Teladoc Health Inc (TDOC) 2016 Q1 法說會逐字稿

Good afternoon, my name is Connor and I will be your conference operator today. At this time I would like to welcome everyone to the Teladoc first quarter 2016 earnings release conference call.

(Operator Instructions)

Thank you. Adam Vandervoort, you will now begin your conference.

Thank you, and good afternoon. I am Adam Vandervoort, Teladoc's Chief Legal Officer.

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.

I will now turn the call over to Jason Gorevic, President and Chief Executive Officer of Teladoc. Jason?

Thank you, Adam. Welcome everyone on the call and thank you for joining us this afternoon to review our first-quarter 2016 results.

Teladoc kicked off the year with a very solid quarter, as we continue to add new members and drive utilization rates. Furthermore, revenue, membership and visits all met or exceeded the top end of our guidance ranges. Revenue of $26.9 million increased 63% from the first quarter of 2015. Membership increased by nearly 3 million members from year-end, to just over 15 million members. Visits increased 61% this quarter over the first quarter 2015.

As I have done on previous calls, I would like to break out my comments today into three topics. First, our strong visit volume in the first quarter, second, the improving regulatory landscape in the telehealth industry, and third the exceptional operational performance and scalability of the Teladoc platform. The solid platform we have built allowed for another strong quarter of growth and operational success. We added 2.9 million new members and conducted a record number of visits, all while executing flawlessly in the first quarter.

To dig down a bit deeper into our visit volume, in early April, we announced that we had exceeded our visit guidance for the first quarter. While the flu season usually brings in a large number of telehealth visits, this season was particularly light. Yet despite that, we were still able to reach a record 240,000 visits in the quarter. We attribute this increased utilization to the awareness campaigns that we began in late 2015, and to our highly effective new member welcome kits. I also want to note that the first quarter represented the 13th quarter in a row where we saw visits increase at a faster clip than our membership base. This consistent performance quantifiably demonstrates the uptick in utilization of our existing members.

With now four quarters of growth as a public company behind us, I want to emphasize that we are still in the early innings of fully realizing the benefits of telemedicine. Thanks to our highly effective and proprietary member engagement strategies, Teladoc remains the leader in the industry in terms of visits and utilization. As we have explained before, our consumer engagement efforts are focused around allergy season in the spring and cold and flu season in the fall. Consistent with this strategy, we have just completed the launch of our spring campaign with over 6.5 million communications being delivered to our members over a three-week period. Encouragingly, we saw higher participation rates from our clients than we have ever seen before. Which gives us confidence that we will be able to continue to increase the utilization of the Teladoc platform.

Turning to the regulatory landscape, I would like to talk for a minute about some very positive developments that we're seeing across the country.

Teladoc's business model represent significant innovation in the delivery of medical care, and I am happy to report that the laws on the books in many states -- which were drafted before telehealth was in existence, after all -- are evolving with our industry. Ohio, Indiana, Missouri, Michigan, Iowa, Connecticut, Louisiana, Virginia, South Carolina, Delaware, West Virginia, and Alaska have all adopted within the last 12 months, or appear to be on the verge of adopting new laws or rules that clearly recognize the benefits of telehealth and remove unnecessary regulatory burdens. We believe other states will follow. It is looking more likely that we will be able to roll out operations in Arkansas before much longer, at which point we will be operating again in all 50 states.

In addition, as was widely reported, in April the Centers for Medicare and Medicaid Services released new rules for managed Medicaid plans that recognized telehealth as an integral element of patient care and instructs state agencies to take telehealth into account when determining the adequacy of managed Medicaid networks. We believe that telehealth makes overwhelming sense for federal and state sponsored medical programs, and we interpret CMS's recent actions to be a validation of our views and a very positive signal to our industry.

On the patent front, we received another bit of positive news last week when the patent office granted our latest two petitions to review Amwell's patents. These are the second and third instances that the patent office has ruled in favor of Teladoc.

I would like to turn now to the operational performance of the Teladoc platform during this time of rapid growth for the company. I want to highlight this area because it represents a significant competitive advantage for Teladoc in an area where our competitors have stumbled of late. As we have stated, Teladoc implemented nearly 1,000 new clients in the first quarter, ranging from large national accounts to small employers. I would like to share with you just a few of the metrics we used to measure our performance.

