Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teladoc 3Q '15 Earnings Release Conference Call. [Operator Instructions].

I will now turn the call over to Adam Vandervoort, Chief Legal Officer. You may begin your conference. .

Thank you, and good afternoon. I'm Adam Vandervoort, Teladoc's Chief Legal Officer. .

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. .

I'll now turn the call over to Jason Gorevic, President and Chief Executive Officer of Teladoc.

Jason?.

Thanks, Adam. Welcome, everyone, on the call, and thank you for joining us this afternoon to review our third quarter results. As we anticipated, our financial results in the quarter were very strong.

The telemedicine industry, as a whole, continues to gain acceptance, and our solid financial performance and recently completed IPO have increased Teladoc's visibility within the market and allowed us to strengthen our leadership position. .

first, our position in the telemedicine market; second, some commentary on the recent buzz in the industry around the PMPM model; and finally, a brief overview of our results, including our new wins in the quarter and some additional insight into our pipeline and future growth prospects..

To frame the discussion today, I want to take a moment to remind everyone about our position in the telemedicine industry and provide a bit of color on the opportunities to come in the market. .

Teladoc has been in existence for 13 years. Over that time, we've grown to become the largest provider of telehealth in the country with over 12.5 million members, more than 4,000 clients, including 20 -- over 20 health plans. We're the market leader conducting over 60% of the telehealth visits today.

Our next closest competitor is roughly 1/4 of our size. Despite this leading position, we only service less than 1% of the potential telehealth visits. With over 80% revenue and visit growth this quarter alone, our business is hitting on all cylinders, and we've been able to further solidify our leadership position.

Today, we have over 85% visibility into our 2016 revenues. This is exactly where we were at this point last year and precisely where we want to be. .

While Teladoc has made great strides over the years, there remains substantial room for growth. There are over 1.25 billion ambulatory care visits annually, 400 million of which are addressable by telehealth. Yet this year, all of the telehealth companies combined will conduct fewer than 1 million visits.

With numbers like these, we believe there is tremendous opportunity for growth ahead of us. .

As a reminder, Teladoc derives revenue from both visit fees and from per member per month subscription fees or PMPM fees. Over the past couple of months, there has been a lot of noise about the PMPM model and its sustainability. In fact, most of our recent meetings with investors start with this very issue.

While we understand the attention to this topic, as our industry is still young and models are being proven out, our 13 years of operating experience demonstrate that our PMPM model produces outstanding ROIs and tangible results for our clients.

Having been in business significantly longer than any other player in the telehealth market, we've been able to try several different approaches; and the PMPM model is the only one that aligns us with our clients, provides funds to drive utilization and produces dramatically better results for our clients. .

As always, I like to go to the data to demonstrate my point. First, if our business model were under pressure, we would see this materializing in our PMPM trends.

I'm pleased to report that during the third quarter, we experienced an improvement both sequentially and year-over-year in our PMPM subscription revenue, which came in at $0.45 for the quarter, up $0.01 from the previous quarter and $0.05 from the same quarter last year.

This upward trend is due to moving away from some lower-price contracts and continuing to sell our model to new clients. I also want to emphasize that in many of the new client wins that I will talk about in a few minutes, Teladoc was selected against our competitors, some of whom do not charge a PMPM fee.

We believe our model is not only sustainable but will continue to improve in the future. .

One, we deliver significantly better results than anyone in the market; and two, our clients are getting what they pay for, and our proprietary consumer engagement strategies are delivering unmatched return on investment. .

Finally, I feel that it's worth noting that the absolute number of our PMPM fee is very low. The Kaiser Family Foundation estimated that in 2014, the average employee health insurance costs over $5,800 per year. At $0.45 per month, the Teladoc PMPM fee represents an infinitesimal expense.

With the prospect of saving millions of dollars in unnecessary medical costs, our clients understand the wisdom of making a small investment to drive a very large return. As a result, we remain confident in the sustainability of our model. .

As an example of the value we bring our clients, we're right in the middle of our fall communications campaign, which coincides with the beginning of the cold and flu season. During this campaign, we will launch over 5.5 million communications to our members to build awareness and drive adoption of the Teladoc platform.

We're in the very beginning of that campaign, but already, we are seeing the results of those efforts. In one very large and fully insured population, for example, we have seen a 75% increase in daily visit volume following the launch of that campaign.

