Teladoc Health - Q1 2024

Transcript

Operator (participant)

Good afternoon. Thank you for attending the Teladoc Health Q1 2024 earnings call. My name is Matt, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would like to pass the conference over to our host, Adam Vandervoort, Chief Legal Officer at Teladoc. Adam, please go ahead.

Adam Vandervoort (Chief Legal Officer)

Thank you, and good afternoon. Today, after the market close, we issued a press release announcing our first quarter 2024 financial results. This press release and the accompanying slide presentation are available in the Investor Relations section of the teladochealth.com website. On this call to discuss the results are Mala Murthy, our Acting Chief Executive Officer and Chief Financial Officer, and Laizer Kornwasser, our President of Enterprise Growth and Global Markets. During this call, we will also discuss our outlook, and our prepared remarks will be followed by a question-and-answer session. Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating Teladoc Health's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is posted on our website.

Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause the actual results for Teladoc Health to differ materially from those expressed or implied on this call. For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Mala.

Mala Murthy (Acting CEO and CFO)

Thank you, Adam, and thanks everyone for joining us today. Before we begin, I'd like to take a moment to reflect on the recent leadership changes at Teladoc Health. First off, on behalf of Teladoc's more than 5,000 employees, board of directors, and executive leadership team, I would like to extend our deepest gratitude to Jason Gorevic for his accomplishments over the past 15 years. Jason leaves a tremendous legacy, having firmly established Teladoc as the industry leader in whole-person virtual care. As we mentioned in our February earnings call, 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.

The board search for a successor is well underway, and our permanent CEO is expected to be named later this year. The board has appointed me to serve as CEO while they conduct the search, and I'm honored to play this role for a company whose work I believe in so deeply. In the meantime, however, we are wasting no time in identifying and seizing opportunities to leverage our significant assets and capabilities. As an organization, our focus is on accelerating growth on both the top and bottom lines over the medium and longer term. My focus as acting CEO is to ensure that our strategy continues to be supported by the appropriate level of investment, that our leadership team is executing on our priorities, and that we are accelerating the pace of change and innovation across our business.

With that, turning now to a review of our first quarter performance. I'm pleased to report a solid start to the year across the business, exceeding our financial and operating guidance for both consolidated revenue and Adjusted EBITDA in the first quarter. Our team remains laser-focused on our key initiatives, which include building upon our market leadership position, driving increased product penetration through our large installed base of over 90 million Virtual Care members, and accelerating our bottom line performance. This focus is evident in our first quarter results. In the Integrated Care segment, we are pleased to see continued strong interest in our whole person care suite of products.

First quarter Integrated Care revenue grew 7.8% year-over-year to $377 million, benefiting from high single-digit growth in our Chronic Care book of business, as well as strong visit revenues driven by increased infectious disease activity, as well as an 8% increase in membership year-over-year. Chronic Care enrollment remains strong, up 9% year-over-year in the first quarter. BetterHelp revenue of $269 million declined 3.7% versus a difficult comparison in the first quarter of last year. BetterHelp also generated modestly lower revenue on a sequential basis, driven in part by a decline in paying users following our typical pullback in ad spend in the fourth quarter, which is the most expensive time of the year in our marketing channels.

Additionally, as expected, the lower returns on our social media advertising spend we experienced in the second half of 2023 persisted in the first quarter, and are impacting our year-over-year growth rates in the first half of this year. We are making progress to improve our yield on advertising spend, which contemplates not only cost per acquisition, but also retention and other factors as well. I will speak to our efforts to reinvigorate growth in our BetterHelp business later in the call. We continue to make progress on our bottom line performance, with first quarter consolidated adjusted EBITDA margin of 9.8%, improving 140 basis points year-over-year, and adjusted EBITDA of $63 million, growing nearly 20% year-over-year.

We are executing against our cost-saving and productivity initiatives, and we remain on track to deliver $43 million in cost savings on a GAAP basis for our business in 2024, and a total of $85 million in 2025. The breadth of our product portfolio continues to drive productive conversations with both prospective and existing clients. 2/3 of our bookings in the quarter came from cross-selling into our existing book of business, with the remaining third coming from new clients, reflecting a continuation of our cross-selling momentum over the past several quarters, along with an acceleration in bookings from new business. Both existing and prospective clients are demonstrating increased interest in our Chronic Care Plus bundle solution, and we remain optimistic about our ability to drive increased product penetration through our install base of nearly 92 million members over the next several years.

In Q1, we saw another example of our land and expand strategy playing out as we added our diabetes program into a large health benefits provider, a client who had previously only purchased our telehealth solutions. 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. With more than $1 billion in cash and cash equivalents on our balance sheet, our financial strength continues to be another differentiator for our company and provides us with significant capacity and flexibility to invest and innovate in our business.

