Teladoc Health, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial figures below are in U.S. dollars; amounts are rounded to millions unless stated otherwise.
Business context and reporting period
Teladoc provides virtual healthcare services, including telehealth visits, access-fee subscriptions, chronic-condition management and enterprise telehealth. Results include Livongo and InTouch, acquired in 2020, and Consultant Connect, acquired in January 2021. Management attributes demand growth partly to the pandemic-driven adoption of virtual care.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $521.7m | $288.8m | $1,478.5m | $710.6m |
| Operating loss | $(60.6)m | $(19.7)m | $(224.2)m | $(47.9)m |
| Net loss | $(84.3)m | $(35.9)m | $(417.8)m | $(91.2)m |
| Adjusted EBITDA (non-GAAP) | $67.4m | $39.5m | $190.8m | $76.5m |
| Operating cash flow | Not stated by quarter | $110.8m | $61.4m |
- Revenue rose 81% in Q3 and 108% year to date, including acquisitions. Excluding acquisitions, revenue increased 32% and 44%, respectively. Growth was driven primarily by access fees, especially in U.S. behavioral health.
- Q3 gross margin, calculated as revenue less cost of revenue before separately reported depreciation and amortization, was approximately 67.6%, versus 63.7% a year earlier. Year-to-date margin was approximately 67.8%, versus 62.3%.
- Q3 and nine-month net loss per share were $(0.53) and $(2.68), respectively, compared with $(0.43) and $(1.17). Higher operating expenses, amortization and, year to date, a tax charge contributed to wider GAAP losses.
- Cash and cash equivalents were $823.8m and short-term investments $2.5m at September 30, 2021. Current assets were $1,157.3m and current liabilities $302.1m.
- Net carrying value of convertible notes was $1,211.4m; principal obligations totaled approximately $1,550.9m. The company had no current portion of long-term debt on the balance sheet.
- Goodwill was $14,470.4m and net intangible assets $1,932.0m at quarter end.
Material changes versus the prior comparable period
- Revenue growth significantly outpaced the prior year, reflecting acquisitions and organic growth; U.S. paid membership was 52.5 million at September 30, 2021.
- Visits increased 37% to approximately 3.9 million in Q3 and 39% to approximately 10.6 million for the nine months. Platform-enabled sessions totaled 1.0 million and 3.1 million, respectively.
- Operating expenses increased alongside business scale and acquisitions. For Q3, advertising and marketing rose 112%, sales 167%, technology and development 168%, and depreciation and amortization 301% year over year.
- Year-to-date cash from operations increased to $110.8m from $61.4m. Investing cash outflow narrowed to $52.9m from $177.1m; financing cash inflow was $34.3m versus $788.7m, which had included 2020 note issuance proceeds.
- Shares outstanding increased to 160.0 million from 150.3 million at December 31, 2020. Note exchanges and conversions, including approximately 5.2 million shares issued for 2025 Notes, contributed to dilution.
Outlook, management commentary, risks and unusual items
- Management said existing cash and short-term investments should meet working-capital and capital-expenditure needs for at least the next 12 months. It gave no quantified revenue or earnings guidance in the supplied filing text.
- Management views accelerated virtual-care adoption as an opportunity, but cautioned that the duration and effects of COVID-19 remain uncertain. Potential effects include demand, client budgets and renewals, member attrition, sales cycles, collections, vendors and operating costs.
- The nine-month income tax expense of $93.9m included a substantial non-cash valuation-allowance charge associated with Livongo; management identified an $87.0m charge in the first quarter. Q3 tax expense was $3.6m.
- Debt extinguishment losses were $43.7m for the nine months, primarily related to exchanges and conversions of 2025 Notes and the redemption/conversion of 2022 Notes. Net interest expense was $61.5m year to date.
- Management reported no material change to previously disclosed risk factors. It said it did not expect existing litigation matters to have a material adverse impact. A new purported securities class action relating to the Livongo merger was filed in August 2021; earlier securities and derivative actions were dismissed with prejudice in September.
- Management reported effective disclosure controls as of September 30, 2021 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported growth is sustainable organic growth versus acquired revenue, and whether access-fee and membership growth continues.
- Whether higher operating costs, stock-based compensation and acquisition-related amortization can be managed while sustaining adjusted EBITDA growth; adjusted EBITDA is non-GAAP and excludes significant stock compensation and other costs.
- The effect of the Livongo-related valuation allowance, remaining purchase-accounting adjustments and substantial goodwill and intangible-asset balances.
- Convertible-note principal, potential conversion dilution, and the difference between reported net carrying debt and contractual obligations.
- COVID-19-related demand and client-renewal risks, as well as the outcome of the Livongo-merger securities litigation.