Earnings Call Transcript
Teladoc Health, Inc. (TDOC)
Earnings Call Transcript - TDOC Q2 2025
Operator, Operator
Good afternoon. Thank you for joining today's Teladoc Health Second Quarter 2025 Earnings Call. My name is Victoria, and I will be your moderator. I would now like to invite Mike Minchak, Head of Investor Relations for Teladoc Health, to take over the conference. Thank you. You may proceed.
Michael Minchak, Head of Investor Relations
Thank you, and good afternoon. Today, after the market closed, we issued a press release announcing our second quarter 2025 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 our 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 our 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 our actual results 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.
Charles Divita, CEO
Thanks, Mike. I'm pleased with our strong performance in the second quarter with consolidated revenue and adjusted EBITDA both at the higher end of our guidance ranges. This reflects continued disciplined execution and builds on our solid results from the first quarter. Based on our results and outlook for the second half of the year, we're narrowing our guidance range in 2025 consolidated revenue and adjusted EBITDA. Mala will provide more details on our performance and outlook later in the call. It's now been a year since I joined Teladoc Health, and I would like to take the opportunity to comment on the progress we've made and the direction of the company. It's been a transformative year in many respects as we work with urgency and purpose to improve performance and reposition the business. As I shared when I first joined, I saw the need to strengthen our market focus and increase the efficiency of our business. And we've taken decisive actions that have resulted in a more streamlined organization with greater agility and market orientation and a more efficient and scalable cost structure. I also shared the importance of accelerating innovation across our products and capabilities. We've made considerable progress in that regard, including a product innovation pipeline that's gaining momentum. Let me share some examples. We recently launched Wellbound, a new employee assistance program offering for the U.S. Integrated Care market. It provides mental health and well-being support, including access to online therapy services from BetterHelp and seamless access to other available Teladoc services. While early, we're pleased with the level of interest we're seeing, and we look forward to building a position in the EAP market. We're enhancing our cardiometabolic health program this year, including new connected devices as well as registered dietitian access, sleep support and other new features. And to further engage and support enrollees with rising risk and higher acuity conditions, we are developing additional clinical interventions, leveraging our primary care specialists and care support teams. We believe that a comprehensive approach focused on both prevention and the progression of diabetes, hypertension and obesity will have the greatest sustained impact on patient health and value for our clients. For our hospital and health system clients, we launched a new AI-enabled virtual sitter solution fully integrated into our proprietary technology. This new offering extends and supports our clients' workforce capacity and their care delivery and patient safety objectives, including matters such as fall risk and patient elopement. In our International Integrated Care business, we also continue to add new solutions, including hybrid care models for public health systems to support a variety of needs, including access to primary care and emergency department care in rural and remote communities. Product innovation will be an ongoing focus of our organization. Over the past year, we've also added important capabilities, including through strategic acquisitions. Catapult Health strengthens our approach to preventative care through its virtual checkup and other solutions, as well as being an important and complementary engagement capability with other Teladoc services. And we recently acquired UpLift to support BetterHelp's entry into insurance, an important initiative I also shared when I joined the company. I'll provide an update on our progress in this area in a moment. Additionally, we've strengthened operational execution, added new partnerships and collaborations, and made advancements in our technological infrastructure, all aimed at supporting our strategic priorities and our ability to deliver more services and value to customers. We've also hit some noteworthy milestones, including exceeding 100 million U.S. integrated care members providing additional opportunities to grow our services over time. While there is important work ahead, I'm pleased with the progress overall, and I'm confident we're in a stronger position to execute in an evolving market. As we've all seen, the health care challenges are substantial. Affordability and rising costs, the impact of disease and chronic conditions, unmet mental health needs, provider pressures and other issues continue to impact all stakeholders. And it's clear to us that virtual care can and must play a greater role going forward given the extent and magnitude of these challenges. Prior to 2020, virtual care was largely about convenience and access to quality cost-effective care. Teladoc led the way through technology, services and scale and also delivered during the pandemic. Now virtual care has become widely adopted and there's also been a proliferation of point solutions adding to fragmentation and complexity. Teladoc again led the way by taking an integrated approach across physical health, mental health and chronic conditions, placing the whole patient at the center. Looking ahead, we intend to build on our leadership position, our assets, clinical capabilities and range of services with an intensified focus on orchestration across patients, providers, platforms and partners all aimed at