Learn more:
TeladocHealth.com | 203-635-2002 | NYSE:TDOC
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Our Values
We are passionate about taking care of people.
We are committed to unsurpassed quality.
We keep our promises.
We strive to create value.
We stand up for what’s right.
We lead with integrity, accountability, and transparency.
We respect each other and value succeeding together.
Corporate
information
STOCK LISTING
Teladoc Health common stock is traded on the
New York Stock Exchange. The Teladoc Health
ticker symbol is TDOC.
American Stock Transfer & Trust Company, LLC
CORPORATE HEADQUARTERS
2 Manhattanville Road
Purchase, New York 10577
203-635-2002
TRANSFER AGENT
6201 15th Avenue
Brooklyn, New York 11219
www.astfinancial.com
718-921-8124
INVESTOR RELATIONS
Teladoc Health
Investor Relations
2 Manhattanville Road
Purchase, NY 10577
203-635-2002
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
5 Times Square
New York, NY 10036
CORPORATE WEBSITE
www.TeladocHealth.com
LEARN MORE
DIRECTORS
David B. Snow, Jr. (Chairman)
Christopher Bischoff
Karen L. Daniel
Sandra L. Fenwick
William H. Frist, MD
Jason Gorevic
Catherine A. Jacobson
Thomas G. McKinley
Kenneth H. Paulus
David L. Shedlarz
Mark D. Smith, MD
Hemant Taneja
Glen Tullman
EXECUTIVE OFFICERS
Jason Gorevic
Chief Executive Officer
Arnnon Geshuri
Chief Human Resources Officer
Mala Murthy
Chief Financial Officer
David Sides
Chief Operating Officer
Daniel Trencher
Senior Vice President
of Corporate Strategy
Andrew Turitz
Senior Vice President of
Corporate Development
Adam Vandervoort
Chief Legal Officer and Secretary
Stephany Verstraete
Chief Marketing Officer
Yulun Wang
Head of Research and Development
TeladocHealth.com | 203-635-2002 | NYSE: TDOC
About Teladoc Health : Teladoc Health empowers all people everywhere to live their healthiest lives by transforming the healthcare
experience. As the world leader in whole-person virtual care, Teladoc Health uses proprietary health signals and personalized
interactions to drive better health outcomes across the full continuum of care, at every stage in a person’s health journey. Ranked Best
in KLAS for Virtual Care Platforms in 2020, Teladoc Health leverages more than a decade of expertise and data-driven insights to meet
the growing virtual care needs of consumers and healthcare professionals. For more information, please visit www.TeladocHealth.com
or follow @TeladocHealth on Twitter.
© 2021 Teladoc Health, Inc. All rights reserved.
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Our mission
Teladoc Health is empowering all people
everywhere to live their healthiest lives by
transforming the healthcare experience.
© 2021 Teladoc Health, Inc. All rights reserved.
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“
For Teladoc Health, 2020
was our boldest and most
transformational year yet.
Dear fellow shareholders,
There are few descriptors that have not been used to describe 2020. It was a year of
superlatives characterizing the highs and lows that we experienced as a people in our
health, our politics, our economy and our society. For Teladoc Health, it was our boldest
and most transformational year yet.
Our industry-changing acquisitions of InTouch Health and Livongo in the midst of a global
pandemic brought together three leaders in the virtual care space to deliver, enable and
empower better health for the benefit of consumers, clients and healthcare professionals
in unprecedented ways: at scale, across the full spectrum of care and distribution channels.
These actions further accelerated our momentum to define a new category of whole-
person virtual care: marrying expertise and technology to give those we serve the
confidence that, no matter their healthcare need or location around the world, they can
rely on us to seamlessly connect them to the right care from a single platform, whether
they’re best served getting that care from home, a physician’s office or a hospital setting.
A fast start
Teladoc Health came into 2020 with tremendous momentum and a powerful addition to
our whole-person health vision with the InTouch Health acquisition announcement in
early January.
Our acquisition of InTouch Health now gives us more than 11,000 care locations on our
combined platform. We are successfully delivering technology to 600 health systems
across the U.S. as well as to clients outside of the U.S. so they can deliver virtual care to
their populations.
In any other year, this major advancement in our hospital-to-home strategy would have
been the singular capstone of a great year advancing our vision. But for Teladoc Health, it
proved to only be the beginning of a truly remarkable year.
A global pandemic
As the spring brought COVID-19 to every corner of the world, the scalable platform we
have built over the last decade passed its biggest test as the world went into lockdown
and member visit volumes grew rapidly. By being there for our clients, keeping physicians
practicing medicine and allowing people to stay safely at home, we expanded the capacity
of the healthcare system and proved that the role of virtual care had changed forever.
As a company, we:
• Delivered more than 10 million visits, and enabled another four million1 through our
health system partners;
• Quickly scaled up our Teladoc Health Medical Group, with thousands of care providers
meeting unprecedented consumer demand;
• Earned high Net Promoter Scores more commonly associated with other consumer-
facing industries, as more new and repeat users of our capabilities embraced the
Teladoc Health care experience.
All of this was made possible through the remarkable commitment and passion of my
Teladoc Health colleagues, who stepped up to deliver for our members, our clients and
our healthcare professional partners around the world when they needed us most.
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A new company
With virtual care skyrocketing to near-ubiquitous levels of consumer awareness, acceptance
and expectation, the role we were being asked to play in society also advanced rapidly and
opportunities on our roadmap to whole-person virtual care presented themselves far more
quickly than we would have imagined.
The opportunity to merge with Livongo, with its innovative chronic care approach to
enabling better health, accelerated our ability to support people across their entire health
journey. It also enables us to generate a trove of data that includes more than one billion
data elements from our Livongo chronic care assets, as well as the data that comes in from
the visits we deliver and enable for our clients.
Mission-driven financial results
Our mission is to empower all people everywhere to live their healthiest lives by
transforming the healthcare experience. By living this mission in 2020, we were able to
achieve tremendous financial results. You can review the details of our 2020 performance
throughout this annual report; highlights included:
• Revenue growth of 98% to more than $1.09 billion, with strong performance across our
business channels;
• Adjusted EBITDA margin expansion of 580 basis points, up from 5.8% to 11.6%; and
• Onboarding a record 15 million new paid members.
We also grew to more than 70 million individuals in the U.S. with access to our solutions and
added access for millions more consumers outside the United States through several major
international client wins.
The road ahead
In 2021, as we seek to emerge from the global pandemic, the expectation that virtual care
will be an enduring and central pillar of our health care system remains. Healthcare is more
rapidly than ever headed toward a “virtual first” reality, and with our breadth of capabilities,
Teladoc Health is uniquely positioned as the global leader in whole-person virtual care.
The opportunities to unlock greater consumer, client and shareholder value are clear and
massive. Teladoc Health teams are reimagining care through innovative products like
Teladoc Primary360 and working to successfully bring proven Livongo and InTouch Health
platforms to markets outside the United States at this moment.
If last year was the year that Teladoc Health brought together the unique scale and scope
of capabilities to bring whole-person virtual care to life, 2021 is about beginning to deliver on
that promise. For us, 2021 is about integration and execution, and the good news is we are
already making significant progress on both. The marketplace is taking notice, and we look
forward to adding new client partners and touching the lives of many more people around
the world.
DOUBLED
REVENUE TO
$1.09B
ADDED A RECORD
15M
NEW MEMBERS
DELIVERED
MORE THAN
10M
VISITS AND ENABLED
4M1 MORE
“
Healthcare is more
rapidly than ever headed
toward a “virtual first”
reality, and with our
breadth of capabilities,
Teladoc Health is
uniquely positioned
as the global leader in
whole-person virtual care.
Thank you for your investment in Teladoc Health. I am excited by what’s ahead.
I’m proud of the steps we’ve taken to achieve our vision and further our mission.
1Includes full-year 2020 results for
InTouch Health, which was acquired
by Teladoc Health on July 1, 2020.
Jason Gorevic
Chief Executive Officer
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2020
8i
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission File Number: 001-37477
TELADOC HEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of incorporation)
2 Manhattanville Road, Suite 203
Purchase, New York
(Address of principal executive office)
04-3705970
(I.R.S. Employer Identification No.)
10577
(Zip code)
(203) 635-2002
(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
TDOC
Name of each exchange on which registered
The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Not Applicable
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Emerging growth company ☐
Accelerated filer
Non-accelerated filer
Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No
The aggregate market value of the common stock held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal
quarter was approximately $14,936,555,578. The registrant has no non-voting stock outstanding.
As of February 25, 2021, there were 152,699,999 shares of common stock outstanding.
Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the 2021 annual meeting of stockholders are
incorporated by reference in response to Part III of this Report to the extent stated herein.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Business
ITEM 1.
ITEM 1A. Risk Factors
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
ITEM 5.
ITEM 6.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Special Note Regarding Forward Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
ITEM 9A. Controls and Procedures
ITEM 9B.
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14.
Principal Accounting Fees and Services
PART IV
ITEM 15.
ITEM 16. Form 10-K Summary
Exhibits and Financial Statement Schedules
EXHIBIT INDEX
SIGNATURES
Page
2
17
51
51
51
51
52
53
55
56
74
74
74
74
78
78
78
78
78
78
79
79
80
85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
F-1
1
Item 1. Business
Overview
PART I
Teladoc Health, Inc. is the largest and most trusted global leader of comprehensive virtual healthcare services.
We are forging a new healthcare experience with better convenience, outcomes and value. Our mission is to empower all
people everywhere to live their healthiest lives by transforming the healthcare experience. Our vision is to position
virtual care as the first place consumers go to get the care they need and manage their health. For whatever healthcare
needs a consumer has, across any site of care, we aim to provide the right level of personalized support to meet that need.
We believe that favorable existing macro trends were accelerated by the impacts of the COVID-19 pandemic, driving
greater consumer trial and use of virtual care, and increased adoption by employers, health plans, hospitals and health
systems, and health care providers. In combination with the expansion of our capabilities, we believe that these trends
present significant opportunities for virtual healthcare to address the most pressing, universal healthcare challenges
through trusted solutions, such as ours, that deliver convenient, high quality care; empower consumers to manage and
improve their health; and enable providers to offer their best care for their patients. Our Clients consist of employers,
including over 50% of the Fortune 500, health plans, health systems, and insurance and financial services companies
(Clients).
We will achieve this by delivering, enabling and empowering integrated whole-person virtual care services and
experiences that span every stage of the health journey, with a portfolio of services and solutions covering hundreds of
medical subspecialties from non-urgent, episodic needs like flu and upper respiratory infections, to chronic, complicated
medical conditions including diabetes, hypertension, cancer and congestive heart failure. By combining the latest in data
science and analytics with an award-winning user experience through a highly flexible technology platform, we
completed approximately 10.6 million telehealth visits in 2020 through our network of providers while our licensed
platform enabled our Clients’ own clinicians to provide approximately 2.1 million visits for their own patients around the
globe, including InTouch platform-enabled sessions from the date of acquisition on July 1, 2020.
Over 51 million unique U.S. paid Members (Members) and 22 million visit fee only individuals have access to
our high-quality healthcare and expertise, including 0.6 million Members with access to one or more of our chronic care
solutions. We provide access to healthcare through our portfolio of consumer brands 24 hours a day, seven days a week
and 365 days a year. Our solutions are delivered with an approximate median response time of less than ten minutes for
2020 in the U.S. for general medical inquiries from the time a Member requests a general medical telehealth visit to the
time they consult with a Teladoc Health network provider.
During 2020 we merged with Livongo, the leader in digital chronic condition management solutions for
employers and health plans. Livongo empowers people with chronic conditions to live better and healthier lives,
beginning with diabetes and now including hypertension, weight management, diabetes prevention, and mental health.
The total consideration was $13,938.0 million, consisting of $401.0 million of net cash, $555.4 million related to the
conversion feature of the Livongo Notes guaranteed by the Company and 60.4 million shares of our common stock
valued at approximately $12,981.6 million. In 2020 we also acquired InTouch, the leader in providing scalable,
integrated virtual care solutions to hospitals, health systems, and other provider entities, for aggregate consideration of
$1,069.8 million, which was comprised of 4.6 million shares of our common stock valued at $903.3 million, and
$166.5 million of net cash.
The merger with Livongo has positioned us to offer integrated, comprehensive Whole Person solutions that we
believe will meet the current and future needs of our Clients and Members. By bringing together leaders in virtual health
and chronic condition management, we believe that the merger combines comprehensive clinical expertise with a rich
technology and data-driven experience; prevention and chronic condition management with acute and specialty care;
behavior change expertise with data science; global footprint with products meeting global need; access with innovation
and two of the fastest growing companies in health technology. The combined company’s platform features the full
range of health support – from AI engine-driven “nudges” and health coaches to therapists and board-certified physicians
and the world’s leading specialists – available anytime, anywhere to ensure the right care is always delivered. We believe
2
that delivering Whole Person care as a comprehensive partner with a patient and health system will drive better health
and cost outcomes and fundamentally change how patients access and experience healthcare, and the combination of our
data scale, technology and clinical capabilities with Livongo’s technology and data insights will underpin the combined
company’s ability to deliver differentiated care. We further believe that our significant Member scale and millions of
annual visits will increase enrollment and utilization across the combined company's solutions as well as amplify overall
engagement retention.
The Teladoc Health Brand Portfolio
Our consumer brands – Teladoc, Livongo, Advance Medical, Best Doctors, BetterHelp and HealthiestYou -
deliver access to advice and resolution for a broad array of healthcare needs, in intuitive, award-winning experiences
designed to meet the expectations of today’s consumers, from children to the senior population. The most common way
for individuals to request healthcare is by using a mobile device, reflecting the growing consumer adoption of mobile
technology and applications in managing their health.
Who We Serve
We currently provide virtual healthcare services on a business-to-business (B2B) basis to thousands of Clients
including employers, health plans, hospitals and health systems, and insurance and financial services companies (Clients)
spanning the global healthcare landscape and provide services to consumers directly and through channel partners. In our
behavioral health business, including our BetterHelp brand, we serve individuals in the direct-to-consumer (D2C) market
and through business partnerships with other trusted brands. Our Clients purchase our solutions to reduce their healthcare
spending, or to provide market differentiating services as a part of, or a complement to, their core set of consumer
service offerings, while at the same time, offering convenient, affordable, high-quality healthcare to their constituents.
On a direct B2B basis, we sell to our Clients who in turn buy our solutions on behalf of their beneficiaries. In our various
sales channels, a range of third parties, including health plans, pharmacy benefits managers, financial institutions,
brokers, agents, benefits consultants and resellers, sell our solutions to various end markets around the world. Notably,
many of our health plan Clients also act as channel partners because they resell our solutions to their Administrative
Service Only (ASO) accounts and other customers. Similarly, our financial services Clients act as channel partners,
embedding our solutions into a range of insurance, credit card and other financial products.
We have over 50 health plan Clients, including some of the largest in the United States. While health plans are
Clients, they also serve as distribution channels to self-insured employers that contract with us through our relationships
with the health plan. We serve more than 600 hospital and health system Clients and our employer Clients include over
50% of the Fortune 500 companies. The remainder of our Clients are from channel partners such as brokers, resellers and
consultants who sell into a range of small, medium and large enterprises.
Our virtual solutions delivered through all of our channels offer our Clients proven substantial savings
opportunities and an attractive return on investment. We commissioned Veracity Analytics, an independent healthcare
data analytics company, to perform a study of several Clients representing nearly two million of our Members as of the
end of 2016. To date, we believe this is the most comprehensive study of its kind and the findings remain valid based on
our experience with our Clients. The study found that these Clients saved $472 on average per general medical visit
when its Members received healthcare through Teladoc Health instead of receiving healthcare in other settings for the
same diagnosis. Our chronic care solutions have also been shown to provide significant average cost savings for our
Clients, including an average savings of $1,908 per participant per year in our Livongo for Diabetes program.
How We Generate Revenue
We primarily generate revenue on a contractually recurring, subscription access fee basis, typically on
either a per-Member-per-month (PMPM) or per-enrollee-per-month basis (PEPM), and in certain contracts, on a
per subscriber basis. In some cases, Clients primarily pay monthly subscription fees based on a per-participant-per-
month model, based on the number of active enrolled Members each month. We also generate revenue from health
system and provider Clients related to our licensed technology platform, primarily in the form of recurring access
fee revenue as well as from the sale and lease of devices such as robots, carts and tablets.
3
Our access fees comprise the majority of our revenue and therefore provide us with significant revenue
visibility. We also generate additional revenue on a per-telehealth visit basis through certain Clients with visit fee
only (VFO) arrangements.
For certain Clients, we also earn visit fees or per-case fees in combination with access fees. Access fee
services continue to be the most appealing to our Clients due to the proven effectiveness of our engagement science
and surround sound strategies driving utilization of our services.
Access fees are paid by our Clients on behalf of their employees, dependents, policy holders, card holders,
beneficiaries, clinicians, or as is the case with certain of our subscribers, fees are paid by our Members themselves.
General medical and other specialty visit fees are paid by Clients and/or Members.
For the year ended December 31, 2020, 79%, 19% and 2% of our revenue was derived from access fees, visit
fees and other, respectively. For both of the years ended December 31, 2019 and 2018, 84% and 16% of our revenue
were derived from access fees and visit fees.
Our Competitive Strengths
We believe that Teladoc Health is the leading global virtual healthcare provider with strong competitive
advantages that address the most pressing challenges and trends in the delivery of healthcare around the world. We
believe our history of innovation and long-standing operational excellence provide us with significant first-mover
advantages, and we continue to invest and expand our services and geographic footprint globally. As the first
comprehensive virtual healthcare provider providing Whole Person care at scale, we have pioneered solutions and
created what we believe are collectively the telehealth industry’s first and only offerings of their kind.
Comprehensive Suite of Virtual Healthcare Clinical Services
We believe that we are the first and only company to provide a comprehensive and integrated Whole Person
virtual healthcare solution that both provides and enables a full spectrum of clinical conditions – from wellness,
prevention and acute care to chronic conditions and complex healthcare needs – as well as a wide range of services, such
as telehealth solutions, chronic condition management, expert medical services, behavioral health solutions, guidance
and support, and platform & program services.
Global Footprint Spanning Clients, Medical Operations and Members
We believe we have the only global footprint spanning a diverse set of Client channels, medical operations and
Members. Combining our suite of international clinical capabilities with our technology and operational scale uniquely
equips us to meet the needs of U.S. multinational employers that serve more than one third of their employees who live
abroad.
Unmatched Breadth of Solutions for Clients Across All Channels Served
We deliver a comprehensive set of solutions to a diverse Client population through a highly efficient and
effective distribution network wherein we reach Clients and consumers on a direct B2B basis through our Clients and
channel partners as well on a D2C basis by marketing our solution directly to potential Members.
We believe the breadth of our distribution strategy allows us to directly reach consumers and Clients of nearly
every size and in nearly every market.
Comprehensive Engagement Model that Drives Utilization
We believe that our ability to drive behavior change on a global scale to deliver the highest utilization of virtual
healthcare services in the industry is a key competitive differentiator for Teladoc Health. We utilize a combination of our
4
proprietary Engagement Science, our Surround Sound capabilities, personalized consumer experiences as well as our
deep knowledge and expertise of various populations to increase the adoption of our virtual care services.
Our Engagement Science is a unique combination of the application of predictive analytics and modeling, our
deep experience with all population demographics and expertise in applying this knowledge to our Client populations on
a global scale. With our proprietary Engagement Science, we target Members using behavioral triggers, advanced
predictive modeling and demographic/firmographic insights. This increases efficiency and the impact of our
communications by reaching the right Member, with the right personalized message, in the right micro moments of their
day-to-day lives.
We believe that our Surround Sound capabilities are unique in the breadth and scale of media mix, analytics and
targeting techniques that we actively deploy across our diverse Client populations on a global scale. We use these
capabilities, plus our Engagement Science, to drive awareness and utilization of Teladoc Health services through
innovative media strategies designed to reach Members in their homes, on the go and in their moments of need. Our
Surround Sound capabilities and strategies are continuously being evaluated, analyzed and evolved to meet ever-shifting
consumer behaviors.
Highly Scalable and Secure API-Driven Technology Platform
Our core platform is a highly scalable, integrated, application program interface or API-driven technology
platform, for virtual healthcare delivery, with multiple real-time integrations spanning the healthcare ecosystem.
It is currently equipped to serve over 100 million Members and can provide the same level of Member support
and response time for upwards of 100,000 visits per day. Further, our platform has been built to accommodate the
seamless and quick introduction of new services and products that we have introduced, such as behavioral health,
dermatology, nutrition, expert medical opinions, Primary360, global healthcare including our Canadian telehealth
program, and other services that are currently in the development stages.
Our core platform leverages proprietary cloud based technology that combines smart connected devices with
sophisticated data science to deliver personalized health insights. These insights are delivered to Members at the optimal
moment to drive behavior change that drives meaningful improvements in clinical health outcomes, which drives value
to the health care ecosystem.
Our platform’s APIs power external connectivity and deep integration with a wide range of payors, third party
applications and other interfaces which we believe uniquely positions us to be a central partner meeting the unique needs
of the rapidly emerging, technology powered healthcare industry.
The majority of our application platform technology is cloud based, leveraging scalable and redundant solutions
from AWS and Microsoft Azure to ensure high performance and high availability. Due to the sensitive nature of our
Members’ and Clients’ data, we have a heightened focus on data security and protection. We have a rigorous and
comprehensive information security program managed by a dedicated department of security engineers and analysts. We
have implemented telehealth industry standard processes, policies and tools through all levels of our software
development and network administration, including regularly scheduled vulnerability scanning and third-party
penetration testing in order to reduce the risk of vulnerabilities in our system. In addition, our enterprise security program
is periodically evaluated by expert third parties to ensure we are meeting or exceeding standards, best practices, and
regulatory requirements. One example of such an independent third-party certification that we have achieved is
HITRUST CSF.
For Members enrolled in our diabetes program, we provide a unique and proprietary blood glucose meter. The
patented “BG300” device includes FDA Class II certified glucose testing along with a cellular antenna and color
touchscreen. Our proprietary software on the device relays the blood glucose measurements and user inputs to our cloud
service, and then displays targeted communications and AI-selected “nudges” based on the current context and medical
history of the Member. These communications are dynamically personalized and optimized using our AI+AI engine to
5
deliver improved outcomes. The software on the device can also be remotely upgraded through the cellular antenna to
deliver usability improvements and program enhancements.
To meet the growing needs of hospitals and health systems, as well as multi-national insurers, our proprietary
licensed platform enables Clients to fully integrate private instances of our platform alongside their traditional modes of
delivering healthcare to their patients. Leveraging the flexibility and customization available on the platform, most of
these implementations incorporate deep integration with the hospital or health system’s EMR platform for scheduling
and bi-directional clinical data sharing.
Our unique technology designed for the hospital and health system market is a complete end-to-end telehealth
solution, including patient intake, emergent and scheduled encounters, robust televideo sessions, access to medical
images, full application-specific clinical documentation tools – including interfaces to health system EMRs, and
complete operational and clinical reporting and analytics. The technology also supports industry-leading medical devices
such as robots, carts, and tablets in hospital networks via a unique network architecture for maximum performance,
reliability and security. The solution supports the entire patient journey and the full range of telehealth use cases
encountered by health systems.
Our industry leading technology includes medical device support and custom purpose built telehealth robots,
which are designed to facilitate remote telepresence into high-acuity hospital environments such as emergency rooms,
intensive care units (ICUs), surgery suites, etc. These robots provide high-performance low-latency command and
control, as well as high-quality televideo and peripheral telemetry, enabling physicians to have an immersive
telepresence experience. Applications for telehealth robots include unattended remote round and respond, including in
ICUs and other high-acuity environments, surgical mentoring, remote education, and specialist consultations.
High-Quality Clinical Capabilities Tailored to Virtual Care
We deliver high-quality clinical care and advice in a virtual setting to our Members through the unique
combination of our proprietary guidelines, breadth and depth of clinical quality data, analytics, oversight as well as
through our in-house and third-party medical professionals (the Teladoc Health Medical Group). The Medical Group is
composed of staff clinicians, our telehealth provider network and our Global Expert Panel. Our Global Expert Panel is
composed of a network of over 50,000 clinicians around the world whose specialties span over 450 sub-specialties and
are affiliated with some of the most prestigious medical facilities in the world.
To improve the clinical quality our patients receive, we apply analytics to the anonymized data points generated
in our millions of visits with patients. These data sets and insights are applied to enhancing our providers’ ability to
deliver quality care through tools such as our provider dashboards, as well as serving a foundation for clinical
innovation, collaborating with leaders in the space, focused on the advancement of virtual care delivery and practices.
We established the healthcare industry’s first Patient Safety Organization (PSO) dedicated to virtual care with
the mission of conducting quality and safety initiatives with and on behalf of key healthcare stakeholders, including other
PSOs, to improve the delivery of virtual care across the country. Named “The Institute for Patient Safety and Quality of
Virtual Care,” this newly formed component entity of Teladoc Health is formally recognized by the Department of
Health and Human Services (HHS) and listed and certified by the Agency for Healthcare Research and Quality (AHRQ).
Our Growth Strategies
Enable A Virtual First Strategy for Consumer Healthcare Access
Teladoc Health is creating a new virtual front door for consumers to access the healthcare system. Our vision is
to position virtual care as the first place consumers go to get the care they need and manage their health. For whatever
healthcare needs a consumer has, across any site of care, we aim to provide the right level of personalized support to
meet that need. As we drive the world to a “Virtual First” mindset, we believe only Teladoc Health has the enterprise
scale, technical capabilities, clinical depth, and consumer engagement expertise to achieve the vision. We refer to
Teladoc Health’s integrated offering as our comprehensive Virtual Healthcare Delivery Platform.
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Teladoc Health’s Virtual Healthcare Delivery Platform delivers a single solution leveraging our comprehensive
clinical expertise, data, and scale, to address the complete spectrum of conditions from non-critical, episodic care to
chronic, complicated cases. The Virtual First model is built on our integrated Virtual Healthcare Delivery Platform,
combining smart technologies, AI and Machine Learning, rich data exchange, digital self-management tools, integrated
remote patient monitoring devices, Analytics, and scalability to streamline care and drive better outcomes. Our Virtual
Healthcare Delivery Platform matches the expectations of today’s digital consumer with a new kind of healthcare
experience.
Expand our suite of clinical services to address unmet needs
We believe that our Virtual Healthcare Delivery Platform addresses significant unmet needs, and we intend to
continue to expand our solutions across use cases and additional care settings.
We are able to offer solutions to our Members globally for a range of critical, life-threatening cases such as
cancer, musculoskeletal conditions, inflammatory disorders, heart conditions, chronic pain, and many other chronic,
complex, and critical medical issues.
We believe our services have wide applicability across new use cases, including Virtual Primary Care, home
care, post discharge, wellness/screening and new areas in chronic care. The Livongo and InTouch solutions acquired in
2020 also incorporate purpose built hardware, software, networking, and services, enabling a range of use cases (e.g.,
telestroke, telepsychiatry, tele-ICU) and encounter types (e.g., provider to provider, consumer to provider). We will
continue to respond quickly to evolving market needs with innovative solutions, including mobile applications, AI and
Machine Learning, nutrition and wellness, biometric devices and at-home testing.
Increase Engagement with Our Members by Driving Expanded Access & Enhanced Touch Points
We believe there is significant opportunity within our existing Membership base to increase engagement by
continually driving awareness of and usage of our solutions. We believe our Virtual Healthcare Delivery Platform can
become the primary entry point for on-demand, virtual healthcare for eligible individuals around the world. We expect to
continually refine and enhance our user experience, which is a critical driver of new and repeat engagement and continue
validating our Member satisfaction with surveys and other proactive tools.
Our mobile app is foundational for Teladoc Health as we have redefined virtual healthcare delivery and are
providing our Members with a better way to navigate their individual care. Our Members benefit from a single, patient-
centered point of access to our Virtual Healthcare Delivery Platform. As we expand the range of products and services
available to our Members, such as incorporating Livongo’s chronic condition management solutions, we are investing in
a seamless, relevant, and personalized mobile experience that provides smart guidance for our Members. For example,
our Health Assistant enables Members to express their healthcare need through a user-friendly, AI-supported and guided
interface. Members are then presented with the optimal product or pathway to meet their need.
Our industry leading user interface capabilities and expertise enable unique types of partnerships where our
capabilities are delivered to our partners with their brands, logos, and workflows on mobile and web platforms. These
integrated Member experience solutions drive higher Member engagement, convenience and utilization.
Expand Penetration Amongst Existing Clients
We believe that we offer a highly differentiated suite of solutions for a broad range of market channels,
spanning the spectrum of traditional healthcare system participants such as employers, health plans and health systems as
well as global financial services businesses and other organizations that have extended their investment in our industry.
We plan to execute this strategy by further penetrating existing relationships. Within existing accounts, we believe our
current Membership represents only a fraction of the potential Members available to us. Our existing health plan Clients
and self - insured Clients associated with these health plans currently purchase our solutions for only a small percentage
of their beneficiaries in the aggregate, and we estimate this provides us the opportunity to grow our Membership base by
more than 65 million individuals in the United States by expanding our penetration within our existing Clients alone. We
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also now have substantial room to drive cross-sell opportunities of Livongo products into Teladoc Health’s existing
Client base, as we see less than 25% overlap of our respective existing Client bases.
Within the health plan market, a key area for growth is in increasing penetration within government sponsored
programs, such as Medicaid, Medicare Advantage, and Exchange populations. Virtual healthcare is well positioned to
address the cost and access challenges in many of these markets, and we expect Medicare Advantage plans to continue to
grow adoption of virtual healthcare into the future.
Leverage Existing Distribution Channels and Expand Penetration of Global Markets
We have developed a highly effective and efficient global distribution network. Our international operations are
headquartered in Barcelona, Spain with satellite locations in countries covering Europe, South America and Asia. With
these locations, we are able to provide 24x7 international services to our Members worldwide, ensuring that they are
conveniently helped by our physicians from whatever country where they are located. When medically necessary, our
doctors can help Members navigate the local health systems to obtain the best healthcare for their situation.
In our core, traditional markets we are targeting large employers and health plans while simultaneously
committing incremental sales and marketing resources to the small to medium business (SMB) sales channel to increase
our penetration within this market. Additionally, we intend to further penetrate the hospital and health systems market,
building on our acquisition of InTouch Health, as we believe our Solo solution offers these markets an attractive
platform from which to expand timely care access, improve provider efficiency, generate substantial income by
acquiring new patients and better participate in emerging risk-sharing and value-based payment models, such as
Accountable Care Organizations and Patient-Centered Medical Homes.
We expanded our international presence through the acquisition of Advance Medical in 2018, building on our
acquisition of Best Doctors in 2017. This international Client base, largely comprised of global financial services
companies, provides fertile ground for expansion of our product portfolio through existing partners in attractive markets
where our infrastructure is already in place. For instance, we see opportunity for service expansion in global markets
through the localization and application of Livongo’s chronic condition programs for diabetes, hypertension, weight
management, diabetes prevention, and mental health. We also see opportunity for marketing our Solo solution in
international markets, supporting the needs of government health systems and hospitals, as well as private entities.
Expand Through Focused Investments and Acquisitions
We plan to continue to support our overall strategy and market leadership with selective investments and
acquisitions. To date, we have completed multiple acquisitions that have expanded our distribution capabilities,
broadened our service offering, and created a broad global footprint. Our acquisition strategy is centered on acquiring
products, capabilities, clinical specialties, technologies and distribution channels that are highly scalable and rapidly
growing. We have also established a track record of integrating these acquisitions to deliver incremental value to our
Clients and Members. For example, in July 2020 we acquired InTouch Health, the leading provider of enterprise
solutions for hospitals and health systems and in October 2020 we acquired Livongo, the leading provider of solutions
for the management of chronic conditions. The Livongo merger brought together two highly complementary companies
to create a comprehensive platform for virtual care delivery that we believe will address customer demand for integrated
solutions across the continuum of care, and that the combined company will deliver Whole Person care as a
comprehensive partner with the patient and health system, driving better health and cost outcomes and fundamentally
changing how patients access and experience healthcare. We further believe that the Livongo merger will position us as a
leader in virtual health with differentiated scale and scope across primary, critical, chronic and complex care, on a global
basis.
Sales and Marketing
We sell our services principally through our direct sales organization. Our direct sales team is comprised of
enterprise focused field sales professionals who are organized by geography and account size. Our field professionals are
supported by a sales operations staff, including product technology experts, lead generation professionals and sales data
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experts. We maintain relationships with key industry participants including benefit consultants, brokers, group
purchasing organizations and health plan and hospital partners.
We generate Client leads, accelerate sales opportunities and build brand awareness through our marketing
programs. Our marketing programs target human resource, benefits and finance executives in addition to technology and
health professionals, senior business leaders and healthcare channel partners. Our principal marketing programs include
use of our website to provide information about our company and our solution, as well as learning opportunities for
potential Members; demand generation; field marketing events; integrated marketing campaigns comprised of direct
email and online advertising; and participation in industry events, trade shows and conferences.
Research and Development
Our ability to compete depends, in large part, on our continuous commitment to rapidly introduce new services,
technologies, features and functionality. We have invested, and expect to continue to invest, significant resources in
research and development and acquisitions to enhance our existing solution and introduce new high-quality applications
and services. Our product development team is responsible for the design, development, testing and certification of our
solution. In addition, we utilize certain third party development services to perform application development and design
services. We focus our efforts on developing new products and further enhancing the usability, functionality, reliability,
performance and flexibility of our solution.
Competition
We view as our competitors those companies that currently (or in the future will) (i) develop and market virtual
care technology (devices, software, and systems) or (ii) provide virtual care services, such as the delivery of on - demand
access to healthcare and chronic condition management. Competition focuses on, among other factors, experience in
operation, customer service, quality of technology and know - how and reputation. Competitors in the telehealth and
expert medical services market include MDLive, Inc., Doctors on Demand, Inc., American Well Corporation and Grand
Rounds, Inc., among other small industry participants. In the digital chronic condition management market, competitors
include Omada, Virta, and other participants. In the market for technology solutions for hospitals and health systems,
competitors include American Well Corporation and MDLive, Inc., as well as smaller technology providers.
Teladoc Health Medical Group, P.A.
We contract for the services of our telehealth provider network through a services agreement with Teladoc
Health Medical Group, P.A. formerly Teladoc Physicians, P.A. Under the services agreement, we have agreed to serve,
on an exclusive basis, as manager and administrator of Teladoc Health Medical Group, P.A.’s non - medical functions and
services related to the provision of the telehealth services by providers employed by or under contract with Teladoc
Health Medical Group, PA. The non - medical functions and services we provide under the services agreement primarily
include Member management services, such as maintaining network operations centers for our Members to request a
visit with Teladoc Health Medical Group, P.A.’s providers, Member billing and collection administration, and
maintenance and storage of Member medical records. Teladoc Health Medical Group, P.A. has agreed to provide our
Members, through its providers, access to telehealth services and recommended treatment 24 hours per day, 365 days per
year. The services agreement also requires Teladoc Health Medical Group, P.A. to maintain the state licensure and other
credentialing requirements of its providers. Under the services agreement, Teladoc Health Medical Group, P.A. currently
pays us an access fee of $65,000 per month for network operations center and medical records maintenance, a fixed fee
of approximately $1,815,000 and $1,151,000, respectively, per month for our provision of management and
administrative services and marketing expense and a license fee of $10,000 per month for the non - exclusive use of the
Teladoc Health trade name. The services agreement has a 20 - year term and expires in February 2025 unless earlier
terminated upon mutual agreement of the parties or unilaterally by a party following the commencement of bankruptcy
or liquidation proceeds by the non - terminating party, a material breach of the services agreement by the non - terminating
party or a governmental or judicial termination order related to the services agreement. The Teladoc Health Medical
Group, P.A. is considered a variable interest entity and its financial results are included in Teladoc Health’s consolidated
financial statements.
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Regulatory Environment
Our operations are subject to comprehensive United States federal, state and local and comparable multiple
levels of international regulation in the jurisdictions in which we do business. The laws and rules governing our business
and interpretations of those laws and rules continue to expand and become more restrictive each year and are subject to
frequent change. Our ability to operate profitably will depend in part upon our ability, and that of our affiliated providers,
to maintain all necessary licenses and to operate in compliance with applicable laws and rules. Those laws and rules
continue to evolve, and we therefore devote significant resources to monitoring developments in healthcare and medical
practice regulation. As the applicable laws and rules change, we are likely to make conforming modifications in our
business processes from time to time. In many jurisdictions where we operate, neither our current nor our anticipated
business model has been the subject of judicial or administrative interpretation. We cannot be assured that a review of
our business by courts or regulatory authorities will not result in determinations that could adversely affect our
operations or that the healthcare regulatory environment will not change in a way that restricts our operations.
In response to the COVID-19 pandemic, state and federal regulatory authorities loosened or removed a number
of regulatory requirements in order to increase the availability of telehealth services. For example, many state governors
issued executive orders permitting physicians and other health care professionals to practice in their state without any
additional licensure or by using a temporary, expedited or abbreviated licensure process so long as they hold a valid
license in another state. In addition, changes were made to the Medicare and Medicaid programs (through waivers and
other regulatory authority) to increase access to telehealth services by, among other things, increasing reimbursement,
permitting the enrollment of out of state providers and eliminating prior authorization requirements. It is uncertain how
long these COVID-19 related regulatory changes will remain in effect and whether they will continue beyond this public
health emergency period. We do not believe that our operations or results will be materially adversely affected by a
return to the status quo from a regulatory perspective.
For additional discussion of our regulatory environment, see “Risk Factors” included in Part I, Item 1A of this
Annual Report on Form 10-K.
Telehealth Provider Licensing, Medical Practice, Certification and Related Laws and Guidelines
The practice of medicine, including the provision of behavioral health services, is subject to various federal,
state and local certification and licensing laws, regulations and approvals, relating to, among other things, the adequacy
of medical care, the practice of medicine (including the provision of remote care and cross coverage practice),
equipment, personnel, operating policies and procedures and the prerequisites for the prescription of medication. The
application of some of these laws to telehealth is unclear and subject to differing interpretation. Physicians and
behavioral health professionals who provide professional medical or behavioral health services to a patient via telehealth
must, in most instances, hold a valid license to practice medicine or to provide behavioral health treatment in the state in
which the patient is located. We have established systems for ensuring that our affiliated physicians and behavioral
health professionals are appropriately licensed under applicable state law and that their provision of telehealth to our
Members occurs in each instance in compliance with applicable rules governing telehealth. Failure to comply with these
laws and regulations could result in our services being found to be non-reimbursable or prior payments being subject to
recoupments and can give rise to civil or criminal penalties.
U.S. Corporate Practice of Medicine; Fee Splitting
We contract with physicians or physician owned professional associations and professional corporations to
deliver our U.S. telehealth services to their patients. We frequently enter into management services contracts with these
physicians and physician owned professional associations and professional corporations pursuant to which we provide
them with billing, scheduling and a wide range of other services, and they pay us for those services out of the fees they
collect from patients and third-party payors. These contractual relationships are subject to various state laws, including
those of New York, Texas and California, that prohibit fee splitting or the practice of medicine by lay entities or persons
and are intended to prevent unlicensed persons from interfering with or influencing the physician’s professional
judgment. In addition, various state laws also generally prohibit the sharing of professional services income with
nonprofessional or business interests. Activities other than those directly related to the delivery of healthcare may be
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considered an element of the practice of medicine in many states. Under the corporate practice of medicine restrictions of
certain states, decisions and activities such as scheduling, contracting, setting rates and the hiring and management of
non-clinical personnel may implicate the restrictions on the corporate practice of medicine.
State corporate practice of medicine and fee splitting laws vary from state to state and are not always consistent
among states. In addition, these requirements are subject to broad powers of interpretation and enforcement by state
regulators. Some of these requirements may apply to us even if we do not have a physical presence in the state, based
solely on our engagement of a provider licensed in the state or the provision of telehealth to a resident of the state.
However, regulatory authorities or other parties, including our providers, may assert that, despite these arrangements, we
are engaged in the corporate practice of medicine or that our contractual arrangements with affiliated physician groups
constitute unlawful fee splitting. In this event, failure to comply could lead to adverse judicial or administrative action
against us and/or our providers, civil or criminal penalties, receipt of cease-and-desist orders from state regulators, loss
of provider licenses, the need to make changes to the terms of engagement of our Providers that interfere with our
business and other materially adverse consequences.
U.S. Federal and State Fraud and Abuse Laws
Federal Stark Law
We are subject to the federal self-referral prohibitions, commonly known as the Stark Law. Where applicable,
this law prohibits a physician from referring Medicare patients to an entity providing “designated health services” if the
physician or a member of such physician’s immediate family has a “financial relationship” with the entity, unless an
exception applies. The penalties for violating the Stark Law include the denial of payment for services ordered in
violation of the statute, mandatory refunds of any sums paid for such services, civil penalties of up to $25,820 for each
violation and twice the dollar value of each such service and possible exclusion from future participation in the federally
funded healthcare programs. A person who engages in a scheme to circumvent the Stark Law’s prohibitions may be
fined up to $172,137 for each applicable arrangement or scheme. The Stark Law is a strict liability statute, which means
proof of specific intent to violate the law is not required. In addition, the government and some courts have taken the
position that claims presented in violation of the various statutes, including the Stark Law can be considered a violation
of the federal False Claims Act (described below) based on the contention that a provider impliedly certifies compliance
with all applicable laws, regulations and other rules when submitting claims for reimbursement. A determination of
liability under the Stark Law could have a material adverse effect on our business, financial condition and results of
operations.
Federal Anti-Kickback Statute
We are also subject to the federal Anti-Kickback Statute. The Anti-Kickback Statute is broadly worded and
prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to
induce, (i) the referral of a person covered by Medicare, Medicaid or other governmental programs, (ii) the furnishing or
arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs
or (iii) the purchasing, leasing or ordering or arranging or recommending purchasing, leasing or ordering of any item or
service reimbursable under Medicare, Medicaid or other governmental programs. Certain federal courts have held that
the Anti-Kickback Statute can be violated if “one purpose” of a payment is to induce referrals. In addition, a person or
entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation,
making it easier for the government to prove that a defendant had the requisite state of mind or “scienter” required for a
violation. Moreover, the government may assert that a claim including items or services resulting from a violation of the
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act, as discussed below.
