Teladoc Health, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Dollar amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context
Teladoc provides whole-person virtual care, including primary care, mental health, chronic-condition management, and enterprise telehealth. Revenue is primarily subscription and access-fee based. Management attributed much of the period’s growth to access fees, particularly from BetterHelp, its direct-to-consumer mental-health service.
Financial performance and liquidity
- Revenue: Q2 revenue was $592.4 million, up 18% year over year; first-half revenue was $1,157.7 million, up 21%. Access-fee revenue rose 20% in Q2 and 24% for the first half. Visit-fee revenue increased 7% and 10%, respectively; other revenue fell 30% and 38%.
- Profit and margins: Q2 net loss was $3,101.5 million ($19.22 per share), compared with $133.8 million ($0.86 per share) in Q2 2021. First-half net loss was $9,776.0 million ($60.72 per share), versus $333.5 million ($2.16 per share). Results included goodwill impairment charges of $3,030.0 million in Q2 and $9,630.0 million year to date. Cost of revenue, excluding separately reported depreciation and amortization, was 30.8% of revenue in Q2 versus 31.9% a year earlier. Adjusted EBITDA, a non-GAAP measure, was $46.7 million in Q2, down 30%, and $101.2 million for the first half, down 18%.
- Cash flow: First-half operating cash flow was $60.7 million, compared with $34.2 million in 2021. Investing used $72.4 million, mainly for capitalized software; financing provided $1.5 million. Cash and cash equivalents decreased by $10.2 million, to $881.2 million at June 30.
- Liquidity and debt: Current assets were $1,257.3 million and current liabilities $371.5 million. Convertible senior notes had a net carrying amount of $1,533.6 million; advances from financing companies totaled approximately $19.9 million. Management said cash, cash equivalents, and short-term investments were expected to meet working-capital, capital-expenditure, and contractual-obligation needs for at least the next 12 months.
- Balance sheet: Total assets were $8,102.8 million, down from $17,734.6 million at year-end 2021, primarily reflecting goodwill impairment. Goodwill was $4,858.2 million at June 30, compared with $14,504.2 million at December 31, 2021.
Material changes versus the prior period
- Revenue growth accompanied higher visits and engagement: U.S. paid membership reached 56.6 million, up 4.6 million year over year; Q2 visits rose 28% to approximately 4.7 million. Chronic-care enrollment increased 13% to 0.8 million.
- Advertising and marketing expense increased 59% in Q2, primarily from higher BetterHelp digital and media advertising. Cost of revenue rose 14%, reflecting visit growth and higher provider and device costs.
- Goodwill impairment followed sustained share-price declines and revised valuation assumptions. The discount rate used in the impairment assessment rose to 16% at June 30 from 12% in March; revenue multiples were also reduced. After the June charge, reporting-unit fair value had no excess over carrying value.
- Adoption of ASU 2020-06 reduced non-cash interest expense by changing convertible-note accounting. The company recorded a $306.3 million increase to convertible notes at adoption and anticipated approximately $58 million less non-cash interest expense for full-year 2022 than in 2021.
Outlook, risks, and unusual items
- The filing provides no specific revenue, earnings, or other financial guidance. Management described virtual care trends as an opportunity but said continued COVID-19-related demand was uncertain.
- Further adverse changes in projected cash flows, discount rates, market multiples, growth, or margins could lead to additional non-cash impairment charges. The June impairment assessment was particularly sensitive to market conditions and forecast assumptions.
- Management identified possible effects from economic conditions on client spending, sales cycles, renewals, and member retention, as well as uncertainty around the future effects of the pandemic. The business may also experience quarterly seasonality.
- Legal matters include a TCPA class action with a tentative settlement preliminarily approved, a securities class action related to the Livongo merger, and a separate securities class action filed in June 2022. Management said it did not expect litigation to have a material adverse impact and considered potential loss in the TCPA matter immaterial; it disputes the securities claims and intends to defend them.
- Management reported disclosure controls were effective as of June 30, 2022, with no materially affecting changes to internal control over financial reporting during the quarter. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether revenue and membership growth, particularly BetterHelp growth, can continue while advertising expense remains elevated.
- Whether operating cash generation can support software investment and other needs, and how the $1.53 billion carrying value of convertible notes affects future obligations or dilution.
- Whether updated forecasts and valuation assumptions support the remaining $4.86 billion of goodwill; the filing says any further decline in estimated fair value could trigger additional impairment.
- How much of the reported loss reflects non-cash impairment versus recurring operating performance; assess GAAP results alongside, not solely through, Adjusted EBITDA.
- The potential outcomes and financial exposure from the disclosed securities and TCPA litigation, which remain uncertain.