Adam Vandervoort - Chief Legal Officer and Secretary Jason Gorevic - CEO & Director Mark Hirschhorn - CFO, COO and EVP.

Lisa Gill - JPMorgan Chase & Co. James Stockton - Wells Fargo Securities Nicholas Hiller - William Blair & Company Sean Wieland - Piper Jaffray Companies Stephanie Davis - Citigroup Alexander Draper - SunTrust Robinson Humphrey Richard Close - Canaccord Genuity Limited Donald Hooker - KeyBanc Capital Markets Inc.

Charles Rhyee - Cowen and Company Steven Wardell - Chardan Capital Markets Matthew Hewitt - Craig-Hallum Capital Group Mohan Naidu - Oppenheimer & Co. Inc. Sean Dodge - Jefferies LLC.

Welcome to Teladoc's Fourth Quarter 2017 Earnings Conference Call and Webcast. [Operator Instructions]. It is now my pleasure to turn the floor over to Adam Vandervoort, Chief Legal Officer. You may begin..

Thank you, operator, and good afternoon, everyone. We look forward to discussing our fourth quarter and full year 2017 results with you today. Joining me for Teladoc's conference call are Jason Gorevic, our Chief Executive Officer; and Mark Hirschhorn, our Chief Operating Officer and Chief Financial Officer.

Today, after the market closed, we issued a press release announcing our fourth quarter and full year 2017 results and filed our annual report on Form 10-K for the year ended December 31, 2017. The release and filing are available on 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 prepared remarks, followed by Q&A. Today's call will contain certain non-GAAP financial measures that we believe are important in evaluating our performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to the press release posted on teladoc.com.

I will now turn the call over to Jason..

Thanks, Adam, and thank you to everyone on the call for joining us this afternoon. Teladoc's strong performance through the first three quarters of 2017 continued in the fourth quarter and has carried over into the first two months of 2018.

In the fourth quarter of the year, all of our key metrics increased nicely, exceeding our expectations across the board. Total revenue of $77 million was up 106% on an absolute basis and 39% on an organic basis. Adjusted EBITDA of a positive $2.4 million compared to a loss of $8 million a year ago. We ended 2017 with 23.2 million U.S.

paid members, up 33% compared to last year. And finally, we conducted 464,000 visits in the quarter, bringing our full year visit number to nearly 1.5 million. Our fourth quarter visit volume exceeded our expectations as we made very strong progress on the member engagement front.

There was a notable lift in the fourth quarter annualized utilization, which came in at 8% compared to 6.3% for the full year.

I believe this is a direct result of the work from Stephany Verstraete and her member engagement team as they continue to advance our digital marketing strategy as they leveraged our expanded digital marketing capabilities to drive targeted, moment-of-need awareness.

Marrying real-time data from the Teladoc flu tracker with our predictive analytics and surround-sound campaign engine, the team was able to capitalize on the increasing demand driven by the flu season that started in mid-December and has continued through February.

As I'm sure all of you are aware, this flu season has been the most severe epidemic in a decade. While the initial impact was felt on the West Coast, it shifted to the East Coast, where the impact has been even more intense. During peak days in January, we conducted over 8,000 visits per day, with 1 in 5 visits due to flu-related illnesses.

During these periods of increased demand, I'm very proud of Teladoc's ability to step up and fill a critical role in the health care delivery system when the traditional system is overloaded. As we have said before, our highly scalable platform has a capacity to handle a significant influx of visits across the health care continuum.

Moreover, Teladoc has a near-perfect solution for an infectious disease like the flu. Utilizing Teladoc in this circumstance is not only quick, convenient and available 24/7/365, but it also limits the spread of the virus by avoiding exposure to other people in the doctor's office or emergency room.

While school districts were closing and state departments of health were advising people to stay out of emergency rooms, Teladoc provides relief for hundreds of thousands of people. I want to thank Teladoc's dedicated network of physicians for coming to the aid of our members and delivering high-quality care in their time of need.

We believe that once our members experience the convenience and value we offer, they will look to Teladoc to meet more of their health care needs. In fact, over 50% of our visits completed in January came from new registrations or individuals who had not previously utilized Teladoc's services.

Once our members use Teladoc's services for the first time, they are more likely to use us again in the same calendar year.

The increase in first-time visitors this quarter, specifically those using us for the first time this flu season in lieu of a traditional office visit, will likely benefit us going forward as those new users integrate Teladoc into their health care routine. Beyond the flu season, we've also seen positive developments coming out of Washington.

