2021
ANNUAL
REPORT
Our values
We are passionate about
taking care of people.
We are committed to
unsurpassed quality.
We keep our promises.
We lead with integrity,
accountability and
transparency.
We stand up for what’s right.
We strive to create value.
We respect each other and
value succeeding together.
Our mission
Teladoc Health is empowering all
people everywhere to live their
healthiest lives by transforming
the healthcare experience.
“
Teladoc Health has
created a platform of
support, care and data
with the ability to see
and treat the entire
individual as a person
rather than a disparate
collection of conditions.
Dear fellow shareholders,
Twenty years ago this June, Teladoc Health set on a path to transform healthcare to
help all people live healthier lives. This mission has driven us to assemble the world’s
broadest and deepest set of healthcare capabilities available virtually. In 2021, we
took these services to the next level, integrating them under our whole-person care
strategy to deliver unmatched value to the entire healthcare ecosystem far greater
than the sum of its parts.
By launching new services that bring together our world-class healthcare offerings
to address mental and physical care, for both acute and chronic illness, from hospital
to home, Teladoc Health has created a platform of support, care and data with
the ability to see and treat the entire individual as a person rather than a disparate
collection of conditions.
The personalization, outcomes and ease of our offerings are being met with
overwhelming enthusiasm from clients, consumers and clinicians alike, as meeting
more health needs virtually has rapidly shifted from novelty to expectation. Because
of this demand for our whole-person approach, in 2021 we extended our long track
record of meeting or exceeding our financial guidance and concluded the year with
the strongest quarter of new client bookings in the history of our company. With this
momentum, we are confident that our market leadership and steady growth will
continue in 2022 and beyond.
Expanding our whole-person care capabilities
We are uniquely meeting the needs of those who rely on us—bringing together
clinicians, engineers and data scientists to deliver a truly integrated experience that
they can’t access anywhere else. For individuals, this means whole-person care and
the better health outcomes it drives. For clients, this means design, engagement
strategies and partnership that addresses their needs, from an employer looking
to improve the health of its workers to a health plan looking to share the risks and
rewards of keeping its members healthy. And for clinicians, this means having
access to the full picture of a patient’s health and the data to make the best
recommendations possible.
Regardless of the healthcare needs people come to us with, we are becoming their
“front door” to the healthcare system, with a unique ability to connect them to the
right care. The care we deliver and enable meets the highest clinical quality standards
across all of healthcare. As a result, we’ve seen that people who entrust their care to
Teladoc Health are much more likely to rely on us for other healthcare needs, which
creates the opportunity for us to build deeper, longitudinal relationships personalized
for each individual.
In 2021, we expanded our services to further address whole-person care needs. We
launched our next-generation stepped care product, myStrength Complete, which
combines the best of Teladoc and Livongo mental health capabilities; announced our
new virtual primary care product, Primary360, creating access to high-quality primary
care for more individuals, including many who have never had a medical home; and
posted another year of robust growth for BetterHelp, our direct-to-consumer channel,
meeting the growing demand for mental healthcare.
Relative to primary care, we now have more than 50 clients using Primary360 since
its launch in late 2021, including several Fortune 500 employers, and our pipeline of
opportunities continues to build.
In chronic care, our opportunity is equally clear, as more than 40% of adults in the
United States are living with multiple chronic conditions. Yet, many individuals
with a chronic condition would likely attest that they view themselves as needing
help managing their entire health, not only their chronic disease, which is why
our approach of focusing on the whole person rather than a single condition is so
effective. In fact, the percentage of our chronic care members enrolled in more than
one of our programs doubled in 2021, helping to drive total chronic care program
enrollment growth of more than 30%. Already in 2022, we have launched our new
Chronic Care Complete product line, which allows us to further leverage our coaching,
clinical and data capabilities—including the billions of data points we’ve collected to
date—to make intelligent interventions, drive even better outcomes for our members
and lower costs for our clients.
“
We are uniquely meeting
the needs of those who
rely on us—bringing
together clinicians,
engineers and data
scientists to deliver a truly
integrated experience
that they can’t access
anywhere else.
40%
OF ADULTS IN THE
UNITED STATES
ARE LIVING WITH
MULTIPLE CHRONIC
CONDITIONS
REVENUE GREW
86% TO
$2.03B
TOTAL VISITS
INCREASED 38% TO
15.4M
CASH FLOWS FROM
OPERATIONS GREW TO
$194M
ADJUSTED EBITDA
ROSE BY 111% TO
$268M
Finally, in mental health, BetterHelp continues to drive significant direct-to-consumer
channel growth, and myStrength Complete, which offers both digital capabilities and
virtual interactions, is already gaining marketplace momentum in our business-to-business
channel. Together, these services are addressing the fast-rising demand for mental
healthcare, and at the same time, we’re finding that because our members tend to have
several visits with their therapist or psychiatrist, mental health often serves as a gateway
for other Teladoc Health services.
Delivering strong financial results in 2021, positioned for 2022
Teladoc Health delivered strong financial growth last year, solidifying our position as the
partner of choice for our clients and connecting millions of individuals with high-quality care.
To call out a handful of our 2021 results, our:
• Revenue grew 86% to $2.03 billion
• Total visits increased 38% to 15.4 million
• Cash flows from operations grew to $194 million
• Adjusted EBITDA rose by 111% to $268 million
In addition to our exceptional performance in 2021, we’re equally confident in the strong
growth we’re positioned to achieve in 2022 as we continue to innovate and further evolve
whole-person care. We see significant opportunities for long-term growth by expanding
our relationships and going deeper with our existing clients and members.
Looking ahead: our commitment to making a difference
As committed as we are to meeting our financial commitments and making high-quality
healthcare more accessible, we are equally dedicated as a global team to also making a
difference environmentally, societally, economically and from a health perspective.
Teladoc Health is committed to driving health equity: working to expand care access and
eliminate persistent disparities because virtual care has the power to be “the great equalizer”
in healthcare. Our recently released Corporate Social Responsibility report highlights our
commitment to advance greater health equity and access to care, which we accomplished
in 2021 in part by providing relief to dozens of communities struck by disaster, growing our
annual spending by six times across certified diverse and minority suppliers, significantly
increasing our employee, healthcare provider and coach diversity, and making healthcare
available in more languages. We’re also offering non-video options for those living in
low-bandwidth areas and have working relationships with multistate-licensed physicians
to meet the needs of people living in “healthcare deserts.”
These examples represent just a snapshot of how we approached health equity in 2021, and
we’re committed to accelerating our progress in 2022.
I’m also especially proud and grateful for the resilience of the thousands of committed and
talented Teladoc Health colleagues around the world who continued to step up every day
on behalf of our members, clients and partners—and for each other. Everything we have
accomplished and will accomplish reflects their commitment and passion for those we serve.
I thank them, and I thank you for your investment in Teladoc Health.
Jason Gorevic
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2021
or
(cid:1407) 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 (cid:95) No (cid:134)
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 (cid:134) No (cid:95)
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 (cid:95) No (cid:134)
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 (cid:95) No (cid:134)
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):
(cid:95)
Large accelerated filer
Emerging growth company (cid:1407)
Accelerated filer
(cid:134)
Non-accelerated filer
(cid:134)
Smaller reporting company
(cid:1407)
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. (cid:134)
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.
(cid:1409)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes (cid:1407) No (cid:95)
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 $26,317,281,887. The registrant has no non-voting stock outstanding.
As of February 22, 2022, there were 160,327,041 shares of common stock outstanding.
Portions of the registrant’s definitive proxy statement to be delivered to stockholders in connection with the 2022 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. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
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
Reserved
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
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
ITEM 10.
ITEM 11. Executive Compensation
ITEM 12.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14.
Principal Accounting Fees and Services
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
PART IV
ITEM 15.
ITEM 16. Form 10-K Summary
Exhibits and Financial Statement Schedules
EXHIBIT INDEX
SIGNATURES
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84
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
F-1
1
Item 1. Business
Overview
PART I
Teladoc Health, Inc., together with its subsidiaries, is referred to herein as “Teladoc Health,” the “Company,” or
“we,” and is the global leader in whole person virtual care. 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.
Teladoc Health was founded on a simple, yet revolutionary idea: that everyone should have access to the best
healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any
healthcare journey, and we are delivering on this mission by providing whole person virtual care that includes primary
care, mental health, chronic condition management, and more.
We have developed and built upon our diverse capabilities over the course of nearly 20 years, evolving our
product and service portfolio from a suite of point solutions to a whole person offering. We are creating a truly unified
and personalized consumer experience, developing technologies to connect patients and extend the reach of care
providers, delivering the highest standard of clinical quality at every touchpoint, and enhancing health decisions and
outcomes with smart data and actionable insights. Regardless of people’s healthcare needs, across any site of care, we
aim to provide the right level of personalized support to meet that need.
We believe that we have the largest breadth of integrated whole person products and services in the virtual care
industry, capitalizing most recently on our combinations with Livongo Health, Inc. (“Livongo”), which significantly
strengthened our chronic care management capabilities, and InTouch Technologies, Inc. (“InTouch”), which expanded
our care delivery both inside and outside the hospital. Altogether, this creates a well-defined opportunity for us to treat
the whole person, from their mental healthcare to their physical healthcare, and from their acute episodic needs to their
chronic needs. Regardless of the healthcare need people come to us with, we strive to be their “front door” to the
healthcare system, with a unique ability to connect them to the care, or blend of care, they need. People who come to us
with one of these needs are in turn much more likely to rely on us for other healthcare needs, which creates the
opportunity for us to build longitudinal relationships, with care that’s personalized for each individual.
We aim to achieve our vision of making virtual care the first step on any healthcare journey by delivering,
enabling and empowering integrated whole person virtual care services and experiences that span every stage of the
healthcare journey. We offer 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, chronic kidney disease, cancer, congestive heart failure, and mental health conditions – all
bolstered by technology, machine learning and human expertise to provide an effective care experience that people value
and trust. By combining the latest in data science and analytics with an award-winning user experience through a set of
highly flexible integrated technology platforms, we completed approximately 15.4 million telehealth visits in 2021.
Additionally, our licensed platform enabled our Clients’ (as defined below) clinicians to provide approximately 4.1
million visits for their patients around the globe in 2021. We possess diverse distribution channels, including Business-
to-Business (“B2B”) and Direct-to-Consumer (“D2C”), and we’re a leader in each of them. Our customers consist of
employers (including approximately 50% of the Fortune 500), health plans, hospitals and health systems, insurance and
financial services companies (collectively “Clients”), as well as individual members.
We are also committed to empowering greater health equity and ensuring that the care we deliver is responsive
to individual cultural beliefs and practices, preferred languages, health literacy levels, and communication needs. We
also conduct original research on critical topics facing underserved communities, such as the impact of race and gender
on chronic conditions, and have launched innovative pilot programs to help us strengthen core services which better meet
the unique needs and preferences of LGBTQ+ individuals.
2
As of December 31, 2021, over 53.6 million unique United States (“U.S.”) paid members and 24.2 million visit
fee only individuals have access to our high-quality healthcare and expertise through a variety of integrated channels,
including 0.7 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, 7 days a week, and 365 days a year.
We believe that favorable existing secular trends in the healthcare industry were accelerated by the impacts of
the COVID-19 pandemic, driving greater consumer use of virtual care, and increased adoption by employers, health
plans, hospitals and health systems, health care providers, and individuals. 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, affordable, and
high-quality care; empower individuals to manage and improve their health; and enable providers to offer their best care
for their patients.
During 2020, we completed a $13.9 billion merger with Livongo, the leader in digital chronic condition
management solutions for employers and health plans. Livongo brought us capabilities that empower people with
chronic conditions to live better and healthier lives, including diabetes, hypertension, weight management, diabetes
prevention, and mental health. 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 $1.1 billion.
Our 2020 merger with Livongo positions 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
healthcare 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 artificial intelligence (“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 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 the technology
and data insights brought to us by the Livongo merger will underpin our ability to deliver differentiated care. We further
believe that our significant member scale and the millions of virtual visits we provide each year will increase enrollment
and utilization across our solutions as well as amplify overall member engagement and retention.
Who We Serve
Our Clients purchase our solutions to expand access to convenient, affordable, and high-quality healthcare to
their constituents and to reduce their healthcare spending. Our solutions offer our Clients proven substantial savings
opportunities and an attractive return on investment. On a direct B2B basis, we sell to our Clients on behalf of their
beneficiaries, including employees and health plan members. 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. In addition to B2B, we also address the healthcare
needs of individuals on a D2C basis across our businesses, most prominently through our BetterHelp brand, as well as
through partnerships with other trusted brands.
We have over 100 health plan Clients, including some of the largest in the U.S. 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 the self-insured employers that we serve
include approximately 50% of the Fortune 500 companies. We also engage with Clients through channel partners such as
brokers, resellers, and consultants.
3
How We Generate Revenue
We primarily generate revenue on a contractually recurring, access fee basis, typically on a per-member-per-
month (“PMPM”) basis. In our D2C business, we primarily generate revenue through monthly member subscriptions. In
some cases, Clients primarily pay monthly access 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.
Our access fees comprise the majority of our revenue and therefore provide us with significant revenue
visibility. We also generate revenue on a per-telehealth visit basis through certain Clients with visit fee only
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 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. Visit
fees for general medical and specialty visits are typically paid by Clients and/or members.
For the year ended December 31, 2021, 85%, 13%, and 2% of our revenue was derived from access fees, visit
fees, and other, respectively.
The Teladoc Health Brand Portfolio
Our Teladoc Health family of brands – which include, among others, Teladoc, Livongo by Teladoc Health, and
BetterHelp, 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 engage with our services is by using a mobile device, reflecting the growing consumer
adoption of mobile technology and applications in managing their health.
Our Competitive Strengths
We believe that Teladoc Health is the leading global virtual healthcare provider because of our 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 company 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 care for a full spectrum of clinical conditions, including
wellness and prevention, acute care, chronic conditions, and complex healthcare needs. We also provide a broad range of
programs and services, including primary and specialty care telehealth solutions, chronic condition management, expert
medical services, mental health solutions, and platform & program services.
4
Global Footprint Spanning Clients, Medical Operations and Members
We believe we have the only global virtual healthcare 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 multinational employers.
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 individuals 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 individuals 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
proprietary engagement science, our “surround sound” capabilities, personalized individual 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.
Intelligent, Adaptable and Innovative Solution to Whole Person Care
We have taken an innovative approach to technology to address whole person care. We have fused technology,
logistics, mental health capabilities, and clinical science, with data science serving as the intelligent connective tissue
that powers our whole person care model. We have a large and unique set of data points that gives us a longitudinal
understanding of an individual’s clinical truth and enables us to engage in a holistic stepped care model. We integrate
capabilities for our members across health plan, employer, and health system relationships, in a way that we believe is
unique in the industry.
Highly Scalable and Secure API-Driven Technology Integrated Platform
Our core platform is a highly scalable, integrated, application program interface (“API”) driven technology
platform, for virtual healthcare delivery, with multiple real-time integrations spanning the healthcare ecosystem.
It is 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 clinical and digital services and products.
5
We leverage and develop a unique combination of cloud-based technology that integrates smart connected
devices with sophisticated data science to deliver personalized health insight. For example, we provide a unique and
proprietary blood glucose meter to members enrolled in our diabetes program. This patented device, which includes the
Food and Drug Administration (“FDA“) Class II certified glucose testing along with a cellular antenna and color
touchscreen, is seamlessly integrated with our platform. Our proprietary software 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 algorithms to deliver improved clinical health outcomes, which drives value to the healthcare ecosystem. The
software on the device can also be remotely upgraded through the cellular antenna to deliver usability improvements and
program enhancements.
Our platform’s APIs power external connectivity and deep integration with a wide range of payors, electronic
medical records, third party applications, and other interfaces with employers, hospital systems, and health systems,
which we believe uniquely positions us as a long-term partner meeting the unique needs of the rapidly changing,
healthcare industry. We are able to white label our solutions, so they fit into the plans and strategies of our Clients, all on
a platform that is high performance and highly scalable.
Our platform is compliant with numerous international data and privacy regulations, including the General Data
Protection Regulation (“GDPR”), data-in-country rules, and other national requirements. This gives us the opportunity
and ability to offer our products and services internationally, using the host countries’ languages, currencies, and
addressing their specific local needs. We are also able to customize our platform for key partnerships globally.
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 team 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 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.
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’s or health system’s electronic medical records
(“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, video conferencing capabilities, 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 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 hospitals and
health systems.
Clinical Capabilities Tailored to Virtual Care
We deliver high-quality clinical care and advice in a virtual setting to our members through the unique mix of
our proprietary guidelines, breadth and depth of clinical quality data and analytics as well as through our in-house
and third-party medical professionals.
6
We apply analytics to the anonymized data points generated in our millions of visits with patients to
continuously improve the clinical quality of our services. These data sets and insights are applied to enhance our
providers’ ability to deliver quality care through tools such as our provider dashboards, as well as serving as a foundation
for clinical innovation and collaboration with other leading healthcare organizations that are focused on the advancement
of virtual care delivery.
We established The Institute for Patient Safety and Quality of Virtual Care in 2019, 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. This PSO is formally recognized by the U.S. Department of Health and Human Services (“HHS”) and certified by
the Agency for Healthcare Research and Quality.
Our Growth Strategies
Enable A Virtual First Strategy for Consumer Healthcare Access
Our vision is to position virtual care as the first place individuals go to get the care they need and manage their
health. For whatever healthcare needs an individual 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 Teladoc Health has
the enterprise scale, technical capabilities, clinical depth, and consumer engagement expertise to achieve this vision.
Teladoc Health’s 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 conditions and mental
health conditions. The virtual first model is built on our integrated 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 platform matches the expectations of today’s
digital consumer by delivering a new kind of healthcare experience that is personalized, convenient, and connected.
Expand our Suite of Clinical Services to Address Unmet Needs
We believe that our integrated technology platforms address significant unmet needs, and we intend to continue
to expand our solutions across use cases and additional care settings and clinical conditions, including virtual primary
care, home care, post discharge follow-ups, wellness/screening, and new areas in chronic care.
