Teladoc (TDOC)

Duma and Bear, I exited Teladoc earlier this year because of the large acquisition of Best Doctors. They paid $440 million for a thirty year old mature and stable company which was just about breaking even and had all of $6.5 million in EBITDA last year. That moved Teladoc from a positive $134 million cash position to a negative debt position of $300 million. That’s a lot of debt for a company with $282 million in revenue. At 5% interest on their debt it will cost them $15 million just to pay the interest, and this for a company losing money. Their growth rate will come down too, being diluted by Best Doctors low-to-no growth rate. They also increased their stock-based comp by 150% in the first six months, even before the acquisition.

I know a lot of things are going right for them as far as growth, and new customers, but there’s a lot of risk built into it too. How do you reconcile yourselves to all that?

Best,

Saul

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Hey Saul:

Thanks for the post…am also kicking tires so please allow me to free though the whole Best Doctors and debt issue.

I reviewed their last earnings slides here:

https://seekingalpha.com/article/4126839-teladoc-tdoc-invest…

You can see that they believe the Best Doctors purchase essentially allows them to nearly double their TAM. We could debate whether that is tru but that is why they seem satisfied with the purchase and resultant debt.

So if they are correct and the TAM is $28 BILLION…it will develop into a wise decision…with that assumption of course. It would seem very important to track how well they grow that part of their business but it is very early.

So Best Doctors may be getting them international exposure, specialties rather than just mundane sore throats, and differentiates them from other run of mill telehealth outfits…expert second opinions from anywhere in the world. I therefore suspect they viewed this as a “moat” related strategic move.

Take a look those slides and I think you can get the drift of their “platform” strategy and why employers, insurance companies and patients might embrace it.

Remember that the integration has not fully completed as the acquisition was just 5 months ago.

I think there is a presumption here that with all the memberships that have yet to tap into the convenience and low cost of Teledoc’s paltform, that once this large population begins to open up, their will be substantial revenue increases. SO in that sense, I think they are not unlike most early tech companies that are trying to expand customers as quickly as possible before they harvest the benefits from those members.

It does appear their secondary was in part addressing this loan overhang:

https://finance.yahoo.com/news/teladoc-announces-pricing-sal…

But yes…was a gamble they took…to essentially double their TAM.

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Dumma,
The way I remember it from the time of the acquisition is that Best Doctors is a different animal entirely. Teladoc is a network of 100-200 doctors or so who take calls (at home?) from patients with colds, questions about their medications, and stuff like that. (There are only so many things, a few, a doctor can safely diagnose without actually examining the patient, if you think about it.) Best Doctors is a network of several thousand reputed specialists who will do a second opinion for you if you send them all your records (without necessarily seeing you). Saying they are doubling their TAM is a odd thing to say. Best Doctors was doing what they were doing, and growing very little. And it’s a different business. I have trouble seeing it.

Saul

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Saul:

It seems they clearly new they were trying to enter a new market with Best Doctors. It is based on their desire to be THE platform for telehealth…as you know there mist at least a dozen other wannabe’s out there like these:

https://www.healthline.com/health/best-telemedicine-companie…

To my brief review, none can offer the entire package that Teledoc has…none have a partnership with Aetna/CVS like Teledoc has.

They are but 2 weeks into the integration of both Teledoc and Best Doctors into a single platform and they claim they have interest in cross selling:

In fact, we have already cross sold or jointly sold Teladoc and Best Doctors products to accounts representing over 1 million members or several million dollars of annual revenue in just the first 90 days since we closed the acquisition.

This is what they said about their profitability qwest:

Consistent with our prior comments, we were very close to achieving an adjusted EBITDA breakeven for the third quarter and we fully expect to achieve positive adjusted EBITDA in this fourth quarter of 2017.

But as you point out, a great deal of the premise behind the Best Doctors acquisition relies on their ability to create a platform that turns the previous Best Doctors product into a cash machine. The cross licensing might suggest they are on to something…but we have only 2 weeks since integration…too early to know.

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Saul:

I meant to add that in slide 8 of that linked presentation slides, they gave the assumptions behind the $28 BILLION TAM:

$5,500 case rate for 5.1 million occurrences annually.

So could that be correct?

Perhaps I could imagine scenarios where this would save the system money, for example:

  1. patient in community hospital with undefined illness for whom the “Best Doctors” solve the case…each day saved in Hospital probably well over $5,000 cost.

  2. Pt about to be placed on a very expensive therapy…second opinion clarifies true need…some of these drugs can be hundreds of thousands of dollars

  3. Avoiding transferable to an academic center if diagnostic can be made locally

I could go on with greater imagination but point being that if they acquire enough lives as members, everyone (insurance company, patient, hospital) may benefit.

OTOH…could this really be 5 million opinions annually??? Right now they have over 1 million “visits” but that is a far cry from a $5500 consultation.

I think we need to dig into their case rate to get a feel of the growth but right now…they have no real data 2 weeks into integration.

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Does TeleDoc use big data to solve problems?

Sorry…one last item Saul since you expressed concern about the Best Doctors growth prior to acquisition, I think they did acquire it for a P/S around 4?

But perhaps more important, this is what they said at their first conference call post acquisition:

Congratulations on getting the deal done. And I’m wondering is there an opportunity to drive higher engagement at Best Doctors? And would that be using the same kinds of programs that Teladoc is currently using? Or would Best Doctors require new kinds of engagement programs because it’s a different product?

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Jason Gorevic, Teladoc, Inc. - CEO, President and Director [90]

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No. You’re exactly right there. The unified product, we believe we can leverage our common engagement strategies. Best Doctors had fairly limited experience with really engaging consumers and hadn’t done anything, really, with respect to digital engagement. They have been focused on direct mail efforts. We are already launching efforts to some of our common clients to do integrated engagement strategies to measure how much we can move the needle on that engagement. So we’ve already kicked that off, and we’re very optimistic about that.

focused on direct mail efforts
what minuscule part of the mail readers (even if they opened it) would have any need for a second opinion?
Where is TTD when you need them …

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focused on direct mail efforts
what minuscule part of the mail readers (even if they opened it) would have any need for a second opinion?
Where is TTD when you need them …

For what it is worth, I did notice a Teladoc post card a week or so ago that came through. My company uses Aetna for health insurance, which has a partnership with Teladoc.