Good afternoon. Thank you for attending today's Teladoc 2022 First Quarter Earnings Conference Call. My name is Nate, and I will be your moderator for today's call. All lines have been muted during the presentation portion of the call with an opportunity for questions at the end. I'd like to now pass the conference over to our host, Patrick Feeley, with Teladoc. Patrick, please go ahead.

Thank you and good afternoon. Today, after the market closed, we issued a press release announcing our first-quarter 2022 financial results. This press release and the accompanying slide presentation are available on the Investor Relations section of the teladochealth.com website. On this call to discuss the results are Jason Gorevic, Chief Executive Officer; and Mala Murthy, Chief Financial Officer. During this call, we will also provide our second quarter and full-year 2022 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 Jason.

Thanks, Patrick. Good afternoon and thank you for joining us. Well, I'm pleased to report that we met our guidance for Q1 revenue and adjusted EBITDA. As you saw in our earnings release this afternoon, we revised down our revenue and adjusted EBITDA outlook for the full year. Although I'll spend most of my prepared comments discussing how the market dynamics we are currently seeing in the direct-to-consumer mental health and chronic care markets have influenced our revised outlook for 2022, I do think it's important to do so in the context of our broader business. Coming out of the first quarter, Teladoc continues to be the leading brand in the digital health space. Our unmatched scale, solid fundamentals, and strong balance sheet with over $830 million in cash leaves us well positioned to build upon our market leadership by delivering innovative new solutions to transform the way consumers interact with the healthcare system. We remain confident in and committed to our whole-person care strategy. And our interactions with clients and prospects confirm that it is the future of digital health. As the industry matures, we're seeing our most progressive clients embracing our integrated approach for their healthcare needs. I'll speak to that momentum later in my remarks. But what's notable is that we continue to see growth across all our services even if the level of growth in some areas is lower than our prior expectations. As you think about the road ahead for Teladoc Health, we remain committed to making necessary ongoing investments and delivering on innovation because the market is moving fast. Achieving full integration of our member experience and delivering several last-mile enhancements to our Primary360 offering remain high on that list. We're certainly disappointed to lower guidance today. However, we continue to believe we're the best positioned company in healthcare and technology to transform the healthcare experience. With that, let me spend some time walking through what led us to reassess our outlook for the balance of 2022, starting with our direct-to-consumer mental health service, BetterHelp. Over the past several weeks, we've seen lower-than-expected yield on marketing spend for BetterHelp, which is a reversal of the trends we experienced exiting 2021 and in the early part of 2022. One example of this is paid search advertising, where we've seen a notable increase in rates for keywords associated with online therapy. We believe the biggest driver of this dynamic is smaller private competitors pursuing what we think are low- or no-return customer acquisition strategies in an attempt to establish market share. Some of those same providers are also exploiting the temporary suspension of certain regulations associated with the national health emergency concerning the prescription of controlled substances. We believe these strategies are unsustainable in the long-term. This dynamic is likely to persist at least throughout the remainder of this year, however, resulting in growth and margin contribution from BetterHelp that is below our expectation in February. The good news is that unlike smaller market participants, we operate at a scale that allows us to continue investing in the direct-to-consumer market to drive both strong growth and returns. And we can drive growth while remaining disciplined in our member acquisition strategy. Furthermore, our push to diversify customer acquisition channels in recent years has left us better positioned to operate within this environment. No single channel accounts for more than 25% of newly acquired members for BetterHelp. So for example, we are less reliant on paid search as a source of new members than in the past. While the dynamics in the direct-to-consumer market were only a modest drag on our first quarter revenue, given the persistency of these trends over the past several weeks and the broader economic backdrop, we've incorporated this updated view into our forward outlook, including an assumed 10% lower revenue yield per dollar of ad spend for the full year. To be clear, we continue to expect strong growth and margin contribution from BetterHelp, albeit below our prior expectations. Our revised revenue guidance range for 2022 assumes BetterHelp will grow in the upper half of our long-term target range for mental health revenue growth of 30% to 40% per year. In chronic care, we have more clarity on the cadence of onboardings from the large health plan client that we discussed last quarter. We remain on track for population launches with this client and other recently signed deals over the course of 2022. However, we're also seeing our chronic