um, and maybe a little bit of the downstream impact that we are, we are seeing from that. Um, I’ll, I’ll probably defer on, uh, it’s, it’s a small, uh, shared savings bonus, so, uh, I’m not gonna quantify what that. It’s immaterial to the quarter. Um, but what I will say is, you know, we signed up for, uh, uh, a program specifically focused on, uh, on, uh, chronic conditions.

In this case it was diabetes management. Um, and we had a base pm PM and the opportunity to share in the savings that we generat. Uh, we significantly outpaced, uh, the savings that was expected. Uh, as I said in the, in my prepared remarks, uh, we beat it by 60%, uh, relative to the target. Um, the way that that deal was structured, we had a risk corridor.

Where we had shared savings, uh, where we share in the, in the savings with the health plan in that risk corridor. Uh, and that worked out great for us. I, I think one of the, the downstream impacts that maybe isn’t quite as obvious is that that client, as a result of our significant success, has accelerated the expansion, both in terms of the population that we serve and also.

The number of products and services that we bring to their populations. So we, we got the benefit of, uh, a little economic boost from, uh, the, the shared savings bonus that, that in order to us, the bigger impact, quite frankly, is acceleration of the expansion of. Both our products and the population that we serve, uh, within that client.

It also sets us up for, um, great learning as we lean into more of those, uh, value-based arrangements, uh, where we’re very happy to put our fees on the line. Uh, to guarantee both clinical and economic impact. And, and, and we, we can do that because of the underlying data science and our significant track record and scale of making that impact.

And I would add that it sort of, um, generates the return on the investments that we have been saying we are making in all of our data infrastructure over the past 18 months to two years. So this is an example of the return on investment such as,

Thank you. Our next question comes from Ryan Daniels of William Blair. Ryan, your line is now open.

Yeah, guys, thanks for taking the questions. Jason, wanted to go back to Primary 360. It’s interesting that you’re seeing, you know, higher utilization high n p, so I’m curious if there’s an opportunity to move into value-based contracting with that as well, so that you might be able. Garner shared savings is the, uh, the better utilization with your clinicians drives better outcomes over time.

Yeah, Ryan, I appreciate that. I, I, I’ll go through just a couple of other stats that I didn’t include in my prepared remarks. We’re very, very pleased with the progress in Primary 360. As I sat down with some of our largest employer clients, uh, some of the things that they were most moved by was not just the things that I talked about, the data points that I talked about relative to treating members with chronic illnesses, but especially the fact that what we’re seeing.

60% of our primary 360 members who engage with uh, a virtual primary care relationship haven’t seen a physician in the last, in at least two years. And, and, and almost 30% of them say that they wouldn’t have seen a provider. If they didn’t have access to, uh, to Primary 360. And so those are some of the things that when I talk to the largest employers who are interested in the long-term health of their employees.

Are really focused on, because we know if we can’t engage consumers and they’re disenfranchised from the healthcare system, they’re never going to do early identification of chronic conditions, uh, or, or take the necessary steps relative to appropriate screenings. Uh, when we talk to large health plans, they’re very focused, as you might imagine, right?

On star ratings and closing, uh, and HEDIS measures and closing, closing gaps in care. And, and because of all those reasons, Ryan, you’re exactly right. We are starting to lean into, uh, value-based arrangements with some of our health plan partners, um, and to a lesser degree with our employer partners, uh, for Primary 360, and I think you’ll see that continue to evolve over time.

Thank you. Our next question comes from Sean Dodge of rbc. Sean, your line is now open.

Yep. Thanks. Uh, good afternoon. Um, maybe going back to the, the gross margins for a moment. Um, so on a consolidate consolidated basis, those stepped up pretty considerably the, the last couple of quarters. Now, um, Jason, you mentioned the, the better help example, you know, I guess beyond that, um, is there any more detail you can give us on, on drivers?

There are, are there any one time items in, in that and, and so with you closing in. Gross margin, 70%, 69.6, adjusted for this last quarter. How sustainable should we think about that being, uh, going forward? Yeah, Sean. Um, you know, if you think about the performance we’ve had in our gross margin, and you’re exactly right, we have been seeing the uptick in the, in our gross margins as we, as we have gone through the year.

