Teladoc Health, Inc. quarterly report, Q2 FY2023

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Teladoc Health, Inc. — Q2 2023 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2023. Teladoc provides virtual care through its Integrated Care and BetterHelp segments. Unless noted, amounts below are in millions of dollars.

Financial results and liquidity

  • Revenue: Q2 revenue was $652.4, up 10% year over year; first-half revenue was $1,281.7, up 11%. Access fees accounted for 88% of Q2 revenue. International revenue grew 28% in Q2 and 23% in the first half.
  • Profitability: Q2 operating loss was $71.6 and net loss was $65.2, or $0.40 per diluted share. First-half operating loss was $148.7 and net loss was $134.4, or $0.82 per share. Adjusted EBITDA, a non-GAAP measure, was $72.2 in Q2 and $124.9 for the first half.
  • Cash flow: First-half operating cash flow was $114.3, versus $60.7 a year earlier. Free cash flow was $32.1, versus negative $14.9, after $77.9 of capitalized software costs and $4.3 of capital expenditures.
  • Cash and debt: Cash and equivalents were $958.7 at June 30, compared with $918.2 at year-end 2022. Convertible senior notes had a net carrying amount of $1,537.0, principally $1.0 billion due 2027 and $550.0 million due 2025. Management said available cash should cover working capital, capital expenditures and contractual obligations for at least 12 months.
  • Balance sheet: Current assets were $1,321.0 and current liabilities were $383.4. Goodwill was $1,073.2 and net intangible assets were $1,784.1.

Changes versus comparable periods

  • Q2 revenue increased 10%; Integrated Care revenue rose 5% to $360.1, while BetterHelp revenue rose 18% to $292.4. First-half segment revenue increased 5% for Integrated Care and 20% for BetterHelp.
  • Q2 Adjusted EBITDA rose 54% to $72.2. Integrated Care’s Q2 Adjusted EBITDA margin improved to 10.5% from 8.6%; BetterHelp’s rose to 11.7% from 8.1%. For the first half, BetterHelp Adjusted EBITDA grew only 3% and its margin declined to 9.1% from 10.5%.
  • GAAP losses improved sharply from 2022, primarily because the prior-year periods included goodwill impairment charges of $3.03 billion in Q2 and $9.63 billion in the first half. No goodwill impairment was recorded in 2023. The prior-year comparison therefore substantially overstates the underlying improvement in operating performance.
  • Advertising and marketing expense increased 9% in Q2 and 19% in the first half, driven largely by BetterHelp advertising. First-half depreciation and amortization rose 23%, while restructuring expense was $15.6 for the first half.

Operating indicators, outlook and risks

  • U.S. Integrated Care members reached 85.9 million, up 5.3 million year over year; chronic-care program enrollment increased 7% to 1.073 million. Average revenue per U.S. Integrated Care member declined to $1.41 in Q2 from $1.43.
  • BetterHelp average monthly paying users rose 17% in Q2 to 476,000 and 19% for the first half to 471,000. Management attributed revenue growth mainly to higher user numbers; increased advertising partly offset BetterHelp’s gross-profit gains.
  • The filing provides no specific full-year revenue or earnings guidance. The company expected approximately $17 million in 2023 pre-tax restructuring charges; $15.6 million had been recorded by June 30, and recognition was described as substantially complete.
  • BetterHelp’s FTC settlement received final approval on July 14, 2023 and required a $7.8 million payment. Related putative class actions are pending in the U.S. and Canada; the company said it intends to defend them. A separate securities class action was dismissed on July 5, 2023; the company noted possible appeal or further proceedings. Management did not expect litigation matters to have a material adverse impact.
  • Management cited seasonality in Integrated Care and BetterHelp, and identified growth, client renewals, utilization, marketing costs, product investment and debt obligations as factors affecting future results. The filing reported no material changes to previously disclosed risk factors.

Key facts for investors to verify

  • Whether BetterHelp can sustain user and revenue growth while containing advertising costs and protecting margins.
  • Cash generation after substantial capitalized software spending, and the company’s capacity to address the $550 million notes due in 2025 and $1.0 billion due in 2027.
  • The financial and legal consequences of the FTC settlement and related privacy and data-use lawsuits.
  • How to interpret Adjusted EBITDA alongside GAAP losses, including recurring stock-based compensation and restructuring or integration costs excluded from the non-GAAP measure.
  • Progress and potential control risks from continued ERP implementation; management said disclosure controls were effective and would continue evaluating related internal controls.