Teladoc earnings notes

https://www.fool.com/earnings/call-transcripts/2021/02/24/te…

2020 1B revenue; 10.5m virtual visits; 3.9m visit for InTouch

Onboarded 15m new paid members.

Q4 383m revenue 145% increase YoY; organic growth of 79% YoY

per share loss would have been .27 cents without LVGO merger

78-83% revenue growth yoy forecasted for 2021

40-43% proforma

51.8m US paid membership; 41% increase YoY
21.3m visit fee only
Total chronic care 596,000 members

787 m cash, total debt 1.4B

Adjusted gross profit for Q4 $260m, adjusted gross margin 67.9%

Our enterprise solution enables the full suite of virtual care, regardless of the consumers’ needs across any location. We see growing demand as health systems around the globe look for an enterprise-wide secure integrated virtual care solution.

We have the capabilities to deliver and manage care virtually across the spectrum for consumers, ranging from wellness and prevention to coordination of care for people living with chronic conditions to high acuity for those dealing with critical illness. The combination is resonating in the marketplace, and we have signed multiple cross sales since closing the Livongo transaction.

Our confidence in that strong revenue growth is underpinned by, first, continued growth in utilization, particularly among noninfectious disease-related visits such as hypertension, lower back pain, anxiety and depression. During the fourth quarter, approximately 75% of our visit volume was related to noninfectious diseases, up from 50% in the fourth quarter of last year as our visit mix continues to diversify, a trend that has continued into the New Year.

We’ve also seen tremendous growth in new registrations over the past year with newly registered individuals growing at twice the rate of new member additions. Registered member growth creates opportunity for deeper engagement and is a leading indicator of forward utilization.

Growth in specialty visits has been particularly strong, led by growth in behavioral health, which experienced visit growth of over 500% in 2020 as the growth in visits accelerated throughout the course of the year. All of that comes together to give us tremendous confidence in our visit volume outlook.

Second, we have built a robust and growing pipeline of multiproduct sales, including strong demand for our whole person chronic care program. In 2020, two-thirds of Teladoc deals were multiproduct deals. And our experience shows that client retention, member engagement, and PMPM growth are all significantly stronger for clients that use more than one of our products.

Lisa Gill
Thanks very much. Congratulations on a great year, Jason. I just really want to understand just a couple of really quick things. You gave us so much information. Thank you to you, Mala. But, the first would just be around U.S. paid members, retention rates, competition in the marketplace. I know I usually ask about the selling season, but I know it’s a little early for that right now. But, just really want to understand how you’re thinking about the competitive market right now around what you saw on the retention side, because you clearly added a lot of new business.

And then, secondly, you did talk about dozens of cross-sell, Livongo pieces of business in 2021 that are included in 2021. Is there any way to quantify that so we can start to think about reaching that $0.5 billion goal that you set when you made the transaction?

Jason Gorevic

With respect to retention rates, they continue to be at high levels, consistent with historic levels, which have always been in sort of the low to mid-90s. We can continue to see that. And in fact, what we’re seeing is the pipeline is growing actually faster than we’ve seen in previous years. When I look at our membership opportunities, sort of the growth opportunities in our pipeline, the membership opportunity is up over 50% relative to the same time last year. And I think that that’s really indicative of the market and clients recognizing the value of the full solution that we have and the unique position that we occupy.

And I’ve had a number of large client discussions over the last several weeks as we start to move into this selling season and we start to talk about the opportunity of the full credit answer sort of that full solution across all of our product portfolio, and it is truly differentiated. So, I was just talking to a regional blue plan who I believe we will take away from a competitor who has a much narrower set of products and can’t compete in the evolving landscape and sort of the new paradigm that we’ve created.

With respect to the cross-selling what I think we said is over a dozen cross sales. Those will roll on over the course of 2021. And I would say, we’ll have some impact on the back half of the year, but relatively small in the back half of this year. What we’re really looking at is impact on 2022. And we still feel very good, in fact, better than we’ve ever felt before about the prospects for our revenue synergies.

Just sort of characterizing the cross-sell opportunities, we look at the pipeline today versus the pipeline just sort of the middle of last quarter. And remember, we started commercial collaboration long before we closed the Livongo transaction. And we’ve more than doubled the pipeline of cross-sell opportunities. So, I feel very, very good about it. We’ve taken, I would say, a relatively conservative view of the contribution from the revenue synergies in 2021 and believe that those will materialize much more significantly in ‘22 and beyond.

The impression I got from review the earnings transcript was that Teladoc is creating a unique company in the health care space. They are growing rapidly and will continue to do so into the foreseeable future. The just seem to have a lot of avenues for revenue growth within the own company.

One of the most interesting things that I read was the idea of risk-sharing arrangements or share of savings arrangements. Mentioned in Q&A. Maybe others on the board were aware of this possibility but it was new to me. I believe the concept would be that insurance providers would potentially share some of the savings created by the teledoc’s services, which I would think could be huge potential revenue source.

Richard Close
So, I was going to drill down on membership, but that’s been hammered on here. But, can we talk a little bit about primary care, Jason? And how you’re thinking about that? Obviously, the comments on the pilots were positive. How do we think about the business model for primary care? What metrics you’re focused in on there? And then, does it shift the revenue model more from an episodic type of payment to more recurring, or just overall, how does that model evolve?