Earlier this month, the President signed into law the Bipartisan Budget Act of 2018, which contains an important provision for expanding telehealth access for the over 19 million people currently enrolled in Medicare Advantage plans.

Plan sponsors will be permitted to include the cost of telehealth services in their annual bids to CMS beginning with the January 1, 2020, plan year. The exact impact on Teladoc will become clearer after the required HHS rulemaking, but it is a very important step and very positive for Teladoc.

The Budget Act also includes other provisions favorable to telehealth, including expanded Medicare reimbursements to certain accountable care organizations that offer virtual care, providing Medicare Advantage plans with greater flexibility to incorporate telehealth into their offerings of supplemental benefits and expanding Medicare reimbursement for remote monitoring of dialysis patients and the remote diagnosis of stroke.

Before I turn the call over to Mark, I want to talk a bit about what to anticipate this year. As we move through 2018, we remain focused on a number of initiatives designed to help us maintain our market-leading position in the industry. First, we plan to complete the integration of Best Doctors.

As of year-end, we had successfully combined our sales and client management organizations and many administrative functions. As we reported in January, our integrated mobile app has been rolled out to all common clients.

We are now working on the next-generation user experience in which members will be intuitively guided to the right clinical service through an intelligent front end that assesses their needs and quickly gets them to the care they need. We just got back from our global growth summit, where Peter McClennen's entire U.S.

and international commercial organization was aligned by market segment, cross-trained on the entire product portfolio and prepared for the selling season. It has taken a Herculean effort to successfully integrate these teams so quickly and positions us incredibly well as we go to market with our unique value proposition.

The enthusiasm of the teams was palpable, and I've never been more excited about our prospects for growth, both domestically and in the international markets. Second, we plan to capitalize on the significant cross-selling opportunity at our fingertips.

We estimate in excess of a $200 million opportunity just by cross-selling products to our existing clients. We've launched a dedicated sales team focused on cross-selling and have already doubled the number of customers using the combined solution since we closed the acquisition last summer.

And third, I've been struck by the number of large health plans engaging with us to explore comprehensive enterprise-wide virtual care strategies.

With our broad array of clinical capabilities, integrated user experience, data-driven member engagement expertise and scalable technology solution, Teladoc has become the default choice as health plans begin to realize that virtual care is a necessary and integral part of their health care delivery strategies.

These productive discussions have helped inform our priorities as we continually look to innovate and expand the scope of our offering. As I hope you can see, the momentum we experienced in 2017 has carried us swiftly into 2018, and I look forward to continuing to update you on the exciting developments at Teladoc throughout the year.

With that, I'll turn the call over to Mark to review our financial results from the quarter..

Thanks, Jason, and good afternoon, everyone. Consistent with the preview of our year-end results that we provided during the first week of January, our fourth quarter rounded out another very strong year for Teladoc.

During this evening's call, I'll run through the financial results for the quarter and discuss our early thoughts and visibility around our first quarter and full year 2018. Turning to the P&L and starting with the top line, revenue in the fourth quarter was $77.1 million. That's 106% year-over-year increase.

As a reminder, this quarter represents the first full quarter of contributions from Best Doctors. On an organic basis, our quarterly revenue grew 39% over the same period in 2016. Revenue from subscription access fees increased 115% in the fourth quarter, coming in at $65.4 million, including $24.1 million from Best Doctors.

Fourth quarter revenue from subscription access fees experienced a 36% organic growth over the same period in 2016. Going one level deeper, when we break out subscription fees between U.S. and international, the U.S. accounted for $55.4 million or 85% of the total access fees and international generated the remaining $10 million.

With the inclusion of Best Doctors, U.S. and international results, subscription revenue accounted for 85% of our total revenue for the quarter. As of December 31, 2017, we had 23.2 million paid members in the United States, an increase of 33% year-over-year.

As a reminder, subsequent to year-end, we've refined our definition of members to include just U.S. paid members that are associated with the PEPM or PMPM or paid U.S. membership. Under this refined definition, our 2018 membership totals will not include visit fee only access.

By the end of Q1 2018, we expect to have approximately 9 million individuals with visit fee only access to our services, including those individuals from the Blue Cross Blue Shield Better Employee program and Aetna's fully insured population.