enhancing the patient experience, improving outcomes and delivering greater value. We're uniquely positioned to advance this important work, and we're prioritizing investments that are aligned with this vision. And we plan to deliver on it through our four strategic priorities. First, we're enhancing our integrated care offerings, particularly in the U.S. to drive a greater impact on both clinical outcomes and the cost equation. We'll support our growth objectives through continued product innovation, and we intend to launch new and enhanced offerings across our portfolio on a sustained basis. By leveraging our millions of engagement points in new and unique ways, advancing clinical intervention opportunities and orchestrating care more holistically, we intend to deliver greater value for clients and the people we serve. Second, we're further leveraging our scaled mental health position. In addition to new products such as Wellbound, we have several initiatives underway to expand mental health access and our ability to serve more needs. This includes momentum in Integrated Care, where we saw a 13% year-over-year increase in mental health visits in the U.S. during the second quarter. And in BetterHelp, where we'll be building on our unparalleled consumer position by adding insurance capabilities to grow and expand our market opportunity. On that front, I would like to take a moment to provide an update on BetterHelp's insurance coverage initiative. As we've shared, we believe insurance will leverage BetterHelp's strong consumer activation, experience and scale while having a positive impact on conversion rates, the number of user sessions and return on advertising spend over time. With ongoing headwinds in the consumer cash pay business, we see insurance coverage as essential to the stability and growth outlook for BetterHelp. And we believe we can meaningfully scale insurance over time. We are being methodical in our approach to ensure the long-term success of this business. This includes ensuring a robust and scalable operating infrastructure, growing our network of credentialed mental health professionals, and supporting and expanding our payer relationships and corresponding membership coverage. From an operating infrastructure standpoint, the BetterHelp and UpLift teams are partnering in a seamless way. Execution is progressing well, including unifying the platforms and experience and ability to leverage and scale the combined capabilities. In late June, we began a soft launch of BetterHelp insurance in a single state, laying the groundwork for a methodical ramp of the business over the next several quarters. We're encouraged by the early results, including the performance of our technology, the strength, reliability and durability of the insurance processes and growth of the insurance provider network. We see significant opportunities to access and leverage BetterHelp's expansive network of 35,000 therapists to support growth in the insurance network. As a reminder, BetterHelp's therapists are all fully licensed and with a master's degree or higher. The network averages 8 years of experience and consistently delivers results, including over 70% of patients reporting symptom reduction within 12 weeks, as well as high satisfaction rates, including over 80% of patients that would recommend their therapist to others. In this regard, we've begun initial outreach to many of our BetterHelp therapists to join the insurance network, and we're seeing good interest. To date, over 2,000 have engaged and are now in various stages of the credentialing process. This outreach will continue as we look to complement and further build on UpLift's already robust base of over 1,500 mental health professionals. We're also seeing success in further expanding payer relationships. UpLift brought arrangements covering over 100 million lives. And over the past few months, we have signed additional new contracts adding over 15 million lives. We'll provide further updates on progress during the third quarter call. Our third strategic priority is international growth. Our international business now accounts for over 15% of our consolidated revenue, and we see continued growth potential. We already operate a robust international business in Integrated Care that has delivered steady double-digit growth and is well positioned to meet diverse needs across countries, markets and client segments, including leveraging our hospital and health system technologies to support public health systems in several countries. We continue to evaluate opportunities to increase our position across both existing and new geographies. Fourth, we're highly focused on operational excellence to consistently deliver for clients and to achieve our business and financial objectives. We've made considerable progress in driving operational excellence, including a highly successful client implementation season for 2025, coming off of a very challenging one in 2024. This was also a key priority when I joined. With respect to cost efficiency, as noted last quarter, we're tracking modestly ahead of our cost savings and productivity targets. We've made meaningful progress across several areas, including technology and development, administrative costs and stock-based compensation. And we'll continue to make progress while balancing the need to invest in our strategic priorities. In closing, I'm encouraged by our first half performance. We're making progress against each of our key strategic priorities, and our teams continue to operate with focus, urgency and discipline. We're committed to maintaining a balanced approach by delivering solid financial performance and investing in the products and capabilities important to our future. While broader market dynamics continue to impact health care and the operating environment, I remain confident in our strategy and our ability to return the company to an overall growth trajectory over time, including through the initiatives I have outlined. With that, I'll turn it over to Mala.
