Welcome to Teladoc Second Quarter 2020 Earnings Conference Call and Webcast. At this all participants have been place on a listen-only mode, and the floor will be opened for your questions following managements prepared remarks.

[Operator Instructions] It is now my pleasure to turn the floor over to Patrick Feeley, Vice President of Investor Relations. You may begin..

Thank you, and good afternoon. Today, after the market closed, we issued a press release announcing our second quarter 2020 financial results. This press release is available in the Investor Relations section of the teladochealth.com website.

On this call to discuss the results are Jason Gorevic, our Chief Executive Officer; and Mala Murthy, our Chief Financial Officer. During this call, we will also provide our third quarter 2020 outlook, and our prepared remarks will be followed by a question and answer session.

Please note that we will be discussing certain non-GAAP financial measures that we believe are important in evaluating Teladoc Health’s performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release that is posted on our website.

Also, please note that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks, uncertainties and other factors that could cause the actual results for Teladoc Health to differ materially from those expressed or implied on this call.

For additional information, please refer to our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Jason..

Thanks, Patrick, and thank you, everyone, for joining us this afternoon. After the market closed, we reported the results of our second quarter, 2020, which was characterized by outperformance across all key financial and operational metrics driven by broad based strength across the entire business.

Particularly strong was our revenue in the quarter, which grew 85% over the prior year to $241 million.

As a result of the increased demand for our services from clients and consumers, as well as including the results of InTouch Health for the second half of the year, we are significantly raising forward guidance, including full year revenue guidance of $980 million to $995 million.

This represents an increase of $170 million to $180 million over our prior range, including an organic increase of over $100 million. There's no doubt that the ongoing pandemic shines a spotlight on the integral role that virtual care plays within the health care system. I recently shared the virtual stage with U.S. HHS Secretary, Alex Hazar.

And when asked about virtual care, secretary Hazar said, “I think we'd have a revolution if anyone tried to go backwards on telemedicine. This is now an embedded part of our health care system. I don't think I could have said it any better.” The pandemic has accelerated the widespread adoption of virtual care, and I'm confident there's no going back.

To that end, while it's earlier than usual for us to be looking ahead to the upcoming year, due to the significant amount of change experience this year, we thought it would be helpful to provide you with a preliminary view on how we're thinking about 2021.

The tremendous momentum and demand we're seeing across the business for a comprehensive product offering, including an impressive pipeline of new opportunities, gives us confidence in providing a preliminary outlook of 30% to 40% revenue growth for 2021. As the market leader, we've seen a significant acceleration in demand for our services.

In the first half of the year, we on-boarded nearly 15 million new paid members in the U.S. including 8.5 million new members during the second quarter, all of which have come on board under the traditional PMPM plus visit-fee model. The marketplace has taken notice of our performance during the COVID outbreak.

Our execution during the crisis, including the outstanding reliability of our platform and our ability to rapidly onboard physician capacity, has enhanced our reputation and further distanced Teladoc Health from the competition. As a result, we are seeing increased inquiries for new potential client takeaways.

For example, we’ve recently signed a contract to provide our entire suite of clinical services to a Fortune 50 media company with well over 100,000 employees. This was a competitive take away that came to us due to our broad and comprehensive product portfolio and is scheduled to launch this fall.

Turning to visit volumes, we provided approximately 2.8 million visits in the second quarter, representing growth of over 200% compared to the second quarter of 2019 and a 35% increase sequentially over the first quarter, despite the second quarter historically being a seasonally slower quarter.

During this period of significant growth, we are extremely proud to see our patient satisfaction metrics climb as consumers benefit from the convenience, lower cost and high quality service we provide. It's important to drill down into the drivers of the accelerating visit growth.

While we're certainly seeing pandemic related demand, long-term sustainable tailwinds are evident through a deeper look at the dynamic within the quarter.

As discussed on last quarter's conference call, we experienced a sharp acceleration of visit volume during March and into the month of April, as comprehensive national shelter in place orders began. Zero dollar co-pays were implemented and brick and mortar facilities closed.

Over the course of April and May, volume growth began to ease as the COVID curve flattened across the country and overall infectious disease rates fell due to social distancing. Utilization stabilized at a level of roughly 40% higher than prior to COVID, in late May and throughout most of June.

As the state level process of reopening began at the tail end of the quarter, we began to see volumes reaccelerate, as COVID continues to flare up across various geographies.

