Welcome to Teladoc's Q4 and Fiscal Year 2018 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the management's prepared remarks. If you would like to ask a question at this time, press *1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the # key. We ask that you please pick up your handset for optimal sound quality. Lastly, if you should require operator assistance, please press *0 . It is now my pleasure to turn the floor over to Valerie Haertel in Teladoc Investor Relations.
Thank you. Good afternoon, everyone. Today, after the market closed, we issued a press release announcing our Q4 and full year 2018 financial results and filed our Form 10-K. The release and filing are available in the Investor Relations section of the teladochealth.com website. Joining me this afternoon to discuss 2018 results are Jason Gorevic, our Chief Executive Officer, and Gabe Cappucci, our Chief Accounting Officer and Controller. We will also provide our initial 2019 outlook. Our prepared remarks will be followed by Q&A. As a reminder, certain statements made during this call will be forward-looking statements, which are subject to risks, uncertainties, and other factors that could cause actual results for Teladoc Health to differ materially from those expressed or implied by the forward-looking statements.
For additional information, please refer to our cautionary statement in the earnings press release and our filings with the SEC available on our website. On today's call, we will discuss certain non-GAAP financial measures that we believe are important in evaluating our performance. More details on these non-GAAP measures, the most comparable GAAP measures, and a reconciliation of the two can be found in our press release posted on teladochealth.com. At this time, I would like to turn the call over to Jason.
Thanks, Valerie. It's great to have you on board at Teladoc Health, and thank you everyone for joining us this afternoon. 2018 marked another record year for Teladoc Health as our solid performance in the first three quarters continued through the Q4 and has allowed us to enter 2019 with significant momentum. In the Q4 , we saw strong increases across all our key metrics, and we exceeded our expectations across the board. For the Q4 2018, total revenue increased 59% to $122.7 million in the quarter, and organic revenue grew at 33%. Total visits were strong at 861,000, representing an 86% increase. Excluding Advance Medical, we saw a 41% increase in visit volume. Our adjusted EBITDA increased over 146% to positive $5.8 million for the quarter.
Our net loss per basic and diluted share was $0.35 for the Q4 2018, compared to a loss of $0.76 for the Q4 2017. I'd like to highlight our exceptional performance in driving increased visit volume in 2018, which resulted in higher visit revenue, including strong execution against our performance-based contracts and boosting our annual utilization rate by approximately 250 basis points to 9.4% in 2018. The strength in visit volume results from three primary factors. One, virtual care is becoming mainstream. The recent Accenture consumer survey on digital health is just the latest evidence that we are past the point of inevitability for virtual care, and it is rapidly becoming a main component of the healthcare delivery system.
Two, our surround sound member engagement efforts continue to get more effective, as we saw the yield on these investments improve again in 2018. Three, we are seeing the benefits of our diversification strategy, in which we have dramatically broadened the scope of clinical services that we offer. Our clients are increasingly looking to Teladoc Health to solve a larger, more diverse portion of their healthcare needs, and visits per user increased to a new high water mark in 2018, with more than 1.5 visits per active user in the U.S. Also contributing to our favorable Q4 results was the sequential 6% increase in our subscription access fees. The more than $6 million increase during this period compares favorably to the same period in 2017.
Looking at the full year 2018, our revenue increased 79% to $418 million. Our total visits grew 80% to 2.6 million. As promised, we reported positive full year adjusted EBITDA for the first time in 2018, ending the year at $13.4 million. Our adjusted net loss per basic and diluted share was a loss of $1.47 for the full year, compared to $1.93 loss for the full year 2017. Results in 2018 were driven by successful execution of our key priorities. I'd like to call attention to a few highlights from the year. 2018 was the best-selling season in the company's history, with wins coming across our diversified array of services and customer channels.
We doubled our growth in the mid-market, doubled our population of members with access to more than one of our products, and saw another year of exceptional win rates in the hospital and health systems market. Success across our health plan employer and broker channels resulted in more than 3 million new members launching on January 1st, with significant additional membership lined up to go live over the course of the year. We saw particularly good growth where we partner with health plans to engage their self-insured clients to use our virtual care services.
Our performance in international markets exceeded our expectations in 2018. We've already closed meaningful cross-sell and expansion contracts in 2019 as we execute on the vision of selling our full suite of products around the world. With our Advanced Medical integration ahead of schedule, our pace of global innovation in the services we offer clients has never been greater. Importantly, we've managed this successful integration while continuing to focus on execution and providing exceptionally high-quality care. Last but not least, I'm excited by the continued acceleration of consumer adoption of virtual care, and Teladoc Health is at the forefront of that movement.
We have firmly established ourselves as the industry leader. In 2018, we were the provider with the most downloaded app in the telehealth category. For more details on our 2018 financial results, I'm going to hand the call to Gabe Cappucci, our Controller and Chief Accounting Officer. Gabe?
Thank you, Jason. I'm happy to join you on the call today to review Teladoc Health's Q4 in more detail, as well as highlight some key full-year results. I want to echo Jason's sentiment regarding our 2018 performance and the significant progress we've made over the course of the year. Digging into the quarterly results, I'll start with revenue. Total revenue of $122.7 million represents a 59% increase compared to a year ago. For the full year, total revenue increased 79% year-over-year to $417.9 million. On an organic basis, revenue increased by 33% for the Q4 of 2018 and 36% for the full year.
Revenue from subscription fees of $102.7 million increased 57% compared to a year ago and accounted for 84% of our total revenue in the quarter. U.S. subscription access fee revenue of $78.3 million continues to represent about three-quarters of total subscription revenue. International subscription revenue of $24.4 million accounts for the remaining 25%. Turning to membership, we ended the year with 22.8 million U.S. paid members, up 16% compared to a year ago after adjusting for Aetna's 3.6 million lives that converted to a visit fee-only arrangement in 2018.
