10-Q 1 tdoc-20170930x10q.htm 10-Q tdoc_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number: 001-37477

 


 

TELADOC, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

04-3705970

(State of incorporation)

 

(I.R.S. Employer Identification No.)

 

 

 

2 Manhattanville Road, Suite 203

 

 

Purchase, New York

 

10577

(Address of principal executive office)

 

(Zip code)

 

(203) 635-2002

(Registrant’s telephone number including area code)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒  No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company     ☒

(Do not check if a smaller reporting company)

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes  ☐  No  ☒

 

As of October  30, 2017, the Registrant had 56,961,275 shares of Common Stock outstanding.

 

 

 


 

TELADOC, INC.

 

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2017

 

TABLE OF CONTENTS

 

 

 

Page
Number

 

 

 

PART I 

Financial Information

1

Item 1. 

Financial Statements

1

 

Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016

1

 

Consolidated Statements of Operations (unaudited) for the quarters and nine months ended September 30, 2017 and 2016

2

 

Consolidated Statements of Comprehensive (Loss) Income (unaudited) for the quarters and nine months ended September 30, 2017 and 2016

3

 

Consolidated Statement of Stockholders’ Equity (unaudited) for the nine months ended September 30, 2017

4

 

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016

5

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4. 

Controls and Procedures

35

PART II 

Other Information

36

Item 1. 

Legal Proceedings

36

Item 1A. 

Risk Factors

36

Item 6. 

Exhibits

37

Exhibit Index 

38

Signatures 

41

 

 

 

 

 

 

i


 

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

 

TELADOC, INC.

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data, unaudited)

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2017

    

2016

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,119

 

$

50,015

Short-term marketable securities

 

 

89,758

 

 

15,793

Accounts receivable, net of allowance of $2,989 and $2,422, respectively

 

 

26,995

 

 

13,806

Prepaid expenses and other current assets

 

 

7,484

 

 

3,103

Total current assets

 

 

207,356

 

 

82,717

Property and equipment, net

 

 

9,627

 

 

7,479

Goodwill

 

 

498,549

 

 

188,184

Intangible assets, net

 

 

164,570

 

 

24,875

Other assets

 

 

822

 

 

415

Total assets

 

$

880,924

 

$

303,670

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,852

 

$

2,236

Accrued expenses and other current liabilities

 

 

24,137

 

 

7,981

Accrued compensation

 

 

14,854

 

 

8,856

Other debt - current portion

 

 

 —

 

 

2,000

Total current liabilities

 

 

40,843

 

 

21,073

Other liabilities

 

 

7,555

 

 

7,609

Deferred taxes

 

 

14,416

 

 

1,694

Long term bank and other debt, net

 

 

166,938

 

 

42,424

Convertible senior notes, net

 

 

204,393

 

 

 —

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares and 75,000,000 shares authorized as of September 30, 2017 and December 31, 2016, respectively; 56,908,305 shares and 46,201,563 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively

 

 

57

 

 

46

Additional paid-in capital

 

 

710,010

 

 

435,551

Accumulated deficit

 

 

(267,194)

 

 

(204,726)

Accumulated other comprehensive income (loss)

 

 

3,906

 

 

(1)

Total stockholders’ equity

 

 

446,779

 

 

230,870

Total liabilities and stockholders’ equity

 

$

880,924

 

$

303,670

 

See accompanying notes to unaudited consolidated financial statements.

1


 

TELADOC, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS  

(In thousands, except share and per share data, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

Revenue

    

$

68,650

    

$

32,381

    

$

156,139

    

$

85,757

    

 

Cost of revenue

 

 

16,742

 

 

7,112

 

 

38,907

 

 

21,946

 

 

Gross profit

 

 

51,908

 

 

25,269

 

 

117,232

 

 

63,811

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising and marketing

 

 

14,328

 

 

9,046

 

 

39,222

 

 

24,900

 

 

Sales

 

 

11,393

 

 

7,662

 

 

26,705

 

 

18,792

 

 

Technology and development

 

 

9,964

 

 

5,867

 

 

24,013

 

 

15,921

 

 

Legal

 

 

105

 

 

1,033

 

 

725

 

 

3,348

 

 

Regulatory

 

 

777

 

 

817

 

 

2,771

 

 

2,437

 

 

Acquisition and integration related costs

 

 

8,526

 

 

6,196

 

 

10,639

 

 

6,959

 

 

General and administrative

 

 

21,938

 

 

12,298

 

 

52,299

 

 

35,215

 

 

Depreciation and amortization

 

 

6,418

 

 

2,607

 

 

11,693

 

 

5,673

 

 

Loss from operations

 

 

(21,541)

 

 

(20,257)

 

 

(50,835)

 

 

(49,434)

 

 

Amortization of warrants and loss on extinguishment of debt

 

 

1,457

 

 

8,454

 

 

1,457

 

 