Across all of our clients, we have seen between 100% and 300% increase in registrations, app downloads and medical history completions. These are real tangible results that we're very proud of. .

Turning to the numbers. We grew revenue 83% in the quarter to $20 million, up from $10.9 million in the third quarter of 2014. We ended the third quarter with 12.6 million members compared to 8.1 million members a year ago, an increase of 56%. Organic member growth, which excludes the effects of acquisitions, was 51%. .

Our visits in the quarter increased to over 117,000, up 89% from the same period last year. On our last call, we mentioned that our visits in the quarter grew faster than our membership. That was true again in the third quarter and represents the 11th consecutive quarter where visit growth exceeded membership growth.

Additionally, subsequent to the close of the quarter, we reached a major milestone for the company by conducting our 1 millionth visit. To put this visit number into perspective, it took us roughly 10 years to get to the first 500,000 visits, and we achieved the next 500,000 over the last 12 months.

Our visit run rate continues to expand, and in October alone, we saw over 48,000 visits. .

Lastly, we saw significant expansion in our physician network during the quarter and now have over 2,650 providers under the Teladoc umbrella, which includes 950 physicians and about 1,700 behavioral health specialists.

As you may recall, at the end of the second quarter, we had over 1,500 providers, including 800 physicians and 750 behavioral health specialists. Expanding our network allows us to better address the telehealth opportunity and continue providing high rates of satisfaction to our patients. Mark will discuss the numbers in more detail shortly. .

Now I'd like to address our current sales efforts. As many of you know, we are right in the middle of our selling season for 2016, and so far, it has been very strong. We've already closed well over 500 new accounts across all of our market segments.

In the employer segment, we have sold marquee clients such as Starbucks, Dell, BP, TD Bank, Merck, DuPont, American Honda, Marriott, Sprint, Panasonic, Mercedes-Benz, Sherwin-Williams and the State of Alabama employees. .

In our health plan segment, we have seen strong sales, including 2 federal employee benefit plan populations, roll out to the small group and individually insured markets with Blue Cross Blue Shield of Alabama, 4 new regional health plans and significant expansion of our penetration into the Aetna fully insured book of business..

Finally, we continue to see acceleration in the hospital system market. For example, Meridian Health System in New Jersey will launch Teladoc with their 6 hospitals and 100 facilities, and the Meridian physicians will join the Teladoc provider network.

Continuing our success in the New York metro area, the North Shore-LIJ system will launch the Teladoc platform included in its innovative CareConnect managed care plan. And finally, we will be rolling out the Teladoc program for the Medicare Advantage population of a large provider-owned organization in Nevada..

It's worth repeating, we now have 85% visibility into our 2016 revenue, which is precisely where we were this time this year -- sorry, precisely where we were last year at this time, and we feel very confident as we look toward 2016.

The outstanding results we reported today are a function of both components of our revenue performing ahead of our expectations. As we think about our performance since the IPO, we've exceeded our original revenue targets. .

Telemedicine is very young and has tremendous growth ahead of it, and I believe that our scale, our breadth of solutions and our commitment to quality and our reputation as the leading provider of telemedicine services will prove to be a significant advantage as the industry matures. .

With that, I'll now turn it -- turn the call over to Mark. .

Thanks, Jason. On the call this afternoon, I'd also like to discuss our third quarter financial results, and I'll provide an outlook for the fourth quarter and update our outlook for the remainder of the year. .

subscription access fees and visit fees. Our subscription access fees accounted for $17 million or 85% of the total quarter's revenue.

The 78% in subscription access fees was driven by 56% year-over-year increase in our membership base, which stood at 12.6 million at the end of the third quarter compared to 8.1 million members at the end of Q3 2014 and 11.5 million members at the end of the second quarter of 2015.

Over 90% of our membership growth was organic as we gained approximately 410,000 members with the acquisition of Stat Health in June of this year. .

As Jason mentioned a few minutes ago, we experienced increases in our average PMPM fees both sequentially and year-over-year. Our average subscription revenue per member per month was $0.45 in the third quarter and compared favorably to $0.40 per month a year ago and $0.44 last quarter.

Visit fees of $3 million accounted for the remaining 15% of our quarter's revenue. We completed over 117,000 visits in the quarter compared to just under 62,000 visits in the third quarter of '14. That's an increase of 89%.