Mala Murthy, CFO
Thank you, Chuck, and good afternoon, everyone. Second quarter consolidated revenue was $631.9 million, near the high end of the guidance range and down 1.6% year-over-year, driven by a decline at BetterHelp, offset to some extent by growth in Integrated Care revenues. Adjusted EBITDA of $69.3 million was also at the upper end of the guidance range, and represented a margin of 11%. Net loss per share was $0.19, compared to a net loss per share of $4.92 in the second quarter of 2024, which included a $4.64 related to a pretax noncash goodwill impairment charge. Net loss per share in the second quarter of 2025 included amortization of intangibles of $0.50 per share pretax and stock-based compensation expense of $0.13 per share pretax. These items were partially offset by a discrete tax benefit of $0.06 per share. Free cash flow was $61 million in the second quarter, slightly ahead of the prior year period. On a year-to-date basis, free cash flow increased by $11 million compared to the same period last year. We ended the quarter with $680 million in cash and cash equivalents, after retiring $551 million in convertible senior notes that matured during the quarter. Turning to our segment results. Integrated Care segment revenue of $391.5 million increased 3.7% over the prior year period and exceeded the high end of our guidance range. We saw good growth in visit revenue and continued strong performance in our international business, which then delivered mid-teens growth on a constant currency basis. Catapult contributed approximately 240 basis points to segment growth. Foreign exchange also contributed roughly 50 basis points to growth in the quarter. Underlying fundamentals continue to trend favorably. U.S. Integrated Care segment membership at quarter end was 102.4 million members towards the high end of our guidance range and up 11% year-over-year, while U.S. Integrated Care virtual visit volume increased by 6% versus the prior year period. Chronic care program enrollment at quarter end was $1.12 million, down versus the first quarter due to the previously discussed contract loss. Excluding the impact of this loss, underlying program enrollment would have increased by a low single-digit percentage on a sequential basis. Second quarter Integrated Care adjusted EBITDA was $57.5 million, which represented a margin of 14.7% and was at the high end of our guidance range. This benefited from revenue flow-through, which was partially offset by higher OpEx in the quarter, including marketing spend and legal fees. While this compares to an adjusted EBITDA margin of 17% in the prior year period, recall that we had cited a roughly 340 basis point tailwind to adjusted EBITDA margin in the second quarter of 2024 from performance-based revenue, variable compensation costs and the timing of certain marketing and other operating expenses. Moving to the BetterHelp segment. Second quarter revenue was $240.4 million, up slightly sequentially and just above the midpoint of our guidance range. Foreign exchange contributed approximately 45 basis points to year-over-year growth, while UpLift contributed roughly 100 basis points. Second quarter average paying users declined by roughly 9,000 sequentially to 388,000, and were 5% lower versus the second quarter of 2024. Despite encouraging early progress on our insurance and international initiatives, we continue to see headwinds in the underlying U.S. cash pay business. While the year-over-year decline has moderated relative to 2024 levels, U.S. cash pay users saw a high single-digit percentage decline versus the second quarter of 2024. Last quarter, we pointed to a slight uptick in churn rates, which we believe was reflective of softening consumer sentiment and uncertainty around the macro environment. That trend continued through the second quarter, while we also saw an increase in customer acquisition costs and fewer growth user adds. We believe these factors and consumer interest in accessing therapy through insurance coverage is impacting the cash pay business. We believe that validates our insurance acceptance initiative with UpLift meaningfully accelerating our efforts. We continue to believe the unification of customer acquisition funnel between cash pay and insurance coverage will allow us to more effectively leverage BetterHelp advertising and marketing budget, and leads to a lower acquisition cost per user over time. While not enough to offset the headwinds in the U.S. cash pay business, international users were up by a high single-digit percentage over the second quarter of 2024. With more attractive customer acquisition costs, we plan to continue reallocating advertising spend to those markets. While still early, our localized launches continue to see good month-over-month growth in users, and we are evaluating opportunities for additional localized market launches over the balance of 2025. Insurance revenue totaled $2.4 million for the quarter, which was in line with expectations and attributable to UpLift, as we continue to build out the operating infrastructure to support the future scaling of our BetterHelp insurance business. BetterHelp adjusted EBITDA was $11.9 million in the second quarter. Adjusted EBITDA margin of 4.9% was in the upper half of our guidance range of 2.5% to 5.25%. The margin declines on a year-over-year basis was mainly due to lower revenue and incremental investments to advance the insurance initiative. Turning to guidance. We now expect 2025 consolidated revenue of $2.501 billion to $2.548 billion, with the midpoint increasing slightly versus our prior range, with an increase in Integrated Care outpacing a lower BetterHelp outlook. Adjusted EBITDA is expected to be in the range of $263 million to $294 million. The midpoint of this range is slightly below the previous outlook, impacted by similar segment dynamics and now incorporating the anticipated impact of tariffs, which I will speak about momentarily. Full year free cash flow guidance of $170 million to $200 million