Teladoc Continues To Execute And Is Still A Strong Buy

Summary

• Teladoc reported yet another quarter of solid results.
• The report included busy pipeline, increased utilization, and solid growth. We view the results as an indication of Teladoc's market potential and its leadership.
• We still continue to see value in the name and strongly recommend investors buy Teladoc.

Introduction

We're writing here to follow up on our previous article on Teladoc (NYSE:TDOC). In this article, we will assess the company's most recent quarterly report and its earnings call, as well as provide insight on where we think the company is heading. For convenience, we're including our Investment Thesis from our previous article.

Investment Thesis

Teladoc Health stands to benefit from the ongoing shift in healthcare to telemedicine and has a massive untapped addressable market. The company provides widely accessible care at affordable prices, targeting to solve the main challenges facing US healthcare. Its scalable platform based model is favorable to investors due to high gross margins and subscription-based revenues. We believe that now is a great time to buy as the valuation is attractive due to transitory issues. We see earnings and announcement of new clients as potential short-term catalysts. We recommend investors buy and hold for the long term, adding on dips.

The Financials

The results were, as is usually the case with Teladoc, solid. It performed well across the board and raised guidance and highlighted solid membership trends.

Teladoc reported $130.3 million in revenues which represented an impressive 38% YoY growth and just beat consensus estimates of $129.6 million. This was at the high end of the management guidance range of $128 million to $131 million.

All the underlying revenue related metrics seemed good. Organic revenues grew solidly at 24% YoY. Access fees grew at 39% YoY, reaching $111 million or 85% of total revenues. Total visits came in at 908k, well above the guided range of 775k-875k. U.S. paid member visits came in at 610k, representing a 40% YoY growth.

Number of members were the only blemishes on the quarter, albeit minor ones. U.S. paid members came in at 26.8 million which was 19% than a year ago, just below the guidance range of 27 million-28 million. Visit fee only membership came in at 9.7 million, also just below the guidance 10 million.

Teladoc reported gross margins of 68%, which was down from the 70.7% of a year ago. Adjusted EBITDA of $6.3 million was within the guided range of $5 million-$7 million. Net loss per share came in strong at $0.41 vs. guided range of $0.42-$0.44.

Guidance for members, visits, revenues, and adjusted EBITDA were increased. Ranges for total paid members and total visits were raised to 29 million-30 million and 3.7 million-4 million from the prior ranges of 27 million-29 million and 3.6 million-3.9 million, respectively. Low end of the FY19 revenue guidance was increased with the range now standing at $538 million-$545 million from the previous range of $535 million-$545 million vs. consensus estimate of $541 million. Adjusted EBITDA guidance range was narrowed around the mid-point to $27 million-$33 million from the previous $25 million-$35 million vs. consensus of $29.4 million.

The numbers of the quarter were very positive in general and pointed to the solid growth profile of the company.

Reading Between the Lines

The quarter included positives much above the financials. Displayed in the strong visitor numbers, the demand for Teladoc's offerings continue to accelerate. The company reported multi-product bookings 4x and request for proposals (RFP) for the full integrated offering 75% higher than last year. This busy pipeline and accelerating bookings exemplifies another quarter in which the sector leader Teladoc capitalized on the increasing adoption of telehealth services.

The management was particularly upbeat about behavioral health, and cited the segment as one of the strongest drivers of visit growth. The management said that behavioral health customer acquisition cost, member tenure duration, and lifetime value were all trending better and that behavioral health RFPs increased 200% in the first half of the year. Since $12 billion of the company estimated $57 billion total addressable market is in behavioral health, we view these trends as very positive on Teladoc's future.

The company also gave updates on partnership programs. The management said that the United expansion and Medicare projects were progressing along according to schedule. The management was particularly upbeat about the Vida Health partnership and that they expected to see a benefit in FY20. We view these partnerships as extremely important for the future of Teladoc, as they are key enablers for the adoption of telehealth.

The U.S. paid member miss was apparently due to timing of a client implementation. A large client moved its expansion from Q2 to Q3. We note the strong visits number despite the miss and a +100 bps improvement in utilization as key positive trends.

Conclusion

Teladoc is firing on all cylinders and it shows in the quarter. The report highlighted all the things we wanted to see like an accelerating growth profile, a busy backlog, and increased utilization. We see the results as an indication of the market potential and the long runway of growth Teladoc has with its undisputed leadership in the attractive space.

As before, we strongly recommend buying Teladoc.

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.