Teladoc brings in $660M in Q3 revenue, reaches 90M members as executives focus on boosting bottom line

Teladoc's third-quarter revenue grew 8% to reach $660 million, boosted by solid performance in its chronic condition management business and steady membership growth as the company now touts 90 million users.

The telehealth giant, which has been in operation for 20 years, also narrowed its losses this past quarter to a net loss of $57 million, or 35 cents per share, compared to a net loss of $73.5 million, or 45 cents per share, for the third quarter of 2022. 

The company's stock dropped 5.8% in after-hours trading Tuesday as revenue fell just shy of estimates. The FactSet consensus was for a loss of 37 cents and revenue of $664 million. 

The stock has fallen 23% in the year to date, according to MarketWatch.

"We're disappointed with the valuation of the stock today, which we don't believe adequately reflects the value we are driving today and will continue to drive in the future," Teladoc CEO Jason Gorevic said during the company's third-quarter earnings call Tuesday. "We also know there are significant opportunities to add value through improved business performance."

The company initiated a comprehensive operational review of the business, he said. "This review includes two broad components. First, we have undertaken a portfolio assessment to identify any opportunities to sharpen the focus across our portfolio of products and services and ensure investments remain highly selective and prioritized in the direction of our integrated whole-person care strategy. Second, we are pursuing a comprehensive review of our cost structure."

He added, "We are accelerating our efforts to ensure that our business is operating as efficiently as possible in order to drive profit growth at a level that is meaningfully higher than our revenue growth over the next few years."

The company is exiting a period of elevated investment following recent M&A, including its blockbuster $18.5 billion acquisition of Livongo in 2020.

A year ago, the virtual care company took a $3 billion hit from an impairment charge to write down the value of its Livongo acquisition, which pushed the company to a loss of $19.22 per share in the quarter.

2023 is shaping up to be a much stronger year for Teladoc but headwinds remain with increased competition in the virtual care space.

Ryan Daniels, an analyst with William Blair, noted that Teladoc's Q3 results marked a "solid quarterly performance for the company, and another positive step forward following a challenging 2022 environment." Teladoc has focused on operational improvements, which is helping drive EBITDA and free cash flow out-performance versus initial expectations, he wrote in a research note.

"In our view, this quarter, along with solid year-to-date results, again demonstrate management’s heightened focus on operating discipline and profitability, which we applaud given the recent slowdown in organic growth rates," Daniels wrote.

Teladoc's membership grew 10% year-over-year to 90 million. Membership in the company's chronic condition management segment grew 13% from a year ago.

The company's access fees revenue grew 8% to $582 million and other revenue grew 10% to $78 million. U.S. revenue grew 7% to $569 million and international revenue jumped 17% to $91 million.

The company's BetterHelp virtual mental health business saw an 8% revenue bump, bringing in $286 million during the quarter and its integrated care segment, its virtual care business aimed at health plans, employers and health systems, brought in $374 million, up 9% from last year, according to Teladoc's third-quarter earnings report.

The company's revenue for the first nine months of the year came in at $1.941 billion, up 10% from $1.77 billion in the first nine months of 2022.

In an interview with Fierce Healthcare on Tuesday before the company released Q3 earnings, Gorevic credited the company's scale and wide breadth of virtual care offerings to help drive its ongoing growth in a highly competitive telehealth market.

Teladoc's current membership count—90 million—is "unmatched anywhere in digital health," he noted.

"We had a significant competitive takeaway that added about 4 million members to our population. We have very strong growth in our chronic care management programs. On the financial side, we had very good results with respect to continued margin expansion as we continue to march toward profitability," Gorevic said.

The company also reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $88 million during the third quarter, up 73% from $51 million during the same period a year ago. Teladoc's integrated care segment adjusted EBITDA increased 62% to $63 million and BetterHelp segment adjusted EBITDA increased 133% to $26 million in the third quarter of 2023.

Teladoc ended the quarter with $1 billion in cash on its balance sheet, he noted.

The company raised its outlook for free cash flow for full-year 2023 from $150 million to $175 million.

Teladoc's scale, strong financial position and free cash flow performance put the company in a competitive position compared to many virtual care startups struggling in the current fundraising and macroeconomic environment, Gorevic said.

"Our competitive takeaways fall into two categories. One is where our competitors just fail to deliver for their clients. We're able to come in with our demonstrated track record of success and operational capabilities in order to win away those competitive takeaways. We certainly benefit not only from our operational capabilities, but also the breadth of our product portfolio, and our whole-person approach," he said during an interview.

"In some cases, we are replacing someone who quite frankly is faltering in this current economic environment because they have a business model or an economic model that isn't sustainable, and we're seeing them struggle either to raise capital or quite frankly to exist at all," Gorevic told investors and analysts during the earnings call Tuesday.

Chronic care management sales make up about half of the company's bookings and the majority of these solutions are sold to clients as bundled services, such as diabetes management bundled with a weight management program, Gorevic noted.

"We're also seeing very significant wins where we sell additional products and services into existing clients. In many of those cases, we're replacing a single point solution or more narrow solutions by adding our products into those clients," he said during the earnings call.

Teladoc's financial position also enables it to continue to invest in innovation and new technologies like artificial intelligence and machine learning.

During an interview earlier this month, Gorevic told Fierce Healthcare the company plans to invest $400 million in R&D and innovation this year.

"It's the most we've ever invested in the history of the company, and we continue to lean into that. We're focused on continuing to deliver innovation that the market wants," he said. Teladoc is investing in AI to optimize patient-provider matching and make its operations more efficient, Gorevic noted. The company currently uses more than 60 proprietary AI algorithms. 

Fourth-quarter revenue is projected to come in at $658 million to $683 million.

The company projects full-year revenue to be in the range of $2.6 billion to $2.625 billion.

Teladoc's guidance for the full year also lagged Wall Street expectations. The FactSet consensus is for fourth-quarter loss of 18 cents a share and revenue of $687 million, according to MarketWatch.

The virtual care provider expects adjusted EBITDA for full-year 2023 to fall into the range of $320 million to $330 million. 

Gorevic cautioned investors that executives expect EBITDA to grow faster than revenue for the next few years.

"We are managing the business differently. We are balancing top-line growth as well as bottom-line growth and cash flow. That balanced approach has an increasing focus on driving ROI and margin and that is going to come at a lower overall rate of top-line growth," Teladoc chief financial officer Mala Murthy told investors during the earnings call.