Teladoc Health: Just What The Doctor Ordered
Summary
- Teladoc Health recently reported solid Q2 2018 operating results that were well-received by the market.
- This telehealth company has promising long-term business prospects and its backdrop seems to be improving by the day.
- I am long Teladoc Health and I plan to add to my position in the near future.
- This idea was first discussed with members of my private investing community, Going Long With W.G.. To get an exclusive 'first look' at my best ideas, start your free trial today >>
Teladoc Health (NYSE:TDOC) is shaking up an industry that needs disrupted. The company's telehealth platform and other related services are garnering a ton of buzz (and usage) in the healthcare industry and I believe that Teladoc is just getting started. The company's stock performance is telling the same story, as TDOC shares have outperformed the S&P 500 by a wide margin over the last year.
TDOC data by YCharts
I posted "Teladoc Is Worth A Look" in early April 2018 and shares have already ticked higher (shares were in the lower $40 range) but, in my opinion, investors with a long-term perspective should seriously consider continuing to accumulate TDOC shares even in the $60 range.
The Strong Q2 2018 Operating Results - Just What The Doctor Ordered
On August 1, 2018, Teladoc reported Q2 2018 financial results that missed on the bottom-line but that beat the consensus top-line estimate. The company reported an adjusted Q2 2018 loss per share of $0.40 (missed by $0.03) on revenue of $94.56M (beat by $2.19M), which compares favorably to the results reported in the same period of the prior year. The following were the highlights from the quarter:
- Total revenue of $94.6M, which is growth of 112% when compared to the prior period.
- Total paid memberships of 22.5M (increase of 48% YoY).
- Total visits of 533k (increase of 72% YoY).
- Net loss of $0.40 for Q2 2018 compared to a net loss of $0.28 for Q2 2017.
- EBITDA was $(10.1)M for Q2 2018 compared to $(11.8)M reported for the same period of the prior year.
Teladoc's Q2 2018 revenue was positively impacted by the Best Doctors ($26M) and Advance Medical ($6M) acquisitions but organic revenue growth for the quarter was still an impressive 39%.
Management also updated their full-year 2018 guidance:
Source: Q2 2018 Earnings Presentation
Some pundits are concerned about Teladoc's expanding net loss but I believe that it is way too early in the company's growth story to start worrying about earnings. In my opinion, Teladoc's Q2 2018 results are just what the doctor ordered - i.e., supports the bull case (Teladoc has differentiated product/service offerings that are disrupting the healthcare industry and the company has the potential to scale its business) and shows that the company's platform (and supplemental services) is being well-received by healthcare participates.
A Promising Backdrop
Teladoc is leading the charge in the virtual care delivery space and, in my opinion, the company has a real market opportunity. According to management, Teladoc now has a total addressable market of $57B with the recent acquisitions factored in.
Source: William Blair 38th Annual Growth Stock Conference, June 2018
Additionally, it helps the bull case if you consider the fact that Teladoc also has a strong balance sheet that can be used to fuel future growth.
Source: Q2 2018 10-Q
Observations:
- Current ratio is over 3
- ~$300k net debt position
- The company does have significant Goodwill and intangible asset balances but, remember, the company has focused on acquiring promising companies/assets to help fuel growth. Therefore, the large balances are not an issue [yet] but investors should continue to monitor management's commentary related to past acquisitions.
Teladoc has already proven itself to be a major player in its industry and the company's utilization rates are accelerating so, in my opinion, the sky is the limit for this telehealth company (a little dramatic, I know).
Valuation
The company's potential secondary offering caused shares to pullback, but I still believe that Teladoc's stock is attractively valued.
TDOC PS Ratio (TTM) data by YCharts
On a price-to-sales basis, shares are creeping higher than the historical average but let's not forget that the recent acquisitions have the potential to real catalysts for the stock.
Risk
Investing in small-cap companies comes with many risks, but the major risk for Teladoc is related to the company being outspent by larger competitors. Additionally, the company relies heavily on its partnerships to expand its business so deteriorating relationships in the industry could have a material impact on Teladoc's business.
Lastly, regulatory changes have the potential to greatly impact Teladoc's business. Please also refer to Teladoc's 2017 10-K for additional risk factors that should be considered before investing in the company.
Bottom Line
There is a lot to like about Teladoc Health and I believe that the stock still has a tremendous amount of room to run, especially if you are willing (and able) to hold onto shares for at least the next five years. The company has reported strong top-line growth, coupled with impressive growth metrics (e.g., visits, membership, accelerating utilization, etc.), so it appears that Teladoc's long-term business prospects are improving by the day.
In my mind, Teladoc will either grow into a large disruptive company in the healthcare industry or it will get acquired by one of the big dogs. A win-win situation. TDOC shares will likely not shoot up in a straight line but, in my opinion, the risk is to the upside if you are in it for the long haul. With that being said, I believe that Teladoc deserves to be on most investor's watch lists because the company appears to have tremendous growth prospects for at least the next decade.
Author's Note: I hold a small [but growing] Teladoc position in the R.I.P. portfolio. I have no plans to sell any of my TDOC shares in the near future.
Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.
This article was written by
Analyst’s Disclosure: I am/we are long TDOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (29)
I'm concerned about the lack of paid member growth: 22.5M actual for Q2 and year end estimate 23-24M. Is this normal seasonality?
-Strong visit volume of approximately 533,000 total visits in the quarter, which represented growth of 72%. U.S. paid membership of 22.5 million members, representing growth of 48% and our average per member per month was $1 compared to $0.63 for the same period last year, representing a 58% increase. Mark will provide more details on our strong financial results, but first before that I’d like to focus on a few key developments for the company.
-On the positive side from the Federal Government, we're very pleased with the announcement from CMS two weeks ago regarding their payment policies for telehealth. CMS announced that they would begin paying for telehealth services and virtual visits for the Medicare fee for service population.While we were expecting this for the Medicare Advantage plans. The inclusion of telehealth and Medicare’s fee per service and the physician fee schedule came early than we anticipated. This is a meaningful step forward in CMS’s increasing supportive telehealth as a valuable component of the delivery system and a way to improve the quality and access to care for seniors.
-As of the end of the second quarter, U.S. paid members totaled 22.5 million members, an increase of 48% compared to last year after adjusting for 5.2 million Aetna and Amerigroup lives, which are now classified as visits the only individuals. As a reminder, our definition of members includes just U.S. paid members that are associated with a PEPM or PMPM or paid U.S. membership. And under this definition, membership totals do not include visit fee only access individuals.At the end of Q2, we had approximately 9.6 million individuals with visit fee only access to our services including those individuals from the Blue Cross Blue Shield Federal Employee Program and Aetna's fully insured population.
-Moving on utilization, which we calculate as total visits divided Teladoc’s paid U.S. membership for those members with access to our general medical services. During the second quarter, Teladoc completed 533,000 visits, that’s an increase of 72% from the year ago period. This represents an annualized utilization rate of 8% in the quarter and approximately 200 basis point from the 6.1% we experienced in the second quarter of 2017.In terms of visits, we segment them into visits from U.S. paid memberships and visits from visit fee only access. Visits from U.S. paid membership totaled approximately 436,000 visits. Going one level deeper into the U.S. paid membership visits, 218,000 or 44% of these visits were paid, while the remaining 277,000 visits were delivered under our visits included contracts. In addition to those 277,000 visits, we also completed 36,000 visits for individual with the visit fee only access.
