Teladoc Health, Inc.: Form 10-Q for the period ended Sep 30, 2024
Filed with the SEC on Oct 31, 2024 and accepted by EDGAR at Oct 31, 2024, 10:20 ET.
Management's discussion and analysis
As filed, 44,554 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Special Note Regarding Forward-Looking Statements
Many statements made in this Quarterly Report on Form 10-Q that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipates,” “believes,” “suggests,” “targets,” “projects,” “plans,” “expects,” “future,” “intends,” “estimates,” “predicts,” “potential,” “may,” “will,” “should,” “could,” “would,” “likely,” “foresee,” “forecast,” “continue” and other similar words or phrases, as well as statements in the future tense to identify these forward-looking statements. These forward-looking statements and projections are contained throughout this Form 10-Q, including the section entitled” “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We base these forward-looking statements or projections on our current expectations, plans and assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at such time. As you read and consider this Form 10-Q, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections are subject to and involve risks, uncertainties, and assumptions and you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results or results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements and projections. Factors that may materially affect such forward-looking statements and projections include, but are not limited to, the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) and in our other reports and U.S. Securities and Exchange Commission (“SEC”) filings. These cautionary statements should not be construed by you to be exhaustive and are made only as of the date of this Form 10-Q. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties.
Overview
Teladoc, Inc. was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the State of Delaware in October 2008. Effective August 10, 2018, Teladoc, Inc. changed its corporate name to Teladoc Health, Inc. Unless the context otherwise requires, Teladoc Health, Inc., together with its subsidiaries, is referred to herein as “Teladoc Health,” the “Company,” or “we.” The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in whole person virtual care focused on forging a new healthcare experience with better convenience, outcomes, and value around the world.
We were founded on a simple, yet revolutionary idea: that everyone should have access to the best healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any healthcare journey, and we are delivering on this mission by providing whole person virtual care that includes primary care, mental health, chronic condition management, and more.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
As it relates to the Integrated Care segment:
Number of U.S. Integrated Care Members. U.S. Integrated Care members represent the number of unique individuals who have paid access and visit fee only access to our suite of integrated care services in the U.S. at the end of the applicable period. Our revenue growth rate and long-term profitability are affected by our ability to increase cross selling capability among our existing members over time because we derive a substantial portion of our revenue from access and other fees via Client contracts that provide members access to our professional provider network in exchange for a contractual based periodic fee. Therefore, we believe that our ability to add new members and retain existing members, and to increase utilization and penetration further into existing and new health plan and employer Clients is a key indicator of our increasing market adoption, the growth of our business, and our future revenue potential. We further believe that increasing our membership is an integral objective that will provide us with the ability to continually innovate our services and support initiatives that will enhance members’ experiences. U.S. Integrated Care members increased by 3.7 million, or 4%, to 93.9 million at September 30, 2024, compared to the same period in 2023.
Chronic Care Program Enrollment. Chronic care program enrollment represents the total number of enrollees across our suite of chronic care programs at the end of a given period. Our chronic care program enrollments are one of the key components of our whole person virtual care platform that we believe positions us to drive greater engagement with our platforms and increased revenue. Chronic care program enrollment increased by 5% to 1.179 million at September 30, 2024, compared to 1.122 million at September 30, 2023.
Average Monthly Revenue Per U.S. Integrated Care Member. Average monthly revenue per U.S. Integrated Care member measures the average monthly amount of global revenue that we generate from a U.S. Integrated Care member for a particular period. It is calculated by dividing the total revenue generated from the Integrated Care segment by the average number of U.S. Integrated Care members during the applicable period. Approximately 20% of total Integrated Care revenues relates to international and hospital and health systems for which membership is not considered as a management metric. We believe that our ability to increase the revenue generated from each member over time is also a key indicator of our increasing market adoption, the growth of our business, and future revenue potential. Average monthly revenue per U.S. Integrated Care member was $1.36 in the three months ended September 30, 2024, compared to $1.41 in the same period in 2023. Average monthly revenue per U.S. Integrated Care member decreased to $1.37 in the nine months ended September 30, 2024 from $1.40 in the same period in 2023. The change in average monthly revenue versus the indicated prior period is reflective of the growth of onboarding new members and the timing and mix of when fees are realized.
As it relates to the BetterHelp segment:
BetterHelp Paying Users. BetterHelp paying users represent the average number of global monthly paying users of our BetterHelp therapy services during the applicable period. We believe that our ability to add new paying users and retain existing users is a key indicator of the market adoption of BetterHelp, the growth of that business, and future revenue potential. BetterHelp paying users decreased by 13% to 0.398 million for the three months ended September 30, 2024, compared to 0.459 million for the three months ended September 30, 2023, and decreased by 13% to 0.407 million for the nine months ended September 30, 2024, compared to 0.467 million for the nine months ended September 30, 2023.