Additionally, there are another 9 million TRICARE visit fee only members that will go live at the beginning of our second quarter in April. In the fourth quarter, our average per employee per month, or PEPM, was $0.95 compared to $0.91 in the third quarter of 2017 and $0.59 from the fourth quarter of 2016.

Consistent with our messaging around our strategy to upsell and cross-sell multiple services to clients, we expect that the average subscription access fees will continue to increase year-over-year.

Additionally, our product mix influences our average PMPM as our increased growth in behavioral health subscriptions and revenues from expert second opinions contributed to the year-over-year and back-to-back quarters improvement. Moving to utilization, which is a reminder we calculate as total general medical visits divided by Teladoc's paid U.S.

membership for those members with access to our general medical services, Teladoc completed 464,000 visits in the fourth quarter, an increase of 49% from the 310,000 visits we completed during Q4 in 2016. This represents an annualized utilization rate of 8.1% in the fourth quarter, which is an 84 basis point increase over the prior year.

For the full 2017 calendar year, we completed 1,463,000 visits, an increase of 54% over the 952,000 visits we completed in 2017. These visits generated $11.8 million in revenue in the fourth quarter. That's a 68% year-over-year increase.

Drilling down a level further, $10.7 million visit fee revenue came from general medical visits, representing a 53% increase from the fourth quarter of 2016. The remaining $1.1 million can be attributed to revenue from specialty visits, which is primarily comprised of expert second opinions provided to our U.S. health plan clients.

Given the large addressable market and our current single-digit penetration rate, we see superior growth opportunities in the space for years to come.

We continue to believe that our operating scale will enable us to benefit from greater SG&A leverage as revenue growth should more than offset any gross margin pressure driven by our changing product mix. Gross margins of 70.6% compared to 73.2% last year. Our gross margins were consistent at approximately 74% for both full year 2016 and 2017.

As we mentioned on our last call, gross margins will moderate as our revenue mix shifts, and the trend this quarter was consistent with our expectations.

We are sensitive to the impact greater operating scale efficiencies and dynamic shifts in members' behavior can have on our margins, and we are comfortable with the impact to gross margins that will occur with additional visit revenue as we continue to generate very predictable margin profiles.

Total operating expenses in the quarter came in at $79 million. This represents a 95% increase from Q4 2016's figure of $40.6 million.

Eliminating the impact of principally noncash charges, such as stock compensation, depreciation and amortization, our fourth quarter 2017 operating expenses, less integration costs, were $52.1 million or a 47% increase from the $35.4 million in Q4 2016. For the full year 2017, operating expenses were $247 million compared to $153.8 million in 2016.

That's an increase of $93.2 million or 61%. In line with our stated goals since our IPO, we achieved positive adjusted EBITDA in the fourth quarter, coming in at $2.4 million positive compared to a loss of $8 million in the fourth quarter of 2016.

The full reconciliation of EBITDA and adjusted EBITDA to GAAP net loss is provided on the final page of the press release issued earlier today. Net loss in the quarter was $44.4 million compared to $14.3 million last year. The significant reconciling items that contributed to the increase in the net loss were two noncash charges.

The first was a $12.6 million charge for unamortized debt origination costs related to the early termination of our senior term loan and an additional $14.3 million in stock compensation charges. Additionally, depreciation and amortization of $4.8 million and interest cost of $6.9 million contributed to the increase in net loss.

Without these one-off charges, the net loss improved to $17.1 million, which compares favorably to the $19.9 million Q4 net loss in 2016. Turning now to the balance sheet. We ended the quarter with over $122 million in cash and short-term investments.

Our total debt as of December 31, 2017, consists solely of the $275 million 3% convertible notes that mature in five years. Our GAAP presentation of this debt appears as approximately $207 million as it is net of the equity component of the security in our consolidated financial statements.

Before I turn to our outlook for the first quarter and the full year, I want to provide some commentary on some of the quarterly cadences. First, the flu season is a meaningful contributor to our fourth and first quarters. We have previously discussed the fact that a strong flu season can lift our visits in Q4 and Q1 by 5% to 10%.

As a result, we typically experience a sequential step-down in visits from the first quarter to the second calendar quarter. Second, as we have discussed, we expect adjusted EBITDA will dip down to negative in the first quarter due to the costs of onboarding new members and the activation of several of our material new contracts.

As we exit Q1, we believe that adjusted EBITDA will remain positive for the remainder of 2018. Third, as we've mentioned in the past, we are increasing our exposure to less traditional payment structures according to the round performance.

