Teladoc Health, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results; amounts below are in U.S. dollars unless noted.
Business context
Teladoc provides virtual healthcare services, including telehealth visits, professional-provider access, chronic-condition management and enterprise telehealth platforms. The period reflects the January 2021 acquisition of Consultant Connect and the inclusion of Livongo and InTouch, acquired in 2020. Management said pandemic-related trends accelerated virtual-care adoption, but the persistence of elevated demand is uncertain.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $503.1 million | $241.0 million | $956.8 million | $421.8 million |
| Operating loss | $(78.9) million | $(7.2) million | $(163.6) million | $(28.2) million |
| Net loss | $(133.8) million | $(25.7) million | $(333.5) million | $(55.3) million |
| Adjusted EBITDA (non-GAAP) | $66.8 million | $26.3 million | $123.4 million | $36.9 million |
| Operating cash flow | Not stated for quarter | $34.2 million | $29.2 million |
- Q2 revenue grew 109%; management attributed $164.2 million of the increase to acquired businesses and reported 41% growth excluding acquisitions. Six-month revenue grew 127%, or 53% excluding acquisitions.
- Access fees were 86% of revenue in Q2 and the first half, up from 76% in the comparable 2020 periods. Q2 U.S. access-fee revenue was $396.6 million; international access-fee revenue was $37.4 million.
- Cost of revenue, excluding depreciation and amortization, was $160.3 million in Q2. On that basis, gross profit was approximately $342.9 million, or 68.1% of revenue; this is a derived measure, not a margin reported by the company.
- Q2 operating and net loss margins were approximately (15.7)% and (26.6)%, respectively, versus (3.0)% and (10.7)% in Q2 2020.
- Cash and cash equivalents were $783.7 million at June 30, 2021, including $3.8 million of restricted cash; short-term investments were $2.5 million. Cash increased $49.5 million from year-end 2020. Six-month investing cash use was $18.2 million and financing cash provided was $33.5 million.
- Convertible senior notes had $1.556 billion aggregate principal outstanding; their balance-sheet carrying amount was $1.201 billion. Total liabilities were approximately $1.610 billion and stockholders’ equity was $16.001 billion.
Changes versus prior period and unusual items
- Revenue growth reflected acquisitions as well as higher access-fee revenue and virtual-care adoption. Acquired businesses contributed $162.1 million of revenue and a $56.9 million net loss in Q2 2021, according to the filing.
- Expenses rose substantially, including Q2 depreciation and amortization of $51.3 million versus $9.9 million, reflecting acquired intangible assets; stock-based compensation was $83.0 million versus $21.9 million.
- Six-month income tax expense was $90.2 million, including a first-quarter non-cash charge of approximately $87.0 million, primarily for a valuation allowance on excess stock-compensation benefits associated with the Livongo merger. The filing also records a $106.5 million goodwill reduction from a deferred-tax measurement-period adjustment.
- Q2 loss on extinguishment of debt was $31.4 million, mainly related to exchanges and conversions of 2025 Notes. The company exchanged approximately $206.4 million principal of those notes for shares in June and reported further conversions during the first half.
- Share count increased materially following the Livongo transaction and note conversions; weighted-average diluted shares were 156.1 million in Q2 2021 versus 76.5 million in Q2 2020.
Operating indicators, outlook and risks
- U.S. paid membership was 52.0 million at June 30, 2021. Teladoc completed approximately 3.5 million visits in Q2 and 6.7 million in the first half; InTouch platform-enabled sessions were approximately 1.0 million and 2.1 million, respectively.
- Management said existing cash and short-term investments should cover working-capital and capital-expenditure needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management cautioned that COVID-19 demand may not persist; pandemic duration, effects on clients and members, sales cycles, collections, renewals, attrition and supplier operations remain uncertain. Quarterly results are also subject to seasonality.
- Key execution considerations include integration of acquisitions, growth in operating costs, ongoing stock-based compensation, and significant goodwill and intangible-asset balances. Management noted estimates and purchase-accounting adjustments may change.
- The filing reports securities-class-action and derivative litigation, among other matters. Management said it did not expect any disclosed litigation matter to have a material adverse impact; the company intends to defend the claims. No material changes to previously disclosed risk factors were reported.
- Management reported disclosure controls were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of future growth is organic and recurring, versus acquisition-related; track membership, access-fee revenue, visit utilization and retention.
- Whether adjusted EBITDA growth translates into sustainable GAAP profitability and cash generation; review the non-GAAP adjustments, particularly stock-based compensation and acquisition costs.
- The scale and timing of acquisition integration costs, acquired-asset amortization and potential goodwill or intangible-asset impairment.
- Convertible-note terms, conversion-related dilution and the effect of debt exchanges on interest expense and earnings.
- The basis and future implications of the Livongo-related tax valuation allowance and goodwill adjustment, along with developments in the disclosed litigation.