Earnings Call Transcript
Teladoc Health, Inc. (TDOC)
Earnings Call Transcript - TDOC Q2 2022
Operator, Operator
Hello, and welcome to today's Teladoc Health Q2 Earnings Call. My name is Elliot, and I’ll be coordinating your call today. I would now like to hand over to Patrick Feeley, Vice President and Investor Relations. The floor is yours. Please go ahead.
Patrick Feeley, Vice President of Investor Relations
Thank you, and good afternoon. Today after the market closed, we issued a press release announcing our second 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 third quarter and full year 2022 outlook, and our prepared remarks will be followed by a question-and-answer session. Please note that we'll 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.
Jason Gorevic, CEO
Thank you, Patrick. Good afternoon, and thank you for joining us. After the close today, Teladoc Health reported strong second quarter results with both revenue and adjusted EBITDA coming in above the midpoint of our guidance range. We are positioned in the second half of the year to expand our market leadership by delivering innovative solutions that transform the way consumers interact with the healthcare system. We do this through a relentless focus on clinical quality that enables us to deliver value to as many people as possible through an integrated whole-person care offering underpinned by technology and data. This is made possible by our broad set of capabilities and a model that allows us to integrate with all parts of the healthcare system without misaligned incentives inherent in other parts of the delivery system. Our second quarter outperformance compared to guidance was primarily driven by chronic care revenue, where enrollment came in ahead of our expectations. As discussed earlier in the year, we expected Chronic Care enrollment growth to be weighted toward the back half of 2022. However, our team has worked tirelessly during the second quarter to onboard new populations at several clients ahead of schedule, fast-tracking new program enrollment and driving over 90,000 net new enrollments during the second quarter alone. That enrollment growth came from both new and existing clients. Importantly, we continue to drive multi-program enrollment with roughly 30% of our chronic care members now utilizing multiple chronic care programs. This is significant not only from a member penetration standpoint, but also serves to improve retention, as our members report higher satisfaction with access to more solutions. We found, for example, that member retention after one year is 10% higher for members enrolled in our diabetes program plus at least one other program compared to those enrolled only in the diabetes program. We're also finding that clinical outcomes improve for members enrolled in multiple programs. For example, A1c reduction improves as our diabetes management members go from a stand-alone solution to adding two, three, and four programs. All of this combines to help us deliver more value to our clients and members while driving greater revenue per member. While we were pleased to exceed our member enrollment targets during the quarter, we are continuing to see our pipeline of chronic care deals develop more slowly than we anticipated at the start of the year, as we discussed in our first quarter call. It remains early in the selling season, but deals continue to progress at a slower pace, which we believe is at least in part due to competitive noise as the market transitions from stand-alone point solutions to integrated whole-person virtual care. Based on what we're currently seeing in the marketplace, we also believe heightened economic uncertainty over the past several months is increasingly playing a part in delaying the decision-making process in the employer market. More and more, our Chronic Care clients are recognizing the value of combining those products with primary care, adopting our whole person approach. So, Primary 360 continues to be a significant bright spot in terms of commercial momentum. While the market remains in the early part of the adoption curve for virtual primary care, we continue to see indications of strong demand. Our clients are finding that Primary 360 is expanding access to care, as two-thirds of Engage members had not seen a doctor in the last two years prior to Primary 360, and nearly one-third say that they would not have seen a doctor at all if not for access to Primary 360. Patients are reporting high satisfaction, and our members are telling us this is the result of our providers actually taking