We also continue to see growing benefits from our early and ongoing commitment to data and artificial intelligence, with AI models now integrated across nearly all aspects of our 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. One exciting example is our use of generative AI in member engagement to create hyper-personalized content for individuals to get them signed up for Teladoc services they need, and then keep them on track. Our pilots with this AI use case, while still being carefully studied, are already delivering significant improvement in member engagement over prior approaches. I would now like to spend a few minutes reviewing our first quarter financial results in detail.

First quarter consolidated revenue increased 3% year-over-year to $646 million, while first quarter Adjusted EBITDA was $63 million, representing a margin of 9.8%. First quarter financial performance benefited from higher revenues in our Integrated Care segment and improved expense control. Turning to segment results, Integrated Care revenue increased 8% year-over-year to $377 million in the quarter, with growth relatively balanced across the portfolio. First quarter Integrated Care Adjusted EBITDA was $47.7 million, representing a 260 basis point expansion in margins to 12.6%. The margin outperformance relative to guidance was largely driven by strong Chronic Care program enrollment during the first quarter, which, combined with better expense control, helped deliver improved gross margins and bottom line performance.

Total Chronic Care program enrollment was 1.12 million at the end of the first quarter, representing growth of 9% year-over-year. Total U.S. Integrated Care members grew 6.9 million over the prior year, representing 8% growth, and grew by 2.2 million sequentially to 91.8 million. Average Integrated Care revenue per U.S. member of $1.38 was down 1 cent over the prior year's first quarter, reflecting the timing of new client onboarding and enrollment ramp. The onboarding of large populations and our expanding membership base represents a long runway for continued cross-selling of our Chronic Care and other B2B products as we execute against our land and expand strategy.... First quarter BetterHelp segment revenue decreased 4% year-over-year to $269 million, driven by an 11% decrease in paying users.

First quarter BetterHelp Adjusted EBITDA was $15.5 million, representing a margin of 5.7%. As we have discussed previously, the first quarter is typically the seasonally weakest quarter from a margin perspective for our BetterHelp business, as marketing expense ramps up following the fourth quarter holiday season. As such, we continue to expect the first quarter to be the low point of the year for BetterHelp segment margins, and we expect consistent quarter-over-quarter margin improvement through the course of 2024. Consolidated net loss per share in the first quarter was $0.49, compared to a net loss per share of $0.42 in the first quarter of 2023.

Net loss per share in the first quarter includes stock-based compensation of $42.3 million, or $0.25 per share, restructuring charges, primarily related to severance of $9.7 million, or $0.06 per share, and amortization of acquired intangibles of $64.2 million, or $0.38 per share. During the first quarter, free cash flow was a net outflow of $27 million, compared to a net outflow of $32 million in the first quarter of 2023. As a reminder, the first quarter is our seasonally lowest cash flow quarter, given the payment of annual incentive compensation. We ended the quarter with $1.1 billion in cash and cash equivalents on the balance sheet. Turning now to forward guidance, beginning with our Integrated Care segment.

We expect Integrated Care revenue in the second quarter to be between 2%-5% versus the prior year period. As a reminder, in our first quarter call, we called out a delay in launching our B2B consumer engagement efforts due to a technical issue in mapping new client populations, with an expected cumulative negative impact of $20 million for the full year, particularly in the second and third quarters. The impact of this delay, coupled with strong year-over-year first quarter Chronic Care results and the seasonal falloff of infectious disease-driven visit revenues versus the first quarter, is expected to result in a lower year-over-year second quarter growth rate compared to our first quarter results.

For the full year, as previously guided, we expect Integrated Care revenues to be in the low to mid-single digits, reflecting higher revenues in the second half versus the first half of the year, due primarily to the enrollment ramp in Chronic Care and a growing contribution from the nearly 6 million new Integrated Care members we've added since the second quarter of last year. From an Adjusted EBITDA perspective, we expect a 12%-14% margin in the second quarter, and we continue to expect 150-250 basis points of margin expansion for the full year, reflecting revenue-driven operating leverage and the impact of our cost-saving initiatives.

As it relates to U.S. Integrated Care membership, we expect 92 million-93 million members for the second quarter and 92 million-94 million members for the full year, an increase from previous guidance after adding 2 million members in the first quarter. Turning now to our BetterHelp segment. For the second quarter, we expect BetterHelp revenues to be in the range of -8% to -4% over the prior year period. 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. These factors led to a decline in users in Q1, which is impacting our Q2 revenue growth rate on top of a difficult comparison relative to the second quarter of 2023.

