Teladoc forecasts slower growth in saturated telehealth market, focuses on boosting bottom line

Teladoc offered a weaker-than-expected forecast for 2024, projecting slower revenue growth as the telehealth market has become crowded with digital health players.

The virtual care giant pulled in $661 million in revenue in the fourth quarter of 2024, up 4% from $638 million in the same period a year ago. Access fees revenue grew 4% to $574 million, and other revenue grew 3% to $87 million. U.S. revenue grew 2% to $565 million, and international revenue grew 15% to $96 million.

The company's BetterHelp virtual mental health business saw flat growth in the fourth quarter, bringing in $277 million. The weakness in BetterHelp sales was the result of lower direct-to-consumer marketing yield.

Teladoc's integrated care segment—its virtual care business aimed at health plans, employers and health systems—brought in $384 million, up 8% from last year, according to Teladoc's fourth-quarter and full-year earnings report.

The telehealth giant, which has been in operation for 20 years, reported a net loss of $29 million, or 17 cents per share, in the fourth quarter compared to a net loss of $3.8 billion, or a loss of $23.49 per share, for the fourth quarter of 2022.

The results topped Wall Street expectations. The average estimate of 10 analysts surveyed by Zacks Investment Research was for a loss of 22 cents per share. However, revenue missed the consensus estimate of $670.79 million.

Shares of Teladoc dropped 22% Wednesday morning as the company missed Q4 revenue estimates and offered a downbeat forecast for the rest of the year.

Telaodoc's 2023 revenue grew 8% to $2.6 billion from $2.4 billion a year ago. The company's integrated care segment brought in revenue of $1.5 billion, up 7% from a year ago, and BetterHelp revenue jumped 11% to reach $1.1 billion in 2023.

Teladoc reported a fourth quarter 2023 adjusted EBITDA increase of 22% to $114 million, and full year 2023 adjusted EBITDA grew 33% to $328 million.

Teladoc CEO Jason Gorevic noted that the adjusted EBITDA for the direct-to-consumer mental health business BetterHelp increased 11% to $58 million in the fourth quarter and was up 19% to $136 million for the full year.

But the company offered a downbeat forecast, projecting first-quarter revenue in the range of $630 million to $645 million, short of the analysts' projections of $673 million. It also expects an EPS loss between 55 cents and 45 cents, worse than the consensus projection of a loss of 43 cents per share.

For the full year of 2024, Teladoc expects revenue to range between $2.635 billion and $2.735 billion, slightly below analysts' expectations of $2.77 billion for the year. It also forecasts EPS loss between $1.10 and 80 cents, beating analysts’ expectations of $1.23.

The company also projects integrated care membership to reach between 90 million and 92 million members.

For 2024, the company is projecting low to mid single-digit revenue growth for its integrated care business and flat to low single-digit revenue growth for the BetterHelp segment.

"Revenue and margins were below our expectations in the quarter as we saw lower yields on marketing spend, specifically we experienced returns on our social media advertising that were below target in the second half of the year, which was a departure relative to the first half," Gorevic told investors. "Our BetterHelp outlook assumes the lower yields experienced in certain channels and the second half of 2023 will persist and as a result will impact our year-over-year growth rates in the first half of 2024." 

Gorevic said the company is focused on generating higher margins and delivering strong bottom-line performance amid a challenging macroeconomic environment.

"As we start 2024, we're very much at a time of transition as an economy, industry and as a company, Teladoc Health has made significant strides in an increased focus on bottom-line performance realizing more benefits of scale over the past several quarters," Gorevic told investors during the company's fourth-quarter earnings. "This year, we'll continue to accelerate that progress. Our success is evident in our most profitable year to date, delivering 33% growth in adjusted EBITDA and free cash flow of $194 million in 2023."

"We also closed out 2023 with a strong selling season that yielded double-digit bookings growth over the prior year. The breadth of our product portfolio continued to drive cross-selling as approximately 75% of our bookings were upsells or expansions with existing clients," Gorevic said.

Teladoc has a large client base with 90 million members that provides a "steady source of revenue," Gorevic said, but, he noted, the virtual care market has become saturated.

"It's important to remember that most U.S. healthcare consumers have access to virtual urgent care today, so it's largely a replacement market at this point. We've consistently taken share in this market and we expect to continue to do so but it's fairly well penetrated. And accordingly, we anticipate revenue growth for our U.S. virtual care product will be in the low single digits going forward," he told investors.

The remaining half of Teladoc's integrated care segment revenue is primarily comprised of its chronic condition management segment and its international virtual care business. "Our general medical virtual urgent care book of business, including our 90 million members, represent a long runway for continued cross-selling of our chronic care products as we execute against our land and expand strategy," Gorevic said.

"About 16% of our general medical client base has access to one or more of our chronic care products today. That's up from just 12% two years ago. While we made a lot of progress over the last two years, with 16% penetration, there's still a long runway for chronic care growth within our existing virtual care," he noted.

Teladoc expects to drive mid to high single-digit average chronic care revenue growth. "All together, we expect mid single-digit annual revenue growth for the integrated care segment over the next three years," Gorevic told investors.

On the call, he noted that overall demand for mental health services continues to outpace supply, and ongoing consumer preference for virtual mental health services will continue to be a tailwind for Teladoc's virtual mental health services. The company sees opportunities to grow its BetterHelp business outside the U.S., as 15% of that segment's revenue was generated in international markets, Teladoc's CEO said.

"BetterHelp's new member acquisition is gated somewhat by the amount of capital we can deploy at an acceptable rate of return in any given time period. This means BetterHelp's growth is in part dependent on our ability to efficiently reach new individuals to create awareness for better health services and convert them to members," he said.

The company is now focused on cutting costs and boosting profit. 

Gorevic said Teladoc is driving roughly $85 million in annualized savings from a recently implemented corporate efficiency initiative. "These savings build on the cost initiatives we delivered on in 2023 and are expected from productivity initiatives, including automation and internal process improvements, organizational realignment, and third-party spend reduction," he said.

A year ago, Teladoc confirmed it laid off 6% of its non-clinician workforce, 300 employees. According to recent media reports, the company also cut engineering roles last month.

These cost savings actions will drive a $43 million reduction in fiscal 2024 pretax expenses, according to management.

In 2024, Teladoc is focused on growing its EBITDA margins and free cash flow while making continued investments in innovation, Gorevic said.

"We'll do this by both growing our revenue and removing more than $85 million in expenses through efficiencies and restructuring. We're targeting 50 to 100 basis points of annual margin expansion over the next three years and have line of sight to at least $425 million of adjusted EBITDA in 2025," he said. "This puts us in a strong financial position as others in the space struggle and it provides us the flexibility to have all options on the table, including continued investments in organic innovation, tuck-in M&A, retiring debt, and giving back money to our investors through share repurchase."

Ryan Daniels, an analyst with William Blair, said Teladoc's fourth-quarter results marked "a relatively solid quarterly performance for the company, and another step forward following a  period of slower organic growth in the post-pandemic environment."

"This quarter was also a testament to management’s heightened focus on operating discipline and profitability —demonstrated again in solid EBITDA and cash flow performance even with slight revenue underperformance," Daniels wrote in a research note.