TDOC Q3 2020 Earnings Summary

I appreciate the TDOC discussion that’s been going on and hope that I can add some more analysis for us. Bear, stocknovice, others have pointed out that TDOC has stagnated since the summer, and perhaps the market is seeing something we are not. We all know the market is often right, but on the flip side it is also often wrong. CRWD, NET, and other board favorites have gone through periods of stagnation only to skyrocket for one reason or another shortly after.

The most troubling thing about TDOC in my opinion is that they guided for 2%-5% sequential growth. BUT, as per the earnings transcript, they did not factor in a covid second wave, because in October, it wasn’t clear if it would happen or not. Here we sit in December, and we had a very strong surge of covid in November and December. So I wouldn’t be surprised if they smash through their guidance.

Although there is “covid upside” here, CEO Jason Gorevic does a great job at making it clear that TDOC is not just a covid stock. In fact, 55% of their medical visits were for non-infectious diseases, which includes stuff like mental health, dermatology, and much more. One bright side to this god awful disease is that it brought virtual care to the forefront, or as Jason Gorevic says, “brought customers to our front door”, which in the long term will help people take care of themselves significantly.

According to ycharts, P/S ratio is 17, clearly way lower than our other growth stocks. Probably this is because the market doesn’t think TDOC can keep its growth up for much longer. But if it’s already priced for slower growth, doesn’t that mean that any continued hypergrowth is just gravy on top for shareholders?

This was a very informative earnings report, so my apologies for the length.

Anyway, here are my key takeaways/quotes:
This broad-based strength drove record revenue of $289 million in the third quarter, an increase of 109% from the prior-year period, including organic revenue growth of approximately 90%.
ExponentialDave: QoQ rev growth was 19% !! This is better than CRWD, ZM, NET, and every other company we follow. Worth noting, LVGO’s revenues are excluded here as well as from guidance.

we are increasing our full-year revenue guidance to $1.005 billion to $1.015 billion. During the third quarter, we also announced a combination with Livongo Health. We could not be more excited for this deal to close later in the fourth quarter, and we’ve already made significant progress toward integrating our two teams

Our network of providers delivered over 2.8 million virtual visits in the third quarter, more than triple the number of visits provided in the same period last year.

We were pleased to see visit volumes increase sequentially despite the COVID-driven volume we experienced in the second quarter, as well as the seasonally lower volumes typically experienced during the third quarter.

While CDC figures and our own internal data point to overall declines in infectious disease transmission in the United States due to social distancing and the use of personal protective equipment, our overall volume growth remains strong, as evidenced by both our third-quarter results and our fourth-quarter outlook

One clear driver of this strength has been a steady and broad-based acceleration in our noninfectious disease-related visits. Visits for conditions such as hypertension, back pain, anxiety, and depression represent over half of our general medical visit volume, up from approximately one-third a year ago, as our comprehensive portfolio of services enables us to meet the increasing consumer demand for virtual care.

New registrations also continue to grow at a rapid pace, increasing more than 80% compared to the third quarter of 2019, while visit growth from newly registered individuals continues to outpace existing user visit growth.

These new registrations will continue to benefit us in the future as they create new opportunities to engage with members

Demand for dermatology and behavioral health services continues to significantly outpace overall volume growth. In the B2B channel, for example, visits in these specialties grew over 500% compared to the prior year.

Demand for mental healthcare, in particular, continues to build, both through our B2B channel, as well as through our direct-to-consumer brand, BetterHelp. Utilization of mental health services has continued to grow in each successive month of the year, which is very encouraging given the high repeat usage profile of the service

In fact, 40% of the individuals note that they would not have otherwise sought care if not for access to Teladoc Health

Together, this momentum in specialty visit growth, combined with the broadening diversity of diagnoses and robust overall registration growth, continues to give us a high degree of confidence in the sustainability of our volume growth. It also reinforces our strategy of consistently expanding the clinical scope of our services, which will take a quantum leap forward when we incorporate the Livongo capabilities focused on helping people who live with chronic conditions.

we launched an exciting new partnership with Telefónica, one of the largest telecom providers in Europe and Latin America, including over 14 million customers in Spain. As part of this partnership, Telefónica will distribute our virtual care offering on a D2C and B2B basis to individuals and employers across Spain. We’re optimistic that the results of this partnership will pave the way for similar initiatives in other geographies around the world.

In addition to the 7.6 million member visits provided by the Teladoc network of clinicians year to date, the combined Teladoc and InTouch technology platform has enabled our clients’ own clinicians to provide nearly 3 million consultations for their patients.