However, 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 our BetterHelp business, something I will speak to momentarily. For the full year, we continue to expect flat to low single-digit revenue growth in BetterHelp. We do expect BetterHelp growth to accelerate in the second half of the year. I'd like to take a moment to discuss what's giving us increased confidence in the future of our BetterHelp business, which has been challenged in recent quarters. Late last year, we brought in new leadership for BetterHelp, who have helped inject a broader and more global perspective on growth levers for this business.

We are seeing improvements in retention and in our international business, which are helping offset some of the impact from higher CPAs in the U.S. by improving our overall yield on advertising spend. The success we are starting to see with these levers, along with the efforts in select international geographies that we expect to ramp in the second half of the year, give us confidence in our second half BetterHelp outlook. We expect these initiatives to lead to meaningfully higher membership growth and improve customer retention versus the first half. 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.

Given these dynamics throughout the year, we expect that our health revenue growth for the full year to be in the flat to low single-digit range as previously guided, despite our lower first half growth. I would also note that we have thoroughly pressure-tested the assumptions that underpin our BetterHelp guidance for the rest of the year. We take several factors into account when developing both the low end and the high end of the range, including recent trends in advertising yields, channel dynamics, consumer sentiment, and other macro factors, and we have taken a close look at each one of these. That said, the impact of difficult-to-predict macro events creates unknowns as it pertains to our yield on advertising in the second half of the year, and we will continue to provide updates on the trends that we are seeing in upcoming earnings calls.

From a margin perspective, we expect BetterHelp Adjusted EBITDA margins to be in the 9%-10% range in the second quarter and continue to expect margins to be flat ±50 basis points for the full year. The sequential margin improvements that we expect to see over the course of the year primarily reflect the cumulative effect of new members added over the course of the year, the cadence of advertising spending, including the typical seasonal pullback in the fourth quarter, and innovation-driven improvements in our yield on advertising spend. On a consolidated basis, we expect second quarter revenue of $635 million-$660 million, and Adjusted EBITDA of $70 million-$80 million. Our full-year guidance remains unchanged, with the exception of the increase to our U.S. Integrated Care membership that I'd mentioned previously.

We continue to expect consolidated revenue to be in the range of $2.635 billion-$2.735 billion for the full year, representing revenue growth of 1%-5%, along with consolidated Adjusted EBITDA of $350 million-$390 million, representing growth of 7%-19% on a year-over-year basis. We expect full-year free cash flow of $210 million-$240 million, driven by both the growth in Adjusted EBITDA and an expected decline in capitalized software development costs. We are also maintaining our prior EPS guidance for the full year. Lastly, we are reiterating the three-year outlook that we provided you on our earnings call in February.

In closing, I want to recognize my executive team and our broader leadership team for leaning in during this time of change. I've been incredibly pleased with their continued focus on living our values and delivering for our members and clients this year, especially over the past several weeks. We've had a solid start to the year and are poised to deliver significant growth in the second half of 2024. I remain focused on our strategy, our execution, and on our people. With that, we will open it up for questions. Operator?

Operator (participant)

If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We ask that you please limit yourselves to one question. We will pause here briefly as questions are registered. First question is from the line of Stephanie Davis with Barclays. Your line is now open.

Stephanie Davis (Managing Director)

Hey, Mala. Thank you for taking my question and for wearing all of the hats right now. I was hoping you could talk a little bit about some early color on the international strategy and timing for BetterHelp. Can you talk to us about the rollouts, how we should be thinking about the cadence of that, and maybe if you've seen some of that come through already, which is giving you that confidence in that second half growth rate?

Mala Murthy (Acting CEO and CFO)

Thank you, Stephanie. Yes, I'm wearing many hats. Happy to be here. So in terms of the growth in international, as we had said on our last call, last year, international, as a percentage of our total BetterHelp business, was in the mid-teens. It is certainly contributing to the second half ramp of revenue this year. Remember, you know, this is, it's not as if we are going into international de novo. We are already in a few markets. Several of them are English-speaking markets, such as the UK, Canada, Australia. The plan we have is for us to continue penetrating into those markets first. And that is what is driving our confidence in the second-half ramp because we have been in these markets. We know the dynamics of the BetterHelp business in this, in these markets.

You know, based on our experience, we have knowledge of the economics of being in these markets. Obviously, as we penetrate these markets and invest more in these markets, we hope to continue to see the return on ad spend, as well as the revenue growth. So the balance of both top-line growth and bottom-line growth that I expect to see.