Our virtual primary care offering, Primary360, is now available to commercial health plans, employers, and
other organizations that sponsor healthcare for individuals and families in the U.S. It addresses persistent challenges in
accessing high quality healthcare for millions of individuals, including the one out of four working age adults who do not
have a Primary Care Physician (“PCP”), and the four out of five who do not have a strong relationship with a PCP,
opening up for us an incremental total addressable market of approximately $140 billion in the U.S. alone. Our strategy
is to deliver a reimagined model for primary care, build on a foundation of integrated, multi-source data, leveraging a
unified whole person experience; dedicated care team of physicians and non-medical doctors for a personalized
longitudinal care plan; continuous guidance and support; navigation and coordination with high quality providers; and
“last mile” services like lab testing, prescriptions, and in-home exams. We believe that Primary360 will be an effective
gateway to the full range of our services for an individual. We intend to continue to respond quickly to evolving market
needs with innovative solutions.
With respect to the management of chronic conditions, we have launched both myStrength Complete and
Chronic Care Complete. myStrength Complete is an integrated mental health service providing personalized, targeted
care to consumers in a single, comprehensive experience. myStrength Complete’s proprietary stepped care model is
designed to seamlessly combine app-based tools and coaching expertise with our therapists and psychiatrists to ensure
that consumers get the level of mental health support and care they need, when they need it. Chronic Care Complete is a
first-of-its-kind chronic condition management solution to help individuals improve their health outcomes while living
with multiple chronic conditions. This solution provides members with a unified, comprehensive experience that
leverages connected health monitoring devices, access to health coaches and support from physicians and mental health
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specialists. Without appropriate care at the right time, chronic conditions can become acute, leading to greater illness and
even death. Chronic Care Complete is designed to help people living with chronic conditions improve their health
outcomes by providing personalized, high-quality support to address pre-diabetes, diabetes, hypertension, weight
management, and mental health concerns.
Increase Engagement and Long-term Relationships 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 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 building longer term
relationships with our members, and to continue validating our member satisfaction with surveys and other proactive
tools.
Our mobile app is foundational for us as we have redefined virtual healthcare delivery. As we expand the range
of products and services available to our members, we are investing in a seamless, relevant, and personalized mobile
experience that provides smart guidance for our members. In addition, our integrated smart devices, such as our cellular
blood glucose monitor, provide additional touch points for engaging members with relevant AI driven nudges to drive
behavior change and improved health outcomes.
Our industry leading capabilities and expertise enable unique types of partnerships where our services are
delivered to our partners with their brands, logos, and workflows on mobile and web platforms. These integrated member
experiences drive higher member engagement, convenience, and utilization.
Expand Penetration of our Suite of Services Among 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. We plan to execute this strategy by selling
additional, high value services to our Clients, including our primary care services, chronic condition management
programs, and mental health services. We believe that this strategy will help drive an increase in our average revenue per
member over time.
Within existing Clients, we believe our current membership represents only a portion 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 portion of their beneficiaries in the aggregate, and we estimate this provides us the
opportunity to grow our membership base by expanding our penetration within our existing Clients. We also have
substantial room to drive cross-sell opportunities of chronic condition management products into our Client base of
telehealth customers, as we see limited overlap of existing Client bases.
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 Europe, South America, and Asia. With these locations, we
are able to provide 24x7 international services to our members worldwide. When medically necessary, our doctors can
help members navigate the local health systems to obtain the best healthcare for their situation.
Our international Client base, largely comprising 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 our 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.
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Drive Direct-To-Consumer Channel Growth
We plan to continue driving growth through investments in our D2C channels, which include mental health and
general medicine as well as partnerships with Telefonica in Spain, Vivo in Brazil, and CVS Minute Clinic in the U.S.
Relative to our mental health capabilities, BetterHelp is the leader in the D2C therapy market, both in terms of the
number of individuals enrolled and the number of providers who provide services on the platform. The scale of our data
and provider network, powered by our data science capabilities, creates a competitive advantage for us in providing an
optimal match of an individual with a provider, increasing the rate of success in therapy. We leverage diverse customer
acquisition channels and increased organic sources of traffic, which reduces dependence on any single source of member
acquisition. Even with our strong historical growth, we believe there is substantial untapped growth potential, both
domestically and internationally, as almost half of BetterHelp members have never sought therapy before.
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.
Sales and Marketing
We sell our services principally through our direct sales organization. Our direct sales team comprises
enterprise focused sales professionals, who are supported by a sales operations staff, including product technology
experts, lead generation professionals, and sales data experts. We maintain relationships with key industry participants
including benefit consultants, brokers, group purchasing organizations, health plans, 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 solutions, as well as learning opportunities for
potential members; integrated marketing campaigns; 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 products,
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 solutions and introduce innovative
products and capabilities. Our multi-disciplinary team includes a product development team responsible for the design,
development, testing, and certification of our solutions. It also includes software engineering teams responsible for
solution development and deployment, and a data science team providing the insight that powers our differentiated
health actions. We continuously focus on developing new products and further enhancing the usability, functionality,
reliability, performance, and flexibility of our solutions.
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. (now owned by Cigna), American Well Corporation, Included
Health, and Accolade, Inc., among other smaller industry participants. In the digital chronic condition management
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market, competitors include Omada Health, Inc., Virta Health Corp., 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. In the D2C mental health market, competitors include Talkspace and Cerebral, and other
participants. We also face competition from large, well-financed health plans that in some cases have developed their
own virtual care, expert medical service or chronic condition management tools, as well as large technology and retail
companies, such as Amazon and Walmart, which have developed or acquired their own virtual care solutions.
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. (“THMG”). We do not own THMG, which is a 100%
physician owned independent entity, or the professional corporations with which it contracts. Instead, THMG and the
professional corporations (collectively, the “THMG Association”) are owned by physicians licensed in their respective
states. Under the services agreement with THMG, we have agreed to serve, on an exclusive basis, as manager and
administrator of THMG’s non - medical functions and services related to the provision of the telehealth services by
providers employed by or under contract with THMG. 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 THMG’s providers, member billing and collection administration, and maintenance
and storage of member medical records. THMG 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 THMG to maintain the state licensure and other credentialing requirements of its providers. Under the services
agreement, THMG currently pays us an access fee of $65,000 per month for network operations center and medical
records maintenance, fixed fees of approximately $1,815,000 and $1,151,000 per month for our provision of
management and administrative services and marketing expense, respectively, 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 THMG Association is considered a variable interest entity and its financial results are included in
Teladoc Health’s consolidated financial statements.
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.
Since the onset of the COVID-19 pandemic, state and federal regulatory authorities have reduced or removed a
number of regulatory requirements in order to increase the availability of telehealth services. For example, many state
governors have 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
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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 mental 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, physician assistants,
advanced practice registered nurses, nurses, and mental health professionals who provide professional medical or mental
health services to a patient via telehealth must, in most instances, hold a valid license to practice medicine or to provide
mental health treatment in the state in which the patient is located. We have established systems for ensuring that our
affiliated physicians and mental 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
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
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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 $26,125 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 $174,172 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 $105,563, 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 HHS Office of Inspector General
(“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 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 $11,803 to $23,607 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.
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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 (“HITECH”) and their implementing regulations, (collectively,
“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
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 (“PII”), including health information. In particular, HIPAA establishes privacy and security
standards that limit the use and disclosure of protected health information (“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. The THMG Association, 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
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covered entities. We are also at times 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 the THMG Association 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.
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,
and apply more broadly than HIPAA and other federal privacy laws. For example, the California Consumer Privacy Act
of 2018 (“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, 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. For example, Virginia passed the Virginia Consumer Data Protect Act in March 2021, which
becomes effective on January 1, 2023, and Colorado passed the Colorado Privacy Act in July 2021, which becomes
effective on July 1, 2023. We expect that states will continue to focus on enacting similar privacy laws.
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. European Union (“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.
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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 €10,000,000 or up
to 2% 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, in particular the United States. 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 EU in October 2015
(commonly referred to as the Schrems I), 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 Court of Justice of the EU in July 2020 (commonly referred to as Schrems II). While
Schrems II affirmed the validity of corporate binding rules and standard contractual clauses as legal bases to transfer EU
data to the United States, it also put into place stricter requirements for transfers based on standard contractual clauses.
Some countries outside the EU have adopted laws that are similar to the EU GDPR. For example, Brazil
adopted the Brazilian General Data Protection Law, which is closely aligned with the EU GDPR and began to be
enforced in August 2021. Additionally, China adopted the Personal Information Protection Law (“PIPL”), which also
closely aligns with GDPR, although there are differences. PIPL went into effect on November 1, 2021.
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
GDPR), 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 (the “FCPA”), and corresponding foreign laws, including the U.K. Bribery Act
2010 (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.
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We also are subject to regulation by the U.S. Treasury’s Office of Foreign Assets Control (“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 encourage 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 their capabilities, and grow both professionally 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 future roles. We build
a range of total reward programs that support employees through fair, equitable, and competitive pay and benefits, and
we invest in technology, tools, and resources to transform and increase the quality of work.
The Company employed approximately 5,100 people as of December 31, 2021. Our global workforce is
comprised of approximately 85% full time employees and 15% part time employees. In addition, we augment our
employee base with contractors to meet resource needs and to increase flexibility in managing our expense base. Of the
total employee population as of December 31, 2021, approximately 64% of our employees worked in the U.S. and 36%
worked in our international locations. Through the THMG Association and our D2C mental health platform, we also
contract with a network of providers. In order to ensure predictable availability of providers and a consistent member
experience, we expect that THMG will hire more providers and rely less on contractors.
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, equity, and inclusion (“DEI”). We have
enhanced our efforts in recent years to include:
Supporting Employees through Our Products and Services. We offer full access to our portfolio of solutions to
our employees, including free mental and mental 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 training and development programs. These include online and self-paced courses, live in-class
education, professional speaker series, peer-to-peer learning, certification programs, and on-the-job training, 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 continue to drive 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 2021, we completed a refreshed global organization-wide pay equity study to help ensure
that compensation reflects our prioritization of gender and racial equity, and we are actively addressing any gaps in
compensation and are committed to a recurring periodic review going forward.
Open Dialogue 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
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topics that intersect or singularly focus on impacting DEI. In 2021, we expanded our Courageous Conversations to
include a series of guest speakers to engage in a range of topics and foster ideas for improving our inclusive culture.
Business Resource Groups. In 2021, we expanded our business resource groups (“BRGs”), which we believe
are a foundational element of the DEI ecosystem. Our seven BRGs, with more than 1,100 active members globally,
include a focus on LGBTQ, women, multicultural, military veterans, neurodiversity and differing physical and mental
abilities, and generational interests of employees who are engaged in four key pillars:
• Building internal community/network
• Advancing external community
• Supporting business impact
• Enhancing professional development
Focusing on diversity recruiting and talent acquisition. We broadened our diversity hiring manager training
resources for performance-based interviewing, which included a screening tool to promote gender-neutral job
descriptions and expanded our corporate and college/university 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. Our efforts in 2021 represented a strong start to the greater impact we are poised to have
in our communities. As we move into 2022, 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.
We set out to advance positive social change in our communities by volunteering more than 10,000 hours
around the globe in 2021 – a goal we exceeded by more than 20%. This was an ambitious goal that was consistent with
our values, including those of respecting and taking care of people, doing what’s right, and succeeding together. For
2022, we have increased our goal to 15,000 volunteer hours.
Intellectual Property
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. We require our employees, consultants, and
certain of our contractors to execute confidentiality and proprietary rights agreements in connection with their
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. Additionally, our business has become more
diversified across services, channels, and geographies. We continue to see a diversification of Client start dates, resulting
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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 2021 and 2020, we did not experience the typical seasonality associated with national cold and
flu outbreaks. See “Risk Factors—Risks Related to Our Business and Industry —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 (the “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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our history of losses and accumulated deficit and the risk that we may not achieve profitability;
the potential for future non-cash charges for the impairment of goodwill and other intangible assets;
our ability to compete successfully in competitive markets;
the potential impact of the COVID-19 pandemic on the economy in general and on our business in
particular, including recent cost inflation and supply chain disruptions;
risk of the loss of any of our significant Clients or partners;
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 virtual care market or the failure to innovate and develop new
applications and services that are adopted;
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our expectations and management of future growth, including our ability to introduce new products and any
change in product mix that impacts our profitability;
our ability to establish and maintain strategic relationships with third parties;
our ability to recruit and retain a network of qualified providers;
our dependence on a limited number of third-party suppliers for timely access to materials, and the risk of
supply chain disruptions;
risk specifically related to our ability to operate in competitive international markets and comply with
complex non-U.S. legal requirements;
our ability to recruit, retain and develop our workforce, and in particular software engineers;
our level of indebtedness and our ability to fund debt obligations and comply with covenants in our debt
instruments;
our ability to obtain additional capital through debt or equity financings on commercially reasonable terms
or at all;
failures of our cyber-security measures that expose the confidential information of us, our Clients and
members;
ongoing legal challenges to, or new actions against, our business model, or the failure of the virtual care
market to continue to develop;
our dependence on our relationships with affiliated professional entities;
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 that we may be subject to legal proceedings and the insurance we maintain may not fully cover all
potential exposures; and
our ability to integrate acquired businesses 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 Financial Position
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 $428.8 million
and $485.1 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an
accumulated deficit of $1,421.5 million. These losses and accumulated deficit reflect the substantial investments we have
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
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which members can access our services. Accordingly, we anticipate that cost of revenue (exclusive of depreciation and
amortization, which is 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 to fund our
operations, and such capital may not be available on reasonable terms, if at all.
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, 2021 and 2020, our top ten Clients by revenue accounted for 21.8% and 16.2% of our total
revenue, respectively. 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 and our reputation. 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.
We may incur non-cash impairment charges for our goodwill and other intangible assets which would negatively
impact our operating results.
As of December 31, 2021, our balance of goodwill was $14.5 billion. Goodwill represents the excess of the total
purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business
combination. As a result of a sustained decrease in our Company share price following our annual impairment test on
October 1, 2021, we concluded a triggering event had occurred and conducted additional impairment testing of our
goodwill, definite-lived intangibles and other long-lived assets as of December 1, 2021. No impairment was recorded as
of October 1 or December 1, 2021. In the event there are future adverse changes in our projected cash flows, and/or
changes in key assumptions, including but not limited to an increase in our discount rate, lower market multiples, lower
revenue growth, lower operating margin, and/or a lower terminal growth rate, we may be required to record a non-cash
impairment charge to our goodwill, other intangibles and/or long-lived assets. Such a non-cash charge would likely have
a material adverse effect on our consolidated statements of operations and balance sheets in the reporting period of the
charge.
In the period following December 31, 2021, there has been a further decline in the Company’s market
capitalization, based upon the Company’s publicly quoted share price, below the Company’s carrying or book value. As
a result, if this decline in our share price is sustained, this would require further testing of our goodwill and it may result
in an impairment of our goodwill. For additional information, see Part II, Item 7: Management’s Discussion & Analysis
of Financial Condition and Results of Operations under the sub-heading “Critical Accounting Policies- Goodwill and
Other Intangible Assets- December 2021 Impairment Testing.”
Risks Related to Our Business and Industry
The virtual care market is immature and volatile, and if it does not continue to develop, if it develops more slowly than
we expect, if it encounters negative publicity, or if our solutions do not drive member engagement, the growth of our
business will be harmed.
The virtual care market is relatively new and unproven, and it is uncertain whether it will continue to achieve
and sustain high levels of demand, consumer acceptance, and market adoption. The outbreak of the COVID-19 pandemic
has increased utilization of virtual care 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 solutions, as well as on our ability to continue to demonstrate the value of virtual care to
employers, health plans, government agencies, and other purchasers of healthcare for beneficiaries. Negative publicity
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concerning our solutions, or the virtual care market as a whole, could limit market acceptance of our solutions. If our
Clients or members do not perceive the benefits of our solutions, or if our solutions do not drive member engagement,
then our market may not continue to develop, 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 virtual
care 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.
The impact of potential 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 (“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.
Other legislative changes have been proposed and adopted since the PPACA was enacted. These changes
include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year pursuant to the Budget
Control Act of 2011 and subsequent laws, which began in 2013 and due to subsequent legislative amendments, will stay
in effect through 2030. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among
other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers, and
cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to
providers from three to five years. New laws may result in additional reductions in Medicare and other healthcare
funding, which may materially adversely affect Client demand and affordability for our solutions and, accordingly, our
business, financial condition, and results of operations. Additional changes that may affect our business include the
expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare
Access and CHIP Reauthorization Act of 2015, which first affected physician payment in 2019. At this time, it is unclear
how the introduction of the Medicare quality payment program will impact overall physician reimbursement.
Such changes in the regulatory environment may also result in changes to our payor mix that may affect our
operations and revenue. Further, the PPACA may adversely affect payors by increasing medical costs generally, which
could have an effect on the industry and potentially impact our business and revenue as payors seek to offset these
increases by reducing costs in other areas. Certain of these provisions are still being implemented and the full impact of
these changes on us cannot be determined at this time.
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.
The virtual care market is competitive, and we expect it to continue to attract increased competition, which
could make it difficult for us to succeed. We currently face competition in the virtual care industry for our solutions from
a range of companies, including specialized software and solution providers that offer competitive solutions, often at
substantially lower prices, and that are continuing to develop additional products and becoming more sophisticated and
effective. Aside from other competing virtual care companies and smaller industry participants, we also face competition
from 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, technology companies and retailers have in some cases developed or acquired
their own virtual care, expert medical service, or chronic condition management tools and may provide these solutions to
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their customers at discounted prices. Competition from these 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
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 would be materially adversely affected.
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 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. Additionally, recent cost inflation and potential supply chain
disruptions stemming from the pandemic may lead to higher material costs, which we may not be able to successfully
offset.
The outbreak of COVID-19 increased utilization of our virtual care 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 any 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 any
resulting economic impact may materially and adversely affect our business, financial condition, and results of
operations as well as those of our customers.