As a reminder, our definition of members includes just U.S. paid members that are associated with the PMPM or paid U.S. membership. In addition, visit fee access was available to 9.5 million individuals at year-end. On an average per member per month or PMPM for the Q4 , it reflected $1.16 compared to $0.95 in the Q4 of 2017, or $1.13 on a pro forma basis when adjusting for the impact from Advance Medical. As Jason mentioned, we had an excellent quarter with respect to visit volume with 861,000 visits, an increase of 86% compared to a year ago.
Visits from our U.S. paid membership came in at 607,000, which represents an annualized utilization rate of 10.8%, a 272 basis points increase over last year's Q4 . For the full year 2018, we completed 2.6 million total visits. Our annual utilization rate is reflected at 9.4%, up from 6.9% in 2017. Taking a closer look at our visits from U.S. paid members during the quarter, approximately 50% of them or 302,000 were paid visits, and the other 305,000 were from our visits included members. International visits totaled 205,000 in the quarter, and we completed 49,000 visits for our individuals with visit fee-only access. To wrap up my commentary on revenue, U.S. paid membership visits generated $15.8 million in the quarter, a 36% increase over the Q4 of 2017.
As a reminder, this line includes revenue from general medical visits as well as other specialty visits, primarily comprised of expert medical and commercial behavioral health services. Gross margins for the quarter were in line with our expectations at 67.4% compared to the 70.6% in the Q4 of last year. The year-over-year decline in gross margins reflects a mix shift in revenue and the acquisition of Advance Medical. For the full year, our gross margin was 69.2% compared to 73.6% for 2017. In terms of gross margin dollars, we generated $82.7 million in the Q4 compared to $54.4 million a year ago, representing a 52% increase. For the full year of 2018, total gross margin dollars increased to $289.2 million, which represents an increase of 68% from 2017.
Operating expense in the quarter totaled $100.5 million, an increase of 27% from the $79 million in the Q4 of last year. Eliminating non-cash charges such as depreciation and amortization, stock compensation, as well as one-time acquisition related costs, adjusted operating expenses would have been $76.8 million or 63% of total revenue, compared to $52.1 million or 67% of Q4 2017 revenue. Looking at the full year, adjusted operating expense as a percentage of revenue was 66% for 2018, down from the 79% in 2017. Adjusted EBITDA increased to $5.8 million for the quarter, which compares favorably to the $2.4 million from last year's Q4 , reflecting our ability to generate the aforementioned improved operating leverage. As Jason mentioned, we recorded positive full year Adjusted EBITDA for the first time, ending the year at $13.4 million.
Concluding my rundown on the income statement, our net loss in the quarter was reduced to $24.9 million, compared to a loss of $44.4 million last year. On a per-share basis, our net loss was reduced to $0.35 for the Q4 of 2018 from $0.76 in the prior year. For the full year 2018, our net loss was reduced to $97.1 million from $106.8 million in 2017. On a per-share basis, our net loss was reduced to $1.47 from $1.93 in 2017. Turning to the balance sheet, we ended the year with $478.5 million in cash equivalents, and short-term investments.
Our total debt as of December 31st, 2018, was $562.5 million, which consists of our two convertible note issuances, the $275 million 3% convertible notes that mature at the end of 2022 and the $287.5 million 1.375% notes that mature at the end of 2025. That concludes my review of the Q4 and full year 2018 results. I'll now turn the call back over to Jason to provide our initial 2019 outlook. Jason?
Thanks, Gabe. For the full year 2019, we expect total revenue between $535 million and $545 million, an EBITDA loss between $40 million and $50 million, adjusted EBITDA between positive $25 million and $35 million, total U.S. paid membership of approximately 27 million to 29 million members, and visit fee-only access to be available to approximately 9.8 million individuals. Total visits we expect to be between 3.6 million and 3.9 million. Net loss per share based on 71.9 million weighted average shares outstanding is expected to range from a loss of $1.52 to $1.66 per share. As we've said before, we expect to be cash flow positive for the first time in 2019. I'll go through the Q1 2019 expectations.
We expect total revenue between $126 million and $129 million, an EBITDA loss between $14 million and $16 million, adjusted EBITDA between zero and a positive $2 million for the quarter, total U.S. paid membership of approximately 26 million to 26.5 million members, and visit fee-only access to be available to approximately 9.8 million individuals. Total visits between 950,000 and 1,050,000 visits, a net loss per share based on 70.8 million weighted average shares outstanding is expected to range from a loss of $0.44 to a loss of $0.46 per share. Let me provide you with some additional context on our current expectations for the year. Let me talk a little about our Q1 as it relates to the diversification of our business and the impact of the flu season.
As I mentioned earlier, Teladoc Health has diversified our distribution channels, our customers, and the services we offer. As a result, we expect continued diversification of customer start dates throughout 2019. We see this trend continuing with health plan expansions, cross-sale of new services, international growth, and mid-market employer growth, none of which are constrained by calendar year starts. With respect to the flu season, we continue to witness a more moderate season this year versus the intense season we experienced a year ago. Both the CDC flu data and the Teladoc Health Flu Tracker show the flu having the greatest impact during the first eight weeks of the year.
While this flu season has been less intense than last year, it has more closely mirrored the 2017 visit pattern. As I noted, we are successfully lessening the impact that the flu has on our overall visit volume as we diversify the services we offer across a broad spectrum of conditions. Therefore, we are confident with our Q1 visit projections, which demonstrate a material sequential increase in visit volume, albeit less of an increase than we saw during last year's monstrous flu season.
As a reminder, the Q1 is typically our least profitable quarter of the year as we realize the expense of onboarding millions of new members in advance of associated visit revenue. As with previous years, this impacts our adjusted EBITDA in the Q1 , resulting in a step down from the Q4 of 2018 to the Q1 of 2019. Third, we are making strategic investments over the course of the year to support our future growth. Our investments are focused on several important priorities that will yield benefits in the back half of 2019, in 2020, and beyond.
We are preparing to take advantage of the opportunity in Medicare Advantage in the 2020 plan year. We're investing ahead of the additional business we expect to onboard this year from large health plan clients. We're enhancing our platform to provide a seamless cross-border U.S.-Canada telehealth service, which will be the first of its kind. We are continuing to develop our Virtual First strategy that we believe is the model of the future. I'm excited about the strong interest we're seeing and sense of urgency in our discussions with existing and prospective clients to make virtual health services the front door to healthcare, given the ever-increasing cost of traditional healthcare models.