Um, you know, the biggest increase is coming from improved efficiencies, uh, in better help, as we talked about in our, um, you know, specifically the driver. That, that is, uh, helping in our gross margin. Um, it is really around the, the utilization dynamics of the membership base. Um, as we talked about, um, you know, we are seeing members engaging a little bit more digitally.

Um, and we are also seeing members utilizing things like group therapy more. Um, and it’s those kinds of things that lead to greater efficiency, uh, and therefore are improving our gross margin as we go through the year. . Um, the other thing to also note, and we have talked about this, um, you know, we, if you think about our provider model, we are certainly advancing from what, a few years ago was a purely 10 99 model to a bit more of a hybrid model.

Uh, and that. Uh, is also, uh, going really well in terms of gaining more productivity and efficiency. We are really pleased with the productivity metrics that we are seeing on the part of the providers who are now our full-time employees. Um, and we’ll continue obviously to monitor that and optimize that, but it is things, initiatives like that, that are driving the more sustained, uh, impact on our gross margin.

Our next question comes from it, Jessica Tess from Piper Sandler. Jessica, your line is now open. Hi. Thanks so much for taking the questions. Um, and congrats on the good quarter. Um, we were hoping you could maybe give us some color. Just on how pricing within chronic care is trending, um, as, especially as you continue to see multi solution kind of adoption and bookings.

And then just how should we think about the growth rate of the chronic care business, um, exiting 22 and into 2023. Thank you. Yeah, Jess, I’ll take the pricing question and Molik can comment on growth. Um, we’re seeing pricing hold in the CCM market. Uh, I think for probably, uh, two, maybe three reasons. One, as you, as you mentioned, most of our sales now are multi-product sales.

Uh, and so the, the, the truth is there aren’t, uh, many out there who can match even a portion of the, the full portfolio that we have, much less the entirety of. And so there, there is less apples to apples in buying the entire bundle of services. Uh, so it, it gives us the opportunity to be a little bit more, um, uh, clear about defining the price, uh, rather than having to react to a head-to-head, uh, single point solution, uh, competitive bid.

The second reason I would say is because, um, of what we talked about, We are willing to put our fees at risk for the clinical outcomes that we drive. Um, and because of that, it kind of de-risks the, uh, offering for the clients who are buying it. Um, you know, when we are willing to put our ourselves at risk and our fees at risk for those clinical measures, uh, and in some cases for, uh, guaranteed.

Uh, that, that enables us to, uh, keep pricing, uh, solid. And even in many cases, as you heard with that, uh, pilot with the Blue Cross Blue Shield plan, have upside opportunity relative to shared savings. And then the third reason I think is just because of our track record and our stability. , uh, what I mentioned earlier about fear among buyers, about whether some of those smaller players are going to be able to continue to exist, uh, in a more difficult, uh, cost of capital environment.

Um, that that does play in our favor relative to our scale stability, uh, and longevity. So I, I think generally what we’re seeing is that, uh, that it’s staying. And then Jess, in terms of your question around chronic care growth, revenue growth, um, you know, we expect high single digit, uh, chronic care revenue growth this year.

Um, and that’s what I would expect to, uh, have exiting through the end of this year into next year.

Our next question comes from Stephanie Davis of SVB Securities. Stephanie, your line is now.

Thank you. Thank you for taking my question guys, and congrats on a solid quarter. Could you, um, walk us through some of the granularity on the EBITDA beat and the upside surprises such as greater sales efficiency or, um, any benefits from the Blue Cross Blue Shield shared savings relationship, and given that upside, are you still considering a similar magnitude of DTC ad cuts to fuel the four Q ramp?

Or could you moderate this a bit more to focus on growth, especially when you think about January and February’s impact on that. . Yeah. Yeah. Um, thanks Stephanie. Um, so in terms of the drivers of the beat, um, the majority of the upside came on the cost side of the equation. So given the revenue performance this year, uh, and uh, obviously in light of the macroeconomic environment, we are looking more closely at efficiency, uh, like many other companies and.