As it relates to the Company:
Seasonality. Our business has historically been subject to seasonality. In our Integrated Care segment, a concentration of our new Client contracts have an effective date of January 1 as a result of many Clients’ introduction of new services at the start of each calendar year. Therefore, while membership increases, utilization and enrollment rates are dampened until service delivery ramps up over the course of the year. In addition, as a result of seasonal cold and flu trends, we historically have experienced our highest level of visit and other fee revenue during the first and fourth quarters of each year.
Due to the higher cost of customer acquisition during the end-of-year holiday season, our BetterHelp segment has historically reduced marketing activity during the fourth quarter. As a result of this dynamic, we have typically experienced fewer new member additions and the strongest operating income performance in the fourth quarter. Conversely, as marketing activity typically resumes at the start of the year, we typically experience the weakest operating income performance during the first quarter as new customer acquisition and revenue growth lags marketing spend.
Critical Accounting Estimates and Policies
Our discussion and analysis of our results of operations, liquidity and capital resources are based on our condensed consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, business combinations, goodwill and other intangible assets, income taxes, and other items. We base our estimates on historical and anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from our estimates and could have a significant adverse effect on our results of operations and financial position. For a discussion of our critical accounting policies and estimates see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2023 Form 10-K.
Goodwill Impairment Charge
As a result of sustained decreases in our publicly quoted share price and market capitalization through June 30, 2024 as well as changes in the operating results of the BetterHelp reporting unit, we conducted an interim test of our goodwill, definite-lived intangibles, and other long-lived assets at June 30, 2024. Following this test, we did not identify an impairment to our definite-lived intangible assets or other long-lived assets, but recorded a $790.0 million non-deductible, non-cash goodwill impairment charge for the three months ended June 30, 2024. No goodwill impairment charge was recognized for the three months ended September 30, 2024.
Our June 30, 2024 goodwill impairment testing was performed using a discounted cash flow method under the income approach. Unlike in prior testing, we did not utilize the market approach because of limited availability of relevant comparable company information. We believe using only the income approach is appropriate as it most directly reflects our future growth and profitability expectations. For our June 30, 2024 impairment testing, we reduced our estimated future cash flows related to our BetterHelp reporting unit used in the impairment assessment, including revenues and margin, to reflect our best and most recent estimates at this time. We also updated certain significant inputs into the valuation models including the discount rate, which increased to 15%, reflecting, in part, higher interest rates. Our updates to our discount rate and estimated future cash flows each had a significant impact to the estimated fair value of the reporting unit.
After recording this goodwill impairment charge, there is no excess of the BetterHelp reporting unit’s fair value over its carry value, so any further decrease in the reporting unit’s fair value would result in an additional impairment charge. In the event there are further adverse changes in our projected cash flows and/or further changes in key assumptions, including but not limited to an increase in the discount rate, lower revenue growth, lower margin, and/or a lower terminal growth rate, we may be required to record additional non-cash impairment charges to our goodwill, other intangibles, and other long-lived assets. Such non-cash charges could have a material adverse effect on our Condensed Consolidated Statement of Operations and Balance Sheets in the reporting period of the charge.
Non-GAAP Financial Measures
To supplement our financial information presented in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance an understanding of past performance, which include Adjusted EBITDA (as defined below) and free cash flow. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance, and are commonly used by investors to evaluate our performance and that of our competitors. We further believe that these financial measures are useful financial metrics to assess our operating performance and financial and business trends from period-to-period by excluding certain items that we believe are not representative of our core business, and that free cash flow reflects an additional way of viewing our liquidity that, when viewed together with GAAP results, provides management, investors, and other users of our financial information with a more complete understanding of factors and trends affecting our cash flows. We use these non-GAAP financial measures for business planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as a key measure of our performance.
Adjusted EBITDA consists of net loss before provision for income taxes; other (income) expense, net; interest income; interest expense; depreciation of property and equipment; amortization of intangible assets; restructuring costs; acquisition, integration, and transformation cost; goodwill impairment; and stock-based compensation.
Free cash flow is net cash provided by operating activities less capital expenditures and capitalized software development costs.
Our use of these non-GAAP terms may vary from that of others in our industry, and other companies may calculate such measures differently than we do, limiting their usefulness as comparative measures.