To wrap up our discussions, Teladoc Health had a very strong 2018, which exceeded our expectations. Heading into 2019, we see the pace of virtual care adoption increasing and Teladoc Health uniquely positioned to benefit from this trend. From supportive legislation and regulatory actions, to growing consumer preferences for telehealth services, to the volume of new businesses we are onboarding, to the RFP activity we're seeing across all channels globally, I couldn't be more confident or excited about the outlook for Teladoc Health in 2019 and beyond. I'd like to thank the Teladoc Health team around the world for their continued commitment to our mission and to living our values.
As I hear our patient stories, either directly or through you, I am humbled by the impact that we're having and incredibly energized by what is still to come. I look forward to sharing updates with you throughout the year. With that, we'll open up the call for questions. Operator?
At this time, I would like to remind everyone, in order to ask a question, please press *1 on your telephone keypad. We'll pause for just a moment to compile a Q&A roster. Your first question comes from the line of Lisa Gill with JP Morgan. Your line is open. Please go ahead.
Thanks very much. Jason, just to start with that last point where you talked about the strategic investment. Is there a way to quantify how much you're spending in 2019?
Yeah. We haven't given details on the magnitude of the investment in those strategic areas. What I'll say is that some of those are more long-range strategic initiatives, like our Virtual First efforts, where we see ourselves uniquely positioned to take advantage of that market trend. It requires some investment both on the clinical side, the operational side, and in technology. Others are more sort of immediate term and responsive to customer requirements, and/or opportunities. For example, the seamless North American U.S.-Canada virtual care product is an example of one where it was in response to client demand. Investing ahead of large clients, and those sort of growth and launches, obviously is client specific. Then we've talked a lot about Medicare Advantage as an opportunity that really takes off in January of 2020.
I think what I'm trying to bridge is that, if I look at your guidance on the adjusted EBITDA of $25 million-$35 million, and if we clearly look at call the midpoint of that at $30 versus the street expectations at $42. When we think about that $12 million delta, is there a way to help bridge the street expectations versus where we're coming out? One, I heard you talk about the flu season, and we clearly have seen that less in 2019 than it was even in 2018. How much of an impact that has? Then as we think about these strategic costs, are there other things that we should be thinking about when we think about really trying to bridge that EBITDA, of what you're going to be able to produce in 2019 versus where the street was?
Obviously, it's hard for me to comment specifically because I'm not running the analyst models. I'll say certainly the flu season has an impact on really Q1 revenue. It's not a huge impact, as we said, as a result of our diversification of our visit volume. I think we gave strong guidance relative to visit growth in the Q1 . Certainly there's a little bit of a headwind there. I think aside from that, we will continue to see, as we've messaged historically, a slight decline in our gross margin. It's going to continue to be, actually, it's been slower than we had expected. I think we had signaled closer to 65%.
We came in more like 67.5% For the quarter, which I think is reflective of the fact that we've continued to move people to mobile as opposed to our call center, which has been a positive trend for us. We do continue to see a modest decline in our gross margin, in part because of the mix shift toward visit volume and visit revenue, and in part because of the Advance Medical running at a lower gross margin than the historical Teladoc business. Having said all of that, we're still guiding to a doubling of our gross margin, sorry, our adjusted EBITDA margin next year, 2019 versus 2018.
If we just think about some of the new relationships, whether it's things you talked about at our conference, the expansion of the relationship with United, the CVS relationship, as well as the timing of TRICARE, can you maybe just talk about each one of those, what your expectations are as to what we'll see in United for 2019? Will we see a ramp in the new CVS relationship in 2019? Lastly, TRICARE.
Yeah. I'll start with United. In January, I thought I'd be able to provide more details on this call. I feel great about our relationship with United, I'm extremely confident that we'll get to the finish line on this opportunity. It's just taking a little longer than I expected. It's a large, complex agreement, those things rarely move as fast as you'd like them to, certainly as fast as I'd like them to. As a result, I can't really provide additional details at this point. I remain extremely confident, in fact, more confident than I was when I was at your conference, whatever it was, seven weeks ago. I expect to be able to provide more information shortly, of course, subject to any confidentiality constraints relative to that agreement.
With respect to the TRICARE business, we launched that in December to a defined population in a relatively narrow geography. The point of the limited launch was to make sure that operationally, everything was running perfectly before we rolled it out generally available to the whole population. The relationship with Optum is fantastic. We've worked through the early natural sort of onboarding process and building out the processes, the interfaces between the Optum nurse line and our technology and physician network. Now it's back to the government to decide on the timing relative to the expansion and rollout of that more generally. Finally, you asked about about CVS
We are continuing to see CVS expand. We expect another few states in the Q1 to launch, and we continue to see that over the course of the year. I'm not really at liberty to give a rollout plan because it's not in my control. It's up to CVS. We do continue to see growth month-over-month in the volume that we're seeing through that channel.
Okay, great. Thank you.
Thanks, Lisa.
Your next question comes from the line of Sean Dodge with Jefferies. Your line is open. Please go ahead.
Good afternoon. Thanks for taking the questions. Jason, I guess, going back to the revenue guidance, could you maybe help bridge for us the very positive comments you've made around your success during the recent selling season and a revenue guide that implies organic growth near the lower end of the 20%-30% range you guys have historically talked about. Are there headwinds you're fighting in parts of the existing business other than the flu that we've discussed, or is it just some of the recent wins that you've alluded to are a little bit bigger and expected to ramp more towards the back half of the year? I guess anything you could add around the pace or the cadence of the guidance and the bridging would be helpful.
Yeah, Sean, it's really the latter. It's no question that the 2018 selling season was, in fact, our best ever. When we look at total bookings, which we define as the annual contract value of a deal or the aggregate of all of those deals, it's the biggest number we've ever put up. As I mentioned, there's more diversification in start dates, meaning we'll see new business starts, sorry, we'll see new business starts over the course of the year, and also we'll see some business that launches at the beginning of the year, but expands over the course of the year into its full population later in the year. While we might not get the full revenue impact of the tremendous selling season in 2019, the total magnitude of the new revenue as we exit 2019 will be bigger than we've ever seen before.
