Kelsey Turcotte - Vice President of IR Jason Gorevic - CEO and Director Mark Hirschhorn - COO, CFO and EVP.

Lisa Gill - JP Morgan Sean Dodge - Jefferies Donald Hooker - KeyBanc Capital Markets Jamie Stockton - Wells Fargo Richard Close - Cannacord Genuity Charles Rhyee - Cowen & Company Stephanie Demko - Citi Sean Wieland - Piper Jaffray Ryan Daniels - William Blair Mohan Naidu - Oppenheimer Steven Wardell - Chardan Capital Markets Charlie Eidson - Craig Hallum Capital Glen Santangelo - Deutsche Bank.

Welcome to Teladoc's Second Quarter 2018 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions, following management's prepared remarks [Operator Instructions].

It is now my pleasure to turn the floor over to Kelsey Turcotte, Vice President of Investor Relations. Kelsey you may begin your conference..

Thank you, operator, and good afternoon, everyone. I'm Kelsey Turcotte, Vice President of Investor Relations at Teladoc. Joining me for Teladoc's conference call this evening are Jason Gorevic, our Chief Executive Officer; and Mark Hirschhorn, our Chief Operating Officer and Chief Financial Officer.

We look forward to discussing our second quarter 2018 results with you today. Today, after the market closed, we issued a press release announcing our second quarter 2018 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&A. Today’s call will also 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 the reconciliation of the two, please refer to the press release posted earlier today on teladoc.com. I will now turn the call over to Jason.

Jason?.

Thanks, Kelsey and thank you all for joining the call this evening to discuss our second quarter results. I want to start the call by welcoming Kelsey Turcotte who has joined the Teladoc team as Vice President of Investor Relations.

We’re very pleased to have her on board and I'm certain that our investors will quickly appreciate her professional approach to IR. We saw continued strong performance in the second quarter of 2018 and I'm very pleased with our progress.

Some of the highlights include revenue for the quarter of $94.6 million, which includes a month of contribution from Advance Medical. This represents growth of 112% over the second quarter of 2017, and Mark will provide details of our strong organic growth results if you exclude the Advance Medical contribution.

Gross margins of 71% came in on plan and reflect the growing significance of our burgeoning behavioral health business. Sequentially margins improved from our first quarter’s 70% and decreased as compared to the 78% margins in the second quarter of 2017 as a result of our overall mix shift. Adjusted EBITDA of $2.7 million exceeded our expectations.

Strong visit volume of approximately 533,000 total visits in the quarter, which represented growth of 72%. U.S. paid membership of 22.5 million members, representing growth of 48% and our average per member per month was $1 compared to $0.63 for the same period last year, representing a 58% increase.

Mark will provide more details on our strong financial results, but first before that I’d like to focus on a few key developments for the company. We’re now 60 days into the integration of Advance Medical and I couldn’t be happier with our progress. We’re ahead of schedule on the integration of our U.S.

businesses and have made significant strides with respect to the integration of people, clients and processes. Very importantly we’re seeing strong demand from our U.S. clients for global care on demand, which provides virtual care seamlessly around the world.

We’re also taking this opportunity to review our best practices and ensure the best of the best is leveraged across our entire organization.

We’ve also made excellent progress in Europe where we’re focused on orienting our respective clients to the full scope of services available from the combined organization, and the reception has been extremely strong.

Finally on this topic, I was with the team in Spain just two weeks ago and I'm very pleased with the cultural integration and the sense of team work between the two organizations. Second, I’d like to comment on our selling season. Our pipeline of opportunities is very active and stronger than it was at this time last year.

This is also our first selling season with a full scope of services ranging from general medical to expert medical opinion and it has been very evident in pitches that our differentiated approach is being well received in the market. We saw a number of significant win-backs and competitive takeaways in the quarter.

For example there’s a large Fortune 100 national employer that had shifted most of their business to a competitor for a lower price several years ago.

Due to their inability to achieve the utilization goals they had hoped to achieve they have come to realize the value proposition of Teladoc’s surround sound engagement strategy and have selected Teladoc as their sole virtual care provider.

Lastly, our progress continues with respect to bringing a comprehensive virtual care solution to health plans, who are now prioritizing virtual care as a core component of their strategy. One slight disappointment in the quarter was the delay of the bulk of the TRICARE business.

While we were fully prepared for the full launch and in fact we did launch a small portion of the relationship in the second quarter, the government has decided on a slower rollout strategy than originally communicated.