care sales pipeline develop more slowly than anticipated. Last October, we discussed two trends in the marketplace that we saw leading to an elongated selling cycle. The first was in the employer market, where we saw benefit managers focused on COVID and return to work, which we felt was contributing to a longer decision-making process. The second was a large pipeline of health plan deals that were simply harder to predict when it comes to timing given the size and complexity of those clients. At the beginning of this year, we were encouraged by very strong fourth quarter bookings and a robust late-stage pipeline. However, as we progressed through the first part of the year, we're seeing clear signs of the slower bookings pace continuing. In addition to the factors we discussed last fall, we're seeing clients inundated with a number of new smaller point solutions, which has created noise in the marketplace. While in the near term we expect this noise to persist, we believe our broad integrated approach to virtual and digital care delivery is a competitive advantage that positions Teladoc to be the long-term winner in the space. In the meantime, we are in the process of taking a closer look at some of these forces that are impacting the near-term conversion of pipeline to revenue, and we'll continue to make adjustments as necessary to address them. So while the pipeline is large and as of the end of the first quarter, the late-stage pipeline has grown significantly as compared to the first quarter of last year, we're not seeing deals progress at the pace that we expected. It's still somewhat early in the selling season, but based on how the pipeline has developed over the first four months of the year, we felt it was prudent to update our forecast. Our revised 2022 guidance assumes chronic care revenue growth on a percentage basis in the low to mid-teens. When comparing the impact to guidance from the items we've just discussed, approximately three quarters of the reduction to our 2022 revenue outlook is driven by lower expected growth at BetterHelp with the remainder primarily attributed to the lower expected revenue from our suite of chronic care products. For adjusted EBITDA, approximately two-thirds of the reduction is driven by lower yield on advertising spend from BetterHelp. The remainder of the revision is driven primarily by our lower chronic care revenue outlook as well as a modest increase in our assumption for wage growth due to higher inflation as we grow our headcount in technology and development. As a result of these updates, we now expect revenue of $2.4 billion to $2.5 billion and adjusted EBITDA of $240 million to $265 million for fiscal year 2022. We believe these ranges appropriately capture the reasonable risks and potential upside. We are not providing today any guidance with respect to periods after 2022, and we're evaluating whether there will be effects to our long-term revenue growth outlook. As I said at the top of the call, despite the change in our 2022 outlook, we remain confident in our position as the leader in the digital health space. Our key competitive advantage is our market-leading depth and breadth of capabilities. And those capabilities underpin our strategy to bring broad integrated solutions to the market that meet the full set of needs for clients and members. During the first quarter, we continue to make progress against that whole-person strategy. A key linchpin of our ability to deliver upon the promise of whole-person virtual care is our market-leading virtual primary care product, Primary360. Primary360 is designed to act as the front door to care for our members. It opens pathways to Teladoc's own ecosystem of digital and virtual solutions and coordinates care with third-party providers within a health plan or employer's network when needed. We continue to be excited about the momentum we're seeing in Primary360. Last quarter, we talked about a growing pipeline of Primary360 deals. And over the past two months, we've made important progress moving deals through the pipeline. We've seen particularly strong interest from our health plan clients, many of whom are looking to combine Primary360 with our whole-person suite of telehealth, mental health, and chronic condition support to create Virtual First care models for their members. I expect to have additional notable Primary360 deals to announce as we progress through the rest of the year as health plans and employers look to provide their populations with innovative solutions that make primary care more convenient and accessible. We also recently announced an important new partnership with Northwell Health, unseating an incumbent competitor in the process. Many of you in the New York metro area are familiar with Northwell as New York's largest health care provider with 22 hospitals and over 800 outpatient facilities. Northwell's virtual enterprise strategy will leverage our single integrated platform that spans consumer and provider-to-provider applications both within the four walls of Northwell's facilities for high-acuity and emergency care and directly into the patient's home. Northwell will also leverage our partnership with Microsoft to streamline clinical collaboration and communication among Northwell clinicians. This deal underscores the value of our Microsoft relationship and demonstrates the power of our integrated platform, which allows clients to operate within one platform for all their virtual care use cases. With that, I'll turn the call over to Mala for a review of the first quarter and our guidance.