The outbreak also presents challenges as a significant portion of our workforce is currently working remotely
and assisting new and existing Clients, members and other consumers, many of whom are also working remotely. We
may take 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, or stockholders. The effects
of these operational modifications are unknown and may not be realized until future reporting periods.
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,
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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.
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 increasing utilization of our products, and using
our international salesforce to drive sales of chronic condition management 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, any headcount reductions by our Clients.
We generally enter into subscription access contracts with our Clients. Most of our Clients have no obligation to
renew their subscriptions for our solutions 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. 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 term, 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 prior to
recognizing meaningful revenue from such Client. Access revenue is not recognized until our products are implemented
for launch. 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;
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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 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 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
solutions 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 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 majority of our revenue from sales of our virtual care 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
solutions and introduce new high-quality applications and services. If existing Clients 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 solutions 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 and the interoperability with third-party technologies presents us with
significant risks and challenges.
The virtual care 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 solutions with
next-generation technologies and to develop or to acquire and market new services to access new consumer populations.
As our operations grow, we must continuously improve and upgrade our systems and infrastructure while maintaining or
improving the reliability and integrity of our infrastructure as the cost of technology increases. Our future success also
depends on our ability to adapt our systems and infrastructure to meet rapidly evolving consumer trends and demands
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while continuing to improve the performance, features, and reliability of our solutions in response to competitive
services and offerings. We expect the use of alternative platforms such as tablets and wearables will continue to grow
and the emergence of niche competitors who may be able to optimize offerings, services, or strategies for such platforms
will require new investment in technology. New developments in other areas, such as cloud computing, have made it
easier for competition to enter our markets due to lower up-front technology costs. In addition, we may not be able to
maintain our existing systems or replace or introduce new technologies and systems as quickly as we would like or in a
cost-effective manner.
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. If we are unable to enhance our offerings and network capabilities to keep pace with rapid
technological and regulatory change, or if new technologies emerge that are able to deliver competitive offerings at
lower prices, more efficiently, more conveniently, or more securely than our offerings, our business, financial condition,
and results of operations could be adversely affected.
Our success will also depend on the availability of our mobile apps in app stores and in “super-app”
environments, and the creation, maintenance, and development of relationships with key participants in related
industries, some of which may also be our competitors. In addition, if accessibility of various apps is limited by
government actions, the full functionality of devices may not be available to our members. Moreover, third-party
platforms, services, and offerings are constantly evolving, and we may not be able to modify our platform to assure its
compatibility with those of third parties. If we lose such interoperability, we experience difficulties or increased costs in
integrating our offerings into alternative devices or systems, or manufacturers or operating systems elect not to include
our offerings, make changes that degrade the functionality of our offerings, or give preferential treatment to competitive
products, the growth of our business, financial condition, and results of operations could be materially adversely
affected. This risk may be exacerbated by the frequency with which individuals change or upgrade their devices. In the
event individuals choose devices that do not already include or support our platform or do not install our mobile apps
when they change or upgrade their devices, our member engagement may be harmed.
A decline in the prevalence of employer-sponsored healthcare or the emergence of new technologies may render our
virtual care solutions obsolete or require us to expend significant resources 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 virtual care 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.
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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 information technology infrastructure, financial
and accounting systems, and controls. In 2021, the Company embarked on a transformation initiative to upgrade our
customer relationship management and enterprise resources planning systems in connection with our acquisition and
integration activities. 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, finance
and accounting 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, including the introduction of new products and solutions such as virtual primary care. 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
number of price transparency, health savings account, and other benefits platforms to deliver our solutions to their
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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 virtual care 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 virtual care providers,
and demand for such providers has become increasingly competitive. In order to ensure predictable availability of
providers and a consistent member experience, we expect that the THMG Association will hire more providers and rely
less on contractors. If we are unable to recruit and retain board-certified physicians, mental health providers, and other
healthcare professionals, or unable to augment our or the THMG Association’s employee base with contractors to meet
resource needs, it would adversely affect our business, financial condition, 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 and members, 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 members, 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.
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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 have and may continue to 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
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.
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.
Economic downturns, market volatility, inflation and uncertainty make it potentially very difficult for our
Clients and us to accurately forecast and plan future business activities. The COVID-19 pandemic has adversely affected
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 solutions 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.
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;
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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 prior to the COVID-19 pandemic
a significantly higher proportion of our members typically used our virtual care services during peak cold
and flu season months;
travel restrictions, 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 Client 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;
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the mix of applications and services sold during a period;
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; and
changes in the value or useful lives of our 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 solutions, 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 access fee
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.
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We depend on a limited number of third-party suppliers for certain components of our chronic condition
management 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 supply products to us, including financial difficulties, labor shortages, shutdowns related to the
COVID-19 pandemic, shipping delays, 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 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
supply chain disruptions 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 (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 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.
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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 solutions need to meet
country-specific Client and member preferences as well as country-specific legal requirements, including those related to
licensing, virtual care, privacy, data storage, location, protection, and security. Our ability to conduct virtual care
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 32 offices globally, and we earned approximately
13% of revenue internationally in 2021.
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;
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;
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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;
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.
For example, the conflict in Ukraine and the surrounding region could lead to disruption, instability, and
volatility in global markets, increase inflation and further disrupt supply chains. We also have employees and/or
contractors in Ukraine and surrounding countries, including Belarus, primarily focused on technology development, and
they and our development efforts may be disrupted, which could impact our operations.
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.
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 and other senior leaders.
These individuals are at - will employees and therefore they may terminate employment with us at any time with no
advance notice. From time to time, there may be changes in our senior management team resulting from the hiring or
departure of executives or other key employees, 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. However,
competition in the job market is intense for a limited pool of qualified professionals. Inability to meet the ever-increasing
expenses (salaries, benefits and technology costs, and talent inflation) of attracting and retaining talent may threaten our
ability to provide the staffing resources needed to execute our growth strategy. 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, in particular software engineers. 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 rapid growth, 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.
If we fail to develop widespread brand awareness cost - effectively, or are subject to widespread negative media
coverage, 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 solutions 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 solutions.
In addition, unfavorable publicity regarding, among others, us, our business, our solutions, the healthcare
industry, litigation or regulatory activity, our data privacy, or data security practices, or those of other participants in our
industry, could materially adversely affect our reputation. From time to time, news media outlets have provided negative
coverage regarding virtual care and privacy practices, in particular related to our D2C mental health solution, and any
such negative media coverage, regardless of the accuracy of such reporting, may have an adverse impact on our business
and reputation, as well as have an adverse effect on our ability to attract and retain Clients, members or employees, and
result in decreased revenue, which could materially adversely affect our business, financial condition and results of
operations.
Our D2C marketing efforts 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.
D2C mental health represents a significant portion of our overall business and has been rapidly growing in
recent years. We spend significant resources marketing this service. Any decrease in the amount or effectiveness of our
D2C marketing efforts could lead to lower revenue or growth of this business.
In addition, we rely on relationships for our D2C mental 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 D2C mental 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 individuals 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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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 growth, respond to business challenges or opportunities, develop new applications
and services, enhance our existing solutions and services, enhance our operating infrastructure, and potentially acquire
complementary businesses and technologies. For the years ended December 31, 2021 and 2020, our net cash provided by
(used in) operating activities was $194.0 million and $(53.5) million, respectively. As of December 31, 2021, we had
$893.5 million of cash and cash equivalents and $2.5 million of short-term investments, which are held for working
capital purposes. As of December 31, 2021, we had outstanding $1,000.0 million of 1.25% convertible senior notes due
2027 (the “2027 Notes”) and $0.7 million of 1.375% convertible senior notes due 2025 (the “2025 Notes,” and together
with the 2027 Notes, the “Notes”). As of December 31, 2021, Livongo also had outstanding $550.0 million of 0.875%
convertible senior notes due 2025 (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. 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.
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 virtual care. 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 become more expensive due to rising interest rates or 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.
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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, 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.
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 Information Technology
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 leading multinational
vendors. 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
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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 or business
actions by our cloud vendors, 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. These financial or business actions may include bankruptcy declarations or decisions to
acquire or develop products that compete directly with our solutions. Should they compete against us, we may be at a
disadvantage because they may gain additional insights into our system by analyzing our cloud traffic on their services.
In addition, our ability to deliver our services that rely on internet or mobile technology depends on the
development and maintenance of the infrastructure of the internet or mobile technology 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;
and
other potential interruptions.
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.
Our ability to rely on these services of third-party vendors could be impaired as a result of the failure of such
providers to comply with applicable laws, regulations, and contractual covenants, or as a result of events affecting such
providers, such as power loss, telecommunication failures, software or hardware errors, computer viruses, cyber
incidents, and similar disruptive problems, fire, flood, and natural disasters. Any such failure or event could adversely
affect our relationships with our Clients and damage our reputation. This could materially and adversely impact our
business, financial condition, and results of operations.
If our or our vendors 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
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and transmit, the security features of our and our third-party vendors’ computer, network, and communications systems
infrastructure are critical to the success of our business. A breach or failure of our or our third-party vendors’ 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. While we have security measures
in place, we have experienced attempted cybersecurity incidents in the past. If our or our third-party vendors’ 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 or our third-party vendors’ security measures, or our or our
vendors’ 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. Applicable data protection laws, privacy policies, or data
protection obligations may require us to notify affected individuals, regulators, customers, credit reporting agencies, and
others in the event of a security breach. Members about whom we obtain health information, as well as the providers
who share this information with us, may have statutory or contractual rights that limit our ability to use and disclose the
information. We may be required to expend significant capital and other resources to ensure ongoing compliance with
applicable data protection laws, privacy policies, and data protection obligations. Claims that we have violated
individuals’ privacy rights or breached our data protection obligations, even if we are not found liable, could be
expensive and time-consuming to defend and could result in adverse publicity that could harm our business. 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.
In addition, the threat of ransomware has quickly escalated from a small, isolated incident to that of large-scale
business disruption and data breach. A successful attack could shut down our ability to provide our services for an
extended period of time, the result of which would be the loss of revenue, potential fines and costs associated with data
loss, as well as a blemished reputation that could hinder our ability to retain and attract Clients and members.
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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
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 solutions do not function reliably or fail 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 solutions 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 solutions 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.
If we cannot implement our solutions 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 virtual care 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
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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.
Risks Related to Government Regulation
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 virtual care services and expert medical services in a particular U.S. state or non-U.S.
jurisdiction is directly dependent upon the applicable laws governing virtual 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 virtual care 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 virtual care 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
(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.
In addition, our D2C mental health business and the industry as a whole has come under increasing scrutiny
from government regulators in recent years, including as a result of the industry’s growing profile due to the COVID-19
pandemic. Accordingly, we must monitor our compliance with laws 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 laws. Additionally, it is possible that the laws and rules governing the practice of medicine,
including virtual 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.
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 many of 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
interpretations by state boards of medicine and state attorneys general, among others. We enter into agreements with a
professional association, THMG, 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
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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 THMG, which is a 100% physician owned independent entity, or the professional corporations
with which it contracts. THMG and the other 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 THMG, or among THMG 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 THMG could
have a material adverse effect on our business, financial condition, and results of operations.
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 have been, and may in the future 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 areas include: rules governing the provision of telehealth; practice of medicine by physicians; licensure
standards for doctors, physician assistants, advanced practice registered nurses, nurses, and mental 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 allege or 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, the OIG and other governmental
agencies 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, in the U.S., 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. For example, U.S. states have begun to introduce more comprehensive data protection laws. The
CCPA went into effect in January 2020 and established a new privacy framework for covered businesses such as ours
that expands the scope of personal information and provides new privacy rights for California residents. These changes
required us to modify our data processing practices and policies and incur compliance related costs and expenses. The
CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches, which may
increase the likelihood and cost of data breach litigation. Additionally, on November 3, 2020, a new privacy law, the
California Privacy Rights Act (“CPRA”), was approved by California voters. The CPRA significantly modifies the
CCPA by, among other things, creating a dedicated privacy regulatory agency, requiring businesses to implement data
minimization and data integrity principles, and imposing additional requirements for contracts addressing the processing
of personal information. Moreover, the CPRA calls for additional regulations to be implemented before the law becomes
fully operative on January 1, 2023. These changes may result in further uncertainty with respect to privacy, data
protection, and information security issues and will require us to incur additional costs and expenses in an effort to
comply. The enactment of the CCPA has prompted similar legislative developments in other states, which could create
the potential for a patchwork of overlapping but different state laws. For example, Virginia passed the Virginia
Consumer Data Protect Act in March 2021, which becomes effective on January 1, 2023, and Colorado passed the
Colorado Privacy Act in July 2021, which becomes effective on July 1, 2023. Both of these laws appear very similar to
the CCPA. The federal government is also considering comprehensive privacy legislation.
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.
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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.
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 by the Federal Trade Commission
(“FTC”) and state regulators. If our practices are deemed to have been unlawful or deceptive or potentially a violation of
HIPAA or other laws or regulations, it could lead to significant liabilities and consequences including, without
limitation, costs of responding to investigations, defending against litigation, including class action suits, 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 (“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 our company since they are governed by the Telephone Consumer Protection Act, which
allows for class action lawsuits and is enforced by the Federal Communications Commission. 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 €10,000,000 or up to 2% of the total worldwide annual turnover of the preceding
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financial year, whichever is higher, and other administrative penalties. To comply with the 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. These additional privacy law obligations 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 EU 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
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.
Our medical device operations are subject to FDA regulatory requirements and may become subject to similar foreign
regulatory requirements.
We are regulated by the FDA as a medical device manufacturer, and the medical devices that we distribute as
part of our chronic condition management solutions are subject to extensive regulation by the FDA. We expect to expand
the sales of the chronic condition management 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 approval of a premarket approval (“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
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sometimes required to support substantial equivalence. Failure to demonstrate substantial equivalence to a predicate
device to the FDA’s satisfaction may 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 chronic condition management 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 solutions 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
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
(“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 chronic
condition management 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 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
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
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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.
Risks Related to Litigation and Liability
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. In
addition, any insurance coverage would not address the reputational damage that could result from any legal or
regulatory proceedings or claims.
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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
THMG 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 THMG’s insurance coverage. THMG 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.
Risks Related to Intellectual Property
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 solutions, 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
establish, 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 secure and adequately protect our intellectual
property and other proprietary rights could have a material adverse effect on our business, financial condition, and results
of operations.
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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 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
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.
Risks Related to Taxation
Unanticipated changes in our effective tax rate and additional tax liabilities may impact our financial conditions or
results of operations.
We are subject to income tax in the U.S. and various jurisdictions outside of the U.S. Our effective tax rate
could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax
expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits on stock-based
compensation, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them, the
applicability of withholding taxes and effects from acquisitions.
We are open to tax examinations in multiple jurisdictions. While we regularly evaluate new information that
may change our judgment resulting in recognition, derecognition, or change in measurement of a tax position taken,
there can be no assurance that the final determination of any examinations will not have an adverse effect on our
financial condition or results of operations.
Our tax provision could also be impacted by changes in accounting principles or changes in U.S. federal and
state or international tax laws applicable to corporate multinationals. Furthermore, changes in taxing jurisdictions’
administrative interpretations, decisions, policies and positions could also impact our tax provision.
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We may also be subject to additional liabilities for non-income based taxes due to changes in U.S. federal, state,
or international tax laws, changes in taxing jurisdictions’ administrative interpretations, decisions, policies, and
positions, results of tax examinations, settlements or judicial decisions, changes in accounting principles, changes to our
business operations, including acquisitions, as well as the evaluation of new information that results in a change to a tax
position taken in a prior period.
If our providers or experts are characterized as employees, we would be subject to employment and withholding
liabilities.
We structure our relationships with many of 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 these 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 these 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
these providers or experts are our employees could have a material adverse effect on our business, financial condition,
and results of operations.
Risks Related to Strategic Initiatives
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 or 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. 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 synergies or other 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;
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;
50
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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.
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 may not realize all of the anticipated synergies and other benefits of the Livongo merger.
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 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.
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.
51
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:
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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;
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 (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
52
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. In addition, the trading price of our common stock has been, and could continue to be, subject
to wide fluctuations. The price at which our stock trades depends on a number of factors, many of which are beyond our
control. We cannot make any predictions or projections as to what the prevailing market price for our common stock will
be at any time, including whether you will achieve any capital appreciation.
We have been, and in the future 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. We have been, and may in the future become, subject to such securities class action
litigation, and any such litigation 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
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 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 California, Illinois, Massachusetts, Texas, Spain and elsewhere in the
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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 18 to the 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.
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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, 2022, there were 96 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.
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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 and the S&P 500 Health Care Sector Index over the period of
time covered in the graph. The graph assumes that $100 was invested in Teladoc Health Common Stock and in each
index on December 31, 2016. 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 S&P 500 Health Care Sector Index and the S&P 500 Index
$1,800
$1,600
$1,400
$1,200
$1,000
$800
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Teladoc Health, Inc.
S&P 500 Health Care Sector Index
S&P 500 Index
*$100 invested on 12/31/2016 in Teladoc Health common stock or index
Fiscal year ending December 31.
Item 6.
[Reserved]
Not applicable.
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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.
57
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,” the “Company,” or “we.” The Company’s principal executive office is located in Purchase,
New York. Teladoc Health is the global leader in whole person virtual care focused on forging a new healthcare
experience with better convenience, outcomes and value around the world.
Teladoc Health was founded on a simple, yet revolutionary idea: that everyone should have access to the best
healthcare, anywhere in the world on their terms. Today, we have a vision of making virtual care the first step on any
healthcare journey, and we are delivering on this mission by providing whole person virtual care that includes primary
care, mental health, chronic condition management, and more.
COVID-19 Update
We believe that favorable existing secular trends in the healthcare industry were accelerated by the impacts of
the COVID-19 pandemic, driving greater consumer use of virtual care, and increased adoption by employers, health
plans, hospitals and health systems, and healthcare 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, affordable, and high-quality care;
empower individuals to manage and improve their health; and enable providers to offer their best care for their patients.
We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. COVID-
19 has 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 any 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 any 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, and we may take 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.