Violations of the Anti-Kickback Statute can result in exclusion from Medicare, Medicaid or other governmental
programs as well as civil and criminal penalties, including civil monetary penalties of up to $104,330 and criminal fines
of $100,000 per violation and three times the amount of the unlawful remuneration, and imprisonment of up to ten years.
Imposition of any of these remedies could have a material adverse effect on our business, financial condition and results
of operations. In addition to a few statutory exceptions, the U.S. Department of Health and Human Services Office of
Inspector General, or OIG, has published safe-harbor regulations that outline categories of activities that are deemed
protected from prosecution under the Anti-Kickback Statute provided all applicable criteria are met. The failure of a
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financial relationship to meet all of the applicable safe harbor criteria does not necessarily mean that the particular
arrangement violates the Anti-Kickback Statute. However, conduct and business arrangements that do not fully satisfy
each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.
False Claims Act
Both federal and state government agencies have continued civil and criminal enforcement efforts as part of
numerous ongoing investigations of healthcare companies and their executives and managers. Although there are a
number of civil and criminal statutes that can be applied to healthcare providers, a significant number of these
investigations involve the federal False Claims Act. These investigations can be initiated not only by the government but
also by a private party asserting direct knowledge of fraud. These “qui tam” whistleblower lawsuits may be initiated
against any person or entity alleging such person or entity has knowingly or recklessly presented, or caused to be
presented, a false or fraudulent request for payment from the federal government or has made a false statement or used a
false record to get a claim approved. In addition, the improper retention of an overpayment for 60 days or more is also a
basis for a False Claim Act action, even if the claim was originally submitted appropriately. Penalties for False Claims
Act violations include fines ranging from $11,665 to $23,331 for each false claim, plus up to three times the amount of
damages sustained by the federal government. A False Claims Act violation may provide the basis for exclusion from the
federally funded healthcare programs. In addition, some states have adopted similar fraud, whistleblower and false
claims provisions.
State and Foreign Fraud and Abuse Laws
Several states and foreign jurisdictions in which we operate have also adopted or may adopt similar fraud and
abuse laws as described above. The scope of these laws and the interpretations of them vary by jurisdiction and are
enforced by local courts and regulatory authorities, each with broad discretion. Some state fraud and abuse laws apply to
items or services reimbursed by any payor, including patients and commercial insurers, not just those reimbursed by a
federally funded healthcare program. A determination of liability under such state fraud and abuse laws could result in
fines and penalties and restrictions on our ability to operate in these jurisdictions.
Other Healthcare Laws
The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information
Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, which we
collectively refer to as HIPAA, established several separate criminal penalties for making false or fraudulent claims to
insurance companies and other non-governmental payors of healthcare services. Under HIPAA, these two additional
federal crimes are: “Healthcare Fraud” and “False Statements Relating to Healthcare Matters.” The Healthcare Fraud
statute prohibits knowingly and recklessly executing a scheme or artifice to defraud any healthcare benefit program,
including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from
government sponsored programs. The False Statements Relating to Healthcare Matters statute prohibits knowingly and
willfully falsifying, concealing or covering up a material fact by any trick, scheme or device or making any materially
false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or
services. A violation of this statute is a felony and may result in fines or imprisonment. This statute could be used by the
government to assert criminal liability if a healthcare provider knowingly fails to refund an overpayment. These
provisions are intended to punish some of the same conduct in the submission of claims to private payors as the federal
False Claims Act covers in connection with governmental health programs.
In addition, the Civil Monetary Penalties Law imposes civil administrative sanctions for, among other
violations, inappropriate billing of services to federally funded healthcare programs and employing or contracting with
individuals or entities who are excluded from participation in federally funded healthcare programs. Moreover, a person
who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of copayments and
deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s
selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be
liable for civil monetary penalties for each wrongful act. Moreover, in certain cases, providers who routinely waive
copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback
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Statute and civil False Claims Act, which can impose additional penalties associated with the wrongful act. One of the
statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based
on individualized determinations of financial need or exhaustion of reasonable collection efforts. The OIG emphasizes,
however, that this exception should only be used occasionally to address special financial needs of a particular patient.
Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments
and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among
other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and
statutory or common law fraud.
Foreign and U.S. State and Federal Health Information Privacy and Security Laws
There are numerous U.S. federal and state laws and regulations related to the privacy and security of personally
identifiable information, or PII, including health information. In particular, HIPAA establishes privacy and security
standards that limit the use and disclosure of protected health information, or PHI, and require the implementation of
administrative, physical, and technical safeguards to ensure the confidentiality, integrity and availability of individually
identifiable health information in electronic form. Teladoc Health Medical Group, P.A., our Providers and our health
plan Clients are all regulated as covered entities under HIPAA. Since the effective date of the HIPAA Omnibus Final
Rule on September 23, 2013, HIPAA’s requirements are also directly applicable to the independent contractors, agents
and other “business associates” of covered entities that create, receive, maintain or transmit PHI in connection with
providing services to covered entities. We are a business associate of other covered entities when we are working on
behalf of our affiliated medical groups.
Violations of HIPAA may result in significant civil and criminal penalties, and a single breach incident can
result in violations of multiple standards. Our management responsibilities to Teladoc Health Medical Group, P.A. also
include assisting it with its obligations under HIPAA’s breach notification rule. Under the breach notification rule,
covered entities must notify affected individuals without unreasonable delay in the case of a breach of unsecured PHI,
which has more than a low probability of compromising the privacy, security or integrity of the PHI. In addition,
notification must be provided to the HHS and the local media in cases where a breach affects more than 500 individuals.
Breaches affecting fewer than 500 individuals must be reported to HHS on an annual basis. The regulations also require
business associates of covered entities to notify the covered entity of breaches by the business associate. Notification
must also be made in certain circumstances to affected individuals, federal authorities and others.
State attorneys general also have the right to prosecute HIPAA violations committed against residents of their
states. While HIPAA does not create a private right of action that would allow individuals to sue in civil court for a
HIPAA violation, its standards have been used as the basis for the duty of care in state civil suits, such as those for
negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic
compliance audits of HIPAA covered entities and their business associates for compliance. It also tasks HHS with
establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may
receive a percentage of the Civil Monetary Penalty fine paid by the violator. In light of the HIPAA Omnibus Final Rule,
recent enforcement activity, and statements from HHS, we expect increased federal and state HIPAA privacy and
security enforcement efforts.
HIPAA also required HHS to adopt national standards establishing electronic transaction standards that all
healthcare providers must use when submitting or receiving certain healthcare transactions electronically.
Many states in which we operate and in which our patients reside also have laws that protect the privacy and
security of personal information, including health information. These laws may be similar to or even more protective
than HIPAA and other federal privacy laws. The privacy and data protection laws in many states in which we operation
are more restrictive than HIPAA and/or may apply more broadly than HIPAA. For example, the California Consumer
Privacy Act of 2018, or CCPA, protects the personal information of California consumers regardless of the location of
the business holding the information. The CCPA went into effect on January 1, 2020. Where state laws are more
protective than HIPAA or apply more broadly than HIPAA, we must comply with the state laws we are subject to in
addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply
with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators,
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but also some, unlike HIPAA, may afford private rights of action to individuals who believe their personal information
has been misused. In addition, state laws are changing rapidly, and there is discussion of a new federal privacy law or
federal breach notification law, to which we may be subject. And numerous states are currently reviewing legislation
that is similar to the CCPA.
In addition to HIPAA and state information privacy laws, we may be subject to other state and federal laws,
including laws that prohibit unfair and deceptive practices which may include deceptive statements about privacy and
security policies and practices.
In recent years, there have been a number of well publicized data breaches involving the improper use and
disclosure of PII and PHI. Many states have responded to these incidents by enacting laws requiring holders of personal
information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt
notification of the breach to affected individuals and state officials.
We are also subject to laws and regulations in non-U.S. countries covering data privacy and the protection of
health-related and other personal information. EU member states and other jurisdictions have adopted data protection
laws and regulations, which impose significant compliance obligations. Laws and regulations in these jurisdictions apply
broadly to the collection, use, storage, disclosure, processing and security of personal information that identifies or may
be used to identify an individual, such as names, contact information and sensitive personal data such as health data.
These laws and regulations are subject to frequent revisions and differing interpretations and have generally become
more stringent over time.
As of May 25, 2018, the General Data Protection Regulation, or GDPR, replaced the Data Protection Directive
with respect to the processing of personal data in the European Union. The GDPR imposes many requirements for
controllers and processors of personal data, including, for example, higher standards for obtaining consent from
individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights
regime, shortened timelines for data breach notifications, limitations on retention and secondary use of information,
increased requirements pertaining to health data and pseudonymized (i.e., key-coded) data and additional obligations
when we contract third-party processors in connection with the processing of personal data. The GDPR allows EU
member states to make additional laws and regulations further limiting the processing of genetic, biometric or health
data. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the EU
member states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual revenue from the
preceding financial year, whichever is higher, and other administrative penalties.
We are also subject to EU laws on data export, as we may transfer personal data from the EU to other
jurisdictions. These obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to
another and may conflict with other requirements or our practices. In addition, these rules are constantly under scrutiny.
For example, following a decision of the Court of Justice of the European Union in October 2015, transferring personal
data to U.S. companies that had certified as Members of the U.S. Safe Harbor Scheme was declared invalid. In July
2016, the European Commission adopted the U.S.-EU Privacy Shield Framework which replaced the Safe Harbor
Scheme. However, the U.S.-EU Privacy Shield Framework was also declared invalid by the European Union Court of
Justice in July 2020. The remaining legal mechanisms for transferring EU data outside the European Union are corporate
binding rules and standard contractual clauses.
Some countries outside the European Union had adopted laws that are similar to the EU GDPR. For example,
Brazil adopted the Brazilian General Data Protection Law, referred to as LGPD, in 2018. The LGPD went into effect in
August 2020 and will begin to be enforced starting in August 2021. The LGPD is closely aligned with the EU GDPR.
International Regulation
We expect to continue to expand our operations in foreign countries through both organic growth and
acquisitions. Our international operations are subject to different, and sometimes more stringent, legal and regulatory
requirements, which vary widely by jurisdiction, including anti-corruption laws; economic sanctions laws; various
privacy, insurance, tax, tariff and trade laws and regulations; corporate governance, privacy, data protection (including
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the EU’s General Data Protection Regulation which will apply across the EU effective May 2018), data mining, data
transfer, labor and employment, intellectual property, consumer protection and investment laws and regulations;
discriminatory licensing procedures; required localization of records and funds; and limitations on dividends and
repatriation of capital. In addition, the expansion of our operations into foreign countries increases our exposure to the
anti-bribery, anti-corruption and anti-money laundering provisions of U.S. law, including the U.S. Foreign Corrupt
Practices Act of 1977, or the FCPA, and corresponding foreign laws, including the U.K. Bribery Act 2010, or the U.K.
Bribery Act.
The FCPA prohibits offering, promising or authorizing others to give anything of value to a foreign government
official to obtain or retain business or otherwise secure a business advantage. We also are subject to applicable anti-
corruption laws of the jurisdictions in which we operate. Violations of the FCPA and other anti-corruption laws may
result in severe criminal and civil sanctions as well as other penalties, and the SEC and the DOJ have increased their
enforcement activities with respect to the FCPA. The U.K. Bribery Act is an anti-corruption law that is broader in scope
than the FCPA and applies to all companies with a nexus to the United Kingdom. Disclosures of FCPA violations may
be shared with the UK authorities, thus potentially exposing companies to liability and potential penalties in multiple
jurisdictions. We have internal control policies and procedures and conduct training and compliance programs for our
employees to deter prohibited practices. However, if our employees or agents fail to comply with applicable laws
governing our international operations, we may face investigations, prosecutions and other legal proceedings and actions
which could result in civil penalties, administrative remedies and criminal sanctions.
We also are subject to regulation by the U.S. Treasury’s Office of Foreign Assets Control, or OFAC. OFAC
administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against
targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to
the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of
the United States. In addition, we may be subject to similar regulations in the non-U.S. jurisdictions in which we operate.
Human Capital Management
At Teladoc Health, we live our values as a company through policies, governance and deliberate investment in
operating responsibly and sustainably. We are committed to making a positive impact in society and, perhaps even more
importantly, to encouraging others of like mind and spirit to join us in this critical work.
To fulfill our mission, we are focused on building a great company that becomes a global destination for
amazing talent who want to build their careers, develop themselves, and grow both professional and personally. We
design a range of programs and initiatives to nurture talent, encourage curiosity and innovation, make room for diverse
voices and perspectives, increase engagement and connectiveness, and mentor leaders for the future roles. We build a
range of total reward programs that support employees through competitive pay and benefits and invest in technology,
tools, and resources to transform and increase the quality of work.
The Company employed approximately 4,400 people as of December 31, 2020. Our global workforce is
comprised of approximately 83% full time and 17% part time employees. Of the total population as of December 31,
2020, approximately 66% of our employees worked in the US and 34% worked in our international locations.
We continue to look for ways to expand a range of programs and initiatives that are focused to attract, develop
and retain our workforce – including a focused engagement through Diversity, Equality, and Inclusion (DEI). We
enhanced our efforts to include:
Supporting Employees through Our Products and Services. We offer our portfolio of products to our
employees, including full access to all of the Teladoc Health Virtual Care products such as free mental and behavioral
health resources, digital health devices, and on-demand access to the Employee Assistance Program for employees and
their dependents.
Talent Development. We prioritize and invest in creating opportunities to help employees grow and build their
careers, through a multitude of training and development programs. These include online and self-paced courses, live in-
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class education, professional speaker series, peer-to-peer learning, certification programs, and on-the-job training formats
as well as executive talent and succession planning paired with an individualized development approach.
Expanding the Voice of the Employee. We strive to build a culture of soliciting employee feedback through our
pulse engagement surveys and listening circles and seeking opportunities to advance employee feedback.
Diversity Council. We expanded the Teladoc Health diversity council, a group of senior leaders from
throughout the organization that champions ongoing dialogue and engagement with our teams. This group has reported
its work and findings annually to our board of directors since 2018.
Equal Pay Study. In 2020, we completed a global organization-wide pay equity study to help ensure that
compensation reflects our prioritization of gender and racial equity and are committed to a recurring periodic review
going forward.
Open Dialog to Encourage Diverse Thinking and Voices. In 2020, we launched the “Courageous Conversations
Series” as an instrument for unearthing opportunities for discussion through effective dialogue across topics that intersect
or singularly focus on impacting diversity, equity or inclusion.
Business Resource Groups (BRGs). We expanded our BRGs, which we believe are a foundational element of
the DEI ecosystem. The BRGs include a focus on LGBTQ, women, multicultural and generational interests of
employees who are engaged in four key pillars:
• Building internal community/network
• Advancing external community
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Supporting business impact
• Enhancing professional development
Focusing on diversity recruiting and talent acquisition. We established our diversity hiring manager training
resources for performance-based interviewing, incorporated a screening tool to promote gender-neutral job descriptions
and expanded our corporate partnerships to advance our pipeline of diverse talent.
Community Impact. We embrace the opportunity and the responsibility to have a meaningful impact in our
global community, using our voice and our resources to help expand equitable access to care, and create a better future
for families and our neighbors. As we move into 2021, we look forward to expanding our efforts working toward further
mobilizing our workforce to give back to the communities where we live and work through new volunteer programs and
corporate matching opportunities for giving. Our efforts in 2020 represented a strong start to the greater impact we are
poised to have in our communities.
Intellectual Property
OTHER INFORMATION
We own and use trademarks and service marks on or in connection with our services, including both
unregistered common law marks and issued trademark registrations in the United States and around the world. We also
have trademark applications pending to register marks in the United States and internationally. In addition, we rely on
certain intellectual property rights that we license from third parties and on other forms of intellectual property rights and
measures, including trade secrets, know - how and other unpatented proprietary processes and nondisclosure agreements,
to maintain and protect proprietary aspects of our products and technologies. Other than the trademarks Teladoc Health
(and design), Best Doctors (and design) and Advance Medical (and design), we do not believe our business is dependent
to a material degree on trademarks, patents, copyrights or trade secrets. We require our employees, consultants and
certain of our contractors to execute confidentiality and proprietary rights agreements in connection with their
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employment or consulting relationships with us. We also require our employees and consultants to disclose and assign to
us all inventions conceived during the term of their employment or engagement while using our property or which relate
to our business.
Seasonality
We typically experience the strongest increases in consecutive quarterly revenue during the fourth and first
quarters of each year, which coincides with traditional annual benefit enrollment seasons. In particular, as a result of
many Clients’ introduction of new services at the very end of the current year, or the start of each year, a concentration
of our new Client contracts has an effective date of January 1. Therefore, while Membership increases, utilization is
dampened until service delivery ramps up over the course of the year.
As a result of national seasonal cold and flu trends, we typically experience our highest level of visit fees during
the first and fourth quarters of each year. Conversely, the second quarter of the year has historically been the period of
lowest utilization of our provider network services relative to the other quarters of the year. However, during the
COVID-19 pandemic in 2020, we did not experience the typical seasonality associated with national cold and flu
outbreaks. See “Risk Factors—Risks Related to Our Business—Our quarterly results may fluctuate significantly, which
could adversely impact the value of our common stock.” included elsewhere in this Annual Report on Form 10-K.
Additional Information
Our website address is teladochealth.com. We make available free of charge at the Investors section of this
website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after we file or furnish such materials with the Securities and
Exchange Commission, or SEC. The SEC also maintains a website located at www.sec.gov that contains reports and
other information regarding issuers that file electronically with the SEC. The information on our website is not, and will
not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any of our other filings with the
SEC, except where we expressly incorporated such information.
Item 1A. Risk Factors
Our business, financial and operating results are subject to many significant risks and uncertainties, as
described below. The following is a summary of the material risks known to us. Additional risks and uncertainties that
we are unaware of, or that we currently believe are not material, may also become important factors that adversely
affect our business, financial condition, results of operations or prospects, and could cause the trading price of our
common stock to decline. In addition, the impact of COVID-19 and any worsening of the economic environment may
exacerbate the risks described below, any of which could have a material impact on us.
Risk Factors Summary
Our business is subject to a number of risks and uncertainties, including those risks discussed at-length below.
These risks include, among others, the following:
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ongoing legal challenges to, or new state actions against, our business model, or the failure of the
telehealth market to develop;
our history of losses and accumulated deficit and the risk that we may not achieve profitability;
our dependence on our relationships with affiliated professional entities;
the potential impact of the COVID-19 pandemic on the financial markets in general and on our
business in particular;
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our ability to compete successfully in competitive markets;
risk of the loss of any of our significant Clients;
risks associated with a decrease in the number of individuals offered benefits by our Clients or the
number of products and services to which they subscribe;
rapid technological change in the telehealth market or the failure to innovate and develop new
applications and services that are adopted;
our expectations and management of future growth;
our ability to establish and maintain strategic relationships with third parties;
our ability to recruit and retain a network of qualified providers;
evolving government regulations and our ability to stay abreast of new or modified laws and
regulations that currently apply or become applicable to our business;
our ability to operate in the heavily regulated healthcare industry;
compliance with regulations concerning data privacy, including personally identifiable information and
personal health information;
risk specifically related to our ability to operate in competitive international markets and comply with
complex non-U.S. legal requirements;
failures of our cyber-security measures that expose the confidential information of our Clients and
Members;
risk that we may be subject to legal proceedings and the insurance we maintain may not fully cover all
potential exposures;
our level of indebtedness and our ability to fund debt obligations and comply with covenants in our
debt instruments; and
our ability to integrate acquired businesses, including Livongo and InTouch, and achieve fully the
strategic and financial objectives related thereto and their impact on our financial condition and results
of operations.
Risks Related to Our Business and Industry
Our business could be adversely affected by legal challenges to our business model or by actions restricting our ability
to provide the full range of our services in certain jurisdictions.
Our ability to conduct telehealth services and expert medical services in a particular U.S. state or non-U.S.
jurisdiction is directly dependent upon the applicable laws governing remote healthcare, the practice of medicine and
healthcare delivery in general in such location which are subject to changing political, regulatory and other influences.
With respect to telehealth services, in the past, state medical boards have established new rules or interpreted existing
rules in a manner that has limited or restricted our ability to conduct our business as it was conducted in other states.
Some of these actions have resulted in litigation and the suspension or modification of our telehealth operations in
certain states. With respect to expert medical services, we believe that they do not constitute the practice of medicine in
any jurisdiction in which we provide them. However, the extent to which a U.S. state or non-U.S. jurisdiction considers
particular actions or relationships to constitute practicing medicine is subject to change and to evolving interpretations by
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(in the case of U.S. states) medical boards and state attorneys general, among others, and (in the case of non-U.S.
jurisdictions) the relevant regulatory and legal authorities, each with broad discretion. Accordingly, we must monitor our
compliance with law in every jurisdiction in which we operate, on an ongoing basis, and we cannot provide assurance
that our activities and arrangements, if challenged, will be found to be in compliance with the law. Additionally, it is
possible that the laws and rules governing the practice of medicine, including remote healthcare, in one or more
jurisdictions may change in a manner deleterious to our business. If a successful legal challenge or an adverse change in
the relevant laws were to occur, and we were unable to adapt our business model accordingly, our operations in the
affected jurisdictions would be disrupted, which could have a material adverse effect on our business, financial condition
and results of operations.
The telehealth market is immature and volatile, and if it does not develop, if it develops more slowly than we expect, if
it encounters negative publicity or if our solution does not drive Member engagement, the growth of our business will
be harmed.
With respect to our telehealth services, the telehealth market is relatively new and unproven, and it is uncertain
whether it will achieve and sustain high levels of demand, consumer acceptance and market adoption. The outbreak of
the COVID-19 pandemic has increased utilization of telehealth services, but it is uncertain whether such increase in
demand will continue. Our success will depend to a substantial extent on the willingness of our Members to use, and to
increase the frequency and extent of their utilization of, our solution, as well as on our ability to demonstrate the value of
telehealth to employers, health plans, government agencies and other purchasers of healthcare for beneficiaries. Negative
publicity concerning our solution, or the telehealth market as a whole could limit market acceptance of our solution. If
our Clients and Members do not perceive the benefits of our solution, or if our solution does not drive Member
engagement, then our market may not develop at all, or it may develop more slowly than we expect. Similarly, individual
and healthcare industry concerns or negative publicity regarding patient confidentiality and privacy in the context of
telehealth could limit market acceptance of our healthcare services. If any of these events occurs, it could have a material
adverse effect on our business, financial condition and results of operations.
We have a history of cumulative losses, which we expect to continue, and we may never achieve or sustain
profitability.
We have incurred significant losses in each period since our inception. We incurred net losses of $485.1
million, $98.9 million and $97.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of
December 31, 2020, we had an accumulated deficit of $992.7 million. These losses and accumulated deficit reflect the
substantial investments we made to expand our business and scope of services, acquire new Clients, build our proprietary
network of healthcare providers and develop our technology platform. We intend to continue scaling our business to
increase our Client, Member and provider bases, broaden the scope of services we offer and expand our applications of
technology through which Members can access our services. Accordingly, we anticipate that cost of revenue (exclusive
of depreciation and amortization shown separately) and operating expenses may increase substantially in the foreseeable
future. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our
revenue sufficiently to offset these higher expenses. We cannot assure you that we will achieve profitability in the future
or that, if we do become profitable, we will be able to sustain or increase profitability. Our prior losses, combined with
our expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working
capital. As a result of these factors, we may need to raise additional capital through debt or equity financings in order to
fund our operations, and such capital may not be available on reasonable terms, if at all.
In our U.S. telehealth business, we are dependent on our relationships with affiliated professional entities, which we
do not own, to provide physician services, and our business would be adversely affected if those relationships were
disrupted or if our arrangements with our providers or our Clients are found to violate state laws prohibiting the
corporate practice of medicine or fee splitting.
The laws of many states, including states in which our Clients are located, prohibit us from exercising control
over the medical judgments or decisions of physicians and from engaging in certain financial arrangements, such as
splitting professional fees with physicians. These laws and their interpretations vary from state to state and are enforced
by state courts and regulatory authorities, each with broad discretion, and are subject to change and to evolving
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interpretations by state boards of medicine and state attorneys general, among others. We enter into agreements with a
professional association, Teladoc Health Medical Group, P.A., which enters into contracts with our providers pursuant to
which they render professional medical services. In addition, we enter into contracts with our Clients to deliver
professional services in exchange for fees. These contracts include management services agreements with our affiliated
physician organizations pursuant to which the physician organizations reserve exclusive control and responsibility for all
aspects of the practice of medicine and the delivery of medical services. Although we seek to substantially comply with
applicable state prohibitions on the corporate practice of medicine and fee splitting, changes in, or subsequent
interpretations of, the corporate practice of medicine laws could circumscribe our business operations, and state officials
who administer these laws or other third parties may successfully challenge our existing organization and contractual
arrangements. If such a claim were successful, we could be subject to civil and criminal penalties and could be required
to restructure or terminate the applicable contractual arrangements. A determination that these arrangements violate state
statutes, or our inability to successfully restructure our relationships with our providers to comply with these statutes,
could eliminate Clients located in certain states from the market for our services, which would have a materially adverse
effect on our business, financial condition and results of operations. State corporate practice of medicine doctrines also
often impose penalties on physicians themselves for aiding the corporate practice of medicine, which could discourage
physicians from participating in our network of providers.
We do not own Teladoc Health Medical Group, P.A., which is a 100% physician owned independent entity, or
the professional corporations with which it contracts. Teladoc Health Medical Group, P.A. is owned by Dr. Kyon Hood,
one of our providers, and the professional corporations are owned by physicians licensed in their respective states. While
we expect that these relationships will continue, we cannot guarantee that they will. A material change in our relationship
with Teladoc Health Medical Group, P.A., or among Teladoc Health Medical Group, P.A. and the contracted
professional corporations, whether resulting from a dispute among the entities, a change in government regulation, or the
loss of these affiliations, could impair our ability to provide services to our Members and could have a material adverse
effect on our business, financial condition and results of operations. In addition, the arrangement in which we have
entered to comply with state corporate practice of medicine doctrines could subject us to additional scrutiny by federal
and state regulatory bodies regarding federal and state fraud and abuse laws. Any scrutiny, investigation, or litigation
with regard to our arrangement with Teladoc Health Medical Group, P.A. could have a material adverse effect on our
business, financial condition and results of operations.
The COVID-19 pandemic or other similar epidemics or adverse public health developments could cause disruptions
and adversely impact our business and operations.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious
outbreak, which has continued to spread, and the related adverse public health developments, including orders to shelter-
in-place, travel restrictions and mandated business closures, have adversely affected workforces, organizations,
customers, economies and financial markets globally, leading to an economic downturn and increased market volatility.
It has also disrupted the normal operations of many businesses, including ours.
This outbreak, as well as intensified measures undertaken to contain the spread of COVID-19, could cause
disruptions and severely impact our business, including, but not limited to:
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causing one or more of our Clients to file for bankruptcy protection or shut down;
reducing Client and Member subscription fees generated, as well as visit fees by other individuals, as a
result of funding constraints related to loss of revenue or employment;
negatively impacting collections of accounts receivable;
limiting our ability to attract new Clients;
negatively impacting our ability to facilitate the provision of our services to Clients and other
consumers;
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delaying or disrupting the operations or our suppliers and our ability to obtain our devices or other
supplies;
delaying or preventing us from maintaining sufficient inventory levels of our devices or our ability to
meet our obligations to Clients and Members to deliver our devices or other supplies; and
harming our business, financial condition and results of operations.
Our continued access to sources of liquidity depends on multiple factors, including global economic conditions,
the condition of global financial markets, the availability of sufficient amounts of financing and our operating
performance.
The outbreak also presents challenges as our entire workforce is currently working remotely and shifting to
assisting new and existing Clients, Members and other consumers, who are also generally working remotely.
It is not possible for us to accurately predict the duration or magnitude of the adverse results of the outbreak and
its effects on our business, financial condition and results of operations at this time, but such effects may be material.
The COVID-19 pandemic may also have the effect of heightening many of the other risks identified in this Form 10-K,
such as those relating to our indebtedness, our need to generate sufficient cash flows to service our indebtedness and our
ability to comply with the covenants contained in the agreements that govern our indebtedness.
Evolving government regulations may require increased costs or adversely affect our business, financial condition
and results of operations.
In a regulatory climate that is uncertain, our operations may be subject to direct and indirect adoption,
expansion or reinterpretation of various laws and regulations. Compliance with these future laws and regulations may
require us to change our practices at an undeterminable and possibly significant initial monetary and recurring expense.
These additional monetary expenditures may increase future overhead, which could have a material adverse effect on our
business, financial condition and results of operations.
We have identified what we believe are the areas of government regulation that, if changed, would be costly to
us. These include: rules governing the practice of medicine by physicians; licensure standards for doctors and behavioral
health professionals; laws limiting the corporate practice of medicine; cybersecurity and privacy laws; laws and rules
relating to the distinction between independent contractors and employees; and tax and other laws encouraging
employer - sponsored health insurance and group benefits. There could be laws and regulations applicable to our business
that we have not identified or that, if changed, may be costly to us, and we cannot predict all the ways in which
implementation of such laws and regulations may affect us.
In the jurisdictions in which we operate, we believe we are in compliance with all applicable laws, but, due to
the uncertain regulatory environment, certain jurisdictions may determine that we are in violation of their laws. In the
event that we must remedy such violations, we may be required to modify our services and products in a manner that
undermines our solutions’ attractiveness to our Clients, Members or providers or experts, we may become subject to
fines or other penalties or, if we determine that the requirements to operate in compliance in such jurisdictions are overly
burdensome, we may elect to terminate our operations in such places. In each case, our revenue may decline, and our
business, financial condition and results of operations could be materially adversely affected.
Additionally, the introduction of new services may require us to comply with additional, yet undetermined, laws
and regulations. Compliance may require obtaining appropriate licenses or certificates, increasing our security measures
and expending additional resources to monitor developments in applicable rules and ensure compliance. The failure to
adequately comply with these future laws and regulations may delay or possibly prevent some of our products or services
from being offered to Clients and Members, which could have a material adverse effect on our business, financial
condition and results of operations.
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In the U.S., we conduct business in a heavily regulated industry and if we fail to comply with these laws and
government regulations, we could incur penalties or be required to make significant changes to our operations or
experience adverse publicity, which could have a material adverse effect on our business, financial condition and
results of operations.
The U.S. healthcare industry is heavily regulated and closely scrutinized by federal, state and local
governments. Comprehensive statutes and regulations govern the manner in which we provide and bill for services and
collect reimbursement from governmental programs and private payors, our contractual relationships with our providers,
vendors and Clients, our marketing activities and other aspects of our operations. Of particular importance are:
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the federal physician self - referral law, commonly referred to as the Stark Law, that, subject to limited
exceptions, prohibits physicians from referring Medicare or Medicaid patients to an entity for the provision
of certain “designated health services” if the physician or a member of such physician’s immediate family
has a direct or indirect financial relationship (including an ownership interest or a compensation
arrangement) with the entity, and prohibit the entity from billing Medicare or Medicaid for such designated
health services;
the federal Anti - Kickback Statute that prohibits the knowing and willful offer, payment, solicitation or
receipt of any bribe, kickback, rebate or other remuneration for referring an individual, in return for
ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or
the ordering, purchasing or leasing of items or services covered, in whole or in part, by any federal
healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual
knowledge of the statute or specific intent to violate it to have committed a violation. In addition, the
government may assert that a claim including items or services resulting from a violation of the federal
Anti - Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
the criminal healthcare fraud provisions of HIPAA and related rules that prohibit knowingly and willfully
executing a scheme or artifice to defraud any healthcare benefit program or falsifying, concealing or
covering up a material fact or making any material false, fictitious or fraudulent statement in connection
with the delivery of or payment for healthcare benefits, items or services. Similar to the federal
Anti - Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific
intent to violate it to have committed a violation;
the federal False Claims Act that imposes civil and criminal liability on individuals or entities that
knowingly submit false or fraudulent claims for payment to the government or knowingly making, or
causing to be made, a false statement in order to have a false claim paid, including qui tam or
whistleblower suits;
reassignment of payment rules that prohibit certain types of billing and collection practices in connection
with claims payable by the Medicare or Medicaid programs;
similar state law provisions pertaining to anti - kickback, self - referral and false claims issues, some of which
may apply to items or services reimbursed by any payor, including patients and commercial insurers;
state laws that prohibit general business corporations, such as us, from practicing medicine, controlling
physicians’ medical decisions or engaging in some practices such as splitting fees with physicians;
laws that regulate debt collection practices as applied to our debt collection practices;
a provision of the Social Security Act that imposes criminal penalties on healthcare providers who fail to
disclose, or refund known overpayments;
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federal and state laws that prohibit providers from billing and receiving payment from Medicare and
Medicaid for services unless the services are medically necessary, adequately and accurately documented,
and billed using codes that accurately reflect the type and level of services rendered; and
federal and state laws and policies that require healthcare providers to maintain licensure, certification or
accreditation to enroll and participate in the Medicare and Medicaid programs, to report certain changes in
their operations to the agencies that administer these programs.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available,
it is possible that some of our business activities could be subject to challenge under one or more of such laws.
Achieving and sustaining compliance with these laws may prove costly. Failure to comply with these laws and other
laws can result in civil and criminal penalties such as fines, damages, overpayment, recoupment, imprisonment, loss of
enrollment status and exclusion from the Medicare and Medicaid programs. The risk of our being found in violation of
these laws and regulations is increased by the fact that many of them have not been fully interpreted by the regulatory
authorities or the courts, and their provisions are sometimes open to a variety of interpretations. Our failure to accurately
anticipate the application of these laws and regulations to our business or any other failure to comply with regulatory
requirements could create liability for us and negatively affect our business. Any action against us for violation of these
laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert
our management’s attention from the operation of our business and result in adverse publicity.
To enforce compliance with the federal laws, the U.S. Department of Justice and the OIG, have increased their
scrutiny of healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements
in the healthcare industry. Dealing with investigations can be time- and resource - consuming and can divert
management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise
have an adverse effect on our business. In addition, because of the potential for large monetary exposure under the
federal False Claims Act, which provides for treble damages and minimum penalties per false claim or statement,
healthcare providers often resolve allegations without admissions of liability for significant and material amounts to
avoid the uncertainty of treble damages that may be awarded in litigation proceedings. Such settlements often contain
additional compliance and reporting requirements as part of a consent decree, settlement agreement or corporate integrity
agreement. Given the significant size of actual and potential settlements, it is expected that the government will continue
to devote substantial resources to investigating healthcare providers’ compliance with the healthcare reimbursement rules
and fraud and abuse laws.
The laws, regulations and standards governing the provision of healthcare services may change significantly in
the future. Any new or changed healthcare laws, regulations or standards or any review of our business by judicial, law
enforcement, regulatory or accreditation authorities could adversely affect our business, financial condition and results of
operations.
Our use and disclosure of personally identifiable information, including health information, and other personal data
is subject to federal, state and foreign privacy and security regulations, and our failure to comply with those
regulations or to adequately secure the information we hold could result in significant liability or reputational harm
and, in turn, a material adverse effect on our Client base, Membership base and revenue.
Numerous federal, state and foreign laws and regulations govern the collection, dissemination, use, privacy,
confidentiality, security, availability and integrity of PII, including PHI. In particular, HIPAA establishes a set of basic
national privacy and security standards for the protection of PHI by health plans, healthcare clearinghouses and certain
healthcare providers, referred to as covered entities, and the business associates with whom such covered entities
contract for services, which includes us. HIPAA requires healthcare providers like us to develop and maintain policies
and procedures with respect to PHI that is used or disclosed, including the adoption of administrative, physical and
technical safeguards to protect such information. HIPAA also implemented the use of standard transaction code sets and
standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions,
including activities associated with the billing and collection of healthcare claims.
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HIPAA imposes mandatory penalties for certain violations. However, a single breach incident can result in
violations of multiple standards, which could result in significant fines. HIPAA also authorizes state attorneys general to
file suit on behalf of their residents. Courts will be able to award damages, costs and attorneys’ fees related to violations
of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil
court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those
for negligence or recklessness in the misuse or breach of PHI. Any such penalties or lawsuits could harm our business,
financial condition, results of operations and reputation.
In addition, HIPAA mandates that the Secretary of HHS, conduct periodic compliance audits of HIPAA
covered entities or business associates for compliance with the HIPAA Privacy and Security Standards. It also tasks
HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI
may receive a percentage of the Civil Monetary Penalty fine paid by the violator.
HIPAA further requires that patients be notified of any unauthorized acquisition, access, use or disclosure of
their unsecured PHI that has more than a low probability of compromising the privacy or security of such information,
with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized individuals.
HIPAA specifies that such notifications must be made “without unreasonable delay and in no case later than 60 calendar
days after discovery of the breach.” If a breach affects 500 patients or more, it must be reported to HHS without
unreasonable delay, and HHS will post the name of the breaching entity on its public web site. Breaches affecting 500
patients or more in the same state or jurisdiction must also be reported to the local media. If a breach involves fewer than
500 people, the covered entity must record it in a log and notify HHS at least annually.
Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of
PII, including PHI and other personal data. These laws in many cases are more restrictive than, and may not be
preempted by, the HIPAA rules and may be subject to varying interpretations by courts and government agencies,
creating complex compliance issues for us and our Clients and potentially exposing us to additional expense, adverse
publicity and liability. In addition to fines and penalties imposed upon violators, some of these state laws also afford
private rights of action to individuals who believe their personal information has been misused. There are many other
state-based data privacy and security laws and regulations that may impact our business. All of these evolving
compliance and operational requirements impose significant costs that are likely to increase over time, may require us to
modify our data processing practices and policies, divert resources from other initiatives and projects and could restrict
the way services involving data are offered, all of which may adversely affect our business, financial condition and
results of operations.
New health information standards, whether implemented pursuant to HIPAA, congressional action or otherwise,
could have a significant effect on the manner in which we must handle healthcare related data, and the cost of complying
with standards could be significant. If we do not comply with existing or new laws and regulations related to PHI, we
could be subject to criminal or civil sanctions.
Because of the extreme sensitivity of the PII we store and transmit, the security features of our technology
platform are very important. If our security measures, some of which are managed by third parties, are breached, or fail,
unauthorized persons may be able to obtain access to sensitive Client and Member data, including HIPAA-regulated
PHI. As a result, our reputation could be severely damaged, adversely affecting Client and Member confidence.
Members may curtail their use of or stop using our services or our Client base could decrease, which would cause our
business to suffer. In addition, we could face litigation, damages for contract breach, penalties and regulatory actions for
violation of HIPAA and other applicable laws or regulations and significant costs for remediation, notification to
individuals and for measures to prevent future occurrences. Any potential security breach could also result in increased
costs associated with liability for stolen assets or information, repairing system damage that may have been caused by
such breaches, incentives offered to Clients or other business partners in an effort to maintain our business relationships
after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying
additional personnel and protection technologies, training employees and engaging third-party experts and consultants.
While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry
insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not
address the reputational damage that could result from a security incident.
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We outsource important aspects of the storage and transmission of Client and Member information, and thus
rely on third parties to manage functions that have material cyber-security risks. We attempt to address these risks by
requiring outsourcing subcontractors who handle Client and Member information to sign business associate agreements
contractually requiring those subcontractors to adequately safeguard personal health data to the same extent that applies
to us and in some cases by requiring such outsourcing subcontractors to undergo third-party security examinations. In
addition, we periodically hire third-party security experts to assess and test our security posture. However, we cannot
assure you that these contractual measures and other safeguards will adequately protect us from the risks associated with
the storage and transmission of Client and Members’ proprietary and protected health information.
We publish statements to our Members that describe how we handle and protect personal information. If federal
or state regulatory authorities or private litigants consider any portion of these statements to be untrue, we may be subject
to claims of deceptive practices, which could lead to significant liabilities and consequences, including, without
limitation, costs of responding to investigations, defending against litigation, settling claims and complying with
regulatory or court orders.
We engage in digital marketing which has come under additional scrutiny over the past year by the Federal
Trade Commission, or FTC, and state regulators. If our practices are deemed to have been unlawful or deceptive or
potentially a violation of HIPAA, it could lead to significant liabilities and consequences including, without limitation,
costs of responding to investigations, defending against litigation, settling claims, complying with regulatory or court
orders, and managing public relations and Client concerns associated with such violations.
We also send short message service, or SMS, text messages to potential end users who are eligible to use our
service through certain customers and partners. While we obtain consent from or on behalf of these individuals to send
text messages, federal or state regulatory authorities or private litigants may claim that the notices and disclosures we
provide, form of consents we obtain or our SMS texting practices, are not adequate. These SMS texting campaigns are
potential sources of risk for class action lawsuits and liability for our company. Numerous class action suits under federal
and state laws have been filed against companies who conduct SMS texting programs, with many resulting in multi-
million-dollar settlements to the plaintiffs. Any future such litigation against us could be costly and time consuming to
defend.
Further, there are numerous foreign laws, regulations and directives regarding privacy and the collection,
storage, transmission, use, processing, disclosure and protection of PII and other personal or customer data, the scope of
which is continually evolving and subject to differing interpretations. We must comply with such laws, regulations and
directives and we may be subject to significant consequences, including penalties and fines, for our failure to comply.
Failure to comply with the requirements of the GDPR and the applicable national data protection laws of the EU member
states may result in fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding
financial year, whichever is higher, and other administrative penalties. To comply with the new data protection rules
imposed by the GDPR we may be required to put in place additional mechanisms ensuring compliance. In addition,
privacy laws are developing quickly in other jurisdictions where we operate, which impose similar accountability,
transparency and security obligations. This may be onerous and adversely affect our business, financial condition, results
of operations and prospects.
In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding
certain transfers of information from the European Union to the United States. If one or more of the legal bases for
transferring PII from Europe to the United States is invalidated, or if we are unable to transfer PII between and among
countries and regions in which we operate, it could affect the manner in which we provide our services or could
adversely affect our financial results. Furthermore, any failure, or perceived failure, by us to comply with or make
effective modifications to our policies, or to comply with any federal, state, or international privacy, data-retention or
data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or
actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation,
and a loss of customers, any of which could have an adverse effect on our business.
Finally, federal, state and foreign legislative or regulatory bodies may enact new or additional laws and
regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating
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disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or
our reputation with customers. For example, some countries have adopted laws mandating that PII regarding customers
in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service
and business operations to limit PII processing to within individual countries could increase our operating costs
significantly.
The impact on us of recent healthcare reform legislation and other changes in the healthcare industry and in
healthcare spending is currently unknown, but may adversely affect our business, financial condition and results of
operations.