time to listen, because our doctors are able to spend time delivering care rather than checking boxes on a chart and dealing with administrative overhead. As a result of the positive experience our clients are having with Primary 360, we now expect to expand our relationship with one of our larger health plan partners to offer Primary 360 to more of its populations. This is strong validation of the value Primary 360 is delivering, and we're expanding our support of virtual first health plans for this client to several additional states starting next year. During the second quarter, we signed a new agreement to expand our relationship with one of our larger health plan partners in the Midwest. This expansion is building upon our existing chronic care partnership and will enable the plan's clients to benefit from a comprehensive suite of integrated primary care and chronic care solutions. The agreement represents another example of our ability, not only to land and expand horizontally into new client populations but to expand vertically with new products. In another example of our whole person strategy paying dividends, we recently announced an expanded relationship with Priority Health, an integrated health plan that will bring our Primary 360 product bundled together with our suite of chronic care solutions as part of one holistic, comprehensive, integrated solution. I referenced these three deals, not just because they're important new business signed in the past few months, but because I think they illustrate three different examples of how we drive growth: one, landing with a client and expanding to serve new populations within that client over time; two, cross-selling new innovative products to existing clients; and three, bringing a new integrated whole-person suite of services to bear for a client bundled together into one offering. Finally, we continue to add new capabilities to our Primary 360 offering that enhance value for our members and clients. During the second quarter, we added multiple new last-mile enhancements. In-home lab testing is now available at no additional cost to Primary 360 members across the nation. And free same-day delivery of prescription medications is being rolled out in the second half of this year, which will increase both convenience and compliance. So, while it's still early relative to the ultimate opportunity in terms of adoption and penetration of virtual primary care, we continue to see many reasons to be excited about the momentum for our integrated Primary 360 offering. Turning to our direct-to-consumer business, we saw BetterHelp continue to deliver robust revenue growth of over 40% year-over-year as well as strong sequential growth. At the same time, BetterHelp's performance did come in towards the lower end of our expectations as we continued to experience the decline in yield on marketing spend that we discussed in April. We still see smaller private competitors pursuing what we believe are low or no return customer acquisition strategies to establish market share. Although we do not see this as sustainable, it's difficult to predict how long this dynamic may continue. We also believe that the weakening economic environment and declining consumer sentiment is likely having an effect on BetterHelp's performance. Over the past few months, we've seen a modest incremental decline in yield on advertising spend, which we believe may be an indication of belt-tightening among consumers. With inflation on the rise, consumer confidence has now dropped to multi-decade lows. Given our significant leadership position in the DTC marketplace and our substantial scale advantage, we remain confident that we can continue to outperform the industry and drive strong financial performance as we navigate this increased level of near-term economic uncertainty. Taking these trends in both chronic care and BetterHelp into account, as well as the impact of a stronger dollar on our international revenue, we believe it's more likely that our overall financial performance will be towards the lower end of our consolidated revenue and adjusted EBITDA guidance ranges in the second half. However, there are scenarios in which our results could be above or below this due to the increased uncertainty in the broader economic backdrop, particularly as it relates to trends in consumer spending and its impact on our DTC business. We will continue to watch these near-term evolving dynamics and provide updates as appropriate. With that, I'll turn the call over to Mala for a review of the second quarter and our forward guidance.