8,454

 

 

Interest expense, net

 

 

8,202

 

 

873

 

 

9,678

 

 

1,707

 

 

Net loss before taxes

 

 

(31,200)

 

 

(29,584)

 

 

(61,970)

 

 

(59,595)

 

 

Income tax provision

 

 

130

 

 

188

 

 

429

 

 

360

 

 

Net loss

 

$

(31,330)

 

$

(29,772)

 

$

(62,399)

 

$

(59,955)

 

 

Net loss per share, basic and diluted

 

$

(0.55)

 

$

(0.65)

 

$

(1.15)

 

$

(1.46)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute basic and diluted net loss per share

 

 

56,493,054

 

 

45,860,269

 

 

54,435,343

 

 

41,071,474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements.

2


 

TELADOC, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Net loss

    

$

(31,330)

    

$

(29,772)

    

$

(62,399)

    

$

(59,955)

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net change in unrealized gains on available-for-sale securities

 

 

(6)

 

 

(17)

 

 

(6)

 

 

50

 

 Cumulative translation adjustment

 

 

3,913

 

 

 —

 

 

3,913

 

 

 —

 

Other comprehensive income (loss), net of tax

 

 

3,907

 

 

(17)

 

 

3,907

 

 

50

 

Comprehensive loss

 

$

(27,423)

 

$

(29,789)

 

$

(58,492)

 

$

(59,905)

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

3


 

TELADOC, INC.

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

    

Additional

    

 

 

    

Other

    

Total

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

 

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Equity

 

Balance as of December 31, 2016

 

46,201,563

 

$

46

 

$

435,551

 

$

(204,726)

 

$

(1)

 

$

230,870

 

Exercise of stock options

 

734,293

 

 

 1

 

 

6,995

 

 

 —

 

 

 —

 

 

6,996

 

Exercise of warrants

 

138,903

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock under employee stock purchase plan

 

90,968

 

 

 —

 

 

1,265

 

 

 —

 

 

 —

 

 

1,265

 

Issuance of common stock for the acquisition of Best Doctors

 

1,855,078

 

 

 2

 

 

66,178

 

 

 —

 

 

 —

 

 

66,180

 

Equity component of Convertible Senior Notes, net of issuance costs

 

 —

 

 

 —

 

 

62,404

 

 

 —

 

 

 —

 

 

62,404

 

Stock-based compensation (1)

 

 —

 

 

 —

 

 

13,697

 

 

(69)

 

 

 —

 

 

13,628

 

Follow-On Offering

 

7,887,500

 

 

 8

 

 

123,920

 

 

 —

 

 

 —

 

 

123,928

 

Other comprehensive income, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,907

 

 

3,907

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(62,399)

 

 

 —

 

 

(62,399)

 

Balance as of September 30, 2017

 

56,908,305

 

$

57

 

$

710,010

 

$

(267,194)

 

$

3,906

 

$

446,779

 

 

(1)

The $0.1 million adjustment to accumulated deficit represents the adoption of ASU 2016-09 for cumulative forfeitures expense. See Note 2 for additional information.

 

See accompanying notes to unaudited consolidated financial statements.

 

 

4


 

TELADOC, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS  

(In thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

2017

 

2016

 

Cash flows used in operating activities:

    

 

    

    

 

    

 

Net loss

 

$

(62,399)

 

$

(59,955)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,693

 

 

5,673

 

Allowance for doubtful accounts

 

 

1,343

 

 

1,970

 

Stock-based compensation

 

 

13,628

 

 

5,198

 

Deferred income taxes

 

 

225

 

 

360

 

Accretion of interest

 

 

3,262

 

 

29

 

Amortization of warrants and loss on extinguishment of debt

 

 

1,457

 

 

7,717

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,186)

 

 

(1,515)

 

Prepaid expenses and other current assets

 

 

(2,717)

 

 

(1,116)

 

Other assets

 

 

(89)

 

 

(18)

 

Accounts payable

 

 

(782)

 

 

(2,265)

 

Accrued expenses and other current liabilities

 

 

9,432

 

 

(462)

 

Accrued compensation

 

 

967

 

 

23

 

Other liabilities

 

 

 0

 

 

20

 

Net cash used in operating activities

 

 

(27,166)

 

 

(44,341)

 

Cash flows (used in) provided by investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,043)

 

 

(1,118)

 

Purchase of internal-use software

 

 

(1,473)

 

 

(852)

 

Purchase of marketable securities

 

 

(119,670)

 

 

(44,187)

 

Proceeds from marketable securities

 

 

45,820

 

 

95,604

 

Acquisition of business, net of cash acquired

 

 

(379,355)

 

 

(37,013)

 

Net cash (used in) provided by investing activities

 

 

(456,721)

 

 

12,434

 

Cash flows provided by financing activities:

 

 

 

 

 

 

 

Net proceeds from the exercise of stock options

 