remains unchanged. We now expect 2025 stock-based compensation expense in the range of $95 million to $105 million, approximately $10 million below our prior outlook and a continued area of focus for us. For the third quarter, we expect consolidated revenue in the range of $614 million to $636 million, and adjusted EBITDA in the range of $56 million to $70 million. Drilling down into the segments, starting with Integrated Care. We are raising and narrowing our full year 2025 revenue guidance, which we now expect to be up 1.75% to 3.25% year-over-year versus our prior guidance of flat to up 3%. The increase of 100 basis points at the midpoint reflects our strong first half performance relative to guidance, coupled with updated assumptions on foreign exchange. We continue to expect Catapult to contribute approximately 200 basis points to full year revenue growth. We are narrowing our full year 2025 adjusted EBITDA margin guidance to 14.5% to 15.25% versus our prior range of 14.3% to 15.3%, which is up slightly at the midpoint. As previously discussed, this includes a roughly 40 basis point headwind from the Catapult acquisition. Excluding Catapult dilution, adjusted EBITDA margin would be up slightly year-over-year at the midpoint of the guidance range. Our guidance of 101 million to 103 million U.S. Integrated Care member remains unchanged. Last quarter, we provided a preliminary view on the potential impact of tariffs. The initial estimate we provided, which was not included in our prior guidance, given the fluidity of the situation, was based on proposed rates at the time, including a 145% China tariff and the impact of our litigation efforts. Based on the latest information, we now estimate an unfavorable adjusted EBITDA impact in 2025 of approximately $3 million, which is now included in our guidance ranges. This reflects a partial year of impact based on the timing of new rates and inventory on hand. We continue to evaluate additional levers to mitigate the impact of tariffs now and into the future. This includes assessing alternative sourcing arrangements to diversify our supply chain, which we think is a prudent long-term action. For the third quarter, we expect Integrated Care segment revenue growth to be down 0.5% to up 2.25% and adjusted EBITDA margin in the range of 14% and 15.5%. Recall that the third quarter of 2024 had included a favorable resolution of a prior period billing adjustment, which will drive a roughly 115 basis point headwind to revenue growth and roughly 95 basis point headwind to adjusted EBITDA margin in the third quarter of 2025. Importantly, we assume a return to sequential growth in chronic care program enrollment in the third quarter, driven in part by continued growth in our weight management program which was augmented by the addition of one of our largest customers at the start from 2025. Regarding the second half cadence, our updated guidance implies a sequential step up in revenue in the fourth quarter, driven largely by cyclical seasonality related to infectious disease visits as well as contribution from new business implementation. It also implies a sequential increase in adjusted EBITDA dollars driven by the revenue increase coupled with disciplined cost control. Moving to BetterHelp. We are narrowing our revenue guidance range with the revised midpoint reflecting ongoing headwinds in our U.S. cash pay business. Although still in the early stages, we are encouraged by the progress of our insurance initiative, which we view as a critical driver for restoring long-term growth in the BetterHelp business. We now expect a year-over-year revenue decline of 6.8% to 9.2% in 2025 compared to our prior outlook of a 3.75% to 9.75% decrease. Our guidance continues to reflect approximately $10 million in insurance revenue for 2025, net of any mix shift from the existing cash pay business. We expect a more meaningful revenue contribution in 2026 as we continue to methodically scale operations and expand our payer therapist network over the next 6 to 12 months, while steadily enabling access across additional space. We now expect the BetterHelp adjusted EBITDA margin of 4% to 5.5% for the full year, with the midpoint down 75 basis points versus our prior guidance. This revision primarily reflects the flow-through impact of a lower revenue outlook, partially offset by incremental G&A reductions as we continue to prioritize investments that support the growth of our insurance initiatives. We remain focused on balancing top line growth with bottom line discipline. While we will not pursue inefficient customer acquisition, we are committed to maintaining strong profit to BetterHelp in preparation for the broader insurance rollout. For the third quarter, we are guiding to BetterHelp segment revenue down 5% to 9.75% year-over-year and an adjusted EBITDA margin of 1% to 3.75%, reflecting the early investment phase of scaling our insurance initiatives. Lastly, our balance sheet remains strong. We retired $551 million in convertible senior notes that came due in the second quarter with cash on hand. The $1 billion convertible note maturing in June 2027 is our only remaining debt outstanding. We remain comfortable with our leverage as net debt to trailing adjusted EBITDA stood at 1.1x at quarter end. We continue to believe our strong cash balance, capital generation and business position provides us with optionality in the future. Separately, in mid-July, we entered into a new $300 million revolving credit facility, which enhances our financial and operational flexibility. At the current time, there is nothing drawn on the facility and we have no immediate plans to use it. Our capital allocation priorities remain unchanged. First, we look to maintain a strong balance sheet and an appropriate net leverage profile. Second, we will invest in the business to support our strategy to both organic and inorganic initiatives. And third, we will evaluate share repurchases as a potential use of cash. With that, let me turn the call back to Chuck.