I want to note that visits from our visit fee only group of members has slightly exceeded our expectations in the first two months of this year.

This increases our confidence that these new contract structures can work well right out of the gates and provide us with good visibility into our progress towards meeting our 2018 targets for shared savings visits.

With that, I would like to provide our outlook for the first quarter of the year in which we currently expect total revenues between $86 million and $88 million, an EBITDA loss between $12 million and $13 million, an adjusted EBITDA loss between $2.5 million and $3.5 million, total U.S.

paid membership of approximately 19.5 million to 20 million members and total visits between 575,000 and 625,000 visits. Net loss per share based on 61.9 million weighted average shares outstanding is expected to range from a loss of $0.43 to a loss of $0.45.

For full year 2018, we expect total revenues between $350 million and $360 million, an EBITDA loss between $27 million and $30 million, positive adjusted EBITDA between $7 million and $10 million, total U.S.

paid membership of approximately 22 million to 24 million members and visit fee only access available to approximately 19 million individuals, total visits between 1.9 million and 2 million visits. Net loss per share based on 62.8 million weighted average shares outstanding is expected to range from a loss of $1.36 to a loss of $1.41.

This was an important quarter for us as we executed on a number of operating successes and achieved our IPO goal of positive EBITDA by 4Q of '17. I'm very pleased with the ongoing effort of the entire Teladoc team, and I want to thank them all for their outstanding work this year. Thank you all for joining us this evening.

We'll now open the call to questions.

Operator?.

[Operator Instructions]. Our first question comes from Lisa Gill from JPMorgan..

I just really wanted to start with the shift in the Aetna relationship as well as FEP. I know we're only hearing the very beginning parts of the first quarter, but I'm just curious what you're seeing thus far around utilization versus what your expectations were..

Yes. Hi, Lisa. Thanks for the question. Actually, we're very pleased with both accounts' performance. The -- in fact, both accounts are performing above our expectations going into the year. And we continue to see that strong on the Aetna side and building on the FEP side.

Of course, that was a brand-new relationship, and it started out of the gate really well. We have a great partnership there. The FEP team at the Blue Cross Blue Shield Association is highly engaged, and we're performing extremely well..

And then I guess my second question just would be, I know we're at the very early parts, Jason, around the selling season for 2019. But your comments intrigued me around the large health plan opportunities.

How do we think about those potential contract opportunities? Are they more value-based? Are they -- look something more like Aetna or like FEP? Or is there some new model that's emerging? How do we think about the 2019 selling season? And is there any way to size what the potential opportunity is?.

I'll decline to seize the opportunity because I'll only get myself in trouble. But I would say the biggest thing that's notable is how sort of collaborative and strategic the discussions are, that the discussions we're having are not about selling simple products and a vendor-client relationship.

They're much more about deep partnerships because the big health plans are finally at this stage where they are embracing telehealth and the whole virtual care strategy as an integral part of their overall strategy as opposed to what it used to be, which were sort of a point solution targeted at a certain part of the population.

And because of that, we're really having discussions about how our virtual care platform gets woven into the core of their delivery system.

So having said that, the discussions are sort of all over the board in terms of what those financial relationships look like, but I would say that they are uniformly larger opportunities than we've seen in the past on a per client basis because of the strategic nature of the discussions..

Our next question comes from Jamie Stockton from Wells Fargo..

I guess maybe just thinking about visits. It seems like, obviously, with the flu season, things are getting started off very strongly in Q1. You guys didn't, I don't think, touch your full year revenue number.

Should we interpret into that, that you're trying to be conservative around what you think the kind of follow-on effect could be from greater adoption of telehealth that we've seen in Q1? We'll just kind of wait and see how the rest of the year plays out..

I think that's an appropriate way to interpret it, Jamie. We, as I said on the call, we had a lot of first-time users. Over 50% in January were first-time users. We would expect that to result in a stronger trend year, but we did not build that into our forecast and change our forecast.

We did -- when we created the forecast for the year, we had seen the first couple of the weeks of the flu season already, so we took a little bit of that into account. But we have not sort of built on the expectation for the repeat usage and layered that on top of our original forecast..

Okay. That's great. And then maybe just diving just a little more specifically then on, I think, what Lisa was asking about with the budget legislation and the MA plans being able to fold telehealth in, in 2020.