Thank you, Jason. And good afternoon, everyone. During the first quarter, total revenue increased 25% year-over-year, to $565 million, substantially all of that growth was organic. We ended the quarter with U.S. paid membership of 54.3 million members, an increase of 680,000 members over the fourth quarter. Individuals with visit fee only access was 25.2 million at the end of the first quarter, representing an increase of 950,000 individuals. The total number of our unique members enrolled in one or more of our chronic care programs was 731,000 as of the first quarter, an increase of 78,000 enrollees over the prior year's quarter. 27% of our chronic care members are now enrolled in more than one program, up from 15% in the first quarter of 2021. This helped drive total chronic care program enrollment to over 900,000, an increase of more than 140,000 or 19% over the prior year. Average U.S. revenue per member per month was $2.52 in the first quarter, up 21% from $2.09 in the prior year's quarter. Visit fee revenue for the first quarter of $68 million increased 12% year-over-year. During the first quarter, we provided 4.5 million visits through our network of clinicians, up 35% over the prior year's quarter. The biggest contributor to this growth was strength in mental health utilization. Adjusted EBITDA was $54.5 million in the first quarter compared to $56.6 million in the prior year's first quarter and at the high end of our guidance range. As a reminder, our first quarter 2021 adjusted EBITDA included a $6.9 million benefit related to purchase accounting adjustments. As discussed on last quarter's call, it's typical for us to see a ramp-up in advertising spend and a lower margin in the first quarter as we take advantage of lower media pricing following the conclusion of the more expensive holiday season, and that was the case this year. It's important to note that in 2021, this seasonality was less pronounced due to a weaker advertising market during the onset of the pandemic. Net loss per share in the first quarter was $41.58 compared to a net loss per share of $1.31 in the first quarter of last year. Net loss per share in the first quarter includes a non-cash goodwill impairment charge of $41.11 per share or $6.6 billion. The goodwill impairment was triggered by the sustained decline in Teladoc Health share price with the valuation and size of the impairment charge driven by a combination of recent market-based factors, such as an increased discount rate and decreased market multiples for a relevant peer group of high-growth digital health care companies as well as updates to our forecasted cash flows consistent with the revised guidance disclosed today. Also included in net loss per share was stock-based compensation expense of $0.38 per share and amortization of acquired intangibles of $0.31 per share. We ended the quarter with $839 million in cash and short-term investments on the balance sheet. Now turning to forward guidance. For the full year 2022, we expect revenue to be in the range of $2.4 billion to $2.5 billion, representing growth of 18% to 23% over the prior year. We expect total U.S. paid membership of 54 million to 56 million members, representing growth of 1% to 5% year-over-year with the remainder of revenue growth driven by expanding revenue per member. We expect total visits in 2022 to be between 18.5 million and 19.5 million visits, representing growth of 20% to 27% over the prior year. We expect adjusted EBITDA in 2022 to be in the range of $240 million to $265 million, representing an adjusted EBITDA margin of 10% to 10.6% compared to a 12% margin in 2021 after normalizing for last year’s purchase price accounting benefit. As discussed, the decline in consolidated margin is primarily a function of lower expected results for BetterHelp and our suite of chronic care products and a modest increase in expected wage rate inflation. For the second quarter of 2022, we expect revenue of $580 million to $600 million, representing growth of 15% to 19% over the prior year’s quarter. As discussed in our last earnings call, in contrast to prior years, we continue to expect the cadence of new chronic care enrollees to be more heavily weighted to the back half of the year. We expect total U.S. paid membership in the second quarter of 54 million to 55 million. Total second quarter visits are expected to be between 4.4 million and 4.6 million visits, representing year-over-year growth of 20% to 26%. We expect second quarter adjusted EBITDA to be in the range of 39 to $49 million. The lower expected sequential adjusted EBITDA in the second quarter is primarily a function of a lower contribution from direct-to-consumer mental health, and increased engagement spending in support of new chronic care population launches.

Thanks, Mala. We hold ourselves to a high standard. And there's no question we're disappointed with our revised outlook today. However, as I mentioned earlier, we remain highly confident that our whole-person integrated approach is the right one. The depth and breadth of our integrated product offering is unmatched. As the clear leader in the industry, we believe that only comprehensive integrated solutions like ours can truly deliver upon the promise of better outcomes, a better experience, and more efficient care for clients and consumers. We've methodically built the broadest set of virtual and digital health capabilities available in the market today. And we'll continue to innovate and build upon those capabilities to expand our lead and execute against the tremendous opportunity ahead. With that, we'll open the call for questions.