Our call center handled nearly 0.25 million inbound calls with an average speed to answer of 14 seconds and a member satisfaction rate of 98.5%. With 240,000 telehealth visits, electronic prescribing is critical and we achieved a 97% E-prescribing rate in the first quarter. We also launched a new team to provide service for our brokers and clients under 500 lives, and they handled over 8,000 inquiries in the first quarter.

We sent over 2.25 million welcome kits to new members, which is nearly twice the number that we sent last year. I think these statistics should demonstrate why Teladoc is the only company in the telehealth space that possesses a truly scalable infrastructure and technology platform. Hopefully, these statistics will help to debunk the myth that there are low barriers to entry in the telehealth space.

The positive trends in our industry are all moving in the right direction and we continue to execute at very high levels. Which makes us confident that we will be able to achieve our updated 2016 goals. At this point in the year, we have visibility into over 95% of our annual targets. In fact, we have client commitments to add over 1 million new members with 2016 start dates after the end of the first quarter.

Before I turn the call over to Mark Hirschhorn, our CFO, I want to mention the award Teladoc received in mid-April. Teladoc was awarded Frost & Sullivan's 2016 Product Line Strategy Leadership Award For Virtual Telemedicine Services. We scored a perfect 10 out of 10 in Frost & Sullivan's customized decision support scorecard, besting our nearest competitors in breadth, scalability, technology leverage, and features, as well as in price to performance value, customers' experience and brand equity. I am very proud of this accomplishment and believe it proves the value that we bring to our members and network partners.

With that, let me now hand the call over to Mark to discuss Teladoc's financial performance. Mark?

Thank you, Jason. On the call today I will review our first-quarter financial results in greater detail, and then I will provide an update on our outlook for the remainder of the year.

Revenue in the quarter was $26.9 million, an increase of 63% year-over-year. Subscription access fees accounted for $20.7 million or 77% of total revenues. The 57% year-over-year increase in subscription access fees was driven by a 42% increase in our membership base, which stood at 15.1 million members at the end of Q1 2016, compared to 10.6 million members in Q1 of 2015. I also want to note that over 99% of our membership growth and 98% of our revenue growth was organic in 2015.

We also experienced increases in our average PEPM fees on a year-over-year basis. Our average subscription revenue per member per month was $0.47 in the first quarter of 2016, which compares favorably to $0.42 per member per month in the first quarter of 2015. PEPM went down $0.01 sequentially in the quarter, due to member mix. I want to take a moment to elaborate on that.

Aetna and other health plans' fully insured members represented a meaningful portion of our incremental members in the first quarter. In fact, over the past year we have doubled the number of Aetna lives to nearly 6 million members. Aetna continues to enjoy our most competitive rates.

Consistent with previous years, the bulk of our new membership adds are on January 1. Today we have, in hand, executed contracts from employers that will commence at the beginning of Q3 and we also have good visibility into additional healthplan lives that we would expect to go live over the remainder of the year. The majority of our new membership adds projected for the remainder of the year are skewed towards higher PEPM employer and broker sales lives. Overall, we are confident that our PEPM will be up about $0.05 over the full-year of 2016.

When we look at the composition of our member base, we feel very confident that the diversification of our sales channels will continue to create long-term value. Of our 15 million membership base, nearly 70% or 10.5 million members, come through our many health plan partners. 20%, or 3 million members have come from employers through our direct sales force and the remaining 10%, or 1.5 million members come from our broker channels.

Each and every one of these channels has tremendous growth opportunities. Our revenue from visit fees, which accounts for the remaining 23% of our total revenue increased 87% in the quarter to $6.2 million, up from $3.3 million a year ago. As Jason mentioned, we completed nearly 240,000 visits in the first quarter, compared to a 149,000 visits in the first quarter 2015. That is an increase of 61%.

As I touched on earlier, our revenue mix for the quarter was comprised of 77% subscription access fees and 23% visit fees, compared to 80% and 20%, respectively, for the comparable quarter of 2015. As a reminder, we still believe that our revenue mix will continue to represent an increasing visit fee percentage in the near future as revenues from visits grow faster than access revenues and will trend towards 60% subscription fees and 40% visit fees over the next several years.

Our gross margins were 70% in the quarter, compared to 68% in the first quarter 2015. While the first and fourth quarters are seasonally our lowest gross margin quarters in the year, we feel we have solid visibility into the rest of 2016 and we are confident that our gross margin will remain above 70% for the full year. Our second-quarter gross margins will experience a sequential increase from today's 70%.

