After the Signify-CVS Health and Amazon-One Medical deals, experts predict Teladoc could be the next digital health company sold.
In a recent analysis of potential M&A targets, analysts said Teladoc Health boasts a large, established suite of services and a strong membership base that make it appealing for a larger buyer. It also has seen huge financial losses in 2022, having posted a $9.7 billion loss for the first half of the year and saw adjusted earnings before interest, taxes, depreciation, and amortization dip 30% last quarter.
But in response to this speculation, a company spokesperson said Teladoc Health is not for sale. Rather, the company may be interested in doing the acquiring itself, CEO Jason Gorevic said in a recent interview with Digital Health Business & Technology.
“I think all the recent M&A is an example of our strategy that you can’t develop all the components brick by brick and assemble them in a way that is fast enough to stay ahead of the market and respond to consumer needs, and that’s part of the reason why we’ve been acquisitive historically,” Gorevic said. “We always look at the market in the future, and where we can accelerate our ability to deliver value for our clients faster with M&A, even as we continue to invest in innovation organically."
Gorevic spoke with Digital Health Business & Technology on several additional topics, including cost cutting during a recession, telehealth utilization trends and more. The interview has been edited for length and clarity.
What’s on your priority list heading into 2023?
As I look ahead to 2023, there are three big things on my priority list. One is investing more into innovation to drive better health outcomes. We want to bring all our products and services, both our clinical products and technology assets, together in order to deliver a fully integrated consumer experience and deliver on the promise of whole person virtual care. At the end of this year, we’re launching our single app that provides an integrated front door to all our capabilities. Number two is doubling down on health equity. I've said for years that virtual care can be the great equalizer in healthcare to break down barriers to getting care for underserved populations while reducing disparities in care. But it has to be done in a culturally sensitive way. Lastly, maybe it's not sexy, but I tell our team that the opportunity is in front of us, we just have to execute on it. We have the right strategy and we have a great set of assets to deliver whole-person care, we just have to execute.
What is your biggest opportunity?
There have been a lot of smaller, one-dimensional virtual care companies that have come to market and what we're seeing among our clients, especially employers and health plans, is that there's real exhaustion with the point solutions. What ends up happening is there’s a suboptimal consumer experience. Either the client has to do the integration themselves or the [solutions] will just remain [siloed]. There’s a real fatigue with that situation. We see it as an opportunity. Around 80% of our sales are for two products at once.
What are your biggest challenges right now?
The fact that there are a lot of upstart, small competitors in the market creates noise. When you talk about all the small competitors, a lot of them are one dimensional but legitimately well-funded coming out of the last couple of years and getting a significant influx of capital. It's our job to make sure that we break through the noise and teach the market what true whole person care looks like at scale.
A few months ago on an earnings call, you said the company was cutting back on advertising. Where else might you be cutting costs?
When it comes to advertising, we are focused on making sure that we're optimizing our ad spend. If there’s a significant uptick in the cost per acquisition in the market, because of either competitive dynamics or scarcity of inventory, then we’ll respond accordingly because we’re pleased overall with our direct-to-consumer offering. We can be very flexible and responsive if dynamics change in the ad market.
When it comes to overall financial performance, there's no question that we continue to focus on performing both in terms of top-line growth and bottom-line performance, especially on the adjusted EBIDTA line and with respect to cashflow. We're pleased to be in a situation where we're significantly positive on the adjusted EBIDTA line, which is really a reflection of cash and positive cash flow. Certainly that matters a lot in the current economic environment where we're seeing the cost of capital increase as interest rates go up. At the same time, we're making significant investments in innovation and will spend right around $400 million on research and development this year. We want to be prudent and optimize the performance of the business, but at the same time invest and take advantage of the opportunity in front of us and capitalize on our unique assets.
Telehealth utilization was down in June. What can be done to reverse that trend?
While that’s probably true on a macro level, we grew our visit volumes in the second quarter. I think it’s a reflection of the diversity of our business as mental health volumes are growing at a much faster rate than general medical visits. Also, specialty visits are growing at a much faster rate. I also think visit volume isn’t the best measure for us. We have a lot of digital interactions that we don’t count as visits. For instance, if someone uses a health coach that provides behavioral prompts to the consumer. We believe there are other measures that show the impact.