Earnings Call: Q1 2017

May 8, 2017

Welcome to Teladoc's First Quarter 2017 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 management's prepared remarks. It is now my pleasure to turn the floor over to Ms. Jisoo Soh, Director, Investor Relations. You may begin. Thank you, operator, and good afternoon, everyone. We look forward to discussing our Q1 2017 results with you today. Joining me for Teladoc's conference call are Jason Gorevic, our President and Chief Executive Officer Mark Hirshhorn, our Chief Operating Officer and Chief Financial Officer and Adam Vander Voort, our Chief Legal Officer and Corporate Secretary. Today, after the market closed, we issued a press release announcing our Q1 2017 results and filed Form 10 Q. The release and filing are available in the Investor Relations section of teladoc.com. As a reminder, Teladoc intends to avail itself of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain statements made during this call will be forward looking statements within the meaning of that law. These forward looking statements are subject to risks, uncertainties and other factors that could cause Teladoc's actual results to differ materially from those expressed or implied by the forward looking statements. For additional information on the risks facing Teladoc, please refer to our filings with the SEC. We'll start today's call with brief prepared remarks followed by Q and A. Today's call will also contain certain non GAAP financial measures, which we believe are important in evaluating our performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the 2, please refer to the press release posted on teladoc.com. I will now turn the call over to Jason. Thanks, Jisoo, and good afternoon, everyone. I'm excited to report that we carried strong momentum and excellent results into the Q1 of 2017. Teladoc continues to demonstrate consistently solid execution and benefit from the overall network effects surrounding our business and the virtual care industry in general. In the Q1, we met or exceeded our guidance across each of our key metrics in which we recorded total revenue of around $43,000,000 or growth of approximately 60%, adjusted EBITDA loss of $9,000,000 which improved from approximately $12,000,000 in the same period last year, Membership of 20,100,000 lives or growth of 34% over prior year and over 2 point 6,000,000 newly added lives since year end. And finally, visits of approximately 385,000 or growth of 60%. This represents a quarterly annualized utilization rate of approximately 7.6% or 127 basis point increase year over year, reflecting the high impact of our member engagement strategies combined with a relatively short but severe cold and flu season in January February. As I noted, Teladoc's record high utilization rates reflect our surround sound engagement strategy deployed via traditional channels such as direct mail including the delivery of new member welcome kits as well as via highly targeted and increasingly cost efficient email and digital campaigns. Turning to an update on new client business, we observed seamless implementations during the Q1 from accounts such as Southern California Edison, Marriott Vacations Worldwide and Yale University among many others, as well as from health plan clients that we previously mentioned including Fallon and AltCare that went live during the period. Meanwhile, continued demand for our virtual care delivery solutions resulted in newly signed accounts such as Dillard's, Bayer and Paychex to name a few employer clients as well as PacificSource in the health plan space. These clients are all expected to go live later this year. Our behavioral health and dermatology products continue to resonate as existing clients like KPMG, Chesapeake Energy and Lowe's added to their core general medical specialties. We also have significant interest in our specialty products from our health plan partners and have begun to roll out behavioral health and dermatology into their large books of business. I'd also like to highlight our continued success in the provider market where our solutions now support more than 140 hospitals across the nation. We are incredibly proud to announce newly signed agreements with MultiCare Health System comprising 7 hospitals in Washington, WellSpan Health System comprising 6 hospitals in Central Pennsylvania, as well as a recently expanded relationship with the Mount Sinai Health System in New York. Our increasing client roster reflects the flexibility of solutions we offer to the hospital market as well as our compelling vision to help providers build healthier communities and improve patient outcomes. We are also pleased by contributions from our behavioral health offering in which revenue more than doubled year over year to reach approximately $5,000,000 in the Q1. We expect to maintain this trend throughout 2017. Before moving on, I'd like to take a moment to go over our previously announced appointment of Peter Nieves to the new role of EVP and Chief Revenue Officer reporting directly to me. It's always been a priority of mine and the Board to stay ahead of our growth curve by putting the people and organizational structure in place to take us to the next level. Pete is an accomplished commercial leader with extensive capabilities that align perfectly with Teladoc's strategic vision. He has deep understanding of the employer, payer and broker consultant landscape and previously came from Optum where he served as the Executive VP of Employer Solutions leading all aspects of the employer market sales and account management strategy and before that led global growth strategy for Mercer. He's already hit the ground