0001558370-21-005521.txt : 20210503 0001558370-21-005521.hdr.sgml : 20210503 20210503160645 ACCESSION NUMBER: 0001558370-21-005521 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 84 CONFORMED PERIOD OF REPORT: 20210331 FILED AS OF DATE: 20210503 DATE AS OF CHANGE: 20210503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Teladoc Health, Inc. CENTRAL INDEX KEY: 0001477449 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 043705970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37477 FILM NUMBER: 21883561 BUSINESS ADDRESS: STREET 1: 2 MANHATTANVILLE ROAD STREET 2: SUITE 203 CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 2036352002 MAIL ADDRESS: STREET 1: 2 MANHATTANVILLE ROAD STREET 2: SUITE 203 CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: Teladoc, Inc. DATE OF NAME CHANGE: 20091123 10-Q 1 tdoc-20210331x10q.htm 10-Q
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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 March 31, 2021

or

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

For the transition period from                      to                     

Commission File Number: 001-37477

TELADOC HEALTH, INC.

(Exact name of registrant as specified in its charter)

Delaware

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)

(203635-2002

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

TDOC

The New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth 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 April 28, 2021, the Registrant had 154,525,777 shares of Common Stock outstanding.

TELADOC HEALTH, INC.

QUARTERLY REPORT ON FORM 10-Q

For the period ended March 31, 2021

TABLE OF CONTENTS

Page
Number

PART I

Financial Information

2

Item 1.

Financial Statements

2

Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020

2

Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the quarters ended March 31, 2021 and 2020

3

Consolidated Statements of Stockholders’ Equity (unaudited) for the quarters ended March 31, 2021 and 2020

4

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2021 and 2020

5

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

34

PART II

Other Information

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 6.

Exhibits

36

Exhibit Index

36

Signatures

38

1

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

TELADOC HEALTH, INC.

CONSOLIDATED BALANCE SHEETS

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

March 31,

December 31,

    

2021

    

2020

Assets

Current assets:

Cash and cash equivalents

$

720,104

$

733,324

Short-term investments

2,530

53,245

Accounts receivable, net of allowance of $8,601 and $6,412, respectively

 

178,341

 

169,281

Inventories

58,290

56,498

Prepaid expenses and other current assets

 

73,065

 

47,259

Total current assets

 

1,032,330

 

1,059,607

Property and equipment, net

 

28,436

 

28,551

Goodwill

 

14,451,975

 

14,581,255

Intangible assets, net

 

1,997,214

 

2,020,864

Operating lease - right-of-use assets

44,401

46,647

Other assets

 

28,002

 

18,357

Total assets

$

17,582,358

$

17,755,281

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

34,377

$

46,030

Accrued expenses and other current liabilities

 

82,397

 

83,657

Accrued compensation

 

59,439

 

94,593

Deferred revenue-current

70,458

52,356

Advances from financing companies

13,693

13,453

Current portion of long-term debt

0

42,560

Total current liabilities

 

260,364

 

332,649

Other liabilities

 

1,383

 

1,616

Operating lease liabilities, net of current portion

40,140

43,142

Deferred revenue, net of current portion

2,716

2,449

Advances from financing companies, net of current portion

10,404

9,926

Deferred taxes

 

84,876

 

102,103

Convertible senior notes, net

1,352,977

1,379,592

Commitments and contingencies

Stockholders’ equity:

Common stock, $0.001 par value; 300,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 154,406,164 shares and 150,281,099 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

154

 

150

Additional paid-in capital

 

17,016,628

 

16,857,797

Accumulated deficit

 

(1,192,310)

 

(992,661)

Accumulated other comprehensive gain

5,026

18,518

Total stockholders’ equity

 

15,829,498

 

15,883,804

Total liabilities and stockholders’ equity

$

17,582,358

$

17,755,281

See accompanying notes to unaudited consolidated financial statements.