(On the livongo integration) Clients are increasingly looking for a single integrated solution that brings all of the assets of the two companies together for episodic, chronic, and complex care. We’ve seen tremendous interest from our clients around the world. And we’ve already successfully closed our first major cross-sale to GuideWell Health, the parent of Florida Blue. Florida Blue has been a longtime client of Teladoc Health, and we’re extremely excited to expand that relationship and bring Livongo’s platform to 50,000 of Florida Blue’s members living with diabetes.

Our teams have also begun to plan the integration of the unmatched data sets and capabilities of our two organizations, combining the 750 million elements from the Livongo data set with the data generated by the 10 million-plus virtual visits we will provide this year. By applying the Livongo data science to this combined data set, we will be able to deliver a level of patient insight that has been previously unavailable. Combining meaningful, data-driven insights with clinical expertise will enable better care delivery, better outcomes, and lower costs.
ExponentialDave: For a lot of our companies, we talk about the value being in the data on this board a lot - imagine the sheer value all this health care data has and how unmatched it is.

During the third quarter, total revenue increased 109% to $289 million or approximately 90% on an organic basis.

Global access fee revenue for the quarter of $227 million grew 90% versus the prior year, demonstrating continued momentum.

Total international revenue of $32.9 million grew 20% versus the prior year.
ExponentialDave: Seems quite slow internationally.

The visit fee revenue for the quarter increased to $51 million, representing growth of 171% over the prior year. Visit fee revenue comprised 18% of consolidated revenue as compared to 14% of revenue in the prior-year quarter. The increase in visit fee revenue as a percent of revenue is a result of the considerable increase in utilization realized year to date, offset in part by the inclusion of InTouch Health in our consolidated results.

U.S. paid membership increased to 51.5 million members during the third quarter, an increase of 47% versus the third quarter of last year.

Individuals with visit fee only access was 21.8 million at the end of the third quarter, an increase of 2.8 million versus the prior year. As previously discussed, visit fee only access includes approximately 2.5 million individuals on a temporary basis that we anticipate will roll off at the end of the year.

Total visit volume provided by Teladoc’s own network of providers exceeded 2.8 million visits in the quarter, representing 206% growth versus the prior year.

You will see a new operating metric in our press release, Platform-Enabled Session, which represents encounters facilitated by our licensed software platform and delivered by clients’ own care providers. Total sessions enabled were 986,000 in the quarter, which is more than triple the number of consultations provided in the same period last year, pro forma for the acquisition of InTouch Health.

Visit volume from paid members in the U.S. grew 242% to over 2.1 million visits, which represents an annualized utilization rate of 16.5%, more than double the utilization rate of last year’s third quarter and a 50-basis-point increase sequentially.

PMPM (per members per month) was $1.18 in the third quarter, up from $0.98 in the prior-year quarter.

Adjusted gross profit, adjusted to exclude amortization of intangibles, increased by $89 million to $184 million, an increase of 93% as compared to the prior year’s third quarter.

Adjusted gross margin was 63.7% compared to 69% in the third quarter of 2019 and 62.3% in the second quarter of 2020.The year-over-year decline in gross margin is attributable to the robust visit growth and increase in visit fee revenue mix versus the prior year.

Operating expense for the quarter totaled $203.8 million or 70.6% of revenue compared to 83.4% in the third quarter of 2019

Adjusted EBITDA increased to $39.5 million in the quarter, compared to $9 million in the third quarter of 2019. Third-quarter adjusted EBITDA margin of 13.7% increased by over 700 basis points year over year. As noted above, the significant adjusted EBITDA outperformance in the quarter was, in part, driven by the timing of advertising and marketing activities between the third and fourth quarters.

Net loss in the quarter was $35.9 million, compared to a net loss of $20.3 million in the third quarter of 2019.

On a per-share basis, net loss was $0.43 for the third quarter compared to a loss of $0.28 in the third quarter of last year. Excluding transaction costs of $0.19 per share related to the pending Livongo merger, net loss per share was $0.24.

We ended the quarter with $1.2 billion in cash and short-term investments, while our total debt outstanding as of September 30 was $1.3 billion.

Now, turning to forward guidance. Note that until the Livongo transaction closes later this quarter, all guidance represents expected stand-alone Teladoc Health results.

For the fourth quarter of 2020, we expect total revenue of $294 million to $304 million, representing growth of 88% to 94% over the prior-year quarter.

ExponentialDave: worth repeating, this is only 2%-5% sequentially. Seasonally it is much lower than usual, as Q4 tends to be a strong quarter for TDOC.
We expect total paid membership of 50 million to 51 million, which is net of the approximately 1.5 million temporary members we have discussed in prior quarters.