Absolutely. Our first question is from Lisa Gill with JPMorgan. Lisa, your line is open. You can go ahead.

Thanks very much. And thanks for the detail. I'll keep my question to discipline area, Jason, but I might have multiple parts here. I just really want to understand a little bit better on what's happening in the mental health area. You talked about the last few weeks where customer acquisition costs, paid searches being much higher. Is this all driven based on competition? Two, you talked a little bit about higher wages, but what are we seeing as far as demand and competition for clinicians? And then thirdly, if I look at the revised EBITDA and the margins being down roughly 300 basis points versus what your expectations were before, are you spending even more incrementally when we think about that customer acquisition cost on the mental health side as I know you and Mala called out that two-thirds of the impact is coming from BetterHelp.

I will discuss the competitive landscape and our observations regarding the BetterHelp business. Mala will cover the overall margin outlook and our projection for adjusted EBITDA in 2022. Currently, in the direct-to-consumer mental health sector, we have noticed that our marketing spend yield has been lower than anticipated over the past few weeks. In January and February, we observed that the cost of acquiring new members was consistent with our expectations, though this represented a decline from December. However, things shifted negatively in March, resulting in increased acquisition costs and a corresponding drop in revenue yield from our advertising. The two main channels responsible for this are paid search and paid social media. We believe this is largely due to smaller private competitors that have recently received significant venture capital funding and are making economically irrational choices. The positive aspect for us is that we can reduce our spending without severely harming the business. As I mentioned earlier, we still anticipate being at the high end of our growth range for BetterHelp. For instance, in paid search, our cost per acquisition increased by 20% in March compared to January and February, and paid search accounted for about 20% to 25% of our newly acquired members in the first quarter. Additionally, I noticed an article in the Journal today regarding CVS and Walgreens filling prescriptions for Adderall and other controlled substances through some direct-to-consumer telehealth companies, specifically in mental health. We do not engage in this practice and believe some companies are taking advantage of the temporary regulatory suspension that allows the prescription of controlled substances during the national health emergency. This situation places us at a slight competitive disadvantage compared to those who do participate. However, we do not see either practice—bidding up in search auctions or prescribing controlled substances—as sustainable, and we are committed to focusing on long-term profitable growth. One more comment about BetterHelp: Lisa, regarding your questions about wage inflation and the availability of clinicians, neither of these factors is limiting our growth and has contributed to our revised outlook for the year. The real issues are the increased customer acquisition costs and competition from companies that are capitalizing on the regulatory suspensions.

Sure. Lisa, regarding your question about profit, let me clarify the overall situation and its relation to BetterHelp. As mentioned in our prepared remarks, about two-thirds of the adjustment to our guidance for adjusted EBITDA is due to BetterHelp. The remaining one-third comes from chronic care and a slight rise in wage inflation. Specifically for BetterHelp, the decline is primarily linked to lower than anticipated yield. We noted a 10% increase in customer acquisition costs, which is affecting the reduced margin. However, I want to emphasize that BetterHelp's margins remain appealing when compared to our overall enterprise margins. In response to your question, when considering BetterHelp's advertising and marketing expenses along with the rise in customer acquisition costs, the impact on our financials is similar in terms of spend, but it results in lower revenue due to the decreased yield.

Thank you, Lisa. Our next question goes to Ryan Daniels with William Blair. Ryan, your line is open. You can go ahead.

Yeah, guys. Thanks for taking the questions. I guess my follow-up would be regarding the other form of weakness in the chronic care management. I'm hoping you can dive into that a little bit more. And I guess my curiosity is somewhat similar to the funding we've seen in that space with a lot more on-site healthcare providers that also offer telehealth, some of the navigation companies combining resources to provide telehealth with their solutions. Is it becoming a more competitive market as well? Is that part of the noise? Or is it really more difficulty in getting the attention of larger employers as they deal with return to work such that you think this is truly more of a transitory headwind for that segment? Thanks.

