Teladoc Health, Inc. — FY 2017 Form 10-K
Reporting period: Year ended December 31, 2017; the filing also reports fourth-quarter results. Teladoc provides virtual healthcare services to employers, health plans, health systems and consumers. The July 2017 acquisition of Best Doctors expanded its expert-consultation and international businesses.
Financial and operating performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $233.3 million | $123.2 million |
| Gross profit / margin | $171.7 million / 74% | $91.2 million / 74% |
| Operating loss | $(75.4) million | $(62.7) million |
| Net loss | $(106.8) million | $(74.2) million |
| Adjusted EBITDA (non-GAAP) | $(12.5) million | $(39.7) million |
| Cash used in operating activities | $(34.4) million | $(51.9) million |
- Revenue increased 89%; management reported 43% organic growth excluding acquisitions. Best Doctors contributed $47.0 million of FY 2017 revenue.
- Subscription access fees were 85% of revenue and visit fees 15%. Visits rose to approximately 1.463 million from 952,000; paid membership increased 33%, including the Best Doctors acquisition.
- Fourth-quarter revenue was $77.1 million, gross profit $54.4 million, operating loss $(24.6) million and net loss $(44.4) million. Q4 2016 revenue was $37.4 million and net loss $(14.3) million.
- At year-end, cash and cash equivalents were $42.8 million and short-term investments $79.5 million, totaling $122.3 million. Working capital was $115.9 million; total assets were $824.4 million and stockholders’ equity $558.9 million.
- Debt included $275 million principal amount of 3% convertible notes due 2022, carried at $207.4 million net of discount. The $10 million revolving facility was undrawn. No bank or other term debt was outstanding at year-end.
Changes, unusual items and outlook
- Best Doctors was acquired for approximately $445.5 million, net of cash acquired, comprising approximately $379.3 million cash and $66.2 million in Teladoc shares. The acquisition added substantial goodwill and intangible assets.
- Operating expenses rose substantially with investment in marketing, sales, technology and headcount, as well as acquisition-related costs. Stock-based compensation expense rose to $30.6 million from $7.7 million.
- FY 2017 included $14.1 million of warrant amortization and debt-extinguishment charges, including a $12.6 million charge from repayment of the acquisition term loan after the December equity offering. Net interest expense increased to $17.5 million from $2.6 million.
- Cash used in investing activities was $448.4 million, principally reflecting the Best Doctors acquisition. Financing activities provided $475.4 million, including convertible-note proceeds and two follow-on offerings.
- Management anticipated positive Adjusted EBITDA in 2018 and stated that cash, cash equivalents and short-term investments should fund working capital and capital expenditures for at least 12 months. This is management’s outlook, not detailed revenue or earnings guidance.
- Management cited continuing investment and growth plans. Risks include telehealth and corporate-practice-of-medicine regulation, provider-network dependence, privacy and cybersecurity, competition, acquisition integration, client retention and continued losses. Management reported no material legal proceeding expected to have a material adverse effect.
Investor verification priorities
- Assess whether membership growth, visit utilization and organic revenue growth can continue, and distinguish acquisition contributions from underlying growth.
- Track the path to positive Adjusted EBITDA and profitability, including the level and persistence of stock compensation and other excluded costs.
- Review cash burn, liquidity and the terms, conversion dilution and maturity obligations of the $275 million convertible notes.
- Evaluate Best Doctors integration, acquired goodwill and intangibles, and whether the acquisition delivers expected growth and operating benefits.
- Follow remediation of the material weakness in stock-based compensation controls: management and the auditor concluded internal control over financial reporting was ineffective at year-end 2017. The weakness caused an expense adjustment but did not affect financial position or cash flows; the financial-statement audit opinion was unqualified.