Earnings Call Transcript - TDOC Q1 2026

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the Teladoc Health Q1 '26 Earnings Conference Call. The operator provided instructions for the question-and-answer session. I'll now turn the call over to Michael Minchak. You may begin.

Michael Minchak, Head of Investor Relations

Thank you, and good afternoon. Today, after the market closed, we issued a press release announcing our first quarter 2026 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 will be Chuck Divita, Chief Executive Officer. During the 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 and 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, Chief Executive Officer

Thanks, Mike. I'm pleased with our performance for the quarter with consolidated revenue and adjusted EBITDA both exceeding the midpoint of our guidance ranges and reflecting solid performance in Integrated Care and progress we're making in scaling insurance of BetterHelp. Let me start with some comments on the market environment as it shapes everything we'll discuss today and the actions we're taking to move the business forward. The U.S. market served by our Integrated Care segment had meaningfully evolved in recent years, creating both challenges and new opportunities to build upon our scale platform. We've established a market-leading position by delivering at a national scale and by expanding services over time to address episodic and longitudinal care needs, improve the health of people living with chronic conditions and to support mental health. We see our ability to provide more comprehensive care at scale, positioning us well for the opportunities ahead. One of the more significant market shifts has been with client preferences moving from subscription-based access towards visit-based arrangements and more in line with the fee-for-service construct of the U.S. health care system. While this shift has created some near-term changes to our model, we've embraced it as an opportunity to expand our role and the impact we can have through each visit and interaction with Teladoc Health. For example, earlier this year, we significantly enhanced our flagship 24/7 care offering, broadening the conditions we can address, bringing specialist support to our treating clinicians, adding real-time prescription benefit checks and expanding our ability to connect patients to additional in-network care as needed. Multiple health plans have added the enhanced offering already, and we expect more to follow suit. And together with other virtual care services, we expect to see a moderation in the revenue headwinds we've experienced because of the migration of subscriptions to visits and to exit the year with this moving to a net tailwind. The market for chronic care programs has also evolved in recent years, including the proliferation of point solutions that add more fragmentation. Chronic disease affects more than half of American adults and remains a major challenge for patients, health plans and employers and the U.S. health care system. Clients are increasingly looking for a more comprehensive approach supporting people with chronic conditions, a shift that plays well to our strengths. Over the past several quarters, we've taken deliberate actions to strengthen our position, deepen our clinical model and drive innovation in our products and in our capabilities. And we see advancements in artificial intelligence as an important catalyst and opportunity for us to lean into these market changes. While we've been using AI and adjacent technologies for some time, we are excited about the potential to leverage it more extensively in our business and advance how we deliver outcomes and results for our clients and the people we serve. This is why we've invested over the past year in our data infrastructure to power AI through our new Pulse intelligence engine as well as enhancements to our Prism Care delivery platform used by our providers. By doing so, we are turning our extensive data and AI-driven insights into action as we engage with patients and support their needs. Combined with our deep clinical expertise, our range of services and trusted relationships with clients, we can deploy AI responsibly and effectively in a virtual native health care setting. And to bring all of this together for the market, we are actively developing new products for release later this year that leverage the full breadth of our clinical services and our AI-enabled capabilities in a comprehensive solution. We believe this new approach will further build on the strengths of our well-established platform, create clear market differentiation and support sustainable growth. I look forward to providing a further update on this product innovation initiative on our second quarter call. Mental health also represents an important market, and we see strong demand for our services given the extensive unmet need out there. Mental health conditions impact over 60 million adults in the U.S. with half of those not receiving treatment and over one third of the U.S. population living in areas with a shortage of mental health professionals. Because of this, the virtual care modality has become an essential access point and our services an important avenue for people seeking help and support. Within Integrated Care alone, we generated nearly $140 million in annual revenue for mental health services in 2025 and saw further traction and growth in the first quarter of 2026. And our ability to deliver comprehensive services across virtual care, chronic conditions and mental health to support overall health is valued by our clients and strategically important to our Integrated Care business. The mental health market is also important to BetterHelp, which has built a leading global position in direct-to-consumer virtual therapy. Its high brand awareness, scaled platform and large and diverse therapist network come together to deliver an exceptional patient experience and achieve positive clinical outcomes. And having served over 6 million people since inception, BetterHelp also represents an important marketplace for mental health professionals to be matched with patients, over 90% of the time in less than 48 hours. However, with mounting pressure on BetterHelp's U.S. direct-to-consumer cash