Our U.S. healthcare system costs $3 trillion per year, and we're getting eager to save costs in any way we can. 

One increasingly popular way to do that is through telemedicine. Hospital emergency rooms are becoming unnecessarily overcrowded, and routine checkups for many common conditions can often now be diagnosed remotely.

Teladoc (NYSE:TDOC) is rising as a leader in this field. Now facilitating more than 530,000 appointments each quarter, Teladoc has become America's largest provider of virtual medical consultations. The company makes money by charging insurers and employers recurring subscription access fees but also by charging patients per-visit fees (which typically run from $40 to $80).

Teladoc's recent acquisition of Best Doctors is helping it get a jump on competitors in this fast-moving space. Let's take a closer look at its second-quarter results.

Doctor pressing stethoscope up to various medical symbols

Image source: Getty Images

Teladoc results: The raw numbers

Metric

Q2 2018

Q2 2017

Change (YOY)

Revenue

$94.6 million

$44.6 million

112%

Operating income

($18.1 million)

($14.5 million)

N/A

Earnings per share

($0.40)

($0.28)

N/A

Data source: Teladoc. Earnings per share is on a fully diluted basis.

What happened this quarter?

Teladoc demonstrated strong top-line growth as more members joined the platform and others came aboard from their Best Doctors acquisition.

  • The 112% revenue growth largely came from the acquisition of Best Doctors. Organically, Teladoc grew 39% in the second quarter.
  • Driving the top-line growth was revenue from Subscription Access Fees (subscriptions paid by insurers), which increased 113% to $79.8 million. This comprised 84% of total revenue.
  • Teladoc also expanded overseas. Revenue from International Subscription Access Fees was $14.7 million, compared to zero last year.  
  • Revenue from Visits (per-visit fees, paid either by insurers or directly by patients) was $14.8 million, an increase of 107%.
  • The total number of visits was 533,000. This was up 72% over the second quarter of 2017.
  • Total U.S. paid membership was 22.5 million, up 48% over last year. After taking out the membership gained through the Best Doctors acquisition, membership grew 23% organically.
  • Utilization, which is defined as quarterly visits divided by total paid U.S. membership, was 8% (533,000 visits/22.5 million members, then multiplied by 4 to annualize). This is significantly higher than the 6.1% utilization rate last year.
  • Adjusted EBITDA (which removes stock-based compensation and acquisition-related costs) was $2.7 million, compared to ($5.1) million in the second quarter of last year. 

What management had to say

Teladoc CEO Jason Gorevic took a chance to describe Teladoc's bigger-picture opportunity:

Teladoc saw another strong quarter financially and operationally as we met or exceeded our expectations across the board. I'm particularly pleased that we made significant early progress on the integration of Advance Medical, which empowers consumers to access high-quality healthcare seamlessly around the world.

As we enter the second half of the year, I am excited by the breadth of our pipeline, our prospects' level of enthusiasm around our full clinical suite, and the changes coming out of Washington, DC, which all serve as further evidence that virtual care is an invaluable component of the healthcare delivery system of the future.        

Looking forward

It's great to see Teladoc bringing in new members via the Best Doctors acquisition, which contributes more top-line subscription revenue. But it's also important to see its utilization rate improve, which is a sign that members actually understand and are using the platform. 

One other thing worth noting is that this was Teladoc's first quarter of reporting positive adjusted EBITDA. This validates that its business model can be profitable and is capable of scaling further as subscription and fee revenues outpace costs.

Teladoc is in hypergrowth mode, and management's acquisitions are positioning it to capitalize on what could be a very large market opportunity. Investors should continue to watch for growth in membership, utilization, and profitability.

Simon Erickson has no position in any of the stocks mentioned. The Motley Fool recommends Teladoc. The Motley Fool has a disclosure policy.