They're moving forward with us rolling out the service in a focused geography and we expect that this will lead to the previously anticipated larger national rollout in 2019. Fortunately, strength in other parts of our business offset any potential impact of the TRICARE delay, which speaks to the diversification of our revenue streams.

On the positive side from the Federal Government, we're very pleased with the announcement from CMS two weeks ago regarding their payment policies for telehealth. CMS announced that they would begin paying for telehealth services and virtual visits for the Medicare fee for service population.

While we were expecting this for the Medicare Advantage plans. The inclusion of telehealth and Medicare’s fee per service and the physician fee schedule came early than we anticipated.

This is a meaningful step forward in CMS’s increasing supportive telehealth as a valuable component of the delivery system and a way to improve the quality and access to care for seniors.

Yesterday, we announced that we will adopt a new corporate brand, Teladoc Health to better reflect our broad portfolio of services and our mission to transform how people access care around the world.

The company's award winning member experience brands Advance Medical, Best Doctors, Better Health, Healthiest You and Teladoc will unify under this new corporate name.

Under a single corporate brand we will realize benefits of our scale, maximize our corporate reputation around the world and strengthen our market clarity and differentiation by clearly reflecting our position as the global leader in virtual care.

This will allow us to go to market as a unified corporate brand offering multiple service bundles, which can include all or some of the legacy brands. Finally, before I turn the call over to Mark, I wanted to comment on the strong reception to our equity offering last week. I'm very pleased with the market response to the offering.

The additional capital on the balance sheet gives us increased flexibility with respect to retiring some of our existing convertible debt. While we have no LOIs outstanding and we are not involved in any M&A process, we certainly have plenty of capacity for opportunistic M&A in the future.

With that, I'm happy to turn the call over to Mark to go into greater detail with respect to our financial results..

Thank you, Jason and good afternoon, everyone. I'm incredibly pleased with what we've accomplished from an operational as well as a financial perspective this quarter. And on the call this afternoon, I'll dig a bit deeper into those strong financial results that Jason referenced earlier.

Advance Medical, which we acquired in June contributed $6.2 million in revenue for the quarter, bringing our total revenue for the quarter to $94.6 million, a 112% increase year-over-year. On an organic basis, which excludes the contributions from Best Doctors and Advance Medical, our quarterly revenue grew 39%.

Revenue from subscription fees increased 113% from the second quarter of 2017 to $79.8 million. Going a bit deeper, subscription fees from the U.S. accounted for $65.1 million, 82% of total access fees and international subscription fees accounted for the remaining 18% or $14.7 million.

For the second quarter subscription access fee revenue accounted for 84% of total revenue. As of the end of the second quarter, U.S. paid members totaled 22.5 million members, an increase of 48% compared to last year after adjusting for 5.2 million Aetna and Amerigroup lives, which are now classified as visits the only individuals.

As a reminder, our definition of members includes just U.S. paid members that are associated with a PEPM or PMPM or paid U.S. membership. And under this definition, membership totals do not include visit fee only access individuals.

At the end of Q2, we had approximately 9.6 million individuals with visit fee only access to our services including those individuals from the Blue Cross Blue Shield Federal Employee Program and Aetna's fully insured population.

As Jason mentioned, the government has decided on a slower rollout strategy for the additional 9 million TRICARE visit fee only population that we anticipated going live in Q2. While we do not anticipate the full rollout into 2019. This will not affect our financial outlook for the year.

For the full first half of 2018, our average per employee per month or PEPM was 1$ compared to $0.63 in the second quarter of 2017, or $0.78 on a pro-forma basis. Moving on utilization, which we calculate as total visits divided Teladoc’s paid U.S. membership for those members with access to our general medical services.

During the second quarter, Teladoc completed 533,000 visits, that’s an increase of 72% from the year ago period. This represents an annualized utilization rate of 8% in the quarter and approximately 200 basis point from the 6.1% we experienced in the second quarter of 2017. In terms of visits, we segment them into visits from U.S.

paid memberships and visits from visit fee only access. Visits from U.S. paid membership totaled approximately 436,000 visits. Going one level deeper into the U.S. paid membership visits, 218,000 or 44% of these visits were paid, while the remaining 277,000 visits were delivered under our visits included contracts.

In addition to those 277,000 visits, we also completed 36,000 visits for individual with the visit fee only access. The company generated $12.9 million in visit fee revenue from general and medical visits, representing an 81% increase from the second quarter of 2017. The U.S.

paid membership visits generated $10.2 million in revenue and drilling down a level further the remaining $1.9 million of visit revenue can be attributed to other specialty visits, which is primarily comprised of expert medical and commercial behavior health services.