As you can imagine, this will set us up very well going into 2020.
Okay, that's helpful. Thank you. Maybe one on the Virtual First plan design. I know you've had one client, a self-insured employer, roll out an offering featuring some of those elements earlier this year. Can you give us an update on or maybe some sense of the activity that's been happening there around that concept? Are you talking to more clients about that? Are you seeing more testing being done? Anything you can add just to give us an idea of how much attention this is really starting to get from the payer community?
We are. We're seeing a lot of interest from employers, health plans, and the consultant community around Virtual First. We're very active in leading that discussion. There's really no other place to turn for a comprehensive suite of virtual care products that enables that new plan design and turning virtual into the front door of the healthcare system. We see everything from regional health plans to large nationals, everything from mid-size employers to very large employers. The consultant community is very excited about that. I see that as gaining momentum over the course of this year, and being part of a much larger population as we look into 2020.
Okay, great. Thanks again.
Thanks, Sean.
Your next question comes from the line of Ryan Daniels with William Blair. Your line is open. Please go ahead.
Yeah. Thanks for taking the question. I'm curious if you think about your product offering. I know you recently launched something for lower back pain therapy and you've pushed derma, you've pushed behavioral. Are there any other key areas that you're hearing from either your health plan or your employer base that they want to add to the offering on a go-forward basis that we might see?
Yeah, Ryan, I think we've talked previously about chronic care management and being able to provide more longitudinal care for those who are chronically ill. Naturally, going along with that is some of the remote monitoring capabilities. That's certainly an area that we pay close attention to. It's hard to find one that takes care of multiple chronic conditions as opposed to a single chronic condition. Certainly, lower back pain is an example of that. It's not a diabetes or a hypertension-like condition, but it does tend to be more of a chronic issue and frequently ends up in a surgical procedure. From our clients, we've heard that that's a need and an opportunity, especially within certain verticals, certain SIC codes, if you will, among the employers.
In addition to that, the Virtual First capability really goes hand in hand with us acting more as a guide for the consumer through the healthcare system. If the goal is to have the consumer come first to the virtual front door to be able to be guided to a virtual care solution or a more physical location in the traditional delivery system, then we need to make sure that we're available and capable of directing them appropriately. We continue to invest in those capabilities, and that is both technology and people to do that.
Okay. Regarding the Virtual First strategy, obviously a unique offering and competitive advantage given your platform and everything you have. Can you talk a little bit more, though, about the pricing model for that? Meaning, is it someone who adopts at a higher PMPM, and then you'll get both the visit fee when it's appropriate for a telehealth consultation? Do you get any type of referral fee for the physical, kind of keeping a patient in-network, if you will, or driving them to a high-quality facility or center of excellence versus them picking a random facility, or is that just in the higher PMPM?
I would say all of those are in the discussion set right now. We're still early in the game in terms of whiteboarding and strategizing with our clients. Some of them have asked us whether we would come in in sort of an upside risk arrangement where there may be a base fee, but the opportunity to really steer care, take care of people more efficiently, through virtual means, as well as use centers of excellence, top tier of network, top tier of the formulary, et cetera, can drive down the overall cost of care. Our clients see that as something where there may be a base fee and then a share of savings, so to speak. There are others who want more of a predictable higher PEPM, fixed arrangement.
Of course, as you mentioned, there's the opportunity for us to get higher priced visits running through our system as we become the first stop for the consumer. I think the answer is all of the above, and a little too soon to tell where the center of gravity is going to go.
Okay. That's helpful. My final question, I'll hop off. Just looking historically, I don't think the company has ever reported a sequential increase in EBITDA from Q4 to Q1. The fact that The Street had that model was probably just mismodeling versus reality. I'm curious what specific line items you're going to see the biggest jump sequentially in the cost front. Is that really going to be more on advertising and marketing in the sales expense or more G&A oriented?
I'll comment, then turn it to Gabe for the specific line items. Ryan, you're exactly right. We frequently talk about the fact that the Q1 is when we're onboarding the biggest population of new members. We have expenses that are very concentrated in that onboarding process, which includes our welcome kits to new members and things like that. Also, the Q1 tends to be a visit-heavy quarter. We had a little bit of gross margin compression as opposed to the Q2 and Q3 , which are lower visit volume and therefore higher gross margins. Gabe, maybe you can point Ryan to exactly which line in the income statement that shows up in.
Yeah, sure. When you do look at the SG&A expenses, it's really going to be concentrated in the advertising and marketing line as you look to these onboarding activities. As Jason mentioned too, just some margin compression, as we look at the higher visit volumes that we'll have in the Q1 .
Okay, perfect. Very helpful color. Thanks, guys.
Thanks, Ryan.
Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open. Please go ahead.
Yep. Thanks for the question. Jason, I was wondering if you can maybe provide us an update on the international. You hit on it a little bit, but just where maybe you're seeing strength, the size of opportunities, pricing, and profitability. You've had Advance Medical for a couple of quarters here, and just wanted to gauge what you're seeing out there and whether that's living up to your expectations.
Yeah, absolutely, Richard. I would say it's ahead of schedule and at or above our expectations. From an integration perspective, going very well. We have sold and rolled out multiple clients where they were traditional Best Doctors single product clients outside the U.S., and we have rolled out the full suite of Advance Medical capabilities and products, essentially cross-selling the full set of capabilities from Advance Medical. That is the most common growth area that we're seeing. We've seen that in 2018, and we already have some of those sales in early 2019 that we've closed.
In addition to that, we're seeing new opportunities, both new populations from existing clients as they frequently have multiple health insurance companies in multiple countries around the world, and expansion among those international players who provide services all around the world like AXA and Bupa and Cigna International and Aetna International, for example. Very bullish on the growth outside the U.S. We've also seen some regulatory changes in the Brazilian market that opens up that market to significant opportunity, and we think that that will accelerate the outlook for a very large and attractive market.