We anticipate total visits during the fourth quarter of between 2.8 million and 3 million visits.

We expect fourth-quarter adjusted EBITDA to be in the range of $21 million to $24 million and net loss per share, excluding Livongo transaction-related costs, to be between $0.36 and $0.33 based on 84.4 million shares outstanding.

For the full-year 2020, we now expect revenue to be in the range of $1.005 billion to $1.015 billion, up from our prior $980 million to $995 million range, representing 82% to 83% growth over the prior year

We expect total visits to be between 10.4 million and 10.6 million visits, representing total visit growth of approximately 151% to 156% over the prior year.

We expect adjusted EBITDA to be in the range of $97 million to $100 million, up from our prior $85 million to $92 million range, representing growth of over 200% as compared to 2019.

Net loss per share, excluding transaction costs related to the pending Livongo merger, is expected to range from a loss of $1.36 to $1.32 per share based on 79.4 million weighted shares outstanding.

We expect cash flow from operations to grow consistent with our adjusted EBITDA growth


Jason Gorevic: So first of all, with respect to 2021, as you’ve heard us say, we feel comfortable organically in the 30% to 40% range

When we look at our pipeline, we would actually say we expect at this point for our bookings in the fourth quarter to be at least 2 times what they were in the third quarter based on what we’ve already closed and what’s in the late stages of the pipeline. So again, that gives us tremendous confidence in our '21 outlook.

You asked about unemployment. We had modeled in some conservatism in the beginning of the year for unemployment in the back half, and we haven’t seen that impact our numbers in any large degree. So we continue to monitor that closely. And we also benefit from the fact that many people who end up rolling off the employed ranks get COBRA coverage.
And along with their COBRA coverage, they get Teladoc as a benefit.

Stephanie Davis – SVB Leerink – Analyst
So utilization surprised us the most this quarter, and that only moderated a touch sequentially despite a pretty sharp mix shift in the broader environment toward in-person versus virtual care. Could you walk us through the puts and takes that are driving this, such as maturation of new members from the prior year or anything else that’s keeping it so strong?

Jason: Yeah. I think there are a few things there, and I appreciate that observation. We did see in many parts of the country office visits return to near-normal levels, and at the same time, you’re seeing people access Teladoc for a broader array of clinical services. So as we mentioned, about 55% of our general medical visits were for noninfectious diseases.

So there’s a moderating of overall infectious disease in the market by about 25% according to the CDC, and yet our volume was up substantially. And so what we’re seeing there is that our multiproduct and broad clinical array of services strategy is paying dividends. It’s providing more services and more capabilities for consumers. The awareness increase of virtual care overall is bringing more people to our front door, and I think that’s evident by the increase in new registrations of roughly 80%.
And then the last part I would say is that we are seeing just tremendous increase in visit volume for other specialties. So both noninfectious diseases, the role of virtual care, other specialties, and the fact that we’re seeing new people come to our front door all work to offset the overall market decline in infectious disease. So just sort of the last punctuation mark I’ll put there is if you then play it forward a year to where we have a more normal infectious disease cycle, I think you’ll continue to see those overall utilization rates increase.

Ryan Daniels – William Blair & Company – Analyst: I’m curious with the integrated offering that you’re going to go to market with Livongo, if that gives your payer partners an opportunity to effectively launch an entirely new type of insurance offering to consumers, maybe at a lower cost, virtual digital front door. And if so, second question is, do you think that will eventually open up the opportunity for expansions within the payer client base to offer that or maybe even market share gains with some of the bigger payers you’re not working with? Thanks.

Yeah. Thanks, Ryan. It’s a really good question, and the short answer is yes. We’re already talking with our large payer clients and large employers about what we talk about as virtual primary care, which is the full credit whole-person answer that is a virtual solution that brings the entire breadth of our products and services to bear.

And we’re talking about doing that and wrapping a new benefit design, a new insurance product around that that really changes the benefits, incents the usage of that virtual first and sort of holistic virtual capability set. And I think that gives the health plans who embrace it a competitive advantage to deliver better care and a better consumer experience at a lower price. And it gives us the opportunity to share in the upside that we create, the savings that we create, the better outcomes that we create, the better Star Ratings, and HEDIS metrics that we can drive. And we’re seeing those results already in our virtual primary care pilots, where we are seeing a very broad array of clinical diagnoses, over 70 clinical diagnoses.

A lot of those are for things that we have solutions for, things like obesity and hypertension, diabetes, anxiety, depression, and a shocking, for me, number of initial first diagnoses of some of those chronic conditions like hypertension and diabetes or pre-diabetes. So the opportunity for us to take care of the whole person with our complete set of services does open up those new opportunities.