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Revenue
We have a demonstrated track record of driving growth both organically and through acquisitions. For the year
ended December 31, 2021, we increased revenue 86% to $2,032.7 million, including an incremental $500.0 million from
acquired business. Excluding the impact of the acquisitions, revenue increased 40% for the year ended December 31,
2021, 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 2020, revenue increased 98% to $1,094.0
million which included an incremental $128.3 million from our InTouch acquisition and Livongo merger.
For the year ended December 31, 2021, 85%, 13%, and 2% of our revenue was derived from access fees,
visit fees, and other, respectively. For the year ended December 31, 2020, 78%, 20%, and 2% of our revenue was
derived from access fees, visit fees, and other, respectively.
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 final consideration
was $13,876.9 million consisting of $380.2 million of net cash, $555.4 million related to the conversion feature of the
Livongo Notes guaranteed by the Company and 60.2 million shares of Teladoc Health’s common stock valued at
approximately $12,941.3 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.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
Number of Members and Revenue per Member. Our revenue growth rate and long-term profitability are affected
by our ability to increase cross selling capability among our existing members because we derive a substantial portion of
our revenue from access and other fees via Client contracts that provide members access to our professional provider
network in exchange for a contractual based periodic fee or access fees derived from our D2C members. Therefore, we
believe that our ability to add new members, retain existing members, and increase the revenue generated from each
member is a key indicator of our increasing market adoption, the growth of our business, and future revenue potential,
and that increasing our membership and revenue per member is an integral objective that will provide us with the ability
to continually innovate our services and support initiatives that will enhance members’ experiences. U.S. paid
membership increased by 1.8 million to 53.6 million at December 31, 2021, compared to the same period in 2020.
Average U.S. revenue per member measures the average amount of access revenue that we generate from a U.S. paid
member for a particular period. It is calculated by dividing the U.S. access revenue generated from our U.S. paid
members, excluding certain non-member based access fees, by the total average number of U.S. paid members during
the applicable period. Average U.S. revenue per member increased to $2.32 in 2021, from $1.12 in 2020. For the fourth
quarter of 2021, Average U.S. revenue per member was $2.49 compared to $1.63 for the same period last year.
Number of Visits and Utilization. We also recognize revenue in connection with the completion of a general
medical visit, expert medical service, and other specialty visits for contracts where the service is not part of access fees.
Visit fee revenue is driven primarily by the number of Clients, the number of members in a Client’s population, member
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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 38%, or 4.2 million, to approximately 15.4 million for the year ended December 31, 2021, compared to the same
period in 2020. Utilization measures the ratio of visits to total U.S. paid members. It is calculated by dividing annual
visits by annual U.S. paid members in the year. Visit fee only visits are excluded. Utilization increased by 560 basis
points to approximately 20.1% for the year ended December 31, 2021, compared to 14.5% in the same period in 2020.
Number of Platform-Enabled 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 healthcare. Our Clients completed 4.1 million platform-enabled
sessions during the year ended December 31, 2021, compared to 2.1 million during the six month period ended
December 31, 2020, reflecting the period following the acquisition of InTouch.
Chronic Care Enrollment. Our chronic care programs are one of the key components of our whole person
virtual care platform that we believe position us to drive greater engagement with our platforms and increased revenue.
Chronic care enrollment measures the number of unique individuals enrolled in one or more of our chronic care
programs. Chronic care enrollment increased by 22% to 0.7 million at December 31, 2021, compared to 0.6 million at
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 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. 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 2021 and 2020, we did not experience the typical seasonality associated with national cold and
flu outbreaks. See “Risk Factors—Risks Related to Our Business and Industry —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.
Critical Accounting Estimates and Policies
Revenue
The Company follows the revenue accounting requirements of Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Accounting Standards Codification (“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:
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Identification of the contract, or contracts, with a Client.
Identification of the performance obligations in the contract.
• Determination of the transaction price.
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• Allocation of the transaction price to the performance obligations in the contract.
• Recognition of revenue when, or as, the Company satisfies 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 also include additional revenue on a per-virtual healthcare visit basis for general medical or other specialty visits, or
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 D2C mental 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 access fees that are recognized as services are rendered and
earned under subscription agreements with Clients that are based on a per participant per month model, using 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 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 equipment consisting of virtual
healthcare devices which allow physicians to access the Company’s hosted virtual healthcare 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 devices 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 records 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 Client agreements generally 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.
For 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.
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. Performance guarantees are
estimated at each reporting period based on the Company’s historical performance of the underlying criteria or the
customer’s specific performance as of that reporting date. Any estimated adjustments to the contract price for achieving
or not achieving the performance guarantee are recognized as an adjustment to revenue in the period. For the years ended
December 31, 2021, 2020, and 2019, revenue recognized from performance obligations related to prior periods for the
changes in transaction price or Client performance guarantees was $5.6 million, $1.9 million, and $0.8 million,
respectively.
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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. 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. 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. Upon completion of the purchase accounting for the acquisition of Livongo on
October 30, 2020, we allocated $1.05 billion of the total acquisition consideration to customer relationship intangibles,
an amount which reflects both direct and channel-sourced customers that had been acquired by Livongo since it began
offering its diabetes management program in 2014. The fair value of these customer relationships was determined based
on the excess earnings method of the income approach. We determined the remaining weighted average useful life to be
approximately 15.7 years based on historical Livongo attrition rates, estimated revenues from customers, and other
qualitative factors, and we believe that our customer relationships are expected to make contributions to our future cash
flows over this period. The Livongo customer relationships typically have a three-year contractual term, but the
estimated useful life assumes renewals or extensions and considers historical attrition rates, which were calculated using
actual Livongo attrition data, the largest factor in the estimation of the useful life. The weighted average attrition rate
used in the determination of useful life was approximately 6.5%.
Goodwill and Other Intangible Assets
As of December 31, 2021, our balance of goodwill was $14.5 billion. Goodwill represents the excess of the total
purchase consideration over the fair value of the identifiable assets acquired and liabilities assumed in a business
combination. Goodwill is not amortized but is tested for impairment at the reporting unit level annually on October 1 or
more frequently if events or changes in circumstances indicate that it is more likely than not to be impaired. These events
include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions, including exiting an
activity in conjunction with restructuring of operations; (iii) current, historical or projected deterioration of our financial
performance; or (iv) a sustained decrease in our market capitalization, as indicated by the Company’s publicly quoted
share price, below our net book value. We currently operate as a single reporting unit under the guidance in ASC 350,
“Intangibles- Goodwill and Other.”
When testing goodwill for impairment, we have the option of first performing a qualitative assessment to
determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If we
elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that carrying
value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative goodwill
impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment charge
based on that difference.
62
To determine reporting unit fair value as part of the quantitative test, we use a weighting of fair values derived
from the income approach and the market approach. Under the income approach, we project our future cash flows and
discount these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in
its internal planning, which reflects actual business trends experienced and our long-term business strategy. As such, key
estimates and factors used in this method include, but are not limited to, revenue, margin, and operating expense growth
rates, as well as a discount rate, and a terminal growth rate. Under the market approach, we use the guideline company
method to develop valuation multiples and compare our reporting unit to similar publicly traded companies.
In order to further validate the reasonableness of fair value as determined by the income and market approaches
described above, a reconciliation to market capitalization is then performed by estimating a reasonable control premium
and other market factors. Future changes in the judgments, assumptions and estimates that are used in the impairment
testing for goodwill could result in significantly different estimates of fair value.
As part of our annual goodwill impairment tests performed as of October 1, 2021 and 2020, no impairment was
indicated as our reporting unit fair value significantly exceeded its carrying value.
Other Intangible Assets
Other intangible assets include customer relationships, non - compete agreements, acquired technology, patents,
and trademarks resulting from business acquisitions, and capitalized software development costs. As of December 31,
2021, the aggregate balance of these assets was $1,910.3 million. We amortize these definite-lived intangible assets over
their estimated useful lives as disclosed in Note 8 to the consolidated financial statements. We also review the useful
lives on a quarterly basis to determine if the period of economic benefit has changed. Potential changes in useful lives,
whether due to strategic decisions involving our brands, competitive forces, or other factors could result in additional
amortization expense taking effect prospectively in the period of the change and could have a material impact on our
consolidated financial statements. Customer relationships are amortized over a period of 2 to 20 years in relation to
expected future cash flows. The useful lives of the customer relationships are subject to risks and uncertainties including
future attrition rates. These considerations include, but are not limited to, the emergence of new competitor offerings,
relative competitor pricing and scale, our ability to successfully integrate and manage the acquired customers, our level
of success in delivering future innovation, and overall changes in economic and regulatory conditions. Significant
changes in any one or a combination of considerations could lead us to update our weighted average attrition rate, which,
in turn would impact the assigned useful life and the level of amortization expense recorded for our customer
relationship intangibles. For example, a sustained increase in the customer attrition rate related to customers acquired in
the Livongo transaction could prompt us to reduce our estimate of the remaining useful life of the customer relationships.
Should this occur, a year’s reduction to the estimated life would result in an annual increase in amortization expense of
approximately $5 million. 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.
Definite-lived intangible assets are re-evaluated whenever events or changes in circumstances indicate that their
estimated useful lives may require revision and/or the carrying value of the related asset group may not be recoverable
by its projected undiscounted cash flows. If the carrying value of the asset group is determined to be unrecoverable, an
impairment charge would be recognized in an amount equal to the amount by which the carrying value of the asset group
exceeds its fair value. There were no events or changes in circumstances which indicated that the carrying value of the
definite-lived intangible assets may not be recoverable during the year ended December 31, 2020.
63
December 2021 Impairment Testing
As a result of a sustained decrease in our Company share price following our annual impairment test on
October 1, 2021, we concluded that a triggering event had occurred and conducted impairment testing of our goodwill,
definite-lived intangibles and other long-lived assets as of December 1, 2021. As a result of this review, each of our asset
groups identified for the purpose of testing the recoverability of our definite-lived intangibles and other long-lived assets
passed the recoverability test by a significant margin. In addition, no goodwill impairment was indicated and the fair
value of our reporting unit exceeded our carrying value but declined to an excess of approximately 15%. Consistent with
the test performed on October 1, 2021, this estimate reflected a 75%/25% allocation between the income and market
approach. We believe the 75% weighting to the income approach was appropriate as it more directly reflects the
Company’s future growth and profitability expectations. There were no changes in our projected cash flows used in the
impairment tests performed on each of these two dates. However, certain significant inputs to the valuation models were
modified reflecting our view of the market’s perception of the associated risks of achieving our projected cash flows and
other economic factors, as might be implied by the decline in the Company’s share price. The following table indicates
the most significant changes to inputs and their resulting impact:
Testing dates
October 1, 2021
December 1, 2021
Discount Rate
9.5%
10.5%
Peer Group Revenue Multiples
(2021/2022)
9.0/7.0
7.0/5.5
Excess of Reporting Unit Fair
Value over Carrying Value
36%
15%
Between the October 1, 2021, and December 1, 2021, assessments, our estimate of the reporting unit’s fair
value decreased by approximately $3,200 million. The Company performed a sensitivity analysis of the key inputs to its
valuation models and determined across a range of reasonable assumptions that no impairment was indicated at either
assessment date in 2021.
Overall, in the event there are future adverse changes in our projected cash flows and/or changes in key
assumptions, including but not limited to an increase in our discount rate, lower market multiples, lower revenue growth,
lower margin, and/or a lower terminal growth rate, we may be required to record a non-cash impairment charge to our
goodwill, other intangibles and/or long-lived assets. Such a non-cash charge would likely have a material adverse effect
on our consolidated statements of operations and balance sheets in the reporting period of the charge.
While management believes the assumptions used in our impairment test are reasonable, the fair value estimate
is most sensitive to our discount rate and market multiple assumptions as these amounts are reflective of the market’s
perception of our ability to achieve our projected cash flows. The above table illustrates the changes in discount rates and
selected peer revenue multiples between our October 1, 2021, and December 1, 2021, testing dates and the impact of
those changes on our goodwill impairment testing results.
In the period following December 31, 2021, there has been a further decline in the Company’s market
capitalization, based upon the Company’s publicly quoted share price, below the Company’s carrying or book value. If
this decline in our share price is sustained, it would require further testing of our goodwill in our next reporting period
and it may result in an impairment of our goodwill. Absent changes to our projected cash flows, we would adjust our
discount rate and market multiple assumptions as these amounts are reflective of the market’s perception of risks to
achieving our projected cash flows and other economic factors. Those factors alone, or in combination with other factors,
could cause our reporting unit carrying value to exceed its fair value, resulting in impairment. Should the fair value of
our reporting unit decline a further $3,200 million, which was selected as an illustrative example because it approximates
the decrease in estimated fair value between the Company’s October 1, 2021 and December 1, 2021 assessments, it
would result in a goodwill impairment charge of approximately $800 million, all else held constant. A decline in fair
value of twice that magnitude, or approximately 30%, could result in an impairment charge of approximately $4,000
million, all else held constant.
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Livongo Customer Relationships
Upon completion of the purchase accounting for the acquisition of Livongo on October 30, 2020, we allocated
$1.05 billion of the total acquisition consideration to customer relationship intangibles, an amount which reflects both
direct and channel-sourced customers that had been acquired by Livongo since it began offering its diabetes management
program in 2014. The fair value of these customer relationships was determined based on the excess earnings method of
the income approach and incorporated assumptions including revenue growth, cash flows and other factors.
Following the guidance in the Financial Accounting Standards Board (“FASB”) ASC 350, we determined the
remaining weighted average useful life of the customer relationships to be approximately 15.7 years. The Livongo
customer relationships typically have a three-year contractual term, however, in accordance with the guidance, our
determination of the estimated useful life assumed renewals and extensions, and reflected actual historical attrition rates
which comprised the largest contributing factor to the estimate of the useful life. The weighted average attrition rate used
in the determination of useful life was approximately 6.5%.
Due to a number of both macro and micro-economic factors, there are risks and uncertainties related to the
attrition rates that are at least reasonably likely to occur. These factors include, but are not limited to, the emergence of
new competitor offerings, relative competitor pricing and scale, our ability to successfully integrate and manage the
acquired customers, our level of success in delivering future innovation, and overall changes in economic and regulatory
conditions. Significant changes in any one or a combination of these types of factors could lead us to update our
weighted average attrition rate, which, in turn would impact the assigned useful life and the level of pre-tax amortization
recorded on our customer relationship intangibles.
Income Taxes
Our income tax expenses, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect
management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income
taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for
the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in
the financial statements. Deferred income taxes reflect the tax effect of temporary differences between asset and liability
amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax
purposes. These deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by taxing authorities, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The assumptions about future tax consequences require significant
judgment and variations in the actual outcome of these consequences could materially impact our results of operations.
We recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We adjust these
liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because
of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially
different from our current estimate of the tax liabilities. Interest and penalties, if any, related to accrued liabilities for
potential tax assessments are included in income tax expense. As of December 31, 2021, we had approximately $110.8
million of unrecognized tax benefits.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized. Determination of valuation allowances recorded against deferred tax assets requires significant
judgment and use of assumptions, including past operating results, estimates of future taxable income and the feasibility
of tax planning strategies. To the extent that new information becomes available which causes the Company to change its
judgment regarding the adequacy of existing valuation allowances, such changes to tax liabilities will impact income tax
expense in the period in which such determination is made. 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 and Livongo
65
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. In 2021, upon filing its U.S. federal and state tax returns for the year ended December 31, 2020, the
Company updated its deferred tax asset for NOLs and the related valuation allowance to reflect the amounts included on
the tax returns and the current year losses. At the end of the year, the valuation allowance is $335.8 million.
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
(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 includes costs of technology enabling multiple modes of real-time communication, including via web browser,
mobile application, voice / telephony, and text. These expenses increase or decrease as the level of revenue changes.
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 access 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 and media 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 the costs of operating our on-demand technology infrastructure
that are not directly related to changes in revenue or volume of visits, including licensed applications, information
technology infrastructure, security, and compliance. The technology and development line item also contains amounts
charged to expense for research and development, which include costs of new product development, costs to add new
66
features or improve reliability or scalability of existing applications, and other software development and engineering
costs to the extent that they are not capitalized. The research and development expenses may enable future revenue
growth but are not directly related to current revenues.
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 or scalability of our existing solutions. Technology and development expenses
also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure
(whereas costs directly associated with revenue are presented separately in cost of revenues), licensed applications, and
stock-based compensation for our technology and development employees. Our technology and development expenses
exclude certain allocations of occupancy expense, capitalized software development costs, and 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, including the ability to capitalize software development costs.
Historically, the majority of our technology and development costs have been expensed, except those costs that have
been capitalized as software development costs.
Acquisition, Integration, and Transformation Costs
Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation initiatives focused on
integrating and optimizing various operations and systems, including enhancing our customer relationship management
(“CRM”) and enterprise resource planning (“ERP”) systems, incurred in connection with our acquisition and integration
activities.
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. 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.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of costs associated with debt refinancing including the write off of
origination and termination financing fees and the redemption/conversion of convertible senior notes.
Other (Income) Expense, Net
Other (income) expense, net includes the impact of foreign currency remeasurement, realized and unrealized
gains on investment securities, and all other non-operating items not included in other financial statement lines.
67
Interest Expense, Net
Interest expense, net consists of interest costs associated with convertible senior notes and advances from
financing companies, net of interest earned on cash and cash equivalents and short-term investments.
Income Tax Expense (Benefit)
Income tax expense (benefit) reflects management's best assessment of estimated current and future taxes to be
paid. The objectives for accounting for income taxes, as prescribed by the relevant accounting guidance, are to recognize
the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax
consequences of events that have been recognized in the financial statements. See above for Critical Estimates and
Policies.
EBITDA and Adjusted EBITDA
To supplement our financial information presented in accordance with U.S. generally accepted accounting
principles (“GAAP”), we use earnings before interest, taxes, depreciation, and amortization (“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 and financial and business trends 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; other (income) expense, net, including foreign exchange gain or
loss; taxes; depreciation and amortization; and loss on extinguishment of debt. Adjusted EBITDA consists of net loss
before interest; other (income) expense, net, including foreign exchange gain or loss; taxes; depreciation and
amortization; loss on extinguishment of debt; stock-based compensation; and acquisition, integration, and transformation
costs.