running by working to further integrate our overall sales operations framework as we continue to scale, identifying ways to extend our leadership position, get greater leverage out of our sales and product development efforts across all client segments and deliver on our broader financial objectives. Now I'd like to offer a few timely insights from Teladoc's 2nd Annual Client Summit held last week at our Lewisville headquarters. We hosted approximately 40 clients who are leaders in their respective industries, including 15 of the Fortune 1,000 and together comprise more than 700,000 of our members. We are encouraged by clients such as TD Ameritrade who have been using Teladoc for several years and are achieving consistent step function growth in utilization levels to reach over 20% on an annualized basis incorporating Teladoc as a centerpiece of their total rewards program across their distributed workforce. We also had the chance to discuss our product and capability roadmap as Teladoc continues to expand our service offerings to achieve our goal of providing a broad and integrated virtual care platform for our members and clients. Specifically, our clients reinforced our vision by expressing the following feedback and broad themes. First, a sincere interest in our newer specialty products with particular excitement regarding the opportunity to address the massive problem of untreated mental illness through our behavioral health product. Secondly, strong demand for the continued expansion of our clinical offerings to broaden the scope of services available to members and to provide solutions that help our clients address more complex and costly medical conditions. 3rd, an appreciation for our select integrations with other service providers who are important partners of our clients' healthcare management strategies. For example, we were highly praised for our recently announced partnership with Accolade. And finally, clients expressed eagerness in collaborating with us to find new creative and targeted ways to engage their employees and drive higher utilization of the Teladoc platform. Now I'd like to provide a quick update on the legal and regulatory front where we continue to be cautiously encouraged by current legislative developments in Texas. As many of you know, a bill that makes it clear that telehealth will continue uninterrupted in Texas has been making its way through the state legislature and could become law in the next few weeks. The passage of this bill into law would resolve our outstanding issues with the Texas Medical Board and would represent a significant victory for the people of Texas in securing their path to quality, affordable and accessible healthcare. As you can see, we have a lot of exciting things going on right now at Teladoc. I'm very pleased with the results we delivered in the Q1 and I believe that we are on track to reach our year end objectives where we continue to target the Q4 to achieve adjusted EBITDA breakeven. We continue to execute on our growth strategy of extending our industry leadership and success in cross selling new and innovative solutions to existing members. Having just wrapped up our client summit, it's very evident that our clients and members realize and appreciate the value of our platform. Given the growing awareness and acceptance of telemedicine, I have never been more optimistic about the opportunity in front of us. With that, I'll now turn over the call to Mark to review our Q1 results in greater detail. Thanks, Jason, and good afternoon, everyone. Let's start with revenue, where we recorded $42,900,000 representing 60% growth over the prior period. Organic revenue growth was approximately 41% over the same period last year. Subscription access fees accounted for $34,300,000 or 80% of our total revenue and grew over 65% year over year reflecting overall membership expansion and contributions from Healthiest You. As a reminder, our core small to midsized employer client base is comprised of accounts principally sold through brokers who embrace bundled visits included contracts with higher PEPM rates. Subscription access fees grew 13% sequentially reflecting growth in covered lives since year end. Our average per employee per month fee or PEPM across our business was $0.58 compared to $0.47 in the prior year period, reflecting the positive impact from the increased visits included subscription mix I just noted. Visit fee revenue for the quarter grew almost 40 percent year over year to $8,600,000 100 percent of that growth is organic. Turning to total visits, we completed approximately 385,000 visits in the quarter or growth of 60%. This equates to a quarterly annualized utilization rate of 7.6%, which is the highest we have ever recorded in a quarter and 127 basis point increase over the same period in 2016 and a 56 basis point increase from Q4 of 2016. Gross margin in the quarter was 72%, up slightly from 71% a year ago. The slight year over year increase is attributable to the company's revenue mix where subscription revenues accounted for 80% of our revenue in this quarter compared to 77% of our revenue in the prior year period. Total operating expenses in the Q1 were $43,000,000 which increased 34% over the prior year primarily due to investments in marketing, sales and G and A in order to support our 60% revenue growth. We take an opportunistic approach to investing in our infrastructure. For example, our new Phoenix office was initially focused on sales and marketing. This past quarter, we completed the final stages of creating a secondary operation center by taking advantage of the space available to us. To be clear, this was not a