Non-GAAP measures have important limitations as analytical tools and you should not consider them in isolation, and they should not be considered as an alternative to net loss before provision for income taxes, net loss, net loss per share, net cash from operating activities or any other measures derived in accordance with GAAP. Some of these limitations are:
- Adjusted EBITDA eliminates the impact of the provision for income taxes on our results of operations, and it does not reflect other (income) expense, net, interest income, or interest expense;
- Adjusted EBITDA does not reflect restructuring costs. Restructuring costs may include certain lease impairment costs, certain losses related to early lease terminations, and severance;
- Adjusted EBITDA does not reflect significant acquisition, integration, and transformation costs. Acquisition, integration and transformation costs include investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent consideration and certain other transaction costs related to mergers and acquisitions. It also includes costs related to certain business transformation initiatives focused on integrating and optimizing various operations and systems, including upgrading our CRM and ERP systems. These transformation cost adjustments made to our results do not represent normal, recurring, operating expenses necessary to operate the business but rather, incremental costs incurred in connection with our acquisition and integration activities;
- Adjusted EBITDA does not reflect goodwill impairment; and
- Adjusted EBITDA does not reflect the significant non-cash stock-based compensation expense which should be viewed as a component of recurring operating costs.
In addition, although amortization of intangible assets and depreciation of property and equipment are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any expenditures for such replacements.
We compensate for these limitations by using these non-GAAP measures along with other comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include net loss, net loss per share, net cash provided by operating activities, and other performance measures.
In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.
Condensed Consolidated Results of Operations
The following table sets forth our Condensed Consolidated Statements of Operations data for the three months ended September 30, 2024 and 2023 and the dollar and percentage change between the respective periods (in thousands, except per share data):
| Three Months Ended September 30, 2024 | 2023 | Variance% | ||
|---|---|---|---|---|
| Revenue | $640,508 | $660,238 | $(19,730) | (3)% |
| Costs and expenses: | ||||
| Cost of revenue (exclusive of depreciation and amortization, which are shown separately below) | 179,745 | 185,960 | (6,215) | (3)% |
| Advertising and marketing | 177,462 | 186,152 | (8,690) | (5)% |
| Sales | 47,465 | 52,309 | (4,844) | (9)% |
| Technology and development | 72,383 | 84,289 | (11,906) | (14)% |
| General and administrative | 114,245 | 115,716 | (1,471) | (1)% |
| Goodwill impairment | — | — | — | N/M |
| Acquisition, integration, and transformation costs | 457 | 5,824 | (5,367) | (92)% |
| Restructuring costs | 3,580 | 411 | 3,169 | N/M |
| Amortization of intangible assets | 86,906 | 91,834 | (4,928) | (5)% |
| Depreciation of property and equipment | 2,666 | 2,468 | 198 | 8% |
| Total costs and expenses | 684,909 | 724,963 | (40,054) | (6)% |
| Loss from operations | (44,401) | (64,725) | 20,324 | (31)% |
| Interest income | (15,326) | (12,606) | (2,720) | 22% |
| Interest expense | 5,660 | 5,646 | 14 | —% |
| Other (income) expense, net | (2,239) | 1,792 | (4,031) | (225)% |
| Loss before provision for income taxes | (32,496) | (59,557) | 27,061 | (45)% |
| Provision for income taxes | 780 | (2,484) | 3,264 | (131)% |
| Net loss | $(33,276) | $(57,073) | $23,797 | (42)% |
| Net loss per share, basic and diluted | $(0.19) | $(0.35) | $0.16 | (46)% |
| Adjusted EBITDA (1) | $83,255 | $88,757 | $(5,502) | (6)% |
(1) Non-GAAP Financial Measure
(2) N/M - not meaningful
The following table sets forth our Condensed Consolidated Statements of Operations data for the nine months ended September 30, 2024 and 2023 and the dollar and percentage change between the respective periods (in thousands, except per share data):
| Nine Months Ended September 30, 2024 | 2023 | Variance% | ||
|---|---|---|---|---|
| Revenue | $1,929,083 | $1,941,888 | $(12,805) | (1)% |
| Costs and expenses: | ||||
| Cost of revenue (exclusive of depreciation and amortization, which are shown separately below) | 562,342 | 566,607 | (4,265) | (1)% |
| Advertising and marketing | 531,061 | 541,698 | (10,637) | (2)% |
| Sales | 152,267 | 160,329 | (8,062) | (5)% |
| Technology and development | 230,522 | 258,583 | (28,061) | (11)% |
| General and administrative | 335,494 | 355,702 | (20,208) | (6)% |
| Goodwill impairment | 790,000 | — | 790,000 | N/M |
| Acquisition, integration, and transformation costs | 1,287 | 16,848 | (15,561) | (92)% |