Our revenue is dependent on the healthcare industry and could be affected by changes in healthcare spending
and policy. The healthcare industry is subject to changing political, regulatory and other influences. The Patient
Protection and Affordable Care Act, or PPACA, made major changes in how healthcare is delivered and reimbursed, and
increased access to health insurance benefits to the uninsured and underinsured population of the United States.
PPACA, among other things, increased the number of individuals with Medicaid and private insurance
coverage, implemented reimbursement policies that tie payment to quality, facilitated the creation of accountable care
organizations that may use capitation and other alternative payment methodologies, strengthened enforcement of fraud
and abuse laws and encouraged the use of information technology.
Such changes in the regulatory environment may also result in changes to our payor mix that may affect our
operations and revenue.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of
which could limit the amounts that federal and state governments and other third-party payors will pay for healthcare
products and services, which could adversely affect our business, financial condition and results of operations.
We operate in a competitive industry, and if we are not able to compete effectively, our business, financial condition
and results of operations will be harmed.
While the virtual care market is in an early stage of development, it is competitive and we expect it to attract
increased competition, which could make it difficult for us to succeed. We currently face competition in the telehealth
industry for our solution from a range of companies, including specialized software and solution providers that offer
similar solutions, often at substantially lower prices, and that are continuing to develop additional products and
becoming more sophisticated and effective. These competitors include MDLive, Inc., American Well Corporation, and
Grand Rounds, Inc. among other smaller industry participants, as well as companies that offer solutions for management
of chronic conditions and enterprise companies who are focused on or may enter the healthcare industry, including
initiatives and partnerships launched by these large companies. In addition, large, well-financed health plans have in
some cases developed their own telehealth, expert medical service or chronic condition management tools and may
provide these solutions to their customers at discounted prices. Competition from specialized software and solution
providers, health plans and other parties will result in continued pricing pressures, which is likely to lead to price
declines in certain product segments, which could negatively impact our sales, profitability and market share.
Some of our competitors may have, or new competitors or alliances may emerge that have, greater name
recognition, a larger customer base, longer operating histories, more widely-adopted proprietary technologies, greater
marketing expertise, larger sales forces and significantly greater resources than we do. Further, our current or potential
competitors may be acquired by third parties with greater available resources. As a result, our competitors may be able to
respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer
requirements and may have the ability to initiate or withstand substantial price competition. In addition, current and
potential competitors have established, and may in the future establish, cooperative relationships with vendors of
complementary products, technologies or services to increase the availability of their solutions in the marketplace. Our
competitors could also be better positioned to serve certain segments of our markets, which could create additional price
pressure. In light of these factors, even if our solutions are more effective than those of our competitors, current or
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potential Clients may accept competitive solutions in lieu of purchasing our solutions. If we are unable to successfully
compete, our business, financial condition and results of operations could be materially adversely affected.
A significant portion of our revenue comes from a limited number of Clients, the loss of which could have a material
adverse effect on our business, financial condition and results of operations.
Historically, we have relied on a limited number of Clients for a substantial portion of our total revenue. For the
years ended December 31, 2020, 2019 and 2018, our top ten Clients by revenue accounted for 16.2%, 13.3% and 13.0%
of our total revenue, respectively. We also rely on our reputation and recommendations from key Clients in order to
promote our solution to potential new Clients. The loss of any of our key Clients, or a failure of some of them to renew
or expand their relationships with us, could have a significant impact on the growth rate of our revenue, reputation and
our ability to obtain new Clients. In addition, mergers and acquisitions involving our Clients could lead to cancellation or
non-renewal of our contracts with those Clients or by the acquiring or combining companies, thereby reducing the
number of our existing and potential Clients and Members.
If our existing Clients do not continue or renew their contracts with us, renew at lower fee levels or decline to
purchase additional applications and services from us, it could have a material adverse effect on our business,
financial condition and results of operations.
We expect to derive a significant portion of our revenue from renewal of existing Client contracts and sales of
additional applications and services to existing Clients. As part of our growth strategy, for instance, we have recently
focused on expanding our services amongst current Clients, including cross-selling of Teladoc Health and Livongo
products to existing Clients, increasing enrollment of utilization of Teladoc Health and Livongo products, and using our
international salesforce to drive sales of Livongo products to international insurers, employers and governments. As a
result, selling additional applications and services are critical to our future business, revenue growth and results of
operations.
Factors that may affect our ability to sell additional applications and services include, but are not limited to, the
following:
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the price, performance and functionality of our solutions;
the availability, price, performance and functionality of competing solutions;
our ability to develop and sell complementary applications and services;
the stability, performance and security of our hosting infrastructure and hosting services;
changes in healthcare laws, regulations or trends; and
the business environment of our Clients and, in particular, headcount reductions by our Clients.
We enter into subscription access contracts with our Clients. These contracts generally have stated initial terms
of one year. Most of our Clients have no obligation to renew their subscriptions for our solution after the initial term
expires. In addition, our Clients may negotiate terms less advantageous to us upon renewal, which may reduce our
revenue from these Clients. Our future results of operations also depend, in part, on our ability to expand into new
clinical specialties and across care settings and use cases, and our ability to achieve the expected synergies from recent
acquisitions, including Livongo. If our Clients fail to renew their contracts, renew their contracts upon less favorable
terms or at lower fee levels or fail to purchase new products and services from us, our revenue may decline, or our future
revenue growth may be constrained.
In addition, after the initial contract year, a significant number of our Client contracts allow Clients to terminate
such agreements for convenience at certain times, typically with one to three months advance notice. We typically incur
the expenses associated with integrating a Client’s data into our healthcare database and related training and support
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prior to recognizing meaningful revenue from such Client. Subscription access revenue is not recognized until our
products are implemented for launch, which is generally from one to three months from contract signing. If a Client
terminates its contract early and revenue and cash flows expected from a Client are not realized in the time period
expected or not realized at all, our business, financial condition and results of operations could be adversely affected.
If the number of individuals covered by our employer, health plan and other Clients decreases, or the number of
applications or services to which they subscribe decreases, our revenue will likely decrease.
Under most of our Client contracts, we base our fees on the number of individuals to whom our Clients provide
benefits and the number of applications or services subscribed to by our Clients. Many factors may lead to a decrease in
the number of individuals covered by our Clients and the number of applications or services subscribed to by our Clients,
including, but not limited to, the following:
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failure of our Clients to adopt or maintain effective business practices;
changes in the nature or operations of our Clients;
the impact of the COVID-19 pandemic or any economic downturn on our Clients’ workforces;
government regulations; and
increased competition or other changes in the benefits marketplace.
The number of individuals employed by some of our Clients has decreased, and we expect the number of
individuals employed by our Clients may in the future decrease, as a result of the COVID-19 pandemic, which could
negatively impact our revenue. If the number of individuals covered by our employer, health plan and other Clients
decreases, or the number of applications or services to which they subscribe decreases, for any reason, our revenue will
likely decrease.
We incur significant upfront costs in our Client relationships, and if we are unable to maintain and grow these Client
relationships over time, we are likely to fail to recover these costs, which could have a material adverse effect on our
business, financial condition and results of operations.
We derive most of our revenue from subscription access fees. Accordingly, our business model depends heavily
on achieving economies of scale because our initial upfront investment is costly, and the associated revenue is
recognized on a ratable basis. We devote significant resources to establish relationships with our Clients and implement
our solution and related services. This is particularly so in the case of large enterprises that, to date, have comprised a
substantial majority of our Client base and revenue and often request or require specific features or functions unique to
their particular business processes. Accordingly, our results of operations will depend in substantial part on our ability to
deliver a successful experience for both Clients and Members and persuade our Clients to maintain and grow their
relationship with us over time. Additionally, as our business is growing significantly, our Client acquisition costs could
outpace our build-up of recurring revenue, and we may be unable to reduce our total operating costs through economies
of scale such that we are unable to achieve profitability. If we fail to achieve appropriate economies of scale or if we fail
to manage or anticipate the evolution and in future periods, demand, of the subscription access fee model, our business,
financial condition and results of operations could be materially adversely affected.
If our applications and services are not adopted by our Clients, or if we fail to innovate and develop new applications
and services that are adopted by our Clients, our revenue and results of operations will be adversely affected.
To date, we have derived a substantial majority of our revenue from sales of our primary care telehealth and
expert medical service, and our longer-term results of operations and continued growth will depend on our ability to
successfully develop and market new applications and services that our Clients want and are willing to purchase. In
addition, we have invested, and will continue to invest, significant resources in research and development and
acquisitions to enhance our existing solution and introduce new high-quality applications and services. If existing Clients
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are not willing to make additional payments for such new applications, or if new Clients and Members do not value such
new applications, it could have a material adverse effect on our business, financial condition and results of operations. If
we are unable to predict user preferences or if our industry changes, or if we are unable to modify our solution and
services on a timely basis, we may lose Clients. Our results of operations would also suffer if our innovations are not
responsive to the needs of our Clients, appropriately timed with market opportunity or effectively brought to market.
Rapid technological change in our industry presents us with significant risks and challenges.
The telehealth market is characterized by rapid technological change, changing consumer requirements, short
product lifecycles and evolving industry standards. Our success will depend on our ability to enhance our solution with
next-generation technologies and to develop or to acquire and market new services to access new consumer populations.
There is no guarantee that we will possess the resources, either financial or personnel, for the research, design and
development of new applications or services, or that we will be able to utilize these resources successfully and avoid
technological or market obsolescence. Further, there can be no assurance that technological advances by one or more of
our competitors or future competitors will not result in our present or future applications and services becoming
uncompetitive or obsolete.
A decline in the prevalence of employer-sponsored healthcare or the emergence of new technologies may render our
telehealth solution obsolete or require us to expend significant resources in order to remain competitive.
The U.S. healthcare industry is massive, with a number of large market participants with conflicting agendas, is
subject to significant government regulation and is currently undergoing significant change. Changes in our industry, for
example, away from high deductible health plans, or the emergence of new technologies as more competitors enter our
market, could result in our telehealth and chronic condition management solutions being less desirable or relevant.
For example, we currently derive the majority of our revenue from sales to Clients that purchase healthcare for
their employees (either via insurance or self-funded benefit plans). A large part of the demand for our solutions depends
on the need of these employers to manage the costs of healthcare services that they pay on behalf of their employees.
Some experts have predicted that future healthcare reform will encourage employer-sponsored health insurance to
become significantly less prevalent as employees migrate to obtaining their own insurance over the state-sponsored
insurance marketplaces. Were this to occur, there is no guarantee that we would be able to compensate for the loss in
revenue from employers by increasing sales of our solution to health insurance companies, individuals or government
agencies. In such a case, our business, financial condition and results of operations would be adversely affected.
If healthcare benefits trends shift or entirely new technologies are developed that replace existing solutions, our
existing or future solutions could be rendered obsolete and our business could be adversely affected. In addition, we may
experience difficulties with software development, industry standards, design or marketing that could delay or prevent
our development, introduction or implementation of new applications and enhancements.
We may not grow at the rates we historically have achieved or at all, even if our key metrics may indicate growth, and
the estimates of market opportunity and forecasts of market growth included in this Form 10-K may prove to be
inaccurate, which could have a material adverse effect on the market price of our common stock.
We have experienced significant growth in the last several years. Future revenues may not grow at these same
rates or may decline. Our future growth will depend, in part, on our ability to grow our revenue from existing Clients, to
complete sales to potential future Clients, to expand our Client and Member bases, to develop new products and services
and to expand internationally. We can provide no assurances that we will be successful in executing on these growth
strategies or that, even if our key metrics would indicate future growth, we will continue to grow our revenue or to
generate net income. Our ability to execute on our existing sales pipeline, create additional sales pipelines, and expand
our Client base depends on, among other things, the attractiveness of our services relative to those offered by our
competitors, our ability to demonstrate the value of our existing and future services, and our ability to attract and retain a
sufficient number of qualified sales and marketing leadership and support personnel. In addition, our existing Clients
may be slower to adopt our services than we currently anticipate, which could adversely affect our business, financial
condition, results of operations and growth prospects.
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Furthermore, market opportunity estimates and growth forecasts are subject to significant uncertainty and are
based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this Form 10-K
relating to the size and expected growth of the telehealth market may prove to be inaccurate. Even if the market in which
we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all.
If we fail to manage our growth effectively, our expenses could increase more than expected, our revenue may not
increase and we may be unable to successfully execute on our growth initiatives, business strategies or operating
plans.
We have experienced significant growth in recent periods, which puts strain on our business, operations and
employees, and we anticipate that our operations will continue to rapidly expand. To manage our current and anticipated
future growth effectively, we must continue to maintain and enhance our IT infrastructure, financial and accounting
systems and controls. We must also attract, train and retain a significant number of qualified sales and marketing
personnel, customer support personnel, professional services personnel, software engineers, technical personnel and
management personnel, and the availability of such personnel, in particular software engineers, may be constrained.
A key aspect to managing our growth is our ability to scale our capabilities to implement our solutions
satisfactorily with respect to both large and demanding Clients, who currently constitute the substantial majority of our
Client base, as well as smaller Clients who are becoming an increasingly larger portion of our Client base. Large Clients
often require specific features or functions unique to their Membership base, which, at a time of significant growth or
during periods of high demand, may strain our implementation capacity and hinder our ability to successfully implement
our solutions to our Clients in a timely manner. We may also need to make further investments in our technology and
automate portions of our solutions or services to decrease our costs. If we are unable to address the needs of our Clients
or Members, or our Clients or Members are unsatisfied with the quality of our solutions or services, they may not renew
their contracts, seek to cancel or terminate their relationship with us or renew on less favorable terms, any of which could
cause our annual net dollar retention rate to decrease.
Failure to effectively manage our growth could also lead us to over invest or under invest in development and
operations, result in weaknesses in our infrastructure, systems or controls, give rise to operational mistakes, financial
losses, loss of productivity or business opportunities and result in loss of employees and reduced productivity of
remaining employees. Our growth is expected to require significant capital expenditures and may divert financial
resources from other projects such as the development of new applications and services. If our management is unable to
effectively manage our growth, our expenses may increase more than expected, our revenue may not increase or may
grow more slowly than expected and we may be unable to implement our business strategy. The quality of our services
may also suffer, which could negatively affect our reputation and harm our ability to attract and retain Clients.
We are continually executing a number of growth initiatives, strategies and operating plans designed to enhance
our business. The anticipated benefits from these efforts are based on several assumptions that may prove to be
inaccurate. Moreover, we may not be able to successfully complete these growth initiatives, strategies and operating
plans and realize all of the benefits, including growth targets and cost savings, that we expect to achieve, or it may be
more costly to do so than we anticipate. A variety of risks could cause us not to realize some or all of the expected
benefits. These risks include, among others, delays in the anticipated timing of activities related to such growth
initiatives, strategies and operating plans, increased difficulty and cost in implementing these efforts, including
difficulties in complying with new regulatory requirements and the incurrence of other unexpected costs associated with
operating the business. Moreover, our continued implementation of these programs may disrupt our operations and
performance. As a result, we cannot assure you that we will realize these benefits. If, for any reason, the benefits we
realize are less than our estimates or the implementation of these growth initiatives, strategies and operating plans
adversely affect our operations or cost more or take longer to effectuate than we expect, or if our assumptions prove
inaccurate, our business, financial condition and results of operations may be materially adversely affected.
Our growth depends in part on the success of our strategic relationships with third parties.
In order to grow our business, we anticipate that we will continue to depend on our relationships with third
parties, including our partner organizations and technology and content providers. For example, we partner with a
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number of price transparency, health savings account, and other benefits platforms to deliver our solutions to their
consumers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and
resources. Our competitors may be effective in providing incentives to third parties to favor their products or services or
to prevent or reduce subscriptions to, or utilization of, our products and services. In addition, acquisitions of our partners
by our competitors could result in a decrease in the number of our current and potential Clients, as our partners may no
longer facilitate the adoption of our applications by potential Clients. If we are unsuccessful in establishing or
maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could
be impaired and our business, financial condition and results of operations may suffer. Even if we are successful, we
cannot assure you that these relationships will result in increased Client use of our applications or increased revenue.
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.
Our success is dependent upon our continued ability to maintain a network of qualified telehealth providers. If
we are unable to recruit and retain board-certified physicians and other healthcare professionals, it would adversely
affect our business, financial condition and results of operations and ability to grow. 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.
Failure to adequately expand our direct sales force will impede our growth.
We believe that our future growth will depend on the continued development of our direct sales force and its
ability to obtain new Clients and to manage our existing Client base. Identifying and recruiting qualified personnel and
training them requires significant time, expense and attention. It can take six months or longer before a new sales
representative is fully trained and productive. Our business may be adversely affected if our efforts to expand and train
our direct sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire and
develop sufficient numbers of productive direct sales personnel or if new direct sales personnel are unable to achieve
desired productivity levels in a reasonable period of time, sales of our services will suffer, and our growth will be
impeded.
Our sales and implementation cycle can be long and unpredictable and requires considerable time and expense,
which may cause our results of operations to fluctuate.
The sales cycle for our solutions from initial contact with a potential lead to contract execution and
implementation varies widely by Client and solution, ranging from a number of days to approximately 24 months. Travel
restrictions and business interruptions caused by the COVID-19 pandemic may also delay or lengthen some of our
Clients’ sales cycles. Some of our Clients undertake a significant and prolonged evaluation process, including to
determine whether our services meet their unique healthcare needs, which frequently involves evaluation of not only our
solutions but also an evaluation of those of our competitors, which has in the past resulted in extended sales cycles. Our
sales efforts involve educating our Clients about the use, technical capabilities and potential benefits of our solutions.
During the sales cycle, we expend significant time and money on sales and marketing activities, which lowers our
operating margins, particularly if no sale occurs. Moreover, our large enterprise Clients often begin to deploy our
solutions on a limited basis, but nevertheless demand extensive configuration, integration services and pricing
concessions, which increase our upfront investment in the sales effort with no guarantee that these Clients will deploy
our solutions widely enough across their organization to justify our substantial upfront investment. It is possible that in
the future we may experience even longer sales cycles, more complex Client needs, higher upfront sales costs and less
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predictability in completing some of our sales as we continue to expand our direct sales force, expand into new territories
and market additional applications and services. If our sales cycle lengthens or our substantial upfront sales and
implementation investments do not result in sufficient sales to justify our investments, it could have a material adverse
effect on our business, financial condition and results of operations.
If we cannot implement our solution for Clients, enroll Members or resolve any technical issues in a timely manner,
we may lose Clients and our reputation may be harmed, which could have a material adverse effect on our business,
financial condition and results of operations.
Our Clients utilize a variety of data formats, applications and infrastructure and our solutions must support our
Clients’ data formats and integrate with complex enterprise applications and infrastructures. If our telehealth platform
does not currently support a Client’s required data format or appropriately integrate with a Client’s applications and
infrastructure, then we must configure our platform to do so, which increases our expenses. Additionally, we do not
control our Clients’ implementation schedules. As a result, if our Clients do not allocate the internal resources necessary
to meet their implementation responsibilities or if we face unanticipated implementation difficulties, the implementation
may be delayed. If the Client implementation process is not executed successfully or if execution is delayed, we could
incur significant costs, Clients could become dissatisfied and decide not to increase utilization of our solution or not to
implement our solution beyond an initial period prior to their term commitment or, in some cases, revenue recognition
could be delayed. In addition, competitors with more efficient operating models with lower implementation costs could
jeopardize our Client relationships.
Our Clients and Members depend on our support services to resolve any technical issues relating to our solution
and services, and we may be unable to respond quickly enough to accommodate short-term increases in Member demand
for support services, particularly as we increase the size of our Client and Membership bases. We also may be unable to
modify the format of our support services to compete with changes in support services provided by competitors. It is
difficult to predict Member demand for technical support services, and if Member demand increases significantly, we
may be unable to provide satisfactory support services to our Members. Further, if we are unable to address Members’
needs in a timely fashion or further develop and enhance our solution, or if a Client or Member is not satisfied with the
quality of work performed by us or with the technical support services rendered, then we could incur additional costs to
address the situation or be required to issue credits or refunds for amounts related to unused services, and our
profitability may be impaired and Clients’ dissatisfaction with our solution could damage our ability to expand the
number of applications and services purchased by such Clients. These Clients may not renew their contracts, seek to
terminate their relationship with us or renew on less favorable terms. Moreover, negative publicity related to our Client
relationships, regardless of its accuracy, may further damage our business by affecting our reputation or ability to
compete for new business with current and prospective Clients. If any of these were to occur, our revenue may decline
and our business, financial condition and results of operations could be materially adversely affected.
Economic uncertainties or downturns in the general economy or the industries in which we or our Clients operate
could disproportionately affect the demand for our solutions and negatively impact our business, financial condition
and results of operations.
General worldwide economic conditions have recently experienced significant downturns, and market volatility
and uncertainty remain widespread, making it potentially very difficult for our Clients and us to accurately forecast and
plan future business activities. The COVID-19 pandemic is further adversely affecting economies and financial markets
globally. During challenging economic times, our Clients may have difficulty gaining timely access to sufficient credit or
obtaining credit on reasonable terms, which could impair their ability to make timely payments to us and adversely affect
our revenue. If that were to occur, our financial results could be harmed. Furthermore, we have Clients in a variety of
different industries. A significant downturn in the economic activity attributable to any particular industry may cause
organizations to react by reducing their capital and operating expenditures in general or by specifically reducing their
spending on healthcare matters. In addition, our Clients may delay or cancel healthcare projects or seek to lower their
costs by renegotiating vendor contracts. To the extent purchases of our solution are perceived by Clients and potential
Clients to be discretionary, our revenue may be disproportionately affected by delays or reductions in general healthcare
spending. Also, competitors may respond to challenging market conditions by lowering prices and attempting to lure
away our Clients.
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Further, challenging economic conditions may impair the ability of our Clients to pay for the applications and
services they already have purchased from us and, as a result, our write-offs of accounts receivable could increase. We
cannot predict the timing, strength or duration of any economic slowdown or recovery. If the condition of the general
economy or markets in which we operate worsens, our business, financial condition and results of operations could be
harmed. The COVID-19 pandemic and any quarantines, interruptions in travel and business disruptions with respect to
us or our Clients could have effects similar to those described above.
Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.
Our quarterly results of operations, including our revenue, gross profit, net loss and cash flows, have varied and
may vary significantly in the future, and period-to-period comparisons of our results of operations may not be
meaningful. Accordingly, our quarterly results should not be relied upon as an indication of future performance. Our
quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control,
including, without limitation, the following:
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the addition or loss of large Clients, including through acquisitions or consolidations of such Clients;
seasonal and other variations in the timing of the sales of our services, as a significantly higher
proportion of our Clients enter into new subscription contracts with us or renew their existing contracts
in the third and fourth quarters of the year compared to the first and second quarters, and a
significantly higher proportion of our Members typically use our telehealth services during peak cold
and flu season months;
travel restrictions, shelter-in-place orders and other social distancing measures implemented to combat
the COVID-19 pandemic, and their impact on economic, industry and market conditions, customer
spending budgets and our ability to conduct business;
the timing of recognition of revenue, including possible delays in the recognition of revenue due to
sometimes unpredictable implementation timelines;
the amount and timing of operating expenses related to the maintenance and expansion of our business,
operations and infrastructure;
our ability to effectively manage the size and composition of our proprietary network of healthcare
professionals relative to the level of demand for services from our Members;
the timing and success of introductions of new applications and services by us or our competitors or
any other change in the competitive dynamics of our industry, including consolidation among
competitors, Clients or strategic partners;
Client renewal rates and the timing and terms of Client renewals;
the mix of applications and services sold during a period; and
the timing of expenses related to the development or acquisition of technologies or businesses and
potential future charges for impairment of goodwill and/or intangible assets.
We are particularly subject to fluctuations in our quarterly results of operations because the costs associated
with entering into Client contracts are generally incurred up front, while we generally recognize revenue over the term of
the contract. Further, most of our revenue in any given quarter is derived from contracts entered into with our Clients
during previous quarters. Consequently, a decline in new or renewed contracts in any one quarter may not be fully
reflected in our revenue for that quarter. Such declines, however, would negatively affect our revenue in future periods
and the effect of significant downturns in sales of and market demand for our solution, and potential changes in our rate
of renewals or renewal terms, may not be fully reflected in our results of operations until future periods. Our subscription
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model also makes it difficult for us to rapidly increase our total revenue through additional sales in any period, with the
exception of the first quarter during peak benefits enrollment, as revenue from new Clients must be recognized over the
applicable term of the contract. Accordingly, the effect of changes in the industry impacting our business or changes we
experience in our new sales may not be reflected in our short-term results of operations. Any fluctuation in our quarterly
results may not accurately reflect the underlying performance of our business and could cause a decline in the trading
price of our common stock.
We depend on a limited number of third-party suppliers for certain components of the Livongo devices, and the loss
of any of these suppliers, or their inability to provide us with an adequate supply of materials, could harm our
business.
We utilize a single contract manufacturing vendor to build and assemble our blood glucose meter, and we rely
on single suppliers for our blood pressure monitor and cuff and glucose sensor test strips. The hardware components
included in such devices are sourced from various suppliers by the manufacturers thereof and are principally industry
standard parts and components that are available from multiple vendors. Quality or performance failures of the devices
or changes in the contractors’ or vendors’ financial or business condition could disrupt our ability to supply quality
products to our Clients and thereby have a material adverse impact on our business, financial condition and results of
operations.
For our business strategy to be successful, our suppliers must be able to provide us with components in
sufficient quantities, in compliance with regulatory requirements and quality control standards, in accordance with
agreed upon specifications, at acceptable costs and on a timely basis. Increases in our product sales, whether forecasted
or unanticipated, could strain the ability of our suppliers to deliver an increasingly large supply of components in a
manner that meets these various requirements.
We do not have long-term supply agreements with our suppliers and, in many cases, we make our purchases on
a purchase order basis. Under our supply agreements, we have no obligation to buy any given quantity of products, and
our suppliers have no obligation to manufacture for us or sell to us any given quantity of products. As a result, our ability
to purchase adequate quantities of our products may be limited. Additionally, our suppliers may encounter problems that
limit their ability to manufacture products for us, including financial difficulties or damage to their manufacturing
equipment or facilities. If we fail to obtain sufficient quantities of high-quality components to meet demand on a timely
basis, we could lose Clients, our reputation may be harmed and our business could suffer. For certain of our contracts,
we have obligations to provide a blood glucose meter and other supplies to new Members within a certain specified
period of time, and/or to provide replacements for defective blood glucose meters within a certain specified period of
time. If we are regularly unable to meet those obligations, our channel partners, resellers, or Clients may decide to
terminate their contracts.
Depending on a limited number of suppliers, or on a sole supplier, exposes us to risks, including limited control
over pricing, availability, quality and delivery schedules. Moreover, we do not have long-standing relationships with our
manufacturers and may not be able to convince suppliers to continue to make components available to us unless there is
demand for such components from their other clients. As a result, there is a risk that certain components could be
discontinued and no longer available to us, including as a result of shutdowns caused by the COVID-19 pandemic. If any
one or more of our suppliers cease to provide us with sufficient quantities of components in a timely manner or on terms
acceptable to us, we would have to seek alternative sources of supply. Because of factors such as the proprietary nature
of our solutions, our quality control standards and regulatory requirements, we cannot quickly engage additional or
replacement suppliers for some of our critical components. Failure of any of our suppliers to deliver products at the level
our business requires would limit our ability to meet our sales commitments, which could harm our reputation and could
have a material adverse effect on our business. We may also have difficulty qualifying new suppliers and obtaining
similar components from other suppliers that are acceptable to the U.S. Food and Drug Administration, or the FDA, or
other regulatory agencies, and the failure of our suppliers to comply with strictly enforced regulatory and quality
requirements could expose us to regulatory action including warning letters, product recalls, termination of distribution,
product seizures or civil penalties. It could also require us to cease using the components, seek alternative components or
technologies and modify our solution to incorporate alternative components or technologies, which could result in a
requirement to seek additional regulatory approvals or clearances for alternative components used in our medical
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devices. Any disruption of this nature or increased expenses could harm our commercialization efforts and adversely
affect our business, financial condition and results of operations.
Our medical device operations are subject to FDA regulatory requirements and may become subject to similar foreign
regulatory requirements.
Livongo is regulated by the FDA as a medical device manufacturer, and the medical devices that we distribute
as part of our Livongo solutions are subject to extensive regulation by the FDA. We expect to expand the sales of the
Livongo solutions internationally, and as we do so we will also become subject to similar regulations by foreign
governments. Government regulations specific to medical devices are wide ranging and govern, among other things:
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product design, development and manufacture;
laboratory, preclinical and clinical testing, labeling, packaging, storage, and distribution;
premarketing clearance or approval;
record keeping;
product marketing, promotion and advertising, sales and distribution; and
post-marketing surveillance, including reporting of deaths, serious injuries and product malfunctions,
recalls, corrections and removals.
Before a new medical device or a new intended use for a device in commercial distribution, can be marketed in
the United States, a company must first submit and receive either 510(k) clearance pursuant to section 510(k) of the
Food, Drug, and Cosmetic Act, or FDCA, or approval of a premarket approval, or PMA, application from the FDA,
unless an exemption applies. In the 510(k) clearance process, the FDA must determine that a proposed device is
“substantially equivalent” to a device legally on the market, known as a “predicate” device, in order to clear the proposed
device for marketing. To be substantially equivalent, the proposed device must have the same intended use as the
predicate device, and either have the same technological characteristics as the predicate device or have different
technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical
data is sometimes required to support substantial equivalence. Failure to demonstrate substantial equivalence to a
predicate device to the FDA’s satisfaction will require the submission and approval by the FDA of a PMA application.
The FDA’s 510(k) clearance process usually takes from three to 12 months, but may last longer. The process for
obtaining a PMA approval takes from one to three years, or even longer, from the time the PMA is submitted to the FDA
until an approval is obtained. Any delay or failure to obtain necessary regulatory approvals or clearances could have a
material adverse effect on our business, financial condition and results of operations. Material modifications to the
intended use or technological characteristics of our devices that we distribute as part of our Livongo solutions may also
require new 510(k) clearances or premarket approvals prior to implementing the modifications, or require us to recall or
cease marketing the modified devices until these clearances or approvals are obtained.
In addition, we are required to timely submit various reports with the FDA, including reports that medical
devices that we distribute as part of our solution may have caused or contributed to a death or serious injury or
malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur.
If these reports are not filed in a timely manner, regulators may impose sanctions and we may be subject to product
liability or regulatory enforcement actions, all of which could harm our business, financial condition and results of
operations. Any corrective actions can be costly, time-consuming, and divert resources from other portions of our
business. Furthermore, the submission of these reports could be used by competitors against us, which could harm our
reputation.
The FDA and the FTC also regulate the advertising and promotion of our solutions and services to ensure that
the claims we make are consistent with our regulatory clearances, that there is adequate and reasonable data to
substantiate the claims and that our promotional labeling and advertising is neither false nor misleading. If the FDA or
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FTC determines that any of our advertising or promotional claims are misleading, not substantiated or not permissible,
we may be subject to enforcement actions, including warning letters, and we may be required to revise our promotional
claims and make other corrections or restitutions.
If we or our third-party suppliers fail to comply with the FDA’s Quality Systems Regulation, our ability to distribute
medical devices that are provided to Members as part of our solutions could be impaired.
We and certain of our third-party suppliers are required to comply with the FDA’s Quality System Regulation,
or QSR, which covers the methods and documentation of the design, testing, production, control, quality assurance,
labeling, packaging, sterilization, storage and shipping of medical devices that we distribute as part of our Livongo
solutions. The FDA audits compliance with the QSR through periodic announced and unannounced inspections of
manufacturing and other facilities. The FDA may impose inspections or audits at any time. If we or our suppliers have
significant non-compliance issues or if any corrective action plan that we or our suppliers propose in response to
observed deficiencies is not sufficient, the FDA could take enforcement action against us and our third-party suppliers.
Any of the foregoing actions could have a material adverse effect on our business, financial condition and results of
operations.
Our international operations pose certain political, legal and compliance, operational, regulatory, economic and
other risks to our business that may be different from or more significant than risks associated with our domestic
operations, and our exposure to these risks is expected to increase.
Our international business is subject to political, legal and compliance, operational, regulatory, economic and
other risks resulting from differing legal and regulatory requirements, political, social and economic conditions and
unforeseeable developments in a variety of jurisdictions. These risks vary widely by country and include varying
regional and geopolitical business conditions and demands, government intervention and censorship, discriminatory
regulation, nationalization or expropriation of assets and pricing constraints. Our international products need to meet
country-specific Client and Member preferences as well as country-specific legal requirements, including those related to
licensing, telehealth, privacy, data storage, location, protection and security. Our ability to conduct telehealth services
internationally is subject to the applicable laws governing remote healthcare and the practice of medicine in such
location, and the interpretation of these laws is evolving and vary significantly from country to county and are enforced
by governmental, judicial and regulatory authorities with broad discretion. We cannot, however, be certain that our
interpretation of such laws and regulations is correct in how we structure our operations, our arrangements with
physicians, services agreements and customer arrangements. We have 26 offices globally. We earned approximately
12% of revenue internationally in 2020.
Our international operations require us to overcome logistical and other challenges based on differing
languages, cultures, legal and regulatory schemes and time zones. Our international operations encounter labor laws,
customs and employee relationships that can be difficult, less flexible than in our domestic operations and expensive to
modify or terminate. In some countries we are required to, or choose to, operate with local business partners, which
requires us to manage our partner relationships and may reduce our operational flexibility and ability to quickly respond
to business challenges.
Our international operations are also subject to particular risks in addition to those faced by our domestic
operations, including:
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the need to localize and adapt our solutions for specific countries, including translation into foreign
languages and associated expenses;
obtaining regulatory approvals or clearances where required for the sale of our solutions, devices and
services in various countries;
potential loss of proprietary information due to misappropriation or laws that may be less protective of our
intellectual property rights than U.S. laws or that may not be adequately enforced;
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requirements of foreign laws and other governmental controls, including compliance challenges related to
the complexity of multiple, conflicting and changing governmental laws and regulations, including
employment, healthcare, tax, privacy and data protection laws and regulations;
data privacy laws that require that Client data be stored and processed in a designated territory;
new and different sources of competition and laws and business practices favoring local competitors;
local business and cultural factors that differ from our normal standards and practices, including business
practices that we are prohibited from engaging in by the FCPA and other anti-corruption laws and
regulations;
changes to economic sanctions laws and regulations;
central bank and other restrictions on our ability to repatriate cash from international subsidiaries;
adverse tax consequences;
fluctuations in currency exchange rates, economic instability and inflationary conditions, which could make
our solutions more expensive or increase our costs of doing business in certain countries;
limitations on future growth or inability to maintain current levels of revenues from international sales if
we do not invest sufficiently in our international operations;
different pricing environments, longer sales cycles and longer accounts receivable payment cycles and
collections issues;
difficulties in staffing, managing and operating our international operations, including difficulties related to
administering our stock plans in some foreign countries and increased financial accounting and reporting
burdens and complexities;
difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;
and
political unrest, war, terrorism, economic instability, curtailment of trade, epidemics (including the
COVID-19 pandemic) or regional natural disasters, particularly in areas in which we have facilities.
Our overall success in international markets depends, in part, on our ability to anticipate and effectively manage
these risks and there can be no assurance that we will be able to do so without incurring unexpected costs. If we are not
able to manage the risks related to our international operations, our business, financial condition and results of operations
may be materially adversely affected.
Our failure to comply with the anti-corruption, trade compliance and economic sanctions laws and regulations of the
United States and applicable international jurisdictions could materially adversely affect our reputation, business,
financial condition and results of operations.
Our international operations increase our exposure to, and require us to devote significant management
resources to implement controls and systems to comply with, the privacy and data protection laws of non-U.S.
jurisdictions and the anti-bribery, anti-corruption and anti-money laundering laws of the United States (including the
FCPA) and the United Kingdom (including the U.K. Bribery Act) and similar laws in other jurisdictions. These laws and
regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations,
trade practices, investment decisions and partnering activities. Where they apply, the FCPA and the U.K. Bribery Act
prohibit us and our officers, directors, employees and business partners acting on our behalf, including joint venture
partners and agents, from corruptly offering, promising, authorizing or providing anything of value to public officials for
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the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable
treatment. The U.K. Bribery Act also prohibits non-governmental “commercial” bribery and accepting bribes. As part of
our business, we may deal with governments and state-owned business enterprises, the employees and representatives of
which may be considered public officials for purposes of the FCPA and the U.K. Bribery Act. Implementing our
compliance policies, internal controls and other systems upon our expansion into new countries and geographies may
require the investment of considerable management time and management, financial and other resources over a number
of years before any significant revenues or profits are generated. Violations of these laws and regulations could result in
fines, criminal sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our
business, and significant brand and reputational harm. We must regularly reassess the size, capability and location of our
global infrastructure and make appropriate changes, and must have effective change management processes and internal
controls in place to address changes in our business and operations. Our success depends, in part, on our ability to
anticipate these risks and manage these difficulties, and the failure to do so could have a material adverse effect on our
business, operating results, financial position, brand, reputation and/or long-term growth.
We also are subject to the jurisdiction of various governments and regulatory agencies around the world, which
may bring our personnel and agents into contact with public officials responsible for issuing or renewing permits,
licenses or approvals or for enforcing other governmental regulations. In addition, some of the international locations in
which we operate lack a developed legal system and have elevated levels of corruption. Our business also must be
conducted in compliance with applicable export controls and trade and economic sanctions laws and regulations,
including those of the U.S. government, the governments of other countries in which we operate or conduct business and
various multilateral organizations. Such laws and regulations include, without limitation, those administered and
enforced by the U.S. Department of the Treasury's Office of Foreign Assets Control, the U.S. Department of State, the
U.S. Department of Commerce, the United Nations Security Council and other relevant sanctions authorities. Our
provision of services to persons located outside the United States may be subject to certain regulatory prohibitions,
restrictions or other requirements, including certain licensing or reporting requirements. Our provision of services
outside of the United States exposes us to the risk of violating, or being accused of violating, anti-corruption, exports
controls and trade compliance and economic sanctions laws and regulations. Our failure to successfully comply with
these laws and regulations may expose us to reputational harm as well as significant sanctions, including criminal fines,
imprisonment, civil penalties, disgorgement of profits, injunctions and suspension or debarment from government
contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive.
Though we have implemented formal training and monitoring programs, we cannot assure compliance by our employees
or representatives for which we may be held responsible, and any such violation could materially adversely affect our
reputation, business, financial condition and results of operations.
Foreign currency exchange rate fluctuations could adversely affect our business, financial condition and results of
operations.
Our business is exposed to fluctuations in exchange rates. Although our reporting currency is the U.S. dollar,
we operate in different geographical areas and transact in a range of currencies in addition to the U.S. dollar. As a result,
movements in exchange rates may cause our revenue and expenses to fluctuate, impacting our profitability and cash
flows. Future business operations and opportunities, including any continued expansion of our business outside the
United States, may further increase the risk that cash flows resulting from these activities may be adversely affected by
changes in currency exchange rates. In the event we are unable to offset these risks, there may be a material adverse
impact on our business, financial condition and results of operations. In appropriate circumstances where we are unable
to naturally offset our exposure to these currency risks, we may enter into derivative transactions to reduce such
exposures. Even where we implement hedging strategies to mitigate foreign currency risk, these strategies might not
eliminate our exposure to foreign exchange rate fluctuations and involve costs and risks of their own, such as ongoing
management time and expertise, external costs to implement the strategies and potential accounting implications.
Nevertheless, exchange rate fluctuations may either increase or decrease our revenues and expenses as reported in U.S.
dollars. Moreover, foreign governments may restrict transfers of cash out of the country and control exchange rates.
There can be no assurance that we will be able to repatriate our earnings, and at exchange rates that are beneficial to us,
which could have a material adverse effect on our business, financial condition and results of operations.
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We rely on data center providers, Internet infrastructure, bandwidth providers, third - party computer hardware and
software, other third parties and our own systems for providing services to our Clients and Members, and any failure
or interruption in the services provided by these third parties or our own systems could expose us to litigation and
negatively impact our relationships with Clients and Members, adversely affecting our brand and our business,
financial condition and results of operations.
We serve all of our Clients and Members leveraging a multi cloud architecture using three vendors: AWS,
Microsoft Azure, and Salesforce Force.com. This architecture provides redundancy and cost savings, and reduces our
reliance on one single vendor. The actual instances are geographically diverse to insulate our applications from local
failures, and have an additional layer of redundancy provided by company-managed data centers. While we control and
have access to our servers, we do not control the operation of these facilities. The cloud vendors and the owners of our
data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If
we are unable to renew these agreements on commercially reasonable terms, or if one of our cloud vendors or data center
operators is acquired, we may be required to transfer our servers and other infrastructure to a new vendor or a new data
center facility, and we may incur significant costs and possible service interruption in connection with doing so.
Problems faced by our cloud vendors or third - party data center locations with the telecommunications network providers
with whom we or they contract or with the systems by which our telecommunications providers allocate capacity among
their Clients, including us, could adversely affect the experience of our Clients and Members. Our cloud vendors or
third - party data center operators could decide to close their facilities without adequate notice. In addition, any financial
difficulties, such as bankruptcy faced by our cloud vendors or third - party data centers operators or any of the service
providers with whom we or they contract may have negative effects on our business, financial condition and results of
operations, the nature and extent of which are difficult to predict.
Additionally, if our cloud or data centers vendors are unable to keep up with our growing needs for capacity,
this could have an adverse effect on our business. For example, a rapid expansion of our business could affect the service
levels at our cloud vendors or data centers or cause such cloud systems or data centers and systems to fail. Any changes
in third - party service levels at our cloud vendors or data centers or any disruptions or other performance problems with
our solution could adversely affect our reputation and may damage our Clients and Members’ stored files or result in
lengthy interruptions in our services. Interruptions in our services may reduce our revenue, cause us to issue refunds to
Clients for prepaid and unused subscriptions, subject us to potential liability or adversely affect Client renewal rates.
In addition, our ability to deliver our Internet - based services depends on the development and maintenance of
the infrastructure of the Internet by third parties. This includes maintenance of a reliable network backbone with the
necessary speed, data capacity, bandwidth capacity and security. Our services are designed to operate without
interruption in accordance with our service level commitments. However, we have experienced and expect that we may
experience future interruptions and delays in services and availability from time to time. In the event of a catastrophic
event with respect to one or more of our systems, we may experience an extended period of system unavailability, which
could negatively impact our relationship with Clients and Members. To operate without interruption, both we and our
service providers must guard against:
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damage from fire, power loss, natural disasters, health epidemics (including the COVID-19 pandemic) and
other force majeure events outside our control;
communications failures;
software and hardware errors, failures and crashes;
security breaches, computer viruses, hacking, denial - of - service attacks and similar disruptive problems;
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other potential interruptions.
