Teladoc To Acquire InTouch Health For Complete Telehealth Offering

Summary

• Teladoc has agreed to acquire InTouch Health for $600 million in cash and stock.
• InTouch has developed a well-known facilities-based virtual care offering for hospitals and health systems nationwide.
• The virtual care industry is slated to grow markedly in the years ahead, and TDOC is betting big on being a leading provider for every patient 'front door.'
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Quick Take

Teladoc Health (NYSE:TDOC) has announced the proposed acquisition of InTouch Health for $600 million in cash and stock.

InTouch has developed an enterprise-grade telehealth solution for health systems and hospitals.

With the deal, TDOC is making a bold move to provide both consumer and facilities telehealth virtual care solutions to the marketplace.

The stock has had a positive run in the past 12 months and perhaps TDOC is finally making a move to EPS breakeven. I like the transaction, and my bias is cautiously Bullish.

Target Company

Santa Barbara, California-based InTouch was found to develop a virtual care system to enable hospitals and health systems to more effectively care for patients in locations outside the facility.

Management is headed by Chief Executive Officer Joseph DeVivo, who has been with the firm since 2016 and was previously President and CEO of AngioDynamics and RITA Medical Systems.

Below is an overview video of the firm's approach:

Source: InTouch Health

InTouch's primary offerings include:

• Solo by InTouch

• Telehealth Devices

• Direct-to-Consumer

• Direct-to-Patient

• Employer Clinic

• Specialty Telehealth

• Emergent Telehealth

Company partners or major customers include:

• GE Healthcare (GE)

• Intuitive Surgical (ISRG)

• KARL STORZ

Investors have invested at least $49 million in InTouch.

Market & Competition

According to a 2019 market research report by Acumen Research and Consulting, the global market for telehealth services is expected to reach $20 billion by 2026, up sharply from $7 billion in 2018.

This represents a forecast CAGR (Compound Annual Growth Rate) of 13% from 2019 to 2026.

The main drivers for this expected growth transitioning approaches to delivering healthcare services to patients in their homes or places of business along with improved technologies that are enabling higher quality communications and resulting patient care. The North American region accounted for the highest market share in 2018 but increased government spending initiatives throughout the Asia Pacific region will contribute strong growth in that region as well.

Major vendors that provide competitive services include:

• American Well

• GlobalMed

• Dictum Health

• Doctor on Demand

• MDLIVE

• Encounter Telehealth

• HelloMD

• SnapMD

Source: Sentieo

Acquisition Terms & Financials

Teladoc disclosed the acquisition price and terms as $600 million composed of $150 million in cash and $450 million in stock.

With InTouch's 2019 expected revenue of $80 million, the price to be paid represents a price/sales multiple of 7.5x for a firm with 35% year-over-year revenue growth.

Management said it will provide updated financial guidance upon closing of the transaction.

A review of the firm's most recent published financial results indicates that as of September 30, 2019, Teladoc Health had $490.9 million in cash and equivalents and $574.7 million in total liabilities of which long-term debt represented $433.8 million.

Free cash flow for the twelve months ended September 30, 2019, was $10 million.

In the past 12 months, Teladoc Health's stock price has risen 62.0% vs. the U.S. Healthcare Services industry's rise of 28.6% and the U.S. S&P 500 Index' 25.90%, as the TDOC chart indicates below:

Source: Seeking Alpha

Earnings surprises versus analyst consensus estimates have been positive (given its negative earnings) in nine of the last twelve quarters, as the chart shows below:

Source: Seeking Alpha

Below is a table of relevant capitalization and valuation figures for the company:

Measure	Amount
Market Capitalization	$6,950,000,000
Enterprise Value	$6,920,000,000
Price / Sales	13.17
Enterprise Value / Sales	13.32
Earnings Per Share	-$1.47
Total Debt To Equity	46.77%
Free Cash Flow [TTM]	$29,560,000
Revenue Growth Rate	39.55%

Source: Company Financials

Commentary

TDOC is acquiring InTouch to combine its existing consumer virtual care platform with InTouch' facilities-based platform 'to meet the patient at every front door of the healthcare system.'

As TDOC stated in the deal announcement:

This acquisition positions Teladoc Health as the partner of choice for health systems seeking a single solution for their entire virtual care strategy, and establishes the company as the only virtual care provider covering the full range of acuity - from critical to chronic to everyday care - through a single solution across all sites of care worldwide...Together with Teladoc Health, the newly combined entity will be uniquely equipped to meet the growing needs of the provider market with one single, integrated solution spanning both consumer and provider-to-provider applications.

InTouch Health will bring over 450 hospital and health system customers with over 14,500 physicians covering more than 40 clinical use cases in its facilities-centric platform.

As the global population continues to age, the telehealth industry is poised to grow dramatically in the years ahead, as health systems face challenges in providing quality patient care across a range of locations.

With the deal, TDOC is clearly making a bold strategic move and investors in the stock appear to like it, pushing the stock up over 14% since the deal announcement.

TDOC's stock has been on an enviable run during the past 12 months; however, I can't say I'm impressed with its path to profitability. It's most recent quarter was an improvement, so maybe it's the start of a new trend.

I like the InTouch deal but would like to see TDOC continue a move to EPS breakeven. I'm cautiously Bullish on TDOC.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.