Our G&A expense for the quarter of $13.6 million is an increase of 14% year-over-year. This represents 50.6% of total revenue compared to 72.6% of total revenue last year.

Jason spoke a bit about our regulatory successes in the quarter and I want to comment on those from a financial perspective. During the first quarter we incurred an additional unbudgeted $1 million of legal expenses -- $700,000 of which were related to Texas. Putting these legal expenses aside for a moment and looking at it from an operational standpoint, we were right on plan. However, based on the increased legal and regulatory spend in the first quarter, we have forecasted an additional $4 million in legal and regulatory costs for the remainder of 2016. Accordingly, we reflected this in our updated guidance that I will review in a moment.

In the press release we issued earlier today, we have provided reconciliation tables between GAAP and non-GAAP measures. Our adjusted EBITDA for the quarter was a loss of $11.9 million compared to a loss of $10.9 million in the first quarter of 2015. Finally, our loss per share for the first quarter 2016 was $0.40, compared to a loss of $5.87 for the same period last year.

Our weighted average common shares outstanding were 38.6 million shares in the first-quarter 2016, compared to just 2.2 million shares in the first quarter 2015 when we were a private company. With respect to the balance sheet, we ended the quarter with approximately $120 million in cash and short-term investments, and $26.4 million of debt, principally from our bank lines. Teladoc's healthy cash balance will enable us to achieve profitability without going back to the public markets.

To wrap up my prepared remarks this evening, we have great line of sight into over 95% of our 2016 financial plan, and I would like to provide our full-year 2016 outlook and initial guidance for Q2. While we are maintaining our annual revenue outlook, our updated EBITDA guidance includes the additional $4 million of legal expenses I mentioned earlier. We are very confident in our market position today and we remain on track to achieve breakeven in the second half of next year.

For the full year 2016, our revenue expectations range from $118 million to $122 million. Our guidance on our EBITDA loss is between $42 million and $44 million. Our guidance on our adjusted EBITDA loss is between $35 million and $37 million. Our membership is expected to total approximately 16.5 to 17.5 million members, and our outlook for 2016 visits ranges from 880,000 to 900,000 visits. For the full-year 2016, we expect to record a net loss per share between $1.33 and $1.38, based on 39 million shares outstanding.

For the second quarter 2016, we would expect revenue between $27.5 million and $28.5 million, EBITDA in the range of a loss of $12.3 million to $13.3 million, adjusted EBITDA loss between $10.5 million and $11.5 million, our membership range should range between 15.25 million members to 15.5 million members, and total visits completed between 180,000 and 190,000 visits. Our net loss per share, based on 38.75 million weighted average shares should be between $0.41 and $0.42. With that I will turn the call over to Jason for a few closing remarks. Jason?

Thank you, Mark. The first quarter is always an important quarter for us as we add a large bolus of new membership. We saw excellent results and remain excited about several things.

The Teladoc platform is strong, scalable, and every quarter we are extending our lead on the competition. Our engagement campaigns continue to be highly effective and are driving utilization. Regulatory changes are occurring in line with, or faster than, our expectations and we anticipate significant new business opportunities over the next several years.

The Teladoc team deserves tremendous credit for all of our success. I want to thank everyone for their efforts in helping to deliver outstanding healthcare to our clients and members. With that we will now open the line for questions. Operator?

(Operator Instructions)

Ryan Daniels, William Blair.

Good afternoon, thank you for taking my questions. Jason, one for you -- you did not mention this in your prepared comments, but can you talk a little bit about your preferred relationships that you have renewed of late, both with Towers Watson and Mercer, giving us a little detail on how meaningful that is from a competitive standpoint and then what review or analysis they went through to select Teladoc as their preferred vendor?

Sure Ryan, thanks for listening in and thank you for your question. As we announced over the last couple of weeks, we have recently signed our renewals with both Towers and Mercer as their preferred vendor in the telehealth space. Prior to doing that, they go through a significant review process of the Company, because essentially they're telling their clients that it's not necessary to do a full RFP.

So from our perspective it saves significantly, we go through a review process once rather than going through an RFP process for each individual client. Moreover, it is an endorsement of us as a preferred solution of theirs. There are people in both of those organizations, either consultants or practice leaders, who have told me specifically when it is a large complex customer, they'll only look at us because they know that we are the ones that have the operational capability to go through a flawless implementation, but also to be able to engage their membership and drive return on investment for them.