We also rely on computer hardware purchased or leased and software licensed from third parties in order to
offer our services, including software from Dell Computer, Microsoft, Apple and Redhat Corporation, and routers and
network equipment from Cisco and Hewlett - Packard Company. These licenses are generally commercially available on
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varying terms. However, it is possible that this hardware and software may not continue to be available on commercially
reasonable terms, or at all. Any loss of the right to use any of this hardware or software could result in delays in the
provisioning of our services until equivalent technology is either developed by us, or, if available, is identified, obtained
and integrated.
We exercise limited control over third - party vendors, which increases our vulnerability to problems with
technology and information services they provide. Interruptions in our network access and services in connection with
third - party technology and information services may reduce our revenue, cause us to issue refunds to Clients for prepaid
and unused subscription services, subject us to potential liability or adversely affect Client renewal rates. Although we
maintain a security and privacy damages insurance policy, the coverage under our policies may not be adequate to
compensate us for all losses that may occur related to the services provided by our third - party vendors. In addition, we
may not be able to continue to obtain adequate insurance coverage at an acceptable cost, if at all.
If our security measures fail or are breached and unauthorized access to a Client's data is obtained, our services may
be perceived as insecure, we may incur significant liabilities, our reputation may be harmed, and we could lose sales
and Clients.
Our services involve the storage and transmission of Clients’ and our Members’ proprietary information,
sensitive or confidential data, including valuable intellectual property and personal information of employees, Clients,
Members and others, as well as the PHI of our Members. Because of the extreme sensitivity of the information we store
and transmit, the security features of our computer, network, and communications systems infrastructure are critical to
the success of our business. A breach or failure of our security measures could result from a variety of circumstances and
events, including third-party action, employee negligence or error, malfeasance, computer viruses, cyber-attacks by
computer hackers, failures during the process of upgrading or replacing software and databases, power outages, hardware
failures, telecommunication failures, user errors, or catastrophic events. Information security risks have generally
increased in recent years because of the proliferation of new technologies and the increased sophistication and activities
of perpetrators of cyber-attacks. As cyber threats continue to evolve, we may be required to expend additional resources
to further enhance our information security measures and/or to investigate and remediate any information security
vulnerabilities. If our security measures fail or are breached, it could result in unauthorized persons accessing sensitive
Client or Member data (including PHI), a loss of or damage to our data, an inability to access data sources, or process
data or provide our services to our Clients. Such failures or breaches of our security measures, or our inability to
effectively resolve such failures or breaches in a timely manner, could severely damage our reputation, adversely affect
Client, Member or investor confidence in us, and reduce the demand for our services from existing and potential Clients.
In addition, we could face litigation, damages for contract breach, monetary penalties, or regulatory actions for violation
of applicable laws or regulations, and incur significant costs for remedial measures to prevent future occurrences and
mitigate past violations. Although we maintain insurance covering certain security and privacy damages and claim
expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event,
insurance coverage would not address the reputational damage that could result from a security incident.
We may experience cyber-security and other breach incidents that remain undetected for an extended period.
Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not
recognized until launched, we may be unable to anticipate these techniques or to implement adequate preventive
measures. If an actual or perceived breach of our security occurs, or if we are unable to effectively resolve such breaches
in a timely manner, the market perception of the effectiveness of our security measures could be harmed and we could
lose sales, Clients and Members, which could have a material adverse effect on our business, financial condition and
results of operations.
Our proprietary software may not operate properly, which could damage our reputation, give rise to claims against us
or divert application of our resources from other purposes, any of which could harm our business, financial condition
and results of operations.
The Teladoc Health proprietary application platform provides our Members and providers with the ability to,
among other things: register for our services; complete, view and edit medical history; request a visit (either scheduled or
on demand); conduct a visit (via video or phone); and initiate an expert medical service. Proprietary software
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development is time consuming, expensive and complex, and may involve unforeseen difficulties. We may encounter
technical obstacles, and it is possible that we may discover additional problems that prevent our proprietary applications
from operating properly. We are currently implementing software with respect to a number of new applications and
services. If our solution does not function reliably or fails to achieve Client expectations in terms of performance, Clients
could assert liability claims against us or attempt to cancel their contracts with us. This could damage our reputation and
impair our ability to attract or maintain Clients.
Moreover, data services are complex and those we offer have in the past contained, and may in the future
develop or contain, undetected defects or errors. Material performance problems, defects or errors in our existing or new
software and applications and services may arise in the future and may result from interface of our solution with systems
and data that we did not develop and the function of which is outside of our control or undetected in our testing. These
defects and errors, and any failure by us to identify and address them, could result in loss of revenue or market share,
diversion of development resources, harm to our reputation and increased service and maintenance costs. Defects or
errors may discourage existing or potential Clients from purchasing our solution from us. Correction of defects or errors
could prove to be impossible or impracticable. The costs incurred in correcting any defects or errors may be substantial
and could have a material adverse effect on our business, financial condition and results of operations.
Any current or future litigation or other legal or regulatory proceedings could be costly and time consuming, and any
losses or liability may not be covered by insurance.
We have been and may become subject, from time to time, to legal and regulatory proceedings and claims that
arise in the ordinary course of business, such as claims brought by our Clients in connection with commercial disputes or
employment claims made by our current or former associates. Regardless of outcome, such proceedings may result in
substantial costs and may divert management’s attention and resources or decrease market acceptance of our solutions,
which may substantially harm our business, financial condition and results of operations. We attempt to limit our liability
to Clients by contract; however, the limitations of liability set forth in the contracts may not be enforceable or may not
otherwise protect us from liability for damages. Additionally, we may be subject to claims that are not explicitly covered
by contract. Insurance may not cover claims against us, may not provide sufficient payments to cover all of the costs to
resolve one or more such claims and may not continue to be available on terms acceptable to us. In addition, the insurer
might disclaim coverage as to any future claim. A successful claim not fully covered by our insurance could have a
material adverse impact on our liquidity, financial condition, and results of operations. A claim brought against us that is
uninsured or underinsured could result in unanticipated costs, thereby reducing our earnings and leading analysts or
potential investors to reduce their expectations of our performance, which could reduce the market price of our stock.
We may become subject to medical liability claims, which could cause us to incur significant expenses and may
require us to pay significant damages if not covered by insurance.
Our business entails the risk of medical liability claims against both our providers and us. Although we and
Teladoc Health Medical Group, P.A. carry insurance covering medical malpractice claims in amounts that we believe are
appropriate in light of the risks attendant to our business, successful medical liability claims could result in substantial
damage awards that exceed the limits of our and Teladoc Health Medical Group, P.A.’s insurance coverage. Teladoc
Health Medical Group, P.A. carries professional liability insurance for itself and each of its healthcare professionals (our
providers), and we separately carry a general insurance policy, which covers medical malpractice claims. In addition,
professional liability insurance is expensive and insurance premiums may increase significantly in the future, particularly
as we expand our services. As a result, adequate professional liability insurance may not be available to our providers or
to us in the future at acceptable costs or at all.
Any claims made against us that are not fully covered by insurance could be costly to defend against, result in
substantial damage awards against us and divert the attention of our management and our providers from our operations,
which could have a material adverse effect on our business, financial condition and results of operations. In addition, any
claims may adversely affect our reputation.
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Any failure to protect our intellectual property rights could impair our ability to protect our technology and our
brand.
Our success depends in part on our ability to enforce our intellectual property and other proprietary rights. We
rely upon a combination of patent, trademark, copyright and trade secret laws, as well as license and access agreements
and other contractual provisions, to protect our intellectual property and other proprietary rights. In addition, we attempt
to protect our intellectual property and proprietary information by requiring our employees, consultants and certain of
our contractors to execute confidentiality and assignment of inventions agreements. These laws, procedures and
restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated,
circumvented, infringed or misappropriated. To the extent that our intellectual property and other proprietary rights are
not adequately protected, third parties may gain access to our proprietary information, develop and market solutions
similar to ours or use trademarks similar to ours, each of which could materially harm our business. Unauthorized parties
may also attempt to copy or obtain and use our technology to develop applications with the same functionality as our
solution, and policing unauthorized use of our technology and intellectual property rights is difficult and may not be
effective. In addition, the laws of certain foreign countries in which we operate may not protect our intellectual property
rights to the same extent as do the laws of the United States.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor
and protect these rights. We may not always detect infringement of our intellectual property rights, and defending or
enforcing our intellectual property rights, even if successfully detected, prosecuted, enjoined or remedied, could result in
the expenditure of significant financial and managerial resources. Litigation may be necessary to enforce our intellectual
property rights, protect our proprietary rights or determine the validity and scope of proprietary rights claimed by others.
Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of
management and technical resources, any of which could adversely affect our business, financial condition and results of
operations. We may also incur significant costs in enforcing our trademarks against those who attempt to imitate our
brand and other valuable trademarks and service marks. Furthermore, our efforts to enforce our intellectual property
rights may be met with defenses, counterclaims, countersuits, and adversarial proceedings such as oppositions, inter
partes review, post-grant review, re-examination or other post-issuance proceedings, that attack the validity and
enforceability of our intellectual property rights. An adverse determination of any litigation proceedings could put our
patents at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk
of not issuing. The failure to adequately protect our intellectual property and other proprietary rights could have a
material adverse effect on our business, financial condition and results of operations.
We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property
rights.
In recent years, there has been significant litigation in the United States involving patents and other intellectual
property rights. Companies in the Internet and technology industries are increasingly bringing and becoming subject to
suits alleging infringement of proprietary rights, particularly patent rights, and our competitors and other third parties
may hold patents or have pending patent applications, which could be related to our business. These risks have been
amplified by the increase in third parties, which we refer to as non - practicing entities, whose sole primary business is to
assert such claims. Regardless of the merits of any other intellectual property litigation, we may be required to expend
significant management time and financial resources on the defense of such claims, and any adverse outcome of any
such claim or the above referenced review could have a material adverse effect on our business, financial condition and
results of operations. We expect that we may in the future receive notices that claim we or our Clients using our solutions
have misappropriated or misused other parties’ intellectual property rights, particularly as the number of competitors in
our market grows and the functionality of applications amongst competitors overlaps. Our existing or any future
litigation, whether or not successful, could be extremely costly to defend, divert our management’s time, attention and
resources, damage our reputation and brand and substantially harm our business.
In addition, in most instances, we have agreed to indemnify our Clients against certain third - party claims, which
may include claims that our solutions infringe the intellectual property rights of such third parties. Our business could be
adversely affected by any significant disputes between us and our Clients as to the applicability or scope of our
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indemnification obligations to them. The results of any intellectual property litigation to which we may become a party,
or for which we are required to provide indemnification, may require us to do one or more of the following:
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cease offering or using technologies that incorporate the challenged intellectual property;
• make substantial payments for legal fees, settlement payments or other costs or damages;
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obtain a license, which may not be available on reasonable terms, to sell or use the relevant technology; or
redesign technology to avoid infringement.
If we are required to make substantial payments or undertake any of the other actions noted above as a result of
any intellectual property infringement claims against us or any obligation to indemnify our Clients for such claims, such
payments or costs could have a material adverse effect on our business, financial condition and results of operations.
Certain U.S. state tax authorities may assert that we have a state nexus and seek to impose state and local income
taxes, or that we should have collected or in the future collect sales and use or similar taxes for telehealth services,
which could adversely affect our business, financial condition and results of operations.
We are currently licensed to operate in all fifty states and file state income tax returns in 43 states.
There is a risk that certain state tax authorities where we do not currently file a state income tax return could
assert that we are liable for state and local income taxes based upon income or gross receipts allocable to such states.
States are becoming increasingly aggressive in asserting a nexus for state income tax purposes. We could be subject to
state and local taxation, including penalties and interest attributable to prior periods, if a state tax authority successfully
asserts that our activities give rise to a nexus. Furthermore, we do not collect sales and use and similar taxes in any states
for telehealth services based on our belief that our services are not subject to such taxes in any state. With the
acquisitions InTouch Health and Livongo, some of our products and services are deemed to be subject to sales tax, for
which we are collecting and remitting taxes. Sales and use and similar tax laws and rates vary greatly from state to state.
Additionally, we do not collect value added tax or similar taxes in certain foreign jurisdictions based on our belief that
our services are not subject to such taxes. Certain states or foreign jurisdictions in which we do not collect such taxes
may assert that such taxes are applicable, which could result in tax assessments, penalties and interest with respect to
past services, and we may be required to collect such taxes for services in the future. Such tax assessments, penalties and
interest may adversely affect our business, financial condition and results of operations.
If our providers or experts are characterized as employees, we would be subject to employment and withholding
liabilities.
We structure our relationships with our providers and experts in a manner that we believe results in an
independent contractor relationship, not an employee relationship. An independent contractor is generally distinguished
from an employee by his or her degree of autonomy and independence in providing services. A high degree of autonomy
and independence is generally indicative of a contractor relationship, while a high degree of control is generally
indicative of an employment relationship. Although we believe that our providers and experts are properly characterized
as independent contractors, tax or other regulatory authorities may in the future challenge our characterization of these
relationships. If such regulatory authorities or state, federal or foreign courts were to determine that our providers or
experts are employees, and not independent contractors, we would be required to withhold income taxes, to withhold and
pay social security, Medicare and similar taxes and to pay unemployment and other related payroll taxes. We would also
be liable for unpaid past taxes and subject to penalties. As a result, any determination that our providers or experts are
our employees could have a material adverse effect on our business, financial condition and results of operations.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, a
corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre - change net
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operating losses, or NOLs, to offset future taxable income. A Section 382 “ownership change” generally occurs if one or
more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than
50 percentage points over their lowest ownership percentage within a rolling three - year period. Similar rules may apply
under state tax laws. As of December 31, 2020, we had approximately $2,030.1 million of federal NOL carryforwards,
$1,035.9 million of state NOL carryforwards, and $45.1 million of foreign NOL carryforwards. The federal NOL
carryforwards created subsequent to the year ended December 31, 2017 of $1,477.0 million carry forward indefinitely,
while the remaining federal NOL carryforwards of $553.1 million began to expire in 2020. The state NOL carryforwards
began to expire in 2020, and the foreign NOL carryforwards begin to expire in 2021. As of December 31, 2020, the
Company has approximately $5.7 million of foreign tax credits, which begin to expire in 2021. Our ability to utilize
NOLs may be currently subject to limitations due to prior ownership changes. In addition, future changes in our stock
ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code,
further limiting our ability to utilize NOLs arising prior to such ownership change in the future. There is also a risk that
due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs
could expire or otherwise be unavailable to offset future income tax liabilities. In 2020, we released a portion of the
valuation allowance against the deferred tax assets attributable to our U.S. NOLs as the acquired intangibles from the
InTouch Health and Livongo acquisitions serve as a source of income for which we, more likely than not, will be able to
realize the benefits of the deferred tax assets against. We have recorded a full valuation allowance against the deferred
tax assets attributable to our foreign tax credits and certain foreign deferred tax assets that are not more likely than not
expected to be utilized.
In order to support the growth of our business, we have and may need to incur additional indebtedness or seek capital
through new equity or debt financings, which sources of additional indebtedness or capital may not be available to us
on acceptable terms or at all.
Our operations have consumed substantial amounts of cash since inception and we intend to continue to make
significant investments to support our business growth, respond to business challenges or opportunities, develop new
applications and services, enhance our existing solution and services, enhance our operating infrastructure and
potentially acquire complementary businesses and technologies. For the years ended December 31, 2020, 2019 and 2018,
our net cash (used in) provided by operating activities was $(53.5) million, $29.9 million and $(4.9) million,
respectively. As of December 31, 2020, we had $733.3 million of cash and cash equivalents and $53.2 million of short-
term investments, which are held for working capital purposes. As of December 31, 2020, we had outstanding $1,000.0
million of 1.25% convertible senior notes due 2027, or the 2027 Notes, $276.8 million of 1.375% convertible senior
notes due 2025 or the 2025 Notes, $46.8 million of 3% convertible senior notes due 2022, or the 2022 Notes, and,
together with the 2027 Notes and the 2025 Notes, the Notes. As of December 31, 2020, Livongo also had outstanding
$550.0 million of 0.875% convertible senior notes due 2025, or the Livongo Notes, and we have agreed to guarantee
Livongo’s obligations under the Livongo Notes.
We may be required to use a substantial portion of our cash flows from operations to pay interest and principal
on our indebtedness. Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our
indebtedness, including the Notes and the Livongo Notes, depends on our future performance, which is subject to
economic, financial, competitive and other factors beyond our control. Such payments will reduce the funds available to
us for working capital, capital expenditures, and other corporate purposes and limit our ability to obtain additional
financing for working capital, capital expenditures, expansion plans, and other investments, which may in turn limit our
ability to implement our business strategy, heighten our vulnerability to downturns in our business, the industry, or in the
general economy, limit our flexibility in planning for, or reacting to, changes in our business and the industry, and
prevent us from taking advantage of business opportunities as they arise. Our business may not continue to generate cash
flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are
unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets,
restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. If we are unable
to engage in any of these activities or engage in these activities on desirable terms, it could result in a default on our debt
obligations, which would adversely affect our business, financial condition and results of operations.
The Notes are senior unsecured obligations of ours and generally rank equally in right of payment to all of our
other unsecured indebtedness, and the Livongo Notes are senior unsecured obligations of Livongo, guaranteed by us, and
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generally rank equally in right of payment to all of Livongo’s other unsecured indebtedness. Under certain conditions,
we may redeem any portion of the 2027 Notes for cash on or after June 5, 2024, we may redeem any portion of the 2025
Notes for cash on or after May 22, 2022, we may redeem any portion of the 2022 Notes for cash on or after December
22, 2020, and Livongo may redeem any portion of the Livongo Notes for cash on or after June 5, 2023 and prior to the
41st scheduled trading day immediately preceding the maturity date, in each case at a redemption price equal to the
principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any. Under certain circumstances,
including following a notice of redemption, holders of the Notes may convert all or a portion of their Notes into shares of
our common stock and holders of the Livongo Notes may convert all of a portion of their Livongo Notes into shares of
our common stock and $4.24 in cash, without interest. We may settle conversions of the Notes and the Livongo Notes
through payment or delivery, as the case may be, of cash, shares of our common stock or a combination of cash and
shares of our common stock. The amount of cash paid, or number of shares delivered in connection with any conversion
may be material, and could result in a significant depletion in the cash available to fund our operations or significant
dilution to our stockholders. In February 2021 we issued notice to holders that we have called for redemption all of the
outstanding 2022 Notes.
Our future capital requirements may be significantly different from our current estimates and will depend on
many factors, including our growth rate, subscription renewal activity, the timing and extent of spending to support
development efforts, the expansion of sales and marketing activities, the introduction of new or enhanced services and
the continuing market acceptance of telehealth. Accordingly, we may need to engage in equity or debt financings or
collaborative arrangements to secure additional funds. If we raise additional funds through further issuances of equity or
convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we
issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing
secured by us in the future could involve restrictive covenants relating to our capital - raising activities and other financial
and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business
opportunities, including potential acquisitions. In addition, during times of economic instability, it has been difficult for
many companies to obtain financing in the public markets or to obtain debt financing, and we may not be able to obtain
additional financing on commercially reasonable terms, if at all. If we are unable to obtain adequate financing or
financing on terms satisfactory to us, it could have a material adverse effect on our business, financial condition and
results of operations.
We may acquire other companies or technologies, which could divert our management’s attention, result in dilution
to our stockholders and otherwise disrupt our operations and we may have difficulty integrating any such acquisitions
successfully or realizing the anticipated synergies and other benefits therefrom, any of which could have a material
adverse effect on our business, financial condition and results of operations.
We have in the past and may in the future seek to acquire or invest in businesses, applications and services or
technologies that we believe could complement or expand our solution, enhance our technical capabilities or otherwise
offer growth opportunities. For example, on July 1, 2020 we completed the acquisition of InTouch and on October 30,
2020 we completed the merger with Livongo. The pursuit of potential acquisitions may divert the attention of
management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions,
whether or not they are consummated.
In addition, if we acquire additional businesses, we may not be able to integrate the acquired personnel,
operations and technologies successfully, or effectively manage the combined business following the acquisition. We
also may not achieve the anticipated benefits from the acquired business due to a number of factors, including, but not
limited to:
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inability to integrate or benefit from acquired technologies or services in a profitable manner;
unanticipated costs or liabilities associated with the acquisition;
difficulty integrating the accounting systems, operations and personnel of the acquired business;
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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure
of the acquired business;
difficulty converting the Clients of the acquired business onto our platform and contract terms, including
disparities in the revenue, licensing, support or professional services model of the acquired company;
diversion of management’s attention from other business concerns;
adverse effects to our existing business relationships with business partners and Clients as a result of the
acquisition;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired
goodwill and other intangible assets, which can result in the risk of impairment over time. For example, the Livongo
acquisition resulted in the recognition of approximately $12.9 billion of goodwill, $1.1 billion of Client relationship
intangibles and $550 million of other intangibles. In the future, if the Livongo or other acquisitions do not yield expected
returns, we may be required to take charges to our results of operations based on this impairment assessment process,
which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could
adversely affect our results of operations. For example, shares of our common stock were issued in connection with the
acquisitions of Livongo and InTouch. In addition, if an acquired business fails to meet our expectations, our business,
financial condition and results of operations may suffer.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or
an inability to attract and retain highly skilled employees could adversely affect our business.
Our success depends largely upon the continued services of our key executive officers. These executive officers
are at - will employees and therefore they may terminate employment with us at any time with no advance notice. We also
rely on our leadership team in the areas of research and development, marketing, services and general and administrative
functions. From time to time, there may be changes in our executive management team resulting from the hiring or
departure of executives, which could disrupt our business. The replacement of one or more of our executive officers or
other key employees would likely involve significant time and costs and may significantly delay or prevent the
achievement of our business objectives.
To continue to execute our growth strategy, we also must attract and retain highly skilled personnel.
Competition is intense for qualified professionals. We may not be successful in continuing to attract and retain qualified
personnel. We have from time to time in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled personnel with appropriate qualifications. The pool of qualified personnel
with experience working in the healthcare market is limited overall. In addition, many of the companies with which we
compete for experienced personnel have greater resources than we have.
In addition, in making employment decisions, particularly in high - technology industries, job candidates often
consider the value of the stock options or other equity-based awards they are to receive in connection with their
employment. Volatility in the price of our stock may, therefore, adversely affect our ability to attract or retain highly
skilled personnel. Further, the requirement to expense stock options and other equity-based compensation may
discourage us from granting the size or type of stock option or equity awards that job candidates require to join our
company. Failure to attract new personnel or failure to retain and motivate our current personnel, could have a material
adverse effect on our business, financial condition and results of operations.
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We are dependent on our ability to recruit, retain and develop a very large and diverse workforce. We must evolve our
culture in order to successfully grow our business.
Our products and services and our operations require a large number of employees. A significant number of
employees have joined us in recent years as a result of our acquisitions and our entry into new businesses. Our success is
dependent on our ability to evolve our culture, align our talent with our business needs, engage our employees and
inspire our employees to be open to change, to innovate and to maintain Member- and Client-focus when delivering our
services. Our business would be adversely affected if we fail to adequately plan for succession of our executives and
senior management; or if we fail to effectively recruit, integrate, retain and develop key talent and/or align our talent
with our business needs, in light of the current rapidly changing environment. While we have succession plans in place
and we have employment arrangements with a limited number of key executives, these do not guarantee that the services
of these or suitable successor executives will continue to be available to us. In addition, as we expand internationally, we
face the challenge of recruiting, integrating, educating, managing, retaining and developing a more culturally diverse
workforce.
If we fail to develop widespread brand awareness cost - effectively, our business may suffer.
We believe that developing and maintaining widespread awareness of our brand in a cost - effective manner is
critical to achieving widespread adoption of our solution and attracting new Clients. Our brand promotion activities may
not generate Client awareness or increase revenue, and even if they do, any increase in revenue may not offset the
expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial
expenses in doing so, we may fail to attract or retain Clients necessary to realize a sufficient return on our brand - building
efforts or to achieve the widespread brand awareness that is critical for broad Client adoption of our solution.
Our marketing efforts depend significantly on our ability to receive positive references from our existing Clients.
Our marketing efforts depend significantly on our ability to call upon our current Clients to provide positive
references to new, potential Clients. Given our limited number of long - term Clients, the loss or dissatisfaction of any
Client could substantially harm our brand and reputation, inhibit widespread adoption of our solution and impair our
ability to attract new Clients and maintain existing Clients. Any of these consequences could lower retention rate and
have a material adverse effect on our business, financial condition and results of operations.
Our marketing efforts for the direct-to-consumer behavioral health portion of our business may not be successful or
may become more expensive, either of which could increase our costs and adversely affect our business, financial
condition, results of operations and cash flows.
Direct-to-consumer behavioral health represents a material portion of our overall business. We spend significant
resources marketing this service. We rely on relationships for our direct-to-consumer behavioral health business with a
wide variety of third parties, including Internet search providers such as Google, social networking platforms such as
Facebook, Internet advertising networks, co-registration partners, retailers, distributors, television advertising agencies
and direct marketers, to source new Members and to promote or distribute our services and products. In addition, in
connection with the launch of new services or products for our direct-to-consumer behavioral health business, we may
spend a significant amount of resources on marketing. If our marketing activities are inefficient or unsuccessful, if
important third-party relationships or marketing strategies, such as Internet search engine marketing and search engine
optimization, become more expensive or unavailable, or are suspended, modified or terminated, for any reason, if there is
an increase in the proportion of consumers visiting our websites or purchasing our services by way of marketing
channels with higher marketing costs as compared to channels that have lower or no associated marketing costs or if our
marketing efforts do not result in our services being prominently ranked in Internet search listings, our business,
financial condition, results of operations and cash flows could be materially and adversely impacted.
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Natural or man-made disasters and other similar events may significantly disrupt our business and negatively impact
our business, financial condition and results of operations.
Our offices may be harmed or rendered inoperable by natural or man-made disasters, including earthquakes,
power outages, fires, floods, nuclear disasters, health epidemics (including the COVID-19 pandemic) and acts of
terrorism or other criminal activities, which may render it difficult or impossible for us to operate our business for some
period of time. For example, our headquarters are located in the greater New York City area, a region with a history of
terrorist attacks and hurricanes, and certain of the facilities we lease to house our computer and telecommunications
equipment are located in the San Francisco Bay Area, a region known for seismic activity. Acts of terrorism, including
malicious internet-based activity, could cause disruptions to the internet or the economy as a whole. Even with our
disaster recovery arrangements, access to our platform could be interrupted. If our systems were to fail or be negatively
impacted as a result of a natural disaster or other event, our ability to deliver our platform and solution to our Clients and
Members would be impaired or we could lose critical data. Although we maintain an insurance policy covering damage
to property we rent, such insurance may not be sufficient to compensate for losses that may occur. If we are unable to
develop adequate plans to ensure that our business functions continue to operate during and after a disaster, and
successfully execute on those plans in the event of a disaster or emergency, any such losses or damages could have a
material adverse effect on our business, financial condition and results of operations and harm our reputation. In
addition, our Clients’ facilities may be harmed or rendered inoperable by such natural or man-made disasters, which may
cause disruptions, difficulties or material adverse effects on our business.
Risks Related to the Livongo Merger
We may have difficulty integrating the Livongo business, and the anticipated synergies and other benefits of the
combined company may not be realized.
On October 30, 2020 we completed the merger with Livongo. The ultimate success of our merger with Livongo
will depend in large part on the success of the management of the newly combined company in integrating the
operations, strategies, technologies and personnel of the two companies. We may fail to realize some or all of the
anticipated benefits of the merger if the integration process takes longer than expected or is more costly than expected.
Our failure to meet the challenges involved in successfully integrating the operations of the two companies or to
otherwise realize any of the anticipated benefits of the merger, including additional cost savings and synergies, could
impair our operations. In addition, the overall integration of Livongo post-merger will continue to be a time-consuming
and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt
our business.
Potential difficulties we may encounter in the integration process include the following:
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the integration of management teams, strategies, technologies and operations, products and services;
the disruption of ongoing businesses and distraction of management from ongoing business concerns;
the retention of and possible decrease in business from the existing customers of both companies;
the creation of uniform standards, controls, procedures, policies and information systems;
the reduction of the costs associated with each company’s operations;
the integration of corporate cultures and maintenance of employee morale;
the retention of key employees; and
potential unknown liabilities associated with the merger.
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The initial anticipated cost savings, synergies and other benefits of the merger assume a successful integration
of the companies and are based on projections and other assumptions, which are inherently uncertain. Even if integration
is successful, anticipated cost savings, synergies and other benefits may not be achieved.
Certain business uncertainties arising from the merger with Livongo could adversely affect our business and
operations.
Uncertainties about the effect of the merger with Livongo on employees, Clients, Members, providers, experts
and other persons with whom we have a business relationship may have an adverse effect on us. During times of
significant change and uncertainty such as the period following the merger, Clients, Members, providers, experts and
other persons with whom we have a business relationship may delay or defer business decisions, decide to terminate,
modify or renegotiate their relationships with us, or take other actions as a result of the merger that could negatively
affect our revenues, earnings and cash flows, as well as the market price of our securities. Our ability to raise additional
capital through the debt markets, and the associated borrowing costs, may also be negatively impacted. Any such effects
could limit our ability to achieve the anticipated benefits of the merger with Livongo. These uncertainties about the
effect of the merger may also impair our ability to attract, retain and motivate key personnel. Employee retention may be
challenging, as certain employees may experience uncertainty about their future roles or may be dissatisfied with their
new roles. If key employees depart, our business could be materially harmed. If key employees join a competitor or form
a new competitor, existing and potential Clients could choose to use the products or services of that competitor instead of
our products or services.
Risks Related to Ownership of Our Common Stock
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and under
Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult
and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may
discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may
consider favorable, including transactions in which you might otherwise receive a premium for your shares. These
provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock,
thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for
appointing the members of our management team, these provisions may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by making it more difficult for stockholders to replace
members of our board of directors. Among other things, these provisions include those establishing:
•
•
•
•
•
no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect
director candidates;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of
our board of directors or the resignation, death or removal of a director, which prevents stockholders from
filling vacancies on our board of directors;
the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine
the terms of those shares, including preferences and voting rights, without stockholder approval, which
could be used to significantly dilute the ownership of a hostile acquirer;
the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder
approval;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an
annual or special meeting of our stockholders;
49
•
•
the requirement that a special meeting of stockholders be called only by the chairman of our board of
directors, the chief executive officer, the president or our board of directors, which may delay the ability of
our stockholders to force consideration of a proposal or to take action, including the removal of directors;
and
advance notice procedures that stockholders must comply with in order to nominate candidates to our board
of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or
deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of
directors or otherwise attempting to obtain control of us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware, or the DGCL, which prohibits a person who owns in excess of 15%
of our outstanding voting stock from merging or combining with us for a period of three years after the date of the
transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or
combination is approved in a prescribed manner.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware
will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our
stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of
Delaware is the exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action
asserting a claim of breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents
to us or our stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or our amended
and restated certificate of incorporation or amended and restated bylaws, (4) any action to interpret, apply, enforce or
determine the validity of our amended and restated certificate of incorporation or amended and restated bylaws or (5) any
action asserting a claim governed by the internal affairs doctrine. This choice of forum provision may limit a
stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors,
officers or other employees, which may discourage such lawsuits against us and our directors, officers and other
employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated
certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated
with resolving such action in other jurisdictions, which could have a material adverse effect our business, financial
condition or results of operations.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital
appreciation will be your sole source of gain, if any.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our
future earnings, if any, to finance the growth and development of our business. Any future debt agreements may preclude
us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain
for the foreseeable future.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the
market price of its securities. If we face such litigation, it could result in substantial costs and a diversion of
management’s attention and resources, which could have a material adverse effect on our business, financial condition
and results of operations.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their
recommendations regarding our shares, or if our results of operations do not meet their expectations, the share price
and trading volume of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that industry or
securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of
these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the
50
financial markets, which in turn could cause the share price or trading volume of our common stock to decline.
Moreover, if one or more of the analysts who cover us express views regarding us that may be perceived as negative or
less favorable than previous views, downgrade our stock, or if our results of operations do not meet their expectations,
the share price of our common stock could decline.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We believe that our company’s offices and other facilities are, in general, in good operating condition and
adequate for our current operations and that additional leased space in appropriate locations can be obtained on
acceptable terms if needed.
We lease approximately 21,000 square feet of office space in Purchase, New York for our corporate
headquarters and certain of our operations under a lease for which the term expires in August 2028.
We also lease additional office space in Arizona, California, Illinois, Texas, Spain and elsewhere in the United
States and other foreign locations. We believe that our facilities are adequate to meet our needs for the immediate future,
and that, should it be needed, suitable additional space will be available to accommodate any such expansion of our
operations.
Item 3. Legal Proceedings
We are subject to legal proceedings, claims and litigation arising in the ordinary course of our business.
Descriptions of certain legal proceedings to which we are a party are contained in Note 20, “Legal Matters”, to our
audited consolidated financial statements included in Part II, of this Annual Report on Form 10-K and are incorporated
by reference herein.
Item 4. Mine Safety Disclosures
Not applicable.
51
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Market Information
Our Common Stock trades on the New York Stock Exchange (“NYSE”) under the symbol “TDOC”.
Holders
On February 11, 2021, there were 147 shareholders of record of our Common Stock. Because many of our
shares of Common Stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate
the total number of stockholders represented by these record holders.
Dividends
We have never declared or paid any cash dividends on our Common Stock, and we do not anticipate paying
cash dividends in the foreseeable future.
Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities which have not been previously disclosed in a quarterly
report on Form 10-Q or a current report on Form 8-K during the period covered by this report.
Purchase of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this report.
Performance Graph
The following graph compares the cumulative total stockholder return on Teladoc Health Common Stock with
the comparable cumulative return of the S&P 500 Index, the S&P 500 Healthcare Index and the Russell 2000 Composite
Index over the period of time covered in the graph. We previously used the Russell 2000 Composite Index, however, due
to the growth of our market capitalization we determined that the S&P 500 Index is a more appropriate benchmark going
forward because it is more representative of companies with market capitalizations comparable to ours. The return of the
Russell 2000 Composite Index is included in the graph to aid in comparison for this transition year. The graph assumes
52
that $100 was invested in Teladoc Health Common Stock and in each index on December 31, 2015. The stock price
performance on the following graph is not necessarily indicative of future stock price performance.
Comparison of 60 Months Return*
Among Teladoc Health, Inc., the RUSSELL 2000 Composite Index, the S&P HealthCare Index and the S&P 500 Index
$1,400
$1,200
$1,000
$800
$600
$400
$200
$-
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Teladoc Health, Inc.
Russell 2000
S&P 500 Health Care Sector
S&P 500 Index
*$100 invested on 12/31/2015 in stock or index
Fiscal year ending December 31.
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and with the Consolidated Financial
Statements and notes thereto, which are included elsewhere in this Annual Report. We acquired Livongo on October 30,
2020, InTouch on July 1, 2020, MedecinDirect on April 30, 2019, Advance Medical on May 31, 2018, Best Doctors on
July 14, 2017, HY Holdings, Inc. d/b/a HealthiestYou Corporation on July 1, 2016, Stat Health Services Inc. on June 17,
2015 and Compile, Inc. d/b/a BetterHelp on January 23, 2015. The results of the acquisitions were integrated within our
existing business on the respective acquisition dates.
53
Consolidated Statements of
Operations Data (in thousands):
Revenue
Expenses:
Cost of revenue (exclusive of
depreciation and amortization shown
separately below)
Operating expenses:
Advertising and marketing
Sales
Technology and development
Legal and regulatory
Acquisition and integration related
costs
Gain on sale
General and administrative
Depreciation and amortization
Total expenses
Loss from operations
Amortization of warrants and loss on
extinguishment of debt
Interest expense, net
Net loss before taxes
Income tax (benefit) provision
Net loss
Net loss per share, basic and diluted
Weighted-average shares used to
compute basic and diluted net loss per
share
2020
Year Ended December 31,
2018
2019
2017
2016
$ 1,093,962 $
553,307 $
417,907 $
233,279 $
123,157
390,829
184,465
128,735
61,623
31,971
226,146
154,052
164,941
8,876
88,236
0
497,808
69,495
1,600,383
(506,421)
9,077
60,495
(575,993)
(90,857)
109,697
64,915
64,644
6,762
6,620
0
157,694
38,952
633,749
(80,442)
0
29,013
(109,455)
(10,591)
85,109
59,154
54,373
3,981
10,391
(5,500)
116,916
35,602
488,761
(70,854)
0
26,112
(96,966)
118
57,663
37,984
34,459
4,872
13,196
0
79,781
19,095
308,673
(75,394)
14,122
17,491
(107,007)
(225)
34,720
26,243
21,815
7,275
6,959
0
48,568
8,270
185,821
(62,664)
8,454
2,588
(73,706)
510
$
$
(485,136) $
(5.36) $
(98,864) $
(1.38) $
(97,084) $ (106,782) $
(1.93) $
(1.47) $
(74,216)
(1.75)
90,509,229
71,844,535
65,844,908
55,427,460
42,330,908
2020
2019
2018
2017
2016
As of December 31,
$ 517,064 $ 478,534 $ 122,306 $ 65,808
61,644
303,670
230,870
497,821
1,602,827
1,014,025
470,296
1,528,876
1,013,119
115,909
824,391
558,903
Consolidated Balance Sheet Data (in
thousands):
Cash, cash equivalents and short-term
investments
Working capital
Total assets
Stockholders’ equity
$
786,569
726,958
17,755,281
15,883,804
54
SPECIAL NOTE REGARDING FORWARD - LOOKING STATEMENTS
Many statements made in this Form 10-K that are not statements of historical fact, including statements about
our beliefs and expectations, are forward - looking statements and should be evaluated as such. Forward - looking
statements include information concerning possible or assumed future results of operations, including descriptions of our
business plan and strategies. These statements often include words such as “anticipates”, “believes”, “suggests”,
“targets”, “projects”, “plans”, “expects”, “future”, “intends”, “estimates”, “predicts”, “potential”, “may”, “will”,
“should”, “could”, “would”, “likely”, “foresee”, “forecast”, “continue” and other similar words or phrases, as well as
statements in the future tense to identify these forward-looking statements. These forward - looking statements and
projections are contained throughout this Form 10-K, including the sections entitled” “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” We base these
forward - looking statements or projections on our current expectations, plans and assumptions that we have made in light
of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate under the circumstances and at such time. As you read and
consider this Form 10-K, you should understand that these statements are not guarantees of performance or results. The
forward - looking statements and projections are subject to and involve risks, uncertainties and assumptions and you
should not place undue reliance on these forward - looking statements or projections. Although we believe that these
forward - looking statements and projections are based on reasonable assumptions at the time they are made, you should
be aware that many factors could affect our actual financial results or results of operations and could cause actual results
to differ materially from those expressed in the forward - looking statements and projections. Factors that may materially
affect such forward - looking statements and projections include, but are not limited to section entitled “Risk Factors” in
this Annual Report on Form 10-K and in our other reports and SEC filings. These cautionary statements should not be
construed by you to be exhaustive and are made only as of the date of this Form 10-K. We undertake no obligation to
update or revise any forward - looking statements, whether as a result of new information, future events or otherwise. You
should evaluate all forward-looking statements made in this Form 10 - K in the context of these risks and uncertainties.
55
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Teladoc, Inc. was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the
State of Delaware in October 2008. Effective August 10, 2018, Teladoc, Inc. changed its corporate name to Teladoc
Health, Inc. Unless the context otherwise requires, Teladoc Health, Inc., together with its subsidiaries, is referred to
herein as “Teladoc Health” or the “Company”. The Company’s principal executive office is located in Purchase, New
York. Teladoc Health is the global leader in providing virtual healthcare services with a focus on high quality, lower
costs, and improved outcomes around the world.
Teladoc Health solutions are transforming the access, cost and quality dynamics of healthcare delivery for all of
our market participants. Members rely on Teladoc Health to remotely access affordable, on-demand healthcare whenever
and wherever they choose. Our Clients on behalf of their employees or beneficiaries as well as direct-to consumer
individuals (D2C) purchase our solutions to reduce their healthcare spending and offer convenient, affordable, high-
quality healthcare to their employees or beneficiaries. Our network of physicians and other healthcare professionals, or
our providers have the ability to generate meaningful income and deliver their services more efficiently with no
administrative burden.
COVID-19 Update
We believe that favorable existing macro trends were accelerated by the impacts of the COVID-19 pandemic,
driving greater consumer trial and use of virtual care, and increased adoption by employers, health plans, hospitals and
health systems, and health care providers. In combination with the expansion of our capabilities, we believe that these
trends present significant opportunities for virtual healthcare to address the most pressing, universal healthcare
challenges through trusted solutions, such as ours, that deliver convenient, high quality care; empower consumers to
manage and improve their health; and enable providers to offer their best care for their patients.
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. The outbreak
of COVID-19 in 2020 increased utilization of our telehealth services, but it is uncertain whether such increase in demand
will continue. While the COVID-19 pandemic has not had a material adverse impact on our financial condition and
results of operations to date, the future impact on our operational and financial performance will depend on certain
developments, including the duration and spread of the pandemic, impact on our Clients and Members, impact on our
sales cycles, and effect on our vendors, all of which are uncertain and cannot be predicted. Public and private sector
policies and initiatives to reduce the transmission of COVID-19 and disruptions to our operations and the operations of
our third-party suppliers, along with the related global slowdown in economic activity, may result in decreased revenues,
decreased collections, and increased costs. Further, the economic effects of the COVID-19 pandemic have financially
constrained some of our prospective and existing Clients’ healthcare spending, which may negatively impact our ability
to acquire new Clients and our ability to renew subscriptions with or sell additional solutions to our existing Clients. We
also may experience increased Member attrition to the extent our existing Clients’ reduce their respective workforces in
response to economic conditions. In addition, due to our subscription-based business model, the effect of the COVID-19
pandemic may not be fully reflected in our revenue until future periods. It is possible that the COVID-19 pandemic, the
measures taken by the governments and businesses affected and the resulting economic impact may materially and
adversely affect our business, results of operations, cash flows and financial positions as well as our customers.