The conversations that you're having right now, Jason, are they assuming that there's kind of a very broad telehealth reimbursement that CMS is going to bless with whatever rags come out either late this year or early next year? Are the MA plans waiting for those rags before it feels like they're really starting to gear up their conversations? Anything around that would be great..

I would say that the -- those bigger strategic discussions are in advance of the plans starting to try to figure out how they're going to apply that to their MA populations.

It's really more about embracing virtual care as a key part of their sort of health care delivery strategy, their care management strategy and their member experience strategy, which is a, really a sea change from where we were even a year to two years ago.

For the first time, there is an enterprise-wide view of what this looks like and what it can do for the health plans. So I don't think it's predicated on sort of a CMS decision one way or the other..

Our next question comes from Ryan Daniels from William Blair..

This is Nick Hiller in for Ryan Daniels. Could you give any update on what you're seeing in the provider market? It seems like a bigger trend for providers each quarter.

Just what's the competitive environment like there? And what's your expectation for the revenue mix from the provider market in 2018?.

Yes, so the provider market continues to be a strong market segment for us, as we've said in past quarters, one of the fastest-growing. Certainly, not the biggest revenue contributor because it started much later and is just -- the result, naturally smaller, but growing extremely well.

We continue to have really the best close ratio in that segment than we have in any of the segments of our business.

And so I would say that our full-service capability, that includes a technology platform and all of the operations, consumer engagement and clinical support that a hospital system could need, provides us with a very significant competitive advantage. So all of that is boding very well.

And I guess I would also say that for whatever it's worth, our capabilities on the provider side are helping us with those discussions on the large health plans side. So we're very, very positive about the provider market.

We haven't, I don't think, disclosed what portion of our total revenue comes from that market, but it continues to be, relatively speaking, a small component of our overall revenue in spite of its strategic value..

Okay. Great. That's helpful.

And then just on the competitive landscape, have you seen -- what are you seeing with how some of your competitors might be reacting to really the more -- the broader offering that you have now with Best Doctors and kind of some of the early successes that you've seen there with that being integrated?.

Yes. I'm glad that you brought in the Best Doctors and their competitive landscape post the Best Doctors acquisition because to be honest, we don't see a direct competitor who has anywhere near the breadth of offerings that we have, which has enabled our discussions with our prospects to be very, very different.

So we have not seen a direct response from a competitor trying to replicate the breadth of our services. In fact, what we see is most of our competitors becoming more targeted at a specific segment of the market, whereas we compete across the entire breadth of the market segments and we think that actually gives us as a competitive advantage.

As I said, the strength in both the provider market and the health plan market are very complementary when we're going in to talk to both of those prospects..

Our next question comes from Sean Wieland from Piper Jaffray..

So on these new markets that were opened up by the Budget Act, in particular, the Medicare Advantage market but others as well, what's -- do you have any early ideas on a go-to-market strategy to tap into some of these markets and in particular, the MA market?.

Yes, actually, for us, I think it's an advantage that it starts with the MA market because we have expertise and strong relationships with the health plans who are providing those MA plans and submitting those to the government.

So number one, we already have a lot of relationships with significant health plans who offer MA plans, so that's an add-on within an existing client as opposed to going and having to land a new client.

And the second part is, part of our success working with health plans is integrating into those health plans, which will certainly be the case for the MA population, and we have a competitive advantage there.

And then lastly, our caregiver service, which we developed with AARP a couple of years ago, is a very, very highly valued service for that population.

So we believe that, that will provide us with another competitive advantage in winning that business and successfully working over the course of the next, probably 12 months or so, maybe a little bit more, 12 to 18 months to position ourselves to be able to take advantage of that 1/1/2020 launch date..

Great. And the nugget you gave us on 50% of visits completed in January were from new registrations.

Do you have any idea what the year-over-year compare on that would have been last year? Or what is it probably at the beginning of the year?.

Yes, we didn't give it last year. It's up this year over what it was last year, I would say, up meaningfully. But certainly, in January, with the flu and with new membership, we always see it a little bit higher than the rest of the year. This year was meaningfully better than it was last year in terms of new members using..

Our next question comes from Sean Dodge of Jefferies..

So maybe staying on that last point really quick, the new registrations that came in January, do you have any data or statistics you can share with us to help us think about how often a new user becomes a repeat user? I guess maybe something like what proportion of your visits now come from repeat users?.

