Hello all, and welcome to Teladoc Health's Second Quarter 2024 Earnings Call. My name is Lydia and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. I'll now hand you over to Michael Minchak, Head of Investor Relations at Teladoc Health to begin. Please go ahead.

Thank you, and good afternoon. Today, after the market closed, we issued a press release announcing our second 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 Chuck Divita, Chief Executive Officer; and Mala Murthy, Chief Financial Officer. 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 Chuck.

Thanks, Mike, and good afternoon everyone. Let me start by saying how excited I am to have joined Teladoc Health and to lead the organization going forward. The company has many strengths to build upon and to drive higher levels of execution and performance. I'll comment on the quarter's results, but I also want to share some early perspectives since joining the company in June. I've had the opportunity to engage with employees across the organization and visit with many customers and stakeholders, including recently attending our annual Forum event, which brought together healthcare leaders, virtual care advocates, and innovators. These discussions have further reinforced my optimism about the future. I've been impressed by the depth of talent and resiliency of our employees and a level of commitment to serving our customers, members, and patients. I'm also gratified to see such a strong focus on patient safety, clinical quality, and health equity, as well as an organizational understanding of the importance of more holistically supporting the physical and mental health needs of people. Not only are these important aspects from a care perspective, but also represent key points of differentiation in the marketplace to build upon. From a technology perspective, we have important capabilities that will be essential to driving the business going forward, including our member to provider matching engines, our ability to effectively manage millions of patients and provider interactions, and investments we've made in the areas of data science and artificial intelligence. Together with other capabilities that we're working towards, this will position us well to meet the evolving needs of our customers and the healthcare system. And it further underscores the need to ensure we're achieving the expected impact of these investments, which is an area I expect us to further strengthen in short order. We also have a scaled business and leading brands that are well recognized in the marketplace. Over 92 million people in the US have access to one or more of our products today, and we intend to increase our ability to serve additional needs over time. I'm also excited about our success and market potential internationally, including the strong results and momentum that our international teams are delivering. All of that said, this is a company that is not yet delivering on its fullest potential. Since joining the company seven weeks ago, I've been evaluating, together with the team, all aspects of our business, our strategic direction and priorities, our product offerings, current performance and market potential, the outlook for our business units, and where we can drive improved performance and long-term shareholder value. And we will be acting on opportunities accordingly. From an operating perspective, I see an ability to strengthen execution, streamline the organization, and further raise the bar on performance. For example, the challenges noted earlier in the year had a real impact on our business at that time, but can also continue to influence results after resolution. This is what I mean by raising the bar on performance, and we're working with focus and urgency to ensure that we execute with a higher level of precision going forward. In terms of streamlining the organization, actions are already underway, including making changes to ensure we are organized to best serve our markets, clarifying and reinforcing accountabilities and deliverables, and scrutinizing our cost structure with an eye towards greater cost efficiency as we deliver for both customers and shareholders now and into the future. With respect to cost savings initiatives that we've already shared previously, the company is on target for achieving both 2024 and 2025 commitments, which Mala will comment on further. Through these and other actions, we intend to strengthen decision-making, accelerate the pace of innovation and speed to market, and unlock greater value over time. This has been, and continues to be, a key area of focus since joining the company, and I look forward to providing further updates going forward. I'll turn to our second quarter results and provide some brief comments before handing over to Mala for more detail. In total, we reported consolidated revenues in the second quarter within the company's previous guidance range, along with overall adjusted EBITDA above the range. Our Integrated Care business achieved solid business and financial results, including on both a top-line and adjusted EBITDA basis. In the U.S., Integrated Care members have grown by nearly 3 million people since the beginning of the year, including 600,000 on a sequential quarter basis. The international business continued to grow and create further expansion opportunities. I'm also pleased to see additional ways that our teams are working together across our various businesses to create new areas of differentiation for Teladoc Health. From a commercial perspective, three quarters of our bookings in the second quarter came from cross-selling into our existing book of business, continuing the momentum we've seen over the past several quarters, with the remainder coming from new clients. Our Chronic Care bundled solutions are generating solid interest from new and existing clients, and we remain focused on increasing our product penetration to serve more people. Shifting to BetterHelp, we're proud of the work the team is doing to support the mental health and well-being of people. The business is serving well over 1 million unique individuals on an annual basis and has a net promoter score of over 70. While it is resonating with consumers who are paying out of pocket for the services today, the operating environment remains challenging. Elevated customer acquisition costs continue to impact both top and bottom-line results. We see BetterHelp as a business in transition, one with a market-leading position but needing to find additional ways to reach more people who can benefit from the service, while also balancing scale, growth, and financial performance. Several initiatives are being pursued to positively impact results going forward, ranging from furthering international expansion, pursuing insurance coverage access in the U.S., and continued product enhancements. We'll provide a further update on the actions we're taking for the business in the third quarter call, but also believe it's appropriate at this point to modify our guidance approach as we navigate through these changes and challenges. Mala will comment more on BetterHelp in a moment. In closing, let me say that we are operating with a strong sense of urgency and have intensified our efforts on both the opportunities ahead of us and in strengthening execution and performance. Through our leadership position in the marketplace, our talented and committed employees and our value proposition, we expect to deliver for our customers and drive the long-term potential and success for the organization. With that, I'll turn the call over to Mala to review our second quarter results and our outlook.