Charles Divita, CEO
Thanks, Mala. We continue to believe that virtual care can be a performance multiplier within the health care ecosystem, helping to address key challenges and that Teladoc Health is well positioned to play a key role in doing so. Just last week, we hosted our Annual Teladoc Health Forum event in Nashville, which brought together health care thought leaders, virtual care advocates and innovators from across the globe to share their experiences, exchange perspectives, discuss strategies and offer insights into the further advancement of virtual care. And spending time with many of our clients and partners in attendance, I was encouraged with the level of interest in deepening our partnerships and further collaborating to help them achieve their goals now and into the future. With that, we'll open it up for your questions. Operator?
Operator, Operator
Our first question comes from David Roman with Goldman Sachs.
David Roman, Analyst
A lot of moving parts here, so I'll try to make sure I limit it here to one question. I guess you've talked about over the past year, Chuck, the transition away from a subscription model to a pay per visit or pay-per-use model that does, to some extent, obfuscate the underlying performance of the business. And I know you went through a few metrics on the call, but maybe you could unpack a little bit what's going on there and where we are in that transition. Either if you can give us a sense of is that a 2025 event, does that extend into 2026, and how you're thinking about measuring success in that initiative?
Charles Divita, CEO
Yes, I appreciate the question. This transition has been going on for a few years now in earnest because post-pandemic, obviously, with the broad adoption and maturity of the market, and that's continued. In 2025, we now are at a point where more than 50%, the majority of our revenues in virtual care are coming from visit-based arrangements versus subscription-based. So there's more room to go there probably, but we've sort of reached a place where it's the majority. And it varies a little bit by product line. In mental health, we're now at about 70% that are visit-based. So you'll start to see, over time, more of that underlying growth in visits, which is a good thing and translate into revenue growth, but we still got a little bit of headwind from that subscription move.
Operator, Operator
Our next question comes from the line of Richard Close with Canaccord Genuity.
Richard Close, Analyst
Congratulations on the progress. Can you discuss the margin difference between cash pay and insurance in the long term? Also, I understand you've soft launched insurance in one state. How do you plan on rolling it out going forward? Will it be on a state-by-state basis?
Mala Murthy, CFO
Thank you, Richard, for your question. Regarding the margins for insurance, if we look at the legacy cash pay business in BetterHelp, we have consistently indicated that the gross margins for that business align with the overall margins of Teladoc Health, usually around the high 60s to early 70s. In comparison, we anticipate that insurance margins will be lower than those levels, but it's still early to pinpoint where they will stabilize in the long term. There are enough public benchmarks indicating that insurance margins are significantly lower. Nonetheless, we are focused on the fact that we have over 4 million consumers entering our system. Our advertising spend is designed to attract this volume of consumers seeking therapy. We believe that providing the option to accept insurance alongside cash pay, which is currently active on our platform in one state, will lead to higher conversion rates than we achieve with cash pay alone. This is the investment strategy we will continue to pursue as we expand this initiative. Chuck?
Charles Divita, CEO
Yes, and I'll talk a bit about the rollout. So I guess, think of it this way, supply and demand. We know the demand is out there. One, the unmet mental health need, the adoption of the virtual modality in terms of therapy and just the size and scale of BetterHelp. So what we want to do is make sure we are preserving that user experience, which BetterHelp is known for as we turn this on. Obviously, the scale is pretty massive. So the demand side will be there as we turn that on. The supply side, we also want to make sure that we have the right level of therapists credential in the network to meet the demand in the way that we want. Behind the scenes, we are continuing to build that network out beyond the single state so that as we ramp further, we'll be able to turn on multiple markets over time. So I wouldn't necessarily think about it state by state per se because we're going to reach a point where we want to be able to activate multiple markets. But we do want to take it methodically here at the start to make sure all the capabilities that we built in place are working. The good news is they worked quite well, and we're in a position now where we're behind the scenes building the supply side.
Operator, Operator
Our next question comes from the line of Lisa Gill with JPMorgan.
