Teladoc, Inc. — 2015 Form 10-K
Reporting period: Year ended December 31, 2015. The filing also reports fourth-quarter results. Although the request identifies Teladoc Health, the registrant named in this filing is Teladoc, Inc.
Business context
Teladoc provides on-demand telehealth services through a network of physicians and behavioral health professionals, primarily sold to employers and health plans. Revenue is mainly recurring per-member subscription access fees, with additional fees for completed visits. At year-end, the company reported more than 13 million members, approximately 6,000 clients, and 575,689 visits in 2015. It completed its IPO in July 2015.
Financial performance
| Metric (USD millions, except per-share data) | 2015 | 2014 | Change |
|---|---|---|---|
| Revenue | $77.4 | $43.5 | +78% |
| Gross profit | $56.3 | $33.6 | +68% |
| Gross margin | 73% | 77% | Down 4 percentage points |
| Operating expenses | $107.3 | $46.4 | +131% |
| Operating loss | $(55.8) | $(15.2) | Loss widened |
| Net loss | $(58.0) | $(17.0) | Loss widened |
| Net loss per share, basic and diluted | $(2.91) | $(10.25) | Not directly comparable after IPO and share conversion |
| Net cash used in operating activities | $(47.2) | $(11.4) | Cash use increased |
Subscription access fees accounted for 82% of 2015 revenue; visit fees accounted for 18%. Visits increased 93% year over year, to approximately 576,000. Management attributed revenue growth primarily to new clients and 51% membership growth. The lower gross margin reflected a greater share of visit revenue and associated costs.
Fourth-quarter revenue was $22.6 million versus $12.9 million in Q4 2014; net loss was $15.0 million versus $7.0 million. Q4 2015 gross profit was $16.2 million.
At December 31, 2015, cash and cash equivalents were $55.1 million and short-term investments were $82.3 million. Working capital was $133.6 million. Total bank and other debt was $26.5 million, including $1.3 million current and $25.2 million long-term. The company reported compliance with debt covenants. IPO proceeds were $163.1 million net of underwriting discounts and offering expenses.
Material changes and unusual items
- Operating expenses rose substantially as the company expanded. General and administrative expense increased to $54.8 million from $19.6 million, including higher personnel and legal costs, lease-abandonment charges, severance, bad debt, and a $0.8 million software impairment.
- Advertising and marketing expense increased to $20.2 million from $7.7 million; sales and technology and development expenses also increased.
- The company acquired BetterHelp and StatDoc and certain Gateway assets during 2015. Acquisition-related goodwill increased to $56.3 million from $28.5 million.
- Following the IPO, preferred stock converted into common stock; the change in weighted-average shares makes reported per-share comparisons with 2014 less meaningful.
Outlook, risks, and contingencies
- Management expected negative EBITDA through the end of 2017, while stating existing cash and cash equivalents should cover working capital and capital expenditure needs for at least 12 months. Further financing could be required, and availability or terms are not assured.
- Management expected continued investment and expense growth to support expansion. Key execution risks include client renewals, member utilization, provider recruitment, competition, and the ability to achieve scale and profitability.
- Telehealth regulation remains uncertain. Texas Medical Board litigation challenged rules affecting the company’s model; Texas generated 16% of 2015 revenue. The filing also describes prior suspensions in Arkansas and Idaho, with Idaho operations resumed in 2015 and Arkansas operations not yet resumed.
- American Well alleged patent infringement; Teladoc was seeking review to invalidate the patent and had moved to dismiss the complaint. The company said it could not estimate a potential loss but did not believe a material loss was probable in the described litigation.
- Disclosure controls were ineffective at year-end due to a material weakness: insufficient accounting personnel to design and operate effective financial reporting controls. Management planned remediation during 2016.
- Other material risks include privacy and cybersecurity exposure, healthcare fraud-and-abuse and corporate-practice-of-medicine rules, client concentration, and the company’s history of losses. Accumulated deficit was $130.5 million.
Important facts for investors to verify
- Whether the internal-control material weakness was remediated and whether subsequent filings reported effective controls.
- Subsequent developments in the Texas Medical Board cases, including their effect on Texas operations and revenue.
- Progress toward reducing operating cash burn, controlling expense growth, and reaching the stated profitability trajectory.
- Client retention, membership growth, visit utilization, and the sustainability of revenue growth and gross margin.
- Debt balances, covenant compliance, financing needs, and liquidity relative to continued losses and contractual obligations.
- Outcomes of the American Well patent dispute and any material changes in legal accruals or contingencies.