Teladoc Health, Inc. (then Teladoc, Inc.) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Financial amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where shown. Interim results are unaudited.
Business context
Teladoc provides on-demand telehealth services through employer, health plan and consumer contracts. Revenue is primarily recurring subscription access fees, with additional fees for completed visits. The company reported more than 12 million unique members and approximately 391,000 visits in the first nine months of 2015. Membership grew approximately 56% year over year; management said about 90% of the 4.6 million member increase was organic. In July 2015, Teladoc completed its IPO and raised $163.1 million net.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $20.0M | $10.9M | $54.7M | $30.6M |
| Gross profit | $15.5M | $8.8M | $40.2M | $24.4M |
| Gross margin | 77.5% | 80.3% | 73.4% | 79.9% |
| Operating loss | $(12.6)M | $(3.9)M | $(41.4)M | $(8.9)M |
| Net loss | $(13.2)M | $(4.5)M | $(43.0)M | $(10.0)M |
| Adjusted EBITDA (non-GAAP) | $(10.4)M | $(3.1)M | $(36.0)M | $(6.9)M |
| Net cash used in operating activities | Not presented for quarter | $(34.4)M | $(7.1)M |
Q3 revenue increased 83% year over year; nine-month revenue increased 79%. Management attributed growth mainly to more clients and members. Q3 visits rose to 117,213 from 61,929; nine-month visits rose to 391,231 from 188,551. Subscription access fees represented approximately 85% of Q3 revenue and 83% of nine-month revenue in 2015. Higher visit volume and its associated costs contributed to gross-margin declines.
Liquidity, debt and balance sheet
- At September 30, 2015, cash and cash equivalents were $54.1M and short-term investments were $97.9M, totaling approximately $152.0M in cash and short-term investments.
- Total debt was $27.1M, including $1.25M current and $25.9M long-term. Debt included SVB revolving and term facilities, mezzanine borrowing, and the AmeriDoc seller note. The company reported compliance with debt covenants.
- Total assets were $243.3M; stockholders’ equity was $192.5M. Goodwill was $56.3M and net intangible assets were $16.9M, reflecting acquisitions.
- For the first nine months, investing cash outflow was $122.5M, including net purchases of marketable securities and acquisitions; financing cash inflow was $164.5M, mainly from IPO proceeds.
Material changes, outlook and risks
- Operating expenses increased substantially year over year, including general and administrative expense (Q3 $12.3M versus $4.8M; nine months $40.7M versus $12.1M). Management cited higher staffing, legal and other professional fees, public-company costs, bad debt and facility-related costs. Marketing, sales and technology spending also rose.
- 2015 acquisitions included BetterHelp, StatDoc and Gateway. Acquisition-related goodwill and intangible assets increased; a $2.6M contingent consideration liability was recorded, including a fair-value increase during the period.
- Management expected negative EBITDA through the end of 2017 and stated existing cash and cash equivalents should cover working capital and capital expenditure needs for at least 12 months. It also noted future financing may be needed depending on growth and spending needs, and may not be available on acceptable terms.
- Teladoc’s Texas Medical Board litigation remained a significant regulatory risk. A preliminary injunction blocked challenged Texas rules pending further proceedings; trial was set for February 2017. Texas generated approximately $9.3M, or 17%, of nine-month 2015 revenue. The company could not estimate a potential loss but did not consider a material loss probable.
- Disclosure controls were deemed ineffective as of September 30, 2015 because of an unremediated material weakness involving insufficient accounting personnel and internal-control design and operation.
- Other stated risks include ongoing losses, client concentration, healthcare regulation, provider relationships, privacy and security, competition, and execution and integration risks. Management said quarterly results may fluctuate seasonally.
Most important facts to verify
- Whether member and visit growth, renewals and utilization support recurring revenue growth and eventually improved margins.
- Cash burn and the company’s liquidity runway against management’s expectation of negative EBITDA through 2017.
- Progress and outcome of the Texas Medical Board cases, and any resulting effect on Texas operations.
- Remediation of the material weakness and effectiveness of financial reporting controls.
- Debt repayment terms, acquisition-related contingent payments, and the returns from recent acquisitions.