Lisa Gill, Analyst
Chuck, I wanted to go back to where you ended the call today. You talked about virtual health care can be a performance multiplier to help address key challenges in the evolving health care landscape. Clearly, following managed care, we see that right now from a cost perspective as a former managed care executive. What do you think are some of the biggest opportunities for Teladoc to help to really drive the cost or bend the cost curve going forward? And maybe if you could just spend a minute sharing some of the takeaways from last week. And is it talking more to providers? Is it talking to employers? Is it talking to the managed care organizations? What do you see are some of the biggest opportunities?
Charles Divita, CEO
Yes. Thanks for the question. I think, first of all, if you go back to where sort of virtual care took off, like I said in my prepared remarks around access and convenience. And that's still an issue. Access to care, whether it's primary care, specialist care, it varies pretty significantly. So I think access will continue to be a place where virtual care can support the ecosystem. I think where the next sort of generation of that is, and the reality of this, each individual, all of us are unique. We have our own health care situation and needs and expectations and health care is also local. And so I think over time, the reason why we've been investing in the technology we are and the approach we have is because we think we have an ability to partner with the local delivery systems more and more over time to advance our customers' strategies. So we have a number of things underway to do that. And I think then extending that longitudinal care capability to help complement the system, sometimes will be on point for those services and other times will be playing a complementary role. And I do think that's where it's going to evolve over time. I think with respect to the forum, it was a great event. I mean there was a lot of excitement. We shared a lot about the progress we're making. I would say uniformly, a lot of the things that you study in healthcare are alive and well. They're very concerned about the affordability issues, cost increases, provider capacity shortages and sort of the dynamics that are at play. Certainly, in the health plan world, a lot of uncertainty with respect to some of the changes that are underway. And I think there was a, I would say, a good level of interest in the strategic direction we're taking and how we're approaching this issue. So I think the level of partnership is going to be even deeper going forward, and I think we're going to build on it in the coming months.
Operator, Operator
Our next question comes from the line of Jessica Tassan with Piper Sandler.
Jessica Tassan, Analyst
Could you discuss the outlook for your chronic care solutions in 2026? What is the status of the selling season for these solutions? Additionally, can you provide insights into any competitive activities you've seen that may affect retention, competitive advantages, and pricing for the upcoming year?
Charles Divita, CEO
Yes. I will share some general thoughts. First, many of the points we've made in previous quarters still hold true. The employer channel is generally meeting our expectations at this stage of the year. However, we continue to experience challenges in the health plan channel for the reasons previously mentioned. We've seen strong interest in all our solutions, including chronic care, and we've added accounts in health plans related to Medicare Advantage. There is noteworthy activity and interest, although some players are hesitating on making significant moves as they reassess their strategies. Our focus remains on product innovation, particularly in expanding our service offerings. The new cardiometabolic health program we’re introducing is designed to address a range of needs. Patients do not fit neatly into categories; they have holistic health journeys that may involve weight issues and other health concerns throughout their lives. This program aims to support those individuals comprehensively. Additionally, I believe the features and improvements we’ve implemented will be appealing to our customers. Looking ahead, we want to leverage our strong clinical capabilities. As a provider, we have primary and specialist care, as well as care teams. This is key when working with individuals facing hypertension, diabetes, and obesity. Our ability to support them clinically and guide them back on track is where we can provide value to both patients and our clients.
Mala Murthy, CFO
Jessica, I want to emphasize that the chronic care market is quite competitive and rapidly evolving. We are already advancing with a cardiometabolic product that Chuck mentioned, which enhances our clinical capabilities and boosts our confidence in the growth of our chronic care business over time. Additionally, considering our member base of over 102 million, there is a significant cross-selling opportunity. The scale of individuals needing chronic care management that we can reach provides a solid foundation for continued growth and market penetration. Our current penetration levels within our membership remain relatively low. When we combine our innovative product offerings with the extensive opportunities within our member base, we have valuable resources to leverage, along with our engagement and enrollment efforts, which we are actively investing in.
Operator, Operator
Our next question comes from the line of Daniel Grosslight with Citi.
Daniel Grosslight, Analyst
Mala, you mentioned that you expect a meaningful revenue contribution from BetterHelp insurance coverage in 2026. I was hoping you could provide a bit more color on that and the cadence we should expect throughout next year. And similarly, if there's any significant investments you need to make to kind of scale that in '26 and the cadence of those investments?