Yes, think of it as about 1.3 visits per user per year, and that's pretty consistent. It's been pretty consistent slight increase, so we saw that step up from about 1.25 to 1.3 as we started to add products like behavioral health and dermatology. So that's how I'd think about it..

Okay. And then, Jason, you talked about the surround-sound strategy and the encouraging results you're seeing there driving utilization.

How far through the existing client base are you in deploying that? Have most clients switched over now to the more digital-heavy approach? Or still, there are a fair number that are receiving predominantly print material?.

Yes. I would say that we are -- the majority, although certainly not all of our clients, embrace our more multimedia, digital capabilities. However, we are targeted in where we apply that.

So we're careful about not applying that uniformly across the population because we know we're going to get better results in certain segments of the market, certain target profiles of individuals than others, and we want to make sure that we're sort of optimizing the yield on that spend..

Our next question comes from Stephanie Davis from Citi..

Can you give us any color you can share with early utilization trends for the new segment of visit fee only clients?.

Yes. I think what we had told people in the past is that we were looking to an approximately 50% to 75% increase in the utilization for our group of members that transitioned over to visit fee only in January. And as I noted earlier, we're seeing some great utilization coming from them. They're exceeding our expectations at this point.

Jason noted also about the FEP population. We provided them with a visit at -- in every state of the country. By the end of January, they were thousands into registrations and visits. So we are -- we have set pretty aggressive numbers from the utilization perspective, and we're exceeding it with both of those populations.

And FEP, with their 9 million members, TRICARE, with their 9 million members will go live on April 1..

Good. Good to hear.

And then when we think about the shared savings agreement you have in place for some of these new relationships, just given the strong flu season, do you have any early indications of how there's probably some trending compared to plan?.

For a good part of those shared savings, it takes into consideration the primary components or health plans or primary clients or health plans. And again, we're seeing utilization trends that are similar to the rest of our revenue growth. They were increasing significantly over this quarter last year..

Our next question comes from Sandy Draper from SunTrust..

A lot of my questions have been asked and answered, but maybe a couple more just on the busy flu season. I guess, one, and this will be tied into the digital marketing strategy of trying to promote, and I don't know if this feature is rolled out, but where you could post it on Instagram or Facebook or wherever you want to promote it.

Do you have any sense of how many people are, if that's out, willing to do that? And I'm just curious as to how much feedback and if you -- how often you get ratings, did you get that? And a follow-up is since it was so busy, were there any capacity constraints where maybe average wait time was 10 minutes and it's usually seven or something like that? Just curious with the -- as busy as it's been, have you been able to handle the capacity?.

Sure, Sandy. We do actually enable our members, after they've had a visit to -- we sort of help facilitate them, commenting about it in social media. And of course, when we get a positive comment from them, we ask them if they would like to share it.

We also, which I think is probably even more powerful, help to facilitate positive word-of-mouth within our employer clients and their employee populations because we consistently hear that our most-engaged employer clients help to facilitate the positive word-of-mouth and that that's a driver of utilization and engagement among the population.

So I don't know the statistic off the top of my head about how many members or what percentage of members do that, but we do have an active strategy around that. And then the second part of the question, sorry, I'm just remembering....

The capacity, did you have challenges with all the volume?.

Capacity, right. Yes, so I would say we saw a slight uptick in our response times, but you're talking about that in -- during a time when hospitals were setting up tents in the parking lot to try to handle the demand and school districts were closing because of the epidemic.

And so we may have seen a couple-of-minute uptick in our average response time. Of course, we look at that on a state-by-state basis to make sure that we have adequate capacity.

And in fact, if you look year-over-year, our average response time in January came down this year over last January in spite of the fact that our volume was up very dramatically..

Our next question comes from Richard Close from Canaccord Genuity..

A question with respect to FEP and the potential halo effect there.

Can you give us any update in terms of what you're seeing from new business opportunities from that relationship?.

Yes, I would say very, very strong. We are seeing the Blues respond very well to our value proposition. And I believe that the FEP win was a proving ground for us. We have gotten very, very strong accolades from the FEP team in terms of our implementation, which is a very, very complicated implementation with a large organization.

And we also see not only opportunities with the other Blues as a result of it, but also expansion opportunities within the FEP account..

Okay. Any update in terms of United? Obviously, I think TRICARE's with Optum.

But anything incremental you can add in terms of expansion into that client?.