Thanks, Ryan. I appreciate the question. I'll discuss the factors we're observing in the chronic care market that seem to be extending the sales cycle. As I previously mentioned, we're seeing a larger pipeline of later-stage deals that are unfortunately taking longer to close. Back in October, we noted several trends; benefit managers are still distracted by COVID and the return to work, and we believe that trend is ongoing. On the positive side, we ended 2021 with a record quarter of bookings in Q4 and a strong late-stage pipeline that carried over into Q1. However, as we've progressed through the first few months of the year, those deals have not been closing as quickly as anticipated, largely due to an increase in competition, which is causing potential buyers to weigh more options. I believe we are somewhat in a transitional period where buyers are shifting from seeking individual point solutions to looking for fully integrated, whole-person, multi-condition offerings. Historically, our legacy organization, Livongo, competed directly with various point solutions in the market but not on the basis of comprehensive, whole-person care. Over the past year, we've been working to integrate Livongo products into our holistic care experience, and while we are making significant progress, we haven’t fully completed this integration yet. We are receiving positive feedback, as evidenced by the fact that in Q1, 78% of our sales involved multiple products. The market is responding favorably to this shift, which is further indicated by the strong reception of our Primary360 product. However, we recognize that we are still early in this integration process. We are confident that our strategy is on the right track and are dedicated to completing this integration to offer a cohesive, multidimensional, and multi-condition solution. While we are disappointed with our recent performance and our outlook for the year, we remain optimistic about our strategy and market position. In the meantime, we will closely examine the factors affecting our pipeline conversion and will continue to make necessary adjustments to address these challenges.

Thank you, Ryan. Our next question goes to Sandy Draper with Guggenheim. Sandy, your line is open. You can go ahead.

Thank you very much. Jason, I have a related question for Ryan. I've been considering the impact of wage inflation on human resources and the ability to attract talent, which may require higher wages, bonuses, and signing incentives. Do you believe this trend is affecting people's willingness to invest in larger bundled purchases due to the upfront costs? Are you seeing a reluctance to add additional services as companies feel pressured to allocate cash towards employee compensation? I'm trying to gauge if this is a common trend in the marketplace. Thank you.

Thanks, Sandy. I appreciate the question. I don’t believe that's the main reason employers are hesitant to make decisions. It could lead to more employers opting to buy through their health plans. We're noticing that HR departments are under pressure due to various factors such as returning to the office, the great resignation, and focusing on hiring and talent retention. This may result in more employers purchasing these solutions through their health plans, which I believe would be advantageous for us, as we are seeing considerable interest in these products with health plans. However, we still need to successfully sell to their self-insured employers. It's early in the year to gauge how that pipeline develops, so it’s a bit premature for me to express certainty. But if I had to interpret the trends, that would be my inclination.

Thank you, Sandy. Our next question goes to Sean Dodge with RBC Capital Markets. Sean, your line is open. You can go ahead.

Thanks, good afternoon. Going back to BetterHelp. Jason, I know you've all been talking about experimenting with some different models there designed to help improve retention or longevity on the platform. I think you've talked before about flexible models you use, where people can ramp up and down based on how much they want to use without having to churn off. Are there any updates you can provide around those? And as you test these, how effective are you finding them to be in? And maybe when do you expect to launch some of these kind of more larger scale? Thanks.

Yeah. Thanks, Sean. We do see a consistent improvement in the BetterHelp metrics and the BetterHelp business, unfortunately, in the last six weeks with the exception of customer acquisition cost. Specifically, I would say, LTV is up modestly. Retention has been stable to improving over the last couple of years. Conversion rates on leads and visits to our registration pages have been stable. Brand awareness is strong, and we really have the leading brand in the space. And we do continue to innovate around things like group therapy, which enables a one-to-many relationship between therapists and consumers. And every quarter, we test literally dozens of new tactics, product features, pricing structures. And I think that's one of the things that has continued to help drive that business forward with the tremendous growth that it's had. We also do continue to expect significant growth out of that business. We're still projecting growth in that business in the high 30s percentage-wise. So I do feel like we're getting good yield out of our efforts to continue to refine the product and optimize it. Unfortunately, in this circumstance, it doesn't overcome the change in the environment for consumer advertising. And we continue to take a disciplined approach to that. So we are not going to overspend our way through that and follow the lead of irrational competition.

Yeah. I would also add, the scale that we operate in, the scale at which the BetterHelp business operates in, continues to grow. And we continue to expand on the diversity of the acquisition channels we have. So the operating metrics that Jason talked about, the diversity of the channels we have, all of those are still very much intact. As we said in our prepared remarks, this is a business that's growing in the high 30s. So again, very robust growth. There are the trends that we are seeing over the last few weeks since February that is certainly making us come to you with revised guidance relative to the earlier expectations of growth that we had.