Thank you, Chuck. Good afternoon, everyone. Second quarter consolidated revenue of $642 million decreased 2% year-over-year. Second quarter adjusted EBITDA was $89.5 million, which was above the high end of our guidance range and up 24% year-over-year, representing a margin of 13.9%. Consolidated net loss per share in the second quarter was $4.92, compared to a net loss per share of $0.40 in the second quarter of 2023. Net loss per share in the second quarter included a non-cash goodwill impairment charge of $4.64 per share, amortization of acquired intangibles of $0.38 per share, and stock-based compensation expense of $0.25 per share. The goodwill impairment testing was triggered by the decline in Teladoc Health's share price, with the impairment amount impacted by a higher discount rate and lower forecasted cash flows, and particularly the impact of challenges at BetterHelp. Second quarter free cash flow was $60.9 million, compared to $64.6 million in the second quarter of 2023; excluding a non-recurring, non-income tax refund in the prior year quarter, free cash flow was up approximately 25%. We ended the quarter with $1.2 billion in cash and equivalents on the balance sheet. Turning to our segment results, Integrated Care segment revenue increased 5% year-over-year to $377 million in the second quarter. Chronic Care was a key contributor to this year-over-year revenue growth. We ended the quarter with Chronic Care Program Enrollment of 1.17 million, up 9% year-over-year and up 5% sequentially. The largest drivers of Chronic Care Enrollment growth versus the prior year period were our Diabetes Prevention & Weight Management programs, followed by Hypertension. As an example of the continued success we are seeing with our land and expand strategy, we recently upgraded the fully insured population at a large regional Blues plan from our Diabetes Management Solution to Diabetes Plus, and expanded it to all fully insured members, while also securing a hunting license for our newly launched advanced weight management solution for their self-insured population. In addition to enrollment growth, we also saw a benefit in the quarter from performance-based revenue in our Chronic Care programs, where we are earning fees for successfully delivering on outcomes. While these types of arrangements currently represent a smaller portion of our business, we believe that our ability to deliver positive results in value-based arrangements will remain an important lever going forward. International was also an important contributor with strong revenue growth in the quarter driven by our B2B business, while we are also seeing success in leveraging our hospital and health systems offerings to unlock new public health system opportunities. U.S. Integrated Care segment membership at the end of the quarter was 92.4 million members, increasing by 8% year-over-year and up by approximately 600,000 members sequentially in line with our guidance range. Average Integrated Care revenue per U.S. member of $1.36 decreased by $0.05 versus the prior year second quarter. This is driven by mix as we have onboarded a significant number of new members within our general medical product and typically they contribute less materially to our average revenue per member. As we have said, based on our land and expand strategy, we see significant runway to cross-sell additional higher revenue products over time, including our Chronic Care services. Second quarter Integrated Care adjusted EBITDA was $64 million, a 69% increase over the second quarter of 2023. Adjusted EBITDA margin of 17% was well above our guidance range of 12% to 14% and represented growth of approximately 640 basis points versus the second quarter of 2023. Three factors helped to contribute to the upside versus the guidance range in the quarter. The first was the performance-based revenue in our Chronic Care programs. The second factor was adjustments to compensation accruals in line with current year performance, including lower than expected performance in our BetterHelp business. And the third part is related to timing, as certain marketing and other operating expenses were pushed into the second half of the year. In aggregate, these three factors accounted for over 300 basis points of benefit to year-over-year margin expansion. Turning to the BetterHelp segment, revenue was $265 million in the second quarter, down 9% versus the prior year period and slightly below our guidance range of down 4% to 8%. Revenue was down 1.5% versus the first quarter of 2024, as average paid users declined by 1.9% sequentially. With average revenue per user generally stable and churn in the first half of 2024 improving versus the second half of 2023, the decline in revenue and users versus the first quarter was a result of fewer user additions to the platform. We've talked about how a variety of factors influence the revenue yield on advertising spend, including cost of media, the overall health of the consumer, and dynamics within the advertising channels themselves. In the first quarter, we saw challenging customer acquisition costs through early Q1, which caused us to pull back on our advertising dollars in the quarter in keeping with our goals to balance growth and margin. Although we entered the second quarter with lower paid users, creating headwinds to our top-line performance, we did see signs of advertising costs stabilizing at Q1 levels in the first few weeks. However, we saw a further deterioration from those levels in May, with that trend continuing into June. To help put this in context, we saw a double-digit percentage increase in customer acquisition costs in May versus what we