All those efforts I mentioned, some of those efforts resulted in just better margin pulled through in the quarter, um, relative to our internal expectations, um, the biggest driver of our margin beat was on the technology and development line. . Okay. Uh, at the second driver was the gross margin performance, and I just walked through, uh, the drivers of the gross margin performance, especially and largely at Better Health, uh, as we are seeing ization dynamics.

In terms of your question around what does this mean for the full year, uh, adjusted EBIDA and the RAM for q4? You know, the, the way we I’m thinking about it is the following. Um, We have, you know, when we talked about our full year adjust BDA expectations last quarter, we expect it to be near the low end of our prior guidance range.

Um, our updated guidance assumes that we can deliver our adjust bda. Solidly at the, in the range that we have, um, just talked about the 250 to 240 to 250 million range. Um, but if I just take a step back and think about the Q4 adjusted EBITDA performance and therefore the fuller, um, you know, it’s still calls for the sequential ramp that will be largely driven by the.

Seasonally the seasonal lower advertising expense in the fourth quarter. And again, I would remind you what we have said before, this is not new, right? If you think about the ad spend dynamics that we have had, uh, pre covid, the pullback in Q4 of our ad spend is something that we were doing in the better health.

um, you know, every single year, just because we optimize for pricing, we optimize that business for returns and therefore as ad spending becomes much more expensive in the holiday season, sort of, we, we sort of manage our ad spend around that. Um, it happened, it through Covid that those dynamics changed, became far more muted.

And we are just now going back to what was pre Covid dynamics. Um, of course, Better help as you, as you know, is just a more scaled business now than it was, you know, pre covid. So it is a bit more visible in terms of those dynamics. Um, and then, um, the, the other thing I would say is just in terms of q4 uh, adjusted Vida ebitda, We do anticipate a sequential step up in technology and development spend in the fourth quarter as we continue to invest in the business.

That is included in the guidance that we have given out for four Q for

Our next question comes from Charles Re of Cohen. Charles, your line is now open.

Uh, yeah. Thanks for taking the question. Uh, Jason, you know, you, you gave us some metrics around Primary 360, um, and, and, and I think you characterized it as, uh, for members who have engaged with it. Can you give us a sense for, you know, for those members who, uh, , it’s available for what the actual uptake has been in terms of members, uh, selecting, uh, a virtual primary care team.

And, and then secondly, what are your expectations then, as we think about for HC s e next year, if it’s available to their self-insured clients? I is, is the selling efforts really driven by you, or is that, is that something that’s driven by HCS in terms of, uh, pushing the product? Yeah, it’s, um, it’s always a team approach.

Uh, we work with our partners to engage their self-insured clients. Their self-insured clients have to make the decision that they want to go with Primary 360 or any of our chronic care management programs. Uh, and so that’s a, that’s a team cell, uh, and our team is deeply engaged with, with theirs. . And as we’ve said, that’s a multi-year, uh, approach.

So, you know, we expect to see the benefit of that over the course, uh, of multiple years as we penetrate that book of business. And the other, uh, health plan partners that, uh, that we work with, you know, with respect to, um, the overall population. We now have several hundred thousand, uh, members who are eligible for Primary 360 through their insurance coverage.

Uh, we have tens of thousands, uh, of members who have enrolled in plans, uh, that, that are, that have primary 360. Uh, as an integral part of them, uh, we’ve done thousands of primary care visits this year and it’s growing rapidly. So remember, this is really the first year that we are in the market with that product, and we saw a significant step up in volume in the third quarter versus the first half of the year.

Uh, but we haven’t quantified at, uh, at this point. We haven’t given. Uh, a, um, a, a, a direct number on either the penetration of the population that’s eligible or the total number. I think you’ll see us continue to do, expand, uh, the clarity on that as we get through the end of this year and into next year, and quite frankly, through this open enrollment season.

Our next question comes from Daniel Gross light of cii. Daniel, your line is now open.

