The Secret Buried Truth in Teladoc’s Financial Report

Griffin Mulcahey August 17, 2018
The Secret Buried Truth in Teladoc’s Financial Report

Teladoc made headlines last week, lots and lots of headlines, from their quarterly report showing huge 112% growth in subscription services. If you look beyond the headlines Teladoc also admitted several revealing things that will dictate their future and the future of the telemedicine industry.

A direct quote from Teladoc’s quarterly Financial Reporting,

“Our telehealth business and growth strategy depend on our ability to maintain and expand a network of qualified providers. If we are unable to do so, our future growth would be limited and our business, financial condition and results of operations would be harmed.”

Telemedicine is Nothing without Quality Health Care Providers

What more needs to be said? This disclaimer is a warning to Teladoc investors. It also serves as great advice for every up and coming telehealth company. For telehealth companies: * Building great technology is important * Finding a great executive team is important * Having a great vision is important * Ensuring a great consumer experience is important * Developing a unique brand and marketing is important

… but none of it matters if telehealth companies fail to create a network of top quality clinical talent. Top talent is the catalyst to make the technology dream deliver better outcomes at a lower cost.

In the SEC filing, Teladoc goes on to say:

“If we are unable to recruit and retain board‑certified physicians and other healthcare professionals, it would have a material adverse effect on our business and ability to grow and would adversely affect our results of operations. In any particular market, providers could demand higher payments or take other actions that could result in higher medical costs, less attractive service for our clients or difficulty meeting regulatory or accreditation requirements.

Our ability to develop and maintain satisfactory relationships with providers also may be negatively impacted by other factors not associated with us, such as changes in Medicare and/or Medicaid reimbursement levels and other pressures on healthcare providers and consolidation activity among hospitals, physician groups and healthcare providers.

The failure to maintain or to secure new cost‑effective provider contracts may result in a loss of or inability to grow our membership base, higher costs, healthcare provider network disruptions, less attractive service for our clients and/or difficulty in meeting regulatory or accreditation requirements, any of which could have a material adverse effect on our business, financial condition and results of operations.“

Teladoc said it all. Their biggest long term concern serves as a warning and an opportunity for other telehealth companies trying to transform healthcare. Attracting and retaining the best clinical talent should be a top priority on ever companies roadmap.

The Second Teladoc Truth Hidden in Plain Sight For Years

Press release: “US Membership grew 22.5 million, up 48% from last year, with 436,000 consultations, up 41% from last year.”

Seems like great metrics on the surface, however, if you look deeper into the financials:

Reported gross margins were 70.7% for the second quarter 2018 compared to 77.5% for the second quarter 2017. And, the company reported $25.1 million in losses for the quarter, up from $10m this time last year.

So what does this mean? They are having to spend more money to make more money. And despite membership growth, Teladoc is still not making money on people using their services to get healthier.

Teladoc’s financial model is supposed to drive revenue from two avenues, subscription access fees and the number of patient visits. Subscription access fees are largely driven by employer paying a low monthly fee so each “member” employee can use Teladoc whenever they need it.

Visits revenue only happens if members see value in using Teladoc’s services. Teladoc, “We believe that increasing our current U.S. Paid Member utilization rate and further penetration into existing and sales to new health plan clients is a key objective in order for our Clients to realize tangible healthcare savings with our service. Compared to the same period in 2017.”

The revenue reality, Teladoc is almost entirely dependent on revenue from members not using their visit services. “Subscription access revenue accounted for approximately __84% of our total revenue)) during both of the quarters ended.” Translation = paid members, not paid visits.

The Reality of the Telehealth Industry

Teladoc’s revenue is almost entirely driven by employer paid members who never use the service. And their biggest concern is maintaining a quality provider network. Digital health innovators, take note. Goliath’s weakness may be David’s opportunity.

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