 

6,996

 

 

2,209

 

Proceeds from issuance of convertible notes

 

 

263,722

 

 

 —

 

Proceeds from borrowing under bank and other debt

 

 

166,679

 

 

29,490

 

Repayment of bank loan and other debt

 

 

(46,191)

 

 

(11,667)

 

Proceeds from issuance of common stock

 

 

123,928

 

 

250

 

Proceeds from employee stock purchase plan

 

 

1,265

 

 

 —

 

Cash for withholding taxes on stock-based awards, net

 

 

495

 

 

591

 

Net cash provided by financing activities

 

 

516,894

 

 

20,873

 

Net increase (decrease) in cash and cash equivalents

 

 

33,007

 

 

(11,034)

 

Foreign exchange difference

 

 

97

 

 

 —

 

Cash and cash equivalents at beginning of the period

 

 

50,015

 

 

55,066

 

Cash and cash equivalents at end of the period

 

$

83,119

 

$

44,032

 

 

 

 

 

 

 

 

 

Interest paid

 

$

4,727

 

$

1,734

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

5


 

Table of Contents

TELADOC, INC.

 

NOTES TO UNAUDITED 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. Unless the context otherwise requires, Teladoc, Inc., together with its subsidiaries, is referred to herein as “Teladoc” or the “Company”. The Company’s principal executive offices are located in Purchase, New York and Lewisville, Texas. Teladoc is the nation’s largest telehealth company.

On July 14, 2017, the Company completed the acquisition of Best Doctors Holdings, Inc. (“Best Doctors”), an expert medical consultation company focused on improving health outcomes for the most complex, critical and costly medical issues. See Note 3 “Business Acquisition”.

On January 24, 2017, Teladoc completed its follow on public offering (the “Follow-On Offering”) in which the Company issued and sold 7,887,500 shares of common stock, including the exercise of an underwriter option to purchase additional shares, at an issuance price of $16.75 per share. The Company received net proceeds of $123.9 million after deducting underwriting discounts and commissions of $7.6 million as well as other offering expenses of $0.6 million.

On July 1, 2016, the Company completed the acquisitions of HY Holdings, Inc. d/b/a HealthiestYou Corporation (“HealthiestYou”), a telehealth consumer engagement technology platform for the small to mid-sized employer market. Upon the effective date of the merger, HealthiestYou merged with and into Teladoc. See Note 3 “Business Acquisition”.

 

Note 2. Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. The interim results for the quarters and nine months ended September 30, 2017 are not necessarily indicative of results for the full 2017 calendar year or any other future interim periods. As such, the information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Form 10-K for the year ended December 31, 2016. 

 

The unaudited consolidated financial statements include the results of Teladoc, its wholly owned subsidiaries, two professional associations and twenty two professional corporations and a service corporation (collectively, the “Association”).

Teladoc Physicians, P.A. is party to several Services Agreements by and among it and the professional corporations pursuant to which each professional corporation provides services to Teladoc Physicians, P.A. Each professional corporation is established pursuant to the requirements of its respective domestic jurisdiction governing the corporate practice of medicine.

The Company holds a variable interest in the Association which contracts with physicians and other health professionals in order to provide services to Teladoc. The Association is considered a variable interest entity (“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE, must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of the Association and funds and absorbs all losses of the VIE.

6


 

Table of Contents

TELADOC, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Total revenue and net loss for the VIE were $6.9 million and $(1.3) million, respectively, for the quarter ended September 30, 2017 and $4.5 million and $(2.2) million, respectively, for the quarter ended September 30, 2016. Total revenue and net loss for the VIE were $22.6 million and $(5.7) million, respectively, for the nine months ended September 30, 2017 and $15.5 million and $(5.7) million, respectively, for the nine months ended September 30, 2016. The VIE’s total assets were $3.0 million and $2.9 million at September 30, 2017 and December 31, 2016, respectively. Total liabilities for the VIE were $33.8 million and $27.8 million at September 30, 2017 and December 31, 2016, respectively. The VIE’s total stockholders’ deficit was $30.7 million and $25.0 million at September 30, 2017 and December 31, 2016, respectively.

The functional currency for each of the Company’s foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss).

The Company operates in a single reportable segment – health services. Revenue earned by foreign operations outside of the United States, which relate to Best Doctors, were  $8.7 million for the quarter and nine months ended September 30, 2017 and zero in 2016. Long-lived assets from foreign operations totaled $0.3 million as of September 30, 2017 and zero as of September 30, 2016.

All intercompany transactions and balances have been eliminated. 