As a follow-up, just with respect to the guidance, since we've hit on that a little bit, have you guys changed in terms of maybe the way you're looking at as the year plans out in terms of taking maybe a more conservative stance, a haircut here on utilization increases or the per member per month, just to bake in a little bit more conservatism?
Richard, we've always taken a fairly conservative view at this stage in the year. I will say very similar to last year, we have better than 95% visibility into the revenue for the year. We try really hard not to get out ahead of ourselves. I looked back at where the Wall Street was and where we were going into the JP Morgan conference in January when we gave preliminary guidance. Actually, the relationship to where the Wall Street was relative to where our guidance was last year was almost exactly the same. We didn't actually design it that way.
We just looked back at it to look as an analysis, and it came out to almost exactly the same situation. We were very fortunate to have a really strong year, and we beat the initial guidance that we set pretty handily by the time we got to the end of the year. I would say we're very consistent, and I take some comfort in that.
Great. That's very helpful. Thank you.
Absolutely. Thanks, Richard.
Your next question comes from the line of Ana Gupte with SVB Leerink. Your line is open. Please go ahead.
Hey, thanks. Good evening. Thanks for taking my question. The first one is on the pricing environment. Beyond the mix shifting to core visit fees, what is the competitive dynamic that you're observing? Is that part of your guidance for 2019, either from traditional competitors or with employers coming up with more broader platform digital door solutions? Is there any pressure on just a pure virtual care solution or anything on health plans as far as their desire to insource, perhaps, virtual care, given that they're buying docs and they could overlay some technology there?
Ana, thanks for the question. We haven't seen particular changes in the pricing environment. Specifically to your question about health plans insourcing this, I haven't seen any of that. I can't think of a single example of that in among our clients or among those who are not our clients. I can't think of anybody who's actually decided to bring it in-house. We are seeing some competitive takeaway opportunities. Obviously, we're excited by those opportunities. Where we have had competitive takeaways, we've outperformed the metrics we set forward, as where we thought we were going to drive higher utilization. I would say the opportunity is there. What we are seeing is clients buying a broader array of services.
We doubled the number of clients, or number of members who have more than one service from us. We see that as a trend that's going to continue. I would say there's expansion much more than any semblance of contraction.
That's helpful to know that their health plans aren't insourcing. Is it fair to say then, with the Medicare Advantage change, as they're contemplating the CMS rule, that they will outsource to players like you? Where do their own docs fit into the value proposition that they would have on virtual care for senior, with assisted home care or whatever they're planning to do?
We're seeing a lot of interest from the MA plans. Obviously, a lot of those are our clients already, and serve those populations from their networks. In many cases, their networks aren't necessarily virtually enabled. We have a broad set of discussions with our health plan clients, depending on what their network structure is. If they own providers, then we're frequently going in with our licensed platform to help enable their providers to interact with their members virtually. Usually that gets supplemented. Even when they have that, it gets supplemented with our network of physicians. Of course, if they don't have their own network, then we bring our full set of capabilities to them, and enable the virtual continuum of care.
As you might recall, for the MA population, we launched a product with AARP, several years ago that is specifically for the aging population, and facilitates a caregiver, and their aging parent to be on a virtual visit with a doctor together. We see that as being very attractive for the MA population.
If I could ask one final one, just on the theme of primary care docs being taken out by health systems and the plans. Are you seeing any pressure on the supply chain on your contracts as far as your contracts with the docs? Is there any intent at any point to maybe even bring your own salaried physicians in-house?
Yeah. We're not really seeing constraints on the supply side. We onboarded over 1,000 doctors last year. That was very successful, and we continue to see a lot of interest from the physician community. Obviously, a lot of that is because of the tremendous volume of visits that we bring them and the predictability of income. To the second question, we are looking, and I think we've talked about this as far back as our Investor Day in September, about evolving the model of our physician network, such that we have a core group of physicians who may be employed, may be contracted physicians, but are more regularly dedicated to serving Teladoc Health and our members.
At the core of that, those would be serving our clients who have a broader array of our services, are embracing Virtual First, and are really looking for a much more involved relationship from the virtual provider. Concentric circles, moving out from that to those at the outside who will continue to be much more transactional, available on demand for people with relatively simple general medical needs. I think that will continue to evolve as our product portfolio expands and as our role in the healthcare system continues to evolve.
Super helpful. Thanks, Jason, for the color.
Thanks, Ana.
Your next question comes from the line of Sean Wieland with Piper Jaffray. Your line is open. Please go ahead.
Hi, thanks. On the growth and utilization that you saw this year, congrats to annualized above 10%. What are the points of leverage you have from here to continue to drive that utilization? I don't recall you ever giving us that number of visits per active user, wanted to think about how that metric can trend over time.
Yeah. Thanks for catching that, Sean. That's a number that I don't think we've given out for a couple of years. The last time I gave it out, I think we were closer to 1.3. There's a significant improvement there. You've probably seen some of the slides that we've shared more recently about how much the visits per user increases the more products that they have access to. I think you're seeing the benefit of that, as people have access to more of our for clinical services, their visits per user increases. We're seeing growth in two dimensions. We also set a record last year, I won't give the number, but we set a record in terms of new registrations last year. If you think about it, we're growing on two dimensions, more people and more visits per people.
That makes me comfortable that we can continue to expand our visit volume and continue to grow our visit volume at a really attractive trajectory. Where we have headwinds are sort of artificial headwinds. As we onboard large populations, they start at the early stage of the utilization curve, and obviously there's a dampening effect on our overall utilization rate. Sometimes those artificial sort of dampening factors aren't taken into account, and so we try to show, and I think we've recently showed, a cohort analysis of visit growth for year-over-year, sort of holding a group constant, a vintage, a client pool, if you will. You can see the growth over time there. I feel confident that we're going to be able to continue to do that.
The more that we move to this sort of virtual-centric model or a virtual front door, the more that facilitates the steepening of the curve.
Okay. Thank you. Just so we're clear, how do you define an active user?