At the book of business level, we're currently experiencing visit volumes in the US nearly double the level we would typically expect to see during these seasonally slower summer months. When we look at the individual state level however, it highlights two distinct trends.

On one hand, in several southern states where reopening was more rapid and COVID case volumes have accelerated, we are likewise experiencing a significant spike in demand and are now seeing visit volumes in these states exceed the initial peak levels of March and April.

Conversely, over the past several weeks, in those states where reopening has been slower, and COVID cases have remained well below the initial outbreak peak, we've seen visit volumes stabilize at levels well in excess of pre COVID levels.

In fact, we're seeing visit volumes grow in these states at more than double the rate of growth that we experienced just prior to COVID. It's worth noting, that this is occurring despite the fact that physician office locations are now operating back near pre COVID capacity levels, after being down 70% at the April peak.

This persistence strengthened visit volumes, reinforces our confidence in meaningfully higher sustained levels of utilization of virtual care going forward. Continuing on the theme of sustained levels of higher utilization, our unmatched engagement capabilities have enabled us to fully capitalize on the current macro consumer tailwinds.

Fueling the acceleration of new registration growth, which was up 150% year-over-year in the second quarter.

Visits from newly registered individuals represented over half of our visit volumes in the quarter, pointing to sustained utilization momentum going forward, as we benefit from the flywheel dynamic that we discussed at our Investor Day earlier this year.

I'm particularly pleased to see the strength and adoption of utilization continue to be broad base, as our diverse portfolio of services is enabling us to meet the varied needs of our members.

While general medical visits continue to exhibit significant growth, demand for specialist care, including dermatology and mental health continue to grow even faster.

We're seeing tremendous demand for mental health visits in particular, as visit volumes have grown sequentially in every month of the year, both on the B2B and DTC sides of the business. Better help our direct to consumer mental health offering is exhibiting accelerating traction and continues to significantly outperform our expectations.

Turning now to our hospital and health systems channel, the second quarter saw us continue to experienced tremendous growth in demand as provider clients are adopting our technology as a secure, effective and efficient way to offer virtual visits at scale. The prolonged global crisis is highlighting the need for robots virtual care capabilities.

And according to a recent survey conducted by McKinsey, about 60% of us providers now view Telehealth more favorably than prior to the pandemic. In that same analysis, McKinsey estimated that over $250 billion worth of U.S. healthcare spend could ultimately be virtualized, delivering material efficiencies to the system.

Since the outbreak of the pandemic, we've seen a more than ten-fold increase in utilization across our provider platform, as our clients shift more of their encounters to virtual.

Of particular note, we have seen a tremendous increase in scheduled pre admission and post discharge follow up visits, as the number of clinical use cases continues to expand.

As a result of investments we've made in our highly configurable and customizable offerings, we are uniquely equipped to meet the needs of integrated health plans looking to enable their own physician groups on our platform.

Including white labeled solutions to both enable the practices to see their own patients virtually, and to leverage Teladoc's owns physician network to supplement these physician practices. As expected, we closed the acquisition of InTouch Health on July 1st, and I can confidently say this is the strongest integration we've had today.

I'm extremely excited to welcome Joe DeVivo, who is now officially the president of the newly combined Hospital and Health Systems business and the entire InTouch team to the Teladoc Health family.

Just last week, we were honored to host InTouch Health's 14th Annual Telehealth Innovation Forum, for the first time as a combined company and for the first time it was a fully virtual event. The Innovation Forum is the premier Telehealth event of the year, attracting clients, healthcare leaders and visionaries from around the world.

This year, over 3500 registered attendees participated in 55 sessions with more than 70 client speakers, covering topics ranging from virtual care best practices to clinical workflow models.

The engagement within these sessions made it incredibly clear to me that the coming together of these two companies could not have been better timed, and I could not be more excited about the tremendous opportunities ahead for the combined business. When it comes to the performance of the business, we are extremely pleased.

The combined offering is resonating in the marketplace. And our ability to deliver a highly secure interoperable and fully integrated platform backed by our large network of physicians is driving record pipeline growth.

We have recently signed several significant new and expansion contracts with large clients including new international deals with health systems in Germany, India and the UK, demonstrating the ability of our team to close international deals and outpacing our own expectations for activating our international distribution channels.

With that, I will turn the call over to Mala for a review of second quarter financials, as well as detailed 2020 guidance. .