capacity driven build out, rather we saw tremendous value to our clients and members by ensuring that we have a fully redundant operation site with disaster recovery options to maintain continuity of service under all circumstances. Operating expenses as a percentage of revenue declined year over year by over 1900 basis points with leverage in G and A, technology and development as well as legal expenses. Sequentially, operating expenses increased by approximately $5,000,000 with much of that increase in absolute dollar terms attributable to member onboarding activities and additional advertising and marketing expenses. As we've stated in the past, the 1st calendar quarter is our heaviest period for marketing and advertising costs as our focus is engaging members from newly onboarded clients. Our adjusted EBITDA improved to a loss of $9,100,000 compared to a loss of $11,900,000 in the same period last year. We continue to make progress on our goal of being adjusted EBITDA breakeven in the Q4 of this year. Net loss in the quarter was $15,700,000 compared to $15,300,000 in the same period last year. Net loss per share was $0.30 compared to a net loss of $0.40 in the same period last year reflecting our higher share count in the current period. Our weighted average common shares outstanding were 52,200,000 shares in this period compared to 38,600,000 shares in the same period last year, reflecting the issuance of 7,900,000 shares from our follow on offering this past January and 7,000,000 shares issued for our acquisition last July. Turning to our balance sheet, we ended the quarter with over $175,000,000 in cash and short term investments, reflecting proceeds from our follow on offering. Our debt balance remained constant at $42,400,000 As Jason mentioned, our priority is to grow Teladoc's ability to play across the continuum of virtual care services and deliver greater value to our members and clients. We believe our strengthened capital position affords us tremendous flexibility to both invest organically in our businesses and opportunistically look outside the company for value accretive assets to expand the benefits of our platform. Now, I would like to provide our outlook for the Q2 of 2017 in which we currently expect total revenue between $44,000,000 $45,000,000 and EBITDA loss between $10,500,000 $11,500,000 and adjusted EBITDA loss between $6,000,000 $7,000,000 total membership of approximately $20,500,000 to 21,000,000 members, total visits between 290,000,310,000 visits and a net loss per share based on 54,500,000 weighted average shares outstanding is expected to range from $0.26 to $0.28 For the full year 2017, we continue to expect total revenue between $180,000,000 $185,000,000 and EBITDA loss between $31,000,000 $34,000,000 adjusted EBITDA loss between $19,500,000 $22,500,000 in which we target to achieve adjusted EBITDA breakeven in the Q4 of this year. Total membership of approximately 21,500,000 to 23,000,000 members, total visits between 1,400,000 and 1,450,000 visits and a net loss per share based on 54,200,000 weighted average shares outstanding is expected to range from $0.85 to $0.91 And with that, operator, please open the call for questions. The floor is now open for questions. Your first question comes from the line of Lisa Gill wondering if you could talk a little bit about the level of demand from prospective clients relative to prior years and sort of how that looks across the various vertical segments and anything new the clients may be looking for next year that might be able to offer? Sure. Thanks, Mike. So I would say still a little early to try to develop or articulate trends for this selling season into 2018. With that said, I would say for us health plan activity has been strong, large employer activity similar to previous years, Small market meaning the small and mid sized significantly more activity, but just remind you that that occurs over the course of the year. It's not just January 1 centric. The hospital market has been ramping up significantly and we continue to see more demand coming out of that segment. Our specialty products, as I mentioned when I was talking about our client summit are getting a lot of attention across the spectrum from employers especially on the large employer market and from health plans as well. The only other thing I guess I would say that's different this year is that we're seeing more activity with employers and health plans and hospital systems who previously chose one of our competitors and are coming to us for our solution and our ability to drive utilization. That's happening significantly more this year than it's happened in the past. Got it. And I think in the past you've pointed to opportunities to add lives at existing customers. So for example, at Aetna, I think you're at a couple of 1000000 lives there, but it's just a fraction of their total covered lives. Can you talk about the progress you've seen just broadly in expanding the number of lives within existing customers and what the incremental opportunity there could look like over time? Yes. We've continued to see that trend where we especially in the health plan market, we sort of land and expand. That doesn't really occur in the employer space. But I would say Aetna, United, Blue Shield of California, Premera, all good examples of where we're successfully doing that. Got it. Thanks for the comments. Absolutely. Thanks, Mike. Your next question comes from Sean Wieland of Piper Jaffray. Your line is open. Thanks. So on the lift and utilization, can you maybe break that down a little bit in terms of which areas or markets did you see the most lift? Did you see any kind of