Visit growth that exceeds membership growth shows increased utilization, and as a Jason mentioned -- but taking one step further, increased member utilization allows our customers to realize the ROI that we committed to providing. As a reminder, beginning on January 1, 2016, we will be raising our visit fees from $40 to $45.

This is the first time we have raised the visit fees in over 3 years. .

As I mentioned above, for the third quarter, our revenue mix was 85% subscription access fees and 15% visit fees; compared to 88% and 12%, respectively, for the comparable quarter of '14.

We remain confident that our revenue mix will reach 80% subscription and 20% visit levels in the near future and will trend towards 60% subscription and 40% visit fees in the longer term. .

Our gross profit margin was 78%, in line with our expectations when compared to 80% a year ago. As anticipated, the slight decline is a result of greater contribution of visit fees to total revenue, a positive indicator of successful consumer engagement strategies.

Over the long term, we believe that gross margin will be in the mid- to low 70s as we continue to ramp up visit fees as a greater percentage of total revenue..

For the quarter, G&A expense totaled $12.3 million, an increase of 158% compared to the third quarter of '14. Of the $7.5 million increase, $4.3 million was related to expanding our Teladoc employee base to support the growth of the company. Over the past year, we increased our headcount by 368 people and ended the third quarter with 537 employees.

Over 250 new employees were hired to support our new physician network operations center. During the third quarter, legal fees, primarily related to the Texas Medical Board and our other litigation, accounted for $1.6 million in costs. .

In the press release we issued earlier today, we have provided a reconciliation table between GAAP and non-GAAP numbers. .

Finally, our EBITDA for the quarter was a loss of $11.1 million compared to a loss of $3.2 million in the third quarter of '14. Our EBITDA came in exactly where we expected as our stronger and predictable revenues, combined with our prudently managed investment in our operations build-out and product expansion, led to a smaller loss.

Loss per share for the third quarter of '15 was $0.37 compared to a loss of $2.68 for the same period last year. Pro forma loss for the quarter was $0.35 based on the average number of outstanding shares for the quarter. .

With respect to the balance sheet, we ended the quarter with $152 million in cash and cash equivalents and $27.1 million of debt, principally from our bank lines. .

For the fourth quarter, we expect revenue to be between $21 million and $22 million. We expect an EBITDA loss of between $13 million and $14 million and total visits completed to come in between 150,000 and 160,000 visits. Our net loss per share based on 38.4 million weighted average shares to come in between $0.41 and $0.43. .

For the full year 2015, we're raising our revenue expectations from the previous range of $73 million to $75 million to a range of $75.5 million to $76.5 million. We are also increasing our outlook for total visits for the year from a range of 520,000 to 540,000 to a new range of 540,000 to 550,000.

Our guidance on our EBITDA loss is between $51 million and $52 million. And for the full year 2015, we expect to record a pro forma net loss of $1.55 based on a pro forma of 37.8 million shares outstanding and a GAAP net loss per share based on 19.9 million weighted average shares outstanding of between $2.95 and $3 for the full year. .

We believe that Teladoc is the most innovative company in the space, and we're focused on providing people with the greatest opportunity to benefit from telemedicine.

And as the market leader, our operations platform has proven scalability and the unmatched ability to seamlessly connect the patient with the most appropriate doctor or provider in a matter of minutes. .

That concludes my review of our financial results. I'd now like to turn the call back to Jason for his closing remarks.

Jason?.

Thanks, Mark. Our continued outstanding performance is truly a team effort. We couldn't accomplish our growth objectives without all the hard work and dedication from our team. In addition, I'd like to thank our partners and our members for their ongoing support. .

And with that, Mike, I think we can open it up for questions. .

[Operator Instructions] Your first question is from Lisa Gill with JPMorgan. .

Jason, let me just start with this selling season.

Can you just give us an update as to where you are on retention going into next year at this point in the selling season?.

Yes, our retention levels are similar to where they were last year. We are in the neighborhood of 99% client retention. So we're feeling very good about where we are in terms of client retention rates. .

And then if we think about some of your comments about this year's selling season and winning against those that don't offer per member per month, can you maybe just walk us through a couple of things.