They are both significant relationships, as you know, in the large national accounts space, the consultants have a significant amount of influence over the decisions and the purchasing decisions at those large employers.

Okay, very helpful. I am hoping to get a bit of an update on some of the new service offering rollouts, specifically the store-and-forward dermatology and the business-to-business behavioral, how those are trending relative to expectations?

Both of those are just about exactly where I would have expected them to be. We're going through, and we're probably three-quarters of the way through implementation with many of our health plan partners. When I say implementation, that is generally claims integration so that they are ready to handle claims processing for their clients as they roll on the additional services.

We have a significant backlog of employer demand, we are also, as I think I reported previously, having good inroads, especially with behavioral health in the managed Medicaid space. I would expect this to be right in line with the Company's expectations. I think I have messaged pretty clearly to the street that we expect this to be the year where we build adoption but not -- we do not expect it to be a significant contributor to our revenue this year, whereas we do expect it to contribute materially to our revenue next year.

Okay, great and then a final and that I will hop off. Mark, for you, on the legal fees, was the bulk of the uptick, both in the quarter and then the guidance, related to Texas? Or are you also incurring a little bit more to drive the potential for telehealth availability in other states? Thanks.

Hi Ryan, about 75% of that was specific to the Texas case, which was effectively accelerated because of the court's decision to not provide a delay to the state. Those are amounts that -- approximately half of that $4 million was carried into 2016 which had been projected for 2017. We'll be in a little bit more of a comfortable position in 2017 on our path to breakeven.

Then Ryan, the other part of that, the other 25%, as you say was -- we saw an opportunity to materially move the needle with respect to legislation and regulation by educating a number of the regulators in the various states. So, we thought it was prudent to spend at this point against that opportunity, as I said in my prepared remarks, we saw a significant improvement in the regulatory environment. That was one of those that presented itself faster than we had expected it to. Which really sets the stage for our future growth.

Yes, it seems like a very good investment. Thanks for the color, guys.

Lisa Gill, JPMorgan

Thank you for taking the question, it's actually Mike Minchak in for Lisa. Based on the 2016 guidance for revenue on visits, obviously a very strong outlook for the year ahead. One of the questions we continue to get on our end is around the sustainability of the Access e-model. It seems that the guidance speaks for itself there, but can you talk a little bit about the broader competitive landscape and what you are hearing from the current or prospective clients around the sustainability of that model?

Sure, we feel very good about the sustainability. As I think Mark reported, our PMPM fees were up year-over-year substantially, that is a trend that we continue to forecast going into the future. We added almost 1,000 new clients in the first quarter, all of them paying PMPM.

What we continue to see, quite frankly, is that our competitors who -- when they do not charge PMPM or if they are coming in at a low price, they are having significant challenges, operationally and with respect to driving utilization. You have seen turnover in the management of some of those firms, specifically at the company who was out there with a free model. So, Doctor On Demand was out there crying about the -- or screaming about the demise of the PMPM model.

And as you probably saw in the recent announcement, they replaced their leadership. That is consistent with the feedback that we have been getting about some of the challenges that those other companies are having. The competitive landscape over the last four months is probably even better than it was last year. As you can tell from our membership growth in the first quarter, we had a very, very good selling season last year.

Great, then maybe just one follow-up. Obviously one of the things that was always impressive in the quarter was the uptick in utilization rates despite what was a relatively weak flu season this year. Just wondering if you are starting to see any impact from changes in plan designs and copay structures that -- where plan sponsors may be incentivizing patients to use telehealth versus other, more expensive care settings?

I think our mix is pretty similar to what it has been over the course of the last year, maybe 18 months, which is about 25% of our clients make the service essentially free to the consumer, meaning zero copay for a telehealth visit. About one-quarter of them hold the member responsible for the entire cost of the visit, and about 50% of them have some sort of subsidized arrangement where there is a copay ranging anywhere from $5 up to about $30. I think that mix hasn't changed that much.

We certainly see that having an impact on utilization, our highest utilizing clients make it a zero copay for their members. With that said, I think the significant utilization that we saw in the first quarter and the better utilization than we have ever seen before is, I think, due to the success, the spillover from the success of our fourth quarter campaign, where we did a communications campaign around the cold and flu season. And the success of our welcome kits, which we continue to refine and learn each year from what we can do to make those work harder for us.

I think the combination of those two things has been very successful. As I said in my prepared remarks, we just are about three-quarters of the way through the spring campaign, which we do are around allergy season, and that will be about 6.5 million communications.