cause and effect of something that you tried maybe new in the quarter that either worked or didn't work regarding utilization? Yes. Thanks, Sean. I would say our utilization lift occurred across our various market segments. Probably you see the impact from the employer segment and the health plan segment more than you would from the provider segment. But what I would say to answer the second part of your question is that we have continued to refine our digital marketing efforts and especially our ability to do highly targeted digital marketing and that has yielded very strong results for us. We've I would say if you look at this Q1 of 2017 versus Q1 of 2016 substantially more targeted digital this year than there was a year ago. And that delivers the greatest lift you think? Yes. There's no question. I mean we what we see always is, when we layer on targeted digital with direct mail, with our onboarding welcome kits, we get both reach and frequency and being able to do the digital in a very targeted manner enables us to do it cost effectively. All right. And then to slide a follow-up in here, member onboarding costs, you said about $5,000,000 of the sequential increase was due to member onboarding costs. What since this was a period where you probably added more members than in any other period, Maybe takeaways from the quarter and ideas on how you can lower those member onboarding costs without impacting utilization. What's the thought process there? Hey, Sean, it's Mark. In fact, we noted that the $5,000,000 came back as a result of both increased advertising as well as member onboarding costs. So you should think of that amount, about half that amount attributable to direct onboarding costs. As Jason noted and to add to what he said regarding the utilization, utilization for us really peaks in the Q4. The last 3 years, our utilization has peaked in the Q4 of each of those respective years. And the amounts that we invest in onboarding, clearly is tied to the initial onboarding. But coming into the end of the year, we've got obviously other campaigns that we may launch where we always end up seeing the impact in utilization. So it's far less of a question of bringing down those onboarding costs today and much more focus on the actual throughput of those investments. We're looking at the initiatives that drive the highest utilization. So we have a number of initiatives that we would focus on for certain employers and health plans and others that again still being sensitive to the cost we realize will have a greater impact on throttling up utilization. Okay. I understand. Thank you. Your next question comes from Charles Rhyee of Cowen and Company. Your line is open. Actually, James on for Charles. So my question is, can you give us a sense of what percentage of your customer base subscribes to more than one product offering? And also, has the level of your cross selling activity been in line with expectations? And how much cross selling is embedded in guidance? Yes. With regard to the number of members that are actively now receiving more than their initial service, we're right below 5%. So the penetration today is, I believe on target with what we expected at the beginning of the year, but we expect many additional clients to take on those ancillary offerings throughout 2017. With respect to our ramp, I think Jason had noted earlier, we hosted over a dozen clients in our Lewisville facility this past week in our annual client summit. The overwhelming feedback was that there was significant interest in behavioral and other products that we've recently launched. So we'd expect to see a lot of in year revenue as well as extension of contracts to provide for those additional services throughout this year. And I think James I would just add that the health plan segment for the first time is showing significant interest in implementing those additional specialty products. So materially all of the early adopters of those products were employers and now we're starting to see significant uptake from the health plans as well. Okay, great. Also for the quarter you beat 1Q guidance, 2Q guidance looks pretty good. Can you speak to what we should expect in the back half? Was something pulled forward and that's why you reaffirmed full year guidance? Or is it just kind of a measure of conservatism? It's really a measure of our comfort in our in the traction that we received at the beginning of the year and our ability to now feel very comfortable with our revenue ramp and of course the lowering of the EBITDA loss quarter over quarter. We're very comfortable with what we've seen in the first really in the 1st 4 months of the year and we continue to march towards that Q4 objectives. Okay, great. Thank you. Thank you. Your next question comes from the line of Sandy Draper of SunTrust. Your line is open. Thanks very much. First question is, could you maybe just sort of walk me through or help me understand, is the health systems are coming on not maybe like, I think it was a Gail you mentioned, Jason, it sounds like they're an actual customer for their employees, but as a health system partner, have you guys sort of finalized what that revenue model looks like and how who's paying or is that still an evolutionary process? Yes. So just Sandy, thanks for the question about the health systems. Just to clarify, Yale University is actually for the employees of Yale University, not Yale as the medical system. However, when we talk about others, we are in fact talking about the hospitals themselves. Now sometimes they're using them for their own employees. What when we talk about our hospital clients for the most part we're talking