Stephanie Davis (Managing Director)

For, like, a mini follow-up, is there any way to compare the kind of ROAS you're seeing on those international markets where you're already in them versus what we're seeing in the U.S.?

Mala Murthy (Acting CEO and CFO)

... Here's what I would say. I expect better international to grow faster than the U.S. Certainly, that is something that we saw last year, and I do expect that to continue. From a rollout perspective, Stephanie, I would say, you know, we are going to start in the second half and roll out as we, you know, do our ad spending in these markets as we go through the second half. The one thing I will remind you is Q4, typically in the U.S., is always the seasonally weakest quarter from an ad spending perspective. It's the quarter where we will typically pull back our ad spend. And I would say that dynamic is in the U.S. We will evaluate and assess how much of that dynamic also plays out in the international markets.

Operator (participant)

Thank you for your question. Next question is from the line of Lisa Gill with JPMorgan. Your line is now open.

Lisa Gill (Managing Director)

Hi, Mala. Just trying to understand two things. One, clearly understand the change in leadership and what the board is going through, but just also curious if you're looking at any strategic changes to the business. And, you know, once again, under pressure on the BetterHelp side, I just heard you talk about international, but, you know, are, are, are there things that the board is reviewing, would be my first question. And then secondly, just really want to understand the opportunity around that 8% membership growth, which was really strong in the quarter. We didn't see an increase in either revenue or Adjusted EBITDA. Is that just timing? Is there an opportunity for cross-sell? So just really understanding, you know, how that, that's gonna play into the numbers.

Mala Murthy (Acting CEO and CFO)

Yeah. Thanks, Lisa. Great questions. So from an overall board perspective and, you know, what might that imply for changes? Obviously, as I said in our prepared remarks, right now, the focus of the leadership team, my focus, and I would say the focus of the board as well, is for us to be laser heads down, focused on implementing our plans, our investments, our priorities, and frankly, leading our employee base, the 5,000+ employees we have, through this period of transition and change. I would say also that, you know, I'm pleased with the solid start we have to the year.

Hopefully, we have given you enough transparency and color as in our prepared remarks on what is really driving our confidence in our growth, both from a top-line perspective and our bottom-line perspective as we roll through the year. We've kept our overall 2024 guidance as is from a revenue, Adjusted EBITDA, and a cash flow perspective. We continue to make progress on our cost initiatives that we have talked about in February. So all of those are things that require execution, and I would say we are laser-focused on that. Beyond that, look, we are always looking at different parts of our business. We are looking at what top-line growth they bring in and what bottom-line growth they bring in. Certainly, as we said in our prepared remarks, the BetterHelp business has been challenged in recent quarters.

I would say I am focused on the execution of the various initiatives that we talked about that will give us that second-half ramp, whether it be improved retention, whether it be the fact that we are driving growth in international markets, and the growth in the much smaller part of BetterHelp, the BetterSleep part of that business, which is also growing nicely. All of these require execution. On the Integrated Care side, I would say I'm pleased with the strong enrollment that we have started out with. Obviously, you know this, the enrollment ramps through the year, and we are certainly working through that, and that is going to drive our revenue growth and our profit, our margin expansion on the Integrated Care side as we go through the year.

So the answer to your question in terms of what we are evaluating and assessing is we are executing, we are, you know, focused on driving our plans for this year, and we continue to assess how the various parts of our business are doing, and, you know, whether they are driving both the top line and the bottom line we see. Beyond that, I would say, there isn't really more to comment on it at this time. On the second question you had around membership, here's what I would say: We certainly are, you know, pleased with the 2 million+ member adds that we had in the quarter. Remember, the benefit we have of the membership adds is always the fact that it is the underpinning of our land and expand strategy.

It gives us fertile ground to continue to penetrate, cross-sell, upsell, once we get these members into our fold. As we sell in additional products, we expect to see the revenue accretion from that in the quarters ahead.

Operator (participant)

Thank you for your question. The next question is from the line of Jailendra Singh with Truist. Your line is now open.

Jailendra Singh (Managing Director)

... Thank you, and thanks for taking my questions. I wanted to ask about Chronic Care program enrollment metric. I understand it was up year-over-year, but it actually declined a little over 3% sequentially. Typically, we see a pickup from Q4 to Q1, due to new contract starts and enrollment increase in the new calendar year. So can you provide some color there, Mala? And then what are your expectations around that metric as the year progresses? And more broadly, anything you can share, how you're focused on improving the positioning of the, your business in Chronic Care longer term in market, which seems to be getting very competitive?