Mala Murthy, CFO
Thank you, Jason, and good afternoon, everyone. During the second quarter, total revenue increased 18% year-over-year to $592 million. Revenue from BetterHelp, our direct-to-consumer mental health brand, grew over 40% as compared to the prior year's quarter or 7% sequentially over the first quarter, representing strong growth albeit towards the lower end of our expectations as we continue to see lower yield on marketing spend as compared to the prior year. We ended the quarter with US paid membership of 56.6 million members, an increase of 2.4 million members over the first quarter, driven by new virtual care client onboarding. Individuals with visit COD access were $24 million at the end of the second quarter. The number of our unique members enrolled in one or more of our chronic care programs was 798,000 as of the second quarter, an increase of 67,000 enrollees over the first quarter. Thirty percent of our chronic care members are now enrolled in more than one program, up from 27% sequentially from the first quarter. This helped to drive new chronic care program enrollment of 92,000 in the quarter, bringing total program enrollment to over one million programs, an increase of 167,000 or 20% over the prior year. As Jason discussed, the strong new enrollment in chronic care programs during the second quarter outpaced our expectations. We have now added nearly 70,000 new chronic care members and 127,000 new program enrollments year-to-date. At the start of the year, we expected enrollment to be more back-half weighted due to the cadence of the expected population starts. However, due to our team's efforts to get new populations onboarded faster than anticipated in the second quarter, we were able to drive more of that enrollment into the second quarter than expected. As a result of the significant second quarter outperformance, which effectively pulled forward new enrollment from the second half as well as the slower pace of pipeline development Jason mentioned, we no longer expect enrollment gains to be weighted towards the second half of the year. Average U.S. revenue per member per month was $2.60 in the second quarter, up 13% from $2.31 in the prior year's quarter and up 3% sequentially from the first quarter. The sequential growth in per member per month revenue was driven primarily by BetterHelp and chronic care program revenue growth. Adjusted EBITDA was $46.7 million in the second quarter, compared to $66.8 million in the prior year quarter and at the high end of our guidance range. As discussed earlier this year, we expect more pronounced margin seasonality this year as we return to a more normalized cadence of advertising spend. It's difficult for us to see lower ad spend and higher margin in the direct-to-consumer business in the fourth quarter as we pulled back on media spend during the more expensive holiday season. As we talked about last quarter, it's important to note that in 2020 and 2021, this seasonality was less pronounced due to a weaker advertising market during the onset of the pandemic. Net loss per share in the second quarter was $19.22, compared to a net loss per share of $0.86 in the second quarter of last year. Net loss per share in the second quarter includes a non-cash goodwill impairment charge of $18.78 per share or $3 billion. The goodwill impairment was triggered by the decline in Teladoc Health share price with the valuation and size of the impairment charge primarily driven by an increased discount rate and decreased market multiples for a relevant peer group of high-growth digital healthcare companies. Also included in net loss per share was stock-based compensation expense of $0.32 per share and amortization of acquired intangibles of $0.30 per share. During the second quarter, we generated free cash flow of $47.6 million and ended the quarter with $884 million in cash and short-term investments on the balance sheet. Now turning to forward guidance. While we are maintaining our full year 2022 revenue and adjusted EBITDA guidance provided in April, the current trends in the direct-to-consumer and chronic care marketplaces, as well as a headwind from the strengthening of the dollar year-to-date, which at current exchange rates represents nearly a $20 million drag to our full year outlook, we believe it is more likely that our results will fall towards the lower end of the range. As Jason noted, there are scenarios in which our results could be above or below this due to the increased uncertainty in the broader environment, and we will continue to provide updates as appropriate. We expect total US paid membership of 55 million to 56.5 million members, an increase of 0.5 million to 1 million members over our prior guidance and representing growth of 6% to 8% year-over-year. We expect total visits in 2022 to be between 18.8 million and 19.3 million visits, representing growth of 22% to 25% over the prior year. For the third quarter of 2022, we expect revenue of $600 million to $620 million, representing growth of 15% to 19% over the prior year third quarter. We expect total US paid membership in the third quarter of 55.5 million to 56.5 million. Total third quarter visits are expected to be between 4.8 million and 5 million visits. We expect third quarter adjusted EBITDA to be in the range of $35 million to $45 million. The lower expected sequential adjusted EBITDA in the third quarter is primarily a function of a lower contribution from direct-to-consumer mental health and increased engagement spending in support of recently launched chronic care population. With that, I will turn the call back to Jason for closing remarks.
Jason Gorevic, CEO
Thanks, Mala. This week, we were pleased to welcome Mike Waters to the team as our new Chief Operating Officer. Many of you know Mike from his work building and leading the ambulatory care business at Providence Health System, a leader in digitally enabled hybrid care. Mike brings a proven track record of scaling complex care operations to serve more people more efficiently. And I couldn't be more pleased to have him on the team. Mike joins Vidya Raman-Tangella, our new Chief Medical Officer, who joined us in April from AWS, as we continue to see market-leading talent choose Teladoc Health as a place where they can make a difference by transforming the healthcare experience, and I'm excited for where this team will take us. With that, we'll open the call for questions. Operator?
