Summary
Teladoc Health, Inc. reported Q2 2023 results with a double beat.
The telehealth provider hinted at an easier market opportunity with reduced competition and a desire for healthcare providers to consolidate the market leader.
The stock is still cheap at ~13x forward adjusted EBITDA targets.
Moyo Studio
Teladoc Health, Inc. $Teladoc Health Inc.(TDOC)$ has faced a difficult year, but the telemedicine provider is starting to show promising signs of a return to sustainable growth. The company faced intense competitive pressure due to Covid excitement for virtual care while demand plunged once doctor offices reopened. My investment thesis is ultra Bullish on the stock, even though the stock is already up sharply after the quarterly results.
Source: Finviz
More Than The Numbers
Teladoc Health reported a Q2 that beat estimates, but the important details were the statements about the business from the CEO during the earnings call. The telehealth provider reported the following numbers:
Source: Seeking Alpha
The GAAP numbers aren't overly useful, though. The key is that Teladoc Health reported Q2 adjusted EBITDA of $72 million and free cash flow of $64 million.
The far more useful financial metric is the cash flows, which are far closer to the EBITDA figure than the GAAP earnings. The GAAP loss includes $75 million in mostly amortization charges and another $56 million in stock-based compensation non-cash charges that aren't useful for valuing the business.
The revenue growth was solid at over 10%, but the growth all came virtually from the BetterHelp mental health segment where Teladoc spends heavily on marketing to acquire members. The key Integrated Care business only grew 5% during Q2'23 to $360 million.
Both units are now virtually even on EBITDA profits. The Integrated Care business produced a $38 million adjusted EBITDA and BetterHelp jumped 71% YoY to $34 million in adjusted EBITDA.
A big key to the drastically improving profits was this reduced competitive indication from CEO Jason Gorevic on the Q2'23 earnings call:
As access to capital has become tighter, some startups are struggling and companies of all size are being forced to do more with less. This is yet another factor causing more clients to explore vendor consolidation, because they want a strong, stable partner who can drive innovation and deliver real value over the long term. This means working with a partner that has a solid financial foundation.
Another indication of the prospects provided for the Integrated Care business is that Teladoc is viewed as a potential partner to control potentially spiraling drug costs for clients. On the Q2'23 earnings call, the CEO claims clients want to work with the teleheath platform on chronic conditions with an eye towards the new weight management program:
Clients are also talking to us about challenges of managing the cost of GLP-1 drugs. These drugs were originally designed to treat diabetes, but have since been found to help patients lose weight. Employers in health plans want to meet rising consumer demand, but in a way that doesn't break the bank.
The recent launch of GLP-1 weight loss drugs come with huge promises, but also massive costs. Teladoc believes the platform can work with clients and members to isolate the customers most likely to benefit from the costly weight loss drugs while less at risk members can utilize the weight management program to achieve similar results.
As an example, Ozempic from Novo Nordisk A/S $Novo-Nordisk A/S(NVO)$ is estimated to cost $10,000 a year per person and Wegovy can cost $1,000 per month for cash payers. Teladoc Health is expected to launch their weight loss program later this year.
Bouncing Off The Lows
Teladoc Health guided up for the year ever so slightly while the stock is trading at the multi-year lows. The company increased yearly revenue estimates by $25 million at the low end and boosted adjusted EBITDA targets to between $300 to $325 million, a $15 million boost at the low end.
Source: Telehealth Q2'23 presentation
The market spent much of the last year dumping on stocks producing GAAP losses providing the opportunity in Teladoc Health. The stock only has a market cap of $4.7 billion.
With meager 10% adjusted EBITDA growth in 2024, the stock only trades at ~13x EBITDA targets. Teladoc Health is a leading telehealth provider, and virtual care still appears the future of healthcare.
As costs for medicine grow, the combination of telehealth and chronic care provides a cheaper alternative with better outcomes.
Takeaway
The key investor takeaway is that Teladoc Health, Inc. has soared after Q2'23 results, but the stock is still exceptionally cheap. The stock is only to levels from a few months ago while the rest of the market has soared.
Comments