Teladoc (NYSE: TDOC) attributed its direct-to-consumer mental health segment BetterHelp’s first-quarter revenue growth to an uptick in membership and stable customer-acquisition costs.
In 2022, the telehealth provider struggled to keep up with the rising customer-acquisition costs, which were partly inflated by new digital behavioral health competitors.
“Customer acquisition trends have remained stable year to date, resulting in solid margin pull-through in what is typically our seasonally weakest quarter,” Teladoc CEO Jason Gorevic said during a Q1 earnings call Wednesday. “We feel confident in our expectation for a strong and consistent sequential margin improvement in our BetterHelp business throughout the course of 2023.”
As a result, BetterHelp’s revenue increased by 21% year over year to $279 million. Additionally, BetterHelp’s adjusted EBITDA was $17.7 million, representing a margin of 6.3%.
Stabilizing customer-acquisition costs have allowed the company to “lean in” to more advertising spend in the first quarter, which Teladoc projects will lead to benefits for the rest of the year. Typically, there is a 30- to 60-day lag between ad spending and revenue.
That means the company already saw some of the benefits of the increased spending at the end of Q1.
Although Teladoc executives said it is still a competitive environment for digital behavioral health companies, Gorevic noted that the company has been able to withstand some of the industry headwinds that startups have not because of its financial position.
“The importance of a strong financial position has never been more evident than over the past few months,” Gorevic said. “The disruption in the banking system, combined with a strained funding environment, has created a lot of uncertainty in the venture-backed digital health care space, resulting in many companies facing significant financial constraints.”
In contrast, he said, Teladoc is “continuing to invest in innovation while providing high-quality health care solutions, all while generating positive free-cash flow.”
Teladoc is also doubling down on its efforts to grow its integrated care segment, which saw revenue growth of 5% to $350 million in Q1. In particular, Teladoc is looking to grow its chronic care and provider-based care programs, which integrate behavioral health.
“With the introduction of our new provider-based care programs for weight management and pre-diabetes, distinct from our existing digital programs, enrollees will have access to personalized care plans, developed in collaboration with a Teladoc physician who will leverage our broad-based tools and capabilities, such as nutrition counseling, mental health care, behavioral science, health coaching and prescription drug management,” Gorevic said.
Despite the company’s better-than-expected Q1 results, Teladoc projected to stay within its previously projected 2023 revenue guidance. Leadership did, however, raise the bottom end of the guidance range.
The company’s 2023 revenue expectations are now $2.57 billion to $2.67 billion.
“It just wouldn’t be prudent for us to assume that we can continue to perform at this level throughout the rest of the year,” Mala Murthy, Teladoc’s CFO, said during the earnings call.
Still, some investors are questioning the company’s margins and quality.
“TDOC reported better than expected revenues and EBITDA,” investment bank and financial services company Jefferies wrote in an analyst note. “In addition, the co. wrapped consensus for 2Q and slightly raised the bottom end of the guidance ranges (revenue and EBITDA) for the full year. Given the low expectations and [negative] sentiment around the shares, we are not surprised to see shares up modestly after-market. We continue to believe margins, quality of earnings and free cash flow continue to be questions, which we believe will cap enthusiasm & remain an overhang for the shares.”