Operator, Operator
Thank you. Our first question today comes from Ryan Daniels from William Blair. Your line is open. Please, go ahead.
Ryan Daniels, Analyst
Yes, guys. Thanks for taking the question. Mala, I'm assuming you anticipated this one, given the Q3 guidance and full-year guidance, but it looks like a very material ramp in EBITDA, kind of more than doubling on an absolute dollar basis from Q3 to Q4. And I appreciate some of the commentary you had on D2C spending pullback. But what else is going to drive that pretty significant increase in sequential EBITDA Q3 to Q4? Thanks.
Mala Murthy, CFO
Yeah, Ryan. So you're absolutely right. We have anticipated a material ramp in the guidance, and if you think about what's driving the ramp, it's essentially the timing of our advertising and marketing spend. In the BetterHelp business, we talked about it in our prepared remarks. If you think about the BetterHelp business and the dynamics, the typical seasonality in spending is to see a ramp-up in the early part of the year and a pullback in the fourth quarter due to the expensive holiday season. That's not a new phenomenon, but it has been significantly less pronounced during the COVID period, which muted the seasonality in the ad spend in that business; it will be more pronounced this year. So you should expect to see A&M spend come down materially in the fourth quarter both on a dollar basis and as a percentage of revenue. So I'd say that is primarily the reason for the significant uptick in our margins. And as I said, one thing just to reinforce that this factor is not new. The overall adjusted EBITDA seasonality in our business is not new. If you look back prior to 2021, you would find it difficult to see a significant ramp-up in EBITDA from the first half into the second half of the year. In fact, if you look at our margin ramp from Q1 to Q4, it has been as much as approximately 700 to 800 basis points. And that was when BetterHelp was a much smaller portion of our business, right? So, as we have given you more color and transparency into the size of the business and the growth of the business, it is more material. Therefore, the dynamics through the year in terms of the ad spend will have now a much more perceptible impact on our overall margins.
Operator, Operator
Our next question comes from Lisa Gill from JPMorgan. Your line is open.
Lisa Gill, Analyst
Thanks very much and good afternoon. Jason, I want to go back to your comments around competition in the direct-to-consumer area. We saw what happened with Cerebral. I'm just curious as to if you picked up some market share from what happened with them, and I know you talked about others trying to just gain some lives at this point. But one, if you could talk about the competitive environment there and what you're seeing? And then secondly, Mala, I just wanted to make sure that I understand that. So you're saying that for that big ramp between the third and the fourth quarter, it's really primarily advertising spend, and you're still able to hold on to the revenue for direct-to-consumer on the BetterHelp side. I just want to make sure I do remember that dynamic historically, but it's obviously a much bigger number than what it's been.
Jason Gorevic, CEO
Sure, Lisa, I can address both points. Regarding the advertising costs for direct-to-consumer, we haven't noticed any significant changes in paid search costs over the past three months, which we incorporated into our updated guidance from April. There has been a slight increase in customer acquisition costs in several channels, though none stand out in particular. We're not seeing markedly higher prices in these channels, but the revenue yield from our ad spending is trending toward the lower end of what we anticipated in April. We are observing consistent expenses but disappointing revenue yield, and we believe this is largely due to increased price sensitivity among consumers in light of the overall economic situation and inflation affecting their daily lives. We projected revenue growth for BetterHelp in the range of 35% to 40% for this year, and while we still expect to meet that, current trends suggest we will likely be closer to the lower half of that range. As for advertising spend on BetterHelp and revenue retention, we won't be completely halting advertising; rather, we will significantly reduce it in the fourth quarter due to the higher costs per advertising impression. Thus, we aim to make sound economic decisions and are pulling back at the higher end of the marginal return curve.