2

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

Quarter Ended March 31,

 

    

2021

2020

 

Revenue

$

453,675

    

$

180,799

    

Expenses:

Cost of revenue (exclusive of depreciation and amortization, which is shown separately below)

145,959

 

72,382

Operating expenses:

Advertising and marketing

 

89,439

 

32,515

Sales

 

64,793

 

17,940

Technology and development

 

78,008

 

19,257

Acquisition, Integration and Transformation costs

6,323

 

3,664

General and administrative

 

105,172

 

46,342

Depreciation and amortization

 

48,659

 

9,710

Total expenses

538,353

201,810

Loss from operations

 

(84,678)

 

(21,011)

Loss on extinguishment of debt

11,459

 

0

Other (income) expense, net

(5,652)

685

Interest expense, net

 

22,125

 

8,618

Net loss before taxes

 

(112,610)

 

(30,314)

Income tax expense (benefit)

 

87,039

 

(711)

Net loss

(199,649)

(29,603)

Other comprehensive loss, net of tax:

Cumulative translation adjustment

(13,492)

(17,554)

Comprehensive loss

$

(213,141)

$

(47,157)

Net loss per share, basic and diluted

$

(1.31)

$

(0.40)

 

 

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

152,167,606

73,278,857

See accompanying notes to unaudited consolidated financial statements.

3

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)

    

Accumulated

    

Additional

    

    

Other

    

Total

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Gain (Loss)

    

Equity

Balance as of December 31, 2020

150,281,099

$

150

$

16,857,797

$

(992,661)

$

18,518

$

15,883,804

Exercise of stock options

1,238,112

1

11,907

0

0

11,908

Issuance of common stock upon vesting of restricted stock units

976,999

1

(1)

0

0

(0)

Issuance of common stock for conversion/redemption of 2022 Notes

1,058,373

1

270,111

0

0

270,112

Equity portion of extinguishment of 2022 Notes

0

0

(224,081)

0

0

(224,081)

Issuance of common stock for conversion of 2025 Notes

1,056,861

1

288,485

0

0

288,486

Equity portion of extinguishment of 2025 Notes

0

0

(237,261)

0

0

(237,261)

Retirement of shares related to acquisition (see Note 4)

(205,280)

(0)

(40,329)

0

0

(40,329)

Stock-based compensation

0

0

90,000

0

0

90,000

Other comprehensive loss, net of tax

0

0

0

0

(13,492)

(13,492)

Net loss

0

0

0

(199,649)

0

(199,649)

Balance as of March 31, 2021

154,406,164

$

154

$

17,016,628

$

(1,192,310)

$

5,026

$

15,829,498

Balance of December 31, 2019

72,761,941

$

73

$

1,538,716

$

(507,525)

$

(17,239)

$

1,014,025

Exercise of stock options

671,279

0

14,830

0

0

14,830

Issuance of common stock upon vesting of restricted stock units

642,411

1

(1)

0

0

0

Issuance of common stock for 2022 Notes

655

0

58

0

0

58

Stock-based compensation

0

0

18,421

0

0

18,421

Other comprehensive loss, net of tax

0

0

0

0

(17,554)

(17,554)

Net loss

0

0

0

(29,603)

0

(29,603)

Balance as of March 31, 2020

74,076,286

$

74

$

1,572,024

$

(537,128)

$

(34,793)

$

1,000,177

See accompanying notes to unaudited consolidated financial statements.

4

TELADOC HEALTH, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

Quarter Ended March 31,

    

2021

2020

Cash flows used in operating activities:

    

    

    

    

Net loss

$

(199,649)

$

(29,603)

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

Depreciation and amortization

 

48,659

 

9,710

Depreciation of rental equipment

824

0

Amortization of right-of-use assets

2,948

1,518

Allowance for doubtful accounts

 

3,074

 

1,247

Stock-based compensation

 

86,300

 

18,315

Deferred income taxes

 

87,004

 

(2,820)

Accretion of interest

16,829

6,859

Loss on extinguishment of debt

 

11,459

 

0

Unrealized gain on investment

(5,852)

0

Other, net

38

105

Changes in operating assets and liabilities:

Accounts receivable

 

(11,717)

 

(17,219)

Prepaid expenses and other current assets

 

(12,799)

 

101

Inventory

(2,877)

0

Other assets

 

1,244

 

137

Accounts payable

 

(11,989)

 

(502)

Accrued expenses and other current liabilities

 

(1,889)

 

26,971

Accrued compensation

 