Gross margins of 71% was nearly the same as the first quarter of this year and on plan with our expectations. While the quarter’s margins decreased as compared to the 78% margins in the second quarter of 2017.

The mix shift in our evolving business specifically the strong behavioral health and Advance Medical’s results, will lead us to gross margins moderating to approximately 65% for the remainder of this year. Total operating expenses in the quarter came in at $77 million, representing a 66% increase from the $46.4 million in Q2 of 2017.

Eliminating the impact of principally non-cash charges, such as stock compensation, depreciation and organization, our Q2 2018 operating expenses less integration related costs and a gain on the sale of some non-core contract were $64.2 million or 68% of revenue, which compares favorably to the 89% of revenue with $39.7 in operating expenses in Q2 of 2017.

On the last earnings call, we told you that we were confident in our outlook for positive adjust EBITDA throughout the remainder of 2018 and we delivered on that in the second quarter. Adjusted EBITDA came in at $2.7 million for the quarter, compared to an adjusted EBITDA loss of $5.1 million a year ago.

Net loss in the quarter was $25.1 million compared to net loss of $15.4 million last year. Net loss per share was $0.40, which adjusted for the acquisition costs and the sale of certain non-core contracts would have been $0.37, within the guidance we issued in May and compares to a similarly adjusted Q2 2017 net loss per share of $0.24.

Turning to the balance sheet, we ended the quarter with approximately $132 million in cash and short-term investment. Our cash balance today, after giving effect to last week’s offering is approximately $450 million. Our total debt, as of the end of the quarter was $562.5 million, which consist of our two convertible note issuances.

The $275 million 3% convertible notes that mature at the end of 2022 and the $287.5 million 1.375 notes that mature in 2025. Our GAAP presentation of this debt appears as approximately $400 million as it is net of the equity component of the securities in our consolidated financial statements.

With that, I would like to provide our outlook for the third quarter of 2018, in which we currently expect total revenues between $106 million and $108 million and EBITDA loss between $7 million and $9 million, adjusted EBITDA between $4 million and $6 million, total U.S.

paid membership of approximately 23 million to 23.5 million members and individuals with visit fee only between 9.6 million and 9.7 million individuals, total visits between 600,000 and 650,000 visits and a net loss per share based on 68.3 million weighted average shares outstanding is expected to range from a loss of $0.37 to a loss of $0.39 per share.

Given the acquisition of Advance Medical, for the full year 2018 we now expect total revenue between $405 million and $410 million and EBITDA loss between $36 million and $40 million, adjusted positive EBITDA between $11 million and $13 million, total U.S.

paid membership of approximately 23 million to 24 million members and visit fee only access available to approximately 10 million individuals. Total visits between 2.5 million and 2.6 million visits and a net loss per share based on 66 million weighted average shares outstanding is expected to range from $1.48 to $1.52.

This marks another strong quarter for Teladoc as our business continues to fire on all cylinders as always I want to thank the entire Teladoc team for their ongoing effort and the outstanding work they do for this organization as we evolve and develop ways to deliver virtual healthcare services globally. Thank you all for joining us this afternoon.

And with that we’ll open it up to questions.

Operator?.

[Operator Instructions] Our first question comes from Lisa Gill from JP Morgan. Your line is open..

Thanks very much and good afternoon. Jason, let me just start with a couple of a comments that you made in your prepared comments, first around the selling season you talked about the pipeline opportunities being substantially bigger than last year.

And I know every year in August I ask you this question, but is there any way to quantify what you see as the pipeline for 2019? Would be my first question.

And then secondly your comments around CMS and paying for virtual visits, I know we talked in the past about the expectation around MA, but with Medicare fee for service now being part of that is there a way to quantify that opportunity as well?.

Yes, thanks, Lisa. A couple of things on the selling season, we just finished actually our monthly pipeline review, which is very rigorous process that we run throughout our commercial organization and the pipeline is stronger than it’s ever been before. We are very pleased with both the volume and the size of the opportunities across our segments.

I'm not going to give you a percentage relative to prior years, but I can say that it’s both just sort of an absolute basis significantly larger than it was in prior years, as well as in line with our expectations relative to our long-term growth projections..

And then on the CMS side, any color that you could give us there?.

Yes, so I would say the CMS proposed reimbursement plans and guidance is very strong symbolically it’s sooner than we expected with respect to the Medicare fee for service. Obviously we were expecting them to move forward on the MA population.

Fee for service I think provides us with an opportunity to support our providers in providing telemedicine service for their Medicare fee for service members because they are already patients of theirs and now they’ll be able to be reimbursed by CMS for providing telehealth services.