Thank you, Sean. Our next question goes to Richard Close with Cannacord Genuity. Richard, your line is open. You can go ahead.

Thank you for the questions. To elaborate on Ryan's inquiry regarding chronic conditions, was there any effect from becoming the preferred vendor at Express Scripts that contributed to the revised guidance on the chronic side? Additionally, you mentioned point solutions in relation to chronic care. Does the lack of full integration of all chronic solutions with the whole-person health approach hinder your ability to close those deals?

Yes. So Richard, thanks for the question. With respect to Omada and Express, we really don't see a significant impact from that at all. I would say no to the question, is that the source of the challenge there. With respect to our outlook, as is typically the case, our guidance incorporates a little bit of in-year revenue, a modest amount of in-year revenue contribution from deals that we expect to sign and launch within the current year. Our prior guidance assumed a low-single digit percentage point contribution from in-year revenue, meaning deals that we signed and launched within the same year. We felt that, that guidance range adequately captured the downside risk from a relatively modest contribution to the overall revenue. But we're seeing that pipeline just move more slowly than anticipated. So we've removed the significant majority of that from our outlook. As I think about that in the sort of grand scheme, as I said, it represents about a quarter of the overall reduction in our outlook for revenue. I'm honestly not sure if we would have made any reduction or modification to our outlook if it weren't consequent or commensurate with the change in our outlook for BetterHelp.

From a profit perspective, it has a greater impact. If that were the only factor, we still have cost management and expense control measures that would allow us to stay within the original guidance we provided.

And then, Richard, regarding the maturity of the integration of the chronic care solutions into our whole-person strategy, we are observing a very strong response to that approach based on our market research, and we are currently conducting another study. Although the integration is not fully completed, we do not yet have the concrete evidence to support it. Consequently, people are waiting and eager to see results; early adopters are making purchases, but we have not yet reached the broader market that is awaiting proof of its impact. I am very confident that there will be a significant impact. We are starting to see large health plans purchasing this in order to offer it to their large self-insured clients.

Thank you, Richard. Our next question goes to Stephanie Davis with SVB Securities. Stephanie, your line is open. You can go ahead.

Hey, guys. Thank you for taking my question. Jason, I know you've been asked this a bunch, but I'd love your strategic thoughts on the DTC cost arc because the two quarters you've ever missed both were DTC-driven. Is this solution going to be anything D2C strategy-related like the extra calls or wing of the private side funding? Or is it going to be less DTC entirely and more on accelerating the mix shift towards the B2B business? And with that in mind, what kind of leverage could you pull to accelerate that?

To accelerate the B2B business, I believe that the majority of our investment in research and development is focused on our whole-person approach, which integrates our products and services. Our mergers and acquisitions strategy and the use of our balance sheet are also directed towards the B2B side of the business. We value the BetterHelp business and its growth potential. Moreover, we recognize that the gross margins in the B2B sector are typically higher, making it a strong long-term business. We anticipate seeing the benefits of our investment in our whole-person approach, integration, and data platform work in the B2B market. I am confident in this due to the positive feedback we receive from our clients and prospects. We are currently on a journey to achieve our goals, and this year is critical for integration. I expect to emerge from this phase with significant opportunities, supported by an unmatched range of products in the market.

Yeah. And I would add, Stephanie, the dynamics in terms of the size of the opportunity, the addressable market, that's still unchanged, right? Whether it be in any of the different conditions that we plan; Primary360, where we are seeing strong resonance as we go out and sell to clients, all of that is unchanged. What we are doing is, as we’ve talked about the different areas that we are spending, investing in from an R&D perspective, from a T&D perspective, it’s important that we actually continue to stay focused on it. And we’ve always said those are going to drive long-term sustainable revenue growth. And I do think it’s important that we continue to execute on it, focus on it. And as we always have done, we will continue to drive operating leverage in terms of expense controls and discipline in the business as we have always done.

Thank you, Stephanie. Our next question goes to Daniel Grosslight with Citi. Daniel, your line is open. You can go ahead.

Hi, guys. Thanks for taking the question. Given it seems that BetterHelp and chronic care pressures will persist for the remainder of the year, I'm curious how you're thinking about the quarterly cadence of margin expansion in the latter half of the year. I just looked at the midpoint of the guidance. It implies that the second half EBITDA margins will increase from around 7.5% in 2Q to around 12% for that second half. Can you?