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;
• EBITDA and Adjusted EBITDA do not reflect the loss on extinguishment of debt;
• EBITDA and Adjusted EBITDA do not reflect other (income) expense, net;
• Adjusted EBITDA does not reflect the significant acquisition, integration, and transformation costs.
Acquisition, integration, and transformation 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. It also includes costs related to certain business transformation
68
initiatives focused on integrating and optimizing various operations and systems, including upgrading our
CRM and ERP systems. These transformation cost adjustments made to our results do not represent
normal, recurring, operating expenses necessary to operate the business but rather, incremental costs
incurred in connection with our acquisition and integration activities;
• 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 these measures 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.
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Consolidated Results of Operations
The following table sets forth our consolidated statement of operations data for the years ended December 31,
2021 and 2020 and the dollar and percentage change between the respective periods (dollars in thousands). Refer to Part
II, Item 7: Management’s Discussion & Analysis of Financial Condition and Results of Operations in our Annual Report
on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021, for management’s
discussion and analysis of financial condition and results of operations for 2020 compared to 2019.
Revenue
Expenses:
Cost of revenue (exclusive of depreciation and amortization,
which is shown separately below)
Operating expenses:
Advertising and marketing
Sales
Technology and development
Acquisition, integration, and transformation costs
General and administrative
Depreciation and amortization
Total expenses
Loss from operations
Loss on extinguishment of debt
Other (income) expense, net
Interest expense, net
Net loss before taxes
Income tax expense (benefit)
Net loss
EBITDA (1)
Adjusted EBITDA (1)
(1) Non-U.S. GAAP Financial Measures.
NM – not meaningful
Year Ended December 31,
Variance
%
2021
2020
$ 2,032,707
$ 1,093,962 $ 938,745
86 %
650,258
390,829
259,429
66 %
416,726
250,581
311,884
26,643
438,007
204,239
2,298,338
(265,631)
43,748
(5,088)
80,365
(384,656)
44,137
$
$
$
(428,793) $
(61,392) $
$
267,837
226,146
154,052
164,941
88,236
506,684
69,495
1,600,383
(506,421)
9,077
545
59,950
(575,993)
(90,857)
190,580
96,529
146,943
(61,593)
(68,677)
134,744
697,955
240,790
34,671
(5,633)
20,415
191,337
134,994
56,343
(485,136) $
(436,926) $ 375,534
126,841 $ 140,996
84 %
63 %
89 %
(70)%
(14)%
194 %
44 %
(48)%
382 %
NM
34 %
(33)%
NM
(12)%
(86)%
111 %
The following table reconciles net loss, the most directly comparable GAAP measure, to EBITDA and Adjusted
EBITDA for the years ended December 31, 2021 and 2020 (in thousands):
Net loss
Add:
Loss on extinguishment of debt
Other (income) expense, net
Interest expense, net
Income tax expense (benefit)
Depreciation and amortization
EBITDA
Stock-based compensation
Acquisition, integration, and transformation costs
Adjusted EBITDA
Year Ended December 31,
2021
2020
$ (428,793) $ (485,136)
43,748
(5,088)
80,365
44,137
204,239
(61,392)
302,586
26,643
267,837 $
9,077
545
59,950
(90,857)
69,495
(436,926)
475,531
88,236
126,841
$
70
Consolidated Results of Operations
We completed our acquisitions of Livongo on October 30, 2020, and InTouch on July 1, 2020. 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 $2,032.7 million for the year ended December 31, 2021, compared to
$1,094.0 million for the year ended December 31, 2020, an increase of $938.7 million, or 86%. Excluding the impact
from acquisitions, revenue increased 40%, driven primarily by mental health specialties. Total access fees increased
$884.7 million, or 104%, comprised of an $810.2 million, or 119% increase in U.S. access fees and a $74.5 million, or
44% increase in international access fees. Also contributing to the increase in total revenue was visit revenue, which
totaled $254.2 million during the year ended December 31, 2021, compared to $221.5 million during the year ended
December 31, 2020, an increase of $32.7 million, or 15%. In addition, total other revenues were $46.5 million for the
year ended December 31, 2021, compared to $25.2 million for the year ended December 31, 2020, an increase of $21.3
million, or 84%, primarily reflecting a full year’s sales of the Company’s telehealth solutions for hospitals and health
systems.
Cost of Revenue (exclusive of depreciation and amortization, which is shown separately below). Cost of
revenue was $650.3 million for the year ended December 31, 2021, compared to $390.8 million for the year ended
December 31, 2020, an increase of $259.5 million, or 66%. Excluding the impact of acquisitions, cost of revenue
increased by 42%, reflecting increased provider fees and physician network operation costs in line with revenue growth.
Advertising and Marketing Expenses. Advertising and marketing expenses were $416.7 million for the year
ended December 31, 2021, compared to $226.2 million for the year ended December 31, 2020, an increase of
$190.5 million, or 84%. This increase was primarily driven by higher digital and media advertising in support of D2C
mental health specialties, as well as higher engagement member marketing. In addition, the increase included the impact
of acquisitions, and an increase in personnel costs due to increased hiring.
Sales Expenses. Sales expenses were $250.6 million for the year ended December 31, 2021, compared to
$154.1 million for the year ended December 31, 2020, an increase of $96.5 million, or 63%. This increase substantially
reflects the impact from acquisitions.
Technology and Development Expenses. Technology and development expenses were $311.9 million for the
year ended December 31, 2021, compared to $164.9 million for the year ended December 31, 2020, an increase of
$147.0 million, or 89%. In addition to substantially reflecting the impact of acquisitions, the increase was driven by
hiring of additional personnel, professional fees, and ongoing projects to continuously improve and optimize our
technology portfolio.
Acquisition, Integration, and Transformation Costs. Acquisition, integration, and transformation costs were
$26.6 million for the year ended December 31, 2021, compared to $88.2 million for the year ended December 31, 2020,
a decrease of $61.6 million. The higher level of costs incurred in 2020 was driven by non-recurring transaction costs and
charges associated with the InTouch and Livongo acquisitions, including investment banking, financing, legal,
accounting, and consultancy costs. In contrast, the 2021 costs included residual acquisition-related costs associated with
the Livongo merger as well as costs associated with integrating and optimizing various operations and systems, including
enhancing our CRM and ERP systems.
General and Administrative Expenses. General and administrative expenses were $438.0 million for the year
ended December 31, 2021, compared to $506.7 million for the year ended December 31, 2020, a decrease of
$68.7 million, or 14%. The decrease was primarily driven by a $211 million year-over year reduction in stock-based
compensation driven primarily by the acceleration of stock-based awards expense related to the Livongo acquisition.
Partially offsetting the decrease was the full year impact of acquisitions, as well as increases reflecting the overall growth
of the business including personnel costs, indirect taxes, bank charges, therapist recruiting, and legal and other
professional costs.
71
Depreciation and Amortization. Depreciation and amortization was $204.2 million for the year ended
December 31, 2021, compared to $69.5 million for the year ended December 31, 2020, an increase of $134.7 million, or
194%. The year-over-year increase was driven primarily by the impact of acquisitions, which resulted in an increase of
$130.6 million in amortization of finite-lived intangibles and an increase of $4.2 million in depreciation of property and
equipment.
Loss on Extinguishment of Debt. Loss on extinguishment of debt was $43.7 million for the year ended
December 31, 2021, compared to $9.1 million for the year ended December 31, 2020, an increase of $34.6 million driven
primarily by exchanges, redemptions and conversions of convertible senior notes due in 2022 and 2025 as discussed in
Note 11 to the Consolidated Financial Statements.
Other (Income) Expense, Net. Other (income) expense, net was $(5.1) million for the year ended December 31,
2021, compared to $0.6 million for the year ended December 31, 2020. The change consisted primarily of a $5.9 million
gain on the sale of a non-marketable equity security and foreign exchange remeasurements.
Interest Expense, Net. Interest expense, net consists of interest costs and amortization of debt discount
associated with the Company’s convertible senior notes, offset by interest income from cash and cash equivalents and
short-term investments. Interest expense, net was $80.4 million and $60.0 million for the years ended December 31,
2021 and 2020, respectively. The increase in interest expense primarily is associated with the full year impact of the
2027 Notes issued in May 2020 and the Livongo Notes that the Company agreed to guarantee in October 2020 as part of
the acquisition.
Income tax expense (benefit). Income tax expense was $44.1 million for the year ended December 31, 2021,
compared to $(90.9) million benefit for the year ended December 31, 2020. The income tax expense in 2021 largely
reflects an increase in the valuation allowances needed to reflect the Company’s ability to utilize future NOLs, primarily
associated with stock compensation benefits associated with the purchase of Livongo and partially offset by the impact
of current period losses. The tax benefit in 2020 largely reflects the recognition of current period losses due to the partial
release of the U.S. valuation allowance due to acquired intangibles from the purchases of InTouch and Livongo, as well
as increased excess stock-based compensation deductions.
Liquidity and Capital Resources
The following table presents a summary of our cash flow activity for the periods set forth below (in thousands):
Consolidated Statements of Cash Flows - Summary
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash provided by financing activities
Total
Year Ended December 31,
2021
2020
$
$
(53,511)
193,990 $
(590,975)
(72,981)
40,947
859,136
161,956 $ 214,650
Our principal sources of liquidity are cash and cash equivalents, totaling $893.5 million and short-term
marketable securities of $2.5 million as of December 31, 2021. During 2021, we experienced positive operating cash
flow and we continue to anticipate increasing positive operating cash flow results for 2022.
We believe that our existing cash and cash equivalents and short-term investment will be sufficient to meet our
working capital, capital expenditure, and contractual obligation 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, the continuing market acceptance of telehealth, and our debt
service obligations. We may in the future enter into arrangements to acquire or invest in complementary businesses,
services, technologies, and intellectual property rights. We may be required to seek additional equity or debt financing to
fund working capital, capital expenditures and acquisitions, and to settle debt obligations. In the event that additional
72
financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all, which would
adversely affect our business, financial condition and results of operations.
Historically, we have financed our operations primarily through sales of equity securities, debt issuance, and
bank borrowings.
See Note 11 to the consolidated financial statements for additional information on our convertible senior notes.
We were in compliance with all debt covenants at December 31, 2021 and 2020.
We routinely enter into contractual obligations with third parties to provide professional services, licensing, and
other products and services in support of our ongoing business. The current estimated cost of these contracts is not
expected to be significant to our liquidity and capital resources based on contracts in place as of December 31, 2021.
Cash Provided by (Used in) Operating Activities
Cash flows provided by (used in) operating activities consist of net loss adjusted for certain non-cash items and
the cash effect of changes in assets and liabilities. Cash provided by (used in) operating activities was $194.0 million and
$(53.5) million for the years ended December 31, 2021 and 2020, respectively. The year-over-year increase was driven
by strong revenue growth, including contributions from acquisitions. In addition, our results for the year ended
December 31, 2020 included significant payments associated with the Livongo transaction.
Our primary uses of cash from operating activities are for the payment of cash compensation, provider fees,
engagement marketing, D2C digital and media advertising, inventory, insurance, technology costs, interest costs, and
acquisition, integration, and transformation costs. Historically, our cash compensation payments are at the highest level
in the first quarter when we pay discretionary employee compensation related to the previous fiscal year.
Cash Used in Investing Activities
Cash used in investing activities was $73.0 million for the year ended December 31, 2021 and primarily
consisted of net cash paid for the acquisition of businesses of $78.7 million, and capitalized software development costs
of $55.4 million, partially offset by proceeds from the sale of marketable securities and the sale of an investment of
$50.0 million and $10.9 million, respectively. Cash used in investing activities for the year ended December 31, 2020 of
$591.0 million consisted primarily of net cash paid for acquisitions of $567.4 million and capitalized software
development of $22.0 million.
Cash Provided by Financing Activities
Cash provided by financing activities for the year ended December 31, 2021 was $40.9 million and primarily
consisted of $25.8 million of proceeds from the exercise of employee stock options and $16.8 million of proceeds from
participants in the employee stock purchase plan. Cash provided by financing activities for the year ended December 31,
2020 was $733.3 million, which was driven primarily by $1 billion in proceeds from the issuance of convertible notes
due in 2027 offset by the $228.2 million repurchase of convertible notes due in 2022.
Recently Issued Pronouncements
In August 2020, the FASB issued ASU 2020-06—"Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for
convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in
cash and by eliminating the measurement model for beneficial conversion features. Convertible instruments that continue
to be subject to separation models are (1) those with conversion options that are required to be accounted for as
bifurcated derivatives and (2) convertible debt instruments issued with substantial premiums for which the premiums are
recorded as paid-in capital. This ASU also requires entities to use the if-converted method for all convertible instruments
in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled
73
in cash or shares, except for certain liability-classified share-based payment awards. This standard becomes effective for
the Company on January 1, 2022. The Company will adopt the new standard by application of the modified retrospective
method, with resulting transition adjustments recorded to the January 1, 2022 balance of retained earnings to be reflected
in its Form 10-Q for the first quarter of 2022. Due to the elimination of the conversion option separation model taking
effect in 2022, the Company currently anticipates a reduction of approximately $58 million in non-cash interest to be
recorded on its convertible notes for the year ended December 31, 2022, as compared to the year ended December 31,
2021.
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 as our Notes and Livongo
Notes bear fixed interest rates. We do not enter into investments for trading or speculative purposes.
We operate our business primarily within the United States which accounts for approximately 87% of our
revenues. We have not utilized hedging strategies with respect to our foreign exchange exposure as we believe it 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, 2021, 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, 2021. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
74
(COSO) in Internal Control-Integrated Framework (2013 framework). Based on this assessment, management, including
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, 2021.
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, 2021 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).
February 28, 2022
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, 2021, 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, 2021, based on
the COSO criteria.
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, 2021 and 2020, the related
consolidated statements of operations and other comprehensive loss, stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2021, 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 February 28,
2022 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
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
February 28, 2022
76
Item 9B. Other Information
None.
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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 caption “Corporate Governance and Board Matters,” 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 directors. 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 captions “Executive Compensation” and “Director 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 captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity
Compensation Plan Information,” 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-Party 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 “Audit Matters,” and possibly elsewhere therein. That information is incorporated in this
Item 14 by reference.
77
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, 2021
Fiscal Year Ended December 31, 2020
Fiscal Year Ended December 31, 2019
Income Taxes Valuation Allowance (in thousands):
Fiscal Year Ended December 31, 2021
Fiscal Year Ended December 31, 2020
Fiscal Year Ended December 31, 2019
Balance at
Beginning
Provision
of Period
$ 16,941 $ (11,526) $
$ 6,412
$ 3,787
$ (2,787) $
$ 5,284
$ 3,382 $ 2,665 $ (2,264) $
Write-offs Other
557
128
4
Balance at
End
of Period
$ 12,384
$ 6,412
$ 3,787
Balance at
Beginning
of Period
$ 107,984 $ 179,364 $
$ 121,186 $
2,146 $
$ 93,572 $ 36,124 $
Provision
Write-offs Other
Balance at
End
of Period
0 $ 48,461 $ 335,809
0 $ (15,348) $ 107,984
0 $ (8,510) $ 121,186
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.
78
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 May 8, 2018, by and
between Teladoc, Inc. and Wilmington Trust,
National Association.
8-K
001-37477
4.1
5/08/18
4.3
Global 1.375% Convertible Senior Note due
8-K
001-37477
4.2
5/08/18
4.4
4.5
2025, dated as of May 8, 2018.
Indenture, dated as of May 19, 2020, by and
between Teladoc Health, Inc. and Wilmington
Trust, National Association.
Global 1.25% Convertible Senior Note due 2027,
dated as of May 19, 2020 (included as Exhibit A
to Exhibit 4.6).
8-K
001-37477
4.1
5/19/20
8-K
001-37477
4.2
5/19/20
79
4.6
Indenture, dated as of June 4, 2020, by and
between Livongo Health, Inc. and U.S. Bank
National Association.
8-K
001-38983
4.1
10/30/20
4.7
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).
4.8
First Supplemental Indenture, dated as of
8-K
001-37477
4.1
10/30/20
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
10-K
001-37477
4.11
3/1/21
Section 12 of the Securities Exchange Act of
1934, as amended.
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
10-K
001-37477
10.2
3/1/21
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
10.1
5/3/21
Agreement under the Teladoc Health, Inc. 2015
Incentive Award Plan.
10.8+ Teladoc Health, Inc. 2015 Employee Stock
10-Q
001-37477
10.1
8/2/21
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).
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.
80
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
10-K
001-37477
10.14
3/1/21
Teladoc Health, Inc. Livongo Acquisition
Incentive Award Plan.
10.15+ Form of Restricted Stock Agreement under the
10-K
001-37477
10.15
3/1/21
Teladoc Health, Inc. Livongo Acquisition
Incentive Award Plan.
10.16+ Form of Restricted Stock Unit Agreement under
10-K
001-37477
10.16
3/1/21
the Teladoc Health, Inc. Livongo Acquisition
Incentive Award Plan.
10.17+ Teladoc Health, Inc. Senior Leader Severance
10-Q
001-37477
10.1
11/1/21
Plan.
10.18+ Teladoc Health, Inc. Non-Employee Director
10-K
001-37477
10.18
3/1/21
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.
10.24+ Executive Severance Agreement, dated July 30,
2019, by and between Teladoc Health, Inc. and
David Sides.
81
10-Q
001-37477
10.1
7/31/19
10-Q
001-37477
10.5
10/30/19
10-K
001-37477
10.28 2/26/20
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-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.
101.SCH XBRL Taxonomy Extension Schema Document.
82
10-Q
001-37477
10.9
10/30/19
*
*
*
*
**
**
*
*
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.
*
*
*
*
83
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: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
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: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
Date: February 28, 2022
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:
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
/s/ MARK DOUGLAS SMITH
Mark Douglas Smith
Director
84
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
1. Audited Consolidated Financial Statements of Teladoc Health, Inc.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets
Consolidated Statements of Operations and Other 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-4
F-5
F-6
F-7
F-8
78
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. (the Company) as of December 31,
2021 and 2020, the related consolidated statements of operations and other comprehensive loss, stockholders’ equity and
cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2021, 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, 2021, 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 February 28, 2022 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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was 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 the critical audit matter 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 matter below, providing a
separate opinion on the critical audit matter or on the account or disclosures to which it relates.