| Restructuring costs | 14,753 | 16,043 | (1,290) | (8)% |
| Amortization of intangible assets | 276,825 | 231,205 | 45,620 | 20% |
| Depreciation of property and equipment | 7,203 | 8,345 | (1,142) | (14)% |
| Total costs and expenses | 2,901,754 | 2,155,360 | 746,394 | 35% |
| Loss from operations | (972,671) | (213,472) | (759,199) | N/M |
| Interest income | (42,840) | (33,075) | (9,765) | 30% |
| Interest expense | 16,957 | 16,744 | 213 | 1% |
| Other (income) expense, net | (1,306) | (2,908) | 1,602 | (55)% |
| Loss before provision for income taxes | (945,482) | (194,233) | (751,249) | N/M |
| Provision for income taxes | 7,354 | (2,755) | 10,109 | N/M |
| Net loss | $(952,836) | $(191,478) | $(761,358) | N/M |
| Net loss per share, basic and diluted | $(5.61) | $(1.17) | $(4.44) | N/M |
| Adjusted EBITDA (1) | $235,876 | $213,677 | $22,199 | 10% |
(1) Non-GAAP Financial Measure
(2) N/M - not meaningful
The following table reconciles net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 | |
|---|---|---|---|---|
| Net loss | $(33,276) | $(57,073) | $(952,836) | $(191,478) |
| Add: | ||||
| Provision for income taxes | 780 | (2,484) | 7,354 | (2,755) |
| Other (income) expense, net | (2,239) | 1,792 | (1,306) | (2,908) |
| Interest expense | 5,660 | 5,646 | 16,957 | 16,744 |
| Interest income | (15,326) | (12,606) | (42,840) | (33,075) |
| Depreciation of property and equipment | 2,666 | 2,468 | 7,203 | 8,345 |
| Amortization of intangible assets | 86,906 | 91,834 | 276,825 | 231,205 |
| Restructuring costs | 3,580 | 411 | 14,753 | 16,043 |
| Acquisition, integration, and transformation costs | 457 | 5,824 | 1,287 | 16,848 |
| Goodwill impairment | — | — | 790,000 | — |
| Stock-based compensation | 34,047 | 52,945 | 118,479 | 154,708 |
| Adjusted EBITDA | $83,255 | $88,757 | $235,876 | $213,677 |
| Teladoc Health Integrated Care | $68,039 | $62,805 | $179,741 | $135,900 |
| BetterHelp | 15,216 | 25,952 | 56,135 | 77,777 |
| Adjusted EBITDA | $83,255 | $88,757 | $235,876 | $213,677 |
Revenue. Total revenue was $640.5 million for the three months ended September 30, 2024, compared to $660.2 million during the three months ended September 30, 2023, a decrease of $19.7 million, or 3%. This decrease in revenue was driven substantially by lower revenue in our BetterHelp segment. Total access fees were $555.3 million for the three months ended September 30, 2024, compared to $582.1 million for the three months ended September 30, 2023, a decrease of $26.8 million, or 5%. Other revenue, which predominately includes visit fees and, to a lesser extent, revenue from the sales of our telehealth solutions for hospitals and health systems, was $85.2 million for the three months ended September 30, 2024, compared to $78.2 million for the three months ended September 30, 2023, an increase of $7.1 million, or 9%. For the three months ended September 30, 2024, 87% and 13% of our revenue was derived from access fees and other revenue, respectively, as compared to 88% and 12%, respectively, for the three months ended September 30, 2023. By geography, International revenue increased by 15% to $104.3 million while U.S. revenue decreased by 6% to $536.2 million, each compared to the three months ended September 30, 2023.
For the nine months ended September 30, 2024, the decrease of total revenue was 1%, from $1,941.9 million for the nine months ended September 30, 2023 to $1,929.1 million. This decrease was driven substantially by lower revenue in our BetterHelp segment. Revenue from access fees was $1,672.1 million for the nine months ended September 30, 2024, compared to $1,708.6 million for the nine months ended September 30, 2023, a decrease of $36.5 million, or 2%. Other revenue was $257.0 million for the nine months ended September 30, 2024, compared to $233.3 million for the nine months ended September 30, 2023, an increase of $23.7 million, or 10%. For the nine months ended September 30, 2024, 87% and 13% of our revenue was derived from access fees and other revenue, respectively, as compared to 88% and 12%, respectively, for the nine months ended September 30, 2023. By geography, International revenue increased by 13% to $304.5 million while U.S. revenue decreased by 3% to $1,624.6 million, each compared to the nine months ended September 30, 2023.
Cost of Revenue (exclusive of depreciation and amortization, which are shown separately below). Cost of revenue was $179.7 million for the three months ended September 30, 2024, compared to $186.0 million for the three months ended September 30, 2023, a decrease of $6.2 million, or 3%. The decrease was primarily driven by lower physician and product shipping costs, partially offset by higher amortization of device costs. On a year-to-date basis, cost of revenue decreased by $4.3 million, or 1%, to $562.3 million. The decrease was also primarily driven by lower physician and product shipping costs, partially offset by higher amortization of device costs.