A user who had at least one visit in the year.
Got it.
When we talk about surpassing 1.5 visits per active user in the U.S. population, an active user is defined as somebody who had at least one visit in the year.
Okay. One more quick one, 2019 cash flow expectations?
Positive. We haven't given specific guidance beyond saying that we expect to be cash flow positive.
Got it. Thanks so much.
Thanks, Sean.
Your next question comes from the line of Stephanie Demko with Citi. Your line is open. Please go ahead.
Hey, guys. Thank you for taking my questions. Jason, the last time we spoke, I noticed there was a healthy uptick in direct Teladoc marketing coming through in my benefits emails. I was just hoping you can give us an update on that, maybe how you're seeing this impact consumer awareness, traction, and any related metrics you have to measure effectiveness of this ad campaign, like click-throughs.
Yeah, definitely, Stephanie. We targeted you specifically. No, I'm just kidding.
Yeah, we've been getting all the pop-ups. I can't get it to stop hitting my phone.
We definitely continue to hone our surround sound engagement capabilities. As I think I said in my prepared remarks, we saw 2018, again, the second year in a row where we've seen meaningful improvement in our yields per dollar spent on our surround sound. We look at that as sort of a what do we have to spend to drive a new visit. More and more, we're seeing that actually improve meaningfully year-over-year. We also, as you might imagine, spend to drive registrations because it's much less expensive for us to market to a registered user than to a member who hasn't yet registered. That's part of what you see in your email and your pop-ups and things like that.
Of course, if we get somebody to download the app, then we have the most opportunity to market to them with things like geo-locating and geo-fencing airports and things like that. As well as, of course, if we can get them to engage in something like our Kinsa thermometer promotion, then we can pop reminders to them in their moment of need. All of those things work together. We're seeing that the more data we get from our partners, the more targeted we can be in those communications efforts. Therefore, the more effective we can be. That's been true for a lot of our health plan partners, where we've really turned from a vendor sort of at arm's length to a partner working together to drive utilization.
Can you give us an update on that mix of app usage versus direct call usage, given it's a better marketing channel?
I think you're asking, I just want to make sure I understand the metric you're looking for, are you asking about the mechanism that somebody uses to request a visit, meaning are they coming through the app, through our web portal, or through our call center?
Correct.
We saw that drop to an all-time low in the Q4 , where we got down to 26% coming through our call center. That's a really phenomenal change. In fact, it's not so long ago that I would talk about that as being 60% coming through our call center and 40% coming through electronic means. Today, we're down to 26% of requests coming in through the call center. We usually see that tick up just a slight bit in the Q1 as we onboard new members. I don't think we'll see quite as good leverage in the Q1 as we saw in the Q4 . That's pretty typical. As we engage consumers and sort of train them on the most efficient ways to interact with us, it tends to continue to shift toward digital channels.
Good. Good to hear. One last one out of me, just given the investments you have in this year that are dampening your EBITDA growth, could you help us think about the out-year EBITDA ramp in a more normalized basis?
Yeah, we continue to target long-term EBITDA margins in the low to mid-20s. We feel very comfortable with that. There's no change to that based on our view of 2019. In fact, we think that the investments that we're making now help us to be more confident in that in the out years, because they continue to move us to playing a much greater role in the healthcare system, through that Virtual First model. There are significantly better margins, the greater role we play, as part of a central part of the healthcare system, as opposed to being on the fringes.
Thank you. That's very helpful. Thanks for taking my question.
Thanks, Stephanie.
Your next question comes from the line of Charles Rhyee with TD Cowen. Your line is open. Please go ahead.
Yeah. Hey, thanks for taking the question. Just a couple follow-ups from earlier. Jason, you talked about the 2018 selling season being the largest you had, and in reference to the organic growth we're looking at this year, maybe at the lower end of year, 20%-30% range. On a full run rate basis, where would you kind of shake out? Would you be at the 30%, kind of below it, above it? Maybe you can give us a sense for that when we fully ramp the 2018 selling season.
I'm trying to understand exactly how to quantify your question.
Yeah. Obviously, what I'm trying to get a sense is, if we were at a full run rate on the new business that was won last year, what would really the organic growth look like, versus, obviously, we're having a timing issue as things ramp up this year and going into next.
Yeah. I don't have that off the top of my head, and I think it would be sort of backing into Q4 guidance, if you're asking about where we exit the year. I think the best way I can answer you is, I still feel comfortable with our guidance, with what we signaled historically about 20%-30% organic growth. I feel good about that for 2020, based on what I know today about the business that we sold and will be onboarding over the course of 2019, and the visibility we have into the pipeline today. Obviously, it's early in the year, but I still feel very good about that 20%-30% looking into 2020 and beyond.
I guess similar to that, can you give us a sense of, when we're thinking about the EBITDA ramp through the course of the year, is it best just to use maybe this last year in terms of the relative ramp as we see it going up, obviously Q4 being or is there anything in the course of the year, given the timing of some of these contracts you expected to ramp up might make the ramp a little bit different?
Yeah. No. This is Gabe. Yeah, that's right, Charles. We'll see a ramp throughout the year. Obviously, the Q1 is going to be the lightest quarter of the year because of some of the onboarding activities that we've talked about. As we move to bring on some of the additional clients and revenue that we've talked about, we'll see that sort of natural ramp of adjusted EBITDA throughout the subsequent quarters.
Great. My last follow-up is, when you talk about MA, the MA pilots coming up, how much of that opportunity, though, is really driven by provider choice in terms of a telehealth platform, since they'll be providing the service and then they submit claims to the health plan? Is the health plan opportunity limited maybe more towards their own physicians? You kind of alluded a little bit to that earlier. Just wanted to get a little bit more kind of thoughts around how to break down the opportunity at MA. Thanks.
Yeah. I think we will certainly see some benefit from our licensed platform, our hospital and health system market, and the interest of the providers to be more active in providing virtual care. By no means do I think that that is the limit to the opportunity. There's no question in my mind, we're already having conversations with the health plans about rolling out a model that looks more like, there are some modifications to it, looks more like our commercial model that we sell into health plans to provide as part of the benefits package for their commercial membership. We're seeing the same interest relative to the MA population.