With respect to us going out on a direct to consumer basis to -- and the Medicare fee for service population, I don’t foresee that in our short-term. That’s obviously we would have to do direct to customer acquisition in order to do that and today that’s probably not a strong economic proposition for us.

But I do think it will provide more wind in the sales for our provider focus business where we provide platform as a service. .

Okay, great. .

And then I think lastly, if I round out the comments there. It bodes very well for what we have been expecting for the MA business and we are still bullish on that that’s obviously more in traditional sweet spot of what we do.

And in addition to that we were pleased to see the recent passage through the house of the HSA changes where that will provide for the exemption of certain services from the HSA rigs [ph] and we think telehealth will be -- is likely to be one of those should that make it through the center as well..

Okay. And then just follow-up would be, Mark or Jason, if I just look at the new annual guidance both revenue and EBITDA and then I take what you previously had told us what the expectation were for Advance Medical it implies that your underlying trends are stronger than what they were previously.

So when you can just talk to what you are seeing around the trends and if I am looking at that correctly. And then secondly you had made a comment that the delay in TRICARE would not really impact 2018, but should we think that it would potentially impact the way to think about 2019.

I just want to make sure I understand both of those?.

Hi, Lisa, it’s Mark.

With respect to revenue, we are having very solid year, so we have absorbed that apparent delay in the TRICARE business and with the strength from the other channels, we were still able to increase the lower end of the range and obviously increase the upper end of the range, without including any contributions from Advance Medical.

Very similar to the adjusted EBITDA side as well, we’re thinking of an adjusted EBITDA contribution of about $2 million from Advance Medical. So you would suggest also there is a about a 10% increase in the upper end of the range on an organic basis for adjusted EBITDA as well.

So both would have benefited from the earlier start of that TRICARE business, but again we’d expect those to roll-in in 2019, we just would have had an even stronger 2018..

And then Lisa with respect to my comments on pipeline relative to our expectations, that’s accounting for the delay in the TRICARE business. So we don’t think that that’s going to have an impact on our 2019..

Okay, great. Well congratulations on another great quarter. .

Thank you, Lisa. .

Your next question comes from Sean Dodge from Jefferies. Your line is now open. .

Yes, good afternoon thanks. Jason maybe going back to your comments about the pipeline being up significantly.

Is it -- because you are engaging in discussions with larger payers so there are more deals that are just covering a bigger number of members or is it because you’re having more discussions involving selling a broader swap of Teladoc capabilities a part of those deals or is it just simply a combination of both of those?.

Yes, fortunately the answer is both. We’re seeing across multiple segments increased number of opportunities and the size of those opportunities, but in terms of membership is strong as well as the number of products and therefore the revenue per client that we can expect..

Got it, okay. And then I guess on Advance Medical you mentioned fast progress so far on the integration there. Can you give us a quick update on what are the first couple of things you are focused on there, near-term levers you’re pulling to drive some revenue performance.

Is the answer still on appealing more to the large national employers and anything anecdotally you can share with us there early wins, encouraging discussions anything like that..

Yes, so first point of integration is sales where we have the opportunity to bring the sales forces together and cross-sell the products.

Second is bringing those products together and rolling out global care on demand to a broader population and bringing that into some of the markets where Teladoc has traditionally been strong, but Advance Medical may not have had as much of a footprint. And third, we're really focused on bringing together the teams in the U.S.

from an operational perspective. We're pleased at this point both in the multi-national employer space where we see a lot of interest for that global care on demand product as well as I've spent time personally with some of our international clients on the insurance side where we see a lot of opportunity to cross-sell products.

And just as an example, I was in Spain with the two of the largest clients of Advanced Medical. And there are multiple products in the Teladoc portfolio that would be high value for those insurance companies..

Very good. Thank you..

Your next question comes from Donald Hooker from Keybanc Capital Markets. Your line is open. .

Great. Good afternoon. Wanted to hear a little bit, it seems like utilization has picked up, I guess you got two quarters in a row of strong utilization. And I know we're all focused on that digital marketing strategy that you rolled out.

In the past I think you've talked about kind of -- correct me if I'm wrong maybe 50 to 100 basis points of utilization increases. I mean, going forward are we kind of in a different regime here.

Should we start thinking about sort of more utilization increases? How do we think about that?.

I'll start and then I'll hand it to Mark to go into a little bit about what we're seeing into the future. No question we're seeing the benefit of our surround sound engagement platform. And really the analytics we put behind it in order to maximize the yield that we get for our dollar spend there.