Thank you, Jason, and good afternoon, everyone. During the second quarter, total revenue increased 85% to $241 million. Global subscription access fee revenue for the quarter of $182 million grew 64% versus the prior year, demonstrating significant momentum. U.S.

subscription access fee revenue of $152 million grew 78% in the quarter versus the prior year. And international subscription revenue of $30 million grew 17%. The strength of the dollar versus foreign currencies resulted in a negative FX impact of $1.3 million in the quarter. International revenue growth was 22% on a constant currency basis.

Visit fee revenue for the quarter increased to $58.9 million, representing growth of 209% over the prior year, in part aided by the surge in volume in the early part of the quarter, due to the evolving global pandemic.

Revenue from individuals with visit-fee only access was $19.5 million in the quarter, representing nearly 450% growth versus the prior year, driven in part by rapidly accelerating utilization amongst new populations added in the back half of 2019.

Visit-fee revenue comprised 24.4% of consolidated revenue, up significantly from 14.6% of revenue in the prior year's quarter. As we have experienced considerable increases in utilization year-to-date. Turning to membership and access, U.S. paid membership increased to 51.5 million members, up 92% versus the second quarter of last year.

Of the 8.5 million new paid members added in the quarter, approximately 1.5 million have been on boarded on a temporary basis on behalf of our clients. Individuals with visit-fee only access was 21.8 million at the end of the first quarter, approximately 12 million versus the prior year and 2.6 million, sequentially.

As anticipated, visit-fee only includes access for approximately 2.5 million temporary individuals that we anticipate will roll off by year end. Total visit volume of approximately 2.8 million visits in the quarter represented over 200% growth versus the prior year. Visit volume from paid members in the U.S.

grew over 225% to nearly 2 million visits, which represents an annualized utilization rate of 16% as compared to 9% in last year second quarter. Excluding the impact of the new large health plan populations on boarded over the last 12-months, annualized utilization during the second quarter would have been 22%.

PMPM in the quarter was $1.02, compared to $1.06 in the prior year's quarter. As we have previously discussed, we expect to see a dampening effect on average PMPM, when we onboard large new health plan member population. Adjusted gross profit increased by $62 million to $151 million or 70% as compared to the prior year second quarter.

Adjusted gross margin, adjusted to exclude amortization of intangibles was 62.3% compared to 68% in the second quarter of last year, and 60% in the first quarter. The year-over-year decline in gross margin is attributable to the robust visit growth and increase in visit-fee revenue mix in the quarter.

The sequential improvement in gross margin reflects significantly lower investment in physician capacity, despite a 35% sequential increase in visit volume, as the investments we made during the first quarter paid off. Operating expense for the quarter totaled $157 million, or 65% of revenue compared to 85% in the second quarter of 2019.

Excluding non-cash charges such as depreciation and amortization, stock compensation and onetime acquisition and integration related expenses, quarterly adjusted operating expenses were $124 million or 51% of revenue, compared to 63% in the second quarter of last year.

Adjusted EBITDA increased to $26.3 million for the quarter compared to $6.3 million in the second quarter of 2019. Adjusted EBITDA margin expanded 600 basis points over the prior year second quarter to 10.9%.

EBITDA, including stock compensation and onetime acquisition related costs was a positive $2.7 million in the quarter, compared to a $12.2 million EBITDA loss in the same period last year. Net loss in the quarter was $25.7 million, compared to a net loss of $29.3 million in the second quarter of 2019.

Net loss was $0.34 for the second quarter, compared to a loss of $0.41 in the second quarter of last year.

The net loss per share includes a $0.10 net impact associated with our May 2020 convertible debt offerings, which includes the charge associated with the loss on extinguishment of a portion of our previously outstanding debt that was to mature in 2022.

We ended the quarter with over $1.3 billion in cash and short term investments, while our total debt outstanding as of June 30th was $1.3 billion. Now turning to forward guidance, note that the guidance now includes the results of InTouch Health, which closed on July 1st.

For the third quarter of 2020, we expect total revenue of between $275 million to $285 million, representing growth of 100% to 107% over the prior year's quarter. We expect total U.S. paid memberships of $50 million to $51 million excluding the approximately 1.5 million temporary members on boarded during the second quarter.

We anticipate total visits during the third quarter of between 2.5 million and 2.7 million. We expect third quarter EBITDA to be in the range of negative $3 million to positive $1 million. Adjusted EBITDA of between $27 million to $31 million and net loss per share to be between $0.35 and $0.30 based on 83.4 million shares outstanding.

