Earnings season for digital health companies came with tough realities for some and emerging possibilities for others.
While direct-to-consumer telehealth vendors grapple with some higher advertising costs, companies that sell enterprise solutions to health systems are feeling more bullish.
Related: Direct-to-consumer telehealth hit hard by ad costs
Here are five takeaways from digital health’s second-quarter earnings season:
Companies see greater opportunities at hospitals
Companies that sell to hospitals said they are confident that potential buyers are on better financial footing than in recent years. Dan Burton, CEO of health analytics company Health Catalyst, said he's noticed health systems' operating margins are steadily improving after bottoming out in 2022 or early 2023.
“We have been encouraged as some of the financial pressures subside there’s an interest and more of an appetite for our higher-profit, higher-margin solutions,” Burton said during the company’s second-quarter earnings call.
Healthcare payment technology company Waystar, which went public in June, also has seen better margins among health system buyers, CEO Matthew Hawkins said in an interview. Hospitals are eager to improve those margins, which opens up an opportunity for Waystar and their revenue cycle management solution, he said.
It was a quarter of first-timers
There were several newcomers to the season. For the first time in two years, there were new digital health companies reporting quarterly earnings in Waystar and Tempus AI. On both earnings calls, executives spoke optimistically despite challenging financial results.
Hawkins told analysts Waystar is focused on selling other products to customers it gained during competitor Change Healthcare’s cyberattack in February.
At precision medicine company Tempus, CEO and founder Eric Lefkofsky said the company is well-positioned to lead the way in healthcare AI. While its primary revenue source is genomics and data products, Lefkofsky said the company has developed a growing set of algorithms designed to identify care gaps and provide doctors with point-of-care insights.
It was also the first quarterly earnings call for Teladoc CEO Chuck Divita III, who joined the company in June, replacing longtime CEO Jason Gorevic.
Ad costs hamper Teladoc, WeightWatchers
Teladoc reported a goodwill impairment charge of $790 million related to its direct-to-consumer business, BetterHelp, and the cost to market it. Similarly, WeightWatchers said during its earnings call that it was hampered by high advertising costs. The company said during the call it was laying off an undisclosed number of employees and cutting costs as it struggles during a new era of obesity treatment.
Insurance coverage grows in importance
Many digital health companies are focused on insurance coverage and Medicare reimbursement. Dr. Jon Cohen, CEO of mental telehealth company Talkspace, told financial analysts the company is increasing efforts to get in-network with more insurers. It added 6 million Humana members through a government-sponsored insurance plan on Tuesday.
“We anticipate adding several new Blues plans and regional plans by the end of the year,” Cohen said.
Reimbursement also is a focus for GE Healthcare. Proposed Centers for Medicare and Medicaid Services' reimbursement updates could help the company’s business lines, especially for products often used for cancer, cardiovascular problems and neurological disorders, said President and CEO Peter Arduini.
M&A talk heats up
Companies expressed more interest in acquisitions. Waystar is looking at potential acquisition targets as a way to add capabilities and sell more to existing customers, Hawkins said.
It’s a similar situation for Health Catalyst, which on Thursday announced it acquired care coordination tech company Lumeon. Burton said during an earnings call the company will use that and other recent acquisitions to generate more revenue from existing customers.
“We believe our clients will continue to focus on consolidating relationships and that we will be among that small group of strategic technology partners,” Burton said.
Brock E.W. Turner contributed to this story.
