Teladoc HealthTDOC

Teladoc has notified regulators of a change in its leadership team or board of directors. While the filing confirms a shift at the top, the company has not yet detailed who is departing or who will take their place.

This comes at a sensitive time for the telehealth provider. The company is currently trying to turn around its business by cutting costs and focusing more on chronic care management, such as diabetes and hypertension programs, rather than just simple video doctor visits. A change in leadership can often signal a new strategy, but it also adds uncertainty while the company is still working to reach consistent profitability.

Source: 8-K filing

The company reported second-quarter revenue of about 607 million dollars, which was lower than the 620 million dollars analysts expected. The main problem was the BetterHelp mental health unit, where revenue dropped 12 percent from last year. This unit is struggling because it is costing more to acquire new patients through advertising, and demand is shifting.

Management also lowered its sales forecast for the full year to a range of 2.36 billion to 2.45 billion dollars. This is a setback for the goal of stabilizing the business. While the Integrated Care segment, which sells to employers, grew slightly, it was not enough to make up for the weakness in mental health. The stock fell about 20 percent following the news as the timeline for a recovery looks longer than it did a few months ago.

See the full quarter, and how our tracked metrics did

Source: 8-K filing

Key highlights

• BetterHelp revenue sliding: BetterHelp revenue fell 12% to $212.6 million this quarter as the business struggled with a 20% drop in customers who pay out of pocket for therapy. This drop in cash paying users is a major headwind for the company, even though insurance covered revenue within the same division jumped to $21.8 million from just $2.1 million last year.
• Integrated Care holding steady: The Integrated Care segment, which includes general medical and chronic condition services, grew its revenue by 1% to $394.3 million. This division remains the more stable part of the business, supported by chronic care enrollment that rose 14% to 1.27 million people compared to a year ago.
• Profit margins diverging: BetterHelp adjusted EBITDA, a measure of core operating profit, plummeted 96% to $471,000 as the company spent heavily to roll out its insurance model. Meanwhile, the Integrated Care division improved its adjusted EBITDA margin to 16.5% from 14.7% a year ago, showing better efficiency in the corporate and health plan side of the business.
• Cash flow under pressure: Free cash flow, which is the money left after running the business and paying for equipment and software, fell to $35.7 million for the quarter compared to $61.2 million a year earlier. This decline matters because it reduces the cash the company can use to pay down its $996.7 million in senior notes that are now classified as a current liability due soon.
• Full year outlook lowered: Management expects full year revenue between $2.36 billion and $2.45 billion, which reflects a cut to its expectations for the BetterHelp segment. BetterHelp is now projected to see revenue decline as much as 19% for the year, a sharper drop than previously feared as the company shifts its focus toward users who use insurance rather than cash.

Our take: This was a difficult quarter that confirms the business is in the middle of a painful transition. The sharp drop in BetterHelp's profitability and cash pay revenue is the defining issue here, and it suggests the company's biggest growth engine is broken. While the Integrated Care side remains healthy, the ongoing struggles at BetterHelp are starting to chip away at the long-term case for the stock.