For the full year 2020, we now expect revenue to be in the range of $980 million to $995 million, as Jason said, up from our prior $800 million to $825 million range, 7% to 80% percent growth over the prior year, including approximately 65% to 68% organic growth. We expect total U.S.

paid membership at year end of over 50 million members, representing at least 36% membership growth as compared to 2019 and visit-fee only access to be available to approximately 19 million to 20 million individuals.

We have increased our expectation for visits and now expect total visits to be between 9.8 million and 10.3 million for the year, representing total visit growth of approximately 135% to 150% over the prior year.

Our visit outlook does not assume an incremental increase in volume resulting from a second surge of COVID-19, which many experts are predicting will occur later this year.

We expect EBITDA in the range of negative $13 million to negative $6 million and adjusted EBITDA in the range of $85 million to $92 million, representing growth of approximately 165% to 190% over the prior year.

The expected EBITDA improvement reflects the significant growth in revenue in conjunction with our continued focus on operating efficiencies, while still allowing us to continue to make significant investments in growth.

We expect to continue to invest in future growth opportunities, including increased investments to drive the continued adoption of virtual care and in the tremendous opportunity set in front of the newly combined hospital and health system business.

Net loss per share is expected to range from a loss of a $1.45 to a $1.36 per share, based on 79.6 million weighted shares outstanding. We expect cash flow from operations to grow consistent with adjusted EBITDA growth.

Similar to the second quarter results, the full year net loss per share includes a $0.10 net impact associated with our May 2020 convertible debt offering, which includes a charge associated with the loss on extinguishment of a portion of our previously outstanding debt that was to mature in 2022.

Today, I will also provide you some standalone financial metrics for InTouch to help guide your modeling. Note, that after today, we do not expect to provide standalone InTouch financial results. In the third quarter, we intend to provide operating metrics for the newly combined Hospital and Health Systems business.

For fiscal year 2019, InTouch Health generated $85 million of revenue and we expect that to grow over 35% this year. For the second half of the year, we expect InTouch will generate [Indiscernible] of revenue, excluding a $2 million to $3 million purchase accounting reduction to deferred revenue.

We expect InTouch to approach breakeven adjusted EBITDA in the second half of the year and deliver positive adjusted EBITDA early in 2021. We expect InTouch and the broader Hospital and Health Systems channel to deliver revenue growth in line with our long-term consolidate 20% to 30% organic revenue growth target.

And expect gross margins in the mid-60s. We see significant opportunities for synergies, including cost synergies in the mid-single digit as a percent of revenue and revenue synergies well in excess of that. With that, I will turn the call back to Jason, for closing remarks..

Thanks Mala. Before we turn to Q&A, I'd like to take a moment to put into context how we think about the significant financial numbers we've shared with you today. Earlier this month, I hosted one of our company's regularly scheduled town hall meetings. These meetings are typical in many ways with business updates and a discussion of critical issues.

In this case, we discussed our work on diversity and our approach to returning to the office someday. But regardless of the topics, we always start with a patient's story to ground us in why we do what we do.

While I'm not going to do that today, it's clear to all of us here at Teladoc Health, that the numbers we've talked about today represent millions of people who were sick, worried or stressed in the face of an uncertain world. People who we helped heal.

These numbers also represent the thousands of hospitals and physicians, who are investing in virtual care to be there for their patients in their time of need today and in the future. The pride that our team feels for these results today is as much about living our mission as achieving outstanding financial performance.

And we're grateful to share this success with you today. As always, thank you for your continued interest in the Teladoc Health story. And with that, we'll open the call for questions.

Operator?.

Thank you. [Operator Instructions] Your first question is from Ryan Daniels with William Blair. Your line is open..

Hey, guys, thanks for taking the questions. Jason, maybe one for you clearly, we've seen Telehealth move into the mainstream on a very rapid basis.

And I guess the only really outstanding question is, what's the long term reimbursement outlook? But I'm curious what you guys are doing from a marketing, or just an engagement standpoint to ensure that this momentum continues that it's not near term in nature, and that this really does become mainstream is kind of a typical form of utilization for consumers as we look forward over the next few years?.

Yeah, thanks, Ryan. I'd say a couple of things. First of all, the momentum that we're seeing is broad based across the entire business, which is a really strong indicator and gives me tremendous confidence that this not only has become part of the mainstream but will continue to grow at a very strong clip.

We are continuing to use our engagement engine in order to drive first time users, right. And so, if you saw, or if you heard in the prepared remarks, first time users were up significantly, new registrations up over a 150% year-over-year.

