Teladoc Health, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial figures below are in U.S. dollars; amounts are in millions unless stated otherwise. The filing is unaudited.
Business context and reporting period
Teladoc describes itself as a global whole-person virtual care provider, with services spanning primary care, mental health, chronic condition management and other virtual care. Q1 growth was driven substantially by access-fee revenue, particularly from its BetterHelp direct-to-consumer mental health service.
Financial performance and liquidity
- Revenue: $565.4, up 25% from $453.7. Access fees were $491.3, up 29%; visit fees were $67.9, up 12%; other revenue was $6.1, down 45%. U.S. revenue grew 24% and international revenue 27%.
- Profit and margins: GAAP net loss was $6,674.5, or $41.58 per diluted share, versus a $199.6 million loss, or $1.31 per share, a year earlier. The loss included a $6.6 billion non-cash goodwill impairment. Excluding that charge, the company reported an operating loss of $69.4 million. Gross margin, calculated as revenue less cost of revenue before separately reported depreciation and amortization, was approximately 66.9%, versus 67.8%.
- Adjusted EBITDA: $54.5, down 4% from $56.6; approximately 9.6% of revenue versus 12.5%. This is a non-GAAP measure and excludes, among other items, stock-based compensation.
- Cash flow: Operating cash use was $31.7, compared with $18.0 in Q1 2021. Investing cash use was $27.6, including $26.9 of capitalized software development. Financing provided $2.8. Cash and cash equivalents fell by $57.0, including foreign-exchange effects, to $836.4.
- Liquidity and debt: Short-term investments were $2.5; current assets were $1,208.0 and current liabilities $306.7. Convertible senior notes had a net carrying value of $1,532.8; their stated principal totaled approximately $1.551 billion. Management said existing cash and short-term investments should cover working capital, capital expenditures and contractual obligations for at least 12 months.
- Balance sheet: Goodwill declined from $14,504.2 at year-end 2021 to $7,899.8, primarily due to the impairment. Total assets were $11,092.3 and stockholders’ equity $9,142.6 at March 31, 2022.
Material changes versus Q1 2021
- Revenue increased $111.7, led by access fees. U.S. paid membership rose by 2.7 million to 54.3 million; average U.S. revenue per member increased to $2.52 from $2.09. Visits grew 35% to approximately 4.5 million, and reported utilization rose to 23.4% from 17.5%.
- Cost of revenue increased 28%, faster than revenue. Advertising and marketing increased 49% to $133.6, substantially due to BetterHelp advertising.
- The $6.6 billion impairment turned the reported loss substantially higher. Separately, depreciation and amortization rose 21%, partly because of accelerated trademark amortization.
- Adoption of ASU 2020-06 on January 1, 2022 changed convertible-note accounting and reduced reported non-cash interest expense. The company anticipated approximately $58 million less non-cash note interest in 2022 than in 2021; prior-period figures were not restated.
Outlook, commentary and risks
- The filing provides no specific revenue, earnings or Adjusted EBITDA guidance. Management cited uncertainty over whether pandemic-related virtual-care demand will persist and noted potential effects from client spending constraints, renewals, sales cycles, member attrition and supplier disruptions.
- The impairment followed sustained share-price and market-capitalization declines. Valuation assumptions were revised, including a discount rate increase from 10.5% to 12.0% and peer revenue multiples reduction from 7.0x/5.5x to 3.0x/2.5x. Following the charge, reporting-unit fair value had no excess over carrying value. Management warned further declines could cause additional impairment; it noted a 50% illustrative decline in estimated fair value would imply approximately $4.6 billion of additional impairment.
- After March 31, the company reported a further market-capitalization decline; if sustained, it could prompt another impairment test and possible charge. The company also expects its brand-consolidation strategy to increase annual amortization by approximately $23 million in 2022 and 2023.
- Management said it did not expect the disclosed litigation matters to have a material adverse effect. A securities class action related to the Livongo merger was refiled in New York after dismissal without prejudice in Illinois; the company disputes the claims. Management reported no material changes to previously disclosed risk factors and concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether subsequent goodwill testing results in additional impairment, given zero post-impairment valuation cushion and the disclosed post-quarter market-cap decline.
- Whether revenue growth, especially from BetterHelp and access fees, can continue and translate into improved margins and Adjusted EBITDA.
- Cash use, working-capital needs and the adequacy of liquidity relative to approximately $1.551 billion of convertible-note principal and future obligations.
- The expected effects of brand consolidation, accelerated amortization and ASU 2020-06 on future reported earnings and comparability.
- Developments in the Livongo-related securities litigation and any change to management’s assessment of legal exposure.