That's a great question, Daniel. We are considering margin progression carefully. Although we have reduced our overall revenue guidance for the year, we still anticipate an increase in revenue as the year progresses, which will contribute to margin expansion. Additionally, as we mentioned in the previous earnings call regarding the DTC side of the business, particularly with BetterHelp, we typically increase our ad spend in the first quarter and early part of the year. The advantage of this strategy is that it has long-lasting effects throughout the year as we acquire new members, retain them, and enhance their lifetime value. This leads to a growing financial impact as we move forward. Furthermore, expanding margins from the start of the year to the end aligns with our historical trends. As we expect to see an increase in enrollments in chronic care throughout the year, this will also aid in expanding our adjusted EBITDA margins. Overall, our thoughts on the drivers of margin progression this year remain consistent with our earlier outlook, despite the adjustment in revenue guidance.

Thank you, Daniel. Our next question goes to Charles Rhyee with Cowen. Charles, your line is open. You can go ahead.

Yeah, thanks for taking the question. Maybe to follow up on that, Mala. You talked about the components, and I know you don't want to talk past really 2022, but it sounds like what you're saying is that other than maybe a lower starting point here, the components for margin expansion is still largely intact. Can you remind us then maybe from the Analyst Day when you guys gave the sort of the 100 to 150 basis points of margin expansion sort of long-term, what sort of the components were? Perhaps, what were you expecting from chronic care versus better help within those? So as we think about the revised outlook here and we kind of take up or higher DTC costs, is this kind of range that you were projecting beforehand still sort of in the ballpark? Maybe help us out because it sounds like what you're saying is the long-term thesis in terms of margin levers is still there.

Yeah. Charles, thanks. We are not in a position to provide an outlook beyond the guidance that we just gave, just given the rapidly evolving environment for virtual care, right? We've talked about the dynamics that have emerged over the last several weeks. And so we are in the process of reevaluating how these various dynamics discussed in the remarks that we just gave and we've addressed in our Q&A, how they affect our longer-term growth outlook. And we will give you all an update after we have completed our evaluation. What I will say is, with all of that said, we are confident from a long-term perspective in our strategy and positioning in the market, similar to what consistent with what Jason said a few minutes ago. I don’t want to go into more details than that at this moment just given how much things have evolved.

Thank you, Charles. Our next question goes to Jessica Tassan with Piper Sandler. Jessica, your line is open. You can go ahead.

Hi, thanks so much for taking the question. So just as we think about the 30% to 40% growth in behavioral, can you help us understand how much of that anticipated growth is membership-driven? And how much is pricing-driven? Thanks.

We typically do not go into the details. You’re talking about BetterHelp. We typically will not go into the details of how much of it is membership-driven versus pricing-driven. That’s a level of detail that we have not disclosed in the past.

Thank you, Jessica. Our next question goes to Allen Lutz with Bank of America. Allen, your line is open. You can go ahead.

I guess to go back to BetterHelp again, as you think about the advertising that you spent in the first quarter and you think about advertising as a percent of revenue, how should we think about that trending in the second quarter? And then over the course of the year, is that something that's going to kind of continue to creep up? Or is Q1 kind of a peak level there based on what's embedded in the guide? Thanks.

What we have included in our full year forecast is a 10% increase in our cost of acquisition for the year. I don’t want to provide a detailed breakdown of that as we progress through the year. However, I want to remind you that the market is evolving and there are various dynamics at play. Typically, we increase our advertising efforts in the early part of the year. Historically, as we approach the holiday season in the fourth quarter, we tend to see much higher advertising costs and then we usually pull back, as we operate the BetterHelp business in a highly ROI-driven manner. Therefore, you can expect to see similar dynamics as we move through the year.

Thank you, Allen. Our next question goes to George Hill with Deutsche Bank. George, your line is open. You can go ahead.

Good evening, everyone. Thank you for taking my question. Jason, I’d like to revisit the market dynamics you mentioned regarding the employer market appearing to pause and the need for comprehensive solutions. You referred to it as the whole-person solution. My questions are twofold. First, do you believe this pause in the market could significantly affect the selling season for new business in 2023? Second, are you noticing different competitors emerging, such as one-off solutions challenging you on telemedicine, or are you seeing managed care organizations trying to create their own combination of third-party solutions to compete with you? I'm trying to grasp if the competitive landscape is changing in a significant way. So, this touches on the sales season, your range of offerings, and the competitive dynamics. Thank you.

