Teladoc Health, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Comparisons are with Q1 2020 unless noted. Amounts below are in U.S. dollars.
Business context
Teladoc provides virtual healthcare services, including subscription access, telehealth visits, chronic-condition management and enterprise telehealth platforms. Results include Livongo and InTouch following their 2020 acquisitions, Consultant Connect from January 4, 2021, and legacy operations.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $453.7 million | $180.8 million |
| Operating loss | $84.7 million | $21.0 million |
| Net loss | $199.6 million | $29.6 million |
| Net loss per diluted share | $1.31 | $0.40 |
| Cash used in operating activities | $18.0 million | $6.3 million |
| Adjusted EBITDA (non-GAAP) | $56.6 million | $10.7 million |
- Revenue grew 151%; excluding acquisitions, management reported growth of 69%. Acquisitions contributed approximately $149 million of revenue.
- Access-fee revenue was $388.2 million, or 86% of total revenue, versus $137.1 million, or 76%, a year earlier. Visit-fee revenue was $54.5 million versus $43.7 million.
- Approximately 3.2 million visits were completed, up 56% from approximately 2.0 million. U.S. paid membership was 51.5 million at quarter-end, up 20% year over year; InTouch platform-enabled sessions were approximately 1.1 million.
- Cost of revenue, excluding separately reported depreciation and amortization, was $146.0 million. On that basis, gross margin was approximately 67.8%, versus 60.0% in Q1 2020. Operating margin was approximately negative 18.7%, versus negative 11.6%.
- Operating expenses rose materially, including advertising and marketing to $89.4 million, sales to $64.8 million, technology and development to $78.0 million, and general and administrative to $105.2 million. Higher acquisition-related amortization drove depreciation and amortization to $48.7 million from $9.7 million.
- Adjusted EBITDA margin was approximately 12.5%, versus 5.9%. Adjusted EBITDA excludes, among other items, stock-based compensation and acquisition, integration and transformation costs; it is not a GAAP measure.
Liquidity, cash flow and debt
- Cash and cash equivalents were $720.1 million at March 31, 2021, including $3.8 million of restricted cash; short-term investments were $2.5 million. Cash and cash equivalents declined $13.2 million from year-end, while reported net cash decrease was $11.9 million after foreign-exchange effects.
- Operating cash outflow was $18.0 million; investing cash outflow was $16.0 million, including $55.9 million for Consultant Connect, partly offset by $50.0 million of marketable-security proceeds; financing cash inflow was $22.2 million.
- Current assets were $1.03 billion and current liabilities $260.4 million (current ratio approximately 4.0). Management said existing cash and short-term investments should meet working-capital and capital-expenditure needs for at least 12 months.
- Convertible senior notes had $1.77 billion aggregate principal outstanding at quarter-end, with a net carrying value of approximately $1.35 billion. The company also reported $24.1 million of advances from financing companies. It redeemed the remaining 2022 Notes after conversions during the quarter; conversions and redemptions generated $11.5 million of debt-extinguishment losses.
Material changes and unusual items
- Year-over-year results are not directly comparable because of the Livongo and InTouch acquisitions and the January 2021 Consultant Connect acquisition. Livongo and InTouch contributed approximately $146.9 million of revenue and a $51.3 million net loss in Q1 2021.
- Income tax expense was $87.0 million, primarily a non-cash valuation allowance on excess stock-compensation tax benefits associated with the Livongo merger. The related measurement-period adjustment reduced goodwill by $106.5 million.
- Stock-based compensation expense increased to $86.3 million from $18.3 million. The filing reports $473.2 million of unrecognized RSU compensation cost at quarter-end.
- Livongo merger consideration was adjusted after the company identified excess and withholding shares and cash overpayments; it reported recovery or offset actions and recorded related changes to receivables, equity and goodwill.
Outlook, commentary and risks
- No specific revenue, earnings or cash-flow guidance is provided in the supplied filing text. Management cited continued opportunity from increased virtual-care adoption but cautioned that pandemic-related utilization may not persist.
- COVID-19’s future effects remain uncertain, including potential impacts on client spending, renewals, sales cycles, member attrition, collections, vendors and operating costs. Management also noted that subscription revenue may reflect pandemic effects with a lag.
- Management identified membership growth, visit utilization, client renewals, product development, sales and marketing investment, and acquisition opportunities as factors affecting future performance. Seasonal patterns may also affect visits and revenue.
- The company reported ongoing securities, derivative and TCPA-related litigation; management did not expect any matter to have a material adverse impact, and described certain claims as immaterial or without merit. The filing stated there were no material changes to previously disclosed risk factors.
- Management concluded disclosure controls and procedures were effective as of March 31, 2021, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported growth and future performance is attributable to acquired businesses versus organic growth, and whether post-pandemic demand and utilization are sustainable.
- Whether revenue growth can outpace operating-cost growth, particularly marketing, sales, technology, provider-network costs, amortization and stock-based compensation.
- The underlying cash-generation trend, working-capital needs and accuracy of management’s liquidity assessment, alongside future acquisition and investment spending.
- Debt terms, conversion and potential dilution exposure, and future interest costs on the convertible notes.
- The impact of the Livongo-related tax valuation allowance and any further purchase-accounting adjustments, including effects on goodwill and reported earnings.
- Developments in litigation and other contingencies, client renewals and spending, and the uncertain operational and financial effects of COVID-19.