Operator, Operator
Our next question comes from Sandy Draper from Guggenheim. Your line is open.
Sandy Draper, Analyst
Thanks very much. I'm going to try to frame this in a way that makes sense. When I look, Mala, at the outperformance of US paid members, I recognize that one that's stepping up or sort of a pull forward and maybe a little bit of commentary would be helpful about it seems to me the guidance that, that may trail down. But you also had chronic care members growing faster. Both of those are higher PMPM seems like pulling forward; it's recurring, that would have flowed through for some better revenue. So I guess the question is, basically, is that accurate? And so, but the offset is slower ramp-up of additional new chronic care contracts and BetterHelp? I'm just trying to understand the outperformance on those two metrics, which I would think would be a positive impact on the second half of the year that would be great. And if you could just quickly answer that question about the members would trail off. Thanks.
Mala Murthy, CFO
Yes. Sandy, you are correct in your observation. We are very pleased with the efforts our teams put in to onboard populations in the second quarter ahead of schedule, which led to strong enrollment figures. We reported 67,000 new chronic care members in the second quarter and 92,000 additional program enrollments compared to the first quarter. This progress represents a shift of some enrollments that were initially expected in the third quarter. It's important to note that these new enrollees are expected to generate revenue for the remainder of the year, but they were already included in our forecast. Thus, while there's a slight increase in revenue for the latter half of the year due to this shift, we've also adjusted our projections for additional revenue contributions from chronic care launches for the back half of the year given the pace of deal closures. Our expectations for chronic care in the latter half of the year reflect this adjustment. Additionally, we significantly reduced our revenue forecast in April, and we are continuing to observe competitive pressures in the chronic care sector. Consequently, we deemed it wise to exclude most remaining revenue assumptions for chronic care for the current year from our guidance.
Operator, Operator
Our next question comes from Richard Close from Canaccord Genuity. Your line is open. Please go ahead.
Richard Close, Analyst
Yes. Thank you for the question. On the employer side of the business and economic uncertainty, I was just curious if employers are still poking around, but just don't want to pull the trigger because of the uncertainty, or has the pipeline essentially dried up on new potential deals? Just any thoughts in and around that would be helpful.
Jason Gorevic, CEO
Yes, Richard, thanks for the question. I appreciate it. Let me give you a little bit of color on the pipeline, and then I'll try to characterize how buyers are acting. The good news for us is that our current pipeline and the late-stage pipeline, which you've heard me talk about the last couple of quarters, are both up year-over-year by about 20% relative to where they were at this time last year. We also have twice as many multimillion-dollar deals in the pipeline as we did entering the third quarter last year. So the pipeline, I would say, is very healthy and has improved since where we were at this time last year. The challenge that we're seeing is in these times of economic uncertainty; all purchases are just getting a significantly higher level of scrutiny. I think we're also facing a situation where a lot of HR leaders within organizations are dealing with a very challenging time. As you've heard and read in all of the news about companies reducing workforces, having to control costs. So, I think there is a level of distraction at the same time. While we had historically seen more midyear launches for our chronic care solutions, we're really not seeing many of them this year, which is why Mala commented about our outlook for in-year revenue, which means deals that we sell this year and launch this year. We've taken down our outlook for the back half of this year. I do feel still good about where the pipeline is and about our prospects for the selling season. As you know, we're entering the critical three-month period of the selling season. We'll know a lot more as we come back to you with our third quarter results. But the pipeline is certainly healthy, and we're seeing significant interest. We're just finding it significantly delayed for purchasing decisions to be made within those organizations.
Operator, Operator
Our next question comes from Stephanie Davis from SVB Securities. Your line is open.
Stephanie Davis, Analyst
Hey, guys. Thank you for taking my questions. I was hoping to touch on some of the macro environment, just given some of the macro softness we're seeing across retail and pack earnings. Could you tell us more about what's baked into your 2022 and long-term guidance? And the follow-up to that, just given how different the macro is today, even compared to your Analyst Day, are we still on track for that 25% to 30% growth target?