Got it. Thank you for the comments.

Absolutely, thank you, Mike.

George Hill with Deutsche Bank.

Hey, good afternoon, I appreciate you taking the questions. Mark, I think I'll start with you. If I look at the guidance for Q2, given that the full year has been maintained, I'm going to say that it looks like Q2 either looks conservative, or my question is, is something changing intra-year with the pace of membership additions? You talked about new lives in the prepared comments, you talked about new lives rolling on in Q3. So I am wondering if this year looks a little bit different than prior years from a modeling perspective? I'm going to call this trademark Hirschhorn Conservatism.

(laughter) Thank you, George. On the membership side, we had previously seen members rolling on at the beginning of the third quarter, June 1, effective dates, July 1. We end up today just pushing forward a couple of those dates. While we had expected certain of these contracts to go live in the middle of the second quarter, we are being a bit conservative with those and hedging our bets and suggesting that they land closer to top of the third quarter.

On the visit side as well, same thing, we're coming off a light season and quite frankly, this is our fourth public reported quarter and we've either met or exceeded on revenue in both components each time.

That is great color, I appreciate that. Then Jason, maybe just one on the Healthx deal. You guys already have a lot of provider relationships, can you talk about what they bring to the table and why? Is this a change from the go direct-to-provider and IDN strategy, or is it not? Maybe just a little more color on that would be helpful.

Actually in this case, Healthx is going to give us a better channel into the TPAs, the third-party administrators, which still represents a substantial part of the self-insured market, especially in that middle market. They provide a suite of services that are particularly effective there, and we are going to be an integral part of that suite of services. That gives us a good partnership, we are constantly looking for the right distribution partnerships where it is additive and it is not simply a channel, but rather we are built into an overall solution.

Okay, I appreciate the color.

Thank you, George.

Jamie Stockton with Wells Fargo

Good evening, thanks for taking my questions. First, the strong utilization during the quarter, Jason, was there any difference in what you saw with self insured employers, whether you got the relationship directly or through a health plan versus the fully insured lives that the health plans have that are on your network?

I would say we continue to see that the direct employers continue to have a slightly higher utilization rate than the self-insured employers who we sell through our health plan partners. With that said, all of the segments ticked up in terms of utilization, including, and importantly, the fully insured populations, where we are continuing to do a better job of working with our health plan partners to communicate to those fully insured populations. I think there is a significant amount of opportunity in that population for us to really move the needle, and of course, those are big populations. So if we can move the needle on utilization in a big population like that it has a big impact on our overall volume.

Okay, that is great. Staying on that line of thought, the split that you gave earlier, the 25%, of your member base that can access the benefit for free, 25% are paying full freight and then 50% are subsidized, I want to say that I read an article the other day from maybe Towers, or one of the big benefits consultants that they were really pushing employers to make telehealth visits totally free, that they felt like there was a really compelling ROI there. Are you seeing an effort like that help push more into that totally free bucket incrementally? Or do you feel like the mix that we see today is going to be relatively consistent?

Yes, we are seeing that. It was Towers who published that and to be honest, Jamie, we provided, we worked very closely with them and provided them with quite a bit of data that helped them come to that conclusion and informed their ultimate decision. So, we do see that having an impact and we see more and more large employers, at least considering that direction or going in that direction.

The one caveat that I would make to that is with the HSA-based plans, there are some limitations on the employer's ability to do that. So, when there is an HSA, they can provide an incentive for the consumer to register with us, which, because their registration with us is similar to a health risk appraisal, they can provide an incentive, but they cannot make it free for all visits to the consumer and still qualify for the HSA.

Okay. That is great. Thank you.

Sandy Draper with SunTrust.

Thank you very much, appreciate it. Most of my questions have actually been asked, maybe I know you guys are starting to look at doing some direct-to-consumer and sort of dipping your tail in that water. How far along are you there?

What are your thoughts on -- you have been incredibly successful in the business market and going through the plans, is this really just a testing, is this something you think is a big opportunity, just some thoughts on that side of the business?

Yes, thanks, Sandy. A couple of things. Its started on the DTC side, we're learning an awful lot about the DTC market with our successful behavioral health efforts in that space. I think we have said before, that represented 7% of our revenue last year, it will be over 10% of our revenue this year. So that has been a successful endeavor for us. We are continuing to pursue pilots and partnerships in the direct-to-consumer space on our medical side.

