Teladoc Health, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; unaudited. Comparative figures are for 2019. Teladoc provides virtual healthcare services. Unless otherwise stated, amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $241.0 million | $130.3 million | $421.8 million | $258.8 million |
| Operating loss | $(7.2) million | $(22.0) million | $(28.2) million | $(44.9) million |
| Net loss | $(25.7) million | $(29.3) million | $(55.3) million | $(59.5) million |
| Adjusted EBITDA (non-GAAP) | $26.3 million | $6.3 million | $36.9 million | $7.6 million |
- Q2 revenue grew 85%; first-half revenue grew 63%, primarily from more clients and members and increased COVID-19-related demand. Paid membership rose by approximately 14.8 million to 51.5 million from year-end 2019.
- Visit revenue increased to $58.9 million in Q2 from $19.0 million a year earlier; the filing reports approximately 2.8 million Q2 visits versus approximately 0.9 million. Subscription access fees were 76% of Q2 revenue, down from 85%.
- Calculated Q2 gross margin was approximately 62.3%, versus 68.0% in 2019, based on revenue less cost of revenue. Operating margin improved to approximately negative 3.0% from negative 16.9%.
- Cost of revenue grew 118% in Q2, faster than revenue, reflecting higher provider and network costs as visit volume rose. Advertising and marketing expense increased 79%; general and administrative expense increased 41%.
- First-half operating cash flow was positive $29.2 million, versus a $1.7 million use in 2019. Investing activities used $21.6 million; financing provided $788.3 million, chiefly from the 2027 notes offering.
- At June 30, cash and cash equivalents were $1,308.8 million and short-term investments were $2.9 million. Current assets were $1,403.1 million and current liabilities $123.5 million. Accounts receivable, net, was $76.9 million.
- Convertible notes had $1,334.3 million aggregate principal outstanding and a $948.2 million net carrying amount. The company reported no revolving-credit-facility borrowings and compliance with debt covenants at quarter-end. The $10 million facility was terminated July 14, 2020.
Material changes and notable events
- On May 19, Teladoc issued $1.0 billion of 1.25% convertible senior notes due 2027, receiving $975.9 million net proceeds. It also exchanged approximately $228.2 million principal of 2022 notes for cash and approximately 3.9 million shares, recording a $7.8 million extinguishment loss. Approximately $46.8 million principal of 2022 notes remained outstanding.
- On July 1, after the reporting date, Teladoc completed its acquisition of InTouch Technologies for $1,076.4 million: $157.5 million cash and 4.6 million Teladoc shares valued at approximately $918.9 million. The acquisition’s subsequent operating and balance-sheet effects are not included in the June 30 results.
- Common shares outstanding at June 30 were 79.1 million, up from 72.8 million at December 31, 2019. The InTouch share consideration was issued after quarter-end.
Outlook, management commentary and risks
- Management anticipated positive Adjusted EBITDA and positive free cash flow for full-year 2020, and believed existing cash and short-term investments would cover working-capital and capital-expenditure needs for at least 12 months. The filing does not provide numerical full-year revenue or earnings guidance.
- Management said the pandemic drove a surge in demand that continued through Q2 and could alter usual seasonal utilization patterns. It also cautioned that the duration and financial effects of the pandemic were difficult to predict and could be material.
- Risks include client financial distress and weaker collections, reduced subscription or visit revenue, service-delivery disruption, healthcare regulation and legal challenges, cybersecurity, provider recruitment and retention, competition, acquisition integration, and debt service or refinancing needs. The company noted that its entire workforce was working remotely.
- Disclosed legal matters include a securities class action, a related stockholder derivative suit, and a TCPA class action against a subsidiary. Management said it did not expect litigation to have a material adverse impact; the potential loss in the TCPA matter was described as immaterial.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter. No client accounted for more than 10% of revenue or accounts receivable.
Important facts for investors to verify
- How much of the pandemic-era visit and membership growth persists, and how revenue mix and margins develop as utilization normalizes.
- The post-acquisition cash, debt, share count and operating results following the InTouch transaction, including integration costs and expected benefits.
- Accounts-receivable growth and collections, given pandemic-related client risks and the increase in receivables to $76.9 million.
- Potential dilution and future cash or share settlement under the convertible notes, along with debt-service obligations and refinancing flexibility.
- Whether full-year positive Adjusted EBITDA and free-cash-flow expectations are achieved; these are management expectations, not a quantified GAAP forecast.