had seen exiting the first quarter. In line with our strategy to constantly optimize for return on advertising spends, we made the decision to pull back during the second quarter to ensure the appropriate level of return for marginal dollar spend. This led to fewer gross additions and a lower paid user count, which drove the revenue decline in the quarter. We believe higher customer acquisition costs in the U.S. are being driven by several factors. First, we are seeing customer acquisition cost pressure broadly across many of our advertising channels, which suggest some broader macro weakening of the consumer. Next, BetterHelp growth is dependent on our ability to efficiently deploy marketing dollars to acquire new customers. Our scale makes us the largest advertiser of virtual mental health, and while our spending is diversified across various channels, there is only so much incremental ad spend we can drive in a short period of time without further inflating our customer acquisition costs. At our scale, and at these elevated levels of customer acquisition costs, we are making a conscious decision not to chase inefficient customer acquisition to points below an appropriate return. So this balanced approach and focus on driving ROI and margin is going to come at a lower overall rate of top-line growth as long as customer acquisition costs in our key advertising channels remain elevated. As we have noted, BetterHelp is a business in transition. We are undertaking several strategic pivots to address these challenges and expand our addressable market. As Chuck had discussed, we are actively working on bringing the BetterHelp value proposition to the insurance market. In addition, we are also moving forward with further international expansion beyond our current footprint with a focus on certain non-English speaking markets. Consistent with our prior commentary, we have seen much healthier customer acquisition costs in non-U.S. markets, which is translating to strong international revenue growth at BetterHelp. BetterHelp's adjusted EBITDA was $25 million in the second quarter, representing a 26% year-over-year decline. Adjusted EBITDA margin of 9.6% was just above the midpoint of our guidance range of 9% to 10% and decreased 210 basis points versus a prior year quarter. As we faced higher than expected customer acquisition costs, we made the deliberate decision to moderate advertising spend in certain channels during the quarter, which allowed us to meet our adjusted EBITDA margin target and was consistent with our focus on managing the business to an appropriate return on ad spend. Now, let me turn to guidance. For Integrated Care, we continue to expect 2024 revenue growth in the low to mid-single digits. We are narrowing our range for adjusted EBITDA margin expansion, which we now expect to be up 150 to 200 basis points. Our guidance reflects the first-half performance offset by a slower ramp in Chronic Care Enrollment, primarily related to client-driven delays in the launch of certain member populations, which will likely lead to Chronic Care Enrollment being relatively flat on a sequential basis in the third quarter. We are raising the lower end of our U.S. Integrated Care member guidance range and now expect 92.5 million to 94 million members at year-end. For the third quarter, we expect Integrated Care revenue to be down 1% to up 2%, and adjusted EBITDA margin between 14.5% and 16%. U.S. Integrated Care members are expected to be in the range of 92.5 to 93.5 million members. We note that the deceleration in year-over-year revenue growth in the third quarter is due in part to a tougher comp due to the realization of performance guarantees in the third quarter of 2023, which added approximately 100 basis points of growth and adjusted EBITDA margin in the prior year period, as well as impacts from lower Chronic Care Enrollment. For BetterHelp, customer acquisition costs have continued to trend higher over the past few quarters, and there is limited visibility on the near-term path, which as we have discussed, could be further affected by the unknown impact of the upcoming presidential election on ad pricing. Based on actions we are taking as we actively manage the business for an appropriate return on ad spend, while at the same time positioning the business and brand for long-term success, this is leading to an atypically wide range of potential outcomes. Therefore, we are choosing to not provide segment revenue or adjusted EBITDA guidance for the third quarter, and we are withdrawing our full-year guidance for both metrics in our BetterHelp segment at this time. We recognize the challenge this presents from a modeling standpoint. Therefore, to provide a baseline, we note that if customer acquisition costs continue at current levels, we would expect second half 2024 revenue to decline in the low double digits. Consistent with our decision to not provide guidance for the BetterHelp segment, we are therefore not providing guidance for the consolidated company, revenue, adjusted EBITDA, net loss per share, or free cash flow for the third quarter or full year 2024. We continue to make progress executing against our cost-saving 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. As we look to 2025 and beyond, there are a number of initiatives that will inform our longer-term outlook, including the areas mentioned by Chuck. While our focus remains on driving sustainable financial performance and value creation, we are not in a position to provide a longer term forecast for our segments or an outlook for the full company, including for 2025 at the current time. With that, I will turn the call back to Chuck.

