Teladoc Health (TDOC -2.30%) was a pandemic-era darling. The virtual healthcare specialist provides patients with a seamless way to consult with doctors online without ever having to leave the house, a business model built for the lockdown era of Covid-19.
Almost three years later, though, the wind has been sucked out of those sails. Although not having to sit around an overbooked waiting room to see your doctor sounds like an ideal situation, the reopened economy proved otherwise, as membership growth slowed dramatically.
Where Teladoc had added over 15 million new U.S. paid members in 2020, only 1.8 million were added in 2021.
What was going to be truly transformative, though, was the $18.5 billion acquisition of Livongo Health, a provider of digital health monitoring tools for patients with chronic diseases. Through devices and live monitoring it tries to help prevent acute-care need episodes, while Teladoc provides acute care when such episodes arise. Together they would provide comprehensive, end-to-end care for patients. At least that was the theory.
A gigantic hole to fill
As 2022 ultimately proved and management finally admitted, Teladoc vastly overpaid for Livongo because it was buying at the market top. Investors saw that at the outset, and sent Teladoc’s stock careening lower when the deal was announced, but management finally bit the bullet last year and wrote down virtually the whole shebang with a massive $13.4 billion charge to goodwill, or a stunning $83 per share.
That means a company that generated $2.4 billion in revenue last year lost $13.6 billion. Yes, it’s a non-cash impairment, but it still rewarded management with $302 million in stock-based compensation for another nearly-$2-per-share hit. It’s hardly a performance worth an attaboy.
Teladoc’s free cash flow also rapidly deteriorated this year, down to just $16.5 million from over $130 million a year ago, as the amount of software expenses it capitalized nearly tripled. It says that should ease up this year, which will improve its FCF position to over $100 million again.
So after a grueling year for Teladoc and its investors, is now the time to buy?
Better than it’s been
The virtual healthcare specialist’s fourth quarter was actually a fairly solid performance, though there are some glaring weak spots in its operations and some questions about how it will jump-start growth again.
While it got a boost the other day from Microsoft wanting to integrate Teladoc into its Teams app for hospitals and healthcare, it also faces renewed competition from Amazon, which shut down Amazon Care only to launch Amazon Clinic.
Revenue for the period was up 15% to $638 million while full-year revenue rose 18%, with gross margins rising to 70.4%, or 200 basis points from last year, as member growth resumed.
U.S. integrated care members steadily rose all year and ended at 83.3 million, some 5.8 million members more, or 7.5% higher than last year, while its BetterHelp paying members were up 28% to 450,000. Its chronic care growth seems to have been put on pause the past few quarters, even though it’s 16% higher than a year ago
Margins also nicely improved by segment, with integrated care steadily and solidly rising across the year and adjusted EBITDA margin growing from 9.9% to 12.2%. Therapy services under BetterHelp, however, seemed to be all over the place throughout the year, and ended the year down 110 basis points.
A murky outlook
The biggest problem seems to be management’s guidance. While the full-year guide was pretty much what Wall Street expected, with revenue at $2.6 billion at the midpoint and adjusted EBITDA at a mid-range of $300 million, the first quarter was well below expectations.
Teladoc forecasts a high end for revenue of $625 million when analysts were looking for $650 million, and adjusted EBITDA of $50 million at the upper end was lower than the $60 million consensus.
There was no reason given why the first quarter is expected to be such a bummer, or how the company plans to get its business moving forward again, especially after its disastrous acquisition strategy imploded. While it’s looking like Teladoc is forming a good foundation for future growth, without a cohesive plan to move forward investors may want to hold off on this healthcare stock for the time being.