Teladoc Health, Inc. — Q1 2023 Form 10-Q
Reporting period: Quarter ended March 31, 2023; unaudited. Teladoc operates two reportable segments: Teladoc Health Integrated Care and BetterHelp.
Financial and operating performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $629.2 million | $565.4 million | Up 11% |
| Gross profit / gross margin | $439.1 million / 69.8% | $378.3 million / 66.9% | Margin up about 2.9 percentage points |
| Operating loss | $77.1 million | $6.67 billion | Prior-year loss included $6.6 billion goodwill impairment |
| Net loss / diluted loss per share | $69.2 million / $0.42 | $6.67 billion / $41.58 | Prior-year impairment drives much of the difference |
| Adjusted EBITDA (non-GAAP) | $52.8 million | $54.5 million | Down 3% |
| Cash from operations | $13.2 million | $(31.7) million | Improved |
| Free cash flow (non-GAAP) | $(32.5) million | $(62.6) million | Outflow narrowed |
Access-fee revenue was $550.9 million, or 88% of total revenue, up 12%; other revenue increased 6% to $78.4 million. U.S. revenue rose 10% and international revenue rose 18%. Advertising and marketing expense increased 32% to $176.8 million, primarily due to BetterHelp advertising. Depreciation and amortization increased 18% to $69.8 million, associated with capitalized software costs.
Segments: Integrated Care revenue grew 5% to $350.0 million and Adjusted EBITDA rose 51% to $35.1 million, with margin increasing to 10.0% from 7.0%. BetterHelp revenue grew 21% to $279.3 million as average monthly paying users increased 22% to 0.47 million; Adjusted EBITDA fell 41% to $17.6 million and margin declined to 6.3% from 13.1%, mainly reflecting higher marketing expense. Integrated Care U.S. members reached 84.9 million, up 5.7 million year over year; chronic-care enrollment increased 13% to 1.03 million. Average revenue per U.S. Integrated Care member slipped to $1.39 from $1.41.
Liquidity, debt and financial position
Cash and cash equivalents were $888.6 million at March 31, 2023, down from $918.2 million at year-end. Current assets were $1.287 billion and current liabilities $381.3 million. The company reported $1.536 billion of convertible notes, net carrying value, and $19.3 million of advances from financing companies. Convertible-note principal totaled approximately $1.551 billion, primarily $1.0 billion due in 2027 and $550 million due in 2025. The company said existing cash should cover working capital, capital expenditure and contractual obligations for at least 12 months, while noting future financing could be needed depending on business needs and debt obligations.
Investing cash outflow was $45.6 million, including $43.3 million of capitalized software spending. Operating cash flow improved year over year, but free cash flow remained negative after capital expenditures and software capitalization.
Outlook, commentary, risks and unusual items
- No full-year revenue or earnings guidance is stated in the supplied filing text. Management noted the business is seasonal: BetterHelp typically has its weakest operating-income performance in Q1 as marketing resumes and acquisition spending precedes revenue growth.
- The company expects approximately $17 million of 2023 pre-tax restructuring charges: $8.1 million recorded in Q1 and about $9 million expected in Q2, principally for office-space reductions.
- In March 2023, Teladoc and the FTC agreed to a $7.8 million settlement related to the FTC’s BetterHelp investigation, subject to federal court approval. Related BetterHelp privacy and advertising class actions are being defended; the company says it believes the claims are without merit. Other securities and shareholder derivative litigation is also disclosed. Management did not expect litigation matters to have a material adverse impact, but outcomes remain uncertain.
- There was no Q1 2023 goodwill impairment; the $6.6 billion Q1 2022 charge followed sustained declines in the share price. Goodwill at March 31, 2023 was $1.073 billion, all assigned to BetterHelp; accumulated impairment losses were $13.4 billion.
- Management cited risks and uncertainties in its 2022 Form 10-K and said there were no material changes to previously disclosed risk factors. It cautioned that forward-looking statements are not guarantees. Disclosure controls were assessed as effective; ERP-related control revisions implemented during 2022 remain under evaluation.
Most important facts for investors to verify
- Whether BetterHelp can sustain user and revenue growth while improving marketing efficiency and segment profitability.
- How recurring investment in capitalized software affects free cash flow and the company’s cash balance.
- Upcoming convertible-note maturities, conversion or redemption terms, and capacity to meet debt obligations.
- Timing and final cost of the restructuring, and court approval and resolution of the FTC settlement and related litigation.
- How much of the year-over-year net-loss improvement reflects the absence of the prior-year goodwill impairment rather than underlying operating changes.
- Non-GAAP Adjusted EBITDA and free cash flow definitions and reconciliations; both exclude or adjust for items that affect reported GAAP results.