Teladoc Health, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Teladoc operates two reportable segments: Teladoc Health Integrated Care and BetterHelp. Financial statements are unaudited.
Financial performance
Amounts in millions, except per-share data. Adjusted EBITDA is a non-GAAP measure.
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $660.2 | $611.4 | $1,941.9 | $1,769.1 |
| Operating loss | $(64.7) | $(71.7) | $(213.5) | $(9,837.7) |
| Net loss | $(57.1) | $(73.5) | $(191.5) | $(9,849.5) |
| Net loss per share | $(0.35) | $(0.45) | $(1.17) | $(61.09) |
| Adjusted EBITDA | $88.8 | $51.2 | $213.7 | $152.4 |
- Q3 revenue rose 8%; nine-month revenue rose 10%. Access fees accounted for 88% of revenue in both periods. Nine-month U.S. revenue increased 8% and international revenue 21% year over year.
- Q3 Integrated Care revenue was $374.4 million, up 9%, with Adjusted EBITDA of $62.8 million and a 16.8% margin, versus 11.3% a year earlier. BetterHelp revenue was $285.8 million, up 8%, with Adjusted EBITDA of $26.0 million and a 9.1% margin, versus 4.2%.
- Q3 cost of revenue was essentially flat at $186.0 million. Nine-month advertising and marketing expense rose 14% to $541.7 million, largely due to BetterHelp spending. Nine-month depreciation and amortization increased 33% to $239.6 million.
Cash flow, balance sheet and debt
- At September 30, cash and cash equivalents were $1,030.5 million; current assets were $1,387.1 million and current liabilities $402.6 million. The filing reports total convertible senior notes, net, of $1,537.8 million.
- Cash from operating activities for the first nine months was $219.9 million, versus $123.7 million in 2022. Capital expenditures were $10.1 million and capitalized software costs $109.8 million; reported free cash flow, a non-GAAP measure, was $100.1 million versus $4.9 million.
- Notes outstanding principally comprise $1.0 billion of 1.25% notes due 2027 and $550 million of 0.875% Livongo notes due 2025. The filing says existing cash is expected to cover working capital, capital expenditure and contractual obligation needs for at least 12 months.
Material changes and management commentary
- Year-to-date results improved substantially against 2022, but comparison is distorted by the prior-year $9.63 billion non-cash goodwill impairment. No goodwill impairment was recorded in 2023.
- Management attributed revenue growth to membership and access-fee expansion. U.S. Integrated Care members reached 90.2 million, up 8.3 million year over year; chronic-care program enrollment increased 13% to 1.122 million. BetterHelp average monthly paying users increased 5% in Q3 and 14% for the nine-month period.
- Teladoc initiated a phased transition of most chronic-care clients and members to the Teladoc Health brand. The associated estimate change accelerated Livongo trademark amortization, adding $18.6 million of expense, or $0.11 per share, in Q3 and year to date; expense is expected to rise in 2023 and 2024 and decline thereafter.
- Management cited seasonality: Integrated Care utilization typically ramps through the year, while BetterHelp historically reduces marketing in Q4 and has higher customer-acquisition spending early in the year. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
Risks, contingencies and unusual items
- BetterHelp’s FTC settlement and consent order received final approval in July 2023 and required a $7.8 million payment. Related putative privacy and consumer-protection class actions are pending; the company says it intends to defend them vigorously.
- Two securities class-action matters were dismissed in 2023; the company stated it would defend any appeal or further proceedings in the federal matter. A related shareholder derivative case is stayed pending resolution of the securities litigation. Management said it did not expect litigation matters to have a material adverse impact.
- Restructuring costs were $16.0 million for the first nine months, including employee transition and office-space costs. The company said previously announced restructuring actions were substantially complete.
- Management reported effective disclosure controls as of September 30, 2023. ERP implementation continued, with controls to be evaluated. The filing reports no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether revenue and member growth translate into sustained GAAP profitability and cash generation; review the company’s non-GAAP Adjusted EBITDA and free-cash-flow reconciliations.
- BetterHelp user trends, advertising efficiency and margins, alongside Integrated Care member engagement and revenue per member.
- Cash needs and repayment or conversion exposure for the $550 million notes due in 2025 and $1.0 billion notes due in 2027.
- Progress and remaining costs of the brand transition, restructuring, CRM/ERP transformation, and the outcome of BetterHelp-related litigation.