Mala Murthy, CFO
Yes. To start with your second question, we need to invest to scale our insurance revenues. We are already making investments. When we announced the UpLift acquisition in April, we decreased our adjusted EBITDA due to the necessary investments. These investments can be split into two main areas: first, we are increasing the number of skilled people needed to operate the BetterHelp segment, as it is no longer just an initiative but a fully-fledged business. Second, we are enhancing our operational capabilities like billing and coding. We have already begun these investments and plan to continue in the second half of this year, specifically between Q3 and Q4, with a more modest level into the first half of next year. Regarding the pacing of this, we mentioned back in April that we anticipate our insurance revenue to grow and fully ramp up over a 6- to 12-month period. We expect around $10 million in insurance revenue this year, but we'll need to monitor its progress throughout the year for more confirmation. We're currently operational in one state, and initial progress is promising; we're meeting our expected metrics so far. However, we need more evidence to confirm this. Expect updates from us in October and February, and we will provide progress updates during our earnings calls about how scaling will develop through 2026.
Operator, Operator
Our next question comes from the line of Jailendra Singh with Truist.
Jailendra Singh, Analyst
Chuck, I appreciate you spending some time on recapping the progress the company has made and all the initiatives you have put in place and actions you've taken over the past 1 year. But where we stand now, do you believe that you have all the pieces in place to get the company back on revenue and EBITDA growth and potentially accelerate in the coming years? And I completely understand all the integration and business transition is still ahead of us. But just curious about your view, if you still think there's some work needed for organic and inorganic product expansion or any restructuring?
Charles Divita, CEO
Yes, I appreciate the question. I'm not sure I would say we're ever going to be done in a highly competitive, dynamic complex market, particularly in the U.S. in terms of advancing the vision and the strategy. So I wouldn't want to set that expectation. I think we've made considerable progress from the technology we put in place. We now have the ability to surface information across each one of our care engagement, whether it's Catapult, our gen med visits, our coaches, our mental health providers. We can action and surface information there that for the next best action. So there's a lot of things that I think we put in place. Clinically, we come from a strong position with all the history the company has. However, there's additional capabilities we're going to put in place to be able to continue to develop new intervention models for these individuals with chronic conditions. So I think you're going to see us continue to invest organically as well as if we think there are places that could accelerate our progress, we're going to look for those opportunities just like we did with Catapult. That was a really nice strategic complementary acquisition. It's resonating with our clients. They understand why we did it, one, because of their own capabilities which is quite effective, but the opportunity to use that as another point of engagement for people that aren't engaged in their health care. And to get them aware of their health care conditions and get them plugged into whether it's a Teladoc services or get them a care plan. So I think there are going to be continued investments that we're going to make to be able to have a sustainable growth path in the U.S. and attack some of those bigger challenges that the health care system has, we're well positioned to do it, but we aren't finished yet. I think the other thing I would say, and I'll end it with this, with BetterHelp, as we've seen from the last many number of quarters, that's been a business that's been very challenging on the consumer front, notwithstanding all of its strengths. So making a move like UpLift and being able to demonstrate progress on insurance, we do believe that, that transition over time is going to position BetterHelp to return to a growth trajectory. So I think both Integrated Care and BetterHelp, we've made some really good progress, and I think we're going to build on it.
Operator, Operator
Our next question comes from the line of Elizabeth Anderson with Evercore.
Elizabeth Anderson, Analyst
One of the highlights of the quarter, at least for me, is the strong international growth as part of the broader strategy. Can you discuss the variety of opportunities across your portfolio, including BetterHelp? How are you approaching that? Is there a change in the emphasis you're placing on that business due to the lower acquisition costs that Mala mentioned? Or do you see it continuing along the previously outlined path?
Mala Murthy, CFO
When we consider our international business, we should look at both the Integrated Care segment and BetterHelp. On the Integrated Care side, I expect this business to consistently perform in the mid-teens. This quarter, it was in the mid-teens on a constant currency basis and a bit higher, in the high teens on a reported basis due to favorable foreign exchange impacts. This segment is actively engaging with clients globally, particularly in Canada, the U.K., Europe, and Australia, where we have established B2B relationships with long-term clients. Additionally, as Chuck mentioned in his prepared comments, we are making significant strides in collaborating with public health systems in Canada, expanding province by province. For example, we've received positive feedback from our recent client interactions in Newfoundland and Labrador. On the BetterHelp side, our international strategy has two main components. Firstly, we have been operating in English-speaking countries, like the U.K. and Canada, for several years. This year, we are starting to expand into other markets with a localized platform and tailored user experience. This initiative is relatively new, but we are seeing encouraging signs of growth, including a high single-digit increase in users this quarter. We will continue to enhance our localization efforts for BetterHelp and plan to expand into more countries. Our experience in launching these localized services is providing valuable insights that will inform our future expansions.