pay business, we took decisive action to enter the insurance market and move towards a more durable and balanced model. In support, we made the highly strategic acquisition of UpLift last year, securing important capabilities, talent and a baseline of insurance contracts. The integration has gone very well, and the insurance rollout is progressing ahead of our expectations. We are live in 30 states and Washington, D.C., and have credentialed and enrolled over 6,000 providers. We've also grown insurance contracted lives to over 150 million, a 30 million increase since year-end 2025. Early engagement data is also encouraging with insurance covered users averaging approximately 20% more sessions than cash-pay users in their first 90 days, suggesting benefits coverage is helping remove cost barriers. Funnel conversion is also stronger with covered users that enter insurance information during onboarding compared to those moving through a cash pay-only flow. This is particularly important given BetterHelp's large inbound demand funnel and opportunity to convert a greater share of interested users into active ones and resulting in improved customer acquisition efficiency over time. And we're beginning to see some meaningful separation in performance between markets where insurance has been active for an extended period compared to cash-only markets. For example, in states where insurance was live by the third quarter of 2025, we're seeing a nearly 800 basis point improvement in revenue performance compared to cash pay-only markets, an indication that insurance access is improving activation and helping stabilize underlying trends as markets scale. As a result of this momentum, BetterHelp's total insurance covered sessions are now running at over 14,000 per week, representing an annualized revenue run rate of over $75 million, and we now expect to exit 2026 with a run rate of $125 million or more. This further illustrates the real progress we are making in the insurance rollout and in creating a stronger position in the U.S. for BetterHelp. Markets outside the U.S. also represent an important growth opportunity for BetterHelp, contributing to solid growth in user trends and benefiting from more favorable customer acquisition costs on average. Our localized country launches in 2025 are delivering solid end market growth, and we look to target one to two new markets for launch in the second half of 2026. Finally, operational excellence remains a key area of focus across both business segments, including operating efficiency and effectiveness. We've elevated execution and operating discipline with a clear focus on our cost structure. AI is playing a role here as well as we continue to deploy new capabilities across our business. For example, within BetterHelp, new AI-assisted clinical documentation is reducing administrative burden so therapists can focus more on delivering care. Since launch, we've generated over 300,000 notes with strong therapist satisfaction and more than 2,000 therapists have used it across 30,000 sessions in our insurance workflows alone. This technology is saving about 15 minutes per session and adding up to more than 4 million minutes so far. We will continue to look for ways to leverage AI and continue to focus on our cost structure more broadly. Our strategic priorities are aimed squarely at building a stronger business, supported by our financial strength and approach to capital allocation. This includes making both organic and inorganic investments that are well aligned with our needs and market opportunities and ensuring a strong balance sheet and financial profile, which is also important to our clients. As I mentioned on the last earnings call, we intend to address our 2027 convertible notes in two phases to meaningfully lower our gross debt position. First, by paying down a substantial portion with available cash and securing new traditional term debt, potentially before year-end and then paying off the remainder with cash at maturity in 2027. We believe this appropriately aligns with the cash flow profile and need of the business, and we will continue to evaluate our capital with a focus on financial strength and long-term shareholder value. Now let me cover our results for the first quarter. Consolidated revenue was $614 million and adjusted EBITDA was $58 million, representing a 9.5% margin. Net loss per share was $0.36 and includes the following pretax per share amounts: amortization of intangible assets of $0.50, stock-based compensation of $0.08 and restructuring costs of $0.07 per share. Consistent with historical seasonality, free cash flow for the quarter was a net outflow of $26 million, ending with $751 million in cash and cash equivalents on the balance sheet. Net debt to trailing adjusted EBITDA was under 0.9x and 3.6x on a gross debt basis. Turning to segment results. First quarter Integrated Care revenue was $395 million, an increase of 1.5% over the prior year and came in towards the upper end of our guidance range. Acquisitions contributed approximately 170 basis points to year-over-year growth with a high single-digit increase in visit revenue, largely offset by lower subscription revenues in the quarter. International revenues again grew double digits over the prior year period, including a 30% increase from our hybrid care models that provide virtual services and physical settings. U.S. Integrated Care membership finished the quarter at 101.2 million members, above the high end of our guidance range. We retained our full year outlook, which contemplates moderation over the course of the year as health plans deal with potential changes to their underlying enrollment levels. Chronic Care program enrollment was 1.2 million at quarter end, up approximately 1% sequentially and 4% higher year-over-year, driven largely by an increased adoption of multi-condition bundles by clients seeking a more integrated and comprehensive approach. First quarter Integrated Care adjusted EBITDA was $56 million, up 12% over the prior year period and representing a 14.2% margin, slightly above the high end of our guidance range and up approximately 130 basis points from the first quarter of 2025. Strong adjusted EBITDA performance was driven by the revenue upside I mentioned earlier as well as disciplined