Business context and reporting period
Teladoc, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2016. The company provides on-demand telehealth services through subscriptions for access to its provider network and fees for completed visits. It reported more than 15 million Members, approximately 240,000 visits in the quarter, and a provider network of more than 3,100 professionals.
Financial performance and position
Amounts below are in millions of dollars except per-share data, percentages, and operating statistics.
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Revenue | $26.9 | $16.5 |
| Gross profit / margin | $18.9 / 70% | $11.2 / 68% |
| Operating loss | $(14.7) | $(12.6) |
| Net loss | $(15.3); $(0.40) per share | $(12.7); $(5.87) per share |
| Adjusted EBITDA | $(11.9) | $(10.9) |
| Cash used in operating activities | $(17.1) | $(10.3) |
| Cash and cash equivalents | $50.2 | $55.1 at Dec. 31, 2015 |
| Short-term investments | $69.5 | $82.3 at Dec. 31, 2015 |
| Total debt | $26.2 | $26.5 at Dec. 31, 2015 |
| Current assets / current liabilities | $136.2 / $14.9 | $151.6 / $18.0 at Dec. 31, 2015 |
Revenue grew 63% year over year, driven by new Clients and 42% Member growth. Subscription access fees were 77% of revenue; visit fees were 23%. Visits rose approximately 61% to 240,000 from 149,000, and visit-fee revenue increased 87% to $6.2 million. The 2015 per-share loss comparison is affected by the IPO, conversion of preferred shares, and reverse stock split; weighted-average shares were 38.6 million in 2016 versus 2.2 million in 2015.
Operating expenses rose 40% to $32.2 million. Advertising and marketing increased 85% to $8.1 million, technology and development increased 80% to $5.2 million, and sales increased 43% to $5.3 million. General and administrative expense rose 14% to $13.6 million. The company attributed spending growth to marketing, expanded staffing, technology investment, and business growth. Gross margin improved from 68% to 70%.
Cash, cash equivalents, and short-term investments totaled $119.7 million at quarter-end. Investing cash flow was $12.1 million provided, principally reflecting net marketable-security maturities and purchases; financing provided $0.2 million. Debt included a $12.9 million mezzanine loan bearing 10% interest, $6.5 million of revolving borrowings, a $3.9 million term loan, and a $3.0 million subordinated note. The company reported compliance with debt covenants.
Material changes, outlook, and risks
- Net loss increased by $2.6 million year over year, while operating cash outflow increased by $6.8 million. Adjusted EBITDA loss also widened by $1.0 million.
- Management anticipated negative EBITDA through the end of 2017 and believed available cash and cash equivalents would fund working capital and capital expenditures for at least 12 months. No specific revenue or earnings forecast was provided.
- Management expects continued investment in marketing, sales, technology, and administration. Results are seasonal: new Client contracts and visit activity typically strengthen in the first and fourth quarters, while the second quarter has historically had lower utilization.
- Texas Medical Board litigation remains material: Texas generated $3.9 million, or 14%, of Q1 revenue. A preliminary injunction blocks challenged rule amendments while litigation and appeal proceedings continue; an adverse outcome could materially affect Texas operations.
- American Well has alleged patent infringement; Teladoc is seeking inter partes review of the patent, and its motion to dismiss was pending. The company said it believed it had defenses but noted an adverse outcome could affect results.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2016 because of a material weakness related to insufficient accounting personnel and internal-control processes. Management was adding qualified staff and expected remediation during 2016.
- The consolidated professional-entity VIE reported $3.4 million in assets and $21.4 million in liabilities at March 31, 2016; Teladoc stated it controls the entity and funds and absorbs its losses. The VIE reported $6.1 million revenue and $1.7 million net loss in the quarter.
- The company had an accumulated deficit of $145.8 million and a history of losses. Management noted that additional financing might be needed, and that it might not be available on acceptable terms or at all.
Most important facts for investors to verify
- Progress on remediation of the disclosed material weakness and whether disclosure controls become effective.
- Developments in the Texas Medical Board cases and their potential effect on Teladoc’s Texas business and operating model.
- Cash burn, Member and visit growth, and whether liquidity remains adequate against management’s negative-EBITDA outlook and debt maturities.
- Resolution and potential exposure from the American Well patent case, and the assumptions underlying contingent acquisition liabilities.