Teladoc Health, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statement amounts below are in millions of dollars unless otherwise noted.
Business context
Teladoc provides virtual healthcare services, including primary and mental healthcare and chronic condition management. Revenue is primarily access fees from clients and members; BetterHelp, its direct-to-consumer mental health service, was a key growth driver.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $611.4 | $521.7 | $1,769.1 | $1,478.5 |
| Net loss | $(73.5) | $(84.3) | $(9,849.5) | $(417.8) |
| Net loss per share | $(0.45) | $(0.53) | $(61.09) | $(2.68) |
| Adjusted EBITDA, non-GAAP | $51.2 | $67.4 | $152.4 | $190.8 |
| Operating cash flow | Not separately provided | Not separately provided | $123.7 | $110.8 |
- Q3 revenue increased 17%; nine-month revenue increased 20%. Access fees were 88% of revenue in both 2022 periods.
- Q3 2022 advertising and marketing expense was $178.9 million, up 61%, primarily reflecting BetterHelp digital and media advertising.
- At September 30, cash and cash equivalents were $899.6 million; current assets were $1,287.6 million and current liabilities $411.4 million. Management said existing cash was expected to meet working capital, capital expenditure and contractual needs for at least 12 months.
- Convertible senior notes had a net carrying amount of $1,534.4 million. Outstanding principal was approximately $1.55 billion, principally $1.0 billion of 2027 Notes and $550 million of Livongo Notes.
- Nine-month investing cash outflow was $113.9 million, mainly from $108.6 million of capitalized software costs. Financing cash inflow was $2.1 million.
Changes versus prior periods
- Revenue growth was driven mainly by higher access fees, particularly BetterHelp. U.S. and international revenue each rose 17% in Q3; visit-fee revenue increased 5% and other revenue declined 43%.
- Q3 net loss narrowed year over year, but adjusted EBITDA declined 24% to $51.2 million, reflecting increased operating costs, especially marketing.
- Nine-month net loss includes a $9.63 billion non-cash goodwill impairment charge, following impairment assessments in March and June. Goodwill fell from $14.50 billion at year-end 2021 to $4.85 billion at September 30, 2022.
- Adoption of ASU 2020-06 reduced non-cash interest expense on convertible notes; the company anticipated approximately $58 million less such expense for 2022 than for 2021. This accounting change did not eliminate the notes’ contractual interest obligations.
- Trademark strategy changes accelerated amortization; the filing says this increases annual amortization by approximately $23.2 million in 2022 and 2023.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management cites growth in membership, utilization and virtual-care adoption as performance factors, while noting uncertainty around pandemic-related demand and economic effects on clients.
- U.S. paid membership reached 57.8 million, up 5.3 million year over year; Q3 visits rose 14% to approximately 4.6 million. Chronic care enrollment rose 9% to 0.8 million.
- Following the June impairment, reporting-unit fair value had no excess over carrying value. Further deterioration in projected cash flows, discount rates, market multiples, revenue growth or margins could trigger additional impairment charges.
- Legal matters include securities class actions and shareholder derivative claims related to alleged company statements and disclosures. Management said it intends to defend the claims; it did not expect litigation matters to have a material adverse impact, and described the TCPA class-action settlement as tentative.
- The company recorded $3.7 million of lease abandonment and exit costs in Q3; related lease liabilities remained obligations. It also implemented an ERP system for selected entities and transaction types and said it would continue evaluating related controls.
- Management reported disclosure controls were effective at September 30, 2022. The filing states there were no material changes to previously disclosed risk factors.
Investor facts to verify
- Whether BetterHelp’s customer growth and advertising spending can support sustainable revenue and profitability.
- Goodwill and other asset valuation assumptions, and the potential for further impairment.
- Cash generation after capitalized software spending, and the company’s ability to service or manage approximately $1.55 billion of convertible-note principal.
- Developments and potential exposure in the securities and derivative litigation.
- How Q3 ERP implementation affects internal controls as the company continues its evaluation.