cost management, which more than offset mix-related gross margin pressure from the shift to visit-based arrangements. BetterHelp's first quarter revenue was $218 million, 9% lower than the prior year period, reflecting continued pressure on the direct-to-consumer cash pay business. This was offset to some extent by $13 million in insurance-based revenue, which was up $6 million sequentially and at the high end of our expectations. Average paying users declined 9% from the prior year's quarter to 361,000, reflecting a mid-teens decline in the U.S., partially offset by high single-digit growth in non-U.S. markets. BetterHelp's adjusted EBITDA for the quarter was $2 million, a 0.9% margin and down from 3.2% in the prior year. Lower cash pay revenue and the timing of investments to support the stronger insurance rollout drove a lower margin result. These items were somewhat offset by 12% lower advertising and marketing expense versus first quarter 2025, an intentional move as we balance funnel activation and brand awareness to support both cash pay and insurance. Now turning to guidance. We expect 2026 consolidated revenue for the year of $2.48 billion to $2.58 billion, adjusted EBITDA of $267 million to $306 million and free cash flow of $130 million to $170 million, with the midpoint of each of these ranges unchanged from our prior outlook. We now expect full year stock-based compensation expense to be below $55 million, which would represent a decline of over 30% from 2025 and down over 70% since 2023. We project net loss per share of $1.05 to $0.75 per share. Note that our cash flow and net loss per share guidance ranges do not include any potential impact from changes in our current debt structure as our remaining convertible notes don't mature until June 2027, and we are still evaluating options to address the notes. For the second quarter, we expect consolidated revenue in the range of $597 million to $626 million and adjusted EBITDA in the range of $55 million to $67 million. For Integrated Care, we expect revenue to grow 0.8% to 3.5% with the range narrowing slightly and the midpoint unchanged. This range includes roughly 65 basis points of inorganic growth from prior acquisitions and approximately 60 basis points of benefit from FX. We expect International revenue growth in the high single digits on an organic constant currency basis and high single-digit growth in visit revenues to be largely offset by lower subscription revenue. As I mentioned earlier, we expect this dynamic to further moderate in the second half of 2026 and to exit the year being a tailwind to growth. Our full year Integrated Care adjusted EBITDA margin guidance of 15.1% to 16.1% is unchanged, which at the midpoint reflects an increase of approximately 45 basis points over 2025. Margin improvement is expected to be driven by ongoing cost savings and productivity initiatives, largely offsetting mix pressure from the subscription to visit shift. We continue to be highly focused on ensuring our underlying cost base is aligned with our needs and the opportunities ahead. We are guiding to second quarter Integrated Care revenue down 1.75% to up 1.75% year-over-year, which includes roughly 70 basis points of contribution from prior acquisitions. The sequential comparison versus the first quarter 2026 is impacted by timing factors, including client revenue that we expected to recognize in the second quarter that was recognized in the first quarter, the deferral of certain new contract implementations now expected to go live in the second half of 2026 and a reduced FX outlook. Adjusted EBITDA margin is expected to be in the range of 14.7% to 16.0% in the second quarter, representing a year-over-year increase of approximately 65 basis points at the midpoint. Looking out to the second half of the year for the Integrated Care segment, we expect growth to benefit from contract implementations and strong visit revenue growth due in part to our enhanced 24/7 care offering as well as targeted enhancements to our visit funnel conversion. In addition to those factors, adjusted EBITDA is expected to benefit from continued execution on cost savings and productivity initiatives. Moving to BetterHelp. We are narrowing our 2026 revenue guidance range to down 6.5% to down 1.0% versus 2025, with the midpoint unchanged. This now contemplates full year insurance revenue in the range of $90 million to $105 million, a $15 million increase from our prior expectation and an anticipated exit run rate of at least $125 million in the fourth quarter. Cash pay revenue reflects a continued challenging consumer backdrop, together with the impact of continued scaling of insurance and disciplined advertising and marketing spending. Our guidance for adjusted EBITDA margin of 3.0% to 4.6% is unchanged versus our prior range. This reflects mix impacts and investments to support the scaling of insurance, partially offset by the lower level of expected ad spending. For the second quarter, we are guiding to BetterHelp revenue down 11.75% to down 5.25%. At the midpoint, this reflects modest sequential growth, an early milestone reflecting progress towards stabilizing the business. This contemplates insurance revenue in the range of $18 million to $22 million in the quarter, up over 50% sequentially at the midpoint. We expect an adjusted EBITDA margin of minus 0.5% to plus 1.5%, down on a year-over-year basis due to lower cash pay revenue, mix impacts on gross margin and continued investments to scale insurance, partially offset by lower ad spend. Looking at the balance of the year for BetterHelp, we expect continued sequential revenue growth in the third and fourth quarter, driven by higher insurance revenues and growth in non-U.S. markets and similar seasonality with respect to adjusted EBITDA with the fourth quarter being the highest due to lower ad spend as a result of holiday ad pricing dynamics. In closing, we are pleased with our first quarter performance and remain on track with our outlook. We are confident in the actions we are taking and encouraged by the progress across our key priorities. Our team remains highly focused on disciplined execution, and we will continue to prioritize actions to drive long-term shareholder value. With that, let's open it up for questions. Operator?