As we talked about in our Investor Day at the beginning of March, once we get them in the top of the funnel, then the flywheel takes effect. And we're seeing people who used more than one clinical service increase substantially over the course of this quarter relative to prior quarters.

So, I think all of those things serve to make this part of consumers everyday thought process about how they access care.

And then lastly, I would say enabling the providers to deliver virtual care on our platform will serve to make virtual care part of how consumers expect to get health care not a novelty, which it may have been just a few years ago..

Your next question comes from Lisa Gill with JP Morgan. Your line is open..

Thanks so much. Jason, congratulations on another outstanding quarter, as we think about 2021, and thank you for giving that seminary outlook, I just want to understand just a couple of different components to this. I appreciate the numbers that you put out there for InTouch.

If I were to back out what Mala just talked about, it looks like you're still anticipating that the organic growth rate is going to be in that 20% to 30% range, even though the company is materially bigger than what it was.

I'm just curious as to what your anticipation is going forward for utilization trends? And I think you talked a little bit about this in your prepared remarks that even in places where things have started to open back up, you're still seeing strong utilization but maybe if one; you could start there and talk a little bit about that.

And then two; how does the selling season kind of backfill into that? You talked about a new client coming on in October, but how do things look for 1/1/2021?.

Okay, you got a lot in there, Lisa, thanks for the question and your comments. So, I'll start with visit volumes and utilization.

As I mentioned, at the sort of bottom of the U shaped curve, we were seeing visit volumes roughly 40% higher than pre-COVID, even as we were in sort of and so, that gives us good insight into what to expect in the back half of the year and looking into next year. We're going to stop short of giving long-term utilization ranges.

But I think, again, we mentioned that we're seeing twice the rate of growth that we were seeing prior to the COVID onset. And so I think, you can sort of triangulate on where we're going relative to visit volumes and utilization and again next year.

The second thing relative to the selling season that also gives us confidence is that our bookings are up about 70%, a little more than 70% year-over-year. And in every single channel that we look at, they're up at least 50% year-over-year for the first half of this year.

Two-thirds of our bookings are for multi-product sales, which is up from about 50% last year, so we're seeing that trend to continue. And our average deal size is up 50% year-over-year on top of what was a 50% increase last year. So, all of those things give us tremendous confidence as we look into the growth into the future..

Yeah and Lisa, I'll add a couple of other things. As we look into the future, Jason talked about utilization. He talked about multiproduct and the robustness of the selling season. The other dynamics that we are seeing is, as we've talked about, we see a tremendous expansion in our member base this year.

And as you know, the utilization on those will ramp overtime. So that is a dynamic to keep in mind as we think about 2021. We talked about InTouch and the momentum that we are seeing in the InTouch business and we expect to continue to add to that as we move forward. So, there are many tailwinds that really go into the view that we have, it is early.

And there are various other macro factors at play that continue to evolve. But we felt that it was important for you all to at least have a preliminary placeholder on how we are thinking about our growth for next year. .

[Operator Instructions]. Your next question comes from Stephanie Davis with SVB Leerink. Your line is open..

Hi, guys, congrats in a really strong quarter. And Joe, welcome to the team. I have question on the hospital space.

Can you talk a bit your differentiation versus some of the tech peer plays like Zoom or Microsoft teams as we're seeing more HIPAA Compliant solutions come to the forefront?.

Yeah, absolutely. Thanks, Stephanie. First, let me talk a little bit about in touch in the tremendous momentum that we're seeing there. We've seen RFPs actually triple from Q1 to Q2, as hospitals and health systems move to rapidly embrace virtual care in a changing landscape.

50% more client expansions in the quarter versus the last several quarters, and over 20% increase in new clients, so really tremendous momentum. I think, I mentioned in the call the success of our international expansion, we activated that channel much faster than I expected to.

And I think all of that points to the change that we're seeing and how hospitals are thinking about virtual care and the technology that enables it. It's much more important and some of them did put in sort of band aids, if you will. Stop GAAP measures in order to meet initial demand for single use cases.

But what we're seeing is that hospitals are looking for an enterprise wide solution that is secure, that is managed, that is medical grade reliability and that can both bring the doctor to the bedside, as well as into the home.

And InTouch and Teladoc Health together are uniquely positioned to be able to do that, unlike any of the sort of off the shelf video platforms that aren't really designed for healthcare and aren't integrated into the healthcare system.

And we really see that, that is going to continue to be a rapidly growing channel and a competitive advantage for us..