The Company adopted ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting during the quarter ended March 31, 2017 as described below. There have been no other changes to the significant accounting policies described in the Form 10-K that have had a material impact on the consolidated financial statements and related notes.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. On January 1, 2017, the Company adopted this standard on a modified retrospective basis. As a result of the adoption of this standard, a deferred tax asset of approximately $1.3 million was recorded as a cumulative effect adjustment to accumulated deficit. The Company has also recorded a full valuation allowance for the deferred tax asset due to the uncertainty regarding the future realization and as a result, there was no change to stockholders’ equity. Additionally, the Company elected to change its policy from estimating forfeitures to recognizing forfeitures when they occur and recorded a cumulative adjustment to accumulated deficit of approximately $0.1 million as of January 1, 2017.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2018; early adoption is allowed. The revised guidance is required to be applied retrospectively to each prior reporting period presented or modified retrospectively applied with the cumulative effect of initially applying it recognized at the date of initial application. The Company has undergone a process of identifying the various types of revenue streams and has performed an initial evaluation of the components of

7


 

Table of Contents

TELADOC, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

the associated contractual arrangements. As a result of the Best Doctors acquisition, the Company is in process of performing a similar assessment. The Company is assessing the impact of this standard on its revenue recognition policy and anticipates adopting the standard using the modified retrospective method.  

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on the consolidated financial statements.

 

Note 3. Business Acquisitions

On July 14, 2017, the Company completed the acquisition of Best Doctors through a merger in which Best Doctors became a wholly-owned subsidiary of the Company. The aggregate merger consideration paid was $445.5 million, net of cash acquired of $13.7 million, which was comprised of 1,855,078 shares of Teladoc’s common stock valued at $66.2 million on July 14, 2017, and $375.0 million of cash, subject to post-closing working capital adjustments as defined in the merger agreement. The post-closing working capital adjustment was finalized in the amount of $4.3 million. Best Doctors provides technology innovations and services to help employers, health plans and provider organizations to ensure that their members combat medical uncertainty with access to the best medical minds. 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 of the acquisition were $9.1 million and included transaction costs for investment bankers and other professional fees. The Company recorded $21.8 million of revenue and $1.1 million of net income from Best Doctors for the quarter and nine months ended September 30, 2017.

On July 1, 2016, the Company completed the acquisition of HealthiestYou through a merger in which HealthiestYou became a wholly-owned subsidiary of the Company. The aggregate merger consideration paid was $151.5 million, which was comprised of 6,955,796 shares of Teladoc’s common stock valued at $108.3 million on July 1, 2016, and $43.2 million of cash, subject to post-closing working capital adjustments as defined in the merger agreement. The post-closing working capital adjustment was finalized in the amount of less than $0.1 million. HealthiestYou was a telehealth consumer engagement technology platform for the small to mid-sized employer market. Solutions provided by HealthiestYou included 24/7 access to telephone and video conferencing with doctors as well as the convenience of procedure price comparisons, prescription medicine price comparisons, health plan information and benefits eligibility and location information for wellness service providers. The acquisition was considered a stock acquisition for tax purposes and as such the goodwill resulting from this acquisition is not tax deductible. The total acquisition related costs of the acquisition were $6.9 million and included transaction costs for investment bankers and other professional fees as well as $5.7 million of contract termination costs for certain HealthiestYou third party providers. The contract termination costs of $5.7 million were previously accrued by HealthiestYou and reflected in HealthiestYou’s financial statements as of June 30, 2016, prior to the acquisition. These non-cash expenses are also reflected in the Company’s financial results in the quarter ended September 30, 2016 as the Company benefited from the termination of these contracts.

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 aforementioned acquisition dates.

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The following table summarizes the fair value estimates of the assets acquired and liabilities assumed at each acquisition date. The Company, with the assistance of a third-party valuation expert, estimated the fair value of the acquired tangible and intangible assets.

Identifiable assets acquired and liabilities assumed (in thousands):

 

 

 

 

 

 

 

 

 

    

BestDoctors

 

HealthiestYou

 

Purchase price

 

$

459,225

 

$

151,484

 

Less:

 

 

 

 

 

 

 

Cash

 

 

13,690

 

 

6,204

 

Accounts receivable

 

 

11,205

 

 

1,184

 

Other assets

 

 

13,613

 

 

1,537

 

Client relationships

 

 

112,810

 

 

10,930

 

Non-compete agreements

 

 

 -

 

 

70

 

Internal-use software

 

 

 -

 

 

2,220

 

Trademarks

 

 

24,920

 

 

1,180

 

Accounts payable

 

 

(393)

 

 

(836)

 

Deferred taxes

 

 

(11,800)

 

 

 —

 

Other liabilities

 

 

(12,337)

 

 

(2,847)

 

Goodwill

 

$

307,517

 

$

131,842

 

The amount allocated to goodwill reflects the benefits Teladoc expects to realize from the growth of the respective acquisitions operations.