Thanks, Mala. The decision to withdraw our long-term guidance comes as I continue to evaluate all aspects of the business, including our strategic priorities, our cost structure, investments in the business, our product offerings, and capital allocation. I look forward to sharing further details on our third-quarter earnings call in October. With that, we will open it up for questions.

Thank you. Our first question today comes from Lisa Gill with J.P. Morgan. Please go ahead. Your line is open.

Thanks very much. Good afternoon. Chuck, I’m going to start with a comment that was in the press release, and that was unlocking greater value across the entire company. As I listened to your comments and Mala's comments around BetterHelp, should I think that BetterHelp is maybe not strategically a component of the company going forward and potentially this would be in better hands of somebody else owning this? If that's not the way you should think about it, what are some of the other things we should be thinking about in that comment of this greater opportunity across the company?

Yeah, thank you for the question. I think with respect to BetterHelp, it's important to note that the company has really built a great capability. It's the largest of its kind, serving well over 1 million people, with great results with consumers who are paying out of pocket. So, all of that is terrific. I think that the operating challenges that Mala has touched on and you're well aware of. I think at this point BetterHelp is an important part of the company. We're primarily focused right now on managing through this transition period, advancing the deliverables that Mala touched on in terms of international expansion, insurance market, other enhancements, and balancing the scale and financial strength of the company and financial performance. With that said, like any business, we're going to continue to evaluate what we're doing, where we're operating, in a way that creates long-term shareholder value. When I'm talking about unlocking value, when you look across our businesses, there are opportunities, and there already are some synergies being realized today, but there are opportunities to do more. You've got a consumer business that has resonated well and we have a need for engagement in our B2B business. We have a scaled B2B business that can benefit from other parts of the organization as well. So, what I'm looking for is each individual business to meet the market needs and realize its own potential, but as part of the broader company, where are those opportunities to unlock new value and differentiate. I think there are a number of areas that we're going to explore.

Thank you. Our next question is from Stephanie Davis with Barclays. Please go ahead.

Hey guys, thank you for taking my question. Chuck, Mala, you both talked of pursuing insurance coverage for BetterHelp in your prepared remarks. So I'd like for you to talk a little bit more about that. What are the steps that you'll need to take to make an insurance-reimbursed product versus your current out-of-pocket construct? How is that going to compare to my strengths? And what are the approximate timelines for taking these steps? Thank you.

Yeah, I'll start and then Mala can add to this. From my perspective, this is what I see as the next logical step for BetterHelp. We've got a lot of eyes on the product, but as people work through the process, a significant number, a significant percentage of those consumers that don't choose to move forward cite high out-of-pocket costs and the lack of insurance coverage. So we want to be able to offer those consumers access to their coverage where we can. In terms of timeline, we're working on deliverables right now to have at least what we call the technical capabilities by year-end to be able to offer that. Obviously, with insurance contracting and so forth, it'll be rolling out over the course of 2025. As you note, there's some additional requirements, additional credentialing, there's other requirements, operational contracting, etc. The way we're approaching that, I think, is a very thoughtful way, where areas where we want to control the experience, which are key to the overall experience, we're handling those, but we're also leveraging third-party partners for areas that we don't see as core to that experience. That increases the speed to market, reduces the investments we need to make to bring it live. So we see that as a manageable upfront investment in terms of building out the capability. But we do see this as a logical progression. But again, I would underscore it's primarily focused on meeting that consumer need that we have their eyes on the product now, but they want to be able to access their insurance coverage.

Yeah, and Stephanie, what I'd add to what Chuck said is, if you take a step back and think about our efforts for offering insurance, look BetterHelp's mission has always been to make mental health care more accessible to everyone. Affordability is the main reason users, as they go through sort of the path to enroll with BetterHelp, don't convert, and it's honestly the number one cause for customer churn. If you think about the macros that we are dealing with, if you think about softening consumer spend, inflation, etc., we have an opportunity to actually expand our total addressable market quite significantly if we were to expand beyond cash pay. So that's sort of the – we are being very thoughtful on how we approach this. We are looking thoughtfully into the modalities and each step of what we do to implement and execute this with precision, with rigor. And to make sure that from an investment standpoint, we are getting the appropriate return on the investments that we will make in this space.