Charles Rhyee – Cowen and Company – Analyst

Jason and Mala, obviously, a strong quarter, and I think you touched on it earlier about sort of the dynamics that propelled still a very strong quarter. In the third quarter, when we saw some of the metrics externally, looks like there was some pullback from the peak.

When we look at the fourth-quarter guide, Mala, maybe you can help us unpack a little bit some of the assumptions going into the fourth quarter. When you look at it, it looks sequentially flat to slightly up when, seasonally, you would think fourth quarter is a strong quarter for healthcare services in general. Can you maybe help us understand a little bit on the underlying assumptions? I know previously you guys did not assume a second wave in terms of COVID. Maybe give us your thoughts on sort of what goes into that.

Mala Murthy (CFO): First of all, you saw in our results a continuation of the very broad momentum that we are seeing across our business, right? So it is across all channels, whether it be on the commercial side, whether it be on our D2C side, or whether it be on our HHS side.

We are seeing broad momentum across the business, and that is translating into the strength you’re seeing in year-over-year growth on access revenue, as well as visit revenue. In terms of the fourth-quarter guide, the way we have modeled it and thought about it is, we are looking at the robustness of the pipeline we have. We are looking at from a visit perspective. We are expecting a relatively weak flu season.

The shelter-in-place and the use of PPE have been factored into our forecast. I would not expect to see an incremental upside versus what we have guided on from a second COVID surge. We have factored in all of those into our guide. And I would also say, in terms of the adjusted EBITDA margin, as I’ve said in my prior remarks, we have reflected the fact that we really do want to invest and lean in into our investments ahead of the strong momentum we expect in our outlook for next year, as we’ve already shared in terms of the 30% to 40% on an organic basis.
ExponentialDave: Recall, this transcript was written on 10/29/2020, and I am writing this as of 12/17/20. Weak flu season was spot on, but they did not expect a second wave of covid to hit. If you look at covid progression in the U.S. from 10/29 until now, you will see cases have exploded in number. There is likely a great deal of upside that TDOC totally could not and did not account for due to a surge in covid cases.

Jailendra Singh – Credit Suisse: So CMS update in late September pointed out that over 94% of Medicare Advantage plans will offer telehealth benefit next year versus like 58% this year. Jason, you have talked about telehealth rollout by Medicare Advantage plans being like more 3-year phenomena.

So this seems to be trending better than those expectations. Do you agree with that? And the second, if you can provide any update on Teladoc success with MA plans for 2021 for telehealth benefit.

Jason Gorevic – Chief Executive Officer

Yes. You know, what I can tell you, Jailendra, is that we’re seeing quite a bit of interest from all of the government programs at this point, both managed Medicaid, as well as Medicare Advantage. We’re up over 2.5 million Medicare Advantage members at this point, which is about 1 million more than the – I think the last time we gave you a number. I’m not going to give an outlook for 2021 at this point.

I think the adoption continues to be strong, and I think with the Livongo set of capabilities and the prevalence of hypertension, diabetes, pre-diabetes among the MA population, that’s going to make our products and services that much more attractive. And we’re working on a set of additional capabilities that, I think, will increase the value of our overall portfolio to MA plans. So I feel good about the progress we’re making there, and I think that that will continue through '21 and beyond.

Daniel Grosslight – Citi – Analyst: congrats on the continued momentum here. We’ve seen some payers still waiving cost shares for telehealth while others have reverted to the pre-pandemic benefit design. For what it’s worth, I still check in every week with my insurer to make sure they’re still waiving cost share, and they are.

But I was just curious, of your commercial book, both for those who are getting Teladoc through their employer as a carve-out or through their insurer, do you have a number of what percent of your clients are still waiving the cost share?
ExponentialDave: This is an excellent question and one that is a shame that Jason basically dodges. Could make it harder for TDOC to beat guidance if much fewer clients are not waiving cost share. But with the surge in covid in November/December, it would seem particularly cruel and idiotic for clients to stop waiving cost share.
Jason Gorevic – Chief Executive Officer: Well, Daniel, I appreciate your checking in with your payer, and I would suggest you continue to do that and encourage them to continue their zero co-pay. We haven’t disclosed what percentage of our payers. What I can tell you is, it’s a mix. Among our payers who make the decisions for themselves, there are some who have returned to charging a co-pay for virtual care services.

There are others who have extended through the end of the year. And then among the employers, we’re seeing the employers, the large self-insured employers who are making those benefit decisions for themselves really stick with that zero co-pay. And we expect them to stay with that at least through the end of the year if not beyond.

