Teladoc Health, Inc. — FY2018 Form 10-K
Reporting period: Year ended December 31, 2018; quarterly figures below highlight Q4 2018. The filing was signed February 27, 2019. Teladoc provides virtual healthcare services through recurring subscription access fees and per-visit fees. It reported about 2.6 million visits, served 22.8 million paid U.S. members, and had more than 12,000 clients. The May 2018 Advance Medical acquisition expanded its international reach.
Key financial results
| Metric | FY2018 | FY2017 | Q4 2018 | Q4 2017 |
|---|---|---|---|---|
| Revenue | $417.9 million | $233.3 million | $122.7 million | $77.1 million |
| Gross profit | $289.2 million | $171.7 million | $82.7 million | $54.4 million |
| Gross margin | 69% | 74% | 67.4% | 70.5% |
| Operating loss | $(70.9) million | $(75.4) million | $(17.8) million | $(24.6) million |
| Net loss | $(97.1) million | $(106.8) million | $(24.9) million | $(44.4) million |
| Adjusted EBITDA | $13.4 million | $(12.5) million | Not provided | Not provided |
FY2018 revenue grew 79% year over year, including $45.2 million from Advance Medical; reported organic growth was 36%. Subscription access fees accounted for 84% of annual revenue, versus 85% in 2017. Visits rose 81% to approximately 2.64 million. The lower annual gross margin reflected the mix of services. Operating expenses increased, including marketing, sales, technology and development, and general and administrative costs. Net loss narrowed, while interest expense rose to $26.1 million from $17.5 million.
Cash used in operating activities improved to $4.9 million from $34.4 million. Investing activities used $257.5 million, primarily reflecting the Advance Medical acquisition; financing activities provided $645.6 million, including equity and convertible-note proceeds. Year-end cash and cash equivalents were $424.0 million, with $54.5 million in short-term investments; working capital was $470.3 million. Total assets were $1.53 billion and stockholders’ equity was $1.01 billion.
Debt, liquidity and material changes
At year-end, principal outstanding was $275 million of 3% convertible notes due 2022 and $287.5 million of 1.375% convertible notes due 2025. Their combined balance-sheet carrying amount, net of debt discounts, was $414.7 million. The $10 million revolving credit facility had no borrowings outstanding, and the company reported compliance with debt covenants. Management said cash and short-term investments were expected to cover working capital and capital expenditure needs for at least 12 months.
Advance Medical was acquired for $351.7 million in total consideration, including $283.1 million net cash and $68.6 million in stock. Its results contributed $45.2 million of revenue and a $2.7 million net loss from acquisition through year-end. The company also raised $330.9 million net in a July equity offering. A $5.5 million gain came from selling certain client contracts/assets; $1.2 million of lease-abandonment charges were recorded.
Outlook, risks and contingencies
No specific revenue or earnings guidance is stated in the supplied filing text. Management anticipated increasing positive Adjusted EBITDA in 2019 and expected continued investment in marketing, sales, technology, and service expansion. It cited growth opportunities in cross-selling, behavioral health, international markets, and virtual-care adoption, while noting that quarterly results are seasonal and can fluctuate.
Material risks include healthcare licensing and corporate-practice-of-medicine restrictions, changing regulation, privacy and cybersecurity exposure, provider recruitment and retention, competition, client renewals and utilization, acquisition integration, and continuing losses. The company reported cumulative losses since inception and a $408.7 million accumulated deficit. A securities class action filed in December 2018 alleges misleading statements concerning a former executive; the company disputes the claims and could not estimate potential loss. A separate TCPA class action against Best Doctors was described as having an immaterial potential loss. The auditor gave an unqualified opinion on the financial statements and internal controls; the internal-control assessment excluded Advance Medical, a recently acquired business.
Important facts for investors to verify
- How much FY2018 growth and future performance are attributable to acquisitions versus sustainable organic growth, and whether the lower gross margin persists.
- Whether the company can sustain positive Adjusted EBITDA and reduce GAAP losses while funding growth; review the non-GAAP adjustments, including $43.8 million of stock-based compensation.
- Cash needs and potential dilution or cash settlement related to the $562.5 million face amount of convertible notes, including conversion terms and maturities.
- Advance Medical integration, goodwill and acquired intangible-asset values, and the related future amortization burden.
- Developments in the securities and TCPA litigation, healthcare regulation, privacy requirements, and the scope of controls testing for Advance Medical.