Teladoc Health, Inc. (Teladoc, Inc.) — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Unaudited consolidated financial statements; dollar amounts below are in millions unless noted. Teladoc operates a telehealth platform with recurring per-member subscription fees and additional fees for completed visits.
Financial results and key metrics
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $32.4 | $20.0 | $85.8 | $54.7 |
| Gross profit / margin | $25.3 / 78% | $15.5 / 78% | $63.8 / 74% | $40.2 / 73% |
| Operating loss | $(20.3) | $(12.6) | $(49.4) | $(41.4) |
| Net loss | $(29.8) | $(13.2) | $(60.0) | $(43.0) |
| Adjusted EBITDA (non-GAAP) | $(9.3) | $(10.4) | $(31.7) | $(35.5) |
| Net loss per share, diluted | $(0.65) | $(0.37) | $(1.46) | $(3.15) |
- Revenue grew 62% in Q3 and 57% in the first nine months, driven by new clients and members, greater visit activity, and the HealthiestYou acquisition. Subscription access fees were 86% of Q3 revenue and 82% of nine-month revenue.
- Q3 visits were 202,566, generating $4.6 million of visit-fee revenue, versus 117,213 visits and $3.0 million a year earlier. Nine-month visits rose to 641,614 from 391,231, with visit-fee revenue of $15.7 million versus $9.4 million.
- Gross margin was stable year over year in Q3 and improved by about one percentage point for the nine-month period. Adjusted EBITDA losses narrowed, although GAAP net losses widened.
- Q3 included $6.2 million of acquisition-related costs, principally $5.7 million of previously accrued HealthiestYou contract-termination costs. A separate $8.5 million noncash charge reflected the July debt refinancing, including $7.7 million of warrant fair value and write-off of prior debt costs.
Cash, liquidity, debt, and balance sheet
- At September 30, 2016, cash and cash equivalents were $44.0 million and short-term investments were $30.9 million; current assets totaled $91.2 million and current liabilities $20.3 million.
- Total bank and other debt was $44.5 million, including $2.0 million classified as current. The July 2016 SVB refinancing provided a $25 million mezzanine term loan and a $25 million line of credit; the line was borrowable subject to a monthly recurring revenue formula. The term loan and line mature in July 2019. SVB holds a security interest in substantially all company assets. Teladoc reported compliance with debt covenants.
- For the first nine months, operating cash use was $43.8 million, investing activities provided $12.4 million, and financing activities provided $20.3 million. Cash declined by $11.0 million from year-end 2015 to $44.0 million.
- Total assets were $313.3 million, including $188.1 million of goodwill, up from $56.3 million at year-end 2015, primarily following HealthiestYou. Stockholders’ equity was $242.3 million.
Material changes, outlook, and risks
- Teladoc acquired HealthiestYou on July 1, 2016 for approximately $151.5 million: $43.2 million cash and 6.96 million shares valued at $108.3 million. The acquisition expanded its employer-market platform and contributed to the year-over-year comparison.
- Membership increased approximately 4.5 million year over year, or 35%; the company reported more than 17 million unique members. Headcount rose to 658 from 537. Management described continued investment in marketing, sales, technology, and operations; it expects these spending categories to increase as the business grows.
- Management anticipated negative EBITDA through the end of 2017 and believed existing cash and cash equivalents would cover working capital and capital expenditure needs for at least 12 months. It noted that future capital needs depend on growth and spending plans and that additional financing may be required. A shelf registration effective October 5, 2016 provided capacity to raise up to $300 million through common-stock sales.
- Texas Medical Board litigation remained a key regulatory risk: an injunction continued to block a rule requiring prior in-person examinations for certain prescriptions, and the TMB withdrew its appeal on October 17, 2016; no trial date had been set. Texas represented about 13% of nine-month 2016 revenue. Teladoc warned that an adverse rule outcome could materially affect its Texas operations. American Well’s patent complaint had been dismissed, but American Well had filed notice of appeal.
- Other stated risks include evolving healthcare regulation, dependence on affiliated professional entities and qualified providers, client retention and utilization, competition and technological change, and the company’s history of losses. The filing cites seasonality, with typically stronger revenue and visit activity in the fourth and first quarters.
Most important facts for investors to verify
- Whether membership, client growth, and visit utilization continue to support revenue growth, including the contribution from acquired businesses.
- Cash burn, available borrowing capacity under the revenue-based credit facility, debt costs and covenants, and management’s stated 12-month liquidity expectation.
- Progress toward reducing losses and the assumptions behind the forecast of negative EBITDA through year-end 2017; assess non-GAAP Adjusted EBITDA alongside GAAP results.
- Final purchase accounting and integration outcomes for HealthiestYou, and the nature and recurrence of acquisition and refinancing charges.
- Developments in Texas telehealth regulation and the American Well appeal, including any effects on service delivery or legal costs.