about them licensing our platform. It's a platform as a service model. We have a license fee, a base license fee and then there's a transaction fee as well. It differs depending on whether they're using our physicians in the Teladoc network or their own physicians. But there's a transaction fee regardless. Obviously if they're using ours then it's a significantly higher transaction fee. And from our perspective, we get great feedback from the hospital systems and one of the primary reasons that we win there is because our solution is very flexible. It integrates well with their workflow and it enables them to essentially pick and choose what they would like to do themselves and what they would like us to do on their behalf. So again the revenue model is a licensing fee similar to other platform as a service models plus a per transaction fee. Okay. And then just a quick follow-up on that. I would assume, Mark, that revenue is essentially and probably growing fast, but immaterial to sort of where current total numbers are. Is that accurate? That's correct. Okay. Great. And then one last follow-up. And I don't know if there's a way that you guys can track this. I assume you could, but when you look at the growth in the utilization, one of the things that I'm curious and always trying to understand is, how much is the market, how much is also either word-of-mouth or repeat users? For customers you've had on 2, 3, 4 years, do you track and are you willing to give us some stats on how often it's repeat users that are building a baseline, and how often they're there? And is that a good way to think about the stickiness is you've got existing users that may be once a year, twice a year, maybe it's every other year keep coming back to use the technology? Thanks. Yes, sure. So the numbers that we talk about are about 1.3 to 1.4 visits per user per year. So if you do the math on that, the unique users is about 70% of the total visit volume. Certainly that increases over time. Word-of-mouth is very powerful. And that's why when we talk about utilization among cohorts of our clients, we sort of talk about them as vintages. We see the utilization increase from the 1st year to the 2nd year and even more from the second to the third and fourth year. So certainly there's a benefit that we get from the maturing of our book of business over time. But still the majority of our business has been of our clients have been with us less than 3 years. So we continue to get the benefit of that over time. And when you combine that with our improvement and our ability to target communications to people, I think that's those 2 work together to help drive the improvement that we're seeing in our utilization rates. Great. Thanks, Ramin for all the commentary and I'll jump back in the queue. Excellent. Thanks, Andy. Your next question comes from the line of Matthew Gillmor with Robert Baird. Your line is open. Hey, thanks. Wanted to ask a couple of follow ups on the utilization front. Sean asked about some of the key drivers on the digital side and you also mentioned the flu season having impact in the prepared remarks. Is there a way to tease out how much was driven by the flu season versus maybe the secular growth components from broader awareness? Yes. I would say this about the flu season. Although it was severe, it was short lived. So when we look at the flu season, usually we get a significant December effect and it lasts well into March. This year we saw it pretty intensively in January February, but really not in December March. So while it was more intense while it hit, it probably didn't have as significant of an overall impact because it was shorter and we didn't really see any impact of it. And in fact, it dropped off in the very beginning of March. So I would say a small portion of that came from the cold and flu season, but the majority of it was a result of the communications. Difficult for me to tease out the exact numbers on that, But I would say directionally that should give you the insight you need. Got it. That's helpful. And then, Jason, you mentioned some of the employers shifting away from the free model and moving more towards the PEPM to drive utilization. Can you give us a flavor for what they're saying and why they're shifting back? And are you seeing any change in some of the competitor pricing behavior towards the PEPM model? Thanks. Yes, absolutely. We're pleased to see that the market is becoming more rational that our customers are understanding the value that we provide and the importance of driving utilization. And I would say from small accounts all the way to the largest accounts, we're seeing them realize that you get what you pay for. And if you're not paying anything, you're probably not getting anything. So we have seen the recognition and in fact we've seen clients come to us proactively. We've also seen some operational challenges among some of our other competitors in the market which again is causing clients to who maybe made a different decision a couple of years ago to come to us. With respect to pricing, we're seeing, I would say more rational behavior. There's I think as companies have to go out and raise capital, they probably realize that they have to show a more rational economic model. And certainly we've been the beneficiary of that. You can see our mix has been good. Our PMPM pricing continues to be strong. And I think everything from the clients to the consultants have really understood that all of this hinges on whether you can drive utilization. Got it. Thanks very much. Yes, absolutely. Thanks, Matt. Your next question comes from the line of Ryan Daniels of William Blair. Your