(43,624)

 

(13,798)

Deferred revenue

17,086

(5,406)

Operating lease liabilities

(3,076)

(1,287)

Other liabilities

 

(19)

 

(648)

Net cash used in operating activities

 

(18,026)

 

(6,320)

Cash flows used in investing activities:

Capital expenditures

 

(2,115)

 

(962)

Capitalized software development costs

 

(11,144)

 

(1,966)

Proceeds from marketable securities

50,000

0

Acquisitions of business, net of cash acquired

 

(55,921)

 

(9,000)

Other, net

3,150

0

Net cash used in investing activities

 

(16,030)

 

(11,928)

Cash flows provided by financing activities:

Net proceeds from the exercise of stock options

 

11,908

 

14,889

Repurchase of 2022 Notes

 

(130)

 

0

Proceeds from advances from financing companies

4,816

0

Payment from customers against advances from financing companies

(4,098)

0

Proceeds from employee stock purchase plan

 

8,648

 

0

Cash received for withholding taxes on stock-based compensation, net

1,218

164

Other, net

(187)

0

Net cash provided by financing activities

 

22,175

 

15,053

Net decrease in cash and cash equivalents

 

(11,881)

 

(3,195)

Foreign exchange difference

(1,339)

(3,202)

Cash and cash equivalents at beginning of the period

 

733,324

 

514,353

Cash and cash equivalents at end of the period

$

720,104

$

507,956

Income taxes paid

$

52

$

0

Interest paid

$

3

$

0

See accompanying notes to unaudited consolidated financial statements.

5

Note 1. Organization and Description of Business

Teladoc, Inc. was incorporated in the State of Texas in June 2002 and changed its state of incorporation to the State of Delaware in October 2008. Effective August 10, 2018, Teladoc, Inc. changed its corporate name to Teladoc Health, Inc. Unless the context otherwise requires, Teladoc Health, Inc., together with its subsidiaries, is referred to herein as “Teladoc Health” or the “Company”. The Company’s principal executive office is located in Purchase, New York. Teladoc Health is the global leader in providing virtual healthcare services with a focus on high quality, lower costs, and improved outcomes around the world.

On January 4, 2021, the Company completed the acquisition of the UK-based telemedicine provider Consultant Connect Limited (“Consultant Connect”). Consultant Connect provides a platform that specializes in facilitating healthcare professional-to-professional advice and guidance in the United Kingdom.

On October 30, 2020, the Company completed the merger with Livongo Health, Inc. (“Livongo”), a transformational opportunity to improve the delivery, access and experience of healthcare for consumers around the world. Livongo is pioneering a new category in healthcare, called Applied Health Signals, which is transforming the management of chronic conditions.

On July 1, 2020, the Company completed the acquisition of InTouch Technologies, Inc. (“InTouch”), a leading provider of enterprise telehealth solutions for hospitals and health systems.

Note 2. Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the results of Teladoc Health, as well as three professional associations, thirteen professional corporations and a service corporation (collectively, the “Association”).

Teladoc Health Medical Group, P.A., formerly Teladoc Physicians, P.A. is party to several Services Agreements by and among it and the professional associations and professional corporations pursuant to which each professional association and professional corporation provides services to Teladoc Health Medical Group, P.A. Each professional association and 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 the Company. The Association is considered a variable interest entity (“VIE”) since it does not have sufficient equity to finance its activities without additional subordinated financial support. An enterprise having a controlling financial interest in a VIE, must consolidate the VIE if it has both power and benefits—that is, it has (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance (power) and (2) the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE (benefits). The Company has the power and rights to control all activities of the Association and funds and absorbs all losses of the VIE and appropriately consolidates the Association.

Total revenue and net income (loss) for the VIE were $51.8 million and $(2.1) million, and $42.5 million and $(0.1) million for the quarters ended March 31, 2021 and 2020 respectively. The VIE’s total assets, all of which were current were $39.2 million and $28.7 million at March 31, 2021 and December 31, 2020, respectively. Total liabilities, all of which were current for the VIE were $78.4 million and $65.8 million at March 31, 2021 and December 31, 2020, respectively. The VIE’s total stockholders’ deficit was $39.2 million and $37.1 million at March 31, 2021 and December 31, 2020, respectively.