The Company’s unaudited pro forma revenue and net loss for the quarters ended September 30, 2017 and 2016 and for the nine months ended September 30, 2017 and 2016 below have been prepared as if Best Doctors and HealthiestYou had been purchased on January 1, 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Pro Forma

 

Unaudited Pro Forma

 

 

 

Quarters Ended

 

Nine Months Ended 

 

 

 

September 30,

 

September 30,

 

(in thousands)

 

2017

 

2016

 

2017

 

2016

 

Revenue

    

$

72,562

    

$

56,106

    

$

217,506

    

$

163,718

 

Net loss

 

$

(31,281)

 

$

(33,278)

 

$

(65,532)

 

$

(74,889)

 

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.

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Note 4. Intangible Assets, Net

Intangible assets, net consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

    

Useful

    

 

 

    

Accumulated

    

Net Carrying

    

Remaining

 

 

 

Life

 

Gross Value

 

Amortization

 

Value

 

Useful Life

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Client relationships

 

2 to 10 years  

 

$

136,368

 

$

(11,326)

 

$

125,042

 

9.5

 

Non-compete agreements

 

1.5 to 5 years

 

 

3,480

 

 

(2,943)

 

 

537

 

0.9

 

Trademarks

 

3 to 15 years  

 

 

26,456

 

 

(960)

 

 

25,496

 

14.4

 

Patents

 

3 years  

 

 

200

 

 

(55)

 

 

145

 

2.2

 

Internal-use software

 

3 to 5 years

 

 

18,974

 

 

(5,624)

 

 

13,350

 

 1.9

 

Intangible assets, net

 

 

 

$

185,478

 

$

(20,908)

 

$

164,570

 

 9.6

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Client relationships

 

2 to 10 years  

 

$

22,581

 

$

(6,226)

 

$

16,355

 

8.5

 

Non-compete agreements

 

1.5 to 5 years

 

 

3,480

 

 

(2,344)

 

 

1,136

 

1.6

 

Trademarks

 

3 years  

 

 

1,320

 

 

(287)

 

 

1,033

 

2.4

 

Patents

 

3 years  

 

 

200

 

 

(6)

 

 

194

 

2.9

 

Internal-use software

 

3 to 5 years

 

 

8,976

 

 

(2,819)

 

 

6,157

 

3.0

 

Intangible assets, net

 

 

 

$

36,557

 

$

(11,682)

 

$

24,875

 

6.5

 

Amortization expense for intangible assets was $5.3 million and $2.0 million for the quarters ended September 30, 2017 and 2016, respectively and $9.2 million and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively.

 

 

 

Note 5. Goodwill

Goodwill consists of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

As of September 30,

    

As of December 31,

 

 

    

2017

    

2016

 

Beginning balance

 

$

188,184

 

$

56,342

 

Additions associated with acquisitions

 

 

 307,517

 

 

131,842

 

Cumulative translation adjustment

 

 

2,848

 

 

 -

 

Goodwill

 

$

498,549

 

$

188,184

 

 

 

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Note 6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

As of September 30,

    

As of December 31,

 

 

    

2017

    

2016

 

Professional fees

 

$

1,520

 

$

293

 

Consulting fees/provider fees

 

 

3,233

 

 

1,687

 

Client performance guarantees

 

 

2,421

 

 

431

 

Legal fees

 

 

607

 

 

897

 

Interest payable

 

 

2,849

 

 

389

 

Marketing

 

 

2,149

 

 

142

 

Earnout and compensation

 

 

2,543

 

 

1,045

 

Printing and postage

 

 

844

 

 

 —

 

Deferred revenue

 

 

3,522

 

 

1,002

 

Other

 

 

4,449

 

 

2,095

 

Total

 

$

24,137

 

$

7,981

 

 

 

Note 7. Fair Value Measurements

 

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 measures its short-term marketable securities at fair value on a recurring basis and classifies such as Level 2. They are valued using observable inputs that reflect quoted prices directly or indirectly in active markets. The short-term marketable securities amortized cost approximates fair value.

 

The Company measures its contingent consideration at fair value on a recurring basis and classifies such as Level 3. The Company estimates the fair value of contingent consideration as the present value of the expected contingent payments, determined using the weighted probability of the possible payments.

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Cash and cash equivalents

 

$

68,137

 

$

14,982

 

$

 —

 

$

83,119

Short-term marketable securities

 

$

 —

 

$

89,758

 

$

 —

 

$

89,758

Contingent liability (included in other liabilities)

 

$

 —

 

$

 —

 

$

3,991

 

$

3,991

 

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Cash and cash equivalents

 

$

50,015

 

$

 —

 

$

 —

 

$

50,015

Short-term marketable securities

 

$

 —

 

$

15,793

 

$

 —

 

$

15,793

Contingent liability (included in accrued expenses and other current liabilities and other liabilities)

 

$

 —

 

$

 —

 

$

3,678

 

$

3,678

There were no transfers  between fair value measurement levels during the quarter and nine months ended September 30, 2017 and 2016.