Mala Murthy (Acting CEO and CFO)

Yeah. So look, I would say I expect the enrollment to ramp through the year. That is typically always the case in a traditional year, and this year would be no different. Now, the one thing I would also say is, remember, we had talked about the marketing pause in the last earnings call. We had talked about $20 million of revenue impact for this year. I would expect most of the impact of that marketing pause to be in the second and third quarters. But despite that, I would expect for our Chronic Care program enrollment to ramp up through the year, just like in prior years. Laizer, do you want to handle Jailendra's question on competitive?

Laizer Kornwasser (President of Enterprise Growth and Global Markets)

Sure. When you look at what our customers and our clients are looking for, we are, you know, we're happy with where we are in the selling season. We're having productive conversations with both new and existing accounts. As Mala mentioned in her earlier remarks, for the quarter, two-thirds of our growth in bookings came from existing clients, and one-third came from new clients. I wanna make sure that we highlight that we're happy with the growth in bookings, not just in our domestic business, but also in our international business. What are our clients looking for? Our clients are looking for value.

They're looking for a scalable, reputable vendor that they can partner with, that has a strong balance sheet, that they can continue to partner with to drive value for them and for their consumers. And that hasn't changed, and I think that is feeding into our conversations with respect to our bookings.

Mala Murthy (Acting CEO and CFO)

And then, Jailendra, just finishing up on your question around the Chronic Care enrollment. Look, this is a function of the fact that typically when we start off the year, you know, we onboard a number of lives, and we also, at the same time, in Q1, is typically the time we would also see enrollees come on and enrollees roll off, and the net impact of that is what you're seeing. I would expect as we, you know, as we ramp up the year, despite the marketing pause, I would expect that to continue to go on into the rest of the year.

Operator (participant)

Thank you for your question. Next question is from the line of Jessica Tassan with Piper Sandler. Your line is now open.

Jessica Tassan (VP and Senior Research Analyst)

Hi, Mala. Thank you so much for the question, and congrats on the good quarter and guide. I kind of I wanted to ask about the 3-year outlook that you all issued on the fourth quarter call and then reiterated today, so the low to mid-single-digit annual consolidated revenue growth, mid-single Integrated Care, low single BetterHelp. Is that target achievable on an organic basis? And just maybe from an Integrated Care perspective, should we think about that growth continuing to be led by Chronic Care? Does it anticipate any new product launches? Just hoping for color around that 3-year guide. Thank you.

Mala Murthy (Acting CEO and CFO)

Yeah. Yeah. Thanks, Jess, for the question. Look, when we put that guidance outlook out there in February, we had thought about the building blocks to those numbers, that trajectory, both on the Integrated Care side and the BetterHelp side. So let me sort of comment on it one by one. On the Integrated Care side, I would say, as we had stated previously, think of it as a combination of low-single-digit growth on the much more well-penetrated telehealth side, and I would say mid- to high-single-digit growth in Chronic Care. So yes, we do expect Chronic Care momentum to help us achieve the overall mid-single-digit revenue growth for Integrated Care. On the BetterHelp side, from a revenue growth perspective, we had said low-single-digit.

Look, here's what I would say on the BetterHelp side. The second half ramp that we have talked about, the initiatives that we have going to help us achieve that second half ramp, again, it's whether it be retention, international, continued momentum on BetterSleep. These are the inputs into the low single-digit revenue growth for BetterHelp. And I would say, we will continue to execute against it, and we will continue to monitor it, again, assuming that we don't have something very, very unfavorable happen from a cost per acquisition perspective, which will impact our advertising yield. So assuming that, you know, we see CPAs in a reasonable range, I would say the building blocks that will help us grow in the second half will continue to be contributors into the low single-digit revenue growth for BetterHelp.

When it comes to margins, I would say the cost initiative programs that we have, that will help us with OpEx leverage, along with the revenue growth that we will see on the top line, particularly on the Chronic Care side, will certainly be contributors into our margin expansion that we have put out there. So what I would say in summary is, we have thought of the building blocks that go into the long-term outlook, and we will continue to assess, you know, how they perform. And as I said, you know, this year, and especially in the second half, BetterHelp will give us a lot more information on that.

Operator (participant)

Thank you for your question. Next question is from the line of Sean Dodge with RBC. Your line is now open.

Sean Dodge (Equity Research Analyst)

Yeah, thanks. Good afternoon. Mala, you mentioned in BetterHelp with the new leadership team, having seen some improvement in subscriber retention. Can you give us a sense of how long you're retaining BetterHelp users now on average? How much has that changed over the last couple of years? And then how much room and what kind of levers do you have to continue to drive improvements in that? What can you do to lengthen that?

