I mentioned before, we are emerging from a significant period of investment. And so it makes sense for us to really look at a more right-sized organization based on the cost reduction efforts that we took earlier this year and make sure that all parts of the business are contributing to our profitable growth. And I think that, that is really the fundamentals of it. We don’t have anything to announce today regarding what the magnitude of the performance improvements that we expect. And as we’re in the middle of that assessment right now, I think you can expect us to give you more color on that in the quarters to come as we quantify the opportunities and then help you to tie those opportunities to what we described earlier, which is EBITDA growing at a faster rate than revenue over the next couple of years.
Mala Murthy: The one last thing I would add is we have talked about all of the operating expense initiatives and things we would look at. I would also say if I think about gross margin and the gross margin improvement, which has been a strong contributor to our margin expansion. Think about BetterHelp and the gross margins that we are seeing there. We are taking steps to and initiatives to improve therapist productivity, whether it be group therapy, more digital interactions. So it’s, I would say, both across gross margin as well as operating expense.
George Hill: Thank you.
Operator: Thank you for your question. The next question is from the line of Jessica Tassan with Piper Sandler. Your line is now open.
Jessica Tassan: Thank you guys for taking the question. So I’m curious, as you think about the kind of new guidance that EBITDA and free cash flow should grow faster than revenue over the next couple of years. Did we still be thinking about those long-term revenue growth target the mid-single digit to high single-digit for Integrated Care and low double to mid-teens for BetterHelp as being — valid against that new guidance or should we think about sort of a different revenue growth rate on a consolidated basis? Thanks.
Jason Gorevic: Yes, Jess. So we haven’t given longer-term guidance for the business as a whole or the segments. I think you’ll see us come out in the first quarter of ’24 with an outlook for ’24. I think, quite frankly, our — the indications that we’ve given today about expecting to see EBITDA growing faster than revenue for the next couple of years is probably the longest outlook that we’ve given in the last several quarters. I think as we solidify what the findings are and results from this operational review that will feed into a more multiyear outlook. And we’ll endeavor to give you more of a longer-term view when we’re ready to. But I don’t want to acknowledge or validate those numbers because I don’t recall us giving a longer-term view.
Jessica Tassan: Got it. Thank you.
Operator: Thank you for your question. The next question is from the line of Daniel Grosslight with Citi. Your line is now open.
Daniel Grosslight: Hi, guys. Thanks for taking the question. I just have a couple on Integrated Care margins and the outlook for the remainder of the year. So if I heard you correctly at the midpoint, you expect around 12% margin for Integrated Care, which would be around 477 basis points of degradation, lot of 100 basis points for the performance fee. So still talking around 375 basis points of degradation sequentially. I’m curious what’s driving that? And then I guess if I look at the full year, what’s implied by that 4Q guidance, it’s around 250 basis points of margin expansion versus when we started the year, I think, you thought it would be kind of flat to up 50, and then you change that 75 to 125 basis points, now it’s significantly outperforming there. So maybe if you could just put a finer point on that and the outperformance there? And what we should expect going forward in fiscal ’24?
Mala Murthy: Yes. Thanks, Daniel, for the question. So if you think about the 4Q out guide that we have given for Integrated Care, I’d say, there are a few factors driving exactly, as you said, the decrease in margins. So what are those? First, the fourth quarter is always the cold and flu season, and that, as you know, drives gross margin compression, right, as visit volumes increase. So that’s always a factor. We are also spending ahead of member onboarding, right? As you know, we have — we’ve talked about the strength in bookings. We have several member onboarding starting Jan 1. We are spending ahead of those client launches. I would also say we continue to grow our class of W-2 physician hires. And we will do so in the fourth quarter.
We will increase our W-2 roles. So that certainly is a small drag to margins during the quarter. And the last thing I would say is, as you mentioned, as you noted, the — certainly, the performance guarantees contributed about 100 basis points to the third quarter margins and that certainly has an impact sequentially. On your second question around full year performance on the margins. And why are we seeing the expansion and the strength that we have seen. It really comes down to two big themes. Number one is we are seeing strength in Chronic Care revenue growth. That has been a consistent theme over the past few quarters. And certainly that has exceeded our expectations when we gave the initial guide. And the second thing is all of the cost efficiency program that we are seeing the fruits of as we have rolled through the year.
And Jason and I have talked about it in the last few minutes around what those are. So it’s really those two things that have allowed us to outpace the margin expectations as we have rolled through the year.
Daniel Grosslight: Makes sense. And then maybe just a follow-up. I’ll take a shot at fiscal ’24 as well. It seems like, if anything, you’re going to get more margin expansion in ’24 versus what you are going to achieve in ’23, which is around 200, 230 basis points, right? You got that operating efficiencies that might roll through. And some other less spend on the Integrated Care app. So I’m just curious, should we think about 200, 250 basis points of margin expansion going forward as kind of the floor for you guys?
Jason Gorevic: We’re going to stop short of giving a magnitude of the margin expansion. But I think by definition, the fact that we expect EBITDA to grow faster than revenue, you can take away from that, that we are targeting margin expansion again in ’24 and we’ll give you more insight into the magnitude of that as we get into ’24 guidance.
Operator: Thank you for your question. The next question is from the line of Elizabeth Anderson with Evercore ISI.
Elizabeth Anderson: Hi, guys. Thanks so much for taking the question. I had a question about how to think about pricing and sort of if we think about the average revenue per US Integrated Care member? And then on the BetterHelp side as well. Like obviously, you had a bunch of new integrated care members roll on. So I just wanted to understand, is that something we should think of as kind of ramping as those members sort of come and get geared up and so that’s something that we should think about maybe over the next couple of quarters? Has that ramped? Or is that not the right way to think about it? And then obviously you had a nice inflection in BetterHelp therapy revenue per user per month as well. So just how to think about the cadence of that as we kind of move forward. Thank you.