All intercompany transactions and balances have been eliminated.

6

Business Combinations

The Company accounts for its business combinations using the acquisition method of accounting. The purchase price is attributed to the fair value of the assets acquired and liabilities assumed. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date. The excess of the purchase price of acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of acquisition.

When the Company issues stock-based or cash awards to an acquired company’s shareholders, the Company evaluates whether the awards are consideration or compensation for post-acquisition services. The evaluation includes, among other things, whether the vesting of the awards is contingent on the continued employment of the acquired company’s stockholders beyond the acquisition date. If continued employment is required for vesting, the awards are treated as compensation for post-acquisition services and recognized as expense over the requisite service period.

Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates and selection of comparable companies. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with determination of fair values, the Company may engage a third-party valuation specialist to assist with the valuation of intangible and certain tangible assets acquired and certain assumed obligations. Acquisition-related transaction costs incurred by the Company are not included as a component of consideration transferred but are accounted for as an operating expense in the period in which the costs are incurred.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment evolves. The Company believes that estimates used in the preparation of these consolidated financial statements are reasonable; however, actual results could differ materially from these estimates.

Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the allowance for doubtful accounts, the carrying value of long-lived assets (including goodwill and intangible assets), capitalization and amortization of software development costs, the finalization of purchase accounting adjustments, Client performance guarantees, the calculation of a contingent liability in connection with an acquisition earn-out, the provision for income taxes and related deferred tax accounts, certain accrued liabilities, revenue recognition, contingencies, litigation and related legal accruals and the value attributed to employee stock options and other stock-based awards and the periods of benefit for deferred costs as described in the Summary of Significant Accounting policies in this Quarterly Report and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).

Presentation

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

7

Recently Issued Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“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 the Company on January 1, 2022 and may be early adopted during an interim period of 2021. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

Summary of Significant Accounting Policies

The following sections reflect updates to the summary of significant accounting policies described in the 2020 Form 10-K. In addition, on an ongoing basis, the Company will continue to closely monitor for any significant impact to its estimates and assumptions as a result of the COVID-19 pandemic, especially on the allowance for doubtful accounts.

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.  

General and Administrative Costs

General and Administrative costs consist of all operating expenses not included in the other operating expense categories and now include legal and regulatory costs for all current and historical periods presented.

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.

Note 3. Revenue, Deferred Revenue, Deferred Costs and Other

The Company generates access fees from Clients accessing its professional provider network or hosted virtual healthcare platform or chronic care management platforms, visit fee revenue for general medical, expert medical service and other specialty visits as well as other revenue primarily associated with virtual healthcare device equipment included with its hosted virtual healthcare platform. Access revenue accounted for 86% and 76% of our total revenue for the quarters ended March 31, 2021 and 2020, respectively.

8

The following table presents the Company’s revenues disaggregated by revenue source (in thousands):

Quarter Ended

March 31,

    

2021

    

2020

    

Access Fees Revenue

U.S.

$

350,868

$

107,939

International

37,288

29,114

Total

388,156

137,053

Visit Fee Revenue

U.S.

54,340

 

43,484

International

122

262

Total

54,462

43,746

Other

U.S.

10,671

0

International

386

0

Total

11,057

0

Total Revenues

$

453,675

$

180,799

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.

For certain services, payment is required for future months before the service is delivered to the Member. The Company records deferred revenue when cash payments are received in advance of the Company’s performance obligation to provide services. The net increase of $18.4 million and $4.8 million in the deferred revenue balance for the quarters ended March 31, 2021 and 2020, respectively, is primarily driven by InTouch and Livongo as well as the direct-to-consumer behavioral health product and cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenue recognized that were included in the deferred revenue balance at the beginning of the period. 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 first three months of 2021 and 2020 that was included in deferred revenue at the beginning of the periods was $32.7 million and $8.7 million, respectively.

We expect to recognize $62.7 million and $4.4 million of revenue in 2021 and 2022, respectively, related to future performance obligations that are unsatisfied or partially unsatisfied as of March 31, 2021.