Operator, Operator

The operator provided instructions for the question-and-answer session. Your first question comes from David Roman with Goldman Sachs.

David Roman, Analyst

Maybe I'll just pick up on something you made in your last remarks around stabilizing the business here and reflected in your second quarter guidance for Integrated Care. Maybe just talk a little bit more about the return to growth here that you're contemplating? And if you're at a point now where you think that's on a sustainable trajectory? And then maybe just if you could give us a little bit of help here on the BetterHelp side, what you're looking for in calling kind of a turn in growth trajectory in that business?

Charles Divita, Chief Executive Officer

Yes. Thanks, David. Thanks for the question. I think on the Integrated Care side, and I'll ask Mike to talk a little bit about some of the puts and takes in the first quarter as well as the second quarter guidance. But in terms of how we look at the rest of the year, there's a few things that I think are important to point out. First of all, we've talked about this for a while. I talked about it in my prepared remarks, but this mix shift from subscriptions to visits has been pretty dramatic. Just a few years ago, 70% of the memberships that we had were in subscription-based models and 30% in visit-based models. Just a few years later and as we exit 2026, that's going to flip. We'll have about 70% of the memberships in visit-based arrangements versus subscription-based arrangements. So as we see that dynamic play out and including with some of the new product innovations I mentioned earlier, we're going to see that move to a net tailwind. And you'll start to see that a bit in the third quarter and in the fourth quarter. Now in the second quarter, it's still a net tailwind, and you're seeing that in the numbers. Let me ask Mike to comment a little bit on the first quarter and second quarter guidance, and then I'll come back on BetterHelp.

Michael Minchak, Head of Investor Relations

Yes. Thanks, Chuck. So if we look at the first quarter, I would say we had a nice beat versus the midpoint of the guidance range. And I would say about one third of that was due to timing and nonrecurring factors. And then the other part was due to good execution across the business. The timing factors: we did have a pull forward from an earlier booking that benefited the first quarter and is not recurring in the second quarter. So that was pulled forward. The second is we've had a few contract implementations that we were anticipating in the second quarter that are now expected to occur in the second half. And I'd say the third factor is slightly lower FX impact relative to what we had previously assumed in the second quarter. So I would say if you adjust for those factors, the impact of those was, I would say, a few million dollars. The sequential progression from the first to second quarter would look more consistent. And then I would say just we had indicated last quarter that in terms of the first half versus the second half revenue split for Integrated Care in '26, we had expected to be slightly more weighted to the second half relative to 2025, although generally consistent with the average split over the past few years. We still expect that to be the case. So those are some of the dynamics that are impacting the first and second quarter and then the full year.

Charles Divita, Chief Executive Officer

Yes. And then one additional thing on Integrated Care. As I mentioned earlier, it's really about driving greater value for our clients, and we've been very focused on product innovation, and you've seen some of that rollout. I'm excited about the work that we've got going on right now for some new comprehensive solutions to roll out later in the year, really to lean into the core strengths we have as a company and be able to show up more comprehensively for our clients. And the combination of this change in mix that's occurring as well as these new product innovations is really how we're going to drive growth in Integrated Care, of course, as well as our growing International position. In BetterHelp, the insurance entry point is going very, very well. We're excited about how that is scaling. We think that as we progress through the year, we're going to continue to see that grow as well as start to moderate. And I mentioned in my prepared remarks, some of the moderation we're seeing in some states that have been live really since the third quarter of last year and the lift we're seeing in revenue there as a result. So we're seeing some market stabilization. We're seeing early signs that the availability of insurance is taking down that cost barrier. So we're seeing more sessions. So insurance really is a major catalyst for the turnaround and growth of BetterHelp in the U.S. And then, of course, as I mentioned earlier in my prepared remarks, international growth. So both segments have their story in terms of mix changes and growth outlook, and we feel confident that we've reflected that in our outlook and in our guidance.