Thanks so much.

Our next question comes from Jess Tassan with Piper Sandler. Your line is open.

Thanks for taking the question and congrats, Chuck, on starting in the role. I wanted to get your perspective; just having come from a health plan, how would you kind of rank the Teladoc Chronic Care Platform today among competitors in the market and what are the biggest issues or low-hanging fruit that you think you can address? And then a quick follow-up would be, of the people who have access to a Teladoc Chronic Care Solution, how many are actually eligible for enrollment? So have a condition that can be resolved or ameliorated by the Chronic Care Platform? It was easy when Livongo was just diabetes, you know 12%, but I'm curious what that number is today. Thanks.

Yeah, I'll take a stab at it and then Mala can comment further. From a market perspective, from a former customer perspective, I think the company's Chronic Care products are effective and we were a purchaser of that in my prior role. I like the way that the company approaches a more comprehensive model, as opposed to targeting just a specific situation. They are really being thoughtful in terms of what else that member needs. As you know, with chronic conditions, a lot of cases, it's more than one condition in play and like most things with people, it's bigger than just one matter that they are wrestling with. So I like the comprehensive approach that the company takes and that resonated with me. In terms of where I see our position relative to others, I would highlight that. I would say that we have more opportunities to create services that can benefit those patients, and I think the journey the company's been on in terms of where it's headed with its weight and obesity management is a good example of that. I think ultimately, you've got a sophisticated buyer, who is looking for demonstrated value and measurements against that. I think we've done a nice job with both our Chronic Care models in terms of ROI and our new Cardiometabolic Health value model that was validated by Milliman. So I guess I would say that I think we've got a nice approach. It's resonating in the market, it's comprehensive, and it is demonstrating value. And the last thing I would say, but Mala, if you want to add anything, if you look at the impact we're having on the patients that do engage, it's pretty impressive. So I think we're in a good position there, but obviously more to build upon.

Yeah, and to answer your second question, Jess, look, here's the good news. We are continuing to see strength in the number of recruitables that we have, right. The recruitables momentum continues. And I would say, that is a testament to our product offerings. The fact that we are seeing strength in selling Chronic Care bundles increasingly. If you think about our overall Chronic Care bookings, more than half of it was Chronic Care bundles. The reason I mention this is, if you think about your question around, how are we doing in converting those recruitables into Chronic Care enrollees, we don't give the actual number in terms of enrollment, but it continues to be strong and increase relative to what you quoted as the enrollment numbers in the Livongo days. And the reason for that is, if you think about our ability increasingly to sell Chronic Care bundles to clients, what happens when you do that is, you will see enrollees essentially enroll into multiple conditions, using multiple of our programs rather than say one diabetes program, etc., and all of that helps from an enrollment perspective.

Our next question comes from Jailendra Singh with Truist Securities. Please go ahead.

Thank you and thanks for taking my questions. Given we are in the heart of the selling season, I was wondering if you could speak to what you are seeing in terms of RFP activity in your Integrated Care Segment, employer interest. Last year I believe employers were likely caught off-guard, primarily because of GLP-1 costs, which likely resulted in sales cycles generally getting elongated. Curious what you guys are seeing this year and maybe spend some time on your provider-led weight management program and traction that is getting, given GLP-1 still remains on top of mind for most employers.

Yes. Thank you for the questions. A couple of things. In terms of the selling season, I think we're feeling really good about that at this point overall. The sales teams are progressing on both bookings, as well as actively managing pipeline opportunities. And as I mentioned before, I mean I think what we're seeing in the market is generally good activity. But a sophisticated buyer base that's looking for, again, raising the bar in terms of demonstrated value, they are definitely looking for ways to reduce fragmentation, so I think at least having a more effective experience versus all these point solutions, so that's definitely a trend and theme out there. I think that – so we're seeing good activity across the board and we'll continue to go after that. I think with respect to the weight and obesity management, obviously as you know, that's a significant area of focus, particularly with employers, not just with GLP-1, but just how to manage this issue more holistically. I think there's a range of approaches out there, and I think it's a little early to see kind of how those all play out. I think what we're trying to play is, a place where we can create customized options for employers depending on what they are trying to solve. And as you note, all the way up to our most advanced program which includes physician access, a Teladoc physician that's trained in obesity management. So I think we're seeing a lot of interest there, maybe even perhaps more than we probably thought coming into the year. But it's early in this whole process and I think what we're trying to do is make sure we're there for the long haul, so that the approach we're taking and the impact we're making is something that is sustainable versus something that's maybe perhaps a quick fix.