Deferred Costs and Other

Deferred costs and other as of March 31, 2021 consist of the following (in thousands):

As of

As of

March 31,

December 31,

    

2021

2020

Deferred device cost, current

$

10,950

$

3,384

Deferred execution credit, current

792

84

Total deferred cost and other, current

11,742

3,468

Deferred device cost, noncurrent

6,190

2,179

Total Deferred cost and other

$

17,932

$

5,647

9

Deferred costs and other activity are as follows (in thousands):

    

Deferred Device
Cost

Deferred Execution
Credit

Total

Beginning balance as of December 31, 2020

$

5,563

$

84

$

5,647

Additions

13,827

820

14,647

Revenue recognized

0

(112)

(112)

Cost of revenue recognized

(2,250)

0

(2,250)

Ending balance as of March 31, 2021

$

17,140

$

792

$

17,932

Note 4. Business Acquisitions

On January 4, 2021, the Company completed the acquisition of the UK-based telemedicine provider Consultant Connect for a cash consideration of $56.3 million, net of cash acquired, of which $55.9 million was paid in the three months ended March 31, 2021. Consultant Connect provides a platform that specializes in facilitating healthcare professional-to-professional advice and guidance in the United Kingdom. As part of purchase accounting, the Company recognized intangibles related to customer relationships, technology and the brand of $9.8 million, $1.9 million, and $0.6 million, respectively; and goodwill of $47.3 million. The acquisition was considered a stock acquisition for tax purposes and accordingly, the goodwill resulting from this acquisition is not tax deductible.

On October 30, 2020, the Company completed the acquisition of Livongo through a merger in which Livongo became a wholly-owned subsidiary of the Company. Upon completion of the merger, each share of Livongo’s common stock converted into the right to receive 0.5920 shares of Teladoc Health’s common stock and $4.24 in cash, without interest. In addition, in connection with the closing of the merger, Livongo paid a special cash dividend equal to $7.09 per share of Livongo’s common stock to shareholders of Livongo as of a record date of October 29, 2020. The total initial consideration calculated on upon deal closing was $13,938.0 million consisting of $401.0 million of net cash, $555.4 million related to the conversion feature of the Livongo Notes guaranteed by the Company and 60.4 million shares of Teladoc Health’s common stock valued at approximately $12,981.6 million on October 30, 2020. The acquisition was considered a stock acquisition for tax purposes and accordingly, the goodwill resulting from this acquisition is not tax deductible. The total acquisition related costs were $59.0 million and included transaction costs for investment bankers, other professional fees and income taxes for accelerated grants and were recognized in the Company’s consolidated statement of operations in Acquisition, 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 has recovered and cancelled all 205,279 of the Excess Shares and expects to recover the Cash Overpayments in the form of cash. The Company expects to apply the cash value of the Withholding Shares to offset future employment tax obligations of the Company. As a result, the total adjusted 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. The Company does not expect to incur any material charges or expenses related to the recovery of the Withholding Shares and the Cash Overpayments. 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.

On July 1, 2020, the Company completed the acquisition of InTouch through a merger in which InTouch became a wholly-owned subsidiary of the Company. The preliminary aggregate merger consideration paid was $1,078.5 million, net of cash acquired of $1.1 million, which was comprised of 4.6 million shares of Teladoc’s common stock valued at $918.8 million on July 1, 2020, and $160.7 million of 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 $12.5 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.

10

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 aforementioned acquisition dates.

The following table summarizes the preliminary fair value estimates of the assets acquired and liabilities assumed for the Livongo and InTouch acquisitions. The Company, with the assistance of a third-party valuation expert, estimated the preliminary fair value of the acquired tangible and intangible assets with significant estimates such as revenue projections. The allocation of the consideration transferred to the assets acquired and the liabilities assumed is preliminary. This can be revised as a result of additional information obtained due to the finalization of the valuation inputs and assumptions as well as completing the assessment of the tax attributes of the business combination. As discussed further in Note 15, the Company recognized a non-cash income tax charge of $87 million during the three months ended March 31, 2021, substantially reflecting the recording of a valuation allowance on stock compensation benefits associated with the Livongo merger. Additional adjustments that could have a material impact on the Company’s results of operations and financial position may be recorded within the measurement period, which will not exceed one year from the acquisition date.