We're very pleased with the utilization that we saw in the second quarter. And we feel good about where we are for the rest of the year, which of course give us the confidence to adjust our guidance for the back half and the full year.

I don't know Mark, if you want to comment on what we see on a future basis?.

Yes, I think the fact that we picked our guidance for the second half of the year by over 200,000 visits would suggest that even in the periods where there is less activity in those second and third calendar quarters. We find that the lows are obviously increasing.

So we're seeing more activity compared to the prior years with the growth as we noted would be somewhere around 100 basis points. We exhibited closer to 200 basis points year-over-year. I think the highs are going to be higher, and those lows quite frankly are going to be picking up each quarter-over quarter.

So we're just seeing all the good signs that would suggest that utilization ramp will likely exceed prior guidance..

I guess just one thing I would add is that our clients are noticing too. So both clients and prospects are seeing the difference of our engagement and our utilization. And it's helping us with our selling season right now..

Got you. And maybe on a different front, I guess any updates on that Aetna contract that we're all following.

I think you talked about it being revenue neutral this year and sort of revenue accretive next year versus the original contract, are we still on good pace there? Can you maybe give us some incremental detail there?.

Absolutely, we are still tracking slight ahead of our projections utilization visit volume this year is up roughly 60% over last year, which is very, very good for us. Obviously from a revenue perspective we get a lot more leverage with more visits. And so we're very pleased with how that contract is progressing..

Okay, thank you so much..

Your next question comes from Jamie Stockton from Wells Fargo. Your line is open. .

Hey, good evening. Thanks for taking my questions. I guess maybe to start with the Medicare stuff at least was touching on earlier. Maybe with the fee for service Jason, how do you think about Medicare's long-term approach here? Because it seems like they're kind of initially saying, hey, we'll pay for some quick touching base type appointments.

Have you had any conversations with anyone at CMS or is anyone in the industry have any inside into whether or not that's going to expand notably in the next two or three years?.

So there is a little question in my mind Jamie, that CMS will continue to expand the scope of its coverage for telehealth services.

And I think if you look at the chronic care management reimbursement that they rolled out last year, and then you put that together with the telehealth endorsement that we see this year, it's clear to me and in conversations with teams within the administration.

It's clear to me that the support is there over the long-term for an expansion of telehealth’s role and sort of the overall role of virtual care in the senior population..

Okay. And then maybe just a quick one on the Medicare Advantage front.

It sounds like your expectation there is that at least more significant near-term benefit to Teladoc maybe that you get sold into a lot more MA plans as a telehealth benefit that they offer their members as opposed to it being as much of a catalyst for more provider deals? It's a good thing either way, but is that the correct read on how you see the MA approach by Medicare benefiting you in the next couple of years?.

Yes, I would say MA plan certainly more aligned with our traditional go-to-market approach with the plans and we would expect to see MA populations come our way.

I think where we see opportunity on the provider side is from the Medicare fee-for-service where more and more hospitals and health systems will look to us for platform as a service to provide care for their senior population who are under Medicare fee-for-service plans and can get reimbursed for it..

Okay, thank you..

Thank you..

Your next question comes from Richard Close from Cannacord Genuity. Your line is open..

Great, congratulations. Thanks for the question here. Surrounding organic growth, obviously, 39% extremely impressive, Best Doctors is going to roll into that number, I guess, this upcoming third quarter. So how do you think about the organic growth, now that Best Doctors is going to be included.

And then just your overall view of Best Doctors and the performance there, considering you've had it about a year now?.

Yes, so we're pretty pleased with the overall growth of the Best Doctors products. We see it now as really more of a full continuum of services. And we expect to see all of those parts of the business operating in that 20% to 30% range in 2019. We said that it would take us a year or two to get there and we're right in line with what we expected.

And then again, the other thing I would say is that having the entire portfolio of services, the entire continuum of care is really a strategic advantage as we go to market and are selling to large health plans, you now see this as a full virtual care strategy.

So while it's great to pickup part the pieces and we certainly look at it in terms of the growth of each one of the components. From my perspective, having the full suite adds another level of value in and of itself..

And Richard, I might add that as Best Doctors was historically very low-teens or high-single-digit grower, it's now shown significantly improved results as is being sold alongside of the traditional Teladoc suite of services.

We noted back at the time of the acquisition in the summer of 2017, that it would likely take us about a year to 18 months to bring up their growth to the levels that we'd expect and we mandate between 20% and 30%. And I think we're well on our way there.

And quite frankly, I think we're going to see even a shorter path to that growth trajectory for Advance Medical..

Great, thank you very much. Congratulations..

Your next question comes from Charles Rhyee from Cowen & Company. Your line is open..