Operator, Operator

Your next question comes from the line of Sarah James with Cantor Fitzgerald.

Sarah James, Analyst

I was hoping you could unpack a little bit more the Integrated Care revenue guide. What are you assuming for the ACA subsidy-related disenrollment as we go through the year? Was it as big of an impact on 1Q as you had expected? And then as you think about the assumptions made in tightening the guide here, are you assuming any move in visit utilization or retention going forward?

Charles Divita, Chief Executive Officer

Yes. Thank you for the question. I think the ACA market, as you know, is still working its way through. And I think the health plans, generally speaking, are expecting to see some continued moderation in their enrollment as payments are due and things like that. And we've reflected that in our guidance. I was surprised to see a little bit higher enrollment in the first quarter, but we kept our guidance moderating down through the year for that reason. As I mentioned in our last earnings call, we didn't see that having a material impact in terms of our revenues or our visits, just the nature of the mix and how we see that. And so in terms of how we see the rest of the year, as I mentioned before, this mix shift change where we now have—we're going to end the year with about 70% of membership in visit arrangements and the fact that we continue to grow visit revenues—you're really going to start to see that take hold more in the third quarter and even certainly more in the fourth quarter and as we go into 2027.

Operator, Operator

Your next question comes from the line of Daniel Grosslight with Citi.

Daniel Grosslight, Analyst

I want to go back to the BetterHelp insurance rollout. It seems to be going a bit better than expectations, maybe at the high end of expectations. With a few quarters under your belt now, I'm curious what the biggest drivers of upside have been and maybe some of the surprises on the downside for you as conversion and cannibalization progressed as you had anticipated. And then given the success of the insurance business and the continued weakness in the DTC business, I'm curious if that changes the calculus at all on retaining the DTC business?

Charles Divita, Chief Executive Officer

Yes. I think we've executed pretty well. We had a thesis when we acquired UpLift and when we decided to move BetterHelp into insurance. You may recall when I joined, that was one of the main priorities I laid out there. I felt like we needed that to turn that business around. And I think the team has done a really exceptional job of executing that and rolling out states methodically, but with urgency. I think we understand the importance of turning that business around. So I think we've been pleasantly surprised that as consumers are able to come through and see that they have insurance coverage available to them, that it's driving more funnel conversion and that once they're with the program, we see a higher number of sessions compared to cash pay. We're seeing the markets that we're live in for an extended period of time start to move the needle in terms of overall revenues, which speaks to the cannibalization point. So I think that's been a positive surprise, although I think we were intending to execute that well. I think one of the challenges we have in insurance is we've got to make sure that we've got the right therapist capacity to meet the demand. BetterHelp comes at this from a large market position. So we want to make sure we've got the therapist coverage. As I mentioned in my prepared remarks, we've now credentialed and enrolled over 6,000 providers, and BetterHelp has a large therapist network of over 30,000 in its consumer cash pay business. So we're actively activating that and making sure we've got the right provider network. That's probably been one of the more significant constraints. When you ask about retaining our direct-to-consumer business, I do believe our starting point is a little different from others in this space because we have such a substantial market position in consumers, and because there's so much unmet need out there, I don't see necessarily that us turning off that consumer channel. We think it's important. However, I do believe we're going to see continued growth in insurance, not just in 2026, but as we go into 2027 and ultimately in the U.S., seeing insurance surpass consumer. We'll revisit that at an appropriate time. But for now, we think being able to offer both the consumer cash pay channel and scale insurance is the right thing for the business.

Operator, Operator

Your next question comes from the line of Jailendra Singh with Truist Securities.

Jailendra Singh, Analyst

I actually want to ask about the Chronic Care business. Chuck, would you describe that the worst is behind given the momentum you seem to be seeing there, kind of some stabilization? And I know it is early in terms of selling season, but can you share anything in terms of early reads on the selling season? Any color on RFP trends, demand environment, the type of offerings you're seeing most interest?

