Teladoc Health, Inc. (filed as Teladoc, Inc.) — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018; unaudited. Amounts below are in U.S. dollars. The filing describes a virtual healthcare services business with subscription and visit-based revenue.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $94.6 million | $44.6 million | $184.2 million | $87.5 million |
| Gross profit | $66.9 million | $34.6 million | $129.7 million | $65.3 million |
| Gross margin | 71% | 77% | 70% | 75% |
| Operating loss | $18.1 million | $14.5 million | $37.2 million | $29.3 million |
| Net loss | $25.1 million | $15.4 million | $48.9 million | $31.1 million |
| Adjusted EBITDA (non-GAAP) | $2.7 million | $(5.1) million | $1.3 million | $(14.2) million |
- Q2 revenue grew 112%; six-month revenue grew 111%. Management reported organic growth of 39% and 43%, respectively, excluding Advance Medical and Best Doctors.
- Q2 basic and diluted loss per share was $0.40, compared with $0.28; six-month loss per share was $0.78, compared with $0.58.
- Operating cash outflow was $17.5 million for the first six months, versus $15.4 million a year earlier. Investing cash outflow was $215.6 million, principally reflecting the Advance Medical acquisition; financing cash inflow was $296.8 million.
- At June 30, cash and cash equivalents were $105.8 million and short-term investments were $26.6 million, totaling $132.4 million. Current assets were $178.9 million and current liabilities $57.0 million.
- Convertible notes had a combined principal amount of $562.5 million: $275 million of 3% notes due 2022 and $287.5 million of 1.375% notes due 2025. Balance-sheet carrying value was $402.8 million. The $10 million revolving facility had no balance outstanding; the company reported covenant compliance.
Material changes versus the prior comparable period
- Revenue gains reflected higher membership and visits, the 2017 Best Doctors acquisition, and the May 31, 2018 acquisition of Advance Medical. The acquired businesses contributed $26.7 million and $6.2 million, respectively, to Q2 revenue; Best Doctors contributed $53.5 million to first-half revenue.
- U.S. paid membership reached 22.5 million, up from 15.2 million a year earlier (2017 figure adjusted for specified Aetna and Amerigroup lives). Visit-fee-only access covered 9.6 million individuals. First-half visits rose to approximately 1.138 million from 694,000.
- Gross margin declined, which management attributed to revenue mix and acquisitions. Operating expenses increased, including acquisition-related amortization, higher staffing and sales and marketing investment. Net interest expense increased to $6.9 million in Q2 and $11.8 million for the first half, primarily reflecting convertible-note costs.
- Advance Medical was acquired for $351.7 million net of cash acquired, comprising $291.9 million cash and $68.6 million in Teladoc shares. The purchase added $251.2 million of goodwill. The acquisition was included in reported results from May 31, 2018.
Outlook, commentary, risks and unusual items
- Management anticipated positive Adjusted EBITDA for 2018 and stated that cash and short-term investments were expected to cover working capital and capital expenditure needs for at least 12 months. No numerical revenue or GAAP earnings guidance was provided in the filing text.
- Management expects ongoing investment in marketing, sales, technology and general administration. It notes seasonal revenue and utilization patterns, with stronger increases typically in the fourth and first quarters and lower utilization historically in the second quarter.
- On July 26, 2018, after quarter-end, the company issued 5 million shares at $66.28 per share and received $330.3 million net proceeds. This subsequent financing is not included in June 30 cash balances.
- The company recorded a $4.1 million gain on the sale of certain workers’ compensation client contracts and recognized a $1.4 million liability for potential related contingencies. It also recorded $1.5 million of lease-abandonment charges in Q1.
- Disclosed risks include healthcare regulation and legal challenges to the business model, reliance on affiliated professional entities, cybersecurity and privacy exposure, client retention, provider recruitment, international operations, acquisition integration, competition and indebtedness. The company reported no material legal proceeding and no material change to previously disclosed risk factors.
- Management said disclosure controls were effective at June 30, 2018 and that a previously identified weakness related to certain stock-based compensation awards had been remediated by March 31, 2018.
Key facts for investors to verify
- How much reported growth and margin change reflects acquired businesses versus organic performance, and whether acquisition integration delivers expected benefits.
- Whether membership and visit growth translate into durable revenue growth and improved gross margins, given higher provider costs and seasonal utilization.
- The sustainability and composition of positive Adjusted EBITDA, including the effects of stock compensation, acquisition costs and the asset-sale gain; Adjusted EBITDA is non-GAAP.
- Cash burn, capital needs and the terms, conversion features and potential dilution associated with both convertible note issues; incorporate the post-quarter July equity offering when assessing liquidity.
- Potential impacts of regulatory, legal, cybersecurity, foreign-currency and client-concentration risks, as well as the timing and settlement of the asset-sale contingency.