Yes, hey thanks guys for taking question. Staying with the Advance Medical, Mark or Jason can you talk about sort of -- might be saying right is Advance Medical has a different model and how it deliver services particularly in Europe, but also how it does in U.S.

in more of a sort of a dedicated model to its clients, can you talk about sort of the opportunity to maybe taking some of those types of service models and applying it more broadly to Teladoc?.

Yes, so there’s no question Advance Medical part of their success was in tailoring their solutions to the needs of their clients providing a little bit more of a medical concierge service if you will in a virtual environment.

We see that as an opportunity, they have very good relationships with their clients as I mentioned that was over in staying with two of their large insurance clients and meeting with the CEOs there they see Advance Medical as critical component of their overall value proposition to their members and clients and part of that is that concierge like service.

So we’re working now on how to take best practices both from a product perspective as well as an operational perspective and learn across the organization.

So that we can offer a broad range of levels of services, because we know from experience sometimes having competed against them that that is a very desirable model and can be very, very successful. There are different needs for different clients and part of the value that we have now is being able to sort of expand the entire spectrum..

Can you talk about a little bit how that pricing model work with the different my understanding it is really more in the PMPM and less really not with the visits fee kind of component, maybe give a little bit more color on that?.

Yes, that’s correct, Charles.

We have our stronger utilization figures for the Advance Medical client base because as Jason noted the opportunity to activate that customer base for that type of concierge, triage service leading all the way up to expert medical services enables us to price that at a premium to either of our standalone services and equivalent to even a premium on top of a combined service that would be Best Doctors and traditional general medical from Teladoc.

So we end up competing on a per member per month basis, there 99% of the revenues from Advance Medical traditionally and what we expect even in the future will be that very visible per member per month access fee..

Great, thanks a lot..

Your next question comes from Stephanie Demko from Citi. Your line is open..

Hey, guys. Thank you for taking my question and congrats on a strong quarter..

Thanks, Stephanie..

Could you give us an update just on the cost synergy procurement for Advance Medical given they did have a duplicative footprint? And are there any early indications on opportunities within Advance Medical’s U.S.

base just given their offer was still the second opinion versus your more broad based offering?.

Sure, I think the initial synergies that we identified really to put to the costs with regard to operations in Spain, regard to operations here in the U.S. a number of also business model tweaks that we will likely make that can accommodate certain of our clients and some of the prospects that are in that pipeline that Jason was referring to earlier.

The strength of the pipeline again reflects the fact that the suite of services have been enhanced and while companies like Google and Apple and Microsoft, Cisco and others have been procuring their expert medical services from Advance Medical in the past.

Now we come to them with a suite of services offering to extend our contracts with them to give them not only the U.S. triage, the general medical services we can offer here. But on the foot side we’re doing the same thing with our existing legacy European clients and Asian clients.

So all of that is again adding to the excitement of, and the opportunities presented and reflected in the very strong pipeline. Second part of your question..

I think you covered it that was the Advance Medical client for the U.S. .

Okay..

But, following to that second part, any of these marketing client in the U.S.

has an alternative general medical provider or is it purely greenfield opportunity?.

No, some of them in fact and they have come back to us and entice us, but they are really not strong utilizers of their incumbents -- of the incumbent service. So, of course we are coming right back to them and offering them a broader array of services and clearly for incremental costs..

Thank you. And one housekeeping question for me, could you give Advance Medical’s contribution to membership for the quarter..

Yes, Advance Medical had 1,5 million members. .

Alright, thank you so much guys. Congrats again..

Sure..

Your next question comes from Sean Wieland from Piper Jaffray. Your line is open. .

Hi, thanks. So, looking to take out an update on the provider market given that’s a pretty critical go to market strategy for Medicare free for service.

Can you just update us on the number health system engaged and what the activity is in the pipeline and that kind of thing?.

Yes, we continue Sean to have a very, very good activity as well as a great close rate in the provider market. I was just with Alan Roga, getting an update and he is extremely excited and has closed several deals just recently.

The number of hospitals is up around 300 at this point, we continue to see new opportunities, as well as hospitals coming to us with additional used cases. And so very, very pleased with the progress of that business. .

Health systems actually going out in shopping specifically for the Medicare fee for service changes or not yet?.

No, not yet Sean, that was just announced. So it takes a little while for that to filter through, but we see that as an opportunity and just yet another catalyst for hospitals and health systems to look to license a telehealth platform..

And Mark, did you get the revenue from behavioral health in the quarter and are you still on pace to do $55 million for the year?.