Advertising and Marketing Expenses. Advertising and marketing expenses were $177.5 million for the three months ended September 30, 2024, compared to $186.2 million for the three months ended September 30, 2023, a decrease of $8.7 million, or 5%. This decrease primarily reflects lower digital and media advertising costs. On a year-to-date basis, advertising and marketing expenses decreased by $10.6 million, or 2%, to $531.1 million. The decrease was driven mainly by lower digital and media advertising costs and lower employee compensation costs.
Sales Expenses. Sales expenses were $47.5 million for the three months ended September 30, 2024, compared to $52.3 million for the three months ended September 30, 2023, a decrease of $4.8 million, or 9%. On a year-to-date basis, sales expenses decreased by $8.1 million, or 5%, to $152.3 million. The decreases in both the three month and year-to-date periods reflect lower employee compensation costs, partially offset by higher costs for professional fees.
Technology and Development Expenses. Technology and development expenses were $72.4 million for the three months ended September 30, 2024, compared to $84.3 million for the three months ended September 30, 2023, a decrease of $11.9 million, or 14%. On a year-to-date basis, technology and development expenses decreased by $28.1 million, or 11%, to $230.5 million. The decreases for both the three month and year-to-date periods reflect lower employee compensation costs and professional fees, partially offset by higher infrastructure, hosting, and software license costs associated with running operations as well as ongoing projects and services to continuously improve and optimize our products and services.
For the three months ended September 30, 2024 and 2023, research and development costs, which exclude amounts reflected as capitalized software development costs, were $22.4 million and $31.8 million, respectively. For the nine months ended September 30, 2024 and 2023, research and development costs were $69.5 million and $95.4 million, respectively.
General and Administrative Expenses. General and administrative expenses decreased $1.5 million, or 1%, to $114.2 million for the three months ended September 30, 2024, compared to $115.7 million for the three months ended September 30, 2023. The decrease was primarily driven by lower employee compensation costs, indirect taxes, therapist onboarding costs, and bad debt expense, offset by higher legal costs, professional fees, and software and infrastructure costs. On a year-to-date basis, general and administrative expenses decreased $20.2 million, or 6%, to $335.5 million. The decrease was primarily driven by lower employee compensation costs, therapist onboarding costs, indirect taxes, and bad debt expenses, partially offset by higher legal costs and software and infrastructure costs.
As a result of the termination of our former CEO, we recognized approximately $6.4 million of related costs for the nine months ended September 30, 2024, with $1.2 million for cash severance costs and $5.2 million for stock-based compensation.
Goodwill Impairment. As discussed earlier under the section "Critical Accounting Estimates and Policies: Goodwill Impairment Charge," we recorded a non-cash goodwill impairment charge of $790.0 million for the nine months ended September 30, 2024 resulting from the June 30, 2024 interim goodwill impairment testing performed. The non-cash charge had no impact on the provision for income taxes.
Acquisition, Integration, and Transformation Costs. Acquisition, integration, and transformation costs primarily consisted of costs to integrate and upgrade our Customer Relationship Management and Enterprise Resource Planning ecosystem and were $0.5 million and $5.8 million for the three months ended September 30, 2024 and 2023 respectively, and were $1.3 million and $16.8 million for the nine months ended September 30, 2024 and 2023, respectively.
Restructuring Costs. Restructuring costs for the three months ended September 30, 2024 were $3.6 million, of which $2.3 million was for employee transition, severance, employee benefits, and related costs and $1.3 million was related to costs associated with office space reductions, including $1.0 million of right-of-use asset impairment charges. Restructuring costs for the nine months ended September 30, 2024, were $14.8 million, with $10.7 million of employee transition, severance, employee benefits, and related costs, $1.3 million of costs associated with office space reductions, including $1.0 million of right-of-use asset impairment charges, and $2.8 million of other restructuring related costs.
Restructuring costs for the three months ended September 30, 2023 were $0.4 million, of which $0.2 million was for employee transition, severance, employee benefits, and related costs and $0.2 million was related to costs associated with office space reductions. During the nine months ended September 30, 2023, the Company recorded $16.0 million of restructuring costs, of which $7.9 million was for employee transition, severance, employee benefits, and related costs and $8.1 million was related to costs associated with office space reductions, including $4.9 million of right-of-use asset impairment charges.
Amortization of Intangible Assets.