One, is it different for health plans versus employers? You named a number of employers that you won, but on the health plan side, it sounds like you continued to penetrate Aetna. You have some regional wins, et cetera, but I'm just wondering if the landscape is different at all for an employer versus a health plan when they think about that PMPM. .

No, I don't think so. I think it's pretty similar. In both cases, they're really looking for us to drive utilization and the resulting return on investment for them. So we're seeing continued penetration of the health plan segment also on a PMPM basis, and we have a number of clients still in the pipeline.

I'll remind you that the health plans are not nearly as 1/1-centric, as January-centric, in their buying patterns. And so that's why we see more off-cycle midyear wins in the health plan segment. .

Right. And just kind of going back to the retention. 99%, my understanding of that would be 99% of your customers.

But at this point, can you talk about the retention on the membership side?.

Yes. I think it's pretty similar to where we were last year. Obviously, everyone's familiar with the 675,000 members from Highmark that won't be renewing. We're seeing significant growth, obviously, on the self-insured side of that account.

And so with a few exceptions, we're seeing very strong retention on the membership side as well and so within a few percentage points similar to where we were last year. .

Okay. And then I promise this is the last one.

As we think about the selling season, can you maybe just talk through what you're seeing on the behavioral health side? So is that just an add-on that you're seeing with existing accounts? And how well have you been able to sell that for the 2016 selling season?.

So it's still early. We just launched that at the very end of the third quarter, beginning of the fourth quarter as a newly available product. It is an add-on. We're not really selling it as a stand-alone product. We're seeing a lot of interest, and I think it's a little soon to tell.

My guess is that we'll see a lot of midyear activity as clients add that into the mix, but the conversations are going on right now around that. And the same is really true for our dermatology product. .

Your next question is from George Hill with Deutsche Bank. .

I really appreciate all the color about the sales environment.

Jason, I actually wanted to start with -- maybe you could -- could you give us an example -- or kind of walk us through an example of, I'll call you guys, fix a bad haircut where a client is moved away from you because they didn't want to pay the PMPM fee, was not getting the ROI that they sought to get with the program and came back to you guys because of the results that you delivered.

We've discussed this. There's kind of a ton of questions around this in the market right now. I guess, maybe if you could just give us some anecdotal color on what drives clients back to you guys from an ROI basis. And then I have a couple of small follow-ups for Mark. .

Yes, sure. So we have a number of examples, some where they made a decision of that to go with somebody else because of no PMPM in the beginning. So that's like EMC, for example, the big data storage company. They -- I was talking to them for a long time. We were pretty far down the process.

They ended up getting an offer from a competitor to do it with no PMPM fee. And in fact, the competitor also said they wouldn't even collect for anything other than the copay. They wouldn't collect the balance. And so they said, "Look, free -- it's free.

We're going to try that." In the first 90 days with that program, they had 6 visits, and then they ended up coming back to us and saying, "Look, free is not cheap enough. We're not getting any value out of this." And so they paid us the full PMPM. And in the first 45 days, we had over 300 visits, and we've been great partners ever since.

We have other clients who, like the Virginia Bankers Association -- they went with us. They had -- they have about 8,500 members. They were with us for a year or 2, got an offer from somebody else to do it for free, said they would try it.

And literally, 2 weeks later, they come back to us because of operational challenges and complaints from their members about the experience. So we have a number of those examples.

And the truth is there -- as I said in my comments, there is such a huge opportunity to make an impact on health-care costs that I think clients really understand that they get what they pay for. And if they want to go after those runaway health-care costs, they have to spend a little bit of money in order to save a lot of money. .

That's very helpful. And then maybe just one more. Given that this is an industry that's still in its infancy, you see a lot of even employer sponsors experimenting with the model, with going with -- trying some nonexclusive relationships.

I guess, can you talk about the company's perspective on nonexclusive relationships and how you compete in that environment?.

Yes. We haven't seen many of those. We've seen United go in that direction, and they invited us to participate on that as part of their set of offerings on their provider finder, and quite frankly, we declined because we didn't think that, that's a successful model. And we've been successfully selling to their clients.

There aren't many clients who we've seen go in that direction. On occasion, we'll participate. And so CVS, obviously, we've talked about the fact that, that's -- that they're trying a bunch of things in different markets, and they're -- as they define what their telehealth strategy is, and so in some cases, we'll participate.