Mala Murthy (Acting CEO and CFO)

Yeah. So we haven't given out KPIs, metrics, et cetera, specifically on retention, Sean, so I don't want to go into specific retention metrics. What I will say is the following: We are seeing improved member retention, primarily because of the innovation that we are driving in the platform, in our user experience, frankly, with the help of AI models that are continually improving our matching of consumers with their various needs with providers. So it's never one thing that is driving this improvement in retention. It is many things that are driving this improvement in retention. And I would say that, you know, when I talk about the new leadership at BetterHelp, one of the important things to highlight is we are looking now at pressing on more than one lever in the BetterHelp business.

You know, we are looking to beyond the traditional CAC focus. As we've talked about, we're looking at additional geographies, how can we continue to innovate in the user experience? In some instances, and we have talked about this in the past, we are looking at, you know, small, surgical, targeted pricing changes, all of which, in my view, are things that will improve on our revenue growth, and it's the innovation that is helping to improve member retention, the user retention. Laizer, is there anything you would like to add to that?

Laizer Kornwasser (President of Enterprise Growth and Global Markets)

Yeah, I guess the only thing I would add is, historically, at BetterHelp, we've been very focused on the innovation on patient acquisition. And what I would tell you is we are balancing spending time on increasing the value of that member. And I would say there's not one specific thing, other than being very innovative and testing out little things that are driving value so that our return on our advertising dollars increase.

Operator (participant)

Mm-hmm. Thank you for your question. The next question is from the line of Allen Lutz with Bank of America. Your line is now open.

Allen Lutz (Senior Equity Research Analyst)

Good afternoon, and thanks for taking the questions. Another one on BetterHelp. Mala, have you considered at all moving from just cash pay to participating in health plan networks as a way to drive growth? Is that something that you've considered, and can you kind of talk about the pros and cons of making a move like that? Thanks.

Mala Murthy (Acting CEO and CFO)

So, I would say, look, we assess various initiatives to continually, innovate, to drive growth, both on the top line and the bottom line. At this point in time, with the scale that BetterHelp has, you know, over $1 billion in revenue, it is by far one of the largest DTC players. And look, there are other competitors in the market who have done, tried DTC, moved away to B2B. We have built scale in DTC, and I would say we will continue to focus on DTC. Having said that, I would also say, we are looking for ways to improve, and accelerate our growth, in different ways. You know, I don't want to comment much more on specifics at this point. To the extent that there is anything relevant to update, we will absolutely do so.

But we are looking at various ways to drive top-line growth, to accelerate our top-line growth in BetterHelp.

Operator (participant)

Thank you for your question. Next question is from the line of Sarah James with Cantor Fitzgerald. Your line is now open.

Sarah James (Managing Director)

Thank you. Mala, I was hoping you could help us a little bit with the pacing of this year. So specifically thinking of the items that you have control over, like some of the savings initiatives to get to that run rate of 43 at the end of the year, and then the advertising spend. Can you help us pace through how the savings initiatives are gonna play out? And then on the ad spend, is there any pull forward of that into 2Q versus your normal cadence? And are you thinking about, because of the increased efficiency, just lower overall need for ad spend for the year?

Mala Murthy (Acting CEO and CFO)

Yeah. Thanks, Sarah, for the question. So from a pacing perspective, we would be looking for the in cost initiatives, and if you think about what are underpinning those cost initiatives, things like offshoring, things like automation, you know, savings from our third-party supplier spend. Several of those are initiatives that are so, you know, all evenly paced through the year. Now, obviously, if you think about something like offshoring, and as we offshore, you know, you will get the incremental impact, the full impact of the offshoring as we go later into the year. But I would say to you, several of the others, like third-party supplier spend, et cetera, you will see, you know, sort of evenly paced through the year.

On your question on ad spend, the way I would think about it is as follows: When we in Q1, and especially early in Q1, we did see pressure on our advertising yield. We did see pressure on our cost per acquisition. And we did pull back on our ad spend as we sort of rolled through Q1. And I would say as we went later into Q1 and into Q2, we are seeing more stable ad spend yield on our ad spend. You know, when I say stable, it's the CPAs still remain elevated relative to the back half of the you know, similar to the back half of last year.

But I would say to you that they are, you know, they have stabilized relative to the early part of Q1. Having said that, you know, I am not satisfied with our BetterHelp segment margins in the first half, in the first quarter. And so one of the things we are assessing is how do we manage the ad spend in Q2 so that we are getting the balance of top line and bottom line that we are seeking? And, you know, we have said this before, that is something that is very dynamic, right? Because we manage the BetterHelp business based on ROIs.