In that model, if I'm a senior and I have an existing physicians that I'm using, that physician would have to know that, for example, I'm a Humana member, and they would go through a Teladoc system to provide virtual care? Would that mean they could theoretically having to use multiple telehealth platforms to serve different members in different MA plans?
I'm saying that it's just as likely to be member-driven as it is to be provider-driven. Certainly we'll have hospital systems who provide our platform for their physicians. We have that today. In the event that the senior has a relationship with a physician who's using our platform, then they'll be able to have a virtual visit on our platform with their doctor. It's also very much consumer-driven, where the health plan provides tools and a network and a capability that is well beyond what has traditionally been available through a nurse line or something like that, but is really enabling a virtual visit with a physician who's available to them 24/7 . We see that we already have MA populations who use us that way.
Okay, got it. That's helpful. Thank you.
Thanks, Charles.
Your next question comes from the line of Sandy Draper of SunTrust. Please go ahead, your line is open.
Thanks very much. A lot of my questions have been asked. Maybe just a couple quick ones I may have missed. Jason, did you guys give an organic access fee revenue growth number? I guess sort of follow is, did you give a broader organic growth number in the quarter? Thanks.
I think we did. We adjusted for Advance Medical. We said that it was 116 versus 113 if you adjust for Advance Medical.
Okay, great. That's helpful. Then just in terms of Advance Medical, I know it's only, what, six months into it, but just sort of thoughts about the progress. I mean, how much were you able to bring them in on the selling season, or is 2019 pretty much going to be for Advance Medical coming off of their own selling season, and it's really a 2020 and 2021 story where you can start to bring that in? Thanks.
We're actively selling. One of the nice things about the international markets is they're not January-centric. We've already had some clients where we've upsold their product suite into our existing relationships outside the U.S. We've sold some deals already at the beginning of this year for population expansion, where we're in a part of a large international insurer, and they're rolling out to additional segments of the business. We're seeing good growth in new markets that are expressing interest in virtual care. What we saw in the U.S. probably five years ago, maybe a little bit more, in terms of the regulatory changes to embrace virtual care, a lot of the other countries around the world are following suit.
That's very, very positive, and I think I mentioned the Brazil market where they're seeing regulatory change and opening up the doors to virtual care. Advance Medical was an early entrant into that market and already has a footprint. We think that we're ideally situated to be able to take advantage of that regulatory change.
Super. Thanks a lot.
Thanks, Sandy.
Your next question comes from the line of Matt Hewitt of Craig-Hallum Capital. Please go ahead, your line is open.
Good afternoon. Thank you. Just maybe two questions from me. First, on the product access count, you provided the tables with 40% are using two or more. That has been an area of focus. Where do you see that metric trending maybe as we exit 2019?
Yeah. I'm going to resist the temptation to try to give a specific number on that. I think the opportunity, Matt, is twofold. One is to increase that number, and two is to increase the average number of products in a given population. What I hope to be able to come back to you with this time next year is what percentage of clients or members have more than three or more than four products, because that's where we're going as we continue to expand the portfolio.
Great. One last one. Regarding the guidance, given the rollout with TRICARE and the prolongated contracting with United, how are those factored into guidance, or how did you kind of fit those in over the course of the year? Any help there, I think, would help us as we kind of look at the modeling. Thank you.
Yeah. It's a great question. Thanks, Matt. I would say we've been very conservative but have included expectations of expenses and revenue from those two channels using our, again, conservative but best guesses. We have not included any membership from either of those channels in the membership estimates or guidance that we've given. We thought it wouldn't really be prudent to do that. I would say, yeah. I think that gives you appropriate color on it.
Great. Thank you.
Thanks, Matt.
Your next question comes from the line of Mike Ott of Oppenheimer. Please go ahead, your line is open.
Good afternoon. Thanks for squeezing me in. Jason, to piggyback on Charles' question and your selling season comments on hospital strength. Wondering if you could expand just a bit on that, specifically competitive dynamics and what are hospitals looking for in a telehealth solution?
2018 was an amazing year. That's the part of our business where we've seen, quite frankly, the strongest win rates. Just phenomenal win rates in the hospital and health system market. I think that's attributed to a couple of things. One, we're very consultative in our selling approach with the hospitals. We really try to understand what the hospital's strategy is and what their priorities are and tailor our solution to their needs, especially around. There are a wide variety, like a half a dozen different priorities that a hospital might have. Given those different priorities, it could result in a slightly different configuration of the offering.
That's been very successful. In addition to that, our product is extremely customizable for them, so it's all private labeled for them. It integrates easily into their EMR, and their scheduling systems, and it is very physician-friendly. The third thing is, we offer all of our services, clinical services, operational services, engagement services, wrapped around our technology platform as sort of optional capabilities that they can decide to take advantage of or not take advantage of and modify that over time. As I've said before, though, hospitals are asking for more from us. The difference that's changed really over the last probably three years, it used to be a chief medical information officer or a head of a department or an innovation office that was driving the decision-making for virtual care systems or telemedicine systems.
Now there is generally a head of telemedicine at the hospital, and that person is looking across the entire enterprise. More and more, we're talking to that role or that individual about what the goals are over the longer term and how we can bring a broader set of capabilities to bear for that population or that client. That's helping us to direct our prioritization for that market.
Great. Very helpful. Thank you. If I could squeeze in one more on behavioral, BetterHelp, just wondering if you could say the 2018 contribution was in line with your, I believe, $60 million goal, then any 2019 targets or growth that you could share with us.
Yeah. It came in north of that $60 million number for 2018. We were very, very pleased with the performance of BetterHelp. I would say across our entire spectrum, behavioral health is a shining star. When you look at both the direct-to-consumer BetterHelp business, we have some B2B BetterHelp business, although relatively small, then of course we have our commercial behavioral health. All of that is growing very, very quickly. Massive demand from clients. That's where we see the biggest bundling. When we talk about having multiple products and services in a given population, the most frequent thing that gets bundled with general medical is behavioral health. Across the board, we're seeing the benefit of that.