We continue to expand our penetration there. We are -- we're up to probably 1.5 million members, give or take, and they're performing extremely well. We saw expansion of that population in the first quarter. We continue to be running down multiple opportunities with multiple products and segments of their business.

So I feel very good about our relationship there as well as our opportunity there..

Our next question comes from Donald Hooker from KeyBanc..

So how do we think about free cash flow positive? So as you look into 2018 and '19 in terms of CapEx and working capital, when do you think you'll be true free cash flow positive?.

Hey, Don. I think we're likely going to spend somewhere in the range of about $10 million to $15 million for working capital needs as well as CapEx that will net against the adjusted EBITDA for this year. I think when we talk about 2019, that will likely be a neutral year, and we should look at 2020 for producing our first free cash flow..

Great. And then second question, different topic, behavioral health, obviously, a big, big driver for you guys. Any detail you can provide around there in terms of revenue trends you've done in the past and has been a big driver? And just any thoughts around pricing in terms of perhaps bundling that with other services.

How do we think about pricing and revenues?.

Sure. So we have great visibility into our behavioral business. We've had now the continuation of almost a doubling of the top line revenue. We've entertained some bundling with clients like United and others who see the benefit of bundling these services along with some of our other primary services.

Last year, we finished with about $30 million of behavioral revenue. Again, I'd expect us to come somewhere close to doubling that this year. I think on a -- on the first quarter, we'll easily surpass what we did by twofold in Q1 of 2017. So it's looking like behavioral will continue its run through being the fastest-growing line of our business..

And I would say it's rare that we talk to a health plan client who isn't interested in behavioral as part of the overall bundle of services that we're talking about. It's become much more sort of table stakes, everybody expects it, than an a la carte add-on that maybe they're interested someday about..

Our next question comes from Charles Rhyee from Cowen and Company..

I guess maybe going back, Jason, to this comment about the 50% of visits were from first-time users, is there any way you can give us any kind of additional breakdown, such as how many were new users from existing clients versus new users from new clients? Or any type of breakdown between flu-related visits versus behavioral health versus sort of general medicine questions?.

Yes. Sure, Charles. So I don't have off the top of my head whether they were new users from new clients or new users from existing clients.

But what I will tell you is that, that statistic was all from our general medical, which means not behavioral health, and that the pattern among them was similar to the pattern among the rest of our population in terms of flu usage as a percentage of total. So we said we peaked at about 1 in 5 visits in our peak days being due to the flu.

That's roughly 3x what it was last year at the same time in terms of a concentration. So you can do the math on them versus the rest of the population, which is similar. It doesn't -- it didn't differentiate for the flu versus other reasons during that period of time..

Okay. Okay. That's helpful. And if I go back to -- if we think about Medicare, right, I think, to a certain extent, that the Chronic Act has been in the works for a while, I think there was general understanding that it would eventually get passed. And now we have it and now we're waiting for CMS to kind of formulate what will be covered.

Maybe coming at that from the provider side, how much of it just really has been a catalyst then for your provider clients in terms of really thinking about their strategy for virtual care, given that there is some expectation that we would see elements of this at some point in time? And -- or has it really been a catalyst for a new round of discussions with potential providers?.

Sure. So just to clarify, although the Chronic Act has been kicking around for a while, the change actually came with the Bipartisan Budget Act. So -- which is great because it means that it's done and put to bed and it's signed into law. And it removes any restrictions that were put on or the major restrictions that were put on CMS.

And it's now off to HHS for rulemaking.

The -- I would say that the providers were already moving to embrace telehealth and virtual care sort of at large in advance of this because they all seem to -- or the majority of them seem to be realizing that this has to be a part of their long-term strategy because many of them have been moving to risk arrangements where they are responsible for either a risk corridor or gain sharing or taking full risk for a patient population.

I think that the MA reimbursement will -- has the opportunity to accelerate that. But I don't think it was dependent on that in order to gain traction..

Right. What about the -- so apart from employers and payers and providers, what about from other constituents in the health care system such as, let's say, pharma, medical device, obviously, a lot of device companies in health care in terms of sort of consumer-facing products.

Can you talk about any kind of efforts you put into this kind of area in terms of integrating telehealth capabilities into, I don't know, consumer health care devices? Not a sort of an [indiscernible], I'm thinking more, probably more on the higher end, more serious, [indiscernible] like self-care tech devices..