F-2
Valuation of goodwill
Description of the
Matter
At December 31, 2021, the Company’s goodwill was $14.5 billion. As discussed in Note 2 and Note
9 of the consolidated financial statements, goodwill is not amortized but is tested for impairment at
the reporting unit level annually on October 1 or more frequently if events or changes in
circumstances indicate that it is more likely than not to be impaired. Due to an interim triggering
event, the Company performed an additional quantitative impairment analysis as of December 1,
2021.
Auditing management’s goodwill impairment tests for the Company’s reporting unit was complex
and highly judgmental due to the significant measurement uncertainty in determining the fair value
of the reporting unit. In particular, the fair value estimates were sensitive to changes in significant
assumptions such as the discount rate, market multiples, projected revenue growth rates and projected
margin growth rates. These assumptions are affected by expectations about future market or
economic conditions and the impact of planned business and operation strategies.
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 goodwill impairment assessment process. For example, we tested controls over
the Company’s long range planning process as well as controls over management's review of the
valuation model and the significant assumptions used.
To test the estimated fair value of the Company’s reporting unit, we performed audit procedures that
included, among others, assessing the valuation methodologies used, testing the significant
assumptions described above and testing the completeness and accuracy of the underlying data the
Company used in its analyses. For example, we compared the projected revenue and margin growth
rates used in the valuations to forecasted industry and economic trends, analyst reports and peer
company information. We also evaluated management’s ability to accurately forecast by comparing
actual results to historical forecasts. We involved our valuation specialists to assist in our evaluation
of the Company’s determined weighted average cost of capital (WACC), which was used to
determine the discount rate applied to management’s cash flow projections, including performing a
comparative calculation of the WACC. To test the market multiples applied in the Company’s
calculations, we involved our valuation specialists to perform a comparative calculation by analyzing
the Company’s size, growth, and profitability in relation to selected guideline companies. We also
performed sensitivity analyses of significant assumptions to evaluate changes in the fair value that
would result from changes in the assumptions. In addition, we tested management’s reconciliation of
the fair value of the reporting unit to the market capitalization of the Company.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
New York, New York
February 28, 2022
F-3
TELADOC HEALTH, INC.
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of provision of $12,384 and $6,412, 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, net
Convertible senior notes, net
Commitments and contingencies (Note 13)
Stockholders’ equity:
$
893,480 $
2,537
168,956
73,079
87,387
1,225,439
27,234
14,504,174
1,910,278
46,780
20,703
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
$ 17,734,608 $ 17,755,281
$
47,257 $
102,933
91,941
75,569
13,313
0
331,013
1,492
41,773
3,834
9,291
75,777
1,225,671
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
Common stock, $0.001 par value; 300,000,000 shares authorized as of
December 31, 2021 and 2020; 160,469,325 shares and 150,281,099 shares issued
and outstanding as of December 31, 2021 and 2020, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive (loss) gain
Total stockholders’ equity
Total liabilities and stockholders’ equity
160
17,473,336
(1,421,454)
(6,285)
16,045,757
150
16,857,797
(992,661)
18,518
15,883,804
$ 17,734,608 $ 17,755,281
See accompanying notes to audited consolidated financial statements.
F-4
TELADOC HEALTH, INC.
Consolidated Statements of Operations and Other Comprehensive Loss
(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
Acquisition, integration, and transformation costs
General and administrative
Depreciation and amortization
Total expenses
Loss from operations
Loss on extinguishment of debt
Other (income) expense, net
Interest expense, net
Net loss before taxes
Income tax expense (benefit)
Net loss
Other comprehensive (loss) gain, net of tax:
Net change in unrealized gains on available-for-sale securities
Currency translation adjustment
Comprehensive loss
Net loss per share, basic and diluted
2021
Year Ended December 31,
2020
$
2,032,707 $ 1,093,962 $
2019
553,307
650,258
390,829
184,465
416,726
250,581
311,884
26,643
438,007
204,239
2,298,338
(265,631)
43,748
(5,088)
80,365
(384,656)
44,137
(428,793)
226,146
154,052
164,941
88,236
506,684
69,495
1,600,383
(506,421)
9,077
545
59,950
(575,993)
(90,857)
(485,136)
109,697
64,915
64,644
6,620
164,456
38,952
633,749
(80,442)
0
(342)
29,355
(109,455)
(10,591)
(98,864)
0
(24,803)
(453,596) $
0
35,757
(449,379) $
32
(4,201)
(103,033)
(2.73) $
(5.36) $
(1.38)
$
$
Weighted-average shares used to compute basic and diluted net loss
per share
156,939,349
90,509,229
71,844,535
See accompanying notes to audited consolidated financial statements
F-5
.
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F-6
TELADOC HEALTH, INC.
Consolidated Statements of Cash Flows
(in thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
$
(428,793) $ (485,136) $
(98,864)
Year Ended December 31,
2020
2019
2021
Depreciation and amortization
Depreciation of rental equipment
Amortization of right-of-use assets
Provision for doubtful accounts
Stock-based compensation
Deferred income taxes
Accretion of interest
Loss on extinguishment of debt
Gain on sale of investment
Other, net
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 provided by (used in) operating activities
Investing activities:
Capital expenditures
Purchase of software
Proceeds from marketable securities
Proceeds from the sale (purchase) of investment
Acquisitions of business, net of cash acquired
Other, net
Net cash (used in) provided by investing activities
Financing activities:
Net proceeds from the exercise of stock options
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 against advances from financing companies
Payment of assumed indebtedness
Proceeds from employee stock purchase plan
Cash received (paid) for withholding taxes on stock-based compensation, net
Other, 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
204,239
3,333
12,049
16,941
302,586
41,800
61,253
40,652
(5,901)
(3,845)
(17,510)
(31,090)
(19,494)
(3,547)
1,188
18,175
(4,675)
20,554
(16,532)
2,607
193,990
(8,534)
(55,400)
50,000
10,901
(78,663)
8,715
(72,981)
69,495
1,697
6,895
5,284
475,531
(90,158)
45,296
9,077
0
(1,009)
(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)
2,496
0
(567,429)
0
(590,975)
25,781
0
0
(139)
0
15,275
(16,050)
0
16,810
3,422
(4,152)
40,947
161,956
(1,800)
733,324
893,480 $
54,314
1,000,000
(24,070)
(228,153)
91,659
6,002
(8,635)
(10,000)
4,722
(26,703)
0
859,136
214,650
4,321
514,353
733,324 $
38,952
0
6,000
2,665
66,702
(10,868)
25,438
0
0
1,248
(15,884)
(2,685)
0
(105)
905
10,026
4,546
4,815
(2,417)
(605)
29,869
(3,510)
(7,390)
52,100
(5,000)
(11,187)
0
25,013
33,283
0
0
0
0
0
0
0
3,380
(1,569)
0
35,094
89,976
388
423,989
514,353
3,974 $
1,324 $
1,310
$
$
Income taxes paid
Interest paid
See accompanying notes to audited consolidated financial statements.
$
16,430 $
14,890 $
12,224
F-7
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 whole person virtual care focused on forging a new healthcare experience
with better convenience, outcomes and value 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 chronic healthcare for individuals around
the world.
On July 1, 2020, the Company completed the acquisition of InTouch Technologies, Inc. (“InTouch”), a leading
provider of enterprise telehealth solutions for hospitals and health systems.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared in accordance with the United States (“U.S.”)
generally accepted accounting principles (“GAAP”). The consolidated financial statements include the results of Teladoc
Health, as well as three professional associations and twelve professional corporations (collectively, the “THMG
Association”).
Teladoc Health Medical Group, P.A., formerly Teladoc Physicians, P.A. (“THMG”) is party to several Services
Agreements by and among it and the professional corporations pursuant to which each professional corporation provides
services to THMG. 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 THMG Association which contracts with physicians and other
health professionals in order to provide services to Teladoc Health. The THMG 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 THMG Association and funds and absorbs all losses of
the VIE and appropriately consolidates the THMG Association.
Total revenue and net income (loss) for the VIE were $230.2 million and $(1.6) million, $203.9 million and
$2.1 million and $83.6 million and $(3.2) million for the years ended December 31, 2021, 2020 and 2019, respectively.
The VIE’s total assets, all of which were current, were $58.5 million and $32.0 million at December 31, 2021 and 2020,
respectively. The VIE’s total liabilities, all of which were current, were $94.7 million and $66.6 million at December 31,
2021 and 2020, respectively. The VIE’s total stockholders’ deficit was $36.1 million and $34.6 million at December 31,
2021 and 2020, respectively.
All intercompany transactions and balances have been eliminated.
F-8
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 stockholders, 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 and economic 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 the Consolidated Statement of Operations, and if material, are also disclosed in
the Notes to Consolidated Financial Statements. Significant estimates and assumptions by management affect areas
including the allowance for doubtful accounts, the carrying value of long - lived assets (including goodwill and intangible
assets), the useful life of intangible assets, the capitalization and amortization of software development costs, deferred
costs, and the accounting for business combinations. Other significant areas include revenue recognition (including
Client performance guarantees), the accounting for income taxes, contingencies, litigation and related legal accruals, and
the accounting for stock-based compensation awards.
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.
F-9
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) (“Accounting Standards Codification (“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 our customers, consist of
employers, health plans, hospitals and health systems, insurance, and financial services companies (collectively
“Clients”) as well as individual members, 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, the Company satisfies 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 (“PMPM”) access fee as well as certain
contracts also include additional revenue on a per-virtual healthcare visit basis for general medical, or other specialty
visits or 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 (“D2C”) mental health product, U.S. paid 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 access fees that are recognized as services are rendered and
earned under subscription agreements with Clients that are based on a per participant per month model, using 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 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 equipment consisting of virtual
health devices which allow physicians to access the Company’s hosted virtual healthcare 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 devices are rented to certain qualified Clients that qualify as
either sales-type lease or operating lease arrangements and are subject to lease accounting guidance.
F-10
The Company records 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 generally 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, for contracts where revenue is generated on a per healthcare visit basis, revenues are recognized when the
visits are completed. 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, in advance or in arrears
depending on the service, 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 include 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 D2C mental 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 $26.0 million, $11.2 million, and $3.6 million for the years
ended December 31, 2021, 2020, and 2019, 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. Performance
guarantees are estimated at each reporting period based on the Company’s historical performance of the underlying
criteria or the customer’s specific performance as of that reporting date. Any estimated adjustments to the contract price
for achieving or not achieving the performance guarantee are recognized as an adjustment to revenue in the period. For
the years ended December 31, 2021, 2020, and 2019, revenue recognized from performance obligations related to prior
periods for the changes in transaction price or Client performance guarantees was $5.6 million, $1.9 million, and $0.8
million, respectively.
The Company has elected the optional exemption to not disclose the remaining performance obligations of its
contracts since the majority 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 to the consolidated
financial statements.
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.
F-11
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. A portion of 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. The amounts subject to the services period are amortized in sales expense 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, which is 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.
Technology and Development
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
(whereas costs directly associated with changes in revenue are presented separately in cost of revenues), licensed
applications, and stock-based compensation for our technology and development employees. Our technology and
development expenses exclude certain allocations of occupancy expense, capitalized software development costs, and
depreciation and amortization.
Research and Development Costs
Research and development costs include costs of new product development, costs to add new features or
improve reliability or scalability of existing applications, and other software development and engineering costs to the
extent that they are not capitalized. The research and development expenses may enable future revenue growth but are
not directly related to changes in current revenues. Research and development costs are recorded as a component of
technology and development in the Company’s consolidated statements of operations.
For the years ended December 31, 2021, 2020 and 2019, research and development of $205.3 million, $110.8
million, and $23.6 million, respectively, was recognized in the Company’s consolidated statements of operations in
technology and development.
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 of $893.5 million at December 31, 2021. The Company’s cash and cash equivalents generally
consist of investments in money market funds. Cash and cash equivalents are stated at fair value.
F-12
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
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 potentially 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 obsolescence, 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
Rental equipment
Operating Leases
3 years
5 years
Shorter of the lease term or the estimated useful lives of the improvements
4.3 years
The Company adopted the new leases standard set forth under ASC 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. See Note 13 to the consolidated financial statements for further information.
Leases of Hosted Virtual Healthcare Platform
The Company rents its hosted virtual healthcare platform for certain Clients under arrangements that qualify
primarily as 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 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 whether: (1) ownership of the virtual
healthcare 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 healthcare 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 healthcare device, (4) the present value of the sum of the lease payments
equals or exceeds substantially all of the fair value of the virtual healthcare device, and (5) it is expected that there will
be no alternative use for the virtual healthcare device at the end of the lease term.
The Company generally recognizes revenue for virtual healthcare devices in sales-type leases at a point in time
upon shipment by the Client provided all other revenue recognition criteria have been met and these leases are not
F-13
material. For operating lease arrangements, revenue for the virtual healthcare 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 healthcare 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 maintenance activities are expensed as incurred.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the total purchase consideration over the fair value of the identifiable assets
acquired and liabilities assumed in a business combination. Goodwill is not amortized but is tested for impairment at the
reporting unit level annually on October 1 or more frequently if events or changes in circumstances indicate that it is
more likely than not to be impaired. The Company currently operates as a single reporting unit under the guidance in
ASC 350, “Intangibles- Goodwill and Other.”
When testing goodwill for impairment, we have the option of first performing a qualitative assessment to
determine whether it is more likely than not that the fair value of our total company reporting unit is less than its carrying
amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not
that carrying value exceeds its fair value, we perform a quantitative goodwill impairment test. Under the quantitative
goodwill impairment test, if our reporting unit’s carrying amount exceeds its fair value, we will record an impairment
charge based on that difference.
To determine reporting unit fair value as part of the quantitative test, we use a weighting of fair values derived
from the income approach and the market approach. Under the income approach, we project our future cash flows and
discount these cash flows to reflect their relative risk. The cash flows used are consistent with those the Company uses in
its internal planning, which reflects actual business trends experienced and our long-term business strategy. As such, key
estimates and factors used in this method include, but are not limited to, revenue, margin and operating expense growth
rates; as well as a discount rate and a terminal growth rate.
Under the market approach to determining reporting unit fair value, the guideline company method develops
valuation multiples by comparing our reporting unit to similar publicly traded companies. In order to further validate the
reasonableness of fair value as determined by the income and market approaches described above, a reconciliation to
market capitalization is then performed by estimating a reasonable control premium and other market factors.
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 these definite-
lived intangible assets over their estimated useful lives and review the estimated 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
F-14
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.
Definite-lived intangible assets are re-evaluated whenever events or changes in circumstances indicate that their
estimated useful lives may require revision and/or carrying value of the related asset group may not be recoverable by its
projected undiscounted cash flows. If the carrying value of the asset group is determined to be unrecoverable, an
impairment charge would be recognized in an amount equal to the amount by which the carrying value of the asset group
exceeds its fair value.
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 the financial accounting standards board (“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. Refer to Recently Issued
Accounting Pronouncements.
Stock - Based Compensation
Stock - based compensation for stock options and restricted stock units (“RSUs”) 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 (“PSUs”) 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
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.
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 upfront 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 upfront payments are reported as advances from financing companies in the accompanying consolidated balance
F-15
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
Our income tax expenses, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect
management's best assessment of estimated current and future taxes to be paid. The objectives for accounting for income
taxes, as prescribed by the relevant accounting guidance, are to recognize the amount of taxes payable or refundable for
the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in
the financial statements. Deferred income taxes reflect the tax effect of temporary differences between asset and liability
amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax
purposes. These deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by taxing authorities, including resolution of any related appeals or litigation processes,
based on the technical merits of the position. The assumptions about future tax consequences require significant
judgment and variations in the actual outcome of these consequences could materially impact our results of operations.
We recognize tax liabilities based on estimates of whether additional taxes and interest will be due. We adjust these
liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because
of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially
different from our current estimate of the tax liabilities. Interest and penalties, if any, related to accrued liabilities for
potential tax assessments are included in income tax expense. As of December 31, 2021, we had approximately $110.8
million of gross unrecognized tax benefits.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit
will not be realized. Determination of valuation allowances recorded against deferred tax assets requires significant
judgment and use of assumptions, including past operating results, estimates of future taxable income and the feasibility
of tax planning strategies. To the extent that new information becomes available which causes the Company to change its
judgment regarding the adequacy of existing valuation allowances, such changes to tax liabilities will impact income tax
expense in the period in which such determination is made. In 2020, we released a portion of the valuation allowance
against the deferred tax assets attributable to our U.S. net operating losses (“NOLs”) as the acquired intangibles from the
InTouch 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. In 2021, upon filing its U.S. federal and state tax returns for the year ended
December 31, 2020, the Company updated its deferred tax asset for NOLs and the related valuation allowance to reflect
the amounts included on the tax returns and the current year losses. At the end of the year, the valuation allowance is
$335.8 million.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component
of tax expense.
Comprehensive Loss
Comprehensive loss consists of net loss and unrealized gains or losses on short-term investments and currency
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-16
Advertising and Marketing Expenses
Advertising and marketing are primarily expensed as incurred and includes all communications and campaigns
to the Company’s Clients, members and D2C digital and media advertising. For the years ended December 31, 2021,
2020, and 2019, advertising expenses were $297.0 million, $165.0 million, and $88.8 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, 2021, 2020, or 2019.
No Client represented over 10% of accounts receivable at December 31, 2021 or 2020.
Revenue from Clients located in the United States for the year ended December 31, 2021, 2020, and 2019 were
$1,774.0 million, $913.7 million and $423.3 million, respectively. Revenue from Clients located outside the United
States for the year ended December 31, 2021, 2020 and 2019 were $258.7 million, $180.2 million, and $130.0 million,
respectively.