Jason Gorevic, CEO
So, Stephanie, I just want to be clear, we're not giving a multiyear outlook at this point. I think we mentioned that last quarter on our call. So we're not going to comment on the multiyear outlook. With respect to the current year and our 2022 outlook, we've assumed essentially status quo through the rest of the year. If there is significant deterioration in the market just in terms of consumer sentiment and/or the macroeconomic environment, there could be downside, particularly to the BetterHelp business. If the environment improves, then we see upside opportunity in the back half of the year. So, that's specifically the reason for our commentary about indicating that we expect to be toward the lower end of our guidance and that there's upside and downside around that depending on how the economic scenarios play out.
Mala Murthy, CFO
Yeah. And Stephanie, to expand on that, three macro factors could impact our business. First, consumer sentiment, which Jason mentioned, can affect our direct-to-consumer business either positively or negatively over time. Second, as we noted in our prepared remarks, the direction of the euro could pose challenges for our international revenue. We have assessed this based on current data and will monitor it as the year progresses. Additionally, the employer market is influenced by concerns over a potential economic slowdown and how that affects sentiment. Lastly, regarding wage inflation, the current impact on our business has been relatively modest and not significant enough to warrant major comments. As we refine our outlook for this year and look ahead to next year, we will ensure to provide transparency if these factors become more critical.
Operator, Operator
Our next question comes from Sean Dodge from RBC. Your line is open.
Sean Dodge, Analyst
Thanks. Good afternoon. On BetterHelp, Jason, you mentioned the impact the economy is having on subscribers. I know you've, in the past, talked about experimenting with different pricing and utilization models to give even more options to stay on the service. Have you rolled those out? And maybe give us an idea of what some of the other tools you have at your disposal to help manage BetterHelp through what could be a pretty tough period for consumers?
Jason Gorevic, CEO
Yes, Sean, we are continuously testing new pricing models in various ways. This includes conducting tests in different locations and through various channels. We are always innovating our product features and capabilities. Interestingly, our retention rates and the lifetime value for consumers on our platform have not changed significantly. However, we are observing a slight decrease in yield per ad spend, which suggests that customers may be a bit more price-sensitive when making their initial purchase. Once they join the platform, their behavior remains stable. We believe this is linked to consumer sentiment and the current economic conditions. While it's challenging to quantify exactly, we do understand the change in yield, which is modest but could become impactful at a larger scale. We are consistently improving our channels, which we consider a significant advantage. Given our scale, we can continuously optimize our strategies, and we'll continue to do so over time. I should also highlight that we experienced 40% year-over-year growth in the last quarter, along with sequential growth from the first to the second quarter, indicating that our efforts are yielding positive results. However, we are adopting a slightly more cautious outlook.
Mala Murthy, CFO
And we continue to balance between the growth, which, as Jason talked about, 40% growth, as well as margins in that business. We will continue to balance and optimize between those.
Operator, Operator
Our next question comes from Charles Rhyee from Cowen. Your line is open. Please go ahead.
Charles Rhyee, Analyst
Thank you for taking my question. I wanted to follow up on Sandy's inquiry regarding your comments about revenue, particularly since we experienced greater enrollment than anticipated in the second quarter. I’m interested in understanding the adjusted EBITDA aspect. With all the revenue being recurring and higher-than-expected enrollment, I would expect to see some benefits in the latter half of the year, especially as we consider the third quarter guidance. Can you clarify whether we might not observe some sequential advantage due to the accelerated enrollment? Additionally, about the advertising spending, I noticed that on a non-GAAP basis, it was $161 million for advertising and marketing in the quarter. Could you provide a rough breakdown of how much of that allocated to direct-to-consumer versus the rest of the business? Thank you.