Our next question comes from Richard Close with Cannacord Genuity. Your line is open.

Yes, thanks for the questions and good to talk with you Chuck in your first call here. Mala, I was curious about the charge. If you could just go into a little bit of the details on the BetterHelp component of that, just that process. And then my follow-up is on BetterHelp. If you get insurance coverage, are you thinking about leveraging that into the existing employer book of business, which I would assume would be really low acquisition cost for BetterHelp?

Yeah, so let me do it in reverse order Richard. Thank you for your questions. When Chuck talked earlier to Lisa's question around where is – you know what do we mean in terms of synergies across the business, and Chuck spoke about BetterHelp leveraging the B2B side of the business. What you just said is one of the examples that I would cite in terms of go-to-market for how we are thinking about BetterHelp with insurance and what do I mean by that. The fact is, look, if you think about the strength of the client relationships we have, we have talked about our client retention rate being over 90%. We have long-standing, good relationships with our clients, and this is an opportunity for us to actually use that to your point, in a smart efficient way with the BetterHelp product. Obviously, there are things we need to do to make sure that the BetterHelp platform and product is suitable for the B2B space and we just talked about that a few minutes ago. So that's on your second question. On your first question around the charge, look, as I said in the prepared remarks, the impairment charge essentially was for us to take a look at impairment. It's really triggered by the decline in share price. And then, as I said, the drivers for the impairment charge really are the discount rate, as well as cash flows, and if you think about the BetterHelp business and the fact that our revenues are lower and our adjusted EBITDA is lower than what we had expected, it's not really a surprise that we do have to take the impairment. So those are the factors that really went into us coming to the impairment charge that we did. The last thing I would say is, maybe one of the things that is implied in your question is, how is it sort of on the BetterHelp side? If you think about it from an accounting perspective, when we broke out into segments a couple of years ago, we essentially allocated the goodwill across both the segments based on value, and that is why you are seeing the goodwill charge on the BetterHelp side.

Our next question is from Elizabeth Anderson with Evercore ISI. Please go ahead.

Hi guys. Thanks so much for the question. I was wondering if you could comment on current BetterHelp tax as we are in the third quarter. And if not, I was also wondering if you could talk about the lower member growth that you talked about due to delays in enrollment and integrated care in the second half of the year. Can you give us a little bit more color on sort of what's causing those delays and what are your updated expectations for when those members come onboard? Thank you.

Yeah, so I'll take them in order, Elizabeth. In terms of the customer acquisition cost for BetterHelp, the reason we sort of moved away from giving guidance is as we have talked about. As we went through the quarter in Q2, relative to the expectations that we had about customer acquisition costs upon entering the quarter, you know, the costs were certainly a lot higher. We've talked about double-digit relative growth, relative to the first quarter. So the customer acquisition costs were a lot higher. We are not seeing at this moment a lot of improvement or change relative to that trajectory. For all of the reasons that we cited in the prepared remarks, right, we are diversified in terms of channels within the BetterHelp business, but we are the largest advertiser in the space. We are the most scaled business, and for us to drive revenue growth, we would have to deploy incremental ad spend, but it is harder and harder to do that efficiently and more importantly profitably. And as we balance top-line growth with return on ad spend and efficiency, that certainly increasingly becomes a challenge. So we continue to see elevated levels of customer acquisition costs. We have limited visibility into how those will play out as we go through the rest of the year. You combine that with softening macros and so we felt the range of outcomes is just too large for us to provide guidance. So that's sort of on the customer acquisition costs. On the Chronic Care enrollees, a couple of points to make. One is, the client – the delays in client launches really are into 2025, and so we would expect to enroll those members really next year, not in the back half of this year. The other thing I would just comment and maybe Chuck, you want to add more to this in terms of your mindset and philosophy from an execution standpoint. I do think there is an opportunity for us to continue to get better in conversion and enrollment, to execute better and better as we sort of get more data. Do this for an increasing amount of time, and that is also something that we certainly are taking a very hard look at from an execution perspective. Chuck, I don't know if you’d like to add.