We have also taken measures in response to the COVID-19 pandemic, including temporarily closing our offices
and implementing a work from home policy for our workforce; limiting capacity at our offices that have reopened;
implementing additional safety policies and procedures for employees working in our offices that have reopened;
suspending employee travel and in person meetings; and adjusting our supply chain and inventory levels. We may take
56
further actions that alter our business operations as may be required by federal, state, local or foreign authorities or that
we determine are in the best interests of our employees, Clients, Members and stockholders. The effects of these
operational modifications are unknown and may not be realized until further reporting periods.
Revenue
We have a demonstrated track record of driving growth both organically and through acquisitions. We increased
revenue 98% to $1,094.0 million in 2020, including an incremental $128.3 million from our InTouch Health acquisition
and Livongo merger. Excluding the impact of the InTouch and Livongo acquisitions, revenue increased 75%, reflecting
the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and the Company’s broad
momentum to transform the healthcare experience. In 2019, revenue increased 32% to $553.3 million which included an
incremental $33.2 million from our Advance Medical and MedecinDirect acquisitions.
For the year ended December 31, 2020, 79%, 19% and 2% of our revenue was derived from subscription
access fees, visit fees and other, respectively. For both of the year ended December 31, 2019 and 2018, 84% and 16%
of our revenue were derived from subscription access fees and visit fees. We believe our continued strong subscription
fee revenue is mainly representative of the value proposition we provide the broader healthcare system.
Membership, Visits and Platform-Enabled Sessions
We completed approximately 10.6 million, 4.1 million and 2.6 million telehealth visits in 2020, 2019 and 2018,
respectively. U.S. Paid Membership increased by approximately 15.1 million Members to 51.8 million from December
31, 2019 to December 31, 2020. U.S. Paid Membership increased by approximately 13.9 million Members to 36.7
million from December 31, 2018 to December 31, 2019. We also completed approximately 2.1 million platform-enabled
sessions associated with InTouch from July 1, 2020, the date we acquired InTouch, to December 31, 2020.
Acquisition History
We have scaled and intend to continue to scale our platform through the pursuit of selective acquisitions. We
have completed multiple acquisitions since our inception, which we believe have expanded our distribution capabilities
and broadened our service offering.
On October 30, 2020, we completed the merger with Livongo. Upon completion of the merger, each share of
Livongo’s common stock converted into the right to receive 0.5920 shares of Teladoc Health’s common stock and $4.24
in cash, without interest. In addition, in connection with the closing of the merger, Livongo paid a special cash dividend
equal to $7.09 per share to shareholders of Livongo as of a record date of October 29, 2020. The total consideration was
$13,938.0 million consisting of $401.0 million of net cash, $555.4 million related to the conversion feature of the
Livongo Notes guaranteed by the Company and 60.4 million shares of Teladoc Health’s common stock valued at
approximately $12,981.6 million on October 30, 2020. Livongo is a leading provider to empower people with chronic
conditions to live better and healthier lives.
On July 1, 2020, we completed the acquisition of InTouch for aggregate consideration of $1,069.8 million,
which was comprised of 4.6 million shares of our common stock valued at $903.3 million on July 1, 2020, and $166.5
million of net cash. InTouch is a leading provider of enterprise telehealth solutions for hospitals and health systems.
On April 30, 2019, we completed the acquisition of the Paris-based telemedicine provider MedecinDirect for
aggregate net cash consideration of $11.2 million and with the potential for additional earnout consideration. On June 19,
2019, we made a $5.0 million minority investment in Vida Health.
On May 31, 2018, we completed our acquisition of Advance Medical, a leading virtual healthcare provider
outside the United States, for aggregate consideration of $351.7 million, which was comprised of 1,344,387 shares of our
common stock valued at $68.6 million on May 31, 2018, and $283.1 million of net cash.
57
On July 14, 2017, we completed the acquisition of Best Doctors, for aggregate consideration of $445.5 million,
which was comprised of $379.3 million of net cash and 1,855,078 shares of our common stock valued at $66.2 million.
Best Doctors is the world’s leading expert medical consultation company focused on improving health outcomes for the
most complex, critical, and costly medical issues.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
Number of Members. Our revenue growth rate and long-term profitability are affected by our ability to
increase our number of Members because we derive a substantial portion of our revenue from subscription access fees
via Client contracts that provide Members access to our professional provider network in exchange for a contractual
based monthly fee or subscription access fees derived from our D2C Members. Therefore, we believe that our ability to
add new Members is a key indicator of our increasing market adoption, the growth of our business and future revenue
potential, and that increasing our Membership is an integral objective that will provide us with the ability to continually
innovate our services and support initiatives that will enhance Members’ experiences.
In 2020, Membership increased by approximately 15.1 million Members or 41%, to 51.8 million at December
31, 2020. From December 31, 2018 through December 31, 2019, Membership increased by approximately 13.9 million
Members, or 61%, to 36.7 million at December 31, 2019.
Number of Visits. We also recognize revenue in connection with the completion of a general medical visit,
expert medical service and other specialty visits for the majority of our contracts. Accordingly, our visit revenue, or visit
fees, generally increase as the number of visits increase. Visit fee revenue is driven primarily by the number of Clients,
the number of Members in a Client’s population, Member utilization of our provider network services and the
contractually negotiated prices of our services. We believe that increasing our current Member utilization rate and
increasing penetration further into existing and new health plan Clients is a key objective in order for our Clients to
realize tangible healthcare savings with our service. Visits increased by 156%, or 6.5 million, to approximately 10.6
million for the year ended December 31, 2020 compared to the same period in 2019. Visits increased by 57%, or 1.5
million, to approximately 4.1 million for the year ended December 31, 2019 compared to the same period in 2018.
Number Platform-Enabled of Sessions. A platform-enabled session is a unique instance in which our licensed
software platform has facilitated a virtual voice or video encounter between a care provider and our Client’s patient, or
between care providers. We believe platform-enabled sessions are an indicator of the value our Clients derive from the
platform they license from us in order to facilitate virtual care. Over time, we expect platform-enabled sessions to
outpace overall revenue growth as telehealth becomes a bigger part of our Clients’ care delivery strategy. 2.1 million
platform-enabled sessions associated with InTouch were completed from July 1, 2020, the date we acquired InTouch, to
December 31, 2020.
Seasonality. We typically experience the strongest increases in consecutive quarterly revenue during the
fourth and first quarters of each year, which coincides with traditional annual benefit enrollment seasons. In particular, as
a result of many Clients’ introduction of new services at the very end of the current year, or the start of each year, a high
concentration of our new Client contracts have an effective date of January 1. Therefore, while Membership increases,
utilization is dampened until service delivery ramps up over the course of the year. Additionally, our business has
become more diversified across services, channels, and geographies. We continue to see a diversification of Client start
dates, resulting from our health plan expansions, cross sales of new services, international growth, and mid-market
employer growth, all of which are not constrained by a calendar year start.
As a result of national seasonal cold and flu trends, we typically experience our highest level of visit fees during
the first and fourth quarters of each year. Conversely, the second quarter of the year has historically been the period of
lowest utilization of our provider network services relative to the other quarters of the year. However, during the
COVID-19 pandemic in 2020, we did not experience the typical seasonality associated with national cold and flu
outbreaks. See “Risk Factors—Risks Related to Our Business—Our quarterly results may fluctuate significantly, which
could adversely impact the value of our common stock.” included elsewhere in this Annual Report on Form 10-K.
58
Critical Accounting Policies
Revenue
We generate virtual healthcare service revenue from contracts with Clients who purchase access to our
professional provider network or medical experts for their employees, dependents and other beneficiaries. Our Client
contracts include a per-Member-per-month access fee and certain contracts also include additional fees for general
medical and other specialty visits on a per-telehealth visit basis and expert medical service on a per case basis. We also
have certain contracts that generate revenue based solely on a per telehealth visit basis for general medical and other
specialty visits. For our D2C behavioral health product, Members purchase access to our professional provider network
for an access fee. Accordingly, we record access revenue from access fees and visit fee revenue for general medical,
expert medical service and other specialty visits. Other revenue is generated from contracts with Clients for the sale and
rental of access to our hosted virtual healthcare platform.
Revenues are recognized when we satisfy our performance obligation to stand ready to provide telehealth
services which occurs when our Clients and Members have access to and obtain control of the telehealth service.
Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service and this
may include a variable transaction price as the number of Members may vary from the initial billing. We estimate this
amount based on historical experience, which is recorded as a component of revenue. For other revenue which primarily
includes virtual healthcare devices, our performance obligation is satisfied when the equipment is provided to the Client
and revenue is recognized at a point in time upon shipment.
Access revenue accounted for 79% of our total revenue during the year ended December 31, 2020, and 84% of
our total revenue for both of the years ended December 31, 2019 and 2018. Access revenue is driven primarily by the
number of Clients, the number of Members in a Client’s population, the number of services contracted for by a Client
and the contractually negotiated prices of our services. Visit fee revenue for general medical, expert medical service and
other specialty visits is driven primarily by the number of Clients, the number of Members in a Client’s population,
Member utilization of our professional provider network services and the contractually negotiated prices of our services.
Certain of our contracts include Client performance guarantees and pricing adjustments that are based upon
minimum Member utilization and guarantees by us for specific service level performance, Member satisfaction scores,
cost savings guarantees and health outcome guarantees. If Client performance guarantees are not met, we record, as a
reduction to revenue, an estimate of the amount that will be due at the end of the respective Client’s contractual period.
We have elected the optional exemption to not disclose the remaining performance obligations of our contracts
since substantially all of our contracts have a duration of one year or less and the variable consideration expected to be
received over the duration of the contract is allocated entirely to the wholly unsatisfied performance obligations.
Deferred Revenue
Deferred revenue represents billed, but unrecognized revenue, and is comprised of fees received in advance of
the delivery or completion of the services and amounts received in instances when revenue recognition criteria have not
been met. Deferred revenue associated with upfront payments for a device is amortized ratably over expected Member
enrollment period. Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as
current deferred revenue and the remaining portion is recorded as noncurrent deferred revenue.
Deferred Costs and Other
Deferred costs and other consist of deferred device costs and deferred contract costs.
Deferred device costs consist of cost of inventory incurred in connection with delivery of services that are
deferred and amortized over the shorter of the expected Member enrollment period or the expected device life and
recorded as cost of revenue.
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Deferred contract costs represent the incremental costs of obtaining a contract with a Client if we expect to
recover such costs. The primary example of our costs to obtain a contract include incremental sales commissions to
obtain contracts paid to our sales organization. These incremental costs to obtain Client contracts are deferred and then
amortized on a straight-line basis over the period of benefit which has been determined to be four years. Amortization
expense is included in sales and marketing expenses in the consolidated statement of operations.
Deferred costs and other that are to be amortized within twelve months are recorded to deferred costs and other,
current and the remainder is recorded to deferred costs and other, noncurrent on our consolidated balance sheets.
Business Combinations
We account for our business combinations using the acquisition method of accounting. The purchase price is
attributed to the fair value of the assets acquired and liabilities assumed. Transaction costs and accelerated grants of
stock-based awards directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities
acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase
price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of
businesses acquired in a business combination are included in our consolidated financial statements from the date of
acquisition.
When we issue stock-based or cash awards to an acquired company’s shareholders, we evaluate whether the
awards are consideration or compensation for post-acquisition services. The evaluation includes, among other things,
whether the vesting of the awards is contingent on the continued employment of the acquired company’s stockholders
beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for
post-acquisition services and recognized as expense over the requisite service period.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant
judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows,
discount rates and selection of comparable companies. The estimates and assumptions used to determine the fair values
and useful lives of identified intangible assets could change due to numerous factors, including market conditions,
technological developments, economic conditions and competition. In connection with determination of fair values, we
may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets
acquired and certain assumed obligations. Acquisition-related transaction costs incurred by us are not included as a
component of consideration transferred but are accounted for as an operating expense in the period in which the costs are
incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets
acquired in a business combination. Goodwill is not amortized but is tested for impairment annually on October 1 or
more frequently if events or changes in circumstances indicate that the asset may be impaired. We operate as one
reporting unit and the fair value of the reporting unit is estimated using quoted market prices in active markets of our
stock. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value.
Our annual goodwill impairment test resulted in no impairment charges in any of the periods presented in the
consolidated financial statements.
Other intangible assets include Client relationships, non - compete agreements, acquired technology, patents and
trademarks resulting from business acquisitions, and capitalized software development costs. We amortize such definite-
lived intangible assets over their estimated useful lives. We also review the useful lives on a quarterly basis to determine
if the period of economic benefit has changed. Client relationships are amortized over a period of 2 to 20 years in
relation to expected future cash flows, while non-compete agreements are amortized over a period of 1.5 to 5 years using
the straight-line method. Trademarks are amortized over 3 to 15 years using the straight-line method. Technology is
amortized over 5 to 7 years using the straight-line method. Patents are amortized over 3 years using the straight-line
method. Capitalized software development costs are amortized over 3 to 5 years using the straight-line method.
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Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. If the carrying value of an intangible asset exceeds
its fair value, an impairment charge would be recognized in an amount equal to the amount by which the carrying value
of the intangible asset exceeds its fair value. There were no events or changes in circumstances that would indicate that
the carrying value of the definite-lived intangible assets may not be recoverable during the years ended December 31,
2020, 2019 or 2018.
Convertible Senior Notes
Convertible Senior Notes (the Notes) and the Livongo Notes that we agreed to guarantee (the Livongo Notes)
are accounted for in accordance with FASB ASC Subtopic 470-20, Debt with Conversion and Other Options. Pursuant to
ASC Subtopic 470-20, issuers of certain convertible debt instruments, such as the Notes and the Livongo Notes, that
have a net settlement feature and may be settled wholly or partially in cash upon conversion are required to separately
account for the liability (debt) and equity (conversion option) components of the instrument. The carrying amount of the
liability component of the instrument is computed by estimating the fair value of a similar liability without the
conversion option using an income-based approach. For the income-based approach, we use a convertible bond lattice
model that includes assumptions such as volatility and the risk-free rate. The amount of the equity component is then
calculated by deducting the fair value of the liability component from the principal amount of the Notes or the fair value
of the total Livongo Notes assumed on consummation of the merger, as applicable. The difference between the principal
amount and the liability component represents a debt discount that is amortized to interest expense over the contractual
term of the Notes or the Livongo Notes using an effective interest rate method. The equity component is not remeasured
as long as it continues to meet the conditions for equity classification. In accounting for the issuance costs related to the
Notes, the allocation of issuance costs, if applicable, incurred between the liability and equity components were based on
their relative values.
Stock - Based Compensation
Stock - based compensation for stock options and restricted stock units granted is measured based on the grant
date fair value of the awards and recognized on a straight - line basis over the period during which the employee is
required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair
value of employee stock options using the Black - Scholes option - pricing model, except as noted. Stock - based
compensation for performance stock units (“PSU”) granted is measured based on the grant- date fair value of the awards
and recognized on an accelerated tranche by tranche basis over the period during which the employee is required to
perform services in exchange for the award (generally the vesting period of the award). The ultimate number of PSUs
that are issued to an employee is the result of the actual performance of the Company at the end of the performance
period compared to the performance conditions and can range from 50% to 225% of the initial grant. For stock-based
compensation assumed in the Livongo merger, the Monte Carlo valuation model was the most suitable for valuation of
options for the replaced and replacement awards from the merger.
Our Employee Stock Purchase Plan (“ESPP”) permits eligible employees to purchase common stock at a
discount through payroll deductions during defined offering periods. Under the ESPP, we may specify offerings with
durations of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will
have one or more purchase dates on which shares of its common stock will be purchased for employees participating in
the offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is
equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the
date of purchase.
Components of Results of Operations
Cost of Revenue (exclusive of depreciation and amortization, which is shown separately)
Cost of revenue (exclusive of depreciation and amortization, which is shown separately) primarily consists of
fees paid to the physicians and other health professionals in our provider network; product cost; costs incurred in
connection with our provider network operations and data center activities, which include employee-related expenses
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(including salaries and benefits), costs related to Client support; provider network, medical records, magnetic resonance
imaging, medical lab tests, translation, postage, medical malpractice insurance, and deferred device costs. Cost of
revenue (exclusive of depreciation and amortization, which is shown separately) is driven primarily by the number of
general medical visits, expert medical services and other specialty visits completed in each period and are closely
correlated or directly related to delivery of our solutions and monthly subscription fees. Many of the elements of the cost
of revenue (exclusive of depreciation and amortization, which is shown separately) are relatively variable, and can be
reduced in the near-term to offset any decline in our revenue. Our business and operational models are designed to be
highly scalable and leverage variable costs to support revenue-generating activities. Cost of revenue (exclusive of
depreciation and amortization, which is shown separately) does not include an allocation of depreciation and
amortization.
Advertising and Marketing Expenses
Advertising and marketing expenses consist primarily of costs of digital advertisements, personnel and related
expenses for our marketing staff and communications materials that are produced for Member acquisition and to
generate greater awareness and utilization among our Clients and Members. Marketing costs also include third-party
independent research, trade shows and brand messages, public relations costs and stock-based compensation for our
advertising and marketing employees. Our advertising and marketing expenses exclude certain allocations of occupancy
expense as well as depreciation and amortization.
We expect our advertising and marketing expenses to increase for the foreseeable future as we continue to
increase the size of our digital and media advertising and marketing operations including Member acquisition and
engagement activities and expand into new products and markets. Our advertising and marketing expenses will fluctuate
as a percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and
extent of our advertising campaigns and marketing expenses. We will continue to invest in advertising and marketing by
promoting our brands through a variety of marketing and public relations activities.
Sales Expenses
Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions,
employment taxes, travel and stock-based compensation costs for our employees engaged in sales, account management
and sales support in addition to commissions paid to external brokers. Our sales expenses exclude certain allocations of
occupancy expense as well as depreciation and amortization. We expect our sales expenses to continue to increase in the
short-to-medium-term as we strategically invest to expand our business and to capture an increasing amount of our
market opportunity.
Technology and Development Expenses
Technology and development expenses include personnel and related expenses for software engineering,
information technology infrastructure, security and compliance, product development and support for our efforts to add
new features and ensure the reliability and scalability of our existing solutions. Technology and development expenses
also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure,
licensed applications and stock-based compensation for our technology and development employees. Our technology and
development expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.
We expect our technology and development expenses to increase for the foreseeable future as we continue to
invest in the development of our technology platform. Our technology and development expenses may fluctuate as a
percentage of our total revenue from period to period due to the seasonality of our total revenue and the timing and
extent of our technology and development expenses. Historically, the majority of our technology and development costs
have been expensed, except those costs that have been capitalized as software development costs.
Legal and Regulatory Expenses
Legal and regulatory expenses include professional fees incurred and settlements. Our legal and regulatory
expenses exclude certain allocations of personnel and related expenses, occupancy expense as well as depreciation and
amortization.
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Acquisition and Integration Related Costs
Acquisition and integration related costs include investment banking, financing, legal, accounting, consultancy,
integration, fair value changes related to contingent consideration and certain other transaction costs related to mergers
and acquisitions.
General and Administrative Expenses
General and administrative expenses include personnel and related expenses of, and professional fees incurred
by our executive, finance, legal, business development, operations and human resources departments. They also include
stock-based compensation costs related to our board of directors and our employees and most of the facilities costs
including utilities and facilities maintenance. Our general and administrative expenses exclude any allocation of
depreciation and amortization.
We expect our general and administrative expenses to increase for the foreseeable future as we continue to grow
our business. However, we expect our general and administrative expenses to decrease as a percentage of our total
revenue over the next several years. Our general and administrative expenses may fluctuate as a percentage of our total
revenue from period to period due to the seasonality of our total revenue and the timing and extent of our general and
administrative expenses.
Depreciation and Amortization
Depreciation and amortization consist primarily of depreciation of fixed assets, amortization of capitalized
software development costs and amortization of acquisition-related intangible assets.
Amortization of Warrants and Loss on Extinguishment of Debt
Amortization of warrants and loss on extinguishment of debt consists of costs associated with debt refinances
including the write off of origination and termination financing fees and recognition of the fair value of warrants
included with the loan facilities.
Foreign Currency
The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date.
Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation
gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss).
We have not utilized hedging strategies with respect to such foreign exchange exposure.
Interest Expense, Net
Interest expense, net consists of interest costs associated with our bank, other debt and amortization of debt
issuance costs and costs associated with the Notes and Livongo Notes, net of interest earned on cash and cash
equivalents and short-term marketable securities as well as foreign exchange gain or loss related to transactions in
currencies other than the local functional currency.
Income Tax Provision
We follow the provisions of the accounting guidance on accounting for income taxes which requires recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset
to a level which, more likely than not, will be realized. We have recorded deferred tax liabilities arising principally from
63
acquired intangible assets in the U.S. and in foreign jurisdictions. We have provided a valuation allowance for certain of
our U.S. and foreign deferred tax assets at December 31, 2020, 2019 and 2018, as it is more likely than not that these
assets will not be realized in the future. In 2020, we released a portion of the valuation allowance against the deferred tax
assets attributable to our U.S. NOLs as the acquired intangibles from the InTouch Health and Livongo acquisitions serve
as a source of income for which we, more likely than not, will be able to realize the benefits of the deferred tax assets
against.
Consolidated Results of Operations
The following table sets forth our consolidated statement of operations data for the years ended December 31,
2020, 2019 and 2018 and the dollar and percentage change between the respective periods (dollars in thousands):
2020
$
Variance
%
2019
$
Variance
%
2018
$
$ 1,093,962 $ 540,655
98 % $ 553,307 $ 135,400
32 % $ 417,907
Year Ended December 31,
390,829
206,364
112 %
184,465
55,730
43 %
128,735
226,146
154,052
116,449
89,137
106 %
137 %
109,697
64,915
24,588
5,761
29 %
10 %
164,941
8,876
100,297
2,114
155 %
31 %
64,644
6,762
10,271
2,781
19 %
70 %
85,109
59,154
54,373
3,981
88,236
0
497,808
81,616 1,233 %
0 NM %
216 %
340,114
6,620
0
157,694
–36%
(3,771)
5,500 –100%
35 %
40,778
10,391
(5,500)
116,916
69,495
1,600,383
(506,421)
30,543
966,634
(425,979)
78 %
153 %
530 %
38,952
633,749
(80,442)
3,350
144,988
(9,588)
9 %
30 %
14 %
35,602
488,761
(70,854)
9,077
60,495
(575,993)
(90,857)
9,077 NM %
0
109 %
29,013
31,482
426 %
(109,455)
(466,538)
758 %
(10,591)
(80,266)
391 % $ (98,864) $ (1,780)
$ (485,136) $ (386,272)
0 NM %
11 %
2,901
13 %
(12,489)
(10,709) NM %
0
26,112
(96,966)
118
2 % $ (97,084)
Revenue
Expenses:
Cost of revenue (exclusive
of depreciation and
amortization, which is
shown separately below)
Operating expenses:
Advertising and marketing
Sales
Technology and
development
Legal and regulatory
Acquisition and integration
related costs
Gain on sale
General and administrative
Depreciation and
amortization
Total expenses
Loss from operations
Loss on extinguishment of
debt
Interest expense, net
Net loss before taxes
Income tax (benefit) expense
Net loss
NM – not meaningful
64
EBITDA and Adjusted EBITDA
The following table reconciles net loss to EBITDA and Adjusted EBITDA for the years ended December 31,
2020, 2019 and 2018 (in thousands):
Net loss
Add:
Loss on extinguishment of debt
Interest expense, net
Income tax benefit
Depreciation and amortization
EBITDA(1)
Stock-based compensation
Gain on sale
Acquisition and integration related costs
Adjusted EBITDA(1)
(1) Non-U.S. GAAP Financial Measures.
Year Ended
December 31,
2019
2018
2020
$ (485,136) $ (98,864) $ (97,084)
9,077
60,495
(90,857)
69,495
(436,926)
475,531
0
88,236
0
26,112
118
35,602
(35,252)
43,769
(5,500)
10,391
$ 126,841 $ 31,832 $ 13,408
0
29,013
(10,591)
38,952
(41,490)
66,702
0
6,620
To supplement our financial information presented in accordance with generally accepted accounting principles
in the United States, or U.S. GAAP, we use EBITDA and Adjusted EBITDA, which are non-U.S. GAAP financial
measures, to clarify and enhance an understanding of past performance. We believe that the presentation of these
financial measures enhances an investor’s understanding of our financial performance. We further believe that these
financial measures are useful financial metrics to assess our operating performance from period-to-period by excluding
certain items that we believe are not representative of our core business. We use certain financial measures for business
planning purposes and in measuring our performance relative to that of our competitors. We utilize Adjusted EBITDA as
the primary measure of our performance.
EBITDA consists of net loss before interest, foreign exchange gain or loss, taxes, depreciation and amortization
and loss on extinguishment of debt. We believe that making such adjustment provides investors meaningful information
to understand our results of operations and the ability to analyze financial and business trends on a period-to-period
basis. For presentation purposes, foreign exchange gain or loss is included in interest expense, net in our consolidated
statement of operations.
Adjusted EBITDA consists of net loss before interest, foreign exchange gain or loss, taxes, depreciation and
amortization, stock-based compensation, gain on sale, loss on extinguishment of debt, and acquisition and integration
related costs. We believe that making such adjustment provides investors meaningful information to understand our
results of operations and the ability to analyze financial and business trends on a period-to-period basis.
We believe the above financial measures are commonly used by investors to evaluate our performance and that
of our competitors. However, our use of the terms EBITDA and Adjusted EBITDA may vary from that of others in our
industry. Neither EBITDA nor Adjusted EBITDA should be considered as an alternative to net loss before taxes, net
loss, loss per share or any other performance measures derived in accordance with U.S. GAAP as measures of
performance.
EBITDA and Adjusted EBITDA have important limitations as analytical tools and you should not consider
them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations
are:
• EBITDA and Adjusted EBITDA do not reflect the significant interest expense on our debt;
• EBITDA and Adjusted EBITDA eliminate the impact of income taxes on our results of operations;
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• EBITDA and Adjusted EBITDA do not reflect the significant loss on extinguishment of debt;
• Adjusted EBITDA does not reflect the significant acquisition and integration related costs related to
mergers and acquisitions;
• Adjusted EBITDA does not reflect the significant gain on sale of certain non-core Client contracts;
• Adjusted EBITDA does not reflect the significant non-cash stock compensation expense which should be
viewed as a component of recurring operating costs; and
•
other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do,
limiting the usefulness of EBITDA and Adjusted EBITDA as comparative measures.
In addition, although depreciation and amortization are non-cash charges, the assets being depreciated and
amortized will often have to be replaced in the future, and both EBITDA and Adjusted EBITDA do not reflect any
expenditures for such replacements.
We compensate for these limitations by using EBITDA and Adjusted EBITDA along with other comparative
tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. Such U.S. GAAP
measurements include net loss, net loss per share and other performance measures.
In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to
those eliminated in this presentation. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or nonrecurring items.
Consolidated Results of Operations
We completed our acquisitions of Livongo on October 30, 2020, InTouch on July 1, 2020, MedecinDirect on
April 30, 2019, Advance Medical on May 31, 2018 and Best Doctors on July 14, 2017. The results of operations of the
aforementioned acquisitions have been included in our audited consolidated financial statements included in this Form
10-K from their respective acquisition dates.
Revenue. Total revenue was $1,094.0 million including $128.3 million from InTouch and Livongo for the
year ended December 31, 2020, compared to $553.3 million during the year ended December 31, 2019, an increase of
$540.7 million, or 98%. Excluding the impact of the InTouch and Livongo acquisitions, revenue increased 75%,
reflecting the acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and our broad
momentum to transform the healthcare experience. The increase in revenue was significantly driven by an increase in
new Clients and the number of new Members generating additional subscription access fees and visit fees. The number
of paid Members increased by 41% from December 31, 2019 to December 31, 2020. Revenue from the U.S. subscription
access fees was $737.4 million for the year ended December 31, 2020 compared to $356.7 million for the year ended
December 31, 2019. We generated $124.4 million of international subscription access fees for the year ended December
31, 2020 and $106.6 million for the year ended December 31, 2019. We completed approximately 10.6 million visits,
representing $206.9 million of visit fees for the year ended December 31, 2020, compared to 4.1 million visits,
representing $90.0 million of visit fees during the year ended December 31, 2019, an increase of $116.9 million, or
130%.
Total revenue was $553.3 million including $33.2 million from Advance Medical and MedecinDirect for the
year ended December 31, 2019, compared to $417.9 million during the year ended December 31, 2018, an increase of
$135.4 million, or 32%. Excluding the impact of Advance Medical and MedecinDirect acquisitions, revenues increased
24%. The increase in revenue was driven by an increase in new Clients and the number of new Members generating
additional subscription access fees and visit fees, as well as revenue from the acquisitions of Advance Medical and
MedecinDirect. The number of paid Members increased by 57% from December 31, 2018 to December 31, 2019.
Revenue from the U.S. subscription access fees was $356.7 million for the year ended December 31, 2019 compared to
$277.1 million for the year ended December 31, 2018. We generated $106.6 million of international subscription access
fees for the year ended December 31, 2019 and $73.7 million for the year ended December 31, 2018. We completed
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approximately 4,138,000 visits, representing $90.0 million of visit fees for the year ended December 31, 2019, compared
to 2.6 million visits, representing $90.0 million of visit fees during the year ended December 31, 2018, an increase of
$22.9 million, or 34%.
Cost of Revenue (exclusive of depreciation and amortization, which is shown separately below). Cost of
revenue (exclusive of depreciation and amortization, which is shown separately below) was $390.8 million for the year
ended December 31, 2020 compared to $184.5 million for the year ended December 31, 2019, an increase of
$206.3 million, or 112%. The increase was primarily due to higher Membership and general medical visits resulting in
increased provider fees and increased physician network operation center costs, and hiring of additional personnel to
manage our provider network operations centers, and to a lesser extent, the impact from the InTouch and Livongo
acquisitions.
Cost of revenue (exclusive of depreciation and amortization, which is shown separately below) was
$184.5 million for the year ended December 31, 2019 compared to $128.7 million for the year ended December 31,
2018, an increase of $55.7 million, or 43%. The increase was primarily due to higher general medical visits resulting in
increased provider fees and increased physician network operation center costs, and hiring of additional personnel to
manage our provider network operations centers, as well as the impact from Advance Medical and MedecinDirect
services.
Advertising and Marketing Expenses. Advertising and marketing expenses were $226.2 million for the year
ended December 31, 2020 compared to $109.7 million for the year ended December 31, 2019, an increase of
$116.5 million, or 106%. Excluding the impact from InTouch and Livongo of $33.1 million, this increase primarily
consisted of $78.3 million from an increase in Member engagement initiatives, digital and media advertising,
sponsorship of professional organizations and trade shows and to a lesser extent, the hiring of additional personnel
totaling $5.0 million.
Advertising and marketing expenses were $109.7 million for the year ended December 31, 2019 compared to
$85.1 million for the year ended December 31, 2018, an increase of $24.6 million, or 29%. The increase primarily
consisted of $18.1 million from an increase in Member engagement initiatives, digital and media advertising,
sponsorship of professional organizations and trade shows, as well as the hiring of additional personnel totaling
$5.9 million.
Sales Expenses. Sales expenses were $154.1 million for the year ended December 31, 2020 compared to
$64.9 million for the year ended December 31, 2019, an increase of $89.2 million, or 137%. Excluding the impact from
the recent acquisitions of $78.2 million, this increase primarily consisted of increased staffing and employee-related
expenses including sales commissions of $14.9 million, partially offset by lower travel and entertainment expenses and
other expenses of $4.0 million.
Sales expenses were $64.9 million for the year ended December 31, 2019 compared to $59.2 million for the
year ended December 31, 2018, an increase of $5.8 million, or 10%. Including the impact from the recent acquisitions,
this increase primarily consisted of increased staffing and employee-related expenses including sales commissions of
$4.7 million and other expenses of $1.3 million.
Technology and Development Expenses. Technology and development expenses were $164.9 million for the
year ended December 31, 2020 compared to $64.6 million for the year ended December 31, 2019, an increase of
$100.3 million, or 155%. Excluding the impact from InTouch and Livongo of $74.1 million, this increase resulted
primarily from hiring additional personnel totaling $14.9 million, professional fees of $8.5 million, and ongoing projects
to improve and optimize our technology platform and other expenses of $2.8 million.
Technology and development expenses were $64.6 million for the year ended December 31, 2019 compared to
$54.4 million for the year ended December 31, 2018, an increase of $10.3 million, or 19%. Including the impact from
acquisitions, this increase resulted primarily from hiring additional personnel totaling $7.1 million, professional fees of
$2.4 million, and ongoing projects to improve and optimize our technology platform and other expenses of $0.8 million.
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Legal and Regulatory Expenses. Legal and regulatory expenses were $8.9 million for the year ended
December 31, 2020 compared to $6.8 million for the year ended December 31, 2019, an increase of $2.1 million, or
31%. This increase resulted primarily from litigation activities largely associated with a class action complaint.
Legal and regulatory expenses were $6.8 million for the year ended December 31, 2019 compared to
$4.0 million for the year ended December 31, 2018, an increase of $2.8 million, or 70%. This increase resulted primarily
from litigation activities largely associated with a class action complaint.
Acquisition and Integration Related Costs. Acquisition and integration related costs were $88.2 million for the
year ended December 31, 2020 compared to $6.6 million for the year ended December 31, 2019, an increase of $81.6
million. These costs were incurred primarily with the InTouch acquisition and the merger with Livongo as well as in
connection with integration activities of prior acquisitions. The 2020 acquisition and integration related costs represent
investment banking, financing, legal, accounting, consultancy, integration, fair value changes related to contingent
consideration and certain other non-recurring transaction costs related to mergers and acquisitions.
Acquisition and integration related costs were $6.6 million for the year ended December 31, 2019 compared to
$10.4 million for the year ended December 31, 2018, a decrease of $3.8 million. The 2019 acquisition and integration
related costs represent investment banking, financing, legal, accounting, consultancy, integration, fair value changes
related to contingent consideration and certain other non-recurring transaction costs related to mergers and acquisitions.
The 2018 integration related costs represent legal, personnel, re-branding and professional related fees for the May 2018
acquisition of Advance Medical and the July 2017 acquisition of Best Doctors.
Gain on Sale. Gain on sale of $5.5 million for the year ended December 31, 2018 consists of the June 2018
sale of certain Client contracts.
General and Administrative Expenses. General and administrative expenses were $497.8 million for the year
ended December 31, 2020 compared to $157.7 million for the year ended December 31, 2019, an increase of
$340.1 million, or 216%. Excluding the impact from the InTouch and Livongo acquisitions of $283.4 million, this
increase was driven in part by an increase in employee-related expenses of approximately $23.1 million, primarily due to
an increase in stock-compensation expense and growth in overall full time employee headcount reflecting the
acceleration of the adoption of virtual care stemming from the COVID-19 pandemic and our broad momentum to
transform the healthcare experience. Costs incurred in our provider network operations centers in connection with
enhancing our Member services increased to $14.7 million for the year ended December 31, 2020 from $5.8 million for
the year ended December 31, 2019, an increase of $8.9 million. Professional fees, increased by $3.1 million for the year
ended December 31, 2020 as compared to December 31, 2019. Other expenses, which include office-related charges,
bank charges, therapist recruiting, liability insurance and bad debt expenses, increased in total to $51.4 million for the
year ended December 31, 2020 from $29.8 million for the year ended December 31, 2019, an increase of $21.6 million,
reflecting the impact from business growth, including bank charges, therapist recruiting, credentialing, liability
insurance, bad debt and others.
General and administrative expenses were $157.7 million for the year ended December 31, 2019 compared to
$116.9 million for the year ended December 31, 2018, an increase of $40.8 million, or 35%. Including the impact from
acquisitions, this increase was driven by an increase in employee-related expenses of approximately $29.7 million,
primarily due to an increase in stock-compensation expense and growth in overall full time employee headcount. Costs
incurred in our provider network operations centers in connection with enhancing our Member services increased to $5.8
million for the year ended December 31, 2019 from $2.6 million for the year ended December 31, 2018, an increase of
$3.2 million. Professional fees, increased by $2.5 million for the year ended December 31, 2019 as compared to the year
ended December 31, 2018. Other expenses, which include office-related charges and bank charges, severance costs, lease
costs and bad debt expenses, increased in total to $29.8 million for the year ended December 31, 2019 from $24.5
million for the year ended December 31, 2018, an increase of $5.3 million and primarily reflecting the impact from the
acquisitions.
Depreciation and Amortization. Depreciation and amortization were $69.5 million for the year ended
December 31, 2020 compared to $39.0 million for the year ended December 31, 2019, an increase of $30.5 million, or
68
78%. This increase was due to additional amortization expense primarily related to acquisition-related intangible assets
that increased from $319.8 million at December 31, 2019 to $2,183.4 million at December 31, 2020 and an increase in
depreciation expense on an increased base of depreciable fixed assets that increased from $26.1 million at December 31,
2019 to $50.5 million at December 31, 2020.
Depreciation and amortization were $39.0 million for the year ended December 31, 2019 compared to
$35.6 million for the year ended December 31, 2018, an increase of $3.4 million, or 9%. This increase was due to
additional amortization expense primarily related to acquisition-related intangible assets that increased from $305.7
million at December 31, 2018 to $319.8 million at December 31, 2019 and an increase in depreciation expense on an
increased base of depreciable fixed assets that increased from $22.4 million at December 31, 2018 to $26.1 million at
December 31, 2019.
Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount
associated with our bank debt, the Notes, and the Livongo Notes, interest income from cash and cash equivalents and
short-term investments in marketable securities as well as foreign exchange gain or loss. Interest expense, net was $60.5
million and $29.0 million for the years ended December 31, 2020 and 2019, respectively. The increase in interest
expense primarily is associated with the 2027 Notes issued in May 2020 and Livongo Notes that the Company agreed to
guarantee in October 2020.
Interest expense, net was $29.0 million and $26.1 million for the years ended December 31, 2019 and 2018,
respectively. The increase in interest expense primarily is associated with the 2025 Notes issued in May 2018.
Income tax benefit. Income tax benefit was $(90.9) million for the year ended December 31, 2020 compared to
$(10.6) million benefit for the year ended December 31, 2019, the increased tax benefit largely reflects the recognition of
current period losses due the partial release of the U.S valuation allowance due to acquired intangibles from the
purchases of InTouch Health and Livongo as well as increased excess stock-based compensation deductions.
The income tax benefit of $(10.6) million for the year ended December 31, 2019 largely reflects an $(8.5)
million income tax benefit associated with the intercompany transfer of a U.S. subsidiary from a foreign owned
subsidiary to the U.S. parent while the Company was in a significant valuation allowance position.
Liquidity and Capital Resources
The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):
Year Ended
December 31,
2019
2018
2020
Consolidated Statements of Cash Flows Data
Net cash (used in) provided by operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Total
$
(53,511) $ 29,869 $
(4,860)
(257,496)
645,612
$ 214,650 $ 89,976 $ 383,256
(590,975)
859,136
25,013
35,094
Our principal sources of liquidity were cash and cash equivalents, comprised of money market funds and
marketable securities, totaling $733.3 million, including restricted cash of $62.6 million as of December 31, 2020.
Additionally, we had short-term marketable securities of $53.2 million as of December 31, 2020. During 2020 we
experienced positive Adjusted EBITDA and we anticipate increasing positive Adjusted EBITDA results for 2021.
We believe that our existing cash and cash equivalents and short-term marketable securities will be sufficient to
meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements
will depend on many factors including our growth rate, contract renewal activity, number of visits, the timing and extent
of spending to support product development efforts, our expansion of sales and marketing activities, the introduction of
new and enhanced services offerings and the continuing market acceptance of telehealth. We may in the future enter into
arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property
69
rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required
from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise
additional capital when desired, our business, financial condition and results of operations would be adversely affected.
Historically, we have financed our operations primarily through sales of equity securities, debt issuance and
bank borrowings.
On October 30, 2020, we completed the merger with Livongo. Upon completion of the merger, each share of
Livongo’s common stock converted into the right to receive 0.5920 shares of our common stock and $4.24 in cash,
without interest. In addition, in connection with the closing of the merger, Livongo paid a special cash dividend equal to
$7.09 per share of Livongo’s common stock to shareholders of Livongo as of a record date of October 29, 2020. The
total consideration was $13,938.0 million consisting of $401.0 million of net cash, $555.4 million related to the
conversion feature of the Livongo Notes guaranteed by the Company and 60.4 million shares of Teladoc Health’s
common stock valued at approximately $12,981.6 million on October 30, 2020. Livongo is a leading provider to
empower people with chronic conditions to live better and healthier lives.
On October 30, 2020, as part of the Livongo acquisition, we agreed to guarantee Livongo’s obligations under its
$550.0 million aggregate principal amount of convertible senior notes due 2025, which had been issued by Livongo on
June 4, 2020, prior to our acquisition of Livongo. The Livongo Notes bear cash interest at a rate of 0.875% per year,
payable semi-annually in arrears on June 1 and December 1 of each year. The Livongo Notes will mature on June 1,
2025.
On July 1, 2020, we completed the acquisition of InTouch for aggregate consideration of $1,069.8 million,
which was comprised of 4.6 million shares of our common stock valued at $903.3 million on July 1, 2020, and $166.5
million of net cash. InTouch is a leading provider of enterprise telehealth solutions for hospitals and health systems.
On May 19, 2020, we issued, at par value, $1 billion aggregate principal amount of 1.25% convertible senior
notes due 2027 (the 2027 Notes). The 2027 Notes bear cash interest at a rate of 1.25% per year, payable semi-annually in
arrears on June 1 and December 1 of each year, beginning on December 15, 2020. The 2027 Notes will mature on June
1, 2027. The net proceeds to the Company from the offering were $975.9 million after deducting offering costs of
approximately $24.1 million.
On April 30, 2019, we completed the acquisition of MedecinDirect. The purchase price was $11.2 million cash
with additional potential earnout consideration.
On July 26, 2018, we completed a follow-on public offering (the July Offering) in which we issued and sold
5,000,000 shares of common stock, at an issuance price of $66.28 per share. We received net proceeds of $330.9 million
after deducting offering expenses of $0.5 million.
On May 31, 2018 we completed the acquisition of Advance Medical. The purchase price was $351.7 million
consisting of $283.1 million of net cash, and 1.3 million shares of Teladoc’s common stock valued at approximately
$68.6 million.