line is open. Yes, guys. Thanks for taking the question. Jason, one for you. You mentioned at your client summit that your clients have more desire for you to help them work with more costly and complex medical conditions. So I'm curious if you can talk a little bit more about what that might include and then perhaps what operating model changes you might need to impart in order to manage more medically complex patients and what you're doing today? Yes. Thanks, Ryan. Good catch on that. That was a strong theme that came through. We have historically played in the high frequency, low severity end of the cost continuum. And I think our clients recognize that it's hard to reach people who are at the other end of that spectrum where it's lower frequency, higher severity and therefore higher cost. And with a model like ours that has such high member satisfaction, they're looking to us to see if we can help them to address that other end of the continuum. When you ask about capabilities, I would say we have been on the path to building those capabilities. And if you look at our progression, it's a very methodical one. So we started with acute episodic care with our what you would probably call virtual urgent care or our general medical product. When we added behavioral health that took us into longitudinal care where we were managing a patient over a longer period of time, frequently somebody with multiple comorbidities. Our tobacco cessation program gave us the ability to bring in a nurse coach in addition to the treating physician. And then our dermatology program brings in a specialty network in addition to our behavioral health network. Finally, the addition of our labs enables us to send a patient for additional lab work and really creates more of an interaction with the member around their biometrics. So you put all of those together and it provides a lot of the building blocks for being able to help care for patients whether in a primary or a secondary capacity over time and with much more complex cases. So while I will refrain from giving you specific conditions and or products that we'll have in the market, I can tell you that we're actively looking at that moving up the continuum of care. Okay. That's very helpful. And is that also a big impact on your utilization rates, meaning that while it's not just the short term illnesses, the cold, the flu, the sinusitis, you're broadening. So therefore, the utilization rate is also going to naturally see upticks as more consumers access different types of solutions from Teladoc? Yes. So certainly increasing utilization by offering a broader array of services is square in the middle of our strategy. And I think that manifests itself 2 ways. 1 is the more you offer to a consumer, the more part of their overall health care you can take care of. But also with our behavioral health for example people don't just have one visit, right? It's a series of visits with the provider. And so rather than 1.3 visits per person, you see significantly more in our behavioral health product. Okay. And then maybe just a couple more. The Texas legislation, the rate written today, if that bill becomes law, would it require any material changes in the way you operate or deliver services for members in that state? No, no changes at all would be required. The one change would be that we would be able to offer video in Texas where we don't today. Okay. And then last one, not to leave Mark up, but just for guidance. If I look at the implied visits and membership kind of at the midpoints in revenue, it looks like, maybe a little bit larger jump in PMPM fees than normal. And I'm curious if that's just the impact of some of the SMB customers coming on or more of the visit included coming on that's going to push that up a little bit sequentially? Yes. Ryan, you hit on 1 of the 2. So it's the visits included small and medium sized businesses again are attracted to that product. And then also the increase from those high subscription rates from our direct to consumer behavioral product, which I think I've told you in the past will exceed 15% of our 2017 revenue. Okay, perfect. Thanks a lot guys. I appreciate it. Thanks Ryan. Thanks Ryan. Your next question comes from the line of Mohan Naidu of Oppenheimer. Your line is open. Thanks for taking my questions. Jason, going back to the earlier question about the selling season, is there an improvement in clients' understanding of telehealth offering when you go into the market right now? And I guess you don't need to start from the beginning and convince them that you need to they need to get telehealth versus just going in and competing with other vendors? Yes. Hi, Moe. Thanks. I would say that's true in the large employer market. It's increasingly true in the health plan market. The small and mid sized employer market still a lot of education and of course we sell through a broker distribution channel there. So frequently we're orienting the brokers and they're orienting their clients. And then in the provider space there's that's still a lot of greenfield. That's a lot of new customers who are they may have a Chief Strategy Officer who's leading the charge or in many cases now they're starting to have a telehealth officer at the hospital system who's starting to create a strategy around it. Got it. Got it. One question around the specialty. So you stressed a lot on specialty this call today. Is there something interesting going on with a lot of clients pulling it? You talked about a lot of interest from health plan clients. Why are they suddenly looking at specialty now? Are they seeing more data come out of your employer clients that