Jason Gorevic
Yes. I appreciate the question, Richard. We’re really excited about the prospects for Primary360. We have a very, very large and diverse pipeline of opportunities for that model. And it ranges, honestly, from higher PMPMs, plus a wider variety of visit fees because, of course, a 30-minute introductory visit with a new primary care relationship is going to be worth more than an annual check in or a symptomatic visit, for example. Having said that, we’re also talking to a number of health plans about putting in quality metrics and incorporating more value-based reimbursement associated with our ability to move the needle on quality of care. And I think that will start with small steps along the lines of documented improvement in screening – rates of screening and appropriate preventative care and move toward more impactful outcomes-based measurement and ultimately the opportunity for us to enter into risk-sharing arrangements or share of savings arrangements with some of the payers. We’re already having those discussions, but we’re also very cognizant that we need to step carefully into that and make sure that we have the right data to be able to enter into those relationships with eyes wide open and know where we can make the biggest impact. So, I think you’ll see an evolution of that model, but in all of those cases, a significantly higher revenue per member for those who were serving with our Primary360 product.

Many times when companies merge or buyout other companies they talk about synergies but those synergies sometimes never develop. However with Teladoc I do not believe that is the case. It is my opinion that they are creating a company that has unique offerings/value proposition for their customers.

They have a lot going on and seem to be growing in a lot of different ways. The fact they are projecting 83% revenue growth in 2021 and the CEO thinks you are not going to see the benefit of the merger really pay off in 2022 is a good sign. The additional idea of mining data that is being captured by TDOC to potentially have future shared risk revenue sources seems potentially huge to me. That would be a hard place for someone to compete with because you would have to really, really understand the data to ensure revenue structure that was beneficially. Without that data it would just be wild guess and way too much risk. Makes me think of serious future wide moat on the revenue stream.

One negative thought I had while reading transcripts is how big is the international market opportunity with so many countries having socialized medicine? What happens if the U.S. moves to more of a socialized medical system? I do not know those answers but I would not think it to be a positive?

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Rd, thank you for that good summary and interpretation.

One negative thought I had while reading transcripts is how big is the international market opportunity with so many countries having socialized medicine? What happens if the U.S. moves to more of a socialized medical system? I do not know those answers but I would not think it to be a positive?

I’m no expert on healthcare policy, but there are two separate issues here: potential downward pressure on international expansion and a potential bigger risk for the domestic (US) business. I speak mostly about the second. The reason I don’t consider this a substantive risk right now for Teladoc is that there seems to me to be a big difference between (a) the national government providing the service and (b) the national government paying for the service. I think in the purest form of “socialized medicine” ((a)), every employee in the chain would get their paycheck from the government, while with (b), private companies of most stripes would still operate very similarly to the way they do now, with the primary difference being that the government only [basically] replaces the health insurance industry, rather than replacing the “providing of health care” part. I’m about 99 and 44/100 % sure that in the US, ONLY version (b), which goes by the name “single payer” in certain circles, is even up for discussion. If a highly-unlikely (a) situation were to somehow come to pass in the US, we’d be living in a much different world anyway, so it’s hard for me to tell what the non-government HC market (the Lexus model for people who don’t want what the government would be offering) would look like. Someone familiar with how that 2-tiered system works in other countries would have to shed some light there, including how Teladoc would fit.

Now, while single-payer HC might not threaten the existence of all private/for-profit HC entities, it could affect how much money they can make (tighter caps on what they can charge, for example). I don’t personally consider single-payer to be “socialized medicine” because I’d still be using a private provider I choose, but I understand that others might disagree. I think it’s an important distinction to make when it comes to describing and accounting for risks of investing in Teladoc or any company in the HC field.

Where I could see a flipside argument internationally, though, is that some countries could consider privatizing parts of their system, or contract with Teladoc for what they offer. Maybe that remains an opportunity, along with the normal/unaffected systems where they’re in place or improving now.

-n8 (my positions subject to such potential risk: TDOC, NARI, and FLGT)

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I want to point out that Medicaids from multiple states (as well as Managed Medicaids) have informed healthcare providers that they will stop covering telemedicine service starting in April. Many commercial payers have already stopped covering for telemedicine service or cut telemedicine reimbursement to 80%. I assume these could have some degree of impact to Teladoc and telemedicine as a whole? Just FYI.

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I want to point out that Medicaids from multiple states (as well as Managed Medicaids) have informed healthcare providers that they will stop covering telemedicine service starting in April. Many commercial payers have already stopped covering for telemedicine service or cut telemedicine reimbursement to 80%. I assume these could have some degree of impact to Teladoc and telemedicine as a whole? Just FYI.

My understanding is that the standard reimbursement for Telehealth has been 80% for some time (without supplemental). Further, Medicare payment for many services delivered via telehealth has been extended through 2021, at least; both per the data below.

From the Medicare.gov website: https://www.medicare.gov/coverage/telehealth

Telehealth
Medicare Part B (Medical Insurance) covers certain telehealth services.
Your costs in Original Medicare
You pay 20% of the Medicare-approved amount for your doctor or other health care provider’s
services, and the Part B deductible applies. For most telehealth services, you’ll pay the same
amount that you would if you got the services in person.

From the AMA website: https://www.ama-assn.org/practice-management/medicare/final-…

The Centers for Medicare & Medicaid Services (CMS) extended Medicare payment for many services
delivered via telehealth at least until the end of calendar year 2021…

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I want to point out that Medicaids from multiple states (as well as Managed Medicaids) have informed healthcare providers that they will stop covering telemedicine service starting in April. Many commercial payers have already stopped covering for telemedicine service or cut telemedicine reimbursement to 80%. I assume these could have some degree of impact to Teladoc and telemedicine as a whole? Just FYI.

United Healthcare is trying to get me to use Telemedicine. They will give me a 5 dollar credit if I sign up for it.

Andy

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That is correct that Medicare and Medicare advantage plans are still covering. However, Medicaids and commercial insurances have started to cut already. Some states have seen significant increase in number of Medicaid patients due to the pandemic.

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Telemedicine=earlier diagnosis=happier insurance cos.=growth in TDOC

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