But that -- I wouldn't call that a trend. I would say that, that's the exception rather than the rule. .

Okay. Then Mark, maybe quickly one for you. What percent of the client base do you think will realize the $45 visit fee in 2016? And maybe any comments around the competitive environment? And then I'll hop back in the queue. .

Yes, you'll see about 75% of the clients affected throughout 2016, the remaining on January 1, 2017. .

Your next question is from Ryan Daniels with William Blair. .

Jason, maybe a follow-up one for you regarding your prepared comments. You talked about the utilization rate among clients at 6.6 but the large employers you sell direct to at 13%.

And I'm curious if you can speculate why that's the case, meaning is there a different copay structure there? Are they giving you more access to data directly with the employer to allow marketing there? Just any color that causes that deviation. .

Yes, so the large employers that were included in that universe were with a broader group than just the ones that we sell directly to. It also includes our broker populations as well as our reseller populations. So it's a pretty big universe.

And the truth is, when we work with employers, we work very well with them on creating consumer engagement strategies to drive adoption and awareness among their populations. And as a result, they get the biggest benefit from our knowledge and our success.

When we go into an employer, we have -- with over 160 of the Fortune 1000, we have cohorts of clients who resemble most employers who work with us.

So whether it's technology companies like EMC, Facebook and eBay; or big-box retailers like Lowe's, Costco, Home Depot; or banks like Bank of America, Deutsche Bank, Morgan Stanley, we know what works across multiple different industries, and the truth is different things work across different profiles of customers.

And so we're able to bring the most value based on our history and experience to that population, but again, with that said, our whole book of business, if I look back at that previous 4 quarters, is about 6.6%, dramatically higher than anybody else in the space. .

Does that have a material impact on you look at all? Number two, more broadly, as you see your health plan customers have attrition in their large ASO business, can you oftentimes keep those employers even though they might be switching to a different insurance company because they like your engagement and the value they're getting from Teladoc?.

Yes. So a great question. It's the biggest -- that is the biggest reason for our churn. So when we see churn, the #1 reason is because the employer left the health plan that we work with. Again, that's a small number. Our churn is a very small number, but that's the biggest single reason for it.

With that said, the clients who buy from us buy by name, right. They're buying us by brand. They're not just buying the Aetna telehealth solution. It's not private label. They're buying us by brand. And so in many cases, we can retain those clients.

Obviously, with 99% client retention, we're retaining the vast majority of them, but occasionally, we'll have a client who -- certainly as they leave their health plan, they'll end up with some decision to drop the telehealth program that came with it. Again, it doesn't happen that often, but it's certainly the #1 reason for our churn. .

Okay, that's helpful. And then a final question for you, just big picture.

Can you remind us a little bit more on the revenue model you have working with providers and maybe how that works from a network management, if it filters to your doctors after maybe going to their in-network doctors first? Or just a little bit more color as that becomes a bigger piece of the business. .

Yes, absolutely, Ryan. So with providers we're frequently working -- we have a very flexible network structure, and in many cases, like with the Meridian system that I talked about, we bring their providers into our network for their membership and then we prioritize their -- the physicians in our queue.

And so by doing that, we give them essentially first crack at the income as well as keeping it within their physician system.

Now almost always, the provider then asks us to wrap our network around them to ensure that, a, the patients can always get access to care; and b, that we're covering nights, weekends, holidays or whenever they have times when they're busy.

When we use their physicians, we're paying them the hospital system or the physicians directly, depending on the relationship, just like we would pay our own physicians. So the cost of goods sold is the same regardless of who the physician is.

And in almost all cases, when we work with -- for a hospital system, we're structuring it as some sort of an ongoing license fee, which is a similar to our PMPM fees. So it's a recurring revenue model in addition to those visit fees. .

The next question is from Jamie Stockton with Wells Fargo. .

I guess maybe the first one just as we think about the selling season that you guys are wrapping up and 2016, could you give us some feel for what's the concentration of lives that you think you'll bring on next year? Are we looking for a big piece from Aetna? Is there going to be a decent amount of diversification next year? Could you just give us some color around that?.

Yes. So as we look at the book of business and the pipeline that we have coming on, it's probably 60-40 health plan versus employer business, so probably a little more skewed toward the health plans than we've seen in the past that are sort of general book of business, but still a good mix between the 2.

