Teladoc Health, Inc. — Q1 2019 Form 10-Q
Reporting period: Quarter ended March 31, 2019; comparative period is the quarter ended March 31, 2018. Teladoc provides virtual healthcare services. The results include Advance Medical, acquired May 31, 2018, for the full quarter in 2019 but not in the 2018 comparison.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $128.6 million | $89.6 million |
| Gross profit / margin | $83.9 million / 65% | $62.8 million / 70% |
| Operating loss | $22.9 million | $19.1 million |
| Net loss | $30.2 million; $0.43 per share | $23.9 million; $0.39 per share |
| Adjusted EBITDA (non-GAAP) | $1.2 million | $(1.4) million |
| Cash used in operating activities | $7.9 million | $13.9 million |
- Revenue increased 43%; management reported 23% organic growth. Advance Medical contributed $20.1 million of quarterly revenue.
- Subscription access fees were $106.0 million, about 82% of revenue, versus 80% a year earlier. Visit fees were $22.6 million.
- Gross margin declined five percentage points, reflecting product mix and higher costs, including acquired-service costs and provider/network operating costs.
- At March 31, cash and cash equivalents were $434.0 million and short-term investments were $45.7 million, totaling $479.7 million. Total current assets were $540.8 million versus current liabilities of $71.7 million.
- Convertible notes had $562.5 million aggregate principal outstanding: $275 million of 3% notes due 2022 and $287.5 million of 1.375% notes due 2025. Their combined net carrying value was $420.9 million. The $10 million revolving facility had no borrowings; $2.2 million of letters of credit were in use. The company reported compliance with debt covenants.
- Cash from investing activities was $7.3 million, primarily from $9.0 million of marketable-security maturities, offset by property/equipment and software investment. Financing provided $10.7 million, principally from employee option exercises and related tax-withholding proceeds.
Material changes versus the prior comparable period
- Visits rose 75% to approximately 1.063 million; 283,000 were attributed to Advance Medical. Paid membership reached 26.7 million, up approximately 3.9 million from December 31, 2018; management also reported 28% year-over-year paid-member growth.
- Cost of revenue grew 66%, faster than revenue, and gross margin decreased from 70% to 65%.
- General and administrative expense rose 50% to $36.0 million; management cited workforce growth, acquired operations and additional business-support costs. Headcount was 2,046 versus 1,263 a year earlier.
- Stock-based compensation increased to $13.5 million from $7.8 million. Net loss widened 26%, while Adjusted EBITDA improved to positive $1.2 million.
- Cash used in operations improved year over year, although operations remained cash-consuming. Cash and cash equivalents increased to $434.0 million from $424.0 million at year-end 2018.
Outlook, commentary, risks and unusual items
- Management anticipated positive Adjusted EBITDA for 2019 and stated existing cash, cash equivalents and short-term investments should fund working capital and capital expenditures for at least 12 months. No specific revenue, earnings or cash-flow guidance was provided.
- Management identified member growth, visit volume and utilization, client additions/renewals, product expansion and international growth as performance drivers. Results are seasonal: utilization and visit fees are generally strongest in the first and fourth quarters.
- The company adopted lease accounting standard ASC 842 on January 1, 2019, recognizing operating lease right-of-use assets and liabilities; management reported no impact on operating results or cash flows from adoption. March 31 operating lease liabilities were $27.7 million.
- Risks include healthcare regulation and legal challenges to the business model, reliance on affiliated professional entities, cybersecurity, client retention, provider recruitment, international compliance, acquisition integration, competition/technology change and debt obligations.
- A securities class action concerning alleged misleading statements and omissions is at an early stage; the company said it could not estimate a potential loss. A separate TCPA class action against subsidiary Best Doctors was described as having an immaterial potential loss. Management did not expect litigation matters to have a material adverse impact, but outcomes remain uncertain.
- Management stated there were no material changes to previously disclosed risk factors. Disclosure controls were concluded effective as of March 31, 2019.
Important facts for investors to verify
- How much of reported growth and future performance is attributable to Advance Medical versus organic growth, and whether its integration delivers expected benefits.
- Whether member growth and visit utilization can sustain revenue expansion while gross margin recovers or stabilizes.
- The composition and cash cost of operating expenses, including rising stock-based compensation and acquisition-related amortization.
- Cash conversion, working-capital needs and the assumptions behind management’s 12-month liquidity assessment and positive Adjusted EBITDA outlook.
- Convertible-note terms, potential dilution or cash settlement upon conversion, and the company’s capacity to meet principal and interest obligations.
- Developments in the securities and TCPA litigation, including any changes to potential exposure.