One quick follow up on that, you've talked about kind of this RFP tripling.

Is there any sense of how penetrated the hospital environment is? Is this going to be a kind of a 2020 penetration story and then tapers off in 2021 or is there more runway post this?.

Yeah, there's tremendous runway. I mean, together, we're now, we serve 60 of the top 100 hospitals when you combine the two organizations. But we're barely penetrated in terms of the used cases, the number of physicians who are on the platform.

And so, with each additional clinical used case, with each additional physician group and specialty that embraces virtual care, that's expansion opportunity for us. And so, you heard me say that we had 50 more -- 50% more client expense expansions in the quarter than we had previously. But the runway is tremendous in front of us.

We're really just scratching the surface in the Hospital and Health Systems space. .

Yeah and the other, the last thing I would add is Stephanie is, that expansion in the runway is not just inside the four walls of the hospital, right. If you think about the network impact of what the two of us bring together as the new Hospital and Health System segment, it's sort of an exponential impact of that..

And maybe last thing I'll add there is, we find that physician groups and large health systems alike find significant value in our provider network, because we can bring additional capacity to the health system or the physician practice. .

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

Hi, thanks. And let me add my congrats to an incredible release here. So, I just have a few more questions on the InTouch integration and wanted to get a little bit more detail.

Jason, you mentioned the last quarter, you identified a hundred used cases for the combined assets of InTouch and t Teladoc, if you can maybe touch on one or two of those that are resonating in the market right now.

And then, from a reporting standpoint, I appreciate the disclosure on the numbers for InTouch, but how is it going to be reported within the context of the existing operating metrics you provide or will there be new operating metrics that we're looking at next quarter?.

Yeah, Sean, let me address the reporting first, and then I'll turn it over to Jason. So, starting next quarter, we will consolidate InTouch into our overall reported revenues. And what we do expect is that the majority of that revenue will really be an access fee revenue. But we do expect to consolidate it all into our revenues. .

And then, with respect to the used cases, it was really amazing to go through the talk about their used cases. And they range from pre admission to consultations to post discharge follow ups, range from oncology to nick used cases. Of course, Telestroke continues to be a very significant used case.

And as you might imagine, with people being concerned about going into the hospital, you see everything from orthopedists to cardiologists, going virtually into the consumers home to deliver care, and make sure that the patients are getting the care that they need. So, it's really an incredibly broad spectrum.

What's great about the Innovation Forum is you get the sharing of that information and best practices, and we frequently see that Hospitals and Health Systems implement some of those used cases and best practice that they learned at the Innovation Forum. .

Yeah, Sean one, just one quick thing. Just so that we can provide a measure of transparency into how this business is progressing. As we said in our prepared remarks, we will put out some operating metrics starting next quarter..

Your next question comes from Sandy Draper with SunTrust. Your line is open..

Hi, this is Stan on for Sandy. Thanks for taking the questions. So last quarter, I believe you commented that you've kind of evolved your hiring methods a bit to ensure provider capacity on the platform.

Just curious, if you can give us an update on capacity levels, you're seeing an influx of utilization, so any changes there?.

Yes, so thanks, Stan. Our capacity, as you know, we expanded our capacity dramatically in the second half of March in response to a significant increase in visit volume. That was a time of tremendous innovation that enabled us to onboard thousands of physicians very efficiently. And we benefited from that over the course of this quarter.

So in spite of significantly higher than expected visit volume, you saw the investments that we made in the first quarter pay off in the second quarter, and that accounts for some of the improvement in our gross margins.

As you'll note, we had significantly higher visit volume in the second quarter than the first quarter, and yet our gross margins increased. And that's a direct result of all that additional capacity that we added. And then lastly, you'll see or you'll hear or you heard in our prepared remarks, the increase in member satisfaction.

And that is in part due to the tremendously strong response times that we've had in the second quarter where with that incredibly high volume of visits, we're down under 10 minute usually between five and 10 minute response times. So we feel very, very pleased with that. And we feel like we've made the investments that will pay off into the future..

Your next question comes from Daniel Grosslight. Your line is open..

Hey, guys, thanks for taking the question. I want to go back, Jason, to that comment you mentioned about the new win for that media company. As I kind of look at the landscape here, a lot of your peers have -- there's been a lot of reports about some of your peers kind of fallen down.

And so I am wondering as you look at the RFP environment for 2021 and the rest of this year, do you think you'll see an increase of in RFPs from some of the health plans that may have entrenched relationships with other vendors? And how do you see kind of that competitive takeaway going as we look to model 2021?.