And as we said, we're still selling in every situation, or in most situations, we're in a competitive bid process and we're still selling our consistent PMPM model because we know that, that's what brings the most return on investment for our clients. .

Okay, that's great. And then you talked about a pretty huge increase in the number of behavioral health professionals.

Could you help us understand? Is that because you are actually seeing the demand that would drive that number of incremental professionals onto the network, like the need for them? Is there maybe a different dynamic where you're not going to be using as much of their time on kind of an average professional basis so you need to see a bigger number of professionals coming into the network? It just seemed like a big increase sequentially.

.

Yes. So I would say a couple of things. One is, as we've talked about, revenue from behavioral health this year represents about 7% of our 2015 revenues. We expect our revenues in behavioral health to double next year sort of at a minimum. We're seeing very good demand for the behavioral health products that we have in the market.

And in addition to that, it's worth giving a little bit of color on the composition of the network. With behavioral health, it's much more specialized because we're trying to connect a patient with a behavioral health professional who is specifically qualified to handle that patient's issue.

So you have behavioral health professionals who have great experience with relationship issues or with depression or with grief counseling or with anxiety.

And so you end up having to create a larger network of behavioral health professionals because they are, by their nature, more specialized, and there's more of a matching process that we have to go through in order to make sure we're bringing exactly the right provider to bear for our membership.

So the ratio of providers to members has to be a little higher, but fundamentally, the biggest reason is because we see significantly more demand for those behavioral health products. .

Okay, that's great. And then maybe just one more, Mark.

The legal costs during the quarter, you may have given the number and I missed it, but is there a ballpark for what they were given the rather large one-time items?.

Yes. Jamie, we noted that legal fees for the quarter were about $1.6 million, and we noted earlier in the year that we would expect another $0.5 million to $750,000 for Texas-related litigation in the fourth quarter as well. .

The next question comes from Sandy Draper with SunTrust. .

First, maybe, Jason, if you could talk a little bit about on the health plan side. It sounds like this is still what I would be considering the convenient side of telemedicine, not the actual potential chronic care management opportunities.

So can you maybe talk about when you think you may start to see some of these provider relationships start to move towards trying to incorporate this into more of a broader population health care management strategy? So that would be my first question. .

Yes, I would say, Sandy, that our more progressive health plan clients are viewing it more as a population health product and care management tool than simply a convenience tool. They are really very focused on driving volumes so that they can drive out cost.

And they're acutely aware, and we're spending really good -- I would say much better quality time with our health plan clients on the cost of care dimensions and working with them on their data to really quantify the impact that we're having. So I would say that, that's moving in the right direction.

With the health systems, they are in the early, early stages.

And I would say they're probably more looking at it as a mechanism for patient acquisition and ways to improve the overall productivity of their physicians as well as, as they're starting to roll out narrow network products and ACO products to prevent leakage, but I would say that's the minority, not the majority. .

Okay, great. That's helpful. Second question is, just nice to see -- I think you do have really good growth on the provider network.

But in general, are you seeing any competition? Has anything changed in terms of your competitiveness for recruiting the physicians? Any potential sense, though, at some point, does pricing need to go up there? Or is it really need to provide the best technology and the broadest platform in terms of access to patients and still getting you guys to be a top choice for the providers?.

Yes, honestly, we're recruiting physicians at a faster rate than we ever have in the past.

And the real reason for that is that our visit volume is growing at such a rapid clip, and the sheer volume of visits that we bring so far surpasses anybody else in the market that we really are the sort of default choice for a physician who's interested in participating on a telehealth platform.

And so we're not seeing any issues with respect to availability of physicians, engagement of the physicians in our network. And in fact, as I mentioned, we saw over 48,000 visits in the month of October. We continue to see what we've seen in the past, which is as the volume increases, the physicians in our network become more engaged. .

Okay, that's really helpful. And just the final question. As I understand it, there were some meetings or discussion in D.C. with maybe HHS or CMS or somebody about the potential for telemedicine with Medicare, Medicaid not just on a managed Medicaid business or managed Medicare business.

Any thoughts looking into that crystal ball of when and if we may ever actually see Medicare and Medicaid actually looking at telehealth as a cost-containment strategy?.