We want to make sure that the marginal return on every dollar spent is getting to the efficiencies we speak, and sort of we, you know, we toggle that to get to the balance of top line and bottom line. If I think about the second half, I would say we are looking to pull back in Q4 as we typically do, and we would be looking to spend a little bit more on ad spend relative to the second quarter, provided again that we see, you know, we get to the efficiencies we speak, we seek. And then the last point I would make is, remember, international typically is slightly more efficient from an ad yield perspective.

So, if the, you know, as we roll out international in the second half, I would expect to see that spend on international markets being more efficient.

Operator (participant)

Thank you for your question. Next question is from the line of Kevin Caliendo with UBS. Your line is now open.

Dylan Finnegan (Associate Director)

Thank you, Mala. This is Dylan on for Kevin Caliendo. Earlier this week, one of your competitors announced that they were winding down their telehealth business. Could you maybe speak to whether or not the guidance today contemplates any tailwinds from a competitive perspective?

Mala Murthy (Acting CEO and CFO)

Laizer, would you like to address that?

Laizer Kornwasser (President of Enterprise Growth and Global Markets)

Sure, Mala. So clearly there's been some noise in the marketplace, and we're really not gonna comment on the specifics, and we would refer you to that partner of ours that made that comment. But what I do wanna highlight is we have a very strong relationship, partnership, and we value the relationship that we have with UnitedHealthcare, and we foresee that strong relationship continuing.

Operator (participant)

Thank you for your question. Next question is from the line of George Hill with Deutsche Bank. Your line is now open.

George Hill (Managing Director)

Yeah, good afternoon, guys, and thanks for taking the question. Mala, I'd like to kind of come back to Lisa's topic, which is, I guess, can you talk about the degree to which the current management team kind of feels empowered to make change at the company as it either relates to margins or growth or strategic direction? And then, because I know we're trying to keep people to one question, if I can sneak in a second one. If there's any way you can kind of quantify the success you're seeing in BetterHelp and what metrics you guys are looking at internally, I think we'd find that helpful. Thank you.

Mala Murthy (Acting CEO and CFO)

Yeah. Your question on whether the leadership team is empowered to act, I would say absolutely, unhesitatingly, a big yes. As I said in our prepared remarks, we are not waiting. We have, you know, a plan to deliver. We have investments to execute, and that is absolutely our focus. We are also reiterating our longer term outlook. That is certainly going to require us to, as a leadership team, as we do every single year, look at our strategy, look at various aspects of that strategy, and think about how do we want to stack our investments against those, what's working, what's not working. Again, that is part of what we do every single year, and we will absolutely continue to drive that.

So the answer to your question is, we are—I'm empowered to, you know, to drive this business forward. And we, as a leadership team, as I said in our prepared remarks, are all in. We are leaning in, and we are focusing on driving this business forward. In terms of BetterHelp metrics, the things that we typically will look at from an internal operating perspective is, we will look at, obviously, the TAC and where it is. We will look at the ROIs of our ad spend. We will look at retention, churn, the lifetime value of the TAC that we are placing. And we will also look at the, you know, the users that we are attracting to the platform.

So we also, that is, those are things that we look at. And besides that, we look at a number of other things that inform the user experience as well as the provider experience, the provider NPS, the user NPS, all of which, by the way, continue to remain very strong because of the strong experience that people have on the platform. So those are the typical metrics that we would be looking at.

Operator (participant)

Thank you for your question. Next question is from the line of Ryan Daniels with William Blair. Your line is now open.

Jack Senft (Equity Research Associate)

Hey, this is Jack Senft on for Ryan Daniels. Thanks for taking the question. I think in your prepared remarks, you mentioned reallocating some of the dollars in the second half as the international penetration ramps up. So first, did I get that right? And then two, can you just talk a bit more about where you plan to reallocate these dollars? Was it just, just reallocating dollars to ramp up the international portion, or is there something else? Just curious if you can dive deeper into this. Thanks.

Mala Murthy (Acting CEO and CFO)

Yeah. So, you know, we've been talking over the last two calls about the fact that we do expect international in BetterHelp to ramp. Where we are placing our ad spend dollars internationally in BetterHelp is in the markets that we already have a presence in. You know, those are largely English-speaking markets like UK, Canada, Australia. So these are the markets where we would be putting our ad spend dollars in.

Operator (participant)

Thank you for your question. Next question is from the line of Elizabeth Anderson with Evercore. Your line is now open.

Elizabeth Anderson (Senior Managing Director)

Hi, guys. Thanks so much for the question. Mala, as we think about the longer-term growth, I appreciate your commentary, but with sort of all the changes in the international focus, et cetera, how do we think about the component that pricing plays in both the integrated care outlook as well as BetterHelp? Thanks.

