Teladoc Health, Inc. — 2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016. The filing also reports fourth-quarter results. The company was named Teladoc, Inc. at the time of filing.
Business context
Teladoc operates a U.S. telehealth platform connecting members with physicians and behavioral health professionals. Revenue is primarily recurring per-member subscription fees, with additional fees for completed visits. At year-end, the company served more than 17.5 million members and approximately 7,500 clients; it completed about 952,000 visits in 2016. Membership grew approximately 59% from year-end 2015, and the company reported a median response time under ten minutes.
Key financial metrics
| Metric | FY 2016 | FY 2015 | Q4 2016 | Q4 2015 |
|---|---|---|---|---|
| Revenue | $123.2 million | $77.4 million | $37.4 million | $22.6 million |
| Gross profit | $91.2 million | $56.3 million | $27.4 million | $16.2 million |
| Gross margin | 74% | 73% | 73% | 71% |
| Operating loss | $(62.7) million | $(55.8) million | $(13.2) million | $(14.3) million |
| Net loss | $(74.2) million | $(58.0) million | $(14.3) million | $(15.0) million |
| Adjusted EBITDA (non-GAAP) | $(39.7) million | $(47.3) million | Not clearly provided | Not clearly provided |
| Cash used in operating activities | $(51.8) million | $(47.2) million | Not provided | Not provided |
Subscription access fees accounted for 82% of FY 2016 revenue and visit fees 18%. Cash and cash equivalents were $50.0 million, with $15.8 million of short-term investments, at year-end. Working capital was $61.6 million, compared with $133.6 million in 2015. Total bank and other debt was $44.4 million, including $2.0 million classified as current. The debt was secured by substantially all company assets; Teladoc reported compliance with its covenants.
Material changes versus the prior period
- FY 2016 revenue rose 59%, primarily from client and membership growth, including acquisitions. Visits increased to about 952,000 from about 576,000, and visit-fee revenue increased 61% to $22.7 million.
- Gross margin improved to 74% from 73%; the company remained loss-making, with net loss widening by $16.2 million.
- Advertising and marketing expense rose 72% to $34.7 million; sales expense rose 46% to $26.2 million; and technology and development expense rose 54% to $21.8 million, reflecting investment in growth and operations.
- Acquisition-related costs increased to $7.0 million, including $5.7 million of HealthiestYou contract termination costs. The July 2016 HealthiestYou acquisition consideration was $151.5 million, comprising $43.2 million cash and $108.3 million in stock.
- The July 2016 debt refinancing generated a one-time $8.5 million charge for warrant amortization and extinguishment-related costs. HealthiestYou also materially increased goodwill, from $56.3 million to $188.2 million.
Outlook, risks and unusual items
- Management anticipated negative EBITDA through the end of 2017. It said existing cash and cash equivalents were expected to cover working-capital and capital-expenditure needs for at least 12 months; the filing does not provide formal revenue or earnings guidance.
- In January 2017, after year-end, Teladoc raised $124.0 million net in a follow-on offering and repaid the remaining $2.0 million seller note plus interest. The offering improves liquidity but increased the share count.
- Teladoc’s lawsuit against the Texas Medical Board remained stayed through April 19, 2017, with no trial date set. Texas represented 12% of FY 2016 revenue. The company warned that adverse state telemedicine rules could restrict operations.
- Key risks include state licensing and corporate-practice-of-medicine rules, dependence on affiliated professional entities and provider availability, privacy and cybersecurity exposure, client renewals and concentration, competition, and continued operating losses and cash use.
- The company reported a $204.7 million accumulated deficit and a full valuation allowance against deferred tax assets. Management stated that its going-concern assessment identified no conditions raising substantial doubt about continuation.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded internal control over financial reporting was effective at year-end, excluding HealthiestYou revenue from the assessment; a previously identified material weakness was reported remediated by June 30, 2016.
Important facts for investors to verify
- Whether member growth and utilization convert into recurring revenue and improved operating cash flow, while marketing and other expenses grow.
- The ongoing effect of the HealthiestYou acquisition on client retention, revenue contribution, integration costs, goodwill and potential impairment.
- The status and outcome of the Texas Medical Board litigation and any changes to telehealth rules in Texas or other states.
- Debt availability, interest costs, covenant requirements and the effect of the January 2017 equity offering on liquidity and dilution.
- Client retention, renewal pricing, concentration and the sustainability of visit volumes and reported client savings.
- The source reports year-end cash and cash equivalents separately from short-term investments; verify combined liquidity using the underlying financial statements.