Yes. Thanks, Sandy. I feel good about the prospects of CMS making decisions around -- to cover telehealth for Medicaid and Medicare on a fee-for-service basis. I know better than to ever predict the timing of the federal government.

So I wouldn't prognosticate about when that's going to happen, but I do feel very good about the conversations that are going on and the likelihood of that happening in the future. .

Your next question is from Dave Francis from RBC Capital Markets. .

Jason, real quick, on the per member, per month fees and the upward trajectory there, can you go a little bit further? Can you tell us if that's a function of pricing going up, trending up across the board? Is it more a function of mix? What's driving the trajectory there?.

Yes, I would say it's a combination of things. Number one is we're seeing really good growth out of our broker distribution channel into the sort of small and midsized employer market, and that's the highest price part of the market. So we're seeing really good growth there. That's become a very reliable channel for us.

Two, we're continuing to see our pricing holding up in the employer and health plan market. And three, we've moved away from some of our lower-priced customers. And so I think all of those things are contributing well.

And quite frankly, in order for us to get $0.05 on what was $0.40 last year in the third quarter and $0.45 this year, that's a pretty healthy increase. And so all of those things have to come together pretty well in order to deliver that. .

That's helpful.

So, follow-up, the new membership -- I'm sorry, the new client number that you put in the press release, over 500, can you give us a sense as to what that might equate to from a membership perspective? Or do you need to wait for the selling season to end to give us more color there?.

Yes. So unfortunately, the answer is the latter. We're still in the middle of it, and so it would be premature for us to give an outlook as far as membership goes. .

Then to kind of take a different direction.

If you look at what you would -- we would call the traditional selling season relative to the increased awareness of telemedicine generally and the opportunities that are out there, how do you see selling activity shaping up once you get through kind of what people are doing for the next benefit year and how that might look in terms of new membership activity kind of throughout the nonselling season portion of the first part of next year?.

Yes, actually, that's a great question. We're seeing more and more midyear activity. Certainly, the very large employers are pretty January 1 focused. But as I mentioned -- and this goes sort of hand-in-hand with my comments about the broker distribution channel. That's a full year.

We see consistent flow of new business over the course of the year in that distribution channel, and the health plans come on over the course of the year. We're also seeing good growth in the labor and municipal segment of the market, which tends to be not January 1-oriented. It tends to be midyear cycles, things like July 1 or even September 1 adds.

So I would say this year, we saw a more midyear growth than we have in the past, and I would expect that trend to continue as we look into next year. .

The next question is from Charles Rhyee with Cowen. .

Jason, I want to just go back to Highmark a little bit. In your comments, you talked about, you do -- you are selling into the self-insured piece. You already have some of that business today.

Can you kind of size how much of the Highmark self-insured market -- business you have? And then secondly, how do you sell into that piece of the business? Is this still through in partnership with Highmark? Or is it separate?.

Yes. So we're still relatively small penetration into the self-insured segment of the Highmark business. I don't know the exact number, but I'd probably estimate it as somewhere in the neighborhood of 25% penetrated. We're continuing to see good growth in that population as we are among really all of our health plan clients.

And in all of those cases, we sell together with their national accounts, account managers and sales reps. So for us, it's a collaborative process. We also call on those accounts directly. And when we generate interest, we redirect them back through the health plan because we always think that, that's a good relationship.

It makes the onboarding more efficient for us because we're working through our real-time eligibility, real-time benefits, electronic claims, interfaces with those health plans. And so we always want to be good partners with our health plan clients. .

Okay.

And then given that they -- Highmark has made a change on the fully insured side with the self-insured, are all those -- are the new vendors also able to sell into self-insured markets? So in other words, is it now more of a menu list with their sales reps going into accounts on the self-insured side?.

No, we believe that we're the only telehealth company that's being offered into their self-insured clients. Quite frankly, their national accounts team and their clients ask for us by name and wanted to make sure that we continued with them because we're delivering great results for their clients. .

Okay, that's helpful. And then I wanted to go back to the PMPM issue. Obviously, you've given a lot of comments, and people have asked the question in a number of different ways. But one aspect I want to talk about, obviously, you can deliver great ROI relative to not having a telehealth benefit.