The following table shows amortization of intangible assets broken down by components for the periods indicated (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||
|---|---|---|---|---|
| 2024 | 2023% | 2024 | 2023% | |
| Amortization of acquired intangibles | $51,089 | $69,189 (26)% | $179,372 | $172,210 4% |
| Amortization of capitalized software development costs | 35,817 | 22,645 58% | 97,453 | 58,995 65% |
| Amortization of intangible assets expense | $86,906 | $91,834 (5)% | $276,825 | $231,205 20% |
In the second half of 2023, we initiated a strategy to transition the majority of our chronic condition management Clients and members to the Teladoc Health brand on a phased basis, with a smaller subset continuing to be served under the Livongo trade name beyond 2024. In connection with the brand strategy, we accelerated the amortization of intangible assets that are associated with the Livongo trademark, increasing amortization of intangible assets expense in the year ended December 31, 2023 and continuing through the six months ended June 30, 2024, with corresponding reductions thereafter.
Amortization of intangible assets was $86.9 million for the three months ended September 30, 2024, compared to
$91.8 million for the three months ended September 30, 2023, a decrease of $4.9 million, or 5%. The decrease was primarily driven by the lower amortization associated with the Livongo trademark, partially offset by an increase in the amortization of capitalized software development costs related to our investment in platforms.
Amortization of intangible assets was $276.8 million for the nine months ended September 30, 2024, compared to $231.2 million for the nine months ended September 30, 2023, an increase of $45.6 million, or 20%. The higher expense was driven by higher amortization of intangible assets due to the acceleration of amortization associated with the Livongo trademark as well as an increase in the amortization of capitalized software development costs related to our investment in platforms.
Depreciation of Property and Equipment. Depreciation of property and equipment was $2.7 million for the three months ended September 30, 2024, compared to $2.5 million for the three months ended September 30, 2023, an increase of $0.2 million, or 8%. On a year-to-date basis, depreciation of property and equipment was $7.2 million for the nine months ended September 30, 2024, compared to $8.3 million for the nine months ended September 30, 2023, a decrease of $1.1 million, or 14%
Interest Income. Interest income consisted of interest earned on cash and cash equivalents. Interest income was $15.3 million for the three months ended September 30, 2024, compared to $12.6 million for the three months ended September 30, 2023. Interest income was $42.8 million for the nine months ended September 30, 2024 compared to $33.1 million for the nine months ended September 30, 2023. The increase for both periods was primarily driven by higher interest rate yields and an increase in cash and cash equivalent balances.
Interest Expense. Interest expense consisted of interest costs and the amortization of debt discounts primarily associated with the convertible senior notes. Interest expense was $5.7 million for the three months ended September 30, 2024, compared to $5.6 million for the three months ended September 30, 2023. Interest expense was $17.0 million and $16.7 million for the nine months ended September 30, 2024 and 2023, respectively.
Other (Income) Expense, net. Other (income) expense, net was an income of $2.2 million for the three months ended September 30, 2024, compared to an expense of $1.8 million for the three months ended September 30, 2023, primarily reflecting the impact of foreign currency exchange rate fluctuations. Other (income) expense, net was an income of $1.3 million for the nine months ended September 30, 2024, compared to $2.9 million for the nine months ended September 30, 2023, primarily reflecting gains on foreign currency exchange rate fluctuations for the nine months ended September 30, 2024 and a gain on the partial sale of a business, partially offset by losses on foreign currency exchange rate fluctuations for the nine months ended September 30, 2023.
Provision for Income Taxes. We recorded an income tax expense of $0.8 million for the three months ended September 30, 2024, compared to $2.5 million income tax benefit for the three months ended September 30, 2023, and an income tax expense of $7.4 million for the nine months ended September 30, 2024, compared to $2.8 million income tax benefit for the nine months ended September 30, 2023.
Segment Information
The following tables set forth the results of operations by segment for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):
| Teladoc Health Integrated Care | Three Months Ended September 30, 2024 | 2023 | Variance% | |
|---|---|---|---|---|
| Revenue | $383,666 | $374,416 | $9,250 | 2% |
| Adjusted EBITDA | $68,039 | $62,805 | $5,234 | 8% |
| Adjusted EBITDA Margin % | 17.7% | 16.8% |
| Teladoc Health Integrated Care | Nine Months Ended September 30, 2024 | 2023 | Variance% | |
|---|---|---|---|---|
| Revenue | $1,138,198 | $1,084,438 | $53,760 | 5% |
| Adjusted EBITDA | $179,741 | $135,900 | $43,841 | 32% |
| Adjusted EBITDA Margin % | 15.8% | 12.5% |
Integrated Care total revenues increased by $9.3 million, or 2%, to $383.7 million for the three months ended September 30, 2024, reflecting higher visit revenue in the U.S., as well as strong growth internationally. For the nine months ended September 30, 2024, Integrated Care total revenues increased by $53.8 million, or 5%, to $1,138.2 million, primarily on higher chronic care results and higher visit revenue in the U.S., as well as strong growth internationally.