Yes. I would say that you'll see us do more device integration as it aligns with the expansion of our clinical services. So we've been pretty public about the fact that we intend, down the road, to expand into more longitudinal chronic care management, obviously, the Best Doctors, second opinion services.

We take care of people with chronic conditions all the time, but we're not in the business of doing longitudinal management of those people. The only real place that we do that is in behavioral health.

So as we move more into caring for people over a longer period of time and managing them through a chronic condition, that lends itself much more to device integration because the devices can be key sources of data that help with the management of that population.

So I think that's where you'll see us doing more with respect to high-impact device integration that makes a difference in the care of the patients we serve..

Our next question comes from Matt Hewitt from Craig-Hallum Capital..

I guess starting, for me, a point of clarification just so I'm understanding.

The 464,000 visits in the fourth quarter, was that from visit only clients or was that all-encompassing?.

No. That's all-encompassing..

Okay. Great. And then secondly, given the strength of the flu season and obviously the strong demand that you've seen, I'm wondering have you started thinking or are you contemplating many ways from a marketing campaign perspective that you can continue to capitalize on that strength.

Meaning, you talked a little bit about the return visits from those patients, but is there anything specifically that you could do or are doing to make sure that you've captured and that those patients come back over the remainder of the year?.

Yes, absolutely. Of course, we definitely engage with our registered members more than any other population. So once we get somebody to register and use the service, then, of course, the -- they are the people who get the most frequent touch points from us and they're the people who have opted into our e-mail programs.

And we're able to do messaging because frequently, they've downloaded the app onto the phone. We're therefore finding that -- and in fact, in the end of the fourth quarter and the beginning of the first quarter, we continue to see the trend toward mobile engagement with us.

And so once somebody has downloaded the app, that gives us the ability to be much more present with them on a regular basis. So absolutely, the registrations for us create a virtuous cycle..

Our next question comes from Mohan Naidu from Oppenheimer..

Jason, one question around utilization. So you're going to hit new records in utilization Q1 and roughly double it, more than double digits, in for the annualized number. How close are you in the inflection point where you can see double-digit utilization for a full year basis.

I know you guys are doing a lot of consumer engagement work, but reception has been great so far.

What else can you do to get to that double-digit really quick?.

Hey, Mo, it's Mark. Thanks for the question. We started off, if you look back even five years ago, we were at right around 0.5% in utilization. And for several years, we increased that by either 1x or close to that.

At this point last year, and you know that with the new initiatives that Stephany and her team have started, we're seeing on a targeted basis certain clients enjoy and appreciate that uplift in utilization that most of our clients see when they're in that second and third year of vintage.

I -- we tend to feel that we're still in the first inning of utilization. And as we've always suggested, double digits will be a great benchmark for us to establish in the next -- I'm hoping it's this year on a run-rate basis in Q4.

However, we have a long ways to go because as I know we've shared in the past, we've got certain clients that enjoy 40%, 50%, 60% utilization, and for a company that continues to add products and services to our existing offering, we're giving people every opportunity to come back and utilize us many times a year..

Our next question comes from Steven Wardell from Chardan Capital Markets..

So you mentioned earlier on this call, contracts with at-risk pricing or it's risk-based pricing. And I'm just wondering, can you tell us more about the size and importance of this to you and where it's going.

So for example, is it just visit fee only contracts would be risk-based pricing? Or are there more kinds of contracts than that? And do you see, is this a big part of your business or a small part, and do you see it getting bigger in the future or staying the same or smaller?.

I would say it's a material part of our business today. It's principally with large payers. We have a large West Coast payer. We have, obviously, the Aetna contract.

One is somewhat different than the other in that the characteristics of Aetna's are well understood, I think, by most and that as we continue to generate additional utilization, we have somewhat unlimited upside and that therefore we obviously will invest in areas that we believe will drive that utilization beneficially for both parties.

On that plan on the West Coast, we participate in a higher subscription access fee, a higher per member per month fee as we bring utilization for that population up over the year compared to where they had been in the prior year.

Both of these campaigns -- or both of these contract structures provide us with significant upside as we continue to perform. And we're looking to model existing -- certain existing clients as well as new prospects with a similar contract structure..

We have no further questions at this time. I turn the call back over to the presenters..

Thank you all for joining us today. We're really excited about where we are, what the quarter looked like coming out of 2017. And as I said earlier, we've never been more excited about our trajectory. So appreciate your time today, and with that, I think, operator, we'll end the call..

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