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 the current year, or the start of each year, a high
concentration of the Company’s 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. Additionally, the
Company’s business has become more diversified across services, channels, and geographies. The Company continues to
see a diversification of Client start dates, resulting from the Company’s 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, the Company typically experiences its 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 its provider network services relative to the other quarters of the year. However, during the
COVID-19 pandemic in 2021 and 2020, the Company did not experience the typical seasonality associated with national
cold and flu outbreaks.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—"Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for
convertible instruments by eliminating the conversion option separation model for convertible debt that can be settled in
cash and by eliminating the measurement model for beneficial conversion features. Convertible instruments that continue
to be subject to separation models are (1) those with conversion options that are required to be accounted for as
bifurcated derivatives and (2) convertible debt instruments issued with substantial premiums for which the premiums are
recorded as paid-in capital. This ASU also requires entities to use the if-converted method for all convertible instruments
in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled
in cash or shares, except for certain liability-classified share-based payment awards. This standard becomes effective for
F-17
the Company on January 1, 2022. Due to the elimination of the conversion option separation model in 2022, the adoption
of this standard will result in a reduction in the non-cash component of interest expense for companies that recorded a
note discount arising from the application of the separation model. The Company will adopt the new standard by the
modified retrospective method, with resulting transition adjustments recorded to the January 1, 2022 balance of retained
earnings to be reflected in its Form 10-Q for the first quarter of 2022. Due to the elimination of the conversion option
separation model taking effect in 2022, the Company currently anticipates a reduction of approximately $58 million in
non-cash interest to be recorded on its convertible notes for the year ended December 31, 2022, as compared to the year
ended December 31, 2021.
Note 3. Revenue, Deferred Revenue, Deferred Costs and Other
The Company generates access fees from Clients accessing its professional provider network, hosted virtual
healthcare platform or chronic care management platforms. Visit fee revenue is generated for general medical, expert
medical service and other specialty visits. In addition, other revenue is primarily associated with virtual healthcare device
equipment included with the Company’s hosted virtual healthcare platform. Access revenue accounted for approximately
85% of our total revenue for the year ended December 31, 2021, 78% of our total revenue for the year ended
December 31, 2020, and 82% of our total revenue for the year ended December 31, 2019.
The following table presents the Company’s revenues disaggregated by revenue source (in thousands):
Year Ended December 31,
2020
2019
2021
Access Fees Revenue
U.S.
International
Total
Visit Fee Revenue
U.S.
International
Total
Other
U.S.
International
Total
Total Revenues
$ 1,488,420 $ 678,168 $ 334,675
119,531
454,206
243,585
1,732,005
168,491
846,659
241,515
12,719
254,234
211,664
10,388
222,052
88,669
10,432
99,101
44,089
2,379
46,468
23,888
1,363
25,251
-
-
-
$ 2,032,707 $ 1,093,962 $ 553,307
During the fourth quarter of 2021, the Company refined its definition of international revenues to reflect all
international revenues based on location of the customer. Previously, D2C activities were primarily reflected based on
the location of operations. In addition, certain activities related to the Company’s international operations are now
reflected in visit revenues versus access fee revenues. Prior period amounts have been recast to conform with current
presentation.
Deferred Revenue
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. Deferred revenue, current and long-term, was $79.4 million at December 31, 2021 and
$54.8 million at December 31, 2020. The net increase of $24.6 million and $40 million in the deferred revenue balance
for the years ended December 31, 2021 and 2020, respectively, is primarily driven by the D2C mental health product and
cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenue
F-18
recognized that were included in the deferred revenue balance at the beginning of the period in 2021, and the impact
from acquisitions in 2020. 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 years ended December 31,
2021 and 2020 that was included in deferred revenue at the beginning of the periods was $51.0 million and $12.5
million, respectively.
We expect to recognize $73.1 million and $3.1 million of revenue in 2022 and 2023, respectively, related to
future performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2021.
Deferred Costs and Other
Deferred costs and other as of December 31, 2021 and 2020 consisted of the following (in thousands):
Deferred costs and other, current
Deferred costs and other, noncurrent
Total deferred costs and other
Deferred costs and other activity were as follows (in thousands):
Beginning balance as of December 31, 2020
Additions
Cost of revenue recognized
Ending balance as of December 31, 2021
Note 4. Fair Value Measurements
As of December 31,
2021
22,304 $
6,249
28,553 $
2020
3,468
2,179
5,647
$
$
Deferred Costs and
Other
$
$
5,647
41,579
(18,673)
28,553
The carrying value of the Company’s 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.
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’s short-term investments held as of December 31, 2021 and 2020 consisted primarily of
certificates of deposit held at financial institutions. The amortized cost of these investments, which are classified as
Level 2, approximated their fair value.
F-19
The Company’s investments in equity securities without readily determinable fair values are classified as a
component of Other assets and are accounted for under the measurement alternative of the FASB ASU No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities, 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 measured 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.
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
Cash and cash equivalents
Short-term investments
Equity securities without readily determinable fair values
Contingent liability
December 31, 2021
Level 2
Level 3
Level 1
$ 893,480
$
$
0 $
$
0
2,537 $
Total
$ 893,480
2,537
0
0 $
Level 1
$ 733,324
$
$
$
December 31, 2020
Level 2
Level 3
$
0 $
0 $
0 $
$
0
53,245 $
5,000 $
0 $
0
0 $
0 $
4,514 $
Total
$ 733,324
53,245
5,000
4,514
There were no transfers between fair value measurement levels during the years ended December 31, 2021 and
The change in fair value of the Company’s equity securities without readily determinable fair values was as
2020.
follows:
Fair value and historical cost basis at December 31, 2020
Increase due to observable price change in identical securities
Sale of investment
Fair value at December 31, 2021
$
$
5,000
5,901
(10,901)
0
The change in fair value of the Company’s contingent liability is recorded in acquisition, integration, and
transformation 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, 2020
Payments
Currency translation adjustment
Fair value at December 31, 2021
Note 5. Business Acquisitions
$
$
4,514
(4,367)
(147)
0
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
F-20
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 final
consideration, after certain adjustments discussed subsequently, was $13,876.9 million, consisting of $380.2 million of
net cash, $555.4 million related to the conversion feature of the Livongo Notes guaranteed by the Company, and 60.2
million shares of Teladoc Health’s common stock valued at approximately $12,941.3 million on October 30, 2020. Final
purchase price allocations resulted in the following intangibles:
Balance at
Acquisition Estimated Average
Intangible Asset
Customer Relationships
Technology
Trademarks
(in millions)
$ 1,050
300
$
250
$
Useful Lives
Valuation Methodology
15.7 years Income Approach: Multi Period Excess Earnings Method
7 years Income Approach: Relief from Royalty Method
10 years Income Approach: Relief from Royalty Method
The Livongo customer relationships typically have a three-year contractual term, but the estimated useful life
assumes renewals or extensions and considers historical attrition rates.
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, integration, and transformation costs.
In the first quarter of 2021, the Company identified 205,279 of additional shares of Teladoc Health common
stock that were included as part of the merger consideration (“Excess Shares”) and 85,481 of additional shares of
Teladoc Health common stock that were not withheld from the merger consideration for withholding tax purposes
(“Withholding Shares”). In addition, the Company identified $5.6 million of merger- related cash payments related to the
Excess Shares (“Cash Overpayments”). The Company recovered and cancelled all 205,279 of the Excess Shares and
recovered the Cash Overpayments in the form of cash. The Company withheld applicable employment taxes at the time
of the merger on the Withholding Shares. These same taxes also were paid directly by the employee; the Company has
since submitted an amended payroll tax filing to recover the overpaid tax, and is currently awaiting processing by the tax
authorities. The Company did not incur any material charges or expenses related to the recovery of the Withholding
Shares. Accordingly, the Company recorded, in the first quarter of fiscal year 2021, an increase to receivables in current
other assets of $20.8 million, a decrease to consolidated stockholders’ equity of $40.3 million and a decrease to goodwill
of $61.1 million.
In 2021, the Company reduced goodwill by $66.5 million to record final acquisition date valuation allowance
and uncertain tax positions related to stock-based compensation and research and development credits.
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 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 and were recognized in the Company’s consolidated statement
of operations in acquisition, integration and transformation costs.
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 included within the consolidated financial statements commencing
on the respective acquisition dates.
F-21
The following table summarizes the fair value estimates of the assets acquired and liabilities assumed for the
Livongo and InTouch acquisitions. The Company, with the assistance of a third-party valuation expert, estimated the fair
value of the acquired tangible and intangible assets with significant estimates such as revenue projections.
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
Livongo
$ 13,876,931 $
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)
(73,010)
(18,834)
(46,606)
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
Goodwill
$ 12,790,869 $
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.
The Company’s pro forma revenue and net loss for the year ended December 31, 2020 below have been
prepared as if Livongo and InTouch had been purchased on January 1, 2020. As such, the Company made pro-forma
adjustments related to deferred revenue, deferred costs, amortization of intangible assets, interest expense, stock-based
compensation, acquisition costs and transaction expenses for the purpose of this presentation.
(in thousands)
Revenue
Net loss
Unaudited Pro Forma
Year Ended
December 31,
$
$
2020
1,441,834
(882,411)
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.
F-22
Note 6. Inventories
Inventories consisted of the following (in thousands):
Raw materials and purchased parts
Work in process
Finished goods
Total inventories
Note 7. Property and Equipment, Net
Property and equipment, net, consisted 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,
2021
2020
$
$
26,164
313
46,602
73,079
$
$
19,591
1,431
35,476
56,498
As of December 31,
2021
2020
$
$
28,330 $
7,104
12,983
11,018
1,929
61,364
(34,130)
27,234 $
22,129
6,486
12,831
8,413
657
50,516
(21,965)
28,551
Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $8.9 million, $4.8 million,
and $3.4 million, respectively.
As of December 31, 2021 and 2020, other assets included $2.4 million and zero, respectively, of capitalized
cloud computing implementation costs related to the Company's enterprise resource planning and reporting software.
F-23
Note 8. Intangible Assets, Net
Intangible assets, net consisted of the following (in thousands):
Useful
Life
Gross Value
Accumulated Net Carrying
Amortization
Value
Weighted
Average
Remaining
Useful Life
(Years)
December 31, 2021
Client relationships
Non-compete agreements
Trademarks
Patents
Software
Technology
Intangible assets, net
December 31, 2020
Client relationships
Non-compete agreements
Trademarks
Patents
Software
Technology
Intangible assets, net
2 to 20 years $ 1,465,926 $ (199,866) $ 1,266,060
0
1.5 to 5 years
3 to 15 years
280,837
0
3 years
3 to 5 years
85,421
277,960
5 to 7 years
$ 2,266,943 $ (356,665) $ 1,910,278
(4,975)
(45,555)
(200)
(40,767)
(65,302)
4,975
326,392
200
126,188
343,262
2 to 20 years $ 1,460,648 $ (100,844) $ 1,359,804 `
225
1.5 to 5 years
3 to 15 years
311,210
0
3 years
3 to 5 years
27,747
321,878
5 to 7 years
$ 2,183,399 $ (162,535) $ 2,020,864
(4,872)
(15,576)
(200)
(24,771)
(16,272)
5,097
326,786
200
52,518
338,150
14.5
9.5
2.7
5.6
12.0
15.4
0.4
10.5
2.8
6.6
13.1
Refer to Note 9 to the consolidated financial statements for the results of impairment testing of our intangible
assets including goodwill.
Amortization expense for intangible assets net of foreign currency remeasurement for intangible assets was
$195.3 million, $64.7 million, and $35.6 million for the years ended December 31, 2021, 2020, and 2019, respectively.
Periodic amortization that will be charged to expense over the remaining life of the intangible assets as of
December 31, 2021 was as follows (in thousands):
Years Ending December 31,
2022
2023
2024
2025
2026 and thereafter
$
206,602
210,494
205,595
181,729
1,105,858
$ 1,910,278
F-24
Note 9. Goodwill
Goodwill consisted of the following (in thousands):
Beginning balance as of December 31, 2020 and 2019, respectively
Additions associated with acquisitions
Purchase consideration adjustments (see Note 5)
Deferred tax adjustments (see Note 5)
Currency translation adjustment
Ending balance as of December 31, 2021 and 2020
As of December 31,
2021
14,581,255
64,269
(55,801)
(66,505)
(19,044)
14,504,174
2020
746,079
13,812,198
0
0
22,978
14,581,255
$
$
$
$
There were no impairment charges recorded for our goodwill or definite-lived intangible assets for the years
ended December 31, 2021, 2020 or 2019. As a result of sustained decreases to our Company share price following our
annual impairment test on October 1, 2021, we concluded a triggering event had occurred and conducted impairment
testing of our goodwill, definite-lived intangibles and other long-lived assets as of December 1, 2021. As a result of this
review, each of the asset groups identified for the purposes of testing the recoverability of our definite-lived intangibles
and other long-lived assets passed the recoverability test by a significant margin. As it related to impairment testing of
goodwill, the fair value of our reporting unit exceeded its carrying value by approximately 15% on December 1, 2021.
Note 10. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
Professional fees
Consulting fees/provider fees
Client performance guarantees
Interest payable
Income tax payable
Insurance
Marketing
Operating lease liabilities - current
Earnout
Franchise and Sales Taxes
Device Replacement Cost
Other
Total
As of December 31,
2021
5,373 $
19,292
7,653
1,480
3,098
3,884
3,471
12,687
0
9,965
6,263
29,767
102,933 $
2020
4,717
23,167
7,215
2,049
1,627
3,139
2,815
11,438
4,514
2,099
0
20,877
83,657
$
$
F-25
Note 11. Convertible Senior Notes
Outstanding Convertible Senior Notes
As of December 31, 2021, the Company had three series of convertible senior notes outstanding. The issuances
of such notes originally consisted of (i) $1 billion aggregate principal amount of 1.25% convertible senior notes due
2027 (the “2027 Notes”), issued on May 19, 2020 for net proceeds to the Company of $975.9 million after deducting
offering costs of approximately $24.1 million, (ii) $287.5 million aggregate principal amount of 1.375% convertible
senior notes due 2025 (the “2025 Notes”), issued on May 8, 2018 for net proceeds to the Company of $279.1 million
after deducting offering costs of approximately $8.4 million, and (iii) $550.0 million aggregate principal amount of
0.875% convertible senior notes due 2025 that were issued by Livongo on June 4, 2020 for which the Company has
agreed to guarantee Livongo’s obligations (the “Livongo Notes” and together with the 2027 Notes, the 2025 Notes and
the 2022 Notes (as defined below), the “Notes”). 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”), which were redeemed during
the quarter ended March 31, 2021 as described below.
The following table presents certain terms of the Notes that were outstanding as of December 31, 2021:
2027 Notes
2025 Notes
Livongo Notes
Interest Rate Per Year
Fair Value as of December 31, 2021 (in millions)
Maturity Date
Optional Redemption Date
Conversion Date
Share Conversion Rate Per $1,000 Principal Amount
as of December 31, 2021
Remaining Contractual Life as of December 31, 2021
$
1.25 %
$
940.0
June 1, 2027
June 5, 2024
December 1, 2026
1.375 %
$
1.3
May 15, 2025
May 22, 2022
November 15, 2024
0.875 %
605.0
June 1, 2025
June 5, 2023
March 1, 2025
4.1258
5.4 years
18.6621
3.4 years
13.94
3.4 years
All of the Notes are 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 such 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 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 the applicable conversion
date only under the following circumstances:
•
•
•
•
during any quarter (and only during such 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 quarter is greater than or equal to
130% of the conversion price for the applicable Notes on each applicable trading day;
during the five business day period after any ten consecutive trading day period (or five consecutive trading
day period in the case of the Livongo Notes) 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 applicable Notes on
each such trading day;
upon the occurrence of specified corporate events described under the applicable indenture; or
if the Company calls the applicable Notes for redemption, at any time until the close of business on the
second business day immediately preceding the redemption date.
On or after the applicable conversion date, until the close of business on the second scheduled trading day
immediately preceding the maturity date, holders may convert all or any portion of such Notes, regardless of the
F-26
foregoing circumstances.
The 2027 Notes and the 2025 Notes are convertible into shares of the Company’s common stock at the
applicable conversion rate shown in the table above. The Livongo Notes are convertible at the applicable conversion rate
shown in the table above into “units of reference property,” each of which is comprised of 0.5920 of a share of the
Company’s common stock and $4.24 in cash, without interest. Upon conversion, the Company will pay or deliver, as the
case may be, cash, shares of the Company’s common stock (or units of reference property, in the case of the Livongo
Notes) 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 or units of reference property, the amount of cash and shares of the Company’s common
stock or 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 25 consecutive trading days observation period (or 40 days in the case of
the Livongo Notes).
The Company may redeem for cash all or part of the Notes, at its option, on or after the applicable optional
redemption date shown in the table above (and prior to the 41st scheduled trading day immediately preceding the
maturity date in the case of the Livongo Notes) 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 Notes to be redeemed, plus accrued
and unpaid interest, if any. In addition, calling any 2027 Note or 2025 Note for redemption on or after the applicable
optional redemption date will constitute a make-whole fundamental change with respect to that 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 applicable indenture. 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.
In accounting for the issuance of the 2027 Notes, 2025 Notes and the 2022 Notes, the Company separated the
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 applicable 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 the
applicable maturity date. 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, 2025 Notes and 2022 Notes was $286 million,
$91.4 million and $62.4 million, respectively, net of issuance costs which were recorded in additional paid-in capital on
the accompanying consolidated balance sheet. The Company carries the liability component of the Livongo Notes at face
value less unamortized debt discount on its consolidated balance sheets and provides the fair value for disclosure
purposes only. The Company has reserved an aggregate of 8.7 million shares of common stock for the Notes.
In accounting for the transaction costs related to the issuance of the 2027 Notes, 2025 Notes and 2022 Notes,
the Company allocated the total costs incurred to the liability and equity components of the 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 Notes (or five-and-a-half year term in the case of the 2022 Notes), and transaction costs attributable to
the equity component are netted with the equity components in stockholders’ equity.
