Teladoc Health (TDOC 4.58%) disappointed investors with its first-quarter and second-quarter results earlier this year. But the third time's the charm.
The virtual care provider provided its third-quarter update after the market closed on Wednesday. Teladoc's shares jumped in after-hours trading. Here's the surprise that's driving Teladoc Health stock higher.
The bottom line
Many people use the phrase "the bottom line" to refer to the most important thing to consider. Accountants use the same expression to refer to an organization's net income or loss (which shows up on the bottom line of the income statement). To use both definitions, Teladoc's bottom line comes down to what investors wanted to see most: an improving net loss reported in its third-quarter results.
Sure, investors were glad to see that Teladoc's Q3 revenue jumped 17% year over year to $611.4 million. And they no doubt liked that this total topped the consensus Wall Street revenue estimate of $610 million. However, Teladoc also beat revenue expectations in Q2 -- and the telehealth stock crashed.
The big difference between Teladoc's Q3 results and its results from earlier this year was visible on the company's bottom line. Teladoc posted a net loss of $73.5 million, or $0.45 per share. This number was much better than the average analyst estimate of a net loss of $0.55 per share.
Importantly, Teladoc also continued to make progress toward profitability. The Q3 net loss was narrower than the net loss of $84.3 million in the prior-year period and a lot better than the massive net loss of $3.1 billion in the previous quarter.
Behind the improvement
There are two ways for a company to improve its bottom line. It can grow revenue faster than the rate of its expense growth. Or it can reduce spending. Teladoc took the former path in Q3.
The biggest factor helping the company's bottom line was that there wasn't a huge goodwill impairment. In the first half of 2022, Teladoc wrote off $9.6 billion related to its previous acquisitions (with the 2020 purchase of Livongo Health for $18.5 billion the primary culprit).
Teladoc has also significantly reduced how much it pays in interest. In Q3, the company's net interest expense totaled less than $1.4 million. That's much lower than the interest expense of $18.9 million and $4.3 million in the prior-year quarter and previous quarter, respectively.
We shouldn't overlook Teladoc's continued top-line improvement, though. The company's sustained momentum stemmed from growth in several key operating metrics. Total visits jumped 14% year over year. Utilization, which measures the percentage of visits to total U.S. paid members, rose from 21% in the prior-year period to 22.3% in Q3. U.S. paid membership increased 10% year over year.
Teladoc now expects full-year 2022 revenue of $2.395 billion to $2.410 billion. That's down from the previous revenue guidance of $2.4 billion to $2.5 billion. However, the midpoint of the new range is in line with the consensus Wall Street revenue estimate of $2.4 billion.
The company also projects a full-year net loss per share between $61.40 and $61.10. This revised outlook is narrower than Teladoc's previous guidance of a net loss per share between $62 and $61.
Some experts predict another COVID-19 surge this winter. That would likely fuel increased demand for the company's telehealth services. Even with COVID-19 cases declining, Teladoc's revenue and visits continue to grow. Its bottom line should also trend in the right direction toward profitability: The company expects a Q4 net loss per share between $0.40 and $0.10. Even the lower end of that range reflects improvement from Q3.
Teladoc's overall long-term market opportunity remains huge. With the company's financial performance looking better, is the worst over for Teladoc? I think so.