Yes, revenue quarter-over-quarter grew in access of 100% and I’m extremely confident with great degree of visibility that we’ll exceed that $55 million, most likely come closer to $60 million..

Great, thanks so much..

Thank Sean..

Your next question comes from Ryan Daniels from William Blair. Your line is open..

Yes, thanks for taking the question guys. Little bit of a different question here, Jason, may be for you, I’m curious, you’ve a very strong team and you’ve kept a lot of the leadership over the years from the acquired assets.

But given the geographic expansion, the product expansion all the deals, do you feel you have the team in place to kind of push the business going forward and take advantage of all these opportunities or is that going to be a big focus going forward with kind of bolstering the team?.

Thanks, Ryan. We’re very fortunate as you mentioned to have been able to retain a lot of leaders from prior acquisitions and as well as bringing in new talent into the organization. I think that’s testament to the opportunity we have, as well as, the company’s mission.

It also, to be frank, we’ve focused for a long time on a scalable platform and being an execution oriented company. So, I feel good about where we are and our ability to execute on the business plan that we have now including the acquisitions that we’ve done.

Having said that, we’re always evaluating our talent and where we have needs and what the organization looks like.

So, we’re certainly not going to be a static organization and we’re constantly challenging ourselves to make sure that we’re looking out ahead at where we are going and what we going to need to make sure we continue to scale the business..

That’s helpful color. And then given the transactions and kind of the early integration efforts there, I am curious if you can also outline maybe the key IT investment areas as we look forward over the next 6 to 18 months.

Both again as it relates to integrating all the variety of assets, but also any new developments or things going to come that clients are looking for from an IT standpoint. Thanks..

Yes sure, Ryan. So couple of things. One is that we're deeply involved in rolling out the integrated app experience for the Advance Medical products and that's a significant opportunity for us to bring our technology to bear for that population and it provides the front end integration point for members of all of the services around the world.

So that's number one. Number two, as we’ve mentioned before, the guided experience which gives the consumer a single interface to all of the different products in a sort of virtual concierge if you will, an assistant that helps you find the right one of our services.

Because of course now we have a couple of dozen different services and we have to make sure that we make it intuitive for the consumer. So we've said that we expect that out this year, we're still focused on that and expect to deliver that. So those are really the two I would say near-term technology developments.

Of course we continue to refine backend integration and focus on the things to make us efficient and maintain our scalability. But in terms of what you're going to see on the frontend, those are probably the two I point to. .

Perfect, thanks for the color guys. Congrats on the quarter. .

Thanks, Ryan..

Your next question comes from Mohan Naidu from Oppenheimer. Your line is open. .

Thanks for taking my questions. Jason, on the Medicare side, do you see physicians trying to offer telehealth directly to the Medicare eligible population and bypassing some of the platforms right now.

Is that overhead for you guys to go, if you do want to end up going to directly to the consumer?.

Yes, thanks for the question, Mohan. We don't see a lot in terms of individual practitioners or small practices, trying to go directly to the consumer with virtual care. We see it more from the larger systems and in some cases the large multi-specialty groups. It's a lot for a small practitioner to do that in an organized way.

And to be honest it's the way we historically haven't gone to the market individual solo practitioners or small practices of two or three doctors. We think eventually that will probably materialize, but right now it's the aggregators of the large systems and multi-specialty practices..

Got it. A quick one on the competition, some of your competitors are getting big financial backing to strengthen their offerings.

What are you seeing on the competition side, any changes in the recent quarters?.

No, we're always happy to see more money flowing into the virtual care space. We think it's a great sector to invest in obviously. And we think a strong competitor set is good for the overall space.

Having said that, to be honest, we've really with the pieces that we’ve put together, the offering that we have and the comprehensive nature of our solution. We've really distance ourselves from those who are traditional competitors. And we're seeing that in our interactions with clients and prospects. So we're very confident in our position today.

And we feel good about our competitive position globally. We've really defined ourselves as the only global player and the only comprehensive solution. So when you can put those two together that's a great place to be..

That's great to hear. Thanks a lot..

Thanks Mohan..

Your next question comes from Steven Wardell from Chardan Capital Markets. Your line is open. .

Hey guys congrats on the quarter. .

Thanks, Steve. .

Can you give us an overview of how you organize your sales force, do you have one sales force that sells every product, or do you have sub-sales forces that are aligned against certain kinds of products?.

Our sales force is organized by customer group, so we have a team that focuses on health plans, we have a team that focuses on brokers and small employers, we have a team that focuses on mid and large size employers, we have an international sales team, we have a provider sales team. So we’re primarily organized by group of customers.