Integrated Care Adjusted EBITDA increased by $5.2 million, or 8%, to $68.0 million for the three months ended September 30, 2024, primarily reflecting higher gross profit and lower other operating expenses. For the nine months ended September 30, 2024, Integrated Care Adjusted EBITDA increased by $43.8 million, or 32%, to $179.7 million, primarily reflecting higher gross profit and lower other operating expenses.
| BetterHelp | Three Months Ended September 30, 2024 | 2023 | Variance% | |
|---|---|---|---|---|
| Therapy Services | $250,588 | $281,204 | $(30,616) | (11)% |
| Other Wellness Services | 6,254 | 4,618 | 1,636 | 35% |
| Total Revenue | $256,842 | $285,822 | $(28,980) | (10)% |
| Adjusted EBITDA | $15,216 | $25,952 | $(10,736) | (41)% |
| Adjusted EBITDA Margin % | 5.9% | 9.1% |
| BetterHelp | Nine Months Ended September 30, 2024 | 2023 | Variance% | |
|---|---|---|---|---|
| Therapy Services | $773,373 | $845,420 | $(72,047) | (9)% |
| Other Wellness Services | 17,512 | 12,030 | 5,482 | 46% |
| Total Revenue | $790,885 | $857,450 | $(66,565) | (8)% |
| Adjusted EBITDA | $56,135 | $77,777 | $(21,642) | (28)% |
| Adjusted EBITDA Margin % | 7.1% | 9.1% |
BetterHelp total revenues decreased by $29.0 million, or 10%, to $256.8 million for the three months ended September 30, 2024, primarily driven by a 13% decrease in average monthly paying users. BetterHelp total revenues decreased by $66.6 million, or 8%, to $790.9 million for the nine months ended September 30, 2024, primarily driven by a 13% decrease in average monthly paying users.
BetterHelp Adjusted EBITDA decreased by $10.7 million, or 41%, to $15.2 million for the three months ended September 30, 2024, primarily reflecting the impact of revenues declining more than expenses. BetterHelp Adjusted EBITDA decreased by $21.6 million, or 28%, to $56.1 million for the nine months ended September 30, 2024, primarily reflecting the impact of revenues declining more than expenses.
Liquidity and Capital Resources
The following table presents a summary of our cash flow activity for the nine months ended September 30, 2024 and 2023 (in thousands):
| Consolidated Statements of Cash Flows - Summary | Nine Months Ended September 30, 2024 | 2023 |
|---|---|---|
| Net cash provided by operating activities | $207,778 | $219,939 |
| Net cash used in investing activities | (94,408) | (119,841) |
| Net cash provided by financing activities | 6,254 | 12,629 |
| Effect of foreign currency exchange rate changes | 567 | (382) |
| Total increase in cash and cash equivalents | $120,191 | $112,345 |
Our principal source of liquidity is our cash and cash equivalents, totaling $1,243.9 million as of September 30, 2024. During 2023, we experienced positive operating cash flow and we anticipate continuing positive operating cash flow results for 2024.
We believe that our existing cash and cash equivalents will be sufficient to meet our working capital, capital expenditure, and contractual obligation needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, contract renewal activity, number of visits, our ability to retain and/or obtain new members, the timing and extent of spending to support product development efforts, our expansion of sales and marketing activities, the introduction of new and enhanced services offerings, the continuing market acceptance of telehealth, and our debt service obligations. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. We may be required to seek additional equity or debt financing to fund working capital, capital expenditures and acquisitions, and to settle debt obligations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all, which would adversely affect our business, financial condition, and results of operations.
Historically, we have financed our operations primarily through sales of equity securities, debt issuance, and bank borrowings.
At September 30, 2024, we had outstanding convertible notes for an aggregate principal amount of $550.7 million due within the next 12 months. See Note 9. “Convertible Senior Notes” to the condensed consolidated financial statements for additional information on our convertible senior notes.
We were in compliance with all debt covenants at September 30, 2024.
We routinely enter into contractual obligations with third parties to provide professional services, licensing, and other products and services in support of our ongoing business. The current estimated cost of these contracts is not expected to be significant to our liquidity and capital resources based on contracts in place as of September 30, 2024.
Cash from Operating Activities
Cash flows provided by operating activities consisted of net loss adjusted for certain non-cash items and the cash effect of changes in assets and liabilities. Net cash provided by operating activities was $207.8 million for the nine months ended September 30, 2024 compared to net cash provided by operating activities of $219.9 million for the nine months ended September 30, 2023. The year-over-year change was primarily driven by higher incentive compensation payments.
The primary uses of cash from operating activities are for the payment of cash compensation, provider fees, engagement marketing, direct-to-consumer digital and media advertising, inventory, insurance, technology costs, interest expense and acquisition, integration, and transformation costs. Historically, cash compensation is at its highest level in the first quarter when discretionary employee compensation related to the previous fiscal year is paid.