Yeah, thanks, Daniel. We do see significant opportunities to penetrate clients who have historically worked with someone else, maybe they were an early adopter or they went for a lower cost alternative in the past and they're not meeting their expectations.

We have improved our relationships with our existing clients and we have created new relationships with prospects as a result of the incredible performance of our team and our platform during this situation. The media company that I mentioned is a great example.

They were an early adopter of telemedicine with another company, and we're very, very pleased to provide them our entire suite of clinical services. And we see that as a continuing trend, both among employers as well as among health plans..

Another trend that we are continuing to see is the strength in our cross-sell up-sell efforts. We've talked in the past about land and expand. And the proof positive of that is the strength that we are seeing in our cross-sell up-sell. So, again, that is another trend and dynamic that we're seeing as we think about the selling season ahead..

Great. Thanks, guys..

Your next question comes from Charles Rhyee with Coven. Your line is open. .

Yeah. Thanks for taking the questions, and congrats on the quarter and the strong outlook. Maybe Mala, I just wanted to follow up to an early question about how we’re modeling and I think you said think of InTouch mostly going into the access fee revenue.

Is there a visit component that we should be modeling in or should we not really touch the visit line -- sort of the visit assumptions to incorporate InTouch into the -- to consolidate down into revenues? And then and I guess more broadly to that, as we think about the pricing model, does that -- is it really just the subscriptions and is it sold modularly? Maybe, if you can just give us a little bit more color into sort of how about the pricing model works on the InTouch side? Thanks.

.

Yeah. So, in terms of the composition of the revenue, think of it as primarily access revenue. I don't want to go into more specifics than that Charles, but I would say primarily visit -- primarily sorry access revenue.

In terms of the revenue -- sorry economic model, the way the InTouch business works is that we get paid both on a licensed user basis, as well as on a per care location basis. So, there are a couple of different ways that we do get paid in terms of the overall economic model. I'm going to leave it at that, I don't want to get into any more specifics..

Your next question comes from George Hill with Deutsche Bank. Your line is open..

Hey, good evening, guys. And thanks for taking the question.

Jason, I'm going to try to sneak into real quick, first is; I'd love to ask about how you think of the evolution of the model of telemedicine, what I would call the provider anchored model versus the payer anchored model? And I know that you guys sell both, but most of your revenue comes from the payer anchored model, and I'd love any comments you'd be willing to make on step ups in utilization by disease date.

I'm particularly interested in behavioral? Thank you..

Yeah, thanks, George. Look, I think telemedicine is here to stay. And it's here to stay all across the spectrum of how healthcare is delivered. And so it's, as you know, it's always been our strategy to be at every front door of the healthcare system, enabling that virtual care.

We're very, very happy to do it for our providers by providing technology for them. And you see the proliferation of that in all the numbers. I just saw new numbers come out from HHS about Medicare usage of telemedicine and it seems to be persistent. And that's not surprising to me.

Those are similar to the trends we're seeing among our provider clients. But 50% of consumers don't have a primary care physician. And so, our service that is delivered through the payer or the employer continues to be a critical access point to ensure that consumers are getting the care that they need on their terms.

And we deliver it in a way that is incredibly high quality and cost efficient. So, I think all of those things very, very much embrace our strategy at going after every part of the healthcare system. And then you asked about utilization.

And so, I'll give a few pieces of insight there because I think you asked about disease states, which is really important. Mental health and dermatology have increased substantially where, even faster than our general medical visits. And of course, that has been on just an absolutely torrid pace.

Mental Health 40% of people say that they wouldn't have sought care if it weren't for having access to our services, which is just a tremendous need in terms of people who don't get the care that they need, either because of stigma or access or cost or something else.

We're also seeing a significant increase in usage for non-infectious diseases, and that's actually grown faster than infectious disease. So, today, about 60% of our general medical visits are for non-infectious diseases. Whereas this time last year, it was only about 40%.

And I think that really speaks to the proliferation of virtual care across all of those condition states.

So, for the first time we're seeing hypertension and lower back pain in addition to anxiety climb into our top 10 visits list, or top 10 diagnoses list, which is very, very interesting and I think portends a very bright future in terms of the impact that we can have on the overall healthcare system..

Your next question comes from Matthew Gillmor with Baird. Your line is open..

Hey, thanks for the question. Jason, I appreciate the comments on causing a revolution as the system went back on telehealth coverage and reimbursement.