The change in fair value of the Company’s contingent liability is recorded in general and administrative expenses in the consolidated statements of operations. The following table reconciles the beginning and ending balance of the Company’s Level 3 contingent liability:

 

 

 

 

 

    

 

    

Balance at December 31, 2016

 

$

3,678

Change in fair value

 

 

313

Fair value at September 30, 2017

 

$

3,991

 

 

 

Note 8. Long Term Bank and Other Debt

Long‑term bank and other debt consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

As of September 30,

    

As of December 31,

 

 

    

2017

    

2016

 

Senior Secured Term Loan, less debt discount of $8,062

 

$

166,938

 

$

 —

 

SVB Mezzanine Term Loan

 

 

 —

 

 

25,000

 

SVB Line of Credit Facility less debt discount of $66

 

 

 —

 

 

17,424

 

Subordinated Promissory Note

 

 

 —

 

 

2,000

 

Total

 

 

166,938

 

 

44,424

 

Less: current portion of Subordinated Promissory Note

 

 

 —

 

 

(2,000)

 

Long term bank and other debt

 

$

166,938

 

$

42,424

 

Long term bank and other debt are stated at amortized cost, which approximates fair value.

 

On July 14, 2017 and concurrent with the consummation of the Best Doctors acquisition, the Company entered into a $175.0 million Senior Secured Term Loan Facility (the “New Term Loan Facility”) and a $10.0 million Senior Secured Revolving Credit Facility (the “New Revolving Credit Facility” and together with the New Term Loan Facility, the “New Senior Secured Credit Facilities”) pursuant to a credit agreement by and among the Company, the lenders party thereto from time to time and Jefferies Finance LLC, as administrative agent and collateral agent. The New Term Loan Facility has been used to fund the expansion of the Company’s business and the New Revolving Credit Facility is available for working capital and other general corporate purposes.

 

The New Term Loan Facility carries interest at a rate of 7.25% above fixed 90 days Libor of 1.24% (or 8.49%) and matures in July 2022. Interest payments are payable monthly in arrears. The New Revolving Credit Facility carries interest at a rate of 7.25% above fixed 90- days Libor of 1.24% and matures in July 2020. The Company is also required to pay a commitment fee on the average daily unused portion of the New Revolving Credit Facility at 0.50%. The Company incurred expenses of $8.3 million in conjunction with obtaining the New Senior Secured Credit Facilities.

In July 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”), that provided for a $25 million Mezzanine Term Loan and a $25 million Line of Credit Facility. The Mezzanine Term Loan carried interest at a rate of 6.25% above the Wall Street Journal (“WSJ”) Prime Rate with a WSJ Prime Rate floor of 3.75% and matured  in July 2019. Interest payments were payable monthly in arrears. The Company incurred a $250,000 loan origination fee and was liable for a final payment fee of $750,000 payable at maturity or upon prepayment of the Mezzanine Term Loan. In connection with entry into the Mezzanine Term Loan, the

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Company granted two affiliates of SVB warrants to purchase an aggregate of 798,694 shares of common stock of the Company at an exercise price of $13.50 per share. The warrants were immediately exercisable and had a 10-year term. The fair value of the common stock warrants on the date of issue was approximately $7.7 million. The Company also granted SVB a security interest in significantly all of the Company’s assets. The Mezzanine Term Loan had been used to fund the expansion of the Company’s business.

The amended Line of Credit Facility provided for borrowings up to $25 million based on 300% of the Company’s monthly recurring revenue, as defined. In addition, there was an additional $25 million Uncommitted Incremental Facility permitted under the Line of Credit Facility. The Line of Credit Facility carried interest at a rate of 0.50% above the WSJ Prime Rate and matured in July 2019. The Company incurred an initial $75,000 loan origination fee and is responsible for additional $75,000 in annual fees on the anniversary of the Line of Credit Facility. The Company was also liable for a $50,000 loan arrangement fee if and when the Company utilized the Uncommitted Incremental Facility.

On July 13, 2017, the Company repaid and extinguished all the outstanding amounts under both of the SVB Line of Credit Facility and Mezzanine Term Loan of $17.5 million and $25 million, respectively, including early termination and final deferred origination fees of $1.7 million and recorded a one-time charge reflected on the consolidated statements of operations as amortization of warrants and loss on extinguishment of debt.  

Effective with the purchase of AmeriDoc, LLC (“AmeriDoc”) in 2014, the Company executed a Subordinated Promissory Note in the amount of $3.5 million payable to the seller of AmeriDoc on April 30, 2015. The Subordinated Promissory Note carried interest at a rate of 10.00% annual interest and is subordinated to the SVB Facilities. In March 2015, the Company, the seller of AmeriDoc and SVB executed an Amended and Restated Subordinated Promissory Note that extended the maturity of the Amended and Restated Subordinated Promissory Note to April 30, 2017. In November 2015, the Company executed the Second Amended and Restated Subordinated Promissory Note with a revised annual interest rate of 7% commencing on January 1, 2016 and extended the maturity of the Second Amended and Restated Subordinated Promissory Note to April 30, 2018 with a seller put option effective on April 30, 2017. The Company repaid $1.0 million during 2016 and the remaining outstanding amount of $2.0 million was paid during the first quarter of 2017.