Underneath that there is a team that’s focused on cross-selling, in order to help each one of those different sales team to be successful in cross-selling, because obviously that’s an important part of extracting the value from some of the acquisitions that we have done, and so we’ve maintained a focus there.

And then of course we have an account management team who’s focused on retaining our clients, which we have been very successful of doing and bringing in additional products and services to those legacy clients who maybe bought one product because of the time that they bought we only had one product.

And so they are bringing additional product into those clients..

Great, thank you. .

Your next question comes from Charlie Eidson from Craig Hallum Capital. Your line is open. .

Hi, thanks for taking my questions.

First, given the growing comprehensiveness of the Teladoc platform, I was hoping if you could provide a little bit more color on how much of the anticipated revenues from here are due to upselling versus greenfield customers?.

Yes, Charlie, we probably look at new customers continuing to -- at least on the non-health plan side, new customers will provide the greatest bulk of the additional lift in the sales, heading into 2019, likely a -- probably an 80-20 split.

On the health plan side, we’ll likely get a very significant uplift from the existing clients and those that are currently sitting in the pipeline with a high degree of probability will contribute to most likely a 50-50 split in their contribution to new 2019 revenues..

Okay, thanks. And then one on gross margin, in the 8-K you put out following the advancement of the acquisition, looks like the Q1 gross margins were around 36%.

Can you go through the puts and takes on what went into that gross margin number? And how you expect that to rise overtime as it gets integrated?.

Yes, certainly as we both closed on Best Doctors acquisition last summer and Advance Medical this summer, both of those companies ran at a significantly lower gross margin in Teladoc. Clearly the delivery mechanism for expert medical services, through the Advance Medial platform is done with a different cost basis.

The margin as well as some of the other operating metrics are not comparable to what Best Doctors in Teladoc had done. However as a result of integration efforts over the past year we have been able to bring the Best Doctors delivery and margin up significantly.

And while we saw a decrease in overall margin, I’ve been indicating to the market that we’d expect around a 65% overall gross margin. The contribution from much stronger margin generating behavioral business.

But again I know is that earlier in the call had more than doubled year-over-year enabled us to continue to produce a consecutive quarter from first quarter we were about 70% to this quarter at 71%. We would continue to expect to see the margin moving to that 65% that I have been indicating since the time of the Advance Medical acquisition.

These are good signals, because as we continue to integrate, define efficiencies in the delivery of the services through our platform and as we continue to see growth in behavioral at these stronger margins. We see a trend that’s going to be stable and predictable, most likely through 2019 and beyond..

Okay, that’s great. Thanks for taking the questions..

Sure, thank you..

Your next question comes from Glen Santangelo from Deutsche Bank. Your line is open..

Yes, thanks for taking my questions. I just wanted to follow-up on the visits from the U.S. paid membership and I had just a couple of quick questions about the 436,000 that you posted this quarter.

Could you maybe give us a sense for the mix of those visits, how much might have been digital versus offline? How much was, maybe repeat versus new customers and how much Best Doctors may have contributed to that number?.

So, we don’t breakout the visits business based on an individual product basis. However, we did see repeat usage from those visits delivered in Q1. The individuals that participated in our first quarter’s utilization approximately 23% of them were participants and then receive visits on one of our or for one of our services in Q2.

And that’s somewhat consistent with what we’ve been trending over the past couple of quarters..

In terms of the modality, we continue to see mobile as the fastest growing component of our overall visit source. We actually see web and telephonic requests relatively stable and the vast majority of the growth coming from mobile..

Just may be, as a quick follow-up, could you tell me how much international visits were in the quarter?.

Yes, international visits were approximately -- it were between about 40,000 and 50,000 visits..

Okay. And then my last question was, you sort of discussed a couple of wins and takeaways in the quarter.

Are those new contracts coming in on a subscription basis or are some of them potentially utilization based?.

Every new contract to-date has come in on a traditional Teladoc basis of subscription access fee either with visits included or visits are in additional amount. There has not been a visit fee only contract executed this year..

Okay, thanks for the comments..

Thank you..

Your last question comes from Richard Close from Cannacord Genuity. Your line is open..

Great, thanks for the follow-up. Just Mark, clarification on the guidance, I mean, obviously you said, you raised it on the core strength.

Are you still contemplating just the $40 million from Advance Medical since the time of ownership for 2018?.

Yes, give or take $1 million or $2 million that’s consistent with what we shared last month at the time of announcement..

Okay, great. Thank you..

Sure..

This concludes today’s conference call. Thank you for joining us and have a good evening. You may now disconnect..