America's healthcare system is hemorrhaging cash, costing our nation more than $3 trillion every year. Virtual medical consultations, where patients meet doctors online, could be one way to significantly reduce costs. Hospital emergency rooms are becoming unnecessarily overcrowded, and routine checkups for many common conditions can be handled remotely.
Teladoc Health (NYSE:TDOC) is emerging as a leader in telemedicine, facilitating more than 650,000 virtual appointments in the U.S. each quarter and another 200,000 internationally. Teladoc makes money by charging recurring subscription fees to insurers who fully cover their members, as well as per-visit fees for patients who aren't covered by insurance.
The company continues to report net losses, though they are decreasing in magnitude as Teladoc grows its membership. Let's check out its fourth-quarter results.
Teladoc results: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Change|
|Revenue||$122.7 million||$77.1 million||59%|
|Operating income||($17.8 million)||($24.6 million)||N/A|
|Earnings per share||($0.35)||($0.76)||N/A|
What happened with Teladoc this quarter?
Teladoc's strong top-line growth continues to impress investors, with international revenue doubling year-over-year, again.
- Total revenue grew 59% to $123 million. On an organic basis, revenue grew 33% in the fourth quarter.
- Subscription access fees (subscriptions paid by insurers) increased 57% to $103 million. U.S. subscription revenue grew 41% to $78 million, while international subscription revenue jumped 145% reaching $25 million. International success was in part spurred by Teladoc's 2018 acquisition of Advance Medical, which expanded its presence in Latin America and Asia significantly.
- Visit fee revenue (per-visit fees, paid either by insurers or directly by patients) increased 70% to $20 million. U.S. visit fee revenue was up 69% to $19.5 million, while international visit fee revenue was up 155% to $0.5 million.
Teladoc's membership is also growing, as more insurers become comfortable with the value offered by telemedicine.
- Total U.S. paid memberships were 22.8 million, up 16% from 19.6 million at this same point last year. Excluding the Advance Medical acquisition, membership grew 11% organically. These members are fully covered by insurers, which are paying "per member per month" (PMPM) fees to Teladoc each month. Teladoc's PMPM for the fourth quarter was $1.13, up 19% from $0.95 in the fourth quarter of 2017 (excluding Advance Medical).
- In addition to the 22.8 million paid members, another 9.5 million individuals have access to Teladoc's providers, but only pay visit fees and aren't fully covered by the insurance subscription plans.
- Total global visits increased 86% to 861,000. Of those, 607,000 visits came from U.S. paid membership, 49,000 visits came from U.S. fee-only, and 205,000 were international. The international visits were up from nearly zero a year ago.
- Utilization, which is defined as quarterly visits divided by total paid U.S. membership (i.e., those covered by health insurance plans and not including per-fee visits), was 10.8%. This is 272 basis points higher than the 8.1% utilization rate last year and is a great sign that telemedicine is increasing in relevance.
- Adjusted EBITDA, which removes stock-based compensation and acquisition-related costs, was $5.8 million, up from $2.4 million in the fourth quarter of last year.
What management had to say
CEO Jason Gorevic described Teladoc's growing momentum in international and direct-to-consumer markets on the conference call:
2018 was the best-selling season in the company's history, with wins coming across our diversified array of services and customer channels. We doubled our growth in the midmarket, doubled our population of members with access to more than one of our products and saw another year of exceptional win rates in the hospital and health systems market. We saw particularly good growth where we partner with health plans to engage their self-insured clients to use our virtual care services.
Our performance in international markets exceeded our expectations in 2018, and we've already closed meaningful cross-sell and expansion contracts in 2019, as we execute on the vision of selling our full suite of products around the world. With our Advance Medical integration ahead of schedule, our pace of global innovation and the services we offer clients has never been greater.
And last but not least, I'm excited by the continued acceleration of consumer adoption of virtual care. And Teladoc Health is at the forefront of that movement. We have firmly established ourselves as the industry leader, and in 2018, we were the provider with the most downloaded app in the telehealth category.
In addition to its expanding user base, Teladoc's 19% increase in PMPM fees demonstrates its pricing power with insurers, a very good sign for investors. Insurance companies are Teladoc's largest customers and they are often resistant to price increases. It appears that they value Teladoc's growing network of providers, and recognize the cost advantages of virtual consultations.
2018 was the company's first full year of positive adjusted EBITDA, producing $13 million in profit from $418 million of total revenue. Management projects $540 million in revenue and adjusted EBITDA of $30 million for fiscal year 2019. Both metrics indicate that the company may finally be reaching a state of consistent profitability.
Investors should watch for domestic and international visits to continue growing, and for Teladoc's utilization rate to remain above 10%. Rising PMPM rates from insurers would fall quickly to the bottom line, and could drive the company's future profitability.