How do you see the ROI for clients changing over time as utilization increases? So not that it's anytime soon, but if you have accounts that are 80% utilization or 90%, someone that's actively use -- a client who's actively using it, now you're trying to deliver return on investment relative to someone who's a very good user of the service.

Does that change then the value of PMPM? So in other words, in the future of telehealth, when we're not just 1% of the market -- we are fully penetrated, I guess, is the right way to think about it, does that change the dynamics of whether PMPM is still a necessary component?.

So I think we are -- I'm not sure if I can say decades, multiple decades, but we are a long, long way from that scenario. Quite frankly, that would be a fantastic scenario for us because the -- if telehealth were really that ubiquitous, we'd be talking about a 400 million visit market and a whole lot bigger company.

The -- we've said that over time, we shift to more of like a 60-40 mix of our revenues. I think that's going to happen as the volume continues to increase on the visits. But just to give you -- let's put it in context, right.

So we look at it and we basically say 125% utilization is sort of terminal utilization rate, right, because with over -- it's like 420 million visits over 320 million people, you're north of 125% terminal utilization rates.

Our best clients are in the 40% to 60% range, but our full book of business is at 6.6%; our -- the employer group that I talked about, 13%. We're a long, long way from getting to a point where we're at sort of that terminal utilization range.

And also, you have to remember that you have turnover in populations, right, so typical employers looking at 20% to 30% turnover in their populations. You have to keep communicating, keep being present and top of mind for those populations. So I think we're a very, very long way from that. And again, if that's the case, we welcome that.

That would be fantastic down the road. We'd be talking about doing hundreds of millions of visits and a much, much different scale of company. .

Absolutely. That's helpful. I wanted to switch to -- you talked about Meridian, obviously. You talked about virtual health last quarter. And it sounds like the way these clients are utilizing Teladoc, it's really they want to be part of the Teladoc network in their catchment areas.

What about using your service as an extension of their own business in terms of discharge planning for follow-up visits and care? Is that part of any of these agreements that you're doing on the health system side? And is that the direction you see it going? And do you -- and if not permanently, do you plan it? Do you see it getting there in your business in the near term?.

Yes, we're actively collaborating with a number of our health system partners to bring exactly those kinds of solutions to the market. There is clearly a demand for post-discharge assistance. Telehealth is a great platform for doing that, and so we're -- but it requires a collaborative approach.

And so we're actively working with our health system clients to design some of those initiatives, and I think those will have the opportunity to make a big impact. .

But is that occurring today? Or is that something that's sort of still on the drawing board?.

Still in development. .

[Operator Instructions] The next question is from Stephen Wardell with Leerink. .

Could you tell us about what you're hearing from customers -- let's make it more specific, employer customers? Are you -- what are you hearing from them about your PMPM fees? Are any objecting that they're too high or pressuring you on that? And the flip side of that is engagement.

Are -- what -- are they enthusiastic about engagement? Are they demanding engagement? Or are they more sort of box checkers who are looking to just be able to offer telehealth and they're not interested in engagement?.

So look, I mean, there will always be some small segment of the market that are box checkers, but the majority of the market and the vast majority of our customers are focused on controlling their health care costs, improving access to care and improving productivity. And you can only do that if you get good, solid consumer engagement.

And as a result, we continue to see year-over-year increases in engagement rates. We look at cohorts of clients who have been with us for multiple years. We consistently see increasing utilization year-over-year within those cohorts of clients, sort of vintages, if you will. And as a result, our clients see fantastic return on investment.

Is there a price negotiation? It wouldn't be business if there weren't a price negotiation. But when we present them with their return on investment they're getting, they're more focused on what we can do collaboratively to drive higher utilization than they are on the pennies that we charge on a PMPM basis. .

There are no further questions at this time. I will turn the call back over to the presenters. .

Thanks, Mike, and thanks again, everybody, for joining us on our conference call for the third quarter results. Again, we are extremely pleased with the results of the quarter. The performance of the quarter surpassed our expectations, and we are a company who's very focused on keeping our commitments to our clients and to the market.

And as a result, we hope to be able to deliver consistent results quarter-over-quarter and year-over-year. I want to thank the rest of our team, all the Teladoc employees for all of their efforts in order to make this quarter come to fruition. And I look forward to more solid results in the future. With that, I think we'll end our call today.

And again, thank you all for joining. .

This concludes today's conference call. You may now disconnect..