I think it's too early to determine the impact on the 2023 selling season. However, we are seeing a strong pipeline of managed care opportunities reaching advanced stages. Major health plans are adopting our services across various areas, and we are forming contracts to serve their large self-insured clients, which will start developing now and continue to grow through the summer into early Q4. Additionally, I am encouraged by the response to Primary360. We have always anticipated it would be a modest contributor in 2022, ramping up significantly in 2023 and 2024. It is progressing faster than expected, with large opportunities showing strong interest in the solution. We firmly believe that this will serve as a gateway for our chronic care solutions. When we mention that 78% of our sales come from multiproduct sales, it reflects a self-reinforcing trend where we expand into multiple products, providing multiple entry points to our comprehensive suite.

Thank you, George. Our next question goes to Stan Berenshteyn with Wells Fargo. Stan, your line is open. You can go ahead.

Thanks for taking the questions. I guess on the direct-to-consumer mental health side, Jason, just to understand the comments you're making. So your business is being adversely impacted because you aren't getting patients that potentially seem to be seeking controlled substances when they're initiating a web search. And I understand that your business, you're not prescribing these medicines. So I guess my question is, why would someone who is suitable for BetterHelp instead end up signing up for these other competitors that you're discussing?

Because they provide both online therapy and controlled substances. So it's a broader net. And it just provides access to a population who may be making decisions between multiple options. Again, we believe that that's a temporary issue because I believe that the prohibition will be reinstated on prescribing controlled substances is likely to be reinstated or it would take an actual change in the regulations. And again, I think that is a companion issue where the bigger issue for us is the increase in the price of advertising in paid search and social.

Thanks, Stan. Our next question goes to Elizabeth Anderson with Evercore. Elizabeth, your line is open. You can go ahead. Since we're not getting any audio from Elizabeth, we will move on to the next question. Our next question is from Cindy Motz with Goldman Sachs. Cindy, your line is open. You can go ahead.

Hi, thank you for taking my question. I wanted to follow up on Sandy's question regarding whether some of this might reflect recessionary concerns among your clients in the chronic care segment, particularly with wage inflation and other factors causing a pullback. Additionally, regarding BetterHelp, people may be seeking cheaper options at this time. Although it was mentioned that customer acquisition costs for BetterHelp were decreasing, things sounded quite positive six weeks ago, and now we find ourselves in a different situation. I would also appreciate any clarity you can provide on the margins across different segments. You mentioned that the margins for BetterHelp remain attractive, so I assume the same holds true for chronic care. Understanding this would help us form a long-term perspective on whether these trends are driven by macroeconomic factors and are temporary. Thank you.

Yes, Cindy, it's certainly possible that there are macroeconomic factors at play. However, we don't have evidence to confirm this, so we won't assert that it's definitively causing the slowdown in opportunities moving through our pipeline and closing. Regarding BetterHelp, we also lack clear evidence that recession, inflation, or consumer sensitivity to pricing are the causes. What we do see is an increase in advertising costs that changed significantly between January and February and continued to rise in March, and that trend has persisted since early March. We can only highlight the factors for which we have clear evidence and speak confidently about them. While I appreciate that this is a hypothesis, we're actively working on ways to test that hypothesis among other possibilities.

Cindy, regarding your question about margins, I have a few comments. Looking at the first quarter and our gross margin trends on a year-over-year basis, when adjusting for the benefits of purchase price accounting, our gross margins remained relatively flat compared to last year. In terms of our margin progression, I won’t make projections beyond 2022 for the reasons I previously mentioned. We are currently reassessing everything. However, I can affirm that we will continue to manage our expenses carefully and make the right investments for long-term sustainable revenue growth. I've consistently stated that scaling our revenue is key to driving long-term margin expansion. As we shift more towards value-based care arrangements, we will also aim to enhance our gross profit and adjusted EBITDA profit dollars. This strategy remains in place. We do not provide margin breakdowns by different segments of our business since we report as one entity.

Thank you, Cindy. This concludes today's Teladoc 2022 Q1 earnings conference call. Thank you for your participation. You can now disconnect your lines.