F-27
The liability component of the Notes consisted of the following (in thousands):
2027 Notes
Principal
Less: Debt discount, net (1)
Net carrying amount
2025 Notes
Principal
Less: Debt discount, net (1)
Net carrying amount
Livongo Notes
Principal
Less: Debt discount, net (1)
Net carrying amount
2022 Notes
Principal
Less: Debt discount, net (1)
Net carrying amount
As of December 31,
2021
$
$
1,000,000 $
(250,846)
749,154 $
2020
1,000,000
(287,916)
712,084
$
$
$
$
$
$
730 $
(166)
564 $
276,788
(65,923)
210,865
550,000 $
(74,047)
475,953 $
550,000
(93,357)
456,643
0 $
0
0 $
46,762
(4,202)
42,560
(1) Included in the accompanying consolidated balance sheet within convertible senior notes and amortized to
interest expense over the expected life of the Notes using the effective interest rate method. (See Note 2,
Recently Issued Accounting Pronouncements).
The Company estimates the fair value of its Notes utilizing market quotations for debt that have quoted prices in
active markets. Since the 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.
F-28
The following table sets forth total interest expense recognized related to the Notes (and in the case of the Livongo
Notes, subsequent to the acquisition of Livongo) (in thousands):
2027 Notes:
Contractual interest expense
Amortization of debt discount
Total
Year Ended December 31,
2021
$ 12,500
37,070
$ 49,570
2020
$ 7,743
21,756
$ 29,499
Effective interest rate of the liability component
3.4 %
3.4 %
2025 Notes:
Contractual interest expense
Amortization of debt discount
Total
Effective interest rate of the liability component
Livongo Notes:
Contractual interest expense
Amortization of debt discount
Total
Year Ended December 31,
2021
$ 1,082
4,558
$ 5,640
2020
$ 3,900
12,532
$ 16,432
2019
$ 3,953
11,706
$ 15,659
4.7 %
7.9 %
7.9 %
Year Ended December 31,
2021
$ 4,813
19,310
$ 24,123
2020
$
829
3,226
$ 4,055
Effective interest rate of the liability component
5.2 %
5.2 %
Year Ended December 31,
2022 Notes:
Contractual interest expense
Amortization of debt discount
Total
Effective interest rate of the liability component
$
$
Exchanges and Conversions of Convertible Senior Notes Due 2025
2021
116
316
432
9.6 %
2020
$ 4,047
7,553
$ 11,600
2019
$ 8,250
14,026
$ 22,276
9.6 %
9.6 %
In 2021, the Company entered into privately negotiated agreements with certain holders of the 2025 Notes to
exchange approximately $211.5 million aggregate principal amount of 2025 Notes for an aggregate of approximately 4.0
million shares of the Company’s common stock in private placement transactions pursuant to Section 4(a)(2) of the
Securities Act. In addition, certain holders of the 2025 Notes converted their 2025 Notes in exchange for approximately
1.1 million shares of the Company’s common stock during the year ended December 31, 2021. As a result of the
exchanges and conversions, the Company recorded a charge associated with the loss on extinguishment of debt net of
transaction fees of $40.3 million during the year ended December 31, 2021.
Redemption and Conversions of Convertible Senior Notes Due 2022
In March 2021, the Company completed a redemption of all of the then outstanding 2022 Notes in exchange for
approximately $0.1 million in cash (including accrued and unpaid interest). Prior to that redemption, certain holders of
the 2022 Notes converted their 2022 Notes in exchange for 1.1 million shares of the Company’s common stock during
the year ended December 31, 2021. As a result of the redemption and conversions, the Company recorded a charge
associated with the loss on extinguishment of debt of $3.4 million during the year ended December 31, 2021.
F-29
Note 12. 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, 2021 ranged from
3.35% to 8.25%.
Client lease payments to third-party financing companies will reduce the advances from financing companies as
of December 31, 2021 by year as follows:
2022
2023
2024
Note 13. Leases
Operating Leases
As of December 31,
2021
$
$
13,313
7,153
2,138
22,604
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 stated period of time. For new and amended leases beginning in 2020 and after, the Company
separately allocates 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, 2021
$
$
14,087
1,087
3
15,177
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, 2021
14,531
$
11,598
$
5.71
5.88%
F-30
The Company leases office space under non - cancelable operating leases in the United States and various
international locations. As of December 31, 2021, the future minimum lease payments under non - cancelable operating
leases were as follows (in thousands):
Operating Leases:
2022
2023
2024
2025
2026 and thereafter
Sub-total
Less: imputed interest
Minimum lease payments
As of December 31,
2021
$
$
$
15,021
14,981
9,871
7,232
18,659
65,764
11,304
54,460
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 14. 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.
Warrants
The Company had no warrants outstanding as of December 31, 2021 or 2020.
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 Plans”). 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.
All stock-based awards to employees are measured based on the grant date fair value, or replacement grant date
fair value in relation to the 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).
F-31
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 12,855,294 shares available for grant at December 31,
2021.
Activity under the Plans was as follows (in thousands, except share and per share amounts and years):
Balance at December 31, 2020
Stock option grants
Stock options exercised
Stock options forfeited
Balance at December 31, 2021
Vested or expected to vest at December 31, 2021
Exercisable at December 31, 2021
Number of
Shares
Weighted-
Average
Exercise
Outstanding
Price
Weighted-
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
5,826,685 $ 17.19
49,177 $ 151.24
(2,339,537) $ 11.00
(109,347) $ 29.03
3,426,978 $ 22.88
3,426,978 $ 22.88
3,176,543 $ 19.54
5.31 $ 1,064,944
N/A
N/A $ (431,572)
N/A
5.32 $
7.32 $
5.16 $
242,569
11,645
230,924
The total grant - date fair value of stock options granted during the year ended December 31, 2021, 2020 and
2019 was $7.4 million, $1,298.0 million and $4.7 million, respectively.
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.
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.
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.
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.
F-32
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:
Year Ended December 31,
Volatility
Expected term (in years)
Risk-free interest rate
Dividend yield
Weighted-average fair value of underlying stock options
2021
2020
56.1% - 58.1% 46.1% - 56.6%
4.1
4.1
0.31% - 1.02% 0.22%-1.64%
0
$67.37
$
0
$48.74
$
$
2019
46.8% – 47.6%
5.2
1.35% - 2.55%
0
28.37
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, 2021, 2020 and 2019, the Company recorded compensation expense related
to stock options granted of $93.0 million, $134.9 million, and $20.4 million, respectively.
As of December 31, 2021, the Company had $22.1 million in unrecognized compensation cost related to non-
vested stock options, which is expected to be recognized over a weighted average period of approximately 1.0 years.
Restricted Stock Units
The fair value of 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. The vesting period for
employees and members of the Board of Directors ranges from one to four years.
Activity under RSUs was as follows:
Weighted-Average
Grant Date
Balance at December 31, 2020
Granted
Vested and issued
Forfeited
Balance at December 31, 2021
Vested and unissued at December 31, 2021
Non-vested at December 31, 2021
RSUs
3,550,595 $
816,466 $
(1,419,426) $
(814,134) $
2,133,501 $
16,507 $
2,116,994 $
Fair Value Per RSU
162.11
174.64
139.32
183.89
168.43
71.96
168.43
The total grant - date fair value of RSUs granted during the years ended December 31, 2021, 2020 and 2019 was
$144.2 million, $801.0 million and $56.7 million, respectively.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded stock-based compensation
expense related to RSUs of $182.4 million, $314.1 million, and $30.5 million, respectively.
F-33
As of December 31, 2021, the Company had $293.2 million in unrecognized compensation cost related to
non - vested RSUs, which is expected to be recognized over a weighted - average period of approximately 1.1 years.
Performance Stock Units
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-assessed each reporting period based upon 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 they occur consistent with Company policy.
Activity under PSUs was as follows:
Balance at December 31, 2020
Granted
Vested and issued
Forfeited
Balance at December 31, 2021
Vested and unissued at December 31, 2021
Non-vested at December 31, 2021
Weighted-Average
Grant Date
Shares
429,319 $
531,309 $
(268,201) $
(336,178) $
356,249 $
0 $
356,249 $
Fair Value Per PSU
76.60
132.66
74.33
99.68
140.01
0
140.01
The total grant - date fair value of PSUs granted during the years ended December 31, 2021, 2020 and 2019 was
$70.4 million, $25.0 million, and $31.6 million, respectively.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded stock-based compensation
expense related to PSUs of $22.0 million, $24.0 million and $14.6 million, respectively.
As of December 31, 2021, the Company had $16.1 million in unrecognized compensation cost related to
non - vested PSUs, which is expected to be recognized over a weighted - average period of approximately 1.9 years.
Employee Stock Purchase Plan
In July 2015, the Company adopted the 2015 ESPP in connection with its initial public offering. Through
December 31, 2021, a total of 926,109 shares of common stock have been reserved for issuance under this plan. 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 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 2021 and 2020, the Company issued 122,059 shares and 49,781 shares, respectively, under the ESPP.
As of December 31, 2021, 477,044 shares remained available for issuance.
For the years ended December 31, 2021, 2020 and 2019, the Company recorded stock-based compensation
expense related to the ESPP of $5.2 million, $2.8 million, and $1.2 million, respectively.
As of December 31, 2021, the Company had $2.1 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.
F-34
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 were as follows (in thousands):
Year Ended December 31,
2020
2019
2021
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 (1)
$
8,280 $
18,952
71,475
95,561
108,318
0
4,956
10,286
7,573
43,887
$ 302,586 $ 475,531 $ 66,702
2,700 $
26,995
65,730
60,556
319,550
(1) Excluding the amount capitalized related to internal software development projects.
Note 15. Income Taxes
For financial reporting purposes, income (loss) before income taxes for the years ended December 31, 2021,
2020 and 2019 included the following components (in thousands):
Domestic
International
Total
2021
Year Ended December 31,
2020
$ (365,762) $ (566,266) $ (95,476)
(13,979)
$ (384,656) $ (575,993) $ (109,455)
(18,894)
(9,727)
2019
The provision (benefit) for income taxes was comprised of the following components:
2021
$
0 $
Year Ended December 31,
2020
(1,954) $
27
1,605
(322)
567
2,595
3,162
2019
239
300
(262)
277
49,008
(6,276)
(1,757)
40,975
(5,043)
(1,783)
(4,042)
(10,868)
$ 44,137 $ (90,857) $ (10,591)
(60,008)
(26,775)
(3,752)
(90,535)
Current federal
Current state
Current foreign
Total current
Deferred federal
Deferred state
Deferred foreign
Total deferred
Total provision (benefit)
F-35
A reconciliation of the statutory U.S. federal tax rate to the Company’s effective tax rate from continuing
operations is as follows:
Tax at federal statutory rate
State and local tax
Acquisition expenses
Stock compensation (1)
Non-deductible expenses
Foreign rate differential
Change in valuation allowance
Other
Effective tax rate
Year Ended December 31,
2020
2021
2019
21.0 %
7.7
2.0
6.7
(0.5)
0.2
(46.9)
(1.7)
(11.5) %
21.0 %
2.3
(2.2)
(1.1)
(0.1)
0.3
(5.4)
1.0
15.8 %
21.0 %
4.6
(0.4)
7.7
(0.2)
2.2
(25.3)
0.1
9.7 %
(1) The Company has updated the presentation of the rate reconciliation in 2021. Stock compensation has been
updated to include executive compensation. Previously, stock compensation and executive compensation were
shown separately.
The Company’s deferred tax assets and liabilities consisted of the following (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Accrued expenses and compensation
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
Deferred revenue
Other
Deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Debt related
Operating lease liabilities
Depreciation of property and equipment
Intangible assets
Other (2)
Deferred tax liabilities
Net deferred tax liabilities
As of December 31,
2021
2020
$ 687,679 $ 497,603
7,016
94,029
5,727
14,666
83
6,620
13,978
2,917
3,290
645,929
(107,984)
537,945
5,413
63,641
4,814
1,320
56
11,528
13,575
7,946
7,032
803,004
(335,810)
467,194
(73,378)
(11,842)
(3,427)
(452,049)
(2,275)
(542,971)
(105,063)
(12,117)
(2,476)
(519,397)
(995)
(640,048)
$ (75,777) $ (102,103)
(2) The Company has updated the presentation of the deferred tax liability item of prepaid insurance and deferred
commissions in 2021. As the amounts were immaterial, the Company is presenting this item in “Other”.
As of December 31, 2021, the Company had approximately $2,775.2 million of federal NOL carryforwards,
$1,708.1 million of state NOL carryforwards, and $57.8 million of foreign NOL carryforwards. The federal NOL
carryforwards generated prior to December 31, 2017 of $555.4 million will begin to expire in 2024. The remaining
NOLs generated from January 1, 2018 of $2,219.8 million will carry forward indefinitely. The state and foreign NOL
F-36
carryforwards began expiring in 2021. As of December 31, 2021, the Company had approximately $4.8 million of
foreign tax credits, which began expiring in 2021. As of December 31, 2021, the Company had approximately $0.5
million of federal research and development credits, which will begin to expire in 2022, and $0.8 million of state
research and development credits, which can be carried forward indefinitely.
As of December 31, 2021, the Company had a valuation allowance of approximately $335.8 million against a
portion of the U.S. and certain foreign deferred tax assets, for which realization cannot be considered more likely than
not at this time. The valuation allowance increased by $227.9 million from the beginning of the year, of which,
approximately $48.5 million was primarily recorded in purchase accounting related to the pre-acquisition NOLs from
Livongo. The remaining incremental amount of $179.4 million results in current year tax expense, primarily related to
current period losses and a non-cash tax charge resulting from additional stock-based compensation benefits related to
the acquisition of Livongo.
The Company provision for income taxes includes the impact of reserves and a reconciliation of the beginning
and ending amount of unrecognized tax benefits was as follows (in thousands):
Balance on January 1, 2021
Additions assumed in a business combination
Additions based on prior year tax positions
Additions based on current year tax positions
Release
Balance on December 31, 2021
$
$
21,362
59,110
43,399
1,490
(14,513)
110,848
The amount of unrecognized tax benefits as of December 31, 2021 that, if recognized, would reduce tax
expense was approximately $110.8 million.
The Company does not anticipate any of its unrecognized tax benefits to be settled within the next 12 months.
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 is open under the U.S. federal statute from 2017 to the present,
although earlier years may be examined to the extent that loss carryforwards are used in open audit periods. The
Company is currently under audit in a single foreign tax jurisdiction. 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. We
further believe that we have made adequate provision for all income tax uncertainties.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component
of tax expense.
The Company’s consolidated financial statements provide for any related tax liability on amounts that may be
repatriated, aside from undistributed earnings of $7.3 million for certain of the Company’s foreign subsidiaries that are
intended to be indefinitely reinvested in operations outside the U.S. as of December 31, 2021. The amount of any
unrecognized deferred tax liability on these undistributed earnings would be immaterial.
Note 16. 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 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 3.4
million outstanding stock options, 2.1 million outstanding RSUs, 0.4 million outstanding PSUs, and 0.1 million issuable
shares of common stock associated with the ESPP.
F-37
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,
2020
2019
2021
Net loss
Weighted-average shares used to compute basic and diluted net loss per share
Net loss per share, basic and diluted
$ (428,793) $ (485,136) $ (98,864)
71,845
(1.38)
156,939
(5.36) $
(2.73) $
90,509
$
Note 17. 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 $11.3 million, $4.9 million, and $3.2
million during the years ended December 31, 2021, 2020 and 2019, respectively.
Note 18. Legal Matters
From time to time, Teladoc Health is involved in various litigation matters arising in 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. As of the date of these financial statements, Teladoc Health’s management does not expect any
litigation matter to have a material adverse impact on its 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 (the “TCPA”) by sending unsolicited facsimiles to plaintiff and certain other recipients without the
recipients’ 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 August 27, 2021, a purported securities class action complaint (City of Hialeah Employees’ Retirement
System v. Teladoc Health, Inc., et.al.) was filed in the Circuit Court of Cook County, Illinois against the Company and
certain of the Company’s current and former officers and directors. The complaint was brought on behalf of a purported
class consisting of all persons who acquired shares of Teladoc Health common stock issued in the Livongo merger. The
complaint asserted violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 based on allegedly false or
misleading statements and omissions with respect to the registration statement and prospectus filed in connection with
the Livongo merger. The complaint sought certification as a class action, unspecified compensatory damages plus
interest and attorneys’ fees, rescission or a rescissory measure of damages and equitable or other relief. On January 18,
2022, the case was voluntarily dismissed without prejudice in the Circuit Court of Cook County, Illinois and on
January 26, 2022, was refiled in the Supreme Court of the State of New York. The refiled case includes substantially the
same allegations. The Company believes that these claims are without merit, and the Company and its named current and
former officers and directors intend to defend the Company vigorously.
F-38
Corporate information
STOCK LISTING
DIRECTORS
Teladoc Health common stock is traded on the
David B. Snow, Jr. (Chairman)
Christopher Bischoff
Karen L. Daniel
Sandra L. Fenwick
William H. Frist, M.D.
Jason Gorevic
Catherine A. Jacobson
Thomas G. McKinley
Kenneth H. Paulus
David L. Shedlarz
Mark D. Smith, M.D., MBA
EXECUTIVE OFFICERS
Jason Gorevic
Chief Executive Officer
Arnnon Geshuri
Chief People Officer
Claus T. Jensen, PhD
Chief Innovation Officer
Mala Murthy
Chief Financial 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
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, New York 10577
203-635-2002
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
One Manhattan West
401 9th Avenue
New York, New York 10001
CORPORATE WEBSITE
TeladocHealth.com
LEARN MORE
TeladocHealth.com | 203-635-2002 | NYSE: TDOC
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 (Non-EMR) in 2022 and
#1 in Telehealth Satisfaction with Direct-to-Consumer Providers in the 2021 U.S. Telehealth Satisfaction Study, 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 TeladocHealth.com or follow @TeladocHealth on Twitter.
Teladoc Health offers clients a broad spectrum of high-quality virtual care solutions to meet the healthcare needs of patients on a global scale.
© Teladoc Health, Inc. All rights reserved.
LEARN MORE
TeladocHealth.com | 203-635-2002
NYSE: TDOC
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