Cash from Investing Activities
Cash used in investing activities was $94.4 million for the nine months ended September 30, 2024, and $119.8 million for the nine months ended September 30, 2023. Amounts for both periods relate to payments for capitalized software development costs associated with ongoing projects to continuously improve and optimize our products and services.
Cash from Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2024 was $6.3 million and $12.6 million for the nine months ended September 30, 2023, primarily reflecting lower proceeds from the employee stock purchase plan.
Free Cash Flow
The following is a reconciliation of net cash provided by operating activities to free cash flow (in thousands, unaudited):
| Nine Months Ended September 30, 2024 | 2023 | |
|---|---|---|
| Net cash provided by operating activities | $207,778 | $219,939 |
| Capital expenditures | (4,658) | (10,060) |
| Capitalized software development costs | (89,750) | (109,781) |
| Free Cash Flow | $113,370 | $100,098 |
Free cash flow was $113.4 million for the nine months ended September 30, 2024, compared to $100.1 million for the nine months ended September 30, 2023. The year-over-year change was driven by decreases in payments for capitalized expenditures and capitalized software development costs, offset by higher incentive compensation payments.
Market risk
As filed, 1,945 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Interest Rate Risk and Foreign Currency Exchange Risk
Our cash and cash equivalents are subject to interest rate volatility, which impacts the amount of interest income earned, and represents our principal market risk. A 1% change in interest rates would result in a change of interest income generated from our cash and cash equivalents by approximately $12 million over the next 12 months. We do not expect cash flows related to our convertible senior notes to be affected by a sudden change in market interest rates as they bear fixed interest rates. We do not enter into investments for trading or speculative purposes.
We operate our business primarily within the U.S. which accounts for approximately 84% of our revenues. We have not utilized hedging strategies with respect to our foreign currency exchange exposure as we believe it is not expected to have a material impact on our condensed consolidated financial statements.
Concentrations of Risk and Significant Clients
Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Although we deposit our cash with multiple financial institutions in the U.S. and in foreign countries, our deposits, at times, may exceed federally insured limits. Our cash equivalents are primarily invested in institutional money market funds.
No single Client represented over 10% of consolidated revenues for the three or nine months ended September 30, 2024 or 2023. For the Integrated Care segment, a significant portion of our revenue is derived from large enterprises, mainly health plans. For the nine months ended September 30, 2024, revenue from the five largest customers accounted for 31% of total Integrated Care segment revenue. For the BetterHelp segment, there is no significant concentration risk as substantially all revenue is generated from individuals in the direct-to-consumer market.
Controls and procedures
As filed, 1,862 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Management’s Report on Internal Control over Financial Reporting
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Risk factors
As filed, 600 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
For a discussion of potential risks and uncertainties related to our Company see the information in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in the “Special Note Regarding Forward-Looking Statements” section in Part I, Item 2, of this Quarterly Report on Form 10-Q.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2024-09-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2024-07-01 to 2024-09-30 | $640.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months2024-01-01 to 2024-09-30 | $1.93bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months2024-07-01 to 2024-09-30 | $72.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months2024-01-01 to 2024-09-30 | $230.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months2024-07-01 to 2024-09-30 | −$44.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months2024-01-01 to 2024-09-30 | −$972.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months2024-07-01 to 2024-09-30 | $5.7m | us-gaap:InterestExpense |
| Interest expense | 9 months2024-01-01 to 2024-09-30 | $17.0m | us-gaap:InterestExpense |
| Income tax | 3 months2024-07-01 to 2024-09-30 | $780.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months2024-01-01 to 2024-09-30 | $7.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2024-07-01 to 2024-09-30 | −$33.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months2024-01-01 to 2024-09-30 | −$952.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months2024-07-01 to 2024-09-30 | −$0.19 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months2024-01-01 to 2024-09-30 | −$5.61 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months2024-07-01 to 2024-09-30 | −$0.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months2024-01-01 to 2024-09-30 | −$5.61 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months2024-07-01 to 2024-09-30 | 171,496,282 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months2024-01-01 to 2024-09-30 | 169,824,993 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months2024-01-01 to 2024-09-30 | $207.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months2024-01-01 to 2024-09-30 | $4.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | At period end2024-09-30 | $1.24bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | At period end2024-09-30 | $1.61bn | us-gaap:AssetsCurrent |
| Total assets | At period end2024-09-30 | $3.53bn | us-gaap:Assets |
| Current liabilities | At period end2024-09-30 | $931.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | At period end2024-09-30 | $2.02bn | us-gaap:Liabilities |
| Shareholders' equity | At period end2024-09-30 | $1.51bn | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001477449-24-000225. Last ingested by Listed: Nov 6, 2026, 12:40 ET. Listed shows no prices and gives no investment advice.