On May 8, 2018, we issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible
senior notes due 2025 (the 2025 Notes). The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-
annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on May 15, 2025. The net
proceeds to the Company from the offering were $279.1 million after deducting the initial purchasers’ discounts,
commissions and offering expenses of approximately $8.4 million.
The Company’s Senior Secured Revolving Credit Facility was terminated pursuant to its terms effective July
14, 2020. There was no amount outstanding as of December 31, 2019 other than $2.2 million of letters of credit issued
for facility security deposits at December 31, 2019. In addition, the acquired fair value of the assumed indebtedness of
$10.0 million in connection with Livongo merger was paid in full and there was no amount outstanding as of
December 31, 2020.
70
See Note 12, “Convertible Senior Notes” of the Notes to the Consolidated Financial Statements of this Annual
Report on Form 10-K for additional information on the Notes and the Livongo Notes.
We were in compliance with all debt covenants at December 31, 2020 and 2019.
Cash (Used in) Provided by Operating Activities
Cash flows (used in) provided by operating activities consist of net loss adjusted for certain non-cash items and
changes in assets and liabilities. Cash (used in) provided by operating activities was $(53.5) million and $29.9 million for
the years ended December 31, 2020 and 2019, respectively. The year-over-year decrease was substantially driven by
higher payment of acquisition and integration related costs, as well as costs for strategic investments in personnel,
technology and Member engagement. This was partially offset by higher revenues and improved operating leverage.
Cash flows provided by (used in) operating activities consist of net loss adjusted for certain non-cash items and
changes in assets and liabilities. Cash provided by (used in) operating activities was $29.9 million and $(4.9) million for
the years ended December 31, 2019 and 2018, respectively. The year-over-year increase was primarily driven by higher
revenues and improved operating leverage, partially offset by higher costs for strategic investments in personnel,
technology and Member engagement.
Our primarily uses of cash from operating activities are for the payment of cash compensation expenses,
providers fee, inventory, insurance, office expenses, technology costs, market data costs, interest expense and acquisition
and integration costs. Historically, the payment of cash for compensation and benefits is at its highest level in the first
quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash (Used in) Provided by Investing Activities
Cash used in investing activities was $591.0 million for the year ended December 31, 2020. Cash used in
investing activities consisted of acquisition of businesses of $567.4 million, net of cash acquired, investment in capital
expenditures totaling $4.0 million, investments in capitalized software development costs of $22.0 million, and partially
offset by proceeds from short-term marketable securities of $2.5 million.
Cash provided by investing activities was $25.0 million for the year ended December 31, 2019. Cash provided
by investing activities consisted of proceeds from short-term marketable securities of $52.1 million partially offset by
investment in capital expenditure totaling $3.5 million, investments in capitalized software development costs of
$7.4 million, investment in securities of $5.0 million and acquisition of businesses of $11.2 million.
Cash Provided by Financing Activities
Cash provided by financing activities for the year ended December 31, 2020 was $859.1 million. Cash provided
by financing activities consisted of $975.9 million of net cash proceeds from the issuance of the 2027 Notes, $91.7
million of proceeds from sale of the capped call associated with the Livongo Notes, $54.3 million of proceeds from the
exercise of employee stock options, $4.7 million of proceeds from participants in the employee stock purchase plan, $6.0
million of proceeds from advances from financing companies offset by $228.2 million of cash used in the repurchase of
2022 Notes, $8.6 million from a net change in payments from customers against advances from financing companies,
payment of $10.0 million assumed indebtedness in connection with the Livongo merger and $26.7 million of timing
associated with net cash paid for tax withholding for stock-based compensation.
Cash provided by financing activities for the year ended December 31, 2019 was $35.1 million. Cash provided
by financing activities consisted of $33.3 million of proceeds from the exercise of employee stock options and $3.4
million of proceeds from participants in the employee stock purchase plan, partially offset by $1.6 million for
withholding taxes for stock-based awards.
On June 4, 2020, the Livongo Notes referred to in Note 12 to the consolidated financial statements were issued
on an unsecured basis by Livongo Health, Inc. In connection with the acquisition of Livongo by Teladoc Health, Inc. on
October 30, 2020, Teladoc Health, Inc. became the parent guarantor of the Livongo Notes. The guarantee is full and
71
unconditional and ranks equally in right of payment with all existing and future unsecured senior indebtedness. As
disclosed below, summary financial information is presented for Teladoc Health, Inc., as Guarantor, excluding its
consolidated subsidiaries (other than Livongo), and Livongo Health, Inc., as the Issuer, excluding its consolidated
subsidiaries, collectively referred to as the Obligor Group. The summary financial information of the Obligor Group is
presented on a combined basis and transactions between the combined entities have been eliminated and investments in
and equity in earnings from non-guarantor subsidiaries have been excluded. Financial information for non-guarantor
entities has been excluded. For the year ended December 31, 2020, revenue of the Obligor Group was $350.2 million,
operating loss was $(578.2) million, net loss before taxes was $(647.4) million and net loss was $(560.8) million. As of
December 31, 2020, current assets of the Obligor Group were $809.8 million, inter-company receivables were $302.5
million, total assets were $17,459.5 million, current liabilities were $199.7 million, inter-company payables were $49.5
million and total liabilities were $1,716.3 million.
Contractual Obligations and Commitments
The following summarizes our contractual obligations as of December 31, 2020 (in thousands):
Operating leases
Non-cancelable purchase commitments
Debt obligations under the Convertible Notes
Interest associated with the Convertible Notes
Total
Less than
1 Year
Payment Due by Period
1 to 3
Years
4 to 5
Years
More than
$
Total
63,265 $ 14,192 $ 28,106 $ 20,967 $
9,962
1,873,550
128,821
0
0
1,832
1,000,000
0
21,141
42,922
$ 2,075,598 $ 91,606 $ 72,860 $ 889,991 $ 1,021,141
0
826,788
42,236
8,130
46,762
22,522
5 Years
Our existing office and hosting co-location facilities lease agreements provide us with the option to renew and
generally provide for rental payments on a graduated basis. Our future operating lease obligations would change if we
entered into additional operating lease agreements as we expand our operations and if we exercised the office and
hosting co-location facilities lease options. The contractual commitment amounts in the table above are associated with
agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum
services to be used, fixed, minimum or variable price provisions and the approximate timing of the transaction. Non-
cancelable purchase commitments include inventory purchases, cloud-based software contracts and other goods and
services. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.
For abandoned facilities, the above contractual obligation schedule does not reflect any realized or potential sublease
revenue.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which
would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow
or limited purposes. We are therefore not exposed to the financing, liquidity, market or credit risk that could arise if we
had engaged in those types of relationships.
Recently Issued and Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update
No. 2019-12, “Simplification of Income Taxes (Topic 740) Income Taxes,” or ASU 2019-12. The amendments simplify
the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending
existing guidance. ASU 2019-12 is effective for public companies for annual periods beginning after December 15,
2020, including interim periods within those fiscal years. We early-adopted ASU 2019-12 in our consolidated financial
statements and disclosures effective January 1, 2020, with no material impact to the financial statements.
72
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Goodwill Simplifications
(Topic 350)” or ASU 2017-04. ASU 2017-04 simplifies the test for goodwill impairment. The new guidance eliminates
Step 2 from the goodwill impairment test as currently prescribed in GAPP. This ASU is the result of the FASB project
focused on simplifications to accounting for goodwill. The new guidance was effective for the first quarter of 2020 and
was early adopted in the quarter-ended December 31, 2019.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in
ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial
instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting
model for purchased financial assets with credit deterioration since their origination. The FASB issued Accounting
Standards Update No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or
ASU 2018-19, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326, Financial
Instruments—Credit Losses,” or ASU 2019-04, Accounting Standards Update No. 2019-05, “Financial Instruments-
Credit Losses (Topic 326): Targeted Transition Relief,” or ASU 2019-05, Accounting Standards Update No. 2019-10,
“Financial Instruments-Credit Losses (Topic 326): Effective Dates,” or ASU 2019-10 and Accounting Standards Update
No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-11. The
amendments in these ASUs provide clarifications to ASU 2016-13. The Company adopted ASU 2016-13 and the related
clarifications effective January 1, 2020. The adoption did not have a material effect on the Company’s consolidated
financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Intangibles-Goodwill and
Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract,” or ASU 2018-15 Subtopic 350-40, which aligns the requirements
for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. The standard is
effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption
is permitted. We adopted ASU 2018-15 Subtopic 350-40 effective January 1, 2020. The adoption did not have a material
impact on the consolidated financial statements and disclosures.
Consolidated Quarterly Results of Operations
The following table sets forth our quarterly consolidated statement of operations data for the years ended
December 31, 2020 and 2019:
(in thousands, except net loss per share data)
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
Revenue
Expenses:
Cost of revenue (exclusive of depreciation and
amortization, which is shown separately below)
Operating expenses:
Advertising and marketing
Sales
Technology and development
Legal and regulatory
Acquisition and integration related costs
General and administrative
Depreciation and amortization
Total expenses
Loss from operations
Loss on extinguishment of debt
Interest expense, net
Net loss before taxes
Income tax provision (benefit)
$ 128,573 $ 130,276 $ 137,969 $ 156,489 $ 180,799 $ 241,030 $ 288,812 $
383,321
44,677
41,634
42,799
55,355
72,382
90,780
104,725
122,942
26,404
16,212
15,987
1,586
1,012
35,982
9,600
151,460
26,616
15,832
16,665
2,019
1,136
38,549
9,848
152,299
31,321
16,120
15,746
1,634
1,995
38,681
9,617
157,913
25,356
16,751
16,246
1,523
2,477
44,482
9,887
172,077
32,515
17,940
19,257
1,222
3,664
45,120
9,710
201,810
47,578
18,687
23,029
2,232
1,627
54,383
9,893
248,209
52,302
23,483
29,958
2,812
25,395
56,930
12,932
308,537
93,751
93,942
92,697
2,610
57,550
341,375
36,960
841,827
(22,887)
0
6,521
(22,023)
0
7,211
(19,944)
0
7,700
(15,588)
0
7,581
(21,011)
0
9,303
(7,179)
7,751
13,151
(19,725)
1,227
17,222
(458,506)
99
20,819
(29,408)
742
(29,234)
90
(27,644)
(7,298)
(23,169)
(4,125)
(30,314)
(711)
(28,081)
(2,399)
(38,174)
(2,290)
(479,424)
(85,457)
Net loss
GAAP Net Loss per Share
Weighted Average Common Shares Outstanding Used in
Computing GAAP Net Loss per Share - Basic and Diluted
(30,150)
(29,324)
(20,346)
(19,044)
(29,603)
(25,682)
(35,884)
$
(0.43) $
(0.41) $
(0.28) $
(0.26) $
(0.40) $
(0.34) $
(0.43) $
(393,967)
(3.07)
70,919
71,721
72,151
72,565
73,279
76,513
83,608
128,298
73
Note: We acquired MedecinDirect on April 30, 2019, InTouch Health on July 1, 2020 and Livongo on October 30, 2020.
The results of the acquisitions were integrated within our existing business on the respective acquisition dates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk and Foreign Exchange Risk
Cash equivalents that are subject to interest rate volatility represent our principal market risk. We do not expect
cash flows to be affected to any significant degree by a sudden change in market interest rates. We do not enter into
investments for trading or speculative purposes.
We operate our business primarily within the United States and currently execute approximately 88% of our
transactions in U.S. dollars. We have not utilized hedging strategies with respect to such foreign exchange exposure.
This limited foreign currency translation risk is not expected to have a material impact on our consolidated financial
statements.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements and
Supplemental Data filed as part of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated,
as of the end of the period covered by this Form 10-K, the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as of December 31, 2020, our disclosure controls and procedures
were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control system
is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial
statements.
Our management, including our Chief Executive Officer and our Chief Financial Officer, assessed the
effectiveness of our internal control over financial reporting as of December 31, 2020. The assessment excluded the
internal controls of our July 2020 acquisition of InTouch and our October 2020 acquisition of Livongo, which is in
accordance with the SEC’s general guidance that a recently acquired business may be omitted from the scope of the
assessment in the year of acquisition. InTouch and Livongo represented 12% of total assets (excluding goodwill) as of
December 31, 2020 and 12% of revenues for the year ended December 31, 2020. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework (2013 framework). Based on this assessment, management, including
74
our Chief Executive Officer and our Chief Financial Officer, concluded that we maintained effective internal control
over financial reporting at the reasonable assurance level as of December 31, 2020.
No changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Ernst & Young LLP, independent registered public accounting firm, is appointed by the Board of Directors and
ratified by our Company’s stockholders. They were engaged to render an opinion regarding the fair presentation of our
consolidated financial statements as well as conducting an audit of internal control over financial reporting. Their
accompanying reports are based upon audits conducted in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
March 1, 2021
75
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Teladoc Health, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Teladoc Health, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Teladoc Health, Inc. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on
the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of InTouch Health and Livongo Health, which are included in the 2020 consolidated financial statements of the
Company and constituted 12% of total assets (excluding goodwill) as of December 31, 2020 and 12% of revenues for the
year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation
of the internal control over financial reporting of InTouch Health and Livongo Health.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related
consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years
in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item
15(a) (collectively referred to as the “consolidated financial statements”) and our report dated March 1, 2021 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
76
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
March 1, 2021
77
Item 9B. Other Information
None.
PART III
Information required by Items 10, 11, 12, 13 and 14 of Part III is omitted from this Annual Report and will be
filed in a definitive proxy statement or by an amendment to this Annual Report not later than 120 days after the end of
the fiscal year covered by this Annual Report.
Item 10. Directors, Executive Officers and Corporate Governance
We will provide information that is responsive to this Item 10 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report,
in either case under the captions “Directors and Executive Officers” and “Corporate Governance” and possibly
elsewhere therein. That information is incorporated in this Item 10 by reference.
Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees,
officers and. The full text of our Code of Business Conduct and Ethics is posted on the Investors section of our website,
www.teladochealth.com. We intend to disclose any amendments to our Code of Business Conduct and Ethics, or waivers
of its requirements, on our website.
Item 11. Executive Compensation
We will provide information that is responsive to this Item 11 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report,
in either case under the caption “Executive Compensation,” and possibly elsewhere therein. That information is
incorporated in this Item 11 by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We will provide information that is responsive to this Item 12 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report,
in either case under the caption “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters,” and possibly elsewhere therein. That information is incorporated in this Item 12 by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We will provide information that is responsive to this Item 13 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report,
in either case under the caption “Certain Relationships and Related Transactions,” and possibly elsewhere therein. That
information is incorporated in this Item 13 by reference.
Item 14. Principal Accounting Fees and Services
We will provide information that is responsive to this Item 14 in our definitive proxy statement or in an
amendment to this Annual Report not later than 120 days after the end of the fiscal year covered by this Annual Report,
in either case under the caption “Services and Fees of Ernst & Young,” and possibly elsewhere therein. That information
is incorporated in this Item 14 by reference.
78
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) (1) Our Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements
and Supplemental Data filed as part of this Form 10-K.
(2) Schedule II—Valuation and Qualifying Accounts.
Allowance for Doubtful Accounts Receivable (in thousands):
Fiscal Year Ended December 31, 2020
Fiscal Year Ended December 31, 2019
Fiscal Year Ended December 31, 2018
Income Taxes Valuation Allowance (in thousands):
Fiscal Year Ended December 31, 2020
Fiscal Year Ended December 31, 2019
Fiscal Year Ended December 31, 2018
Balance at
Beginning
Write-offs Other
of Period
128
$ (2,787) $
3,787
$
4
3,382
$
$ (2,264) $
(20)
2,422 $ 2,243 $ (1,263) $
$
Provision
$ 5,284
$ 2,665
Balance at
End
of Period
6,412
$
3,787
$
3,382
$
Balance at
Beginning
Provision Write-offs Other
of Period
$ 2,146 $
$ 121,186
$ 93,572
$ 36,124 $
$ 73,786 $ 41,093 $
0 $ (15,348) $ 107,984
0 $ (8,510) $ 121,186
0 $ (21,307) $ 93,572
Balance at
End
of Period
All other schedules are omitted as the required information is inapplicable or the information is presented in the
consolidated financial statements and notes thereto in Item 8 above.
(3) A list of exhibits is set forth on the Exhibit Index immediately prior to the signature page of this Form
10-K, and is incorporated herein by reference.
Item 16. Form 10-K Summary
Not applicable.
79
Exhibit
Number
2.1
Exhibit Index
Exhibit Description
Form
File No.
Exhibit
Filing
Date
Filed
Herewith
Incorporated by Reference
Agreement and Plan of Merger, dated January 11,
2020, by and among Teladoc Health, Inc., Jonata
Sub One, Inc., Jonata Sub Two, Inc., InTouch
Technologies, Inc. and Fortis Advisors LLC, as
equity holder representative.
8-K
001-37477
2.1
1/13/20
2.2
Agreement and Plan of Merger, dated August 5,
8-K
001-37477
2.1
8/6/20
2020, by and among Teladoc Health, Inc.,
Tempranillo Merger Sub, Inc. and Livongo
Health, Inc.
3.1
Sixth Amended and Restated Certificate of
8-K
001-37477
3.1
5/31/17
Incorporation of Teladoc Health, Inc.
3.2
Certificate of Amendment of Sixth Amended and
Restated Certificate of Incorporation of Teladoc,
Inc.
8-K
001-37477
3.1
6/01/18
3.3
Second Certificate of Amendment of Sixth
8-K
001-37477
3.1
8/10/18
Amended and Restated Certificate of
Incorporation of Teladoc Health, Inc.
3.4
Certificate of Amendment of the Sixth Amended
and Restated Certificate of Incorporation of
Teladoc Health, Inc.
8-K
001-37477
3.1
10/30/20
3.5
Fifth Amended and Restated Bylaws of Teladoc
8-K
001-37477
3.1
2/19/21
Health, Inc.
4.1
Specimen stock certificate evidencing shares of
10-Q
001-37477
4.1
11/1/18
the common stock.
4.2
Indenture, dated as of June 27, 2017, by and
between Teladoc Health, Inc. and Wilmington
Trust, National Association.
8-K
001-37477
4.1
6/29/17
4.3
Global 3.00% Convertible Senior Note due 2022,
8-K
001-37477
4.2
6/29/17
dated as of June 27, 2017.
4.4
Indenture, dated as of May 8, 2018, by and
between Teladoc, Inc. and Wilmington Trust,
National Association.
8-K
001-37477
4.1
5/08/18
4.5
Global 1.375% Convertible Senior Note due
8-K
001-37477
4.2
5/08/18
2025, dated as of May 8, 2018.
4.6
Indenture, dated as of May 19, 2020, by and
between Teladoc Health, Inc. and Wilmington
Trust, National Association.
8-K
001-37477
4.1
5/19/20
80
4.7
4.8
Global 1.25% Convertible Senior Note due 2027,
dated as of May 19, 2020 (included as Exhibit A
to Exhibit 4.6).
Indenture, dated as of June 4, 2020, by and
between Livongo Health, Inc. and U.S. Bank
National Association.
8-K
001-37477
4.2
5/19/20
8-K
001-38983
4.1
10/30/20
4.9
Global 0.875% Convertible Senior Note due 2025
8-K
001-38983
4.1
10/30/20
(included as Exhibit A to Exhibit 4.8).
4.10
First Supplemental Indenture, dated as of October
30, 2020, among Livongo Health, Inc., Teladoc
Health, Inc. and U.S. Bank National Association,
as trustee.
4.11
Description of Securities Registered under
Section 12 of the Securities Exchange Act of
1934, as amended.
8-K
001-37477
4.1
10/30/20
10.1+ Form of Indemnification Agreement between
S-1/A
333-204577 10.7
6/18/15
Teladoc Health, Inc. and each of its directors and
officers.
10.2+
Form of Indemnification Agreement between
Teladoc Health, Inc. and each of its directors and
officers (form used since October 2020).
10.3+ Teladoc Health, Inc. 2015 Incentive Award Plan
8-K
001-37477
10.1
5/31/17
(as amended and restated effective May 25,
2017).
10.4+ Form of Stock Option Agreement under the
S-1/A
333-204577 10.11 6/18/15
Teladoc Health, Inc. 2015 Incentive Award Plan.
10.5+ Form of Restricted Stock Agreement under the
S-1/A
333-204577 10.12 6/18/15
Teladoc Health, Inc. 2015 Incentive Award Plan.
10.6+ Form of Restricted Stock Unit Agreement under
S-1/A
333-204577 10.13 6/18/15
the Teladoc Health, Inc. 2015 Incentive Award
Plan.
10.7+ Form of Performance Restricted Stock Unit
10-Q
001-37477
10.2
4/29/20
Agreement under the Teladoc Health, Inc. 2015
Incentive Award Plan.
10.8+ Teladoc Health, Inc. 2015 Employee Stock
S-1/A
333-204577 10.14 6/18/15
Purchase Plan.
10.9+ Teladoc Health, Inc. 2017 Employment
S-8
333-219275 99.3
7/14/17
Inducement Incentive Award Plan (as amended on
July 11, 2017).
*
*
81
10.10+ Form of Stock Option Agreement under the
10-K
001-37477
10.17 3/01/17
Teladoc Health, Inc. 2017 Employment
Inducement Incentive Award Plan.
10.11+ Form of Restricted Stock Agreement under the
10-K
001-37477
10.18 3/01/17
Teladoc Health, Inc. 2017 Employment
Inducement Incentive Award Plan.
10.12+ Form of Restricted Stock Unit Agreement under
10-K
001-37477
10.19 3/01/17
the Teladoc Health, Inc. 2017 Employment
Inducement Incentive Award Plan.
10.13+ Teladoc Health, Inc. Livongo Acquisition
S-8
333-249892 99.1
11/6/20
Incentive Award Plan.
10.14+ Form of Stock Option Agreement under the
Teladoc Health, Inc. Livongo Acquisition
Incentive Award Plan.
10.15+ Form of Restricted Stock Agreement under the
Teladoc Health, Inc. Livongo Acquisition
Incentive Award Plan.
10.16+ Form of Restricted Stock Unit Agreement under
the Teladoc Health, Inc. Livongo Acquisition
Incentive Award Plan.
10.17+ Teladoc Health, Inc. Senior Leader Severance
8-K
001-37477
10.1
5/7/20
Plan.
10.18+ Teladoc Health, Inc. Non-Employee Director
Compensation Program (as amended).
10.19+ Teladoc Health, Inc. Deferred Compensation Plan
10-K
001-37477
10.8
2/27/18
for Non-Employee Directors.
10.20+ Amended and Restated Executive Employment
S-1/A
333-204577 10.19 6/18/15
Agreement, dated June 16, 2015, by and between
Teladoc Health, Inc. and Jason Gorevic.
10.21+ Amendment No. 1 to Amended and Restated
10-Q
001-37477
10.2
10/30/19
Executive Employment Agreement, dated
October 29, 2019, by and between Teladoc
Health, Inc. and Jason Gorevic.
10.22+ Executive Severance Agreement, dated June 24,
2019, by and between Teladoc Health, Inc. and
Mala Murthy.
10.23+ Amendment No. 1 to Executive Severance
Agreement, dated October 29, 2019, by and
between Teladoc Health, Inc. and Mala Murthy.
10-Q
001-37477
10.1
7/31/19
10-Q
001-37477
10.5
10/30/19
82
*
*
*
*
10.24+ Executive Severance Agreement, dated July 30,
2019, by and between Teladoc Health, Inc. and
David Sides.
10.25+ Amendment No. 1 to Executive Severance
Agreement, dated October 29, 2019, by and
between Teladoc Health, Inc. and David Sides.
10.26+ Executive Severance Agreement, dated July 15,
2015, by and between Teladoc Health, Inc. and
Adam Vandervoort.
10.27+ Amendment No. 1 to Executive Severance
Agreement, dated October 29, 2019, by and
between Teladoc Health, Inc. and Adam
Vandervoort.
10-K
001-37477
10.28 2/26/20
10-Q
001-37477
10.6
10/30/19
10-Q
001-37477
10.17 4/30/19
10-Q
001-37477
10.8
10/30/19
10.28+ Executive Severance Agreement, dated January 4,
10-Q
001-37477
10.18 4/30/19
2016, by and between Teladoc Health, Inc. and
Stephany Verstraete.
10.29+ Amendment No. 1 to Executive Severance
Agreement, dated October 29, 2019, by and
between Teladoc Health, Inc. and Stephany
Verstraete.
21.1
Subsidiaries of the Registrant.
23.1
Consent of Ernst & Young, LLP, Independent
Registered Public Accounting Firm
31.1
Chief Executive Officer—Certification pursuant
to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2
Chief Financial Officer—Certification pursuant to
Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Chief Executive Officer—Certification pursuant
to Rule13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2
Chief Financial Officer—Certification pursuant to
Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document.
83
10-Q
001-37477
10.9
10/30/19
*
*
*
*
**
**
*
101.SCH XBRL Taxonomy Extension Schema Document.
101.CAL XBRL Taxonomy Calculation Linkbase
Document.
101.DEF XBRL Definition Linkbase Document.
101.LAB XBRL Taxonomy Label Linkbase Document.
101.PRE XBRL Taxonomy Presentation Linkbase
Document.
104
Cover Page Interactive Data File – The Cover
page interactive data file does not appear in the
Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document
* Filed herewith.
** Furnished herewith.
+ Management contract or compensatory plan.
*
*
*
*
*
84
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Signatures
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
TELADOC HEALTH, INC.
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
/s/ JASON GOREVIC
Jason Gorevic
Chief Executive Officer and Director
/s/ MALA MURTHY
Mala Murthy
Chief Financial Officer
/s/ RICHARD J. NAPOLITANO
Richard J. Napolitano
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
/s/ DAVID B. SNOW, JR.
David B. Snow, Jr
Chairman of the Board
/s/ CHRISTOPHER BISCHOFF
Christopher Bischoff
Director
/s/ KAREN L. DANIEL
Karen L. Daniel
Director
/s/ SANDRA FENWICK
Sandra Fenwick
Director
/s/ WILLIAM H. FRIST, M.D.
William H. Frist, M.D.
Director
/s/ CATHERINE JACOBSON
Catherine Jacobson
Director
/s/ THOMAS G. MCKINLEY
Thomas G. McKinley
Director
/s/ KENNETH H. PAULUS
Kenneth H. Paulus
Director
/s/ DAVID L. SHEDLARZ
David L. Shedlarz
Director
85
Date: March 1, 2021
Date: March 1, 2021
Date: March 1, 2021
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
/s/ MARK DOUGLAS SMITH
Mark Douglas Smith
Director
/s/ HEMANT TANEJA
Hemant Taneja
Director
/s/ GLEN E. TULLMAN
Glen E. Tullman
Director
86
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
1. Audited Consolidated Financial Statements of Teladoc Health, Inc.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Audited Consolidated Financial Statements
2. Supplemental Financial Data:
The following supplemental financial data of the Registrant required to be included in Item 15(a)(2) on Form
10-K are listed below:
Schedule II – Valuation and Qualifying Accounts
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-10
79
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Teladoc Health, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Teladoc Health, Inc. as of December 31, 2020 and
2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule
listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Accounting for Acquisitions
Description of the
Matter
As discussed in Note 5 to the consolidated financial statements, the Company completed the
acquisitions of Livongo Health, Inc. (“Livongo”) for total consideration of $13,938 million and
InTouch Technologies, Inc. (“InTouch”) for total consideration of $1,069.8 million during the year
ended December 31, 2020. The acquisitions were accounted for using the acquisition method of
F-2
accounting, which requires, among other things, the assets acquired and the liabilities assumed to be
recognized at their fair values as of the acquisition date.
Auditing the Company's accounting for its acquisition of Livongo and InTouch was especially
challenging due to the significant estimation required by management to measure the fair value of
the intangible assets acquired and convertible notes assumed. The significant estimation was
primarily due to the judgmental nature of the inputs to the valuation models, as well as the sensitivity
of the respective fair values to the underlying significant assumptions. The significant assumptions
used to estimate the value of the intangible assets and convertible notes included future revenue and
cash flows, discount rates, and volatility. These significant assumptions are forward-looking and
could be affected by future economic and market conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the
controls over the Company’s accounting for acquisitions. We tested controls over the valuation of
intangible assets and convertible notes, including the valuation models and underlying assumptions
used to develop such estimates.
To test the fair value of the acquired intangible assets and convertible notes assumed, our audit
procedures included, among others, evaluating the Company's use of valuation models, evaluating
the significant assumptions used, and testing the completeness and accuracy of underlying data. Our
testing procedures over the significant assumptions included, among others, comparing them to
current industry, market and economic trends, historical results of the acquired business and to other
relevant factors. We also considered sensitivity analyses of the significant assumptions to evaluate
the change in the fair value resulting from changes in the assumptions. In addition, we involved an
internal valuation professional to assist in our evaluation of the methodologies used by the Company
and significant assumptions.
Accounting for performance stock units
Description of the
Matter
As discussed in Notes 2 and 15 of the consolidated financial statements, the Company grants equity-
based awards to their employees as compensation for their service. Certain awards include
performance conditions that only vest if those conditions are met, and the quantity of awards received
can range based on the level performance achieved. In 2020, the Company had 429,319 such awards
outstanding, and recorded stock-based compensation expense related to these awards of $24.0
million.
Auditing the accounting for performance stock units was especially complex and challenging based
on the evaluation of the unique terms of the awards. In particular, judgment was required to evaluate
the nature of the multi-year performance conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s process for determining stock-based compensation expense, including testing
management’s review controls over the identification of the terms of the performance conditions and
the key inputs used in determining the outcome of each performance condition.
We assessed the appropriateness of judgments made by management in determining key assumptions
related to the awards, such as service inception date based on the multi-year performance conditions.
We tested the accuracy of the data used in measuring the awards by agreeing the underlying inputs,
such as grant date, grant price, performance targets and vesting terms, among others, back to source
documents, such as compensation meeting minutes or award letters. We determined whether
performance targets were satisfied in accordance with the contractual conditions, and recalculated
grant date fair value by multiplying that earned quantity of awards by the grant price.
F-3
Description of the
Matter
Accounting for convertible notes
As discussed in Note 12 to the consolidated financial statements, in May 2020, the Company issued
convertible senior notes due 2027 (the “2027 Notes”) in an aggregate principal amount of $1,000
million. The 2027 Notes were classified as a liability and the conversion feature was classified in
equity based on their respective estimated fair value. Concurrent with the offering of the 2027 Notes,
the Company entered into privately negotiated agreements with certain holders of convertible senior
notes due 2022 (the “2022 Notes”) to exchange the 2022 Notes for shares of the Company’s common
stock, together with cash, in private placement transactions. As a result of the exchange transactions,
the Company recorded a charge associated with the loss on extinguishment of debt of $7.8 million.
Management calculated the loss on extinguishment as a difference between the carrying value of the
extinguished notes and the fair value of the liability component.
The Company estimated the fair value of a similar liability without the conversion option using a
convertible bond lattice model that includes assumptions such as discount rate and volatility.
Auditing the Company’s accounting for the convertible notes transactions was complex due to the
significant judgment required in determining the fair value of the liability component as well as the
balance sheet classification of the elements of the convertible notes.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over management’s process for determining the fair value of the liability component, including
management’s review of the model, and significant assumptions used in the fair value calculation,
and the balance sheet classification.
Our audit procedures included testing of the fair value of the liability components of the 2027 Notes
and the 2022 Notes. Our procedures included, among others, evaluating the Company's selection of
the valuation methodology and significant assumptions used by the Company and evaluating the
completeness and accuracy of the underlying data supporting the significant assumptions and
estimates. Specifically, when assessing the key assumptions, we focused on the Company’s
assumptions used to determine the discount rate and volatility. In addition, we involved an internal
valuation professional to assist in our evaluation of the methodology used by the Company and
significant assumptions. We also tested the balance sheet classification of the elements of the
convertible notes.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
New York, New York
March 1, 2021
F-4
TELADOC HEALTH, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance of $6,412 and $3,787, respectively
Inventories
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Intangible assets, net
Operating lease - right-of-use assets
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued compensation
Deferred revenue-current
Advances from financing companies
Current portion of long-term debt
Total current liabilities
Other liabilities
Operating lease liabilities, net of current portion
Deferred revenue, net of current portion
Advances from financing companies, net of current portion
Deferred taxes
Convertible senior notes, net
Commitments and contingencies
Stockholders’ equity:
$
733,324 $
53,245
169,281
56,498
47,259
1,059,607
28,551
14,581,255
2,020,864
46,647
18,357
514,353
2,711
56,948
0
13,990
588,002
10,296
746,079
225,453
26,452
6,545
$ 17,755,281 $ 1,602,827
$
46,030 $
83,657
94,593
52,356
13,453
42,560
332,649
1,616
43,142
2,449
9,926
102,103
1,379,592
9,075
34,440
34,201
12,465
0
0
90,181
9,239
24,994
2,300
0
21,678
440,410
Common stock, $0.001 par value; 300,000,000 shares and 150,000,000 shares
authorized as of December 31, 2020 and December 31, 2019, respectively;
150,281,099 shares and 72,761,941 shares issued and outstanding as of December
31, 2020 and December 31, 2019, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
150
16,857,797
(992,661)
18,518
15,883,804
73
1,538,716
(507,525)
(17,239)
1,014,025
$ 17,755,281 $ 1,602,827
See accompanying notes to audited consolidated financial statements.
F-5
TELADOC HEALTH, INC.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Revenue
Expenses:
Cost of revenue (exclusive of depreciation and amortization, which
is shown separately below)
Operating expenses:
Advertising and marketing
Sales
Technology and development
Legal and regulatory
Acquisition and integration related costs
Gain on sale
General and administrative
Depreciation and amortization
Total expenses
Loss from operations
Loss on extinguishment of debt
Interest expense, net
Net loss before taxes
Income tax (benefit) expense
Net loss
2020
$ 1,093,962 $
Year Ended December 31,
2019
553,307 $
2018
417,907
390,829
184,465
128,735
226,146
154,052
164,941
8,876
88,236
0
497,808
69,495
1,600,383
(506,421)
9,077
60,495
(575,993)
(90,857)
$ (485,136) $
109,697
64,915
64,644
6,762
6,620
0
157,694
38,952
633,749
(80,442)
0
29,013
(109,455)
(10,591)
(98,864) $
85,109
59,154
54,373
3,981
10,391
(5,500)
116,916
35,602
488,761
(70,854)
0
26,112
(96,966)
118
(97,084)
Net loss per share, basic and diluted
$
(5.36) $
(1.38) $
(1.47)
Weighted-average shares used to compute basic and diluted net loss
per share
90,509,229
71,844,535
65,844,908
See accompanying notes to audited consolidated financial statements
.
F-6
TELADOC HEALTH, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss
Other comprehensive income (loss), net of tax:
Net change in unrealized gains on available-for-sale securities
Cumulative translation adjustment
Other comprehensive income (loss), net of tax
Comprehensive loss
Year Ended December 31,
2019
$ (485,136) $ (98,864) $ (97,084)
2018
2020
0
35,757
35,757
20
(17,179)
(17,159)
$ (449,379) $ (103,033) $ (114,243)
32
(4,201)
(4,169)
See accompanying notes to audited consolidated financial statements.
F-7
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TELADOC HEALTH, INC.
Consolidated Statements of Cash Flows
(in thousands)
Cash flows (used in) provided by operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization
Depreciation of rental equipment
Amortization of right-of-use assets
Allowance for doubtful accounts
Stock-based compensation
Deferred income taxes
Accretion of interest
Loss on extinguishment of debt
Change in fair value of contingent consideration
Gain on sale
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Inventory
Other assets
Accounts payable
Accrued expenses and other current liabilities
Accrued compensation
Deferred revenue
Operating lease liabilities
Other liabilities
Net cash (used in) provided by operating activities
Cash flows (used in) provided by investing activities:
Capital expenditures
Capitalized software development costs
Purchase of marketable securities
Proceeds from marketable securities
Sale of assets
Investment in securities
Acquisitions of business, net of cash acquired
Net cash (used in) provided by investing activities
Cash flows provided by financing activities:
Net proceeds from the exercise of stock options
Proceeds from issuance of 2025 Notes
Proceeds from issuance of 2027 Notes
Payment of issuance costs of 2027 Notes
Repurchase of 2022 Notes
Proceeds from the sale of capped call related to the Livongo Notes
Proceeds from advances from financing companies
Payment from customers against advances from financing companies
Payment of assumed indebtedness
Proceeds from borrowing under bank and other debt
Proceeds from issuance of common stock
Proceeds from employee stock purchase plan
Cash (paid) received for withholding taxes on stock-based compensation,
net
Net cash provided by financing activities
Net increase in cash and cash equivalents
Foreign exchange difference
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Income taxes paid
Interest paid
Year Ended December 31,
2019
2018
2020
$
(485,136) $
(98,864) $
(97,084)
69,495
1,697
6,895
5,284
475,531
(90,158)
45,296
9,077
(1,009)
0
(21,091)
(12,565)
(24,732)
(8,135)
(87,995)
20,125
34,819
17,751
(6,300)
(2,360)
(53,511)
(4,024)
(22,018)
0
2,496
(0)
0
(567,429)
(590,975)
54,314
0
1,000,000
(24,070)
(228,153)
91,659
6,002
(8,635)
(10,000)
0
0
4,722
38,952
0
6,000
2,665
66,702
(10,868)
25,438
0
1,248
0
(15,884)
(2,685)
0
(105)
905
10,026
4,546
4,815
(2,417)
(605)
29,869
(3,510)
(7,390)
0
52,100
(0)
(5,000)
(11,187)
25,013
33,283
0
0
0
0
0
0
0
0
0
0
3,380
35,602
0
0
2,243
43,769
(2,247)
19,487
0
0
(5,500)
(10,931)
(2,612)
0
(414)
(391)
454
8,480
3,539
0
745
(4,860)
(4,011)
(4,396)
(56,347)
84,170
5,530
0
(282,442)
(257,496)
31,322
279,152
0
0
0
0
0
0
0
10
330,843
2,564
(26,703)
859,136
214,650
4,321
514,353
733,324 $
(1,569)
35,094
89,976
388
423,989
514,353 $
1,721
645,612
383,256
(2,084)
42,817
423,989
1,324 $
1,310 $
441
$
$
$
14,890 $
12,224 $
10,303
See accompanying notes to audited consolidated financial statements.
F-9
TELADOC HEALTH, INC.
Notes to Audited Consolidated Financial Statements
Note 1. Organization and Description of Business
Teladoc, Inc. was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the
State of Delaware in October 2008. Effective August 10, 2018, Teladoc, Inc. changed its corporate name to Teladoc
Health, Inc. Unless the context otherwise requires, Teladoc Health, Inc., together with its subsidiaries, is referred to
herein as “Teladoc Health” or the “Company”. The Company’s principal executive office is located in Purchase, New
York. Teladoc Health is the global leader in providing virtual healthcare services with a focus on high quality, lower
costs, and improved outcomes around the world.
On October 30, 2020, the Company completed the merger with Livongo Health, Inc. (“Livongo”), a
transformational opportunity to improve the delivery, access and experience of healthcare for consumers around the
world. Livongo is pioneering a new category in healthcare, called Applied Health Signals, which is transforming the
management of chronic conditions.
On July 1, 2020, the Company completed the acquisition of InTouch Technologies, Inc. (“InTouch”), the
leading provider of enterprise telehealth solutions for hospitals and health systems.
On April 30, 2019, the Company completed the acquisition of MedecinDirect, a Paris-based telemedicine
provider.
On May 31, 2018, the Company completed the acquisition of Advance Medical-Health Care Management
Services, S.A. (“Advance Medical”), a leading virtual healthcare provider outside the United States.
On July 14, 2017, the Company completed the acquisition of Best Doctors Holdings, Inc. (“Best Doctors”), an
expert medical consultation company focused on improving health outcomes for the most complex, critical and costly
medical issues.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”). The consolidated financial statements include the results of Teladoc Health, three
professional associations, twelve professional corporations and a service corporation (collectively, the “Association”).
Teladoc Health Medical Group, P.A., formerly Teladoc Physicians, P.A. is party to several Services
Agreements by and among it and the professional corporations pursuant to which each professional corporation provides
services to Teladoc Health Medical Group, P.A. Each professional corporation is established pursuant to the
requirements of its respective domestic jurisdiction governing the corporate practice of medicine.
The Company holds a variable interest in the Association which contracts with physicians and other health
professionals in order to provide services to Teladoc Health. The Association is considered a variable interest entity
(“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support.
An enterprise having a controlling financial interest in a VIE, must consolidate the VIE if it has both power and
benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic
performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or
the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has
the power and rights to control all activities of the Association and funds and absorbs all losses of the VIE and
appropriately consolidates the Association.
F-10
Total revenue and net income (loss) for the VIE were $199.3 million and $0.6 million, $83.6 million and $(3.2)
million and $58.1 million and $(2.5) million for the years ended December 31, 2020, 2019 and 2018, respectively. The
VIE’s total assets, all of which were current were $28.7 million and $13.6 million at December 31, 2020 and 2019,
respectively. Total liabilities, all of which were current for the VIE were $65.8 million and $51.3 million at
December 31, 2020 and 2019, respectively. The VIE’s total stockholders’ deficit was $37.1 million and $37.7 million at
December 31, 2020 and 2019, respectively.
All intercompany transactions and balances have been eliminated.
Business Combinations
The Company accounts for its business combinations using the acquisition method of accounting. The purchase
price is attributed to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to
the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately
at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the
identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business
combination are included in the Company’s consolidated financial statements from the date of acquisition.
When the Company issues stock-based or cash awards to an acquired company’s shareholders, the Company
evaluates whether the awards are consideration or compensation for post-acquisition services. The evaluation includes,
among other things, whether the vesting of the awards is contingent on the continued employment of the acquired
company’s stockholders beyond the acquisition date. If continued employment is required for vesting, the awards are
treated as compensation for post-acquisition services and recognized as expense over the requisite service period.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant
judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows,
discount rates and selection of comparable companies. The estimates and assumptions used to determine the fair values
and useful lives of identified intangible assets could change due to numerous factors, including market conditions,
technological developments, economic conditions and competition. In connection with determination of fair values, the
Company may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible
assets acquired and certain assumed obligations. Acquisition-related transaction costs incurred by the Company are not
included as a component of consideration transferred but are accounted for as an operating expense in the period in
which the costs are incurred.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The
Company bases its estimates on historical experience, current business factors, and various other assumptions that the
Company believes are necessary to form a basis for making judgments about the carrying values of assets and liabilities,
the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is
subject to uncertainties such as the impact of future events, economic and political factors, and changes in the
Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the
accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new
events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating
environment evolves. The Company believes that estimates used in the preparation of these consolidated financial
statements are reasonable; however, actual results could differ materially from these estimates.
Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in
estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates
are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management
affect the allowance for doubtful accounts, the carrying value of long - lived assets (including goodwill and intangible
assets), capitalization and amortization of software development costs, the finalization of purchase accounting
adjustments, Client performance guarantees, the calculation of a contingent liability in connection with an acquisition
earn - out, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue
F-11
recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and
other stock - based awards and the periods of benefit for deferred costs.
Segment Information
The Company operates an integrated virtual care system for delivering, enabling, and empowering whole-
person health. As a result, the Company’s chief operating decision maker, its Chief Executive Officer (“CEO”), reviews
the financial information presented on a consolidated basis, reflecting this integration, for purposes of allocating
resources and evaluating its financial performance. Accordingly, the Company has determined that it operates as a single
reportable segment—health services.
Fair Value Measurements
The carrying value of our financial instruments, including cash equivalents, short-term investments, accounts
receivable, accounts payable, and accrued liabilities approximates fair value due to their short-term nature.
The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value
hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value.
Revenue Recognition
The Company follows the revenue accounting requirements of Accounting Standards Update (“ASU”) No.
2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”). ASC 606 establishes a principle for
recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the
expected consideration received in exchange for those goods or services. The core principle of ASC 606 is to recognize
revenue to depict the transfer of promised goods or services to Clients in an amount that reflects the consideration the
entity expects to be entitled in exchange for those goods or services. This principle is achieved through applying the
following five-step approach:
•
•
•
•
•
Identification of the contract, or contracts, with a Client.
Identification of the performance obligations in the contract.
Determination of the transaction price.
Allocation of the transaction price to the performance obligations in the contract.
Recognition of revenue when, or as, we satisfy a performance obligation.
The Company primarily generates virtual healthcare service revenue from contracts with Clients who purchase
access to the Company’s professional provider network or medical experts for their employees, dependents and other
beneficiaries. The Company’s Client contracts include a per-Member-per-month access fee as well as certain contracts
that generate additional revenue on a per-virtual healthcare visit basis for general medical, other specialty visits and
expert medical service on a per case basis. The Company also has certain contracts that generate revenue based solely on
a per healthcare visit basis for general medical and other specialty visits. For the Company’s direct-to-consumer
behavioral health product, Members purchase access to the Company’s professional provider network for an access fee.
Revenues are also generated from contracts with Clients for the Company’s chronic care management solutions.
Substantially all of this revenue is derived from monthly subscription fees that are recognized as services are rendered
and earned under the subscription agreements with Clients that are based on a per participant per month model, from the
number of active enrolled Members each month for the minimum enrollment period. These solutions integrate devices,
supplies, access to the Company’s web-based platform, and clinical and data services to provide an overall health
management solution. The promises to transfer these goods and services are not separately identifiable and is considered
a single continuous service comprised of a series of distinct services that are substantially the same and have the same
pattern of transfer (i.e., distinct days of service). These services are consumed as they are received, and the Company
F-12
recognizes revenue each month using the variable consideration allocation exception since the nature of the obligations
and the variability of the payment being based on the number of active Members are aligned .
Revenue is also generated from contracts with Clients for the sale and rental of access to the Company’s hosted
virtual healthcare platform. These contracts include equipment consisting of virtual health devices which allow
physicians access to the platform. These contracts also include multiple performance obligations, and the Company
determines the standalone selling prices based on overall pricing objectives. In some arrangements, the Company’s
hosted virtual health platform are rented to certain qualified Clients that qualify as either sales-type lease or operating
lease arrangements and are subject to lease accounting guidance.
The Company generates access fees from Clients accessing its professional provider network or hosted virtual
healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service
and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included
with its hosted virtual healthcare platform.
The Company’s agreements have a term of one to three years. The majority of Clients have a term of one year
and renew their contracts following their first year of services. Revenues are recognized when the Company satisfies its
performance obligation to stand ready to provide virtual healthcare services which occurs when the Company’s Clients
and Members have access to and obtain control of the virtual healthcare service or platform. Additionally, contracts
where revenue is generated on a per healthcare visit basis, revenues are recognized when the visits are completed as the
Company has delivered on its stand ready obligation to provide access. For other revenue which primarily includes
virtual healthcare devices, the Company’s performance obligation is satisfied when the equipment is provided to the
Client and revenue is recognized at a point in time upon shipment.
The Company generally bills for the virtual healthcare services on a monthly basis with payment terms
generally being 30 days. There are not significant differences between the timing of revenue recognition and billing.
Consequently, the Company has determined that Client contracts do not include a financing component. Revenue is
recognized in an amount that reflects the consideration that is expected in exchange for the service and for certain
contracts includes a variable transaction price as the number of Members may vary from period to period. Based on
historical experience, the Company estimates this amount.
The Company’s contracts do not generally contain refund provisions for fees earned related to services
performed. However, the Company’s direct-to-consumer behavioral health service provides for Member refunds. Based
on historical experience, the Company estimates the expected amount of refunds to be issued which are recorded as a
reduction of revenue. The Company issued refunds of approximately $11.2 million, $3.6 million and $3.0 million for the
year ended December 31, 2020, 2019 and 2018, respectively.
Additionally, certain of the Company’s contracts include Client performance guarantees and pricing
adjustments that are based upon minimum Member utilization and guarantees by the Company for specific service level
performance, Member satisfaction scores, cost savings guarantees, and health outcome guarantees. If Client performance
guarantees are not met, the Company records, as a reduction to revenue, an estimate of the amount that will be due at the
end of the respective Client’s contractual period. For the years ended December 31, 2020, 2019 and 2018, revenue
recognized from performance obligations related to prior periods for the changes in transaction price or Client
performance guarantees was $1.9 million, $0.8 million, and $0.8 million, respectively.
The Company has elected the optional exemption to not disclose the remaining performance obligations of its
contracts since substantially all of its contracts have a duration of one year or less and the variable consideration
expected to be received over the duration of the contract is allocated entirely to the wholly unsatisfied performance
obligations.
For additional revenue, deferred revenue, deferred costs and disclosures, refer to Note 3 Revenue, Deferred
Revenue, Deferred Costs and Other.
F-13
Deferred Revenue
Deferred revenue represents billed, but unrecognized revenue, and is comprised of fees received in advance of
the delivery or completion of the services and amounts received in instances when revenue recognition criteria have not
been met. Deferred revenue associated with upfront payments for a device is amortized ratably over the expected
Member enrollment period. Deferred revenue that will be recognized during the succeeding twelve-month period is
recorded as current deferred revenue and the remaining portion is recorded as noncurrent deferred revenue.
Deferred Costs and Other
Deferred costs and other consist of deferred device costs and deferred contract costs.
Deferred device costs consist of cost of inventory incurred in connection with delivery of services that are
deferred and amortized over the shorter of the expected Member enrollment period or the expected device life and
recorded as cost of revenue.
Deferred contract costs represent the incremental costs of obtaining a contract with a Client if we expect to
recover such costs. The primary example of our costs to obtain a contract include incremental sales commissions to
obtain contracts paid to our sales organization. These incremental costs to obtain Client contracts are deferred and then
amortized on a straight-line basis over the period of benefit which has been determined to be four years. Amortization
expense is included in sales and marketing expenses in the consolidated statement of operations.
Deferred costs and other that are to be amortized within twelve months are recorded to deferred costs and other,
current and the remainder is recorded to deferred costs and other, noncurrent on our consolidated balance sheets.
Cost of Revenue (exclusive of depreciation and amortization, which is shown separately)
Cost of revenue (exclusive of depreciation and amortization shown separately) primarily consists of fees paid to
the physicians and other health professionals; product costs; costs incurred in connection with the Company’s provider
network operations and data center activities, which include employee - related expenses (including salaries and benefits)
costs related to Client support; provider network operations center activities; medical records; magnetic resonance
imaging; medical lab tests; translation; postage and medical malpractice insurance, and deferred device costs.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less
from the date of purchase and restricted cash of $62.6 million at December 31, 2020. The Company’s cash and cash
equivalents generally consist of investments in money market funds. Cash and cash equivalents are stated at fair value.
Short-Term Investments
The Company holds short-term investments primarily consisting of corporate bonds, commercial paper, U.S.
treasuries and asset backed securities with maturities of less than one year. These short-term investments are classified as
available-for-sale and are carried at fair value with unrealized gains or losses recorded as a separate component of
stockholders’ equity in accumulated other comprehensive income (loss). Realized gains or losses are recognized in the
consolidated statements of operations upon disposition of the securities.
Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Realized gains and losses for the years ended December 31,
2020, 2019 and 2018 were less than $0.1 million in each year and were recognized in the Company’s consolidated
statements of operations.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The
allowance for doubtful accounts reflects the Company’s best estimate of expected losses inherent in the accounts
F-14
receivable balance. The Company determines the allowance based on historical experience, specific account information
and other currently available evidence. Accounts receivable deemed uncollectable are charged against the allowance for
doubtful accounts when identified.
Inventories
Inventories consist of purchased components for assembling welcome kits, refill kits, and replacement
components for the Company’s chronic care management solutions, and virtual health devices manufactured for sale or
lease as part of the Company’s hosted virtual healthcare platform solution. Inventories are stated at the lower of cost and
net realizable value. The cost of inventories is determined on a first-in, first out (FIFO) basis or on a weighted average
cost basis which approximates the FIFO basis. Inventory costs include direct materials, direct labor and contracting
costs, certain indirect labor and manufacturing overhead and inbound shipping charges. Inventories are assessed on a
periodic basis for potential obsolete and slow-moving inventory with write-downs being recorded when identified.
Write-downs are measured as the difference between cost of the inventory and net realizable value based upon
assumptions about future demand and charged to cost of revenue (exclusive of depreciation and amortization shown
separately) in the accompanying consolidated statement of operations. At the point of the loss recognition, a new lower
cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the
restoration or increase in that newly established cost basis.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the
straight - line method over the estimated useful lives of the respective asset as follows:
Computer equipment
Furniture and equipment
Leasehold improvements
Product tooling
Rental equipment
Operating Leases
3 years
5 years
Shorter of the lease term or the estimated useful lives of the improvements
2 years
4.3 years
The Company adopted the new leases standard set forth under Accounting Standards Codification Topic 842,
“Leases,” or ASC Topic 842, as of January 1, 2019 utilizing the modified retrospective approach and reflecting a
cumulative effect adjustment at that time. Under this adoption method, prior periods are presented in accordance with
the previous guidance in ASC 840, Leases.
In adopting the new standard, the Company elected to utilize the available package of practical expedients
permitted under the transition guidance within the new standard, which does not require the reassessment of the
following: i) whether existing or expired arrangements are or contain a lease, ii) the lease classification of existing or
expired leases, and iii) whether previous initial direct costs would qualify for capitalization under the new lease
standard. Additionally, the Company made an accounting policy election to keep leases with a term of 12 months or
less off of its balance sheet. As part of its adoption, the Company underwent a process of assessing the lease population
and determining the impact of the adoption of this standard which resulted in the recognition of operating lease
liabilities of and right-of-use assets of approximately $34 million on the Company’s balance sheet on January 1, 2019
relating to its leases on the consolidated financial statements. The Company determined the most significant impact was
the recognition of right of use assets and lease liabilities for operating leases on the consolidated balance sheets and
there was no impact on the consolidated statement of cash flows. See Note 14 “Leases and Contractual Obligations”,
for further information.
Leases of Hosted Virtual Health Platform
The Company rents its hosted virtual health platform for certain Clients under arrangements that qualify as
either sales-type leases or operating lease arrangements. The contracts include equipment consisting of virtual health
devices which allow physicians access to the platform and there are multiple performance obligations where the
F-15
Company determines the standalone selling prices based on overall selling prices and pricing objectives. In determining
whether a transaction should be classified as a sales-type or operating lease, the Company considers the following terms:
(1) ownership of the virtual health device transfers to the lessee by the end of the term of the lease, (2) the lease grants
the lessee an option to purchase the virtual health device that the lessee is reasonably certain to exercise, (3) the lease
term is for the major part of the remaining useful life of the virtual health device, (4) the present value of the sum of the
lease payments equals or exceeds substantially all of the fair value of the virtual health device, and (5) it is expected that
there will be no alternative use for the virtual health device at the end of the lease term.
The Company generally recognizes revenue for virtual health devices in sales-type leases at the time of
acceptance by the Client provided all other revenue recognition criteria have been met and these leases are not material.
For operating lease arrangements, revenue for the virtual health device is recognized over the lease term and generally on
a straight-line basis. For both sales-type and operating lease arrangement, revenue associated with virtual health platform
access is recognized over the lease term on a straight-line basis.
Rental Equipment
Equipment is assigned to the rental pool upon the execution of a sales leasing arrangement. Rental equipment
assets are generally stated at cost, less accumulated depreciation and reflected in property and equipment, net.
Depreciation of rental equipment is provided on a straight-line basis, over the estimated useful lives of the respective
assets, which is generally 4.3 years and is charged to cost of revenues.
Maintenance and repairs are charged to expense as incurred while improvements are capitalized. When assets
are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any
resulting gain or loss is reflected in the consolidated statement of operations in the period realized.
Capitalized Software Development Costs
Capitalized software development costs are included in intangible assets and are amortized on a straight - line
basis over 3 to 5 years. For the Company’s development costs related to its software development tools that enable its
Members and providers to interact, the Company capitalizes costs incurred during the application development stage.
Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets
acquired in a business combination. Goodwill is not amortized but is tested for impairment annually on October 1 or
more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company operates as
one reporting unit and the fair value of the reporting unit is estimated using quoted market prices in active markets of the
Company’s stock. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied
fair value.
The Company’s annual goodwill impairment test resulted in no impairment charges in any of the periods
presented in the consolidated financial statements.
Other intangible assets include Client relationships, non - compete agreements, acquired technology, patents,
trademarks resulting from business acquisitions, and capitalized software development costs. The Company amortizes
such definite-lived intangible assets over their estimated useful lives.
The Company reviews the useful lives on a quarterly basis to determine if the period of economic benefit has
changed. Client relationships are amortized over a period of 2 to 20 years in relation to expected future cash flows, while
non - compete agreements are amortized over a period of 1.5 to 5 years using the straight - line method. Trademarks are
amortized over 3 to 15 years using the straight-line method. Technology is amortized over 5 to 7 years using the straight-
line method. Patents are amortized over 3 years using the straight-line method. Capitalized software development costs
are amortized over 3 to 5 years using the straight-line method.
F-16
Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. If the carrying value of an intangible asset exceeds
its fair value, an impairment charge would be recognized in an amount equal to the amount by which the carrying value
of the intangible asset exceeds its fair value. There were no events or changes in circumstances that would indicate that
the carrying value of the definite-lived intangible assets may not be recoverable during the years ended December 31,
2020, 2019 or 2018.
Investments in Equity Securities
Investments in equity securities, other than those of our consolidated subsidiaries, are accounted for at fair value
or under the measurement alternative of the Financial Accounting Standards Board's ("FASB") ASU No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities, following its adoption on January 1, 2018,
with any changes to fair value recognized within other income (expense), net each reporting period. Under the
measurement alternative, equity investments without readily determinable fair values are carried at cost minus
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or
similar securities of the same issuer; value is generally determined based on a market approach as of the transaction date.
The Company reviews its investments in equity securities without readily determinable fair values for impairment each
reporting period when there are qualitative factors or events that indicate possible impairment. If our assessment
indicates that the fair value of the investment is below its carrying value, the Company will write down the investment to
its fair value and record the corresponding charge within other income (expense), net.
Convertible Senior Notes
Convertible Senior Notes (the Notes) are accounted for in accordance with FASB ASC Subtopic 470-20, Debt
with Conversion and Other Options. Pursuant to ASC Subtopic 470-20, issuers of certain convertible debt instruments,
such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion are
required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The
carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar
liability without the conversion option using an income-based approach. For the income-based approach, the Company
uses a convertible bond lattice model that includes assumptions such as volatility and the risk-free rate. The amount of
the equity component is then calculated by deducting the fair value of the liability component from the principal amount
of the Notes or the fair value of the total Livongo Notes assumed on consummation of the merger, as applicable. The
difference between the principal amount and the liability component represents a debt discount that is amortized to
interest expense over the contractual term of the Notes and the Livongo Notes using an effective interest rate method.
The equity component is not remeasured as long as it continues to meet the conditions for equity classification. In
accounting for the issuance costs related to the Notes, the allocation of issuance costs, if applicable, incurred between the
liability and equity components were based on their relative values.
Stock - Based Compensation
Stock - based compensation for stock options and restricted stock units granted is measured based on the
grant - date fair value of the awards and recognized on a straight - line basis over the period during which the employee is
required to perform services in exchange for the award (generally the vesting period of the award). The Company
estimates the fair value of employee stock options using the Black - Scholes option - pricing model, except as noted.
Stock - based compensation for performance stock units (PSU) granted is measured based on the grant- date fair value of
the awards and recognized on an accelerated tranche by tranche basis over the period during which the employee is
required to perform services in exchange for the award (generally the vesting period of the award). The ultimate number
of PSUs that are issued to an employee is the result of the actual performance of the Company at the end of the
performance period compared to the performance targets and can range from 50% to 225% of the initial grant. For stock-
based compensation assumed in the Livongo merger, the Monte Carlo valuation model was the most suitable for
valuation of options for the replaced and replacement awards from the merger.
The Company’s Employee Stock Purchase Plan (“ESPP”) permits eligible employees to purchase common
stock at a discount through payroll deductions during defined offering periods. Under the ESPP, the Company may
specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each
offering. Each offering will have one or more purchase dates on which shares of its common stock will be purchased for
F-17
employees participating in the offering. An offering may be terminated under certain circumstances. The price at which
the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an
offering period or on the date of purchase.
Foreign Currency
The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities
denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date.
Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation
gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) .
For the year ended December 31, 2020, 2019 and 2018, realized foreign exchange (loss) gain of $(0.6) million, $0.2
million and $(0.1) million, respectively, that was recognized in the Company’s consolidated statement of operations in
interest expense, net.
Advances from Financing Companies
The Company utilizes a third-party financing company to provide certain Clients with a rental option. Under
these arrangements, the Company receives payment up front from the financing companies and the financing companies
collect the Client rental payments over the life of the rental agreement on a nonrecourse basis. The principal portion of
these up-front payments are reported as advances from financing companies in the accompanying consolidated balance
sheet. The Company indemnifies the financing companies for any loss or expenses resulting from its failure to provide
the ongoing necessary system services and support to the Client.
Income Taxes
The Company accounts for income taxes using the liability method, under which deferred tax assets and
liabilities are determined based on the future tax consequences attributable to differences between the financial reporting
carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards and net
operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected
to be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and
a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not
expected to be realized.
The Company recognizes and measures uncertain tax positions using a two - step approach. The first step is to
evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it
is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or
litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to
be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company
evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including
changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit
and effective settlement of audit issues. The Company’s policy is to include interest and penalties related to
unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.
Comprehensive Loss
Comprehensive loss consists of net loss and unrealized gains or losses on short-term investments and
cumulative translation gains or losses. Unrealized gains or losses on short-term investments are net of any
reclassification adjustments for realized gains and losses included in the consolidated statements of operations.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of
common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to
all potential shares of common stock, including outstanding stock options, and convertible notes, to the extent dilutive.
Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of
common stock outstanding would have been anti-dilutive.
F-18
Advertising and Marketing Expenses
Advertising and marketing include all communications and campaigns to the Company’s Clients and Members,
digital and media advertising and are expensed as incurred. For the years ended December 31, 2020, 2019 and 2018,
advertising expenses were $165.0 million, $88.8 million and $70.6 million, respectively.
Concentrations of Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash
and cash equivalents, short-term investments and accounts receivable. Although the Company deposits its cash with
multiple financial institutions in the U.S. and in foreign countries, its deposits, at times, may exceed federally insured
limits. The Company’s short-term investments are comprised of a portfolio of diverse high credit rating instruments with
maturity durations of one year or less.
No Client represented over 10% of revenues for the years ended December 31, 2020, 2019 or 2018.
No Client represented over 10% of accounts receivable at December 31, 2020 or 2019.
Revenue from Clients located in the United States for the year ended December 31, 2020, 2019 and 2018 were
$967.4 million, $445.3 million and $342.7 million, respectively. Revenue from Clients located outside the United States
for the year ended December 31, 2020, 2019 and 2018 were $126.6 million, $108.0 million, and $75.2 million,
respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Seasonality
The Company typically experiences the strongest increases in consecutive quarterly revenue during the fourth
and first quarters of each year, which coincides with traditional annual benefit enrollment seasons. In particular, as a
result of many Clients’ introduction of new services at the very end of a calendar year, or the start of each calendar year,
the majority of the Company’s new Client contracts have an effective date of January 1. As a result of national seasonal
cold and flu trends, the Company typically experiences the highest level of visit fees during the first and fourth quarters
of each year when compared to other quarters of the year. However, during the COVID-19 pandemic in 2020, we did not
experience the typical seasonality associated with national cold and flu outbreaks.
Recently Issued and Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, “Simplification of Income
Taxes (Topic 740) Income Taxes” or ASU 2019-12. ASU 2019-12 simplifies the accounting for income taxes by
removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application
of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is
effective for public companies for annual periods beginning after December 15, 2020, including interim periods within
those fiscal years. The Company early-adopted ASU 2019-12 on the Company’s consolidated financial statements and
disclosures effective January 1, 2020, with no material impact to the financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Goodwill Simplifications
(Topic 350)” or ASU 2017-04. ASU 2017-04 simplifies the test for goodwill impairment. The new guidance eliminates
Step 2 from the goodwill impairment test as currently prescribed in GAAP. This ASU is the result of the FASB project
focused on simplifications to accounting for goodwill. The new guidance was effective for the first quarter of 2020 and
was early adopted in the quarter-ended December 31, 2019.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, “Financial Instruments-Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU 2016-13. The amendments in
ASU 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial
instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting
model for purchased financial assets with credit deterioration since their origination. The FASB issued Accounting
F-19
Standards Update No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or
ASU 2018-19, Accounting Standards Update No. 2019-04, “Codification Improvements to Topic 326, Financial
Instruments—Credit Losses,” or ASU 2019-04, Accounting Standards Update No. 2019-05, “Financial Instruments-
Credit Losses (Topic 326): Targeted Transition Relief,” or ASU 2019-05, Accounting Standards Update No. 2019-10,
“Financial Instruments-Credit Losses (Topic 326): Effective Dates,” or ASU 2019-10 and Accounting Standards Update
No. 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses,” or ASU 2019-11. The
amendments in these ASUs provide clarifications to ASU 2016-13. The Company adopted ASU 2016-13 and the related
clarifications effective January 1, 2020. The adoption did not have a material effect on the Company’s consolidated
financial statements.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Intangibles-Goodwill and
Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract” or ASU 2018-15 Subtopic 350-40, which aligns the requirements
for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the
requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. The standard is
effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption
is permitted. The Company adopted ASU 2018-15 Subtopic 350-40 effective January 1, 2020. The adoption did not have
a material impact on the consolidated financial statements and disclosures.
Note 3. Revenue, Deferred Revenue, Deferred Costs and Other
The Company generates access fees from Clients accessing its professional provider network or hosted virtual
healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service
and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included
with its hosted virtual healthcare platform. Access revenue accounted for approximately 79% of our total revenue for the
year ended December 31, 2020, and 84% of our total revenue for both of the years ended December 31, 2019 and 2018.
The following table presents the Company’s revenues disaggregated by revenue source (in thousands):
Access Fees Revenue
U.S.
International
Total
Visit Fee Revenue
U.S.
International
Total
Other
U.S.
International
Total
Total Revenues
Deferred Revenue
Year Ended
December 31,
2019
2020
2018
$
737,408 $ 356,656 $ 277,091
73,693
106,640
124,392
350,784
463,296
861,800
206,093
818
206,911
88,669
1,342
90,011
65,582
1,541
67,123
23,888
1,363
25,251
0
0
0
0
0
0
$ 1,093,962 $ 553,307 $ 417,907
For certain services, payment is required for future months before the service is delivered to the Member. The
Company records deferred revenue when cash payments are received in advance of the Company’s performance
obligation to provide services. The net increase of $40 million and $7.1 million in the deferred revenue balance for the
year ended December 31, 2020 and 2019, respectively, is primarily driven by the recent acquisition of InTouch and
Livongo in 2020 as well as the direct-to-consumer behavioral health product and cash payments received or due in
F-20
advance of satisfying the Company’s performance obligations, offset by revenue recognized that were included in the
deferred revenue balance at the beginning of the period. For the year ended December 31, 2020, $21.7 million of the
increase to deferred revenue relates to amount assumed from business combinations, see Note 5, Business Acquisitions.
The Company anticipates that it will satisfy most of its performance obligation associated with the deferred revenue
within the prospective fiscal year. Revenue recognized during the fiscal years 2020 and 2019 that was included in
deferred revenue at the beginning of the periods was $12.5 million and $7.1 million, respectively.
We expect to recognize $52.4 million and $2.0 million of revenue in 2021 and 2022, respectively, related to
future performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2020.
Deferred Costs and Other
Deferred costs and other as of December 31, 2020 consist of the following (in thousands):
Deferred device cost, current
Deferred device cost, noncurrent
Total Deferred cost and other
Deferred costs and other activity are as follows (in thousands):
Beginning balance as of January 1, 2020
Additions
Cost of revenue recognized
Ending balance as of December 31, 2020
Note 4. Fair Value Measurements
Year Ended
December 31,
2020
$
$
3,384
2,179
5,563
Year Ended
December 31, 2020
Deferred Device
Cost
$
$
0
6,007
(444)
5,563
A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs that are supported by little or no market activity.
The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash
equivalents within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets
in active markets and quoted prices directly in active markets.
The Company measures its short-term investments at fair value on a recurring basis and classifies such as
Level 2. They are valued using observable inputs that reflect quoted prices directly or indirectly in active markets. The
short-term investments amortized cost approximates fair value.
The Company measures its contingent consideration at fair value on a recurring basis and classifies such as
Level 3. The Company estimates the fair value of contingent consideration as the present value of the expected
contingent payments, determined using the weighted probability of the possible payments.
F-21
The following tables present information about the Company’s assets and liabilities that are measured at fair
value on a recurring basis using the above input categories (in thousands):
Cash and cash equivalents
Short-term investments
Contingent liability
Cash and cash equivalents
Short-term investments
Contingent liability
Level 1
733,324
$
0 $
0 $
$
$
$
December 31, 2020
Level 2
Level 3
$
0
53,245 $
0 $
$
0
0 $
4,514 $
Total
733,324
53,245
4,514
December 31, 2019
Level 2
Level 3
Level 1
$ 514,353
$
$
$
0 $
0 $
$
0
2,711 $
0 $
0
0 $
4,769 $
Total
$ 514,353
2,711
4,769
There were no transfers between fair value measurement levels during the years ended December 31, 2020 and
2019.
The change in fair value of the Company’s contingent liability is recorded in acquisition and integration related
costs in the consolidated statements of operations. The contingent liability is based on future revenue and profitability
expectations. The following table reconciles the beginning and ending balance of the Company’s Level 3 contingent
liability (in thousands):
Fair value at December 31, 2019
Assumed from business combinations
Payments
Change in fair value
Currency translation adjustment
Fair value at December 31, 2020
Note 5. Business Acquisitions
$
$
4,769
357
0
(1,058)
446
4,514
On October 30, 2020, the Company completed the acquisition of Livongo through a merger in which Livongo
became a wholly-owned subsidiary of the Company. Upon completion of the merger, each share of Livongo’s common
stock converted into the right to receive 0.5920 shares of Teladoc Health’s common stock and $4.24 in cash, without
interest. In addition, in connection with the closing of the merger, Livongo paid a special cash dividend equal to $7.09
per share of Livongo’s common stock to shareholders of Livongo as of a record date of October 29, 2020. The total
consideration was $13,938.0 million consisting of $401.0 million of net cash, $555.4 million related to the conversion
feature of the Livongo Notes guaranteed by the Company and 60.4 million shares of Teladoc Health’s common stock
valued at approximately $12,981.6 million on October 30, 2020. The acquisition was considered a stock acquisition for
tax purposes and accordingly, the goodwill resulting from this acquisition is not tax deductible. The total acquisition
related costs were $59.0 million and included transaction costs for investment bankers, other professional fees and
income taxes for accelerated grants and were recognized in the Company’s consolidated statement of operations in
acquisition and integration related costs.
On July 1, 2020, the Company completed the acquisition of InTouch through a merger in which InTouch
became a wholly-owned subsidiary of the Company. The preliminary aggregate merger consideration paid was $1,069.8
million, which was comprised of 4.6 million shares of Teladoc Health’s common stock valued at $903.3 million on
July 1, 2020, and $166.5 million of net cash. InTouch is a leading provider of enterprise telehealth solutions for hospitals
and health systems. The acquisition was considered a stock acquisition for tax purposes and accordingly, the goodwill
resulting from this acquisition is not tax deductible. The total acquisition related costs were $21.4 million and included
transaction costs for investment bankers and other professional fees.
F-22
On April 30, 2019, the Company completed the acquisition of the Paris-based telemedicine provider
MedecinDirect in which MedecinDirect became a wholly-owned subsidiary of the Company. The aggregate merger
consideration paid was $11.2 million with additional potential earnout consideration. The acquisition was considered a
stock acquisition for tax purposes and accordingly, the goodwill resulting from the acquisition is not tax deductible.
On May 31, 2018, the Company completed the acquisition of Advance Medical through a merger in which
Advance Medical became a wholly-owned subsidiary of the Company. The aggregate merger consideration paid was
$351.7 million, which was comprised of 1,344,387 shares of Teladoc Health’s common stock valued at $68.6 million on
May 31, 2018, and $283.1 million of net cash. Advance Medical was a leading global provider of virtual healthcare and
expert medical service solutions. The acquisition was considered a stock acquisition for tax purposes and accordingly,
the goodwill resulting from this acquisition is not tax deductible. The total acquisition related costs were $5.8 million
and included transaction costs for investment bankers and other professional fees.
The acquisitions described above were accounted for using the acquisition method of accounting, which
requires, among other things, the assets acquired and the liabilities assumed be recognized at their fair values as of the
acquisition date. The results of the acquisitions were integrated within the Company’s existing business on the respective
aforementioned acquisition dates.
The following table summarizes the preliminary fair value estimates of the assets acquired and liabilities
assumed for the Livongo and InTouch acquisitions at acquisition date. The Company, with the assistance of a third-party
valuation expert, estimated the preliminary fair value of the acquired tangible and intangible assets with significant
estimates such as revenue projections. The allocation of the consideration transferred to the assets acquired and the
liabilities assumed is preliminary. This can be revised as a result of additional information obtained due to the
finalization of the valuation inputs and assumptions as well as completing the assessment of the tax attributes of the
business combination. Additional adjustments that could have a material impact on the Company’s results of operations
and financial position may be recorded within the measurement period, which will not exceed one year from the
acquisition date.
Identifiable assets acquired and liabilities assumed (in thousands):
Purchase price, net of cash acquired
Less:
Accounts receivable
Short term investment
Inventory
Property and equipment, net
Right of use assets
Other assets
Client relationships
Technology
Trademarks
Advances from financing companies
Accounts payable
Deferred revenue
Convertible notes
Deferred taxes
Lease liabilities
Other liabilities
Goodwill
Livongo
$ 13,938,039 $
InTouch
1,069,759
80,084
52,500
24,299
8,952
15,056
17,337
1,050,000
300,000
250,000
0
(119,302)
(997)
(453,417)
(139,516)
(18,834)
(40,343)
$ 12,912,220 $
16,986
0
8,492
11,366
4,965
2,541
164,580
29,190
32,630
(26,012)
(5,589)
(20,729)
0
(30,102)
(5,495)
(13,042)
899,978
The amount allocated to goodwill reflects the benefits Teladoc Health expects to realize from the growth of the
respective acquisitions’ operations, cost savings, and various synergies.
F-23
The Company’s pro forma revenue and net loss for the years ended December 31, 2020 and 2019 below have
been prepared as if Livongo and InTouch had been purchased on January 1, 2019. The Company made some pro-forma
adjustments related to deferred revenue, deferred costs, amortization of intangible assets, interest expense, stock-based
compensation, acquisition costs and transaction expenses.
(in thousands)
Revenue
Net loss
Unaudited Pro Forma
Year Ended
December 31,
2019
2020
798,384
$ 1,445,766 $
$ (396,791) $ (787,185)
The unaudited pro forma financial information above is not necessarily indicative of what the Company’s
consolidated results actually would have been if the acquisitions had been completed at the beginning of the respective
periods. In addition, the unaudited pro forma information above does not attempt to project the Company’s future results.
The Company recorded approximately $128.3 million of revenue, net of deferred revenue acquisition related fair value
adjustments and $(409.9) million of net loss in total from Livongo and InTouch for the year ended December 31, 2020.
Note 6. Inventories
Inventories consisted of the following as of December 31, 2020:
Raw materials and purchased parts
Work in process
Finished goods
Total inventories
Note 7. Property and Equipment, Net
Property and equipment, net, consist of the following (in thousands):
Computer equipment
Furniture and equipment
Leasehold improvement
Rental Equipment
Construction in progress
Total
Accumulated depreciation
Property and equipment, net
As of December 31,
2020
$
$
19,591
1,431
35,476
56,498
As of December 31,
2020
2019
15,219
$ 22,129 $
3,458
7,022
0
359
26,058
(15,762)
10,296
6,486
12,831
8,413
657
50,516
(21,965)
$ 28,551 $
Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $4.8 million, $3.4 million,
and $4.1 million, respectively.
F-24
Note 8. Intangible Assets, Net
Intangible assets consist of the following (in thousands):
Useful
Life
Gross Value
Weighted
Average
Accumulated Net Carrying Remaining
Useful Life
Amortization
Value
December 31, 2020
Client relationships
Non-compete agreements
Trademarks
Patents
Capitalized software development costs
Technology
Intangible assets, net
December 31, 2019
Client relationships
Non-compete agreements
Trademarks
Patents
Capitalized software development costs
Technology
Intangible assets, net
2 to 20 years $ 1,460,648 $ (100,844) $ 1,359,804
225
1.5 to 5 years
311,210
3 to 15 years
0
3 years
27,747
3 to 5 years
321,878
5 to 7 years
$ 2,183,399 $ (162,535) $ 2,020,864
5,097
326,786
200
52,518
338,150
(4,872)
(15,576)
(200)
(24,771)
(16,272)
2 to 20 years $ 237,182 $ (60,647) $ 176,535
698
1.5 to 5 years
35,463
3 to 15 years
0
3 years
12,475
3 to 5 years
282
5 to 7 years
$ 319,796 $ (94,343) $ 225,453
(4,260)
(7,143)
(200)
(16,415)
(5,678)
4,958
42,606
200
28,890
5,960
15.4
0.4
10.5
0
2.8
6.6
9.2
13.1
1.4
12.9
0
2.3
0.5
12.4
Amortization expense for intangible assets was $64.7 million, $35.6 million and $31.5 million for the years
ended December 31, 2020, 2019 and 2018, respectively.
Periodic amortization that will be charged to expense over the remaining life of the intangible assets as of
December 31, 2020 is as follows (in thousands):
Years Ending December 31,
2021
2022
2023
2024
2025 and thereafter
Note 9. Goodwill
Goodwill consists of the following (in thousands):
Beginning balance
Additions associated with acquisitions
Cumulative translation adjustment
Goodwill
F-25
$
196,019
186,860
188,386
183,409
1,266,190
2,020,864
$
As of December 31,
2020
746,079 $
$
13,812,198
22,978
14,581,255 $
$
As of December 31,
2019
737,197
10,604
(1,722)
746,079
Note 10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
Professional fees
Consulting fees/provider fees
Client performance guarantees
Legal fees
Interest payable
Income tax payable
Insurance
Marketing
Operating lease liabilities - current
Earnout
Other
Total
Note 11. Revolving Credit Facility
2020
2019
$
$
4,717 $
23,167
7,215
2,419
2,049
1,627
3,139
2,815
11,438
4,514
20,557
83,657 $
1,535
10,618
3,298
1,077
838
2,859
1,263
2,810
5,088
0
5,054
34,440
The Company entered into a $10.0 million Senior Secured Revolving Credit Facility (the “Revolving Credit
Facility”) in 2017. The Revolving Credit Facility was terminated pursuant to its terms effective July 14, 2020. As of
December 31, 2019, there was no amount outstanding other than $2.2 million of letters of credit issued for facility
security deposits at December 31, 2019. In addition, the acquired fair value of the assumed indebtedness of $10.0 million
in connection with Livongo merger was paid in full and there was no amount outstanding as of December 31, 2020.
Note 12. Convertible Senior Notes
Convertible Senior Notes Due 2027
On May 19, 2020, the Company issued, at par value, $1 billion aggregate principal amount of 1.25%
convertible senior notes due 2027 (the “2027 Notes”). The 2027 Notes bear cash interest at a rate of 1.25% per year,
payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 15, 2020. The 2027
Notes will mature on June 1, 2027. The net proceeds to the Company from the offering were $975.9 million after
deducting offering costs of approximately $24.1 million.
The 2027 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the
Company’s indebtedness that is expressly subordinated in right of payment to the 2027 Notes; equal in right of payment
to the Company’s liabilities that are not so subordinated; effectively junior in right of payment to any of the Company’s
secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all
indebtedness and other liabilities incurred by the Company’s subsidiaries.
Holders may convert all or any portion of their 2027 Notes in integral multiples of $1,000 principal amount, at
their option, at any time prior to the close of business on the business day immediately preceding December 1, 2026 only
under the following circumstances:
•
•
during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and
only during such calendar quarter), if the last reported sale price of the shares of Company’s common stock
for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days
ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to
130% of the conversion price for the 2027 Notes on each applicable trading day;
during the five business day period after any ten consecutive trading day period in which the trading price
was less than 98% of the product of the last reported sale price of Company’s common stock and the
conversion rate for the 2027 Notes on each such trading day;
F-26
•
•
upon the occurrence of specified corporate events described under the 2027 Notes Indenture; or
if the Company calls the 2027 Notes for redemption, at any time until the close of business on the second
business day immediately preceding the redemption date.
On or after December 1, 2026, until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders may convert all or any portion of their 2027 Notes, regardless of the foregoing
circumstances.
The conversion rate for the 2027 Notes was initially, and remains, 4.1258 shares of the Company’s common
stock per $1,000 principal amount of the 2027 Notes, which is equal to an initial conversion price of approximately
$242.38 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may
be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company
elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a
combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s
common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis
for each trading day in a 25 consecutive trading days observation period.
The Company may redeem for cash all or part of the 2027 Notes, at its option, on or after June 5, 2024 if the
last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20 trading
days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading day
immediately preceding the date on which the Company provides notice of the redemption. The redemption price will be
the principal amount of the 2027 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling any
2027 Note for redemption on or after June 5, 2024 will constitute a make-whole fundamental change with respect to that
2027 Note, in which case the conversion rate applicable to the conversion of that 2027 Note, if it is converted in
connection with the redemption, will be increased in certain circumstances as described in the indenture governing the
2027 Notes.
In accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and
equity components. The carrying amount of the liability component was calculated by measuring the fair value of a
similar liability that does not have an associated convertible feature. The carrying amount of the equity component
representing the conversion option was determined by deducting the fair value of the liability component from the par
value of the 2027 Notes as a whole. The excess of the principal amount of the liability component over its carrying
amount, referred to as the debt discount, is amortized to interest expense from the issuance date to June 1, 2027. The
equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity
component related to the 2027 Notes was $286 million, net of issuance costs which was recorded in additional paid-in
capital on the accompanying condensed consolidated balance sheet. The Company has reserved 5.4 million shares of
common stock for the 2027 Notes.
In accounting for the transaction costs related to the issuance of the 2027 Notes, the Company allocated the total
costs incurred to the liability and equity components of the 2027 Notes based on their relative values. Transaction costs
attributable to the liability component are being amortized to interest expense over the seven year term of the 2027
Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’
equity.
The 2027 Notes consist of the following (in thousands):
Liability component
Principal
Less: Debt discount, net (1)
Net carrying amount
As of December 31,
2020
1,000,000
(287,916)
712,084
$
$
(1) Included in the accompanying consolidated balance sheet within convertible senior notes and amortized to
interest expense over the expected life of the 2027 Notes using the effective interest rate method.
F-27
The fair value of the 2027 Notes was $1,188.9 million as of December 31, 2020. The Company estimates the
fair value of its 2027 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2027
Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs
based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as
Level 2 measurements within the fair value hierarchy. See Note 4, “Fair Value Measurements,” for definitions of
hierarchy levels. As of December 31, 2020, the remaining contractual life of the 2027 Notes is approximately 6.4 years.
The following table sets forth total interest expense recognized related to the 2027 Notes (in thousands):
Contractual interest expense
Amortization of debt discount
Total
Effective interest rate of the liability component
Livongo Convertible Senior Notes Due 2025
Year Ended
December 31,
2020
7,743
21,756
29,499
3.4%
$
$
As part of the Livongo acquisition in October 2020, the Company agreed to guarantee Livongo’s obligations
under its $550.0 million aggregate principal amount of convertible senior notes due 2025 (the “Livongo Notes”), which
had been issued by Livongo on June 4, 2020, prior to the Company’s acquisition of Livongo. The Livongo Notes bear
cash interest at a rate of 0.875% per year, payable semi-annually in arrears on June 1 and December 1 of each year. The
Livongo Notes will mature on June 1, 2025.
The Livongo Notes are general unsecured obligations of the Company and rank senior in right of payment to the
Company’s indebtedness that is expressly subordinated in right of payment to the Livongo Notes; equal in right of
payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to
any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and
structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.
Holders may convert all or any portion of their Livongo Notes in integral multiples of $1,000 principal amount,
at their option, at any time prior to the close of business on the business day immediately preceding March 1, 2025 only
under the following circumstances:
•
•
•
•
during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2020 (and only
during such fiscal quarter), if the last reported sale price of the shares of Company’s common stock for at
least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on
the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the
conversion price for the Livongo Notes on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price
was less than 98% of the product of the last reported sale price of Company’s common stock and the
conversion rate for the Livongo Notes on each such trading day;
upon the occurrence of specified corporate events described under the 2027 Notes Indenture; or
if the Company calls the Livongo Notes for redemption, at any time prior to the close of business on the
second scheduled trading day immediately preceding the redemption date.