convinces them to look at it? I would say it's a combination of things. One, it's just the sort of the cycle of we've now been in market for a little while. We've been talking to our clients' health plans and employers about it. And so there's just sort of a natural maturation and progress that we're making there. I would say there is quite a bit of recognition of the challenge of mental health and especially untreated mental health and its impact on the cost of medical care as well as especially when there are comorbid conditions. And then lastly certainly we have now proven ourselves and we have reference clients that we can talk to and bring to bear for our prospects. And so that certainly helps our ability to bring a prospect along to comfort and then ultimately going forward with implementation. That's great. Thanks a lot for taking my questions. Yes. Thanks, Moe. Your next question comes from the line of Richard Close of Canaccord Genuity. Your line is open. Great. Congratulations. Just want to dive in a little bit deeper on Ryan's question client summit and broadening the clinical service offering. Mark, I was wondering if you could just touch base and whether you move into those high cost areas, low frequency. Does that change the margin profile of the business at all? How are you thinking of that as you ramp up some of those new offerings in future years? Yes, great question. We've spent a lot of time looking at the relative margin variance in offering those services and we've modeled them out and to the extent that we've guided people into that high 60s gross margin level, that's consistent with where we feel the business is going to go over the next couple of years. We continue to generate 70%, 72% upwards to 75% margins on the core business, but we see the contribution of those additional services likely contributing to us getting into that high 60s percent range over the next couple of years. Okay. Jason, you threw out TD Ameritrade there. I think you said 20% utilization, if I'm not mistaken. And can you just if that's the case, that's what their utilization rate is. Can you just walk us through what they did or what you guys did with them to get 20%? And is that something we should think about long term for a majority of customers? So Ameritrade has been a client for quite some time. They are enthusiastic supporters. Close we work closely with them on designing communications to their employee base. They have strong internal champions. And I would say they are a good example of a model client. Having said that, at roughly 20% utilization, slightly above that, they're not unique. We have many clients in the 20% to even 50% utilization range. In fact, I had a client at our client summit that is at 81% utilization. So, unfortunately we can't get approval from every client to talk about them by name on a call like this. But when a client engages with us and really partners with us to drive awareness, drive utilization, it is very, very effective. And we're fortunate we had about 40 clients, almost 40 clients at the summit and we get a lot of best practice sharing among them which quite frankly is one of the most valuable parts of the summit. We learn from it and they learn from each other. We're starting to work on how we create better community among our clients so that they can do that on an ongoing basis not just once a year at our client summit and do it much more broadly by using technology and some of our capabilities to create more of a peer to peer best practice sharing because we think the network effect of our 7,500 plus clients can be very powerful. Okay. And my final question again on misutilization. As you think about the different segments, employer, payers, now you've got providers, although that is pretty new. Can you just give us sort of a ballpark in terms of what average utilization rate is maybe for employer versus a payer, how we should think about that? Yes, Richard, without giving a range, you should expect the employers to continue to we characterize them as having both the best opportunity to increase utilization, but also experiencing the highest utilization among our members. And next is, obviously as a result of their tenure with them, the payers and clearly, those newer clients that are coming on the providers, we'd expect to see them ramp up clearly easy to see them double and triple over where they are today. But with regard to where they would rank, it's clearly the employers that will see the highest utilization coming from them. Okay. Thank you. You're welcome. Your next question comes from the line of Stephen Wardell with Chardan Capital Markets. Your line is open. Hey guys, thanks for taking my questions. Hey Steve. My first question is, do you expect provide visits that you get through provider customers to differ from visits that you get from employer customers? So you described employer customers as high frequency, low acuity. What about visit traffic that comes to you from providers, do you think that will be substantially different? I would say in some cases yes and in some cases no and it very much is aligned with the strategy and the use cases that the providers are oriented toward. And let me give you the two ends of the spectrum. On one end of the spectrum, those that will be very similar to our existing or more traditional book of business are those providers who are looking to use Teladoc as a way to improve their branding, improve their presence in the local market and create a funnel for members into their system and therefore they put a co branded product into the local market on more of a direct to consumer basis. So think about that as very