Charles Divita, Chief Executive Officer

Yes. I'll touch on the selling season first. I would say, generally speaking, the environment is similar to what I've spoken about previously. Just as a reminder, last year we saw good overall results in the employer channels across our solutions and ongoing challenges in the health plan space with macro challenges there. We did have some nice wins and some expansions, but some pressure as well. I would say it's early in the year to be definitive around the selling season outlook. But I'm encouraged by some of the things we're seeing. We're about in the same place we were last year, but we're seeing some higher win ratios and things like that. We're also having good strategic conversations with our clients. They are facing a number of challenges with rising medical costs and are looking to consolidate and reduce the number of point solutions, and they are interested in the scope of services that we can bring to the table. With respect to Chronic Care and the bundled products, those are now about 70% of what we're doing there. So I think the market is similar, although starting to see some encouraging signs. Health plans are sophisticated organizations and will work through those challenges; it might take a cycle or two. Ultimately, that's going to be a tailwind to companies like Teladoc because they need those types of services to drive impact. We're having good conversations around our new product offerings, like the enhanced 24/7 care. We thought it would be an attractive offering because of the impact it can make and the role it can play with the millions of visits we handle in connecting patients to other services. We're seeing that with 24/7 care and with Catapult, which we acquired last year. So it's early in the year, but there are encouraging signs, including the level of conversations we're having. As we think about product innovation and driving increased value, that's ultimately what will make a difference. Over time, the scope of our services and our ability to come at this as a provider organization resonates and will continue to with customers.

Operator, Operator

Your next question comes from the line of Jessica Tassan with Piper Sandler.

Jessica Tassan, Analyst

I want to follow up on Jailendra's question. When you say that you are in the same place as you were last year, is that referring to Chronic Care, implying flat revenue year-over-year in that subsegment? And then how are you thinking about product innovation in that category specifically for 2027? Regarding GLP-1 comprehensive prescribing and maintenance products oriented to that, has your philosophy changed at all given the proliferation of the category?

Charles Divita, Chief Executive Officer

Thanks for the question. My earlier comments to Jailendra were about the selling season and our conversations; it's early and we're building the pipeline, so that was my reference. In Chronic Care, we have exciting innovations that take a more population-oriented view, where we can bring the breadth of clinical services together, leverage data and AI, and present that to the market in a way that allows clients to consolidate services and drive stronger outcomes. Regarding GLP-1s, that market has evolved and is on the minds of employers and health plans. There have been changes in capacity, pricing and modalities. We've approached this from a clinical point of view, focusing on patient care and outcomes rather than prescribing per se. We think that's the right place for our clients and the wraparound services we offer, and our ability to prescribe complements those services. We've been in the weight management space for some time and continue to seek ways to reach patients. We have arrangements with partners like Gifthealth and Lilly. Our product portfolio is well positioned, and the product innovation I mentioned will go broader than just weight management.

Operator, Operator

Your next question comes from the line of Sean Dodge with BMO Capital Markets.

Christopher Charlton, Analyst (on behalf of Sean Dodge)

It's Chris Charlton on for Sean here. On the Integrated Care side, there's been a lot of work to increasingly monetize the members added over the past few years. Where else are you seeing good traction so far on some of the initiatives you've been rolling out broadly? And what are the next steps as you get deeper into the year to continue to drive revenue growth in the back half?

Charles Divita, Chief Executive Officer

Thank you. The virtual care part of our business is very important. In addition to the mix changes I mentioned, the new enhanced 24/7 care offering broadens the services we can provide, helps address issues in the visit that previously required a specialist referral, and connects patients to other services when needed. We've connected that with Catapult so we can ensure that when there's a need, we can connect them to other services. We're taking our scaled platform and looking for activation points where we may not have connected the dots before, and we are improving activation. Beyond 24/7 care, I think upcoming innovation will make a real difference. Chronic care has become a crowded, competitive space with many point solutions and solution fatigue. The fact that we can deliver a multitude of services for the patient and demonstrate combined value to clients is how we'll drive growth in Chronic Care.

Operator, Operator

Your next question comes from the line of Charles Rhyee with TD Cowen.

Charles Rhyee, Analyst

Following up a bit: in the states that you have launched the insurance product, you're seeing stabilization of the business. In the past you discussed how many people don't convert because of cost, and it sounds like that may be improving. Are you seeing cannibalization of cash pay business by insurance, or has this been mostly additive in the states you've launched so far?