Yeah, I think you said it well. I think this is an example of what we mean by raising the bar on performance and execution. And this space is, as an example, is taking an end-to-end look at how we're performing, how do we get the information we need, how do we leverage it, how do we reach out and engage, how do we measure each step of that process, so that we are maximizing our potential in terms of the eligibles that are in front of us. So I think that's something you are going to see from us is, just continue to make sure that the processes we have and the operating model is delivering and performing as we expect.

Thank you.

Our next question comes from Sarah James with Cantor Fitzgerald. Please go ahead.

Thank you. Can you clarify if the increase in advertising pricing is increasing evenly across all of the channels, or if there are outliers where maybe a mix shift could be beneficial? Then when you talk about your strategy of not chasing customer acquisitions, does that mean that you are prioritizing holding the ratio of advertising and marketing to revenue flat from the level here, or should we think about it as more of direction on your total dollar spend on advertising being more flattish? Thank you.

Yeah. So let me address them in turn. The things that I would say on the channels, the various channels, what we saw as we went through the second quarter is the following: We did see heightened costs in our non-auction channel. So if you think about podcasts, channels like that, we did see elevation in pricing in those channels to some extent relative to the first quarter, where we did see quite a significant increase in our customer acquisition costs was in the auction channel. If you think about the dynamics of how ad spend works across these different channels, Sarah, the non-auction channels typically are somewhat gated in terms of capacity, and so where we really have a lot more flexibility in deploying ad spend is in the auction channel, paid search, etc. So that is really where we saw quite a significant increase in our customer acquisition costs, but we did see some elevation even in the non-auction channels. And that's one of the things I cited in my prepared remark, that the elevation in pricing across all of these channels, leads us to believe that there is consumer pressure, there are macro softening, because we are seeing that pressure across all of the channels. In terms of how we are essentially managing this business for BetterHelp, I'm not going to speak to adjusted EBITDA for the back half or for the full year, just given the fact that we have withdrawn our guidance, and we've chosen to withdraw our guidance. What I would say is the following: We are – it's not like we are leaving profitable revenue dollars on the table. What we are attempting to do and doing is essentially optimizing the return on ad spend, so that if you think about the returns on the marginal dollar of revenue, it is not unprofitable. So that is what we mean when we say we are not chasing revenue for revenue sake; we are balancing top line and revenue with bottom line.

Thank you.

The next question today comes from Sean Dodge with RBC Capital Markets. Please go ahead.

Yes, thanks. Mala, you mentioned three factors benefiting margins in the quarter. The first one you called out I think was a performance fee you received related to the Chronic Care business. Can you quantify for us how much that contributed, and then I think you also mentioned the timing of a shift in ad marketing spend related to what you were just talking about, that was pushed from Q2 into the back half of the year. I was wondering if you could quantify that for us as well. Thanks.

Yeah. So look, what we have said in the prepared remarks is, we were – we saw an adjusted EBITDA margin expansion of 640 basis points year-over-year. The three factors that we cited contributed to roughly about 340 basis points in total. So excluding that, we would have expanded our margins by 300 basis points, still very healthy relative to what we generally expect on average. The only thing I would say Sean is, off that 340 basis points, the factor of performance-based revenues was roughly, call it about half of that or slightly less than half of that. So about 150 basis points was around performance-based revenue.

The next question comes from Charles Rhyee with TD Cowen. Please go ahead.

Yeah, thanks for taking the question. Mala, I know you've mentioned you are not providing guidance here on BetterHelp, but just historically if we think about the cadence that we've seen over the last couple years, you've talked about sort of using ad spend from the second and third quarters, kind of ramping that down in the fourth quarter then to sort of harvest the margin. And so historically, at least over the last couple years, the fourth quarter has been sort of the biggest EBITDA quarter in terms of dollars for BetterHelp. But given sort of what you're seeing now in terms of CAC, Customer Acquisition Cost, it looks like in Q3 as well, should we still expect sort of that seasonal pattern for EBITDA or should we think about EBITDA maybe being a little bit more sequentially flattish in the fourth quarter? Would you expect sort of that historical pattern still to sort of be evident?

Yeah, thank you, Charles. Here's what I would say to you. I think that given the fact that we typically historically have pulled back on ad spend in the fourth quarter for an important reason, the holiday pricing season for ad spend tends to be relatively inefficient. And I would say, if you combine that with what may happen leading up to the elections, again, this is, we have limited visibility into how Customer Acquisition Costs are going to go. But if you look at what has happened in terms of holiday pricing, I would expect that obviously to continue this year and that certainly will have, will weigh in on our decision on how much to spend in the fourth quarter. I would also say, as always, we would balance that with setting ourselves up for 2025 in a reasonable manner from a top-line growth perspective and a user perspective. So again, what I'm saying is no different from the different considerations we put into the mix every single year. I would say our thinking would be along the same lines as we go through the year.