Identifiable assets acquired and liabilities assumed (in thousands):

    

Livongo

    

InTouch

 

Purchase price, net of cash acquired

$

13,876,931

$

1,069,759

Less:

Accounts receivable

80,084

16,986

Short term investment

52,500

0

Inventory

24,299

8,492

Property and equipment, net

8,952

11,366

Right of use assets

15,056

4,965

Other assets

17,337

2,541

Client relationships

1,050,000

164,580

Technology

300,000

29,190

Trademarks

250,000

32,630

Advances from financing companies

0

(26,012)

Accounts payable

(119,302)

(5,589)

Deferred revenue

(997)

(20,729)

Convertible notes

(453,417)

0

Deferred taxes

(32,984)

(30,102)

Lease liabilities

(18,834)

(5,495)

Other liabilities

(40,343)

(13,042)

Goodwill

$

12,744,580

$

899,978

The amount allocated to goodwill reflects the benefits Teladoc Health expects to realize from the growth of the respective acquisitions’ operations, cost savings, and various synergies.

The Company’s pro forma revenue and net loss for the quarters ended March 31, 2021 and 2020 below have been prepared as if Livongo and InTouch had been purchased on January 1, 2020. The Company made some pro-forma adjustments related to deferred revenue, deferred costs, amortization of intangible assets, interest expense, stock-based compensation, acquisition costs and transaction expenses.

Unaudited Pro Forma

Quarter Ended 

 

March 31,

(in thousands)

    

2021

    

2020

 

Revenue

    

$

452,201

$

270,421

Net loss

    

$

(94,228)

$

(600,573)

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

11

results. The Company recorded approximately $146.9 million of revenue, net of deferred revenue acquisition related fair value adjustments and $(51.3) million of net loss in total from Livongo and InTouch for the quarter ended March 31, 2021.

Note 5. Inventories

Inventories consisted of the following (in thousands):

As of March 31,

As of December 31,

 

    

2021

    

2020

 

Raw materials and purchased parts

$

19,202

$

19,591

Work in process

1,253

1,431

Finished goods

 

37,835

 

35,476

Total inventories

$

58,290

$

56,498

Note 6. 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

March 31, 2021

Client relationships

 

2 to 20 years  

 

$

1,466,769

$

(123,700)

$

1,343,069

15.2

Non-compete agreements

 

1.5 to 5 years

 

 

5,026

 

(4,940)

 

86

0.2

Trademarks

3 to 15 years  

326,759

(23,018)

303,741

10.2

Patents

3 years  

200

(200)

0

0

Capitalized software development costs

 

3 to 5 years  

 

 

67,202

(27,400)

39,802

2.8

Technology

5 to 7 years

339,150

(28,634)

310,516

6.4

Intangible assets, net

$

2,205,106

$

(207,892)

$

1,997,214

12.8

December 31, 2020

Client relationships

 

2 to 20 years  

 

$

1,460,648

$

(100,844)

$

1,359,804

15.4

Non-compete agreements

 

1.5 to 5 years

 

 

5,097

(4,872)

225

0.4

Trademarks

3 to 15 years  

326,786

(15,576)

311,210

10.5

Patents

3 years  

200

(200)

0

0

Capitalized software development costs

 

3 to 5 years

 

 

52,518

(24,771)

27,747

2.8

Technology

5 to 7 years

338,150

(16,272)

321,878

6.6

Intangible assets, net

$

2,183,399

$

(162,535)

$

2,020,864

13.1

Amortization expense for intangible assets was $46.6 million and $8.9 million for the quarters ended March 31, 2021 and 2020, respectively.

Note 7. Goodwill

Goodwill consists of the following (in thousands):

As of March 31,

As of December 31,

    

2021

    

2020

Beginning balance

$

14,581,255

$

746,079

Additions associated with acquisitions

47,328

13,812,198

Purchase consideration adjustment (see Note 4)

(61,108)

0

Deferred tax adjustment (see Note 15)

(106,532)

0

Cumulative translation adjustment

 

(8,968)

 

22,978

Goodwill

$

14,451,975

$

14,581,255

12

Note 8. Accrued Expenses and Other Current Liabilities

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