Charles Divita, Chief Executive Officer

I appreciate the question. With the caveat it's still relatively early, in states that have more maturity, we do see some cannibalization risk, but net of that, we're seeing about an 800 basis point revenue lift relative to states without insurance. That indicates insurance is increasing access and overall usage and that it's net positive despite some cannibalization. We've expected some cannibalization, but given that over 80% of users in the traditional funnel drop off and don't become active—largely because they're asked to pay out of pocket—allowing them to access insurance drives higher funnel conversion and a net improvement in revenue in live states. This supports our strategy and suggests it's working and on track.

Operator, Operator

Your next question comes from the line of Brian Tanquilut with Jefferies.

Brian Tanquilut, Analyst

Can you talk about the biggest challenge in building therapist capacity as you grow the insurance-focused part of the offering? Are there any swing factors that could speed up adoption on the insurance side, both on the supply and demand side?

Charles Divita, Chief Executive Officer

Great question. We're doing a lot to ensure therapist access. The 6,000 credentialed providers is a significant number compared to others. In addition to the 30,000 therapists on BetterHelp's consumer network, not all want to do insurance, so we continue to recruit therapists for insurance. That's been a gating factor, but we're on track and progressing. Our ability to accelerate through the year is supported by what we've accomplished so far. We're scaling something material—exiting the year at a $125 million revenue run rate from essentially zero midlast year. Combined with Integrated Care's $140 million in mental health revenue, that makes us a major player in mental health. There may be challenges, but the team has executed well and I am confident we can continue to progress.

Operator, Operator

Your next question comes from the line of Allen Lutz with Bank of America.

Allen Lutz, Analyst

On BetterHelp, can you talk for late 2025 and Q1 2026 what the average copay that insurance-covered patients are paying on the platform is, and how that compares to cash pay? You mentioned the 800 basis point improvement relative to cash pay-only states—can you unpack what that means exactly?

Charles Divita, Chief Executive Officer

It's a combination and it depends on someone's insurance coverage. We expect stronger lifetime value in the insurance space and potentially a bit lower ARPU initially as usage grows. The 800 basis points reference comes from comparing states that were live by the end of third quarter 2025, providing some maturity, to states without insurance live. In those mature states we see about an 800 basis point improvement in revenue trajectory versus cash-only states. That indicates that as markets mature with insurance, we expect moderation and ultimately growth as capacity expands and states convert to net growers.

Operator, Operator

Your next question comes from the line of Ayush Vyas with Evercore ISI.

Ayush Vyas, Analyst

You mentioned 30 states live and around 6,000 credentialed therapists for insurance. What do you see as a realistic cadence to get to all 50 states? By end of 2026, mid-2027, or further out? What are the gating factors—payer contracts, therapist credentialing, or operations?

Charles Divita, Chief Executive Officer

We expect to be substantially in all states, maybe not every state, by the end of the year. The 30 states is ahead of where we thought we'd be at this point, so progress is strong. There are gating factors—some payer contracts make certain states more challenging—but we're using different strategies to overcome those barriers and have advanced well so far. BetterHelp continues to invest in its platform and the therapist experience; for insurance, therapists have more administrative work, so we've implemented improvements to make that more efficient. The BetterHelp platform provides strong patient flow into therapists' calendars, which makes it attractive. There's more to execute, but the results to date demonstrate good progress.

Operator, Operator

Your next question comes from the line of George Hill with Deutsche Bank.

George Hill, Analyst

Could you revisit expectations for margin expansion as the BetterHelp business scales beyond 2026? Also, is there a positive mix effect as insurance expands versus consumer, and can you mix up from a therapist perspective as reimbursement and scale evolve?

Charles Divita, Chief Executive Officer

Right now we're in build and expansion mode, which pressures near-term margins as we invest to scale. Because we're ahead of plan, we will continue to invest. Ultimately, as the business matures, we expect margin expansion from operating leverage. The consumer channel has high gross margins but high acquisition costs; insurance has lower gross margin but delivers more durable relationships and higher session counts, which can improve lifetime value. As insurance scales, ad spend efficiency improves and we expect margin expansion through operating leverage, smarter ad spending and a more durable business. We'll scale insurance as quickly and smartly as possible and then make decisions about the consumer channel over time.

Operator, Operator

Your next question comes from the line of Michael Cherny with Leerink Partners.