Our next question comes from Michael Cherny with Leerink Partners. Please go ahead.

Good afternoon and thanks for taking the question. Maybe if we can go back relative to the removal of the multi-year targets, I understand given all the commentary you've had so far regarding BetterHelp, why you would do that. That being said, is the intention still to run the business as if those were the targets you were pushing for, or are you using this as a potential pivot point to make any drastic changes? I know someone earlier had asked about the long-term future of BetterHelp. I'm just thinking about operationally how you are thinking about running the organization, managing the organization, given this elevated level of uncertainty with what I'm hearing is still a little bit lack of visibility in terms of when it can turn around.

Yeah, so we'll address that in two ways, specific to BetterHelp, and then what it means, obviously BetterHelp is an important contributor to our overall financial, revenue profit, as well as free cash flow. So as it relates to BetterHelp, look, it's a business in transition, and because we have limited near-term visibility, I think what's important for us to do is to really manage the business in a very disciplined way, to balance top line and bottom line, not chase revenue growth for revenue growth sake. Really look at optimizing our return on ad spend, while preparing the business to make the strategic pivot that we need to make. Those include the international expansion, which is going well relative to our expectations that we had as we went into the year. We are making progress and going deeper into the English-speaking markets. We are looking into judiciously expanding into some non-English-speaking markets. So far the revenue per user and customer acquisition costs that we are seeing are in line with expectations, in line with what we had gone into this expansion with, so that's on international. We have talked about BetterHelp with insurance. We are looking at other strategic pivots in this business, and I think it is important for us to balance the shorter term of how we stabilize the, what I call the U.S. consumer business, the core business, with managing all of these pivots, from a leadership perspective, from a bandwidth perspective of the management team at BetterHelp, as well as from an investment perspective. So that is I would say on the BetterHelp side. I would say more broadly, from an integrated care standpoint, we've reaffirmed our 2024 guidance on revenue. You've talked about bringing down the low end of the adjusted EBITDA margin expansion, still a healthy margin expansion year-over-year, 150 to 200 basis points. Under Chuck’s leadership, we are taking a serious look at many different things from a structure and a management perspective of the business. We are clarifying accountability and that's really going to help us prioritize our investments for growth. So, Chuck has spoken in his remarks on how he's taking a comprehensive look across all aspects of the business, and that's the process that's going to take a little bit of time. So we wanted to just give him theAbility to go through that, to complete that in a thoughtful way, and we will come back to you all in terms of what that means, in terms of an updated outlook over the coming months.

Hi. Thanks for taking the question. Just wanted to clarify that the Chronic Care enrollment delay, that's separate from the technical issue you mentioned last quarter. And then my real question is on how you are thinking about performance guarantees and really value-based care and population health going forward. I understand it's a small part of the business right now, but Chuck, given your experience building out value-based care asset sets, guide well, I'm curious how you are thinking about leveraging that experience to take on more clinical risk, not necessarily this year, but maybe ’25, ‘26 and beyond. Thanks.

Yeah, well I'll hit the second part and then Mala can comment. Yeah, I do think back to the customer base and the sophisticated buyers and expecting more and more in terms of performance measurements and outcomes, that aligns well with what we've been doing as a company and what we are and will be building out in terms of a more complete picture to manage patients. So I think those things are going to converge, where you're going to see, one, our capabilities expand, which are already strong today, but there's additional elements as we move forward, and a convergence with the customer base in the marketplace that is expecting and demanding more value-based measurements, and willing to put more of the economics in play, if you will, and allow a company like ours to participate in the value that we are able to create. So, I think both of those are going to be an important part of the future for us and for other organizations like us. Mala, would you add anything?

No, I'll just hit the first part of your question, Daniel. Look, the issues and challenges that we had at the beginning of the year were really related more to the client mapping, data mapping on our client hierarchy. That is really, we've solved for that, that's behind us. What I will say is, and Chuck sort of mentioned this in his prepared remarks. I do think that as we move forward, it is important that we don't have execution methods like that, because it does certainly mean that we have to get over the challenges that create from a results perspective, relative to the plans that we have. And as we are beginning to work with Chuck, we are certainly spending time as a leadership team, looking at our internal structures, our governance, etc. That is really going to prevent us from having those kinds of methods.

Thank you. We're now out of time for any further questions, so this concludes the Q&A session, as well as the conference call. Thank you everyone for joining, you may now disconnect your lines.