similar to our general medical product. On the other end of the spectrum, we're working with providers who see the Teladoc platform as a phenomenal opportunity to better engage with patients post acute, post surgical, do post discharge, plan adherence and follow-up and of course those are very different. You have post surgical patients and the follow-up is based on is more oriented toward how their recovery is going, checking their wounds, are they on their meds, is their weight stable, things like that. So it really ranges depending on the use case and the priorities of the hospital system. But the nice thing about our platform and one of the reasons that we're having such success is that it really spans that it's flexible enough that it spans all of those use cases seamlessly. Great. And would you say you have customers who are fee for service and others that are fee for value in the provider world? And do they behave differently? Would you expect more business from the fee for value customers, for example? I think it really dictates what their primary strategy is. So if someone's if a provider is more fee for value oriented, if they're taking risk in an ACO type of relationship, then they're much more likely to focus on eliminating leakage outside of their system, managing their resource consumption and things like the discharge planning that I just described. If they're fee for service, they're probably more patient flow. Great. And you mentioned the way that you engage with providers is through a software license with them. Does that mean that they stand up your software on their premises? Or are they basically sort of partaken in your hosted instance of the software? It's the latter. We're not premises. It is entirely a cloud based solution that we provide for them. Great. Thank you. Thanks, Steve. Your last question is from Matt Hewitt of Craig Hallum Capital Group. Your line is open. Hi, thank you. 2 for me actually. 1, how does the cost for these very targeted digital marketing campaigns differ from the more traditional approach that you've employed last couple of years? It's really much more cost effective because we can take more of a rifle shot approach rather than a shotgun approach. And so being able to target those who are most likely to respond in a digital fashion is obviously digital communication is a lot less expensive than direct mail for example. And it would not be cost effective if you couldn't do it in a targeted manner. But we have very sophisticated mechanisms to be able to do that. And over the course of the last, I would say 18 months, we've really significantly improved our ability to do it, to take advantage of the technology that is out there in the market and really become a state of the art targeted marketer. Okay. And then one last one for me. Obviously, it could be a while before we have the final version, but the house passes the new healthcare bill. What if any impact could that version and I realize that there could be changes in the Senate, but is there anything that we should be focused on or paying attention to that could impact your business positively or negatively? Thank you. Yes. I would say I would echo what you said about the fact that there could be changes and we are unlikely to know what the final bill looks like. Having said that, I would say generally it's fairly neutral for us. There are a couple of puts and takes, but I think eliminating the minimum benefit plan probably opens up opportunity for other kinds of products in the market into which Teladoc fits very nicely. At the same time pulling back on some of the Medicaid membership. We don't have not much of our business now is Medicaid. And so I don't think you would see anything that looks like a contraction in our existing customer base. So, I don't think that would have a significant impact on us as I look at our book of business today. Again, I think the bigger thing I would look at is there's generally positive regulatory momentum relative to telehealth both in Washington and in the States. And we're much more likely to see benefit from that than we are to see any substantial impact from the new healthcare bill or whatever that ends up looking like. Your last question is from Richard Close of Canaccord Genuity. Your line is open. Great. Thanks for slipping me back in here. On utilization, have you guys ever given any type of guidance in terms of the basis point improvement you expect on an annual basis or any longer term targets? We haven't guided towards any longer term targets. However, we have suggested that as in the past where we have seen the highest utilization come in over the last 3 years coming in on Q4, we'd expect that ramp from Q1 to Q4 to be an increase of anywhere from 15% to 25%. As you can imagine, because of the seasonality and as you can read into the numbers, we expect slightly lower visits completed in Q2 and Q3 and really the bulk of our visits coming in close to the $400,000 number in Q4 of this year. Okay. Thank you. So I think that concludes all the questions we have. I want to thank everybody for participating in today's call. As a final note, we also wanted to remind our shareholders that we've filed our definitive proxy form as well as additional soliciting materials with the SEC summarizing the Board of Directors rationale for our 2017 shareholder proposals. We look forward to having you join our virtual Annual General Meeting on May 25, and I encourage you to reach out to Jisoo Se with any follow-up questions. And so with that, I think we'll close the call. And again, thanks everybody for joining today. This concludes today's conference call. You may now disconnect.