Mike, I gave some commentary on the fact that diversification is helping our Q1 visit volume in the face of a little bit of a flu headwind relative to last year. Behavioral health is a big part of that diversification, as we see our visit volume and behavioral health growing pretty significantly.
Great. Thank you so much for all that color, Jason.
Thanks, Mike.
Your next question comes from the line of Jailendra Singh of Credit Suisse. Please go ahead. Your line is open.
Thanks for squeezing me here. Thanks for all the color on 2019 guidance, but let me just follow up a little bit more on revenue guidance. If I exclude the incremental Advance Medical contribution from 2018 to 2019, say $30 million-$35 million, we get implied organic revenue growth in low 20% range, which is kind of low end of your long-term guidance and a kind of decent moderation from what you guys did in 2018. I understand flu headwind, with CVS Health rollout, 20% plus increase in U.S. paid membership, pickup in visits and PMPM. I'm just wondering why the organic growth is not better than what is implied in your guidance. Can you help us to understand there?
I think it's consistent with what I said earlier about our philosophy around guidance at this time in the year. Again, as I said, we have about 95% visibility into our 2019 revenue. We take a view at this point in the year where we take a relatively conservative view toward our in-year revenue, we have some large clients that could roll out sooner and larger and could roll out a little later and smaller. We've had 14 public reporting quarters, and we've met or exceeded our guidance in 13 of those. Our intention is to continue to take that philosophy.
Okay. I'm sorry if you missed this, did you guys give your expectations for gross margin trends for 2019?
We didn't. We generally don't give gross margin guidance, specific guidance. We generally give sort of directional, where it's going, what we said is we continue to see a glide path into the mid-60s. We've been fortunate to outperform our expectations over the last year, really, probably two years, I guess, as you look back. Again, I think a big part of that is we've been the beneficiary of the shift to mobile, as our engagement strategies really push people to digital channels for engagement.
That's been a positive, even as we've seen sort of a mix shift toward visit revenue, we've seen some lower gross margins in some of our acquired companies. I think you put all that together, we feel very good about where we're coming out of 2018. We do think that we'll continue to see a modest decline into the mid-60s.
Okay. My last question, I don't know if you guys can talk about the impact of the Interstate Medical Licensure Compact, IMLC, for the company. I believe 25 states are now part of it. Do you see this helping your margins, or is there any way this can help your revenue as well? Just give us some flavor, like what this might mean for your company.
Yeah. I don't think it's really going to impact our revenue. It's certainly possible that it can increase the number of states in which a physician is licensed, therefore, they'll be able to make themselves available to a broader set of our population. That can only be helpful relative to the supply side of the equation. I don't think it's going to have a significant impact, it can only be helpful to us on the sort of physician network side.
All right. Thanks a lot.
Your next question comes from the line of Matthew Gillmor of Baird. Please go ahead. Your line is open.
Hey, thanks. I just have two, hopefully quick ones. First, can you update us on where you stand on the CFO search? Second, as you move to this virtual benefit design, can you give us some sense for what the revenue opportunity looks like? Does that drive higher PMPMs, or does it drive engagement with the visit volume?
Hey, Matthew. Yeah, sure. On the CFO search, I'm very pleased with the candidate slate that we're seeing. It's been an active search, and we're in a fortunate position to be a high-growth company in a really attractive sector, both healthcare and technology, and we've continued to perform. We're a beneficiary of being in a good spot, and we're seeing a great group of candidates. I haven't given a timeframe, and again, I'm going to sort of resist the temptation to do that. I feel very good about where we are. At the same time, I would be remiss if I didn't say that Gabe and the team are doing a fantastic job, and I feel great about where we are today.
With respect to the Virtual First model or the virtual-centric model, I think there are going to be a lot of different pricing and revenue models for that business. You're going to see some clients who are just willing to pay a fixed higher PMPM for us to play that role. You're going to see others who are looking at more of a sort of gain-sharing opportunity as we drive down the overall cost of care, we get to share in the benefit of that. In all of the cases, you're probably going to see a lifting in our average visit fee, because we're going to be playing a bigger role, and we're going to be referring patients within our virtual care network to specialists and for additional services.
Lastly, I think we have the opportunity to get paid for successful referrals of the member to centers of excellence and the top tier of the health plans network and to the top tier of the formulary. I think all of those present interesting revenue opportunities, and I'm excited about the opportunity, both financially as well as just strategically, the role that we can play in the healthcare system.
Got it. Thanks, Jason.
Thanks, Matthew.
Your next question comes from the line of Steven Wardell of Chardan Capital Markets. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my question.
Hi, Steven.
Can you give us a little more on your selling to hospitals line of business? What are you hearing from customers, and then how big could this be over the next couple of years?
Yeah. We're continuing to hear great feedback from the hospital market. Very bullish. That's probably, I think it was our second fastest growing channel in 2018 on a small base, so admittedly on a small base, but absolutely fantastic performance, and our win rate there was exceptional. As I look into the future, the hospitals are asking for more from us. They're asking for more product. They're asking for a broader set of virtual care services, and that presents us with opportunities. That very much helps to dictate our pipeline and roadmap for that market channel.
Great. Thank you.
Your next question comes from the line of Ryan Daniels of William Blair. Please go ahead. Your line is open.
Yeah, just one quick follow-up on the guidance for the model. If we look at the delta between your GAAP EBITDA or your EBITDA, I guess, at negative 45 at the midpoint and your adjusted EBITDA at 30 at the midpoint, there's a $75 million delta there. Can you go into a bit more detail on the adjustments? That $75 is bigger than we've seen in the past. I assume a lot of that's stock comp, but wanted to get a little more clarity there.
Yeah, Ryan, that's exactly correct. It's related to stock comp, and certainly as we've made some of these acquisitions and increased our employee base, that number has gone up. Yeah, that is the item to bridge there.
Okay, perfect. Thank you.
Thanks, Ryan.
There are no further questions at this time. This completes today's conference call. You may now disconnect.