On or after March 1, 2025, until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders may convert all or any portion of their Livongo Notes, regardless of the foregoing
circumstances.
F-28
The conversion rate for the Livongo Notes was initially 13.2329 shares of Livongo’s common stock. Following
our acquisition of Livongo and the issuance of the special dividend to Livongo stockholders in connection with the
merger, the conversion rate for the Livongo Notes is 13.94 units of reference property per $1,000 principal amount of the
Livongo Notes. Each “unit of reference property” is comprised of 0.5920 of a share of our common stock and $4.24 in
cash, without interest. Upon conversion, the Company will pay or deliver, as the case may be, cash, units of reference
property or a combination thereof, at the Company’s election. If the Company elects to satisfy the conversion obligation
solely in cash or through payment and delivery, as the case may be, of a combination of cash and units of reference
property, the amount of cash and units of reference property, if any, due upon conversion will be based on a daily
conversion value calculated on a proportionate basis for each trading day in a 40 trading days observation period.
The Company may redeem for cash all or part of the Livongo Notes, at its option, on or after June 5, 2023 and
prior to the 41st scheduled trading day immediately preceding the maturity date, if the last reported sale price of its
common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not
consecutive) during any 30 consecutive trading days (including the last trading day of such period) ending on, and
including the trading day immediately preceding the date on which the Company provides notice of the redemption. The
redemption price will be the principal amount of the Livongo Notes to be redeemed, plus accrued and unpaid interest to,
but excluding, the redemption date. If Livongo undergoes a fundamental change (as defined in the applicable indenture)
at any time prior to the maturity date, holders will have the right, at their option, to require Livongo to repurchase for
cash all or any portion of their Livongo Notes at a fundamental change repurchase price equal to 100% of the principal
amount of the Livongo Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental
change repurchase date.
Liability component
Principal
Less: Debt discount, net (1)
Net carrying amount
As of December 31,
2020
$
$
550,000
(93,357)
456,643
(1) Included in the accompanying consolidated balance sheet within convertible senior notes and amortized to
interest expense over the expected life of the Livongo Notes using the effective interest rate method.
The fair value of the Livongo Notes was $988.5 million as of December 31, 2020. The Company estimates the
fair value of the Livongo Notes utilizing market quotations for debt that have quoted prices in active markets. Since the
Livongo Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable
inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are
classified as Level 2 measurements within the fair value hierarchy. See Note 4, “Fair Value Measurements,” for
definitions of hierarchy levels. As of December 31, 2020, the remaining contractual life of the Livongo Notes is
approximately 4.4 years. We carry the liability component of the Livongo Notes at face value less unamortized debt
discount on our condensed consolidated balance sheets and provide the fair value for disclosure purposes only.
The following table sets forth total interest expense recognized related to the Livongo Notes subsequent to the
acquisition of Livongo (in thousands):
Contractual interest expense
Amortization of debt discount
Total
Effective interest rate of the liability component
Convertible Senior Notes Due 2025
Year Ended
December 31,
2020
829
3,226
4,055
5.2%
$
$
On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375%
convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes bear cash interest at a rate of 1.375% per year,
F-29
payable semi-annually in arrears on May 15 and November 15 of each year. The 2025 Notes will mature on May 15,
2025. The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of
approximately $8.4 million.
The 2025 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the
Company’s indebtedness that is expressly subordinated in right of payment to the 2025 Notes; equal in right of payment
to the Company’s liabilities that are not so subordinated; effectively junior in right of payment to any of the Company’s
secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all
indebtedness and other liabilities incurred by the Company’s subsidiaries.
Holders may convert all or any portion of their 2025 Notes in integral multiples of $1,000 principal amount, at
their option, at any time prior to the close of business on the business day immediately preceding November 15, 2024
only under the following circumstances:
•
•
•
•
during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the
shares of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five-business day period after any ten consecutive trading day period in which the trading price
was less than 98% of the product of the last reported sale price of the Company’s common stock and the
conversion rate on each such trading day;
upon the occurrence of specified corporate events described under the 2025 Notes Indenture; or
if the Company calls the 2025 Notes for redemption, at any time until the close of business on the second
business day immediately preceding the redemption date.
On or after November 15, 2024, until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders may convert all or any portion of their 2025 Notes, regardless of the foregoing
circumstances.
The conversion rate for the 2025 Notes was initially, and remains, 18.6621 shares of the Company’s common
stock per $1,000 principal amount of the 2025 Notes, which is equivalent to an initial conversion price of approximately
$53.58 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may
be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company
elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a
combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s
common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis
for each trading day in a 25 trading day observation period.
The Company may redeem for cash all or any portion of the 2025 Notes, at its option, on or after May 22, 2022
if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20
trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading
day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will
be the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling
any 2025 Note for redemption on or after May 22, 2022 will constitute a make-whole fundamental change with respect
to that 2025 Note, in which case the conversion rate applicable to the conversion of that Note, if it is converted in
connection with the redemption, will be increased in certain circumstances as described in the 2025 Notes Indenture.
In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and
equity components. The carrying amount of the liability component was calculated by measuring the fair value of a
similar liability that does not have an associated convertible feature. The carrying amount of the equity component
representing the conversion option was determined by deducting the fair value of the liability component from the par
value of the 2025 Notes as a whole. The excess of the principal amount of the liability component over its carrying
amount, referred to as the debt discount, is amortized to interest expense from the issuance date to November 15, 2024
(the first date on which the Company may be required to repurchase the 2025 Notes at the option of the holder). The
F-30
equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity
component related to the 2025 Notes was $91.4 million, net of issuance costs which was recorded in additional paid-in
capital on the accompanying consolidated balance sheet.
In accounting for the transaction costs related to the issuance of the 2025 Notes, the Company allocated the total
costs incurred to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs
attributable to the liability component are being amortized to interest expense over the seven-year term of the 2025
Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’
equity.
The 2025 Notes consist of the following (in thousands):
Liability component
Principal
Less: Debt discount, net (2)
Net carrying amount
As of December 31, As of December 31,
$
$
2020
276,788 $
(65,923)
210,865 $
2019
287,500
(81,207)
206,293
(2) Included in the accompanying consolidated balance sheets within convertible senior notes and amortized to
interest expense over the expected life of the 2025 Notes using the effective interest rate method.
The fair value of the 2025 Notes was $1,032.9 million as of December 31, 2020. The Company estimates the
fair value of its 2025 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2025
Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs
based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as
Level 2 measurements within the fair value hierarchy. See Note 4, “Fair Value Measurements,” for definitions of
hierarchy levels. As of December 31, 2020, the remaining contractual life of the 2025 Notes is approximately 4.4 years.
The following table sets forth total interest expense recognized related to the 2025 Notes (in thousands):
Contractual interest expense
Amortization of debt discount
Total
Effective interest rate of the liability component
Convertible Senior Notes Due 2022
2020
$
3,900
12,532
$ 16,432
7.9%
$
Year Ended
December 31,
2019
3,953
11,706
$ 15,659
7.9%
$
$
2018
2,578
6,831
9,409
7.9%
On June 27, 2017, the Company issued, at par value, $275 million aggregate principal amount of 3%
convertible senior notes due 2022 (the “2022 Notes”). The 2022 Notes bear cash interest at a rate of 3% per year,
payable semi-annually in arrears on June 15 and December 15 of each year. The 2022 Notes will mature on December
15, 2022. The net proceeds to the Company from the offering were $263.7 million after deducting offering costs of
approximately $11.3 million.
The 2022 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the
Company’s indebtedness that is expressly subordinated in right of payment to the 2022 Notes; equal in right of payment
to the Company’s liabilities that are not so subordinated; effectively junior in right of payment to any of the Company’s
secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all
indebtedness and other liabilities incurred by the Company’s subsidiaries.
Holders may convert all or any portion of their 2022 Notes in integral multiples of $1,000 principal amount, at
their option, at any time prior to the close of business on the business day immediately preceding June 15, 2022 only
under the following circumstances:
F-31
•
•
•
•
during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the
shares of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five-business day period after any ten consecutive trading day period in which the trading price
was less than 98% of the product of the last reported sale price of the Company’s common stock and the
conversion rate on each such trading day;
upon the occurrence of specified corporate events described under the 2022 Notes Indenture; or
if the Company calls the 2022 Notes for redemption, at any time until the close of business on the second
business day immediately preceding the redemption date.
On or after June 15, 2022, until the close of business on the second scheduled trading day immediately
preceding the maturity date, holders may convert all or any portion of their 2022 Notes, regardless of the foregoing
circumstances.
The conversion rate for the 2022 Notes was initially, and remains, 22.7247 shares of the Company’s common
stock per $1,000 principal amount of the 2022 Notes, which is equivalent to an initial conversion price of approximately
$44.00 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may
be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company
elects to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a
combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s
common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis
for each trading day in a 25 trading day observation period.
The Company may redeem for cash all or any portion of the 2022 Notes, at its option, on or after December 22,
2020 if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least
20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading
day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will
be the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling
any 2022 Note for redemption on or after December 22, 2020 will constitute a make-whole fundamental change with
respect to that 2022 Note, in which case the conversion rate applicable to the conversion of that Note, if it is converted in
connection with the redemption, will be increased in certain circumstances as described in the 2022 Notes Indenture.
In accounting for the issuance of the 2022 Notes, the Company separated the 2022 Notes into liability and
equity components. The carrying amount of the liability component was calculated by measuring the fair value of a
similar liability that does not have an associated convertible feature. The carrying amount of the equity component
representing the conversion option was determined by deducting the fair value of the liability component from the par
value of the 2022 Notes as a whole. The excess of the principal amount of the liability component over its carrying
amount, referred to as the debt discount, is amortized to interest expense from the issuance date to June 15, 2022 (the
first date on which the Company may be required to repurchase the 2022 Notes at the option of the holder). The equity
component is not re-measured as long as it continues to meet the conditions for equity classification. The equity
component related to the 2022 Notes was $62.4 million, net of issuance costs which was recorded in additional paid-in
capital on the accompanying consolidated balance sheet.
In accounting for the transaction costs related to the issuance of the 2022 Notes, the Company allocated the total
costs incurred to the liability and equity components of the 2022 Notes based on their relative values. Transaction costs
attributable to the liability component are being amortized to interest expense over the five and a half year term of the
2022 Notes, and transaction costs attributable to the equity component are netted with the equity components in
stockholders’ equity.
F-32
The 2022 Notes consist of the following (in thousands):
Liability component
Principal
Less: Debt discount, net (3)
Net carrying amount
As of December 31, As of December 31,
$
$
2020
46,762 $
(4,202)
42,560 $
2019
274,995
(40,878)
234,117
(3) Included in the accompanying consolidated balance sheets within convertible senior notes and amortized to
interest expense over the expected life of the 2022 Notes using the effective interest rate method.
The fair value of the 2022 Notes was $212.5 million as of December 31, 2020. The Company estimates the fair
value of its 2022 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2022
Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs
based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as
Level 2 measurements within the fair value hierarchy. See Note 4, “Fair Value Measurements,” for definitions of
hierarchy levels. As of December 31, 2020, the remaining contractual life of the 2022 Notes is approximately 2.0 years.
The following table sets forth total interest expense recognized related to the 2022 Notes (in thousands):
Contractual interest expense
Amortization of debt discount
Total
Effective interest rate of the liability component
2020
$ 4,047
7,553
$ 11,600
9.6%
$
Year Ended
December 31,
2019
8,250
14,026
$ 22,276
10.0%
$
2018
8,250
12,726
$ 20,976
10.0%
On May 14, 2020, the Company entered into privately negotiated agreements with certain holders of 2022
Notes to exchange 2022 Notes for shares of the Company’s common stock, together with cash, in private placement
transactions pursuant to Section 4(a)(2) of the Securities Act (the “Exchange Transactions”). The closing occurred on
May 19, 2020. In exchange for approximately $228.2 million aggregate principal amount of 2022 Notes, the Company
paid approximately $231.1 million in cash (including accrued and unpaid interest and cash paid in lieu of fractional
shares), together with an aggregate of approximately 3.9 million shares of its common stock. As a result of the Exchange
Transactions, the company recorded a charge associated with the loss on extinguishment of debt of $7.8 million for the
year ended December 31, 2020. The remaining loss on extinguishment of debt of $1.3 million was related to conversion
of the 2025 Notes in 2020.
Approximately $46.8 million aggregate principal amount of the 2022 Notes remained outstanding as of
December 31, 2020. In February 2021, the Company issued notice to holders that it had called for redemption all of the
outstanding 2022 Notes.
Note 13. Advances from Financing Companies
The Company utilizes a third-party financing company to provide certain Clients with a rental option. The
principal portion of these up-front payments are reported as advances from financing companies in the accompanying
consolidated balance sheet. Interest rates applicable to the outstanding advances as of December 31, 2020 ranged from
2.47% to 8.75%.
F-33
Client lease payments to third-party financing companies will reduce the advances from financing companies as
of December 30, 2020 by year as follows:
2021
2022
2023
Note 14. Leases and Contractual Obligations
Operating Leases
As of December 31,
2020
$
$
13,453
7,909
2,017
23,379
The Company has operating leases for facilities, hosting co-location facilities and certain equipment under non-
cancelable leases in the United States and various international locations. The leases have remaining lease terms of 1 to
11 years, with options to extend the lease term from 1 to 6 years. At the inception of an arrangement, the Company
determines whether the arrangement is or contains a lease based on the arrangement covering the right to use property,
plant or equipment for a started period of time. For new and amended leases beginning in 2020 and after, the Company
will separately allocate the lease (e.g., fixed lease payments for right-to-use land, building, etc.) and non-lease
components (e.g., common area maintenance) for its leases. The components of operating lease expense reflected in the
consolidated statements of operations were as follows (in thousands):
Lease cost
Operating lease cost
Short Term lease cost
Variable lease cost
Total lease cost
Year Ended
December 31, 2020
$
$
10,823
1,107
3
11,933
In determining the present value of the lease payments, the Company has elected to utilize its incremental
borrowing rate based on the original lease term and not the remaining lease term. Supplemental information related to
operating leases was as follows (in thousands):
Consolidated Statements of Cash Flows
Cash payment for operating cash flows used for operating leases
Operating lease liabilities arising from obtaining right-of-use assets
Other Information
Weighted-average remaining lease term
Weighted-average discount rate
Year Ended
December 31, 2020
10,654
$
8,134
$
4.69
5.64%
F-34
The Company leases office space under non - cancelable operating leases in the United States and various
international locations. As of December 31, 2020, the future minimum lease payments under non - cancelable operating
leases are as follows (in thousands):
2021
2022
2023
2024
2025 and thereafter
Sub-total
Less: imputed interest
Minimum lease payments
Operating
Leases
$
$
14,193
14,159
13,946
8,918
12,049
63,265
8,685
54,580
The Company commenced a new 5 year lease on March 1, 2020 for office space in Santa Clara, CA. As a
result, the Company recorded a right-of-use asset and lease liability of $6.8 million as of March 1, 2020.
The Company rents its systems to certain qualified customers under arrangements that qualify as either
sales-type lease or operating lease arrangements. Leases have terms that generally range from two to five years.
Note 15. Common Stock and Stockholders’ Equity
Capitalization
Effective October 30, 2020, the authorized number of shares of the Company’s common stock was increased
from 150,000,000 to 300,000,000 shares.
On July 26, 2018, Teladoc Health closed on its July Offering in which the Company issued and sold 5,000,000
shares of common stock, at an issuance price of $66.28 per share. The Company received net proceeds of $330.9 million
after deducting offering expenses of $0.5 million.
Warrants
The Company has no warrants outstanding as of December 31, 2020 and 2019.
Stock Plans
The Company’s 2015 Incentive Award Plan, 2017 Employment Inducement Incentive Award Plan and Livongo
Acquisition Incentive Award Plan (collectively, the “Plans”) provide for the issuance of incentive and non-statutory
options and other equity-based awards to its employees and non-employee service providers.
In connection with the closing of the Livongo merger, the Company assumed the Livongo Health, Inc. 2019
Equity Incentive Plan, the Livongo Health, Inc. Amended and Restated 2014 Stock Incentive Plan and the Livongo
Health, Inc. Amended and Restated 2008 Stock Incentive Plan (collectively, the “Assumed Plan”). At the effective time
of the Livongo merger on October 30, 2020, each outstanding Livongo equity award issued under the Assumed Plans
was converted into a corresponding award with respect to the Company’s common stock, with the number of shares
underlying such award adjusted based on the “Equity Award Adjustment Ratio” (as defined below), and remained
outstanding in accordance with the terms that were applicable to such award prior to the Livongo merger. The exercise
price of each outstanding Livongo stock option was also adjusted based on the Equity Award Adjustment Ratio. The
“Equity Award Adjustment Ratio” means the quotient determined by dividing (i) the volume weighted average closing
price of Livongo common stock on the four trading days ending on October 29, 2020, by (ii) the volume weighted
average closing price of the Company’s common stock on the New York Stock Exchange on the four trading days
beginning on October 29, 2020.
F-35
All stock-based awards to employees are measured based on the grant date fair value, or replacement grant date
fair value in relation to Livongo transaction, and are generally recognized on a straight-line basis in the Company’s
consolidated statement of operations over the period during which the employee is required to perform services in
exchange for the award (generally requiring a four-year vesting period for each stock option and a three-year vesting
period for each RSU).
Stock Options
Options issued under the Plans are exercisable for periods not to exceed ten years, and vest and contain such
other terms and conditions as specified in the applicable award document. Options to buy common stock are issued
under the Plans, with exercise prices equal to the closing price of shares of the Company’s common stock on the New
York Stock Exchange on the date of award. The Company had 13,012,602 shares available for grant at December 31,
2020.
Activity under the Plans is as follows (in thousands, except share and per share amounts and years):
Balance at December 31, 2019
Stock option grants and assumed awards
Stock options exercised
Stock options forfeited
Balance at December 31, 2020
Vested or expected to vest at December 31, 2020
Exercisable at December 31, 2020
Weighted-
Average
Exercise
Number of
Price
Shares
Outstanding
5,206,980 $ 24.47
6,892,990 $ 188.31
9.00
(6,104,718) $
(168,567) $ 36.12
5,826,685 $ 17.19
5,826,685 $ 17.19
3,903,612 $ 16.36
Weighted-
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
308,538
7.03 $
N/A $
N/A $ (1,165,746)
N/A $
5.31 $ 1,064,944
5.31 $ 1,064,944
716,706
5.55 $
The total grant - date fair value of stock options granted during the year ended December 31, 2020, 2019 and
2018 was $1,298.0 million, $4.7 million and $27.0 million, respectively. Included in the December 31, 2020 stock
options grant date fair value is $1,266.3 million of replacement awards related to mergers and acquisitions.
The Company estimates the fair value of stock options granted using the Black - Scholes option - pricing model.
The assumptions used in the Black - Scholes option - pricing model are determined as follows:
Volatility. The expected volatility was derived from the historical stock volatilities of the Company’s stock
volatility over a period equivalent to the expected term of the stock option grants.
Risk - Free Interest Rate. The risk - free interest rate is based on U.S. Treasury zero - coupon issues with terms
similar to the expected term on the options.
Expected Term. The expected term represents the period that the stock - based awards are expected to be
outstanding. When establishing the expected term assumption, the Company utilizes historical data.
Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash
dividends in the foreseeable future, and therefore, it used an expected dividend yield of zero.
Forfeiture rate. The Company recognizes forfeitures as they occur.
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The fair value of each option grant was estimated on the date of grant using the Black - Scholes option - pricing
model with the following assumptions and fair value per share:
Volatility
Expected life (in years)
Risk-free interest rate
Dividend yield
Weighted-average fair value of underlying stock options
2020
Year Ended December 31,
2019
46.1% - 56.6% 46.8% – 47.6%
4.1
5.2
0.22%-1.64% 1.35% - 2.55%
0
$48.74
$
0
28.37
$
$
2018
43.4% – 46.1%
6.0
2.45% - 3.03%
0
20.26
The Company determined that a Monte Carlo valuation model is most suitable for valuation of options for the
replaced and replacement awards from the Livongo merger, for the following reasons:
•
•
Options are deeply in-the-money, as such don’t qualify as “plain-vanilla” options.
With the merger, the exercise pattern of the replaced and replacement options might be different from a
regular “plain-vanilla” option that assumes the exercise of the option at the end of the option expiration time. A lattice
approach can be used to directly model the effect of different expected periods before exercise on the fair-value-based
measure of the option, whereas it is assumed under the Black-Scholes-Merton model that exercise occurs at the end of
the option’s expected term.
For the years ended December 31, 2020, 2019 and 2018, the Company recorded compensation expense related
to stock options granted of $134.9 million, $20.4 million, and $24.6 million, respectively. Included in the $134.9 million
for December 31, 2020 was expense of $91.5 million related to the acceleration of replacement awards connected to the
acquisitions of InTouch and Livongo.
As of December 31, 2020, the Company had $138.0 million in unrecognized compensation cost related to non-
vested stock options, which is expected to be recognized over a weighted average period of approximately 1.8 years.
Restricted Stock Units
In May 2017, the Company commenced issuing Restricted Stock Units (“RSUs”), pursuant to the Plan to
certain employees and Board Members under the 2017 Employment Inducement Incentive Award Plan.
The fair value of the RSUs is determined on the date of grant. The Company records compensation expense in
the consolidated statement of operations on a straight-line basis over the vesting period for RSUs and on an accelerated
tranche by tranche basis for performance based awards. The vesting period for employees and members of the Board of
Directors ranges from one to four years.
Activity under the RSUs is as follows:
Weighted-Average
Grant Date
Balance at December 31, 2019
Granted including replacement awards for merger
Vested and issued
Forfeited
Balance at December 31, 2020
Vested and unissued at December 31, 2020
Non-vested at December 31, 2020
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RSUs
1,483,558 $
4,205,573 $
(1,819,566) $
(318,970) $
3,550,595 $
13,755 $
3,536,840 $
Fair Value Per RSU
54.13
190.46
142.84
148.43
161.68
50.90
162.11
The total grant - date fair value of RSUs granted for the years ended December 31, 2020, 2019 and 2018 were
$801.0 million, $56.7 million and $49.3 million, respectively. Included in the December 31, 2020 RSUs grant date fair
value is $712.4 million of replacement awards related to mergers and acquisitions.
For the years ended December 31, 2020, 2019 and 2018, the Company recorded stock-based compensation
expense related to the RSUs of $314.1 million, $30.5 million, and $16.7 million, respectively. Included in the $314.1
million for December 31, 2020 was expense of $240.4 million related to the acceleration of replacement awards
connected to mergers and acquisitions.
As of December 31, 2020, the Company had $460.9 million in unrecognized compensation cost related to
non - vested RSUs, which is expected to be recognized over a weighted - average period of approximately 2.0 years.
Performance Stock Units
The Company began issuing grants Performance Stock Units (“PSUs”) to employees under the 2015 Plan in 2018.
Stock-based compensation costs associated with our PSUs are initially determined using the fair market value of the
Company's common stock on the date the awards are approved by the Compensation Committee of the Board of Directors
(service inception date). The vesting of these PSUs is subject to certain performance conditions and a service requirement
ranging from 1-3 years. Until the performance conditions are met, stock compensation costs associated with these PSUs
are re-measured each reporting period based upon the fair market value of the Company's common stock and the estimated
performance attainment on the reporting date. The ultimate number of PSUs that are issued to an employee is the result of
the actual performance of the Company at the end of the performance period compared to the performance conditions and
can range from 50% to 225% of the initial grant. Stock compensation expense for PSUs is recognized on an accelerated
tranche by tranche basis for performance-based awards. Forfeitures are accounted for at the time the occur consistent
with Company policy.
Activity under the PSUs is as follows:
Balance at December 31, 2019
Granted
Vested and issued
Balance at December 31, 2020
Vested and unissued at December 31, 2020
Non-vested at December 31, 2020
Weighted-Average
Grant Date
Shares
512,482 $
114,613 $
(197,776) $
429,319 $
0 $
429,319 $
Fair Value Per Share
62.51
118.01
64.31
76.60
0
76.60
The total grant - date fair value of PSUs granted for the years ended December 31, 2020, 2019 and 2018 were
$25.0 million, $31.6 million, and $3.5 million, respectively.
For the years ended December 31, 2020, 2019 and 2018, the Company recorded stock-based compensation
expense related to the PSUs of $24.0 million, 14.6 million and $1.5 million, respectively.
As of December 31, 2020, the Company had $20.4 million in unrecognized compensation cost related to
non - vested PSUs, which is expected to be recognized over a weighted - average period of approximately 1.5 years.
Employee Stock Purchase Plan
In July 2015, the Company adopted the 2015 Employee Stock Purchase Plan, or ESPP, in connection with its
initial public offering. A total of 832,492 shares of common stock were reserved for issuance under this plan as of
December 31, 2020. The Company’s ESPP permits eligible employees to purchase common stock at a discount through
payroll deductions during defined offering periods. Under the ESPP, the Company may specify offerings with durations
of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one
or more purchase dates on which shares of its common stock will be purchased for employees participating in the
offering. An offering may be terminated under certain circumstances. The price at which the stock is purchased is equal
F-38
to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or on the date of
purchase.
During 2020 and 2019, the Company issued 49,781 shares and 64,497 shares, respectively, under the ESPP. As
of December 31, 2020, 505,486 shares remained available for issuance.
For the year ended December 31, 2020, 2019 and 2018, the Company recorded stock-based compensation
expense related to the ESPP of $2.8 million, $1.2 million, and $1.0 million, respectively, based on offerings made under
the plan to-date.
As of December 31, 2020, the Company had $1.0 million in unrecognized compensation cost related to the
ESPP, which is expected to be recognized over a weighted - average period of approximately 0.4 years.
Total compensation costs charged as an expense for stock - based awards, including stock options, RSUs, PSUs
and ESPP, recognized in the components of operating expenses are as follows (in thousands):
Year Ended
December 31,
2019
2018
2020
Cost of revenue (exclusive of depreciation and amortization, which is
shown separately)
Advertising and marketing
Sales
Technology and development
General and administrative
Total stock-based compensation expense
Note 16. Income Taxes
$
$
$
2,700
26,995
65,730
60,556
319,550
0
2,091
7,638
6,000
28,040
$ 475,531 $ 66,702 $ 43,769
0
4,956
10,286
7,573
43,887
The Company follows the provisions of the accounting guidance on accounting for income taxes which requires
recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the
deferred tax asset to a level which, more likely than not, will be realized.
For financial reporting purposes, income (loss) before income taxes for the years ended December 31, 2020,
2019 and 2018 include the following components (in thousands):
2020
Year Ended December 31,
2019
$ (566,266) $ (95,476) $ (91,142)
(5,824)
$ (575,993) $ (109,455) $ (96,966)
(9,727) (13,979)
2018
Domestic
International
Total
F-39
The provision (benefit) for income taxes is comprised of the following components:
Current federal
Current state
Current foreign
Total current
Deferred federal
Deferred state
Deferred foreign
Total deferred
Total (Benefit) / Provision
Year Ended December 31,
2019
2020
2018
$ (1,954) $
27
1,605
(322)
239 $
300
(262)
277
0
6
2,011
2,017
(60,008)
(26,775)
(3,752)
(90,535)
(5,043)
(1,783)
(4,042)
(10,868)
$ (90,857) $ (10,591) $
(499)
416
(1,816)
(1,899)
118
The provision for income taxes differs from the amount computed by applying the statutory federal income tax
rate to income before provision for income taxes. The sources and tax effects of the differences are as follows:
Tax at federal statutory rate
State and local tax
Acquisition expenses
Stock compensation
Executive compensation
Non-deductible expenses
Foreign rate differential
Change in valuation allowance
Other
Effective tax rate
Year Ended
December 31,
2019
21.0 %
4.6 %
(0.4)%
11.5 %
(3.8)%
(0.2)%
2.2 %
(25.3)%
0.1 %
9.7 %
2020
21.0 %
2.3 %
(2.2)%
11.3 %
(12.5)%
(0.1)%
0.3 %
(5.4)%
1.0 %
15.8 %
2018
21.0 %
4.8 %
(1.3)%
16.5 %
0 %
(0.3)%
0 %
(41.5)%
0.7 %
(0.1)%
F-40
The Company’s deferred tax assets and liabilities consist of the following (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Accrued expenses and compensation
Uncertain tax positions, including interest
Stock-based compensation
Foreign tax credits and alternative minimum tax credits
Research and development credits
Depreciation of property and equipment
Interest expense carryforward
Operating lease assets (1)
Deferred revenue
Other
Deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Debt related
Operating lease liabilities
Prepaid insurance and deferred commissions
Depreciation of property and equipment
Intangible assets
Deferred tax liabilities
Net deferred tax liabilities
As of
December 31,
2020
2019
$ 497,603 $ 158,520
2,168
352
14,914
5,871
0
323
1,295
7,492
0
127
191,062
(121,186)
69,876
7,016
232
94,029
5,727
14,666
83
6,620
13,978
2,917
3,058
645,929
(107,984)
537,945
(105,063)
(12,117)
(995)
(2,476)
(519,397)
(640,048)
(27,545)
(6,889)
0
(1,667)
(55,453)
(91,554)
$ (102,103) $ (21,678)
(1) As discussed in Note 14 to the consolidated financial statements, in 2019, we adopted an updated lease
accounting standard that resulted in the recognition of operating lease right-of-use assets and lease liabilities.
We adopted this standard using a transition method that does not require application to periods prior to
adoption.
As of December 31, 2020, the Company has a valuation allowance of approximately $108.0 million against a
portion of its net operating loss carryforwards, foreign tax credits in the U.S., and certain foreign deferred tax assets, for
which realization cannot be considered more likely than not at this time. The net deferred tax liability is primarily the
result of acquired intangibles for which there is no tax basis. The decrease in the valuation allowance of $(13.2) million
is primarily due to the stock acquisitions of InTouch Health and Livongo whereby the acquired intangible assets have no
tax basis and result in significant deferred tax liabilities which can serve as a source of taxable income to realize the
existing deferred tax assets. Management assesses the need for the valuation allowance on a quarterly basis. In assessing
the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial
performance. The Company is in a net deferred tax liability position as of December 31, 2020 and, as a result, a portion
of the valuation allowance on U.S. net operating losses was released. Management believes a valuation allowance
against the Company’s remaining net operating losses, foreign tax credits in the U.S., and certain foreign deferred tax
assets is warranted as of December 31, 2020. The valuation allowance against the remaining deferred tax assets may
require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating
performance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the
adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of
which would be an increase in reported net income. The amount of any such tax benefit associated with release of our
valuation allowance in a particular reporting period may be material.
F-41
As of December 31, 2020, the Company has approximately $2,030.1 million of federal net operating loss
carryforwards, $1,035.9 million of state net operating loss carryforwards, and $45.1 million of foreign net operating loss
carryforwards. The federal net operating loss carryforwards generated after December 31, 2017 of $1,477.0 million carry
forward infinitely, while the remaining federal net operating loss carryforwards of $553.1 million began to expire in
2020. The state net operating loss carryforwards began to expire in 2020, and the foreign net operating loss
carryforwards begin to expire in 2021. As of December 31, 2020, the Company has approximately $5.7 million of
foreign tax credits, which begin to expire in 2021. As of December 31, 2020, the Company has approximately $8.4
million of federal research and development credits, and $5.3 million of state research and development credits, which
begin to expire in 2022 and can be carried forward indefinitely, respectively. The Company also has $0.9 million in
foreign research and development credits which will be carried for three years from the period realized, then refunded to
the Company if not utilized against income tax expense.
Utilization of the net operating loss carryforwards and foreign tax credits may be subject to a substantial annual
limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have
occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of
1986, or Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOL
carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined
by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of
a corporation by more than 50 percentage points over a three-year period.
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is
required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of
business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The
Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which,
additional taxes will be due. These reserves are established when we believe that certain positions might be challenged
despite our belief that our tax return positions are fully supportable. The Company adjusts these reserves in light of
changing facts and circumstances, such as the outcome of tax audit. The provision for income taxes includes the impact
of reserve provisions and changes to reserves that are considered appropriate. A reconciliation of the beginning and
ending amount of unrecognized tax benefits is as follows (in thousands):
Balance on January 1, 2020
Additions assumed in a business combination
Additions based on current year tax positions
Statute of limitations expirations
Balance on December 31, 2020
$
$
2,912
15,850
4,990
(2,390)
21,362
The Company anticipates $14.1 million of unrecognized tax benefits may decrease within the next 12 months,
without impacting the effective tax rate.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the
normal course of business, the Company is subject to examination by federal and state jurisdictions in the United States
and other countries, where applicable. The Company thus is still open under the U.S. statute from 2017 to the present and
as early as 2006 to the present for foreign jurisdictions. Earlier years may be examined to the extent that loss
carryforwards are used in future periods. The Company is currently under audit in certain tax jurisdictions. There are no
tax matters under discussion with taxing authorities that are expected to have a material effect on the Company's
consolidated financial statements.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component
of interest expense, net in the consolidated statements of operations.
The Company’s consolidated financial statements provide for any related tax liability on amounts that may be
repatriated, aside from undistributed earnings of $6.0 million for certain of the Company’s foreign subsidiaries that are
F-42
intended to be indefinitely reinvested in operations outside the U.S. as of December 31, 2020. The amount of any
unrecognized deferred tax liability on these undistributed earnings would be immaterial.
Note 17. Sale of Assets
On June 29, 2018, the Company completed the sale of certain assets, primarily contracts for services provided
in the workers compensation field for total consideration of $5.5 million. The Company recorded a gain on this sale of
$5.5 million which is included in the consolidated statements of operations for the year ended December 31, 2018.
Note 18. Net Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted - average number of shares of
common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to
all potential shares of common stock of the Company, including outstanding stock options, warrants and convertible
notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion
of all potential shares of common stock of the Company outstanding would have been anti - dilutive. The Company has
5.8 million outstanding stock options, 3.5 million outstanding RSUs, 0.4 million outstanding PSUs and 0.1 million
issuable shares of common stock associated with the ESPP.
The following table presents the calculation of basic and diluted net loss per share for the Company’s common
stock (in thousands, except shares and per share data):
Year Ended
December 31,
2019
2018
2020
Net loss
Weighted-average shares used to compute basic and diluted net loss per share
Net loss per share, basic and diluted
$ (485,136) $ (98,864) $ (97,084)
65,845
(1.47)
(1.38) $
(5.36) $
71,845
90,509
$
Note 19. 401(k) Plan
The Company has established a 401(k) plan that qualifies as a deferred compensation arrangement under
Section 401 of the Internal Revenue Code. All U.S. employees over the age of 21 are eligible to participate in the plan.
The Company contributes 100% of eligible employee’s elective deferral up to 4% of $0.3 million of eligible earnings.
The Company made matching contributions to participants’ accounts totaling $4.9 million, $3.2 million and $2.7 million
during the years ended December 31, 2020, 2019 and 2018, respectively.
Note 20. Legal Matters
From time to time, Teladoc Health is involved in various litigation matters arising out of the normal course of
business, including the matters described below. The Company consults with legal counsel on those issues related to
litigation and seeks input from other experts and advisors with respect to such matters. Estimating the probable losses or
a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult
and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary
damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or
are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably
have a material effect on our business, financial condition, results of operations, or cash flows will depend on a number
of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type
of any such remedies. Teladoc Health’s management does not presently expect any litigation matter to have a material
adverse impact on our business, financial condition, results of operations or cash flows.
On May 14, 2018, a purported class action complaint (Thomas v. Best Doctors, Inc.) was filed in the United
States District Court for the District of Massachusetts against the Company’s wholly owned subsidiary, Best Doctors,
Inc. The complaint alleges that on or about May 16, 2017, Best Doctors violated the U.S. Telephone Consumer
Protection Act (TCPA) by sending unsolicited facsimiles to plaintiff and certain other recipients without the recipients’
F-43
prior express invitation or permission. The lawsuit seeks statutory damages for each violation, subject to trebling under
the TCPA, and injunctive relief. The Company will vigorously defend the lawsuit and any potential loss is currently
deemed to be immaterial.
On December 12, 2018, a purported securities class action complaint (Reiner v. Teladoc Health, Inc., et.al.) was
filed in the United States District Court for the Southern District of New York (SDNY) against the Company and certain
of the Company’s officers and a former officer. The complaint is brought on behalf of a purported class consisting of all
persons or entities who purchased or otherwise acquired shares of the Company’s common stock during the period
March 3, 2016 through December 5, 2018. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 based on allegedly false or misleading statements and omissions with respect to, among other
things, the alleged misconduct of one of the Company’s previous executive officers. The complaint seeks certification as
a class action and unspecified compensatory damages plus interest and attorneys’ fees. On November 30, 2020, the
SDNY granted the Company’s motion to dismiss the complaint, but granted the plaintiff the opportunity to refile, which
refiling was made on December 30, 2020. The Company believes that the claims against the Company and its officers
continue to be without merit, and the Company and its named officers intend to defend the Company vigorously,
including filing a motion to dismiss the amended complaint.
In addition, on June 21, 2019, a stockholder derivative lawsuit (Kreutter v. Gorevic, et al.) was filed in the
SDNY against certain current and former directors and officers of the Company. The derivative lawsuit alleges that the
named directors and officers breached their fiduciary duties to the Company in connection with factual assertions
substantially similar to those in the purported securities class action complaint described above. The Company believes
that the claims set forth in this stockholder derivative lawsuit are without merit and the Company’s motion to dismiss the
lawsuit is pending before the SDNY.
Several purported class action complaints were filed in connection with the merger between Livongo and the
Company, including (1) Kent v. Livongo Health, Inc., et al., filed on September 10, 2020 in the United States District
Court for the District of Delaware, (2) Raheja v. Livongo Health, Inc., et al., filed on September 11, 2020 in the United
States District Court for the Northern District of California, (3) Hart v. Livongo Health, Inc., et al., filed on
September 14, 2020 in the United States District Court for the District of Delaware, (4) Kubus v. Livongo Health, Inc., et
al., filed on September 16, 2020 in the United States District Court for the Southern District of New York, (5) Jones v.
Livongo Health, Inc., et al., filed on September 17, 2020 in the United States District Court for the Eastern District of
New York, (6) Anthony v. Livongo Health, Inc., et al., filed on September 18, 2020 in the United States District Court
for the Southern District of New York, (7) Banner v. Livongo Health, Inc., et al., filed on September 29, 2020 in the
United States District Court for the Northern District of California, (8) Vea v. Livongo Health, Inc., et al., filed on
October 2, 2020 in the United States District Court for the Southern District of New York, (9) Ormesher v. Livongo
Health, Inc., et al., filed on October 13, 2020 in the United States District Court for the Northern District of California,
and (10) O'Connor v. Livongo Health, Inc., et al., filed on October 16, 2020 in the United States District Court for the
Northern District of California (collectively, the Merger Litigations). The Merger Litigations generally named as
defendants Livongo and the members of its board of directors, and certain of the complaints also asserted claims against
the Company and Tempranillo Merger Sub, Inc., a wholly owned subsidiary of the Company that was merged with and
into Livongo. The Merger Litigations generally allege that the registration statement and/or the joint proxy
statement/prospectus filed in connection with the merger between Livongo and the Company omitted material
information in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, rendering the statements
false and misleading. Certain of the complaints also alleged that certain defendants breached their fiduciary duties in
connection with the merger. The Merger Litigations sought, among other things, an order enjoining the merger;
rescinding the merger, to the extent it closes, and recovering damages; and awarding costs, including attorneys’ fees and
expenses. The Company believes that the claims asserted were wholly without merit, and as of November 19, 2020, all
of the Merger Litigations were voluntarily dismissed.
Note 21. Subsequent Event
In February 2021, the Company issued notice to holders that it has called for redemption all of the outstanding
2022 Notes. As of December 31, 2020, the principal amount of 2022 Notes outstanding was $46.8 million.
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Our Values
We are passionate about taking care of people.
We are committed to unsurpassed quality.
We keep our promises.
We strive to create value.
We stand up for what’s right.
We lead with integrity, accountability, and transparency.
We respect each other and value succeeding together.
Corporate
information
STOCK LISTING
Teladoc Health common stock is traded on the
New York Stock Exchange. The Teladoc Health
ticker symbol is TDOC.
CORPORATE HEADQUARTERS
2 Manhattanville Road
Purchase, New York 10577
203-635-2002
TRANSFER AGENT
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, New York 11219
www.astfinancial.com
718-921-8124
INVESTOR RELATIONS
Teladoc Health
Investor Relations
2 Manhattanville Road
Purchase, NY 10577
203-635-2002
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
5 Times Square
New York, NY 10036
CORPORATE WEBSITE
www.TeladocHealth.com
LEARN MORE
DIRECTORS
David B. Snow, Jr. (Chairman)
Christopher Bischoff
Karen L. Daniel
Sandra L. Fenwick
William H. Frist, MD
Jason Gorevic
Catherine A. Jacobson
Thomas G. McKinley
Kenneth H. Paulus
David L. Shedlarz
Mark D. Smith, MD
Hemant Taneja
Glen Tullman
EXECUTIVE OFFICERS
Jason Gorevic
Chief Executive Officer
Arnnon Geshuri
Chief Human Resources Officer
Mala Murthy
Chief Financial Officer
David Sides
Chief Operating Officer
Daniel Trencher
Senior Vice President
of Corporate Strategy
Andrew Turitz
Senior Vice President of
Corporate Development
Adam Vandervoort
Chief Legal Officer and Secretary
Stephany Verstraete
Chief Marketing Officer
Yulun Wang
Head of Research and Development
TeladocHealth.com | 203-635-2002 | NYSE: TDOC
About Teladoc Health : Teladoc Health empowers all people everywhere to live their healthiest lives by transforming the healthcare
experience. As the world leader in whole-person virtual care, Teladoc Health uses proprietary health signals and personalized
interactions to drive better health outcomes across the full continuum of care, at every stage in a person’s health journey. Ranked Best
in KLAS for Virtual Care Platforms in 2020, Teladoc Health leverages more than a decade of expertise and data-driven insights to meet
the growing virtual care needs of consumers and healthcare professionals. For more information, please visit www.TeladocHealth.com
or follow @TeladocHealth on Twitter.
© 2021 Teladoc Health, Inc. All rights reserved.
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