The first was obviously the CVS relationship, that is still very early days and we are learning as we go in partnership with CVS. We are also working on some much larger partnerships that are more direct-to-consumer oriented with some national brands that we just are not yet at liberty to announce. I think you will definitely see us continue to pursue opportunities in the DTC space because directly to your question, I do think over the long term there is a big opportunity there.

Nobody has yet cracked the code on that market, we want to make sure that we are as educated and as well partnered as we could be so that we are prepared as that market develops. I do not think that is going to be a huge market for a couple of years to come. But, we will continue to stay close to it as it develops.

Sandy, I would just add, as Jason noted, our behavioral product which is 100% DTC, that hits 7.5% of total revenue last year. We are already on a run rate to exceed10% of revenue this year, so that is going to easily double this year we would expect to exit the year with in excess of 15% run rate for 2017. That is going to put us clearly in the $12 million plus range. Again, this is a company that was generating $100,000 a month in January of last year, exited the year at around $500,000 a month and now is in excess of $1 million a month. So we are seeing great traction there.

That is helpful. Maybe one for you Mark, just remind me, in terms of the incremental investments you talked about last quarter, are those going as planned? And just remind me, are you expecting that to impact revenue this year? Or those were investments that were really for sales this year that are driving revenue growth in 2017 or 2018? Any update on those investments would be great, thanks.

Good memory. We talked about increasing our investment in the provider market and the broker market. Those are both investments ahead of revenue. So, while the broker market, as we have said, is a very important market to us and one where we see a lot of opportunity. So we have added to that market, especially in sales and marketing side of the business.

In the provider space, that is a lot of product development as well as, quite frankly, market development and marketing in addition to adding to our sales force. We expect both of those to pay significant dividends in 2017.

Great. Thanks, Jason. Thanks, Mark.

Sure.

(Operator Instructions)

Mohan Naidu with Oppenheimer

Thank you for taking my question. Jason, maybe on the patent that you talked about on the call earlier, can you talk to us about what the patent is about and how does it gives you advantages in the marketplace?

I'm sorry the line broke up, can you repeat the question Mohan?

The patent that got ruled in favor of you guys, that you talked about it briefly, but can you expand a little bit more on, what does it limit competition on, or what is the advantage that you are going to get with the newly issued patent?

Sure, the patents that we have challenged are, quite frankly, things that should never -- patents that should never have been issued in the first place. They are things like using a computer to connect a physician and a doctor, or using a computer to enable a member to choose their doctor. So, those are examples of things that, quite frankly, there is a lot of prior [art], people have been doing it for years and years before the patents were issued.

But also there is a lot of recent case law and in fact the Supreme Court decision that makes it very clear that patents should not be issued for standard processes that are simply using a computer to act as an intermediary or to process. So, our view is this should be an area that the patent landscape should be one that promotes competition and innovation. So, we were not in violation of any of the patents that were issued, but we saw these as items that we could bump up against in the future. So, we took a proactive approach to clearing the path.

As I said, we have now had three inter partes' reviews approved for review by the USPTO, so that is a significant step forward for us. The other thing I would say is, as we have reported, Amwell filed suit against us, we filed a motion to dismiss, Amwell actually tried to stay the case in court, and the judge denied their request. So our motion to dismiss was heard earlier this year in court, we will get a decision on that sometime in the month to come. But our first challenge in the USPTO, in the first inter partes review, we will get a decision from the USPTO later this year.

Okay, that is great color. Mark, maybe a quick question, I think you talked about this last quarter but I do not have notes with me, what percentage of your members got a price hike in the PMPM this year? And what is left into 2017?

Yes, Mohan, we discussed that the price was coming in throughout 2016 and that none of Aetna's members were affected by that price increase. So, effectively half of our membership is having that price roll in over 2016 and it will be effective to the entire membership in January 2017. So, it is interesting to note that, as of the first quarter, when you look at quarter over quarter, we had an increase in visit fees of average revenue per visit of approximately 16%.

We went from $22.18 average revenue per visit in Q1 of 2015, up to $25.65 in Q1 of 2016. So we would expect that trend to continue. Our increase in per member per month went from $0.42 up to $0.47, so we had a 14% year-over-year increase there as well.

Perfect, thank you very much for taking my questions.

Sure.

Steve Halper with FBR.

Just to clarify, when you think about the PMPM going up in 2016, and fully effective for 2017, does that include the Aetna base in 2017?

