Teladoc reports higher Q2 revenue, bullish on opportunities for virtual weight management, mental health

Editor's Note: This story has been updated with comments from Teladoc's Q2 2023 earnings call.

Teladoc's second-quarter revenue jumped 10% to $652 million, boosted by strong growth in its BetterHelp direct-to-consumer mental health segment.

The telehealth giant, which has been in operation for 20 years, also narrowed its losses this past quarter to a net loss of $65 million, or a loss of 40 cents per share, compared to a loss of $3 billion for the second quarter of 2022. Both results beat Wall Street estimates.

The Zacks Consensus Estimate for Teladoc's second-quarter earnings per share was pegged at a loss of 44 cents and revenue of $649 million.

The company's share price rallied in after-hours trading, jumping 9%, as management boosted expectations for its 2023 outlook.

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 and consumers going back to in-person medical visits.

The company's BetterHelp virtual mental health business saw an 18% revenue bump, bringing in $292 million during the quarter and its integrated care segment, its virtual care business aimed at health plans, employers and health systems, brought in $360 million, up 5% from last year, according to Teladoc's second-quarter earnings report.

Executives also noted stable customer acquisition costs related to its direct-to-consumer business.

The company also reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $72 million during the quarter, exceeding its expectations, Teladoc CEO Jason Gorevic said during the earnings call.

For its integrated care segment, adjusted EBITDA increased 29% to $38 million in the second quarter of 2023 and its BetterHelp segment adjusted EBITDA increased 71% to $34 million during the quarter.

The company's financial performance in Q2 translated to better cash flow. Cash flow from operations was $101 million in the second quarter of this year, compared to $92 million a year ago. For the first half of 2023, Teladoc reported $114 million in cash flow from operations, compared to $61 million in the first half of 2022. 

Free cash flow was $65 million in the second quarter, up from $48 million in the same quarter a year ago. was $32.1 million for the first half of 2023, compared to a negative $14.9 million for the first half of 2022.

Teladoc's strong free cash flow performance puts the company in a competitive position, Gorevic told investors. "We're speaking with the CFOs of our clients who have concerns about the financial strength of their vendors and partners, and they want greater visibility into the financial stability, the free cash flow or cash drain, of their partners, and it becomes a very positive discussion [for us]," he said.

Teladoc has nearly $1 billion ($958 million) of cash on the balance sheet for the first half of 2023, according to the earnings report.

The company's Q2 financial performance is a direct result of introducing and expanding new products and services, investing in a robust innovation pipeline and controlling expenses, Gorevic noted.

Teladoc's membership for its integrated care service is up 7% to reach 85.9 million at the end of the second quarter. The number of BetterHelp paying users grew 17% during the quarter to reach 476,000. Chronic care program enrollment grew 7% to reach 1.07 million in Q2. The company forecasts overall integrated care membership will reach about 86 million by the end of the year.

For the first half of 2023, the company completed 9.5 million telehealth visits, up 3% from the same period a year ago.

In an analyst note, William Blair analyst Ryan Daniels said it marked a solid second-quarter performance for the company, and "another positive step forward after a somewhat volatile 2022."

The company is seeing success in the "broader behavioral healthcare market, given both an increased need for services post the COVID-19 pandemic and increased payer and employer focus on obtaining timely behavioral healthcare for members," Daniels wrote.

Opportunities in weight loss, chronic care and AI

In an analyst note, David Larsen, BTIG managing director and digital health analyst, noted that Teladoc is facing an increasingly competitive telehealth market. 

Many other vendors have embraced virtual care "including Included Health, and larger strategics which have completed primary care acquisitions including CVS Health and Amazon," Larsen said. "We also believe that Amwell is building a very comprehensive platform, known as Converge. Pressure on broader telehealth volumes, a tough comp, and a competitive market keep us generally cautious on Teladoc," he wrote.

The telehealth giant is doubling down on its strategy to focus on "whole person care" through its virtual care platform. During the earnings call Tuesday, Gorevic noted that the company is seeing strong growth across its chronic care programs, particularly its digital diabetes management program, as well as ongoing demand for virtual mental health services.

"Today, more than one in every three of our chronic care members is now enrolled in multiple programs. It's an example of the ongoing shift in the market towards full-person strategies as more and more clients recognize the value and effectiveness of a holistic approach to care," he told analysts and investors during the call.

The company also is focused on vertically integrating care to capitalize on customer demand for unified virtual and in-person healthcare experiences. Executives contend that this differentiates Teladoc from other startups offering point solutions.

"The role of virtual care continues to grow. A recent market survey commissioned by Teladoc Health tells us three out of every four employers expect to spend more on virtual care over the next three years. This represents significant opportunities for our business. It also validates our approach. Over half of the employers we surveyed said they plan to implement a whole-person virtual care strategy over the next three years as they move toward consolidating vendors," Gorevic said. 

The virtual care provider also is eyeing opportunities in the booming weight loss market. Back in April, the company announced it was expanding its provider-based care service for employers to include weight management and prediabetes programs. The program, which will roll out in Q3, is designed to help members lose weight and prevent and manage diabetes by optimizing medications, such as GLP-1 agonists, working in conjunction with other solutions and tools.

"Clients are also talking to us about the challenges of managing the cost of GLP-1 drugs," Gorevic told investors. GLP-1 drugs are increasingly being used to address cardiometabolic diseases, including obesity and diabetes. One large employer with 5,000 employees reported a $100,000 cost increase in GLP-1 drugs in a single month, Gorevic said. "We talk to others who are seeing fourfold increase in the cost of these medications over the course of a year," he added.

"Employers and health plans want to meet rising consumer demand, but in a way that doesn't break the bank. Right now, roughly four out of every five of our clients believe that virtual care programs can help them manage access to these high-cost medications," Gorevic said.

Teladoc also is investing in artificial intelligence to optimize patient-provider matching and make its operations more efficient, Gorevic noted. The company currently uses more than 60 proprietary AI algorithms. "AI allows us to deliver personalized content and insights to our members, helping them change their behavior in a sustainable way. We provide customized next-best actions on a massive scale, driving better outcomes at lower costs," he said.

The company also is tapping into its two-year partnership with Microsoft to integrate AI and Nuance's Dragon Ambient eXperience tech to automate clinical documentation during virtual exams. And, it is also testing out generative AI for its in-house providers. 

The company raised the low end of its 2023 revenue guidance. The company projects full-year revenue to be in the range of $2.6 billion to $2.67 billion, an increase of $25 million at the low end, according to Teladoc chief financial officer Mala Murthy during the company's earnings call.

The virtual care provider expects adjusted EBITDA for full-year 2023 to fall into the range of $300 million to $325 million. Murthy said the company projects it will generate $150 million of free cash flow for full-year 2023.

Teladoc also forecasts loss per share for the year to be in the range of a loss of $1.25 to a loss of $1.60 per share.