Charles Divita, CEO
Yes. One more point on the Integrated Care part of international, and I appreciate you raising that. It's, I think, an often underappreciated part of Teladoc. We have an amazing team. They are structured to really understand the unique local market needs and opportunities, and they are very creative at coming up with solutions that make sense for that market. An example is that I think is really a great proof point. They're using our hospital and health system technology, our devices. If you go to our website, you can see the pictures of those devices. They're using those in creative ways with those public health systems. And I was very gratified when they take those devices, and they are helping keep emergency departments open in rural communities. We're talking about life and death, plus keeping access available to populations in remote areas. So we're very proud of the work that's happening internationally, and there's a lot of learnings that we're looking to import to the U.S. and vice versa over time, and I think it's an important part of the company.
Operator, Operator
Our next question comes from the line of Sarah James with Cantor.
Sarah James, Analyst
You said earlier that you expected BetterHelp to exit the year flat with the prior year. Can you talk a little bit more about what's changed relative to your prior expectations? And will BetterHelp return to growth mode in 2026?
Mala Murthy, CFO
Yes, that's a great question, Sarah. Let me provide a more detailed answer to give some context. As we’ve mentioned before regarding BetterHelp, our revenue guidance takes into account various expectations. This is influenced by many factors, including our capacity to boost user growth, the current macro environment, consumer sentiment, and aspects like customer acquisition costs and churn rates. In the second quarter, we experienced some pressure in our U.S. cash business due to lower retention, which resulted in a higher churn rate and a decrease in new user additions. This led to a reported decline of about 9,000 users sequentially. Our analysis indicates that this is largely due to more consumers opting for insurance to cover their mental health needs and increased advertising from other virtual mental health companies offering insurance. We believe these trends will remain stable for the rest of the year, which has been factored into our updated guidance range. Consequently, we have revised our outlook, narrowing and adjusting the midpoint downwards. This now anticipates year-over-year revenue growth towards the lower end of our previous expectations. Importantly, the highest end of our fourth-quarter guidance no longer assumes a return to flat year-over-year growth. Additionally, while we are seeing positive early signs with insurance, we recognize that it requires time to scale. We still expect to achieve $10 million in insurance revenue this year and are encouraged by the progress of that initiative. Looking ahead to next year, we need to evaluate how these factors play out, especially concerning the scaling of insurance in 2026 and its potential impact on the cash pay business in the U.S. This provides a more comprehensive view of the dynamics within the BetterHelp business.
Operator, Operator
Our next question comes from the line of Charles Rhyee from TD Cowen.
Charles Rhyee, Analyst
Chuck, I want to address Lisa's question from a different angle. During COVID, the usage of virtual care increased significantly since it was often the only option available. We also noticed a substantial demand for behavioral health services, which BetterHelp was able to meet during that time. Since then, the use of virtual care has declined considerably. You mentioned opportunities for the application of virtual care, and I understand you discussed that penetration rates are still relatively low. You also brought up how healthcare is largely local and personalized. What do you see as the major obstacles in increasing that penetration? Is the main challenge at the provider level concerning how they deliver care, perhaps indicating a systemic issue with workflow design? Or is it more about the payer level, including how benefits are structured? Alternatively, could it be related to consumers preferring in-person interactions? I'm trying to understand the elements of innovation in this context and what aspects you can control versus what you have to wait for the market to evolve.
Charles Divita, CEO
I appreciate the question. Over time, it's clear that there's a growing recognition of the lack of primary care in the United States. There's also increasing openness to virtual primary care, and I believe this trend will continue. The more significant aspect of your question relates to how we're approaching this. When I first joined, I emphasized that we engage with millions of individuals each year through various visits. These interactions are not just visits; I perceive them as engagement points. This is why we've implemented technology that enables us to activate different strategies to create value for our clients. While a visit may remain the same, I can also tackle care gaps and help individuals navigate to the next best actions. There's potential for me to address issues more comprehensively by involving specialists and facilitating provider-to-provider consultations. This way, we can make our engagement points more impactful and valuable for clients. Until now, the virtual care system has often been quite transactional. Our goal is to establish more of a longitudinal approach, which should help us drive greater volume and impact.
Operator, Operator
That will close our question-and-answer session for today. That concludes today's call. Thank you for your participation, and enjoy the rest of your day.