George Hill – Deutsche Bank – Analyst: Jason, I’ve got a question for you on how you think about market share. If we look at the almost 52 million members where you guys ended the quarter, and we kind of put your 30% growth number on it for 2021, that will put you, call it, 62 million to 67 million members, which is like 40% of people with employer-sponsored coverage, a little close to 30% of people if we include everybody with risk-based coverage, probably in the low 20s if we include Medicare Advantage. So I guess how do you guys think about your market share? And kind of what is the right way to think about Teladoc’s market share and how you guys approach what share of the market you guys want to have on a normalized basis?

Jason: … So I want to not jump to what our '21 membership will be until we give guidance, which will probably be in February-ish. With respect to our market share, we think about market share in sort of a few different dimensions. First of all, we’re looking at multiple different channels, right, whether it’s employers or health plans, whether it’s hospitals and health systems domestically and internationally. And of course, we’re selling direct to consumer.

It’s also for different products. So we have such a diverse product line. And we still have, as we look at our greenfield opportunity just among our existing clients, there is north of 70 million people who are still what we would call white space among our existing clients. So tremendous opportunity for continued growth domestically among those populations.
ExponentialDave: I had to re-read this to better understand that it was both a good question and a good answer from Jason. The analyst OVER emphasizes the importance of member growth to the relative strength of the business. To an extreme, you could interpret this as the analyst possibly trying to imply that TDOC’s growth is capped by its ability to add more members. But then Jason makes it clear that TDOC is about much more than member growth. They are selling to employers, health plans, hospitals, health systems, D2C, etc. But even on a member basis, there are still 70 million untapped potential members. Furthermore, there is still the “upsell” capability of getting existing members to use the product more, be that for mental health, dermatology, general pratice, etc.

Matthew Gillmor – Robert W. Baird – Analyst: Hey, thanks. I was hoping you could take a moment to update us on where things stand from a physician supply standpoint within your network. Obviously, offices are opening back up and this is a time of year where utilization is normally higher. But I was curious if you’re seeing any pressure with respect to recruitment or compensation or maybe what’s in place today versus wasn’t there at the beginning of the year.

Jason Gorevic – Chief Executive Officer: Yes. Thanks, Matt. I appreciate the question. The innovation that we put in place in the March time frame as we were experiencing the incredible increase in volume has really paid tremendous dividends for us over the course of the year.

And that’s helped us to expand our population of physicians. It’s helped us to onboard physicians more quickly and in a streamlined fashion. It’s helped us to make the physicians work more efficient so that for each physician’s hour that they’re spending with us, they can be more productive. And so the combination of all of those things has really resulted in just tremendous efficiency gains and greater productivity.

And as a result, we are operating at significantly higher levels of utilization as we’ve reported, and yet our response times are down in the low single-digits minutes to speak to a physician really across the country.

Jonathan Yong – Barclays – Analyst

Thanks. I just had a question in relation to Livongo. I think with the GuideWell deal, Livongo was already in discussions with them. And with the Teladoc-Livongo merger, that really accelerated.

I was wondering if that was the same case with the large employer that you signed. And is this a key factor for your kind of revenue synergies moving forward or where you’re able to expedite some of the deals because of these relationships? And are those revenue synergies already in Livongo’s pipeline and you’re just expediting it?

Jason: Yeah. I think there’s definitely an acceleration that happens, and the acceleration is for a number of reasons. One, because it’s easier to contract with a company you already have a contract with, right? So you don’t have to go through the entire procurement process. Two, people appreciate having a single relationship manager, a single team.

And three, and maybe most importantly, the value proposition of an integrated suite of products for the consumer is so much stronger, right? And so the ability to do that, to bring a single solution not only accelerates the process but also, very importantly, increases the value proposition.


One clear driver of this strength has been a steady and broad-based acceleration in our noninfectious disease-related visits. Visits for conditions such as hypertension, back pain, anxiety, and depression represent over half of our general medical visit volume

This acceleration could quite easily be because of COVID. Many people I know currently prefer a virtual doctor visit because they are afraid of getting COVID or something else infectious as a result of going into the doctor’s office. They are concerned that the other people going in and out might have something infectious, and they’re worried about being breathed on, touching a door handle, etc.

On the other hand, a couple of people with mental health challenges are really liking virtual doctor visits for mental health appointments. Physical hands on isn’t needed, and the comfort of being at home is a big plus.

Overall, I think the merger was good for both companies, and I plan to remain invested. My LVGO position was on the small side, so I’m thinking of adding to TDOC.