Hi. Thanks for taking the question. Uh, just a, a quick clarification before I get into my actual question. Did you say the, the blue, uh, blue shield bonus contributed to this quarter? And are you able to quantify that? Uh, and then my, my question no is on 2023 revenue I’m sorry. Go ahead. Go ahead. So, Danielle, it, uh, it was immaterial to this quarter.

Okay. Is it gonna hit next quarter or It’s immaterial to your, to, to your revenue guide? It’s in material. It’s in material. . Okay. Got it. Okay. And then as I think about revenue growth for, for 2023, Jason, you mentioned your pipeline is similar to where you were last year. Uh, attrition is a bit better if you’re likely to see a step down in better help growth next year.

Assuming a softening economy, should we think about growth rates for 2023 at slightly below where you are, uh, based on your 22 guidance, which is around 18% year over. So we’re not gonna give, uh, guidance today. We’ll do that in February. Uh, you know, what we tried to do is give you sort of the components, uh, of, of how to think about that and how to start modeling that.

Uh, and so, you know, I’m, I’m gonna, I’m gonna stop short of going further than that. Uh, I think I’ve given quite a bit relative to the bookings thus far, the pipeline thus far, and, uh, and how we’re thinking about better help and obviously, At a billion dollars. You know, that’s a, that’s a big business and, uh, and, and it takes a lot to continue to, uh, to drive those very impressive growth rates.

Our next question comes from Elizabeth Anderson, from Ecor Elizabeth, your line is now open.

Hi there, this is Samir Patel speaking on behalf of Elizabeth Anderson. Um, thanks guys for taking my question. Um, I was just wondering, uh, what are you guys seeing in the market in terms of the pricing on virtual first plans? Is it coming up cheaper or not so much? Any light would be would be great. You, you mean in terms, I assume of the, the pricing, the premiums to the end consumer, uh, or the end buyer?

Um, we actually have seen, I, I, what I can tell you is what we’ve seen last year. I don’t think everything’s fully baked yet, and in the market, Uh, relative to the exchanges and things like that, what I can tell you is that the exchange, the virtual first exchange products that we were part of, uh, in, uh, for this year were not the least expensive priced, uh, on the exchange.

Uh, and I think that actually is a really positive. Uh, I think it’s a, a demonstration of the value, uh, that, uh, that consumers are seeing in those virtual first plan designs, because all in the premium may be a little bit more, but, but ultimately the benefits are richer because the cost sharing is less.

And it’s a plan that meets them on their terms. And so we’re actually very pleased, uh, with what that looks like, uh, for, for this past year for, for pricing for 22 plans. And we’ll see what happens as we, as we head into 23. But so far the experience has been very good.

Our next question comes from Steve Val from Barclays. Steve, your line is now open.

Hi everyone, this is Tiffany Allen for Steve. Thanks for the question. Um, I think you talked about the macro impact on the DTC side. I was wondering if you could give a bit more color on maybe what you’re seeing on the B2B side in terms of, um, like macro environment and employer sentiment. Thanks. Yeah, I, the, I think the only thing we’re seeing directly is a little bit of distraction among, uh, HR executives who are responsible for both, uh, managing the benefits, uh, and, and, and health of their, uh, employee base, and in many cases are facing a difficult inflationary environment.

uh, where they have to think about managing their workforce in a different way. And of course, we’re all dealing with, uh, you know, workforces that are now remote more than in physical locations and office buildings. So I think there’s just a, a little bit more distraction in the current environment. But what we haven’t seen is, and you know, again, I, I think in the, in the first two quarters, I would’ve said that caused a little bit of slow, slow down in decision.

uh, among employer, uh, benefits leaders. Um, we saw that, like I said, I, I described the, the third quarter as a bit of a catch up quarter. With respect to bookings. Uh, and so I think that the employer, um, greater focus in the third quarter led in part to that, uh, and enabled us to break through some of that.

So I don’t yet see a significant impact on, uh, employer buying patterns. . Uh, the, the thing that’s also, um, hard to sort of pinpoint is, you know, if the, to the extent that there is a potential recession, what is the impact to our business? You know, it’s virtual care was not really around in the last recession, so, um, so we don’t, you know, exactly.