The Company was in compliance with all debt covenants at September 30, 2017 and December 31, 2016.

 

Note 9. Convertible Senior 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”). The 2022 Notes bear cash interest at a rate of 3% per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2017. The 2022 Notes will mature on December 15, 2022. The net proceeds to the Company from the offering were $263.7 million after deducting offering costs of approximately $11.3 million.

The 2022 Notes are senior unsecured obligations of the Company and rank senior in right of payment to the Company’s indebtedness that is expressly subordinated in right of payment to the 2022 Notes; equal in right of payment to the Company’s liabilities that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities incurred by the Company’s subsidiaries.

Holders may convert all or any portion of their 2022 Notes in integral multiples of $1,000 principal amount, at their option, at any time prior to the close of business on the business day immediately preceding June 15, 2022 only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on September 30, 2017 (and only during such calendar quarter), if the last reported sale price of the shares of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

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during the five business day period after any ten consecutive trading day period (the ‘‘measurement period’’) in which the trading price (as defined in the 2022 Notes Indenture) per $1,000 principal amount of 2022 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

upon the occurrence of specified corporate events described under the 2022 Notes Indenture; or

if the Company calls the 2022 Notes for redemption, at any time until the close of business on the second business day immediately preceding the redemption date as described under the 2022 Notes Indenture.

On or after June 15, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2022 Notes, in integral multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.

The conversion rate for the 2022 Notes was initially, and remains, 22.7247 shares of the Company’s common stock per $1,000 principal amount of the 2022 Notes, which is equivalent to an initial conversion price of approximately $44.00 per share of the Company’s common stock. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. If the Company elects (or are deemed to have elected) to satisfy the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of the Company’s common stock, the amount of cash and shares of the Company’s common stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 25 trading day observation period (as defined in the 2022 Notes Indenture).

The Company may redeem for cash all or any portion of the 2022 Notes, at its option, on or after December 22, 2020 if the last reported sale price of its common stock exceeds 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including the trading day immediately preceding the date on which the Company provides notice of the redemption. The redemption price will be the principal amount of the 2022 Notes to be redeemed, plus accrued and unpaid interest, if any. In addition, calling any 2022 Note for redemption on or after December 22, 2020 will constitute a make-whole fundamental change with respect to that 2022 Note, in which case the conversion rate applicable to the conversion of that Note, if it is converted in connection with the redemption, will be increased in certain circumstances as described in the 2022 Notes Indenture.

In accounting for the issuance of the 2022 Notes, the Company separated the 2022 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense from the issuance date to June 15, 2022 (the first date on which the Company may be required to repurchase the 2022 Notes at the option of the holder). The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The equity component related to the 2022 Notes was  $62.4 million, net of issuance costs which was recorded in additional paid-in capital on the accompanying condensed consolidated balance sheet.

In accounting for the transaction costs related to the issuance of the 2022 Notes, the Company allocated the total costs incurred to the liability and equity components of the 2022 Notes based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the five and a half year term of the 2022 Notes, and transaction costs attributable to the equity component are netted with the equity components in stockholders’ equity.

 

 

 

 

 

 

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The 2022 Notes consist of the following (in thousands):

 

 

 

 

 

 

 

As of September 30,

Liability component

    

2017

Principal

 

$

275,000

Less: Debt issuance costs, net (1)

 

 

(70,607)

Net carrying amount

 

$

204,393


(1)

Included in the accompanying consolidated balance sheets within convertible senior notes and amortized to interest expense over the expected life of the 2022 Notes using the effective interest rate method.

 

The fair value of the 2022 Notes was approximately $298 million as of September 30, 2017. The Company estimates the fair value of its 2022 Notes utilizing market quotations for debt that have quoted prices in active markets. Since the 2022 Notes do not trade on a daily basis in an active market, the fair value estimates are based on market observable inputs based on borrowing rates currently available for debt with similar terms and average maturities, which are classified as Level 2 measurements within the fair value hierarchy. See Note 7, “Fair Value Measurements,” for definitions of hierarchy levels. As of September 30, 2017, the remaining contractual life of the 2022 Notes is approximately 4.8 years.