Mala Murthy, CFO
Yes. So, I don't want to go into specifics at this point in time on further breaking down our ad spend between our direct-to-consumer business and the rest of our business. The thing I would say is if you look at the various pieces of data and information we have given about our BetterHelp business, our revenue per capita, etc., from Investor Day until now, one can actually fairly easily back into what the overall P&L is for our BetterHelp business. We've actually given enough information to you all to be able to do that. So, I don't want to go into more detail on that. But for your first question, Charles, it is a good question. We have talked about the intra-year dynamics on our revenue business. The other thing that we have been steadily saying all along is that this is an important year for us in terms of our R&D investments. We talked about it in Investor Day. We've talked about investing in our integrated platform, in new capabilities, in new products, such as my strength of fleet, Primary 360, Chronic Care Complete, continued integration of our data that underpins bringing together all of our suite of products. That still continues. We've made a deliberate decision to invest in R&D this year. It's a heightened level of investments relative to last year. We're staying the course on that because we do expect this to result in sustained revenue growth for us in the longer term. These R&D investments are underpinning our whole-person care strategy. We do expect to continue to stay the course on that. Having said that, we are always responsibly looking for ways to optimize our cost structure. We'll be taking an even closer look at our cost structure as we head into 2023. We will be very thoughtful in balancing our need to maintain our near-term profitability while making all these necessary investments to drive our longer-term growth. That is something we always do and will continue to do.
Operator, Operator
Our next question comes from Daniel Grosslight from Citi. Your line is open.
Daniel Grosslight, Analyst
Hi, thanks for taking the question. There seems to be more intense scrutiny now on the hill regarding the utilization of healthcare data, even if used in accordance with HIPAA. I believe a few senators sent BetterHelp and one of your competitors a letter regarding this a few weeks back. I'm curious if you could just spell out for us how BetterHelp is using member data for marketing and targeting. If this increased scrutiny on healthcare data and data utilization will change how you market into the DTC channel?
Jason Gorevic, CEO
Yes, of course. We received the letter, and we're providing all of the relevant information about our services. We conduct all of our operations in compliance with state, federal, and international privacy laws. We also take consumer transparency extremely seriously, and we operate in compliance with all of the consumer protection laws. We hold ourselves to HIPAA compliance standards, and we believe very strongly in the privacy of our members, and we continue to work with all the relevant parties to ensure compliance. I'm not going to go into the detailed specifics given any particular ad channel, but I think it's been clear from our track record and our history that we take this extremely seriously.
Operator, Operator
Our next question comes from George Hill from Deutsche Bank. Your line is open.
George Hill, Analyst
Yes. Good evening guys, and thanks for taking the question. I guess, Mala, I have kind of a numbers question digging into the kind of the implied Q4 guidance. And I guess my first one is just, is there going to be anything in the adjustments for reconciliation that might stand out from the prior quarters? Because what I'm trying to do is kind of bridge the gap between the EBITDA run rate in the first three quarters and what we're expecting in Q4 and like if the implication is that the marketing spend needs to be reined in, we're talking about cutting the marketing spends like in half, that kind of goes back to Lisa's point around how do we retain the revenue on that?
Mala Murthy, CFO
George, are you still there?
Jason Gorevic, CEO
Thanks for that. Yes, certainly. To wrap up, the dynamics for Q4 are as you mentioned. It's really centered around BetterHelp advertising. We plan to reduce our ad spend in Q4 and have discussed the pricing dynamics during the holiday season. This is something we typically do every year, so it’s not a new dynamic. This is the reason for the margin progression in the fourth quarter. I want to emphasize that from a revenue perspective, we are experiencing some modest incremental pressure on our advertising spend yield in the BetterHelp business. As we look ahead to the next few months, these dynamics could change, as Jason mentioned earlier. From a revenue standpoint, things could improve or worsen. We will have to progress through the year and observe how consumer dynamics unfold and whether consumer sentiment improves or continues to tighten.
Operator, Operator
This concludes our Q&A and today's conference call. Thank you for your participation. You may now disconnect your lines.