Yes, Steve, it is the visit fee that goes up effective January 1. That should take care of all of the Aetna population and all of the visit requests on January 1, to that [$45 base].

Okay. In your prepared remarks you indicated that, I just want to clarify this information, 99% of the visits in the quarter were organic and 98% of the revenue growth was organic, is that correct?

Membership and revenue organic, yes. Not visits, though (multiple speakers).

Membership, okay, and then what we are on that track in terms of organic, you've done some tuck-in acquisitions in the past, what is the environment like, and how active are you in that area?

We have a very busy business development team that is constantly looking at the market and as we said before, we will be opportunistic about finding companies that are synergistic with our business, that either improve our product portfolio or take us into or improve our position in market segments where we stand to expand our penetrations. We will continue to look at those, and if we find the right fit, then obviously we will move forward. We have been very successful and have had four very successful acquisitions in the Company's history, so we feel confident about our abilities to identify and then execute on those acquisitions.

Thank you for the thoughts.

Charles Rhyee with Cowen and Company.

Thanks for taking the questions. Mark, just to go back and clarify, Jason, as well, in terms of the inter partes review, then agreeing to it, does this mean you have prevailed in the patent challenge itself? Or we're still waiting to find out if you've prevailed on the patent challenge?

Charles, the first step here is for the PTO to recognize the validity of our review by granting that review. So if they had decided not to grant that review, then of course, we'd get another venue, which is the federal courts. But in all three cases they have granted the review, we will see the outcome of that initial review in September for the first one that we filed last year in March. Obviously, we are extremely pleased that they granted review of the following -- the second and third IPRs that we filed.

Okay, and then if in the off chance that you are not to prevail in the patent review, then the path is to fight with the court?

Yes and it is already filed in court. (multiple speakers) That is how I am well responded, by filing.

Okay. My other question is in a different area. I think in April it was launched the comprehensive primary care plus model for advanced medical homes, I think it has a section for telemedicine. I am just curious as to what level that you have looked into this area and what kind of impact you think you could have for your business? Any kind of analysis that you guys may be able to do looking at it so far.

So, we are still finding the right approach to that specific set of guidance. I would say it opens up, just like all of the other things that are coming out of CMS, the chronic care management codes, the guidance to the state Medicaid agencies, are all part of a general trend in favor of telehealth. As we look at our portfolio of opportunities, we decide which ones we are going to go after.

To date, all of our business comes from payers other than the federal government. Now, there is certainly opportunity in Medicare fee-for-service, but we do not exactly have to try to thread the needle on new opportunities there given the amount of opportunity we have other places. We stay closely attuned, we're very much encouraged by the positive outlook relative to CMS's view of telemedicine. But we're going to take each one of those as an individual opportunity.

Okay, great. That's it, thank you.

Steven Wardell with Leerink Partners.

Its actually Matt Dellelo in for Steve. Thanks for the question. One to clarify, the lower EBITDA guidance, is that entirely due to the additional $5 million in legal expense? [One in four] for this quarter and the next three? Or is there (multiple speakers) --

That is correct, it is really the full forward of those legal expenses from, again half of it from 2017, all of which we believe will be affecting us in the remaining three quarters of 2016.

Okay. Great. Then what can you tell us about how the Q2 benefits selling season is going so far versus last year? Are you seeing any earlier sign-ups, is telehealth going more mainstream, that kind of thing?

Yes, actually this is the most -- this is the highest volume of sales and commitments that we have ever had this early in the year. So, as I said in my prepared remarks, we have over 1 million committed members for the second through the fourth quarters of this year. We have even more than that already committed for 2017. So, we feel -- and we have never seen this much early commitment, this early in the year, so I would say at this point in the year it looks like an even stronger selling season than we had last year.

That is great. And then earlier you mentioned over implementing over 1,000 new clients in the quarter, are those all enterprise or is there any detail you can provide us on the mix of that?

I think I said just around 1,000, I don't think I said over 1,000, but you are right around there. It is a wide mix of clients ranging from health plans to the large national employers to small and midsized employers. All across the board, but in order to do that at that kind of scale and make sure that you have operational excellence, it takes a very, very sophisticated technology platform and disciplined operation. So I am very, very proud of the team here for having gotten through a very, very busy implementation season with absolutely top marks.

Okay, great. Thanks very much.

There are no further questions at this time. This does conclude today's conference call. You may now disconnect.