 

The following table sets forth total interest expense recognized related to the 2022 Notes (in thousands):

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

    

2017

    

 

Contractual interest expense

 

$

2,147

 

 

Amortization of debt discount

 

 

3,075

 

 

Total

 

$

5,222

 

 

Effective interest rate of the liability component

 

 

10.0

%  

 

 

 

 

 

 

Note 10. Commitments and Contingencies

Legal Matters

 

The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of its business. At September 30, 2017, the Company was party to the following legal proceedings:

On April 29, 2015, the Company filed a lawsuit against the Texas Medical Board (the ‘‘TMB’’) in the United States District Court for the Western District of Texas, Austin Division (the “District Court”) alleging that the TMB’s adoption on April 10, 2015 of an amendment to 22 T.A.C. 190.8(1)(L) that would require a prior in-person examination for a doctor validly to prescribe any controlled substance to a patient in Texas constitutes a violation, inter alia, of the Sherman Antitrust Act. The District Court held a hearing on May 22, 2015 on Teladoc’s motion for preliminary injunction of the effectiveness of such amendment, which otherwise was scheduled to take effect on June 3, 2015. On May 29, 2015, the District Court issued the preliminary injunction requested by Teladoc and enjoined the effectiveness of such rule amendment pending trial. On July 30, 2015, the TMB filed a motion to dismiss the suit, and the District Court denied this motion on December 14, 2015. On January 8, 2016, the TMB provided notice of its intent to appeal the District Court’s denial of its motion to dismiss to the U.S. Court of Appeals for the Fifth Circuit, which was filed on June 17, 2016 and voluntarily withdrawn by the TMB on October 17, 2016. On November 2, 2016, the District Court granted the parties’ joint motion to stay the trial case through April 19, 2017. On April 10, 2017, the District Court granted the parties’ joint motion to stay the trial case through September 1, 2017. On September 7, 2017, the District Court granted the parties’ joint motion to stay the trial case through November 30, 2017. Accordingly, no trial date has been set. 

 

Business in the State of Texas accounted for approximately $12.4 million, or 8%  and $15.1 million or 12% of the Company’s consolidated revenue for the nine months ended September  30, 2017 and for the year ended December 31, 2016, respectively. If the TMB’s proposed rule amendments go into effect as written and Teladoc is unable to adapt its business model in compliance with the revised rules, its ability to operate its business in the State of Texas could be

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TELADOC, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

materially adversely affected, which would have a material adverse effect on its business, financial condition and results of operations.

 

Other than as stated the Company is not a party to any material legal proceeding, and it is not aware of any pending or threatened litigation that would have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably.

The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable and estimable. In this regard, the Company establishes accruals for various lawsuits, claims, investigations and proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the loss can be reasonably estimated. At September  30, 2017, the Company has established accruals for certain of its lawsuits, claims, investigations and proceedings based upon estimates of the most likely outcome in a range of loss or the minimum amounts in a range of loss if no amount within a range is a more likely estimate. The Company does not believe that at September  30, 2017 any reasonably possible losses in excess of the amounts accrued would be material to the unaudited consolidated financial statements.

 

Note 11. Common Stock and Stockholders’ Equity

Capitalization

On January 24, 2017, Teladoc closed on its Follow-On Offering in which the Company issued and sold 7,887,500 shares of common stock, including the exercise of an underwriter option to purchase additional shares, at an issuance price of $16.75 per share. The Company received net proceeds of $123.9 million after deducting underwriting discounts and commissions of $7.6 million as well as other offering expenses of $0.6 million. 

Warrants

In July 2016, in conjunction with the debt refinancing of the Mezzanine Term Loan, the Company issued 798,694 common stock warrants to purchase an aggregate of 798,694 shares of its common stock at an exercise price of $13.50 per share to two entities affiliated with SVB. The common stock warrants were immediately exercisable upon issuance and had a 10-year term. The fair value of the common stock warrants on the date of issue was approximately $7.7 million.

 

On December 9, 2016, the Company issued an aggregate of 107,931 shares of common stock resulting from an SVB affiliate’s cashless exercise of 399,347 of these warrants at an exercise price of $13.50 per share.

On January 31, 2017, the Company issued an aggregate of 138,903 shares of common stock resulting from an SVB affiliate’s cashless exercise of the remaining 399,347 of these warrants at an exercise price of $13.50 per share.

 

The Company had no warrants outstanding as of September 30, 2017 and 399,347 warrants outstanding as of December 31, 2016.

Stock Plan and Stock Options

 

The Company’s 2015 Incentive Award Plan (the “Plan”) provides for the issuance of incentive and non-statutory options and other equity-based awards to its employees and non‑employees. Options issued under the Plan 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. Prior to becoming a public enterprise and pursuant to the Company’s Second Amended and Restated Stock Incentive Plan which is now retired, the Company historically issued incentive and non-statutory stock options with exercise prices equal to the fair value of the Company’s common stock on the date of grant, as determined by the Company’s board of directors informed by third-party valuations. Subsequent to becoming a public enterprise, options to buy common stock have been issued under the Plan, with exercise prices equal to the closing price of shares of the Company’s common stock on the New York Stock Exchange on the trading day immediately preceding the date of award.

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Table of Contents

TELADOC, INC.

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Activity under the Plan is as follows (in thousands, except share and per share amounts and years):