And client retention there continues to be in the 90s. So no material change there. And then on the BetterHelp side, I think you heard Mala say that we continue to take a more balanced approach than we had historically to revenue and margin growth there. And that you shouldn’t view the fourth quarter as being indicative of the underlying growth of that business. So I think those are the — we’re going to stop short, as you expected of giving 2024 guidance at this point. We expect we’ll do that in the first quarter of next year. But I think those are the components and ingredients that should go into your outlook. Mala, did I miss anything there?
Mala Murthy: I would just add a little bit more color on BetterHelp specifically. Thinking about the starting point for 2024, Jailendra, I think about two things. We have said this several times up until now, the quarterly comp line up very differently this year relative to last year. And they — so I would think — if you think about the first quarter, think of it as above run rate, the fourth quarter as lower than the true run rate due to the year-over-year comp and when I talk about year-over- comps, it’s about ad spend as well as the revenue growth, right? Just as a reminder, what we’ve been saying all year is the ad spend cadence was going to be very different this year versus the last year. Last year, over half of the ad spend took place in the second half of that year.
This year, it’s the opposite with half of the spend taking place in the first half. So that’s sort of the first thing to keep in mind. The second thing I’d say is on a full year basis, if you think about BetterHelp revenue as per our guidance has decelerated each year over the last two years, and that’s happened for a few reasons, right? One is this business has scaled pretty rapidly over a short period of time. It’s just simply a much bigger business today. So loss large numbers you’re just not going to see it continuing to grow at those hyper growth rates annually. The second thing I’ll say is, as Jason just talked about, we are managing the business differently. We are balancing top line growth as well as bottom line growth and cash flow.
So certainly, that balanced approach has an increasing focus on driving ROI and margin. And that is, in instance, is going to come at a lower overall rate of top line growth. And then the last point is, if you look at this business, which is the largest player in the DTC virtual mental health space by far, we are also the largest advertiser of virtual mental health. And unlike many of our smaller peers, our scale enables us to drive and earn strong returns on our spend and that gives us a real advantage. We have talked about this before. But there’s only so much incremental ad spend and customer acquisitions you can drive in any short period of time. There’s just a natural growth to that every year as the market shifts more and more towards virtual and as the channels themselves grow.
So that does limit the amount of DTC business can profitably grow year after year. So all of this just to blend some color to the dynamics that we are certainly seeing in the BetterHelp business.
Jailendra Singh: Very helpful. Thank you.
Operator: Thank you for your question. The next question is from the line of Richard Close with Canaccord Genuity. Your line is now open.
Richard Close: Yeah, thanks for the questions. Jason, maybe more details on how you’re thinking about investments going forward? You talked a little bit about it. But just — how big of a change is this compared to past years? And it sounds like you’re being more restrained. So I’m just curious examples of what maybe gets priorized?
Jason Gorevic: Yes. A couple of thoughts there, Richard. I think first of all, it’s important to put it in the context of where we’ve come from over the last couple of years. We’re emerging from a significant investment cycle during which we’ve spent a lot of time and effort building and integrating post Livongo acquisition. And so now I think it makes sense for us to look across the organization for further ways to enhance business performance. And part of that is focusing our investments on the areas where not only are we going to get the greatest return, but also are closest to the center of the bull’s eye of our strategy. I think that also, you’ll see in the continued progress we’re making on capitalized software. You’ve seen that this year.
And I think you’ll see that again next year as we move into more focused investments and less quite frankly, foundational investments on big chunks that have helped to get us to this point, but also put the platform in place for us to move forward. You’ve seen that with our Integrated app. You’ve seen that as we’ve migrated some of our internal ERP and financial systems. You see that as we put in place some of the capabilities that enable us to deliver on a true integrated experience for Primary360. And so we’ll continue to focus on delivering that whole person care in a differentiated manner, but also making sure that we’re judicious in making sure that we’re delivering the return on capital spend.
Richard Close: Okay. Thank you.
Operator: Thank you for your question. The next question is from the line of Charles Rhyee with TD Cowen. Your line is now open.
Lucas Romanski: Hi. This is Lucas on for Charles. I want to ask about the performance guarantees that you recognize from generating positive outcomes. I’m assuming this is related to value-based arrangements. What portion of your guys’ Integrated Care segment is derived from these sorts of value-based arrangements or at least engagements that enable you to recognize performance payments? And then can you give us a little bit on how these are structured and how you can earn from them?
Mala Murthy: Yes. Thanks for the question. The way I would think of it is, on a run rate basis, the amount of performance-based revenue tied to clinical outcomes would be in the single-digit percentage of our total Integrated Care segment revenue. So just to give you some sort of dimensions on the size of that. And the other thing I would say is we have a long history of performance against these clinical measures. We have a lot of data to support our analysis. We feel very comfortable in terms of our ability to perform against these outcome guarantees. As I just said, it’s a relatively small percentage of our revenue today. And finally, we also believe that we take an appropriately conservative approach in recognizing performance-based revenue. So all of it to say this is work contracts that certainly we have been used to delivering against for some time supported by data. And it is a relatively small percentage of our overall revenue book today.
Operator: Thank you for your question. The next question is from the line of George Hill with Deutsche Bank. Your line is now open.
George Hill: Hey, good afternoon, guys. And Jason and Mala, thanks for taking the question. I guess, so I would have a question on BetterHelp. And Mala, I recognize the guidance that you gave for Q4. My question is kind of now that we’re about a month past the Q3 close, I guess I would just ask like is that business from a membership perspective basically tracking in line with expectations to where you guys have guided for the balance of the year? And then, Jason, one for you quickly would be because it sounds like the company wants to take a pretty broad approach to a cost-cutting program. I don’t know if there’s any way to kind of size order of magnitude in the way that you’re thinking about what the opportunity looks like inside of the cost structure.
Jason Gorevic: Yes. So maybe I’ll take that one first, George. And then Mala can talk about where we are. I think that – actually maybe I’ll take it. The short answer is a month into the quarter, we’re right in line with where our guidance is. So I can take that for Mala. I think with respect to our comprehensive operational review, we’re really looking across the portfolio to ensure that everything we do is aligned with our strategic focus and maximizing our profitable growth opportunities. I think these efforts are really focused on operating efficiency and we’ve stood up now centers of excellence for things like member operations, clinical operations, client operations, revenue cycle management supply chain and purchasing, all areas where we can leverage our scale and make sure that we’re driving for greater efficiency and take advantage of the opportunity to drive cost out of the business such that we can operate more efficiently.
