Teladoc Earnings Preview: What to Watch

Teladoc Health (TDOC -1.62%), the leader in virtual healthcare, is slated to report its first quarter 2020 results after the market closes on Wednesday, April 29.

Investors already have a general idea of what to expect since the company reported preliminary results on April 14. However, it only provided projected figures for three metrics: revenue, adjusted EBITDA (earnings before interest, taxes, and depreciation), and total visits. So there will be more key data to learn from the official results, namely earnings per share (EPS) and updated 2020 guidance.

Investors are probably approaching the report with optimism. The coronavirus pandemic has significantly boosted demand for telehealth services.

Teladoc stock has soared 131% in 2020 through Friday, April 24, making it the year's second best performer among large cap technology stocks (behind Zoom Video Communications), as well as the second best performer among large cap healthcare stocks (behind COVID-19 vaccine developer Moderna). The S&P 500 (including dividends) has dropped 11.7% over this period.

Here's what to watch when Teladoc reports.

Image source: Getty Images.

Key quarterly numbers

Data sources: Teladoc Health and Yahoo! Finance. YOY = year over year. Wall Street estimates as of April 24. 

For additional context, in the fourth quarter of 2019, Teladoc's revenue was $156.5 million. So, the company expects sequential quarterly revenue growth of about 15%.

This might not sound like a big pandemic-driven increase, but keep in mind that it wasn't until late in the quarter -- March -- that most U.S. states and much of the world instituted some form of stay-at-home or lockdown order.  

In its release of preliminary results, Teladoc said it anticipates adjusted EBITDA in the range of $10 million to $11 million, compared to $1.2 million in the year-ago period. It also shared that total visit volume is expected to be more than 1.8 million visits, which represents robust growth of about 70% year over year.

Of course, there is usually a near-term downside when any company needs to ramp up capacity quickly. Indeed, Teladoc said that it incurred additional expenses of about $4 million in the quarter "associated with the company's incremental investments in its physician network in response to the global outbreak of COVID-19." Those expenses are "expected to impact reported gross margin and adjusted EBITDA margin." 

How the pandemic affected Q1 results

Ideally, management will provide enough data or color on the earnings call for investors to get a sense of how Teladoc's business was performing in the quarter before the huge increase in pandemic-driven visits.

At some point, the pandemic will end. And while the company will get a long-term boost from this crisis, in my opinion, not every patient who uses its services during the pandemic will continue to do so, at least not all the time.

Guidance 

The market's reaction to Teladoc's report will probably hinge more on the company's outlook for the second quarter and its updated guidance for full-year 2020 than on its first quarter results, relative to Wall Street's expectations. 

Its prior 2020 guidance is as follows:

• Revenue in the range of $695 million to $710 million.
• Total of 43 million to 45 million U.S. paid members and visit fee-only access available to about 19 million to 20 million individuals.
• Total visits of 5.5 million to 5.9 million.
• Net loss per share of $1.19 to $1.06.

For the year, Wall Street analysts are currently modeling for a loss per share of $1.11 on revenue of $740.7 million.

This revenue estimate is going to prove to be too low, in my opinion. I think the Street is underestimating the pandemic boost. Many people are going to remain cautious even after lockdown orders are lifted.

Moreover, once people get a taste of the convenience of telehealth, many of them are unlikely to go back to in-person visits unless necessary, at least for physical healthcare issues.