Daniel Christopher Clark, Analyst (on behalf of Michael Cherny)

This is Dan Clark on for Mike. About the 800 basis point growth differential between insurance and cash pay for BetterHelp: looking at the back half of the year, are you assuming a similar level of divergence as markets mature, and could that widen as you pick up best practices on the insurance side?

Charles Divita, Chief Executive Officer

We expect modest sequential revenue growth in the second quarter from Q1, which is a good early milestone, and we expect marginal revenue growth in the third and fourth quarters. Much of that is driven by insurance scaling, more states going live and expanding the number of sessions per user. The 800 basis points is an indicator of what's possible once a market is mature; while we are still early, we expect to see stabilization and a return to net growth as insurance reduces the cost barrier and increases conversion and usage. There is a lot of unmet need in mental health, and combined with Integrated Care mental health growth, we expect Good underlying growth beyond BetterHelp insurance expansion.

Operator, Operator

Your next question comes from the line of Scott Schoenhaus with KeyBanc.

Scott Schoenhaus, Analyst

On Chronic Care, you mentioned new product announcements and consolidation opportunities for customers moving from multiple point solutions to a single vendor with multiple chronic conditions. Also, you're engaging current customers through the 24/7 platform and leveraging AI. How do you think about margin of this business going forward given those dynamics—can you drive pricing up by demonstrating ROI and leverage AI for cost efficiencies?

Charles Divita, Chief Executive Officer

You've said a lot in your question that aligns with our view. Chronic Care programs have costs associated with recruiting and enrolling patients. As our products become more efficient and serve patients more comprehensively while demonstrating value to clients, we expect to be more efficient operationally. Over time, we should be able to achieve strong margins. Demonstrating ROI to clients is essential and will allow us to justify pricing and drive uptake. AI will help administratively and in engagement, benefiting both growth and margins.

Operator, Operator

Your next question comes from the line of Peter Warendorf with Barclays.

Peter Warendorf, Analyst

I noticed Integrated Care membership guidance for the full year ticked up slightly. Given the current employment environment, what's driving that? Any update on the competitive landscape? Also, do you have any update on the CFO search and timing?

Charles Divita, Chief Executive Officer

We did see first quarter outperformance relative to our earlier guidance on membership, although we've maintained our full year guide for membership, which we expect to moderate downward due to factors like ACA subsidy expirations and changes in Medicaid and Medicare. The competitive environment is robust, but our innovations—enhanced 24/7 care, Chronic Care enhancements and upcoming product innovation—differentiate us. On the CFO search, it's ongoing. We're evaluating several candidates across a variety of backgrounds and looking for the right fit as a strategic partner to the management team. We have an excellent finance team managing our financial areas and will keep you updated as the search progresses.

Operator, Operator

Your next question comes from the line of Jeff Garro with Stephens.

Jeffrey Garro, Analyst

I want to double-click on BetterHelp margins. What are you seeing in terms of gross margins in the insurance-paid portion versus internal expectations? And given comments about ad spend efficiency, can you elaborate on managing a pullback in DTC-focused ad spend as the insurance portion ramps?

Charles Divita, Chief Executive Officer

Insurance gross margins are lower than direct-to-consumer, which is expected given payer rates and additional documentation and administrative work. So far, insurance gross margins are in line with our expectations. Regarding ad spend efficiency, early signs suggest we don't have to reacquire insured members; they are aware BetterHelp accepts insurance and remain on the platform longer. With scale, we can think about advertising differently for insured users versus cash-pay users, focusing on awareness and activation for insured individuals. These changes, combined with insurance scaling, should improve ad efficiency and support margin expansion over time.

Operator, Operator

Your next question comes from the line of Ryan MacDonald with Needham.

Ryan MacDonald, Analyst

On Integrated Care, can you unpack the implementation delays you mentioned that were pushed into the second half—were those client-driven or internal? Given the shift to visit-based revenue models, how much visibility do you have into the ramp and utilization on those visit-based contracts and whether that poses a risk for Integrated Care?

Charles Divita, Chief Executive Officer

The delays are timing issues and requirements the clients needed to work through; we don't have concerns they won't go live. We're comfortable they will be implemented in the second half. The shift from subscription to visits has been significant and will be a net tailwind by the end of 2026 as visit revenue grows and roughly 70% of memberships are in visit arrangements. We have good line of sight to implementing those delayed contracts in the second half and expect the shift to continue to work through our model.

Operator, Operator

Thank you. That is all the time allotted for today's question-and-answer session. This will conclude today's conference call. You may now disconnect.