Mala Murthy (Acting CEO and CFO)

Yeah. Great question, Elizabeth. So I think about the pricing lever we have on both sides in a couple of different ways. First, if you think about our integrated care side and think about chronic care and the momentum that we are seeing in chronic care, you know, we've spoken about this dynamic in the past couple of calls. Firstly, we are seeing nice momentum in chronic care bookings. And if you think about the momentum we are seeing in chronic care bookings, part of what's driving that is the fact that we are selling more chronic care bundles. And if you think about the pricing that, you know, with these bundles, it is accretive on a per client basis from a revenue perspective.

And that is certainly something that, you know, as we increasingly, you know, gain traction on our land and expand, the fact that we've added over 2 million members in the first quarter, again, that gives us fertile ground for us to, cross-sell, you know, more of our chronic care products into that population. The fact that chronic care, at the end of the day, is still relatively underpenetrated, right? If you think of our overall 90+ million base, it is still 16% of our overall chronic care of our overall telehealth base. And so it's things like that that will allow us to, get more, revenue accretion, and that certainly is something that we are focused on. On the BetterHelp side...

You know, when I think about pricing, I would say it really is us thinking more broadly about how we can do more of targeted surgical pricing, you know, as we think about the different, whether it be BetterHelp and BetterSleep. And when I say targeted and surgical, it could be by geography. You know, it could be in other ways. And by the way, that is something that we are doing constantly, continuously, right? This is a business that is dynamic in multiple ways, including in pricing.

Operator (participant)

Thank you for your question. The next question is from the line of Daniel Grosslight with Citi. Your line is now open.

Daniel Grosslight (Senior Research Analyst)

Hi, Mala. Thanks for taking the question. Yeah, there's been some noise out in the market questioning the cost and efficacy of some digital diabetes management programs. I know it's still pretty early in the selling season for you guys, but I was curious if that report is having any impact on what you're seeing out there in the market. And maybe if you can comment a little bit on where you're currently seeing the greatest uptake from a new sales perspective in terms of indications. That would be great. Thank you.

Mala Murthy (Acting CEO and CFO)

Yeah. Yeah. Thanks, Daniel, for the question. Let me start, and then I will turn it over to Laizer for more comments. Look, if I think about the momentum that we are seeing in the market, the, the things that we are seeing traction on is a few. The first is, obviously, I've talked about our land and expand. The second is, when we talk to our clients about both the breadth of our products and solutions, and second, the fact that we are able to show value and ROI, that is certainly resonating in the marketplace. And the last is, as I've said before, you know, the strength of our balance sheet relative to many of the other competitors in our markets.

The strength of the balance sheet certainly is compelling if you think about our ability to bring innovation into our products, into all our products, including Chronic Care. So those are broadly the trends that we are seeing in the market as we sell. Let me turn it over to Laizer to address your specific question.

Laizer Kornwasser (President of Enterprise Growth and Global Markets)

Yeah. So with respect to that specific study, I would say we haven't seen any impact from that study on our business. What I will tell you is just some caveats to keep in mind. The first is that report was a review of limited, selected secondary research, and the party did not conduct any original testing or any primary analysis of patient data. And I just wanna highlight that based on our studies and those of third parties, we believe that our chronic care programs provide a clear ROI for our customers. Our programs have demonstrated meaningful reductions in A1C over a sustained period of time, but it's more than just A1Cs.

We also have shown improvements in blood pressure and in weight, and the whole concept of value is one that we are having good conversations with our clients about. Our members in our diabetes programs also demonstrate a higher adherence to their diabetes-related drugs. It's really important that you understand what's based in the research, what's included. But what I would tell you is we aren't seeing an impact, but we are having good conversations with our clients related to the ROI and the value of our products.

Mala Murthy (Acting CEO and CFO)

Yeah. And, you know, just to wrap up on that, Daniel, what I would say is, look, we are, we continue to see strength, and momentum in Chronic Care. I would say, as I think about our guidance this year, Integrated Care is off to a solid start. I expect, Integrated Care, both from a revenue growth perspective as well as a margin expansion perspective, as indicated in our guidance, to continue its momentum. I would say certainly if you think about the BetterHelp business, you know, we have had a couple of challenging quarters and, you know, we have the set of drivers that are driving the back half of the year ramp.

I would say certainly on the integrated care side, we are, you know, we are continuing to drive, get traction, especially on our chronic care book.

Operator (participant)

Thank you for your question. There are no additional questions waiting at this time. That will conclude the conference call. Thank you for your participation. You may now disconnect your lines.