With the search for a new CEO underway, Teladoc Health Inc. is grappling with pressure on its direct-to-consumer (DTC) BetterHelp business and slowing growth in the telehealth market. During the company’s first-quarter earnings call Thursday, acting CEO Mala Murthy sought to reassure investors that the virtual care giant is well-positioned for future growth despite these challenges.
Following the abrupt departure of longtime CEO Jason Gorevic earlier this month, Teladoc is focused on boosting its top- and bottom-line performance as its shares have plummeted more than 40% year-to-date. “Teladoc is in a time of transition. And, as part of this evolution, the board of directors decided that it was time to look for a new leader for our company, someone to help us write the next chapter in our growth story,” said Murthy, who also serves as the company’s chief financial officer.
CEO Search and Transition Plan
The board’s search for Gorevic’s successor is well underway, and a permanent CEO will be named later this year, according to Murthy. “We are not waiting. We have a plan to deliver, we have investments to execute, and that is absolutely our focus,” she emphasized, referring to the company’s management team. Murthy acknowledged Gorevic’s “tremendous legacy having firmly established Teladoc as the industry leader in whole-person virtual care” during his 15-year tenure as CEO.
Solid Q1 Performance and Growth Opportunities
Despite the challenges, Teladoc reported a “solid start to the year, with strength in both revenue and adjusted EBITDA in the first quarter,” Murthy said. The company generated $646 million in first-quarter revenue, up 3% from a year ago and beating Wall Street analysts’ expectations of $637 million. Access fee revenue grew 1% to $557 million, and other revenue grew 14% to $89 million. Teladoc’s U.S. revenue increased 1% to $548 million, while international revenue grew 13% to $99 million.
The integrated care segment, which targets health plans, employers, and health systems, brought in $377 million, up 8% from the same period a year ago. Integrated care membership grew 8% to reach 92 million, and membership in Teladoc’s chronic care program grew 9% to 1.1 million. “We are also seeing growing interest in our weight management solution from employers who are grappling with rising costs for GLP-1s and employee demand for these products. The addition of approximately 2.2 million members on a sequential basis since Q4 represents additional greenfield opportunity for future cross-sell and product penetration,” Murthy noted.
Pressure on BetterHelp DTC Business
However, revenue for the BetterHelp virtual mental health segment decreased 4% to $269 million, driven by a decline in paying users and higher customer acquisition costs. BetterHelp had 415,000 paying members in the first quarter, down about 11% versus the same quarter the previous year. The company also reported roughly 4.6 million total visits, down from 4.9 million visits during the same period a year ago.
Competitive Landscape and International Expansion
This week, UnitedHealth Group’s Optum confirmed it is discontinuing its telehealth business, Optum Virtual Care. In response to a question from an investor about potential opportunities from a competitive perspective, Laizer Kornwasser, president, enterprise growth and global markets, said, “We have a very strong relationship partnership, and we value the relationship that we have with UnitedHealthcare, and we foresee that strong relationship continuing.”
Teladoc is eyeing growth for its behavioral health business in international markets, particularly the U.K., Canada, and Australia. “We are excited about the international opportunity, particularly in select English-speaking geographies that are relatively underpenetrated compared to the U.S. market, which will allow us to reallocate some advertising and marketing dollars at a higher marginal return as we continue to build out our infrastructure in those markets,” Murthy told investors.
Financial Performance and Outlook
Teladoc reported adjusted EBITDA increased 20% to $63 million, compared to $53 million a year ago. Integrated care segment adjusted EBITDA increased 36% to $48 million, while the BetterHelp segment adjusted EBITDA decreased 12% to $15.5 million. The company’s net loss during the first quarter ballooned to $82 million, or a loss of 49 cents per share, compared to $69 million, or a loss of 42 cents per share, during the first quarter of 2023.
For the second quarter, Teladoc provided a light outlook, with revenue expected to come in between $635 million and $660 million, versus the consensus estimate from Wall Street analysts of $663 million. The company projected integrated care revenue to grow 2% to 5% and BetterHelp revenue to decline by 4% to 8%. “Our second-quarter guidance reflects challenging cost per acquisition through early Q1, which caused us to pull back on our advertising dollars in the quarter in keeping with our goal of balancing growth and margin,” Murthy explained.
For the full year, Teladoc expects low to mid single-digit growth for the integrated care segment and flat to low single-digit revenue growth in BetterHelp. “We are seeing signs of stabilization in our cost per acquisition in more recent weeks, which gives us increased confidence in the back half of the year for a BetterHelp business,” Murthy said.
Commitment to DTC Approach and AI Integration
Despite market headwinds, Teladoc remains committed to the direct-to-consumer approach for BetterHelp. “With the scale that BetterHelp has, over $1 billion in revenue, it is by far one of the largest DTC players. There are other competitors in the market who have tried DTC and moved away to B2B. We have built scale in DTC, and I would say we will continue to focus on DTC,” Murthy stated.
The company is also looking at ways to accelerate top-line growth, including driving growth in the smaller BetterSleep part of the BetterHelp business. Additionally, Teladoc continues to integrate artificial intelligence (AI) models across nearly all aspects of its business, from provider matching to enrollment optimization to member engagement. “This automation is helping us not only reach our revenue and profitability goals, but also achieve our mission of improving health by reaching more consumers,” Murthy said.
With more than $1 billion in cash and cash equivalents on its balance sheet, Teladoc has “significant capacity and flexibility to invest and innovate” in the business, according to Murthy. As the company navigates the CEO transition and evolving telehealth landscape, its focus remains on driving growth, profitability, and innovation to maintain its leadership position in the virtual care industry.