Have a lot of history to lean on.

Our next question comes from George Hill of Deutsche Bank. George, your line is now open.

Yeah. Uh, good evening guys, and thanks for taking the question. I guess I’ve got one for Jason and one for Molly. Jason, you talked a lot about kind of the margin opportunity and looking into 23 focused on cost opportunities as opposed to kind of outsize revenue growth. I guess my, my big picture question would be is do you feel like the company is.

Sized from a cost perspective and kind of how aggressive do you feel like you could be there to attack costs? And then model. Just kind of a, a housekeeping question on gross margins. You talked about the gross margin expansion being attributed to the growth and better help. Uh, if we see some of that consumer weakness that a lot of people are talking about for 23, would we expect to see gross margins revert a little bit?

Yeah. So I’ll take, uh, I’ll take both, George. Um, so in terms of, um, sort of the, the cost control, here’s what I would say. You know, we are always conscious of managing our costs. Um, that is, that is not a new thing. And you know, if you look at the current macroeconomic environment, as I said a few minutes ago, it does.

All companies to be more focused on managing costs, and we are no exception to that. Um, we’ve certainly increased our efforts to control expenses. You know, we’ve talked about that as, as we talked about the adjust beat for the quarter. And so we are. Pleased with seeing the results of those efforts. Um, you know, we have, we are being intentional in terms of multiple initiatives to date that are focused on driving the cost side of the equation.

So I’ll give you an example. Um, you know, we have had a project underway for several months now, um, where we. Seeking to make several of our financial systems more efficient and streamlined. Um, as we talked about, we are consolidating our real estate footprint. You know, in a world where a large number of our colleagues are working remotely.

Um, you know, we have assessed, evaluated, and we have begun to reduce the amount of office space that we need to maintain. That’s just two small examples of many of the initiatives that we have underway. Um, so I would say. We did not to be clear, say anything really about revenue growth rate for 2023. We will as always provide more specific outlook, uh, more specific guidance when, uh, we do our Q4 call in February.

Um, but we are looking for ways as always, to optimize our cost structure and. . Um, we will take an even closer look at that as we head into 2023. Uh, I will say though, in con, uh, at, at, you know, in conclusion, we will look at it and we will be thoughtful about how we balance efficiency with the need to make the right investments to continue to drive our top line revenue growth as.

Said before, there is still an enormous runway for top line growth in this space. And it would be a shame for us to not make those right investments to continue to capture that growth. And we are really well positioned based on all of the things we have set on the call until now to go do that. So as always, we will look for both, um, um, looking at our cost structure, optimizing it, and making the right investments towards longer term revenue.

Our next question comes from Cindy Motes of Goldman Sachs. Cindy, your line is now open. Hi. Thank. Hi. Thanks for taking my question. Um, I just wanted to go back to chronic care a little bit. So in the quarter, um, you, you lost a, a client and, um, You’re down a little bit, but it, judging by the enthusiasm and the bookings, it feels like that’s, that we can assume maybe that’s gonna go up next quarter with the guidance and then with the PM PMM as well, you said, you know, it’s sort of stable.

So I would think the overall PM PMM we could assume then is gonna rise is, is that correct? I mean, we’re not giving specific outlook on ccm, on chronic care revenue or, or membership in q4, but you’re exactly right. We’re, we feel, we feel good about where the overall CCM product portfolio is and the receptivity in the market.

You know, Mala called out, um, what the growth would’ve been absent, uh, this, this one, client loss. We would’ve added 16,000, uh, enrollment. Uh, members of in, in enrollment and 26,000 in total program enrollment. So, um, you know, we feel good about that, especially in the fourth quarter of, or sorry, in the third quarter of the year.

Uh, so, you know, we’ll, we’ll continue to feel good, especially as we look at the bookings for the. Uh, and heading into next year. And then Molik, I think gave, uh, the, um, sort of general outlook as far as, uh, CCM growth, uh, a as we look forward.

Thank you. That was the final question for today. So that concludes of conference call. Thank you for joining. You may now disconnect.

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