I was curious what you're hearing from employers and payers with respect to co-pay levels and how long that stays at zero dollar or will that be more of a permanent change as well?.

Yeah, so we're seeing positive signals about that continuing. We've seen some large employers and health plans extend that the zero co-pay through this period of time and into the future, some even into next year already. And so, we're positive on that.

I think people have realized the benefits that virtual care can have into the future, regardless of what the COVID curve looks like.

And then, with respect to reimbursement at the federal level, you probably saw Matt, that the Senate COVID Release Package that was proposed earlier this week, it proposes to extend the waivers, the Medicare waivers through the end of '21.

I think when you combine that with Secretary Hazar’s comments, and the fact that there are several bills in Congress to remove the originating site and rural restrictions. And I think, it's really here to stay in terms of Medicare reimbursement..

Your next question comes from Sean Dodge with RBC Capital Markets. Your line is open..

Thanks. Good afternoon. Maybe on virtual primary care, Jason, you spent a lot of time talking about that at the Investor Day.

Can you give us an update on the progress there? I guess how far away do you think you are from having all of the necessary pieces for that in place and in standing up commercially? And what are those first iterations of it, I guess, going to look like?.

Well, so as we promised, we launched our VPC pilot, Virtual Primary Care pilot in Q2. The initial results have been really strong and incredibly interesting.

A very broad array of clinical diagnosis in fact, almost 70 clinical diagnoses within the pilot population, ranging from chronic to acute, to complex, ranging from many, many preventative screenings have been recommended, and then actually, the consumer got the screening that they need, whereas they had no plan to do that before their visit.

And so, all of that is very positive, we're also seeing a really interesting and broad mix of age groups, who are accessing that care and really engaging well with the overall longitudinal nature of that program. We have active processes going on in the pipeline with several large payers and employers.

And I would expect that we will be commercially live in certainly the first half of next year, and won't be more specific than that since we're still in those discussions.

And the payment models are broad, as you might imagine, ranging from discussions about risk sharing arrangements, primary care capitation, to fee for service to traditional PMPM plus visit fees. And so, I think you're going to see us come out with a number of different models.

And I think, the most important thing is putting all the pieces in place to deliver on the promise of virtual primary care..

Your next question comes from Jailendra Singh, Credit Suisse. Your line is open. .

Hi, thanks. So I was wondering, if you can, you guys can talk about your M&A focus and opportunities you're seeing with more than $1.3 billion cash in balance sheet. You guys have pretty good financial flexibility.

Just wondering, if you guys can highlight some of the areas you might be interested in?.

Sure, Jailendra. I think our focus continues to be on expanding the markets that we serve and the clinical breadth of our product portfolio.

With the vast population that we now have that has access to the platform, we're in a unique position to be able to put more products through that platform, make our clinical impact broader and deeper, and to do it in more markets. So, we continue to look at geographic expansion internationally.

We've had some great success internationally, organically this year with significant wins among the largest financial services company in the Nordic region, which gives us a foothold there, a significant win in Brazil that really expands our footprint there by with one of the largest health insurers in the Brazilian market.

And we continue to look at geographic expansion both organically and through M&A. And we will continue to look to expand our clinical scope and the impact that we can have across the entire spectrum of clinical used cases and clinical needs..

Yeah, the thing I would also add Jailendra is and we have said this before, when we look at markets outside the U.S., we will be surgical, we will be targeted. We will look for how bright and favorable the conditions are in those markets for Telehealth from a regulatory perspective, et cetera.

But exactly like Jason said, it's about adding more products and services, as well as expanding our footprint in a disciplined way outside the U.S..

And our last question comes from David Larsen with Variety Research. Your line is open. David Larsen, your line is open. .

Sorry about that, I was on mute. Can you talk a little bit about your relationship with United Health Group? I mean, I imagine it takes a lot of investment and time to build a telehealth capability. Thanks..

Sure, I appreciate the question, David. We have a great relationship with United. We continue to expand the products and services with United as well as the businesses within United that we serve.

As you know, they’re a very large organization with multiple businesses and we continue to expand the scope of our offerings to facilitate virtual care for their members as well as for their own provider organizations. And I would characterize it as a very, very strong relationship..

Now, I’ll turn the call back to the presenters for any closing remarks..

Well, thanks, everybody, for tuning in. We're very pleased with the results in the quarter and our outlook for the rest of this year and next year. And we look forward to continuing to keep you up-to-date on our progress. Thank you..

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