Teladoc Health, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Teladoc Health provides virtual healthcare services to employers, health plans, health systems, consumers and other partners. This annual report covers the year ended December 31, 2019; quarterly figures below compare fourth-quarter 2019 with fourth-quarter 2018. The company reported one operating segment. Its model is primarily recurring subscription access fees, supplemented by visit fees.
- At year-end, approximately 36.7 million U.S. paid Members and 19.3 million visit-fee-only individuals had access to services. Teladoc completed approximately 4.1 million visits in 2019 and served patients in more than 175 countries.
- Subscription access fees provided 84% of 2019 revenue; visit fees provided 16%.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $553.3 million | $417.9 million |
| Gross profit and gross margin | $368.8 million; 66.7% | $289.2 million; 69.2% |
| Operating loss | $(80.4) million | $(70.9) million |
| Net loss | $(98.9) million | $(97.1) million |
| Net loss per diluted share | $(1.38) | $(1.47) |
| Adjusted EBITDA (non-GAAP) | $31.8 million | $13.4 million |
| Cash provided by (used in) operating activities | $29.9 million | $(4.9) million |
Fourth-quarter revenue was $156.5 million, versus $122.7 million in fourth-quarter 2018. Fourth-quarter net loss was $19.0 million, compared with $24.9 million a year earlier.
- Revenue grew 32% year over year; management reported 24% organic growth excluding acquisitions. Acquisitions contributed $33.2 million of 2019 revenue. Paid Membership rose by approximately 13.9 million, and visits increased 57% year over year.
- Cost of revenue increased 43% to $184.5 million, faster than revenue growth; gross margin consequently declined from 69.2% to 66.7%.
- Cash, cash equivalents and short-term investments totaled $517.1 million at year-end. Working capital was $497.8 million; total assets were $1.60 billion and stockholders’ equity was $1.01 billion.
- Convertible notes had $562.5 million aggregate principal outstanding: $275.0 million of 3% notes due 2022 and $287.5 million of 1.375% notes due 2025. Their combined balance-sheet carrying amount was $440.4 million. The $10 million revolving facility had no borrowings outstanding, apart from $2.2 million of letters of credit. The company reported compliance with debt covenants.
- Operating cash flow improved from use of $4.9 million to generation of $29.9 million. Investing activities provided $25.0 million and financing activities provided $35.1 million in 2019. Stock-based compensation was $66.7 million.
Material changes versus the prior comparable period
- Growth reflected greater Membership and utilization, alongside the contributions of Advance Medical and the 2019 MedecinDirect acquisition. International revenue increased to $108.0 million from $75.2 million.
- Operating expenses rose, including general and administrative expense (up 35% to $157.7 million) and advertising and marketing expense (up 29% to $109.7 million). Management attributed the increases to staffing, stock compensation, engagement and marketing investment, and acquisition effects.
- Net loss widened modestly despite higher revenue and improved Adjusted EBITDA. The 2019 income tax benefit was $10.6 million, largely reflecting an $8.5 million benefit associated with an intercompany subsidiary transfer and reassessment of deferred tax asset realizability.
Outlook, risks, contingencies and unusual items
- Management expected positive Adjusted EBITDA to increase in 2020 and stated that available cash and short-term investments should cover working capital and capital expenditure needs for at least 12 months. No numerical revenue or earnings guidance was provided in the filing text.
- In January 2020, Teladoc announced an agreement to acquire InTouch Technologies for $600 million—approximately $150 million cash and $450 million in Teladoc stock—with closing anticipated by the end of the second quarter of 2020.
- Principal risks include changing telehealth and medical-practice regulation, provider-network and affiliated professional-entity dependence, privacy and cybersecurity exposure, competition and pricing pressure, client renewals and utilization, international compliance and currency exposure, acquisition integration, and the company’s history of losses.
- The company reported a securities class action and a related derivative action, which it believes are without merit and intends to defend. A TCPA class action involving Best Doctors was also disclosed; potential loss was described as immaterial. Management did not expect litigation matters to have a material adverse impact. Legal and regulatory expense rose to $6.8 million, largely associated with the class action.
- Other relevant items: 2019 included $6.6 million of acquisition and integration costs; 2018 included a $5.5 million gain on sale of client contracts. Goodwill impairment charges were reported as zero for 2017–2019. The company disclosed an accumulated deficit of $507.5 million and no cash dividends.
Important facts for investors to verify
- Whether Member growth, visit volume and subscription renewals sustain reported revenue growth and the expected 2020 increase in Adjusted EBITDA.
- How much of revenue and margin performance is organic versus acquisition-related, and whether cost of revenue growth moderates.
- The company’s cash needs and financing or dilution exposure from the convertible notes and the proposed InTouch acquisition.
- Progress and financial impact of the InTouch transaction, including final terms, closing and integration costs.
- Developments in the disclosed litigation and regulatory matters, and any changes to provider, privacy or cybersecurity risks.
- Adjusted EBITDA is a non-GAAP measure; compare it with GAAP losses and cash flows, including the impact of $66.7 million in stock-based compensation.
The independent auditor issued an unqualified